Good afternoon, and thank you for attending today's TechTarget reports third quarter 2022 conference call. My name is Austin, and I shall be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Charles Rennick with TechTarget. Charles, please go ahead. Thank you, Austin, and good afternoon. Joining me here today are Greg Strakosch, our Executive Chairman, Mike Cotoia, our Chief Executive Officer, and Dan Noreck, our Chief Financial Officer. Before turning the call over to Greg, I'd like to remind everyone on the call of our earnings release process. As previously announced, in order to provide you with an update on our business in advance of the call, we've posted our shareholder letter on the Investor Relations section of our website and furnished it on an 8-K. Following Greg's introductory remarks, the management team will be available to answer your questions. Any statements made today by TechTarget that are not factual, including during the Q&A, may be considered forward-looking statements. These forward-looking statements, which are subject to risks and uncertainties, are based on assumptions that are not guarantees of our future performance. Actual results may differ materially from our forecasts and from these forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our filings with the SEC. These statements speak only as of the date of this call, and TechTarget undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call except as required by law. Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain of these non-GAAP financial measures to the most comparable GAAP measures accompanies our shareholder letter. With that, I'll turn the call over to Greg. Great. Thank you, Charles. For Q3 2022, GAAP revenue grew 11% to approximately $77.4 million. Adjusted revenue grew 8% to approximately $77.4 million. Net income was approximately $14.8 million, an increase of 49%. Adjusted EBITDA grew 15% to $32.4 million. Net income margin was 19%. Adjusted EBITDA margin was 42%. GAAP gross margin was 74%. Adjusted gross margin was 77%. Longer-term revenue grew 25% to $33 million, representing 43% of total revenue. Cash flow from operations was $22.5 million, and free cash flow was $18.8 million. I will now open the call to questions. Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. If you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question is with Justin Patterson from KeyBanc Capital Markets. Justin, your line is open. Great. Thank you very much, and good afternoon. Perhaps two, if I can. First, I was hoping you could elaborate a little bit more on some of the slowdown you saw during the quarter. We've heard lots of companies talk about longer sales cycles. So, you know, just kinda curious about what your observations have been around customer behavior. Secondly, really appreciate the 2023 initial outlook. Could you talk a little bit about some of the assumptions that give you confidence in mid single-digit growth and 40% EBITDA margins? Thank you. Great. Yeah, Justin, this is Mike. In terms of the Q3 slowdown, typically when we discussed this in previous quarters, when we talk about Q3, it's a back-weighted quarter. It's our biggest back-weighted quarter, where when we get out to Labor Day, you usually see a really big push with customers spending on their sales and marketing dollars and sales enablement dollars to finish off a strong Q3 for us as well as set us up for Q4. With the global macro uncertainty, when we got out of Labor Day, post-Labor Day, we did see a lot of deals get pushed. Budgets at our customers were cut or on hold, and they're really doing a reset where they're gonna evaluate, you know, what their budgets are gonna be. With the global macro uncertainty, this behavior is not surprising. I mean, we've seen this before, where they will reset, evaluate budgets. It might take a quarter or two to go through those budgets and assessments, but what we've typically seen is a flight back to quality. When we've talked about our business with our, you know, editorial content strategy, opt-in permission-based audience, first-party purchase intent data, and really the resiliency of the IT market today versus, you know, 10 years ago, when you look at the last, you know, real big downturn, I think that's really guided, and it's not surprising how customers react. We'll see some customers shift their products, you know, shift their product portfolio, where they may step back from brand, which fortunately for us is only 10% of our business, but some of the larger customers may pull back on brand. In some of the current campaigns, they may shift to more what we call further down the sales funnel type of lead to our qualified sales opportunity or HQL products. That's what we're seeing right now. In terms of the 2023 initial outlook, we're entering this global pullback right now. What we've seen before, and we believe it's still gonna be real, our customers still have numbers and targets to hit. We talked about this reset where they're gonna be looking at their investments, and they have to make sure that they're enabling their sales teams to have the right pipeline, understand the right accounts, understand the right prospects and buying teams within those accounts. We historically, and we believe this will be the case too, see a flight back to quality. At a certain point, and our customers are gonna have to reinvest, and they'll reinvest quickly. We also see it snap back pretty quickly when they get to the point of, "We don't have enough pipeline to support the sales targets, to support the company targets." As you can see, our initial guidance into 2023 is we believe this current environment will carry over to Q1, and we'll see, you know, into the first half. Ultimately, customers have numbers to hit, targets to hit, and pipeline to fill, and having that flight back to quality does play well for TechTarget. That's helpful. Thank you very much. Our next question is with Aaron Kessler from Raymond James. Aaron, your line is open. Great. Thank you. Just, maybe just on kind of the slower growth that you're seeing, I assume it's kind of across the board, U.S. and international as well as by company size. There's also, can you detail, maybe any product differences you're seeing? Sounds like Priority Engine is still seeing pretty solid growth of 15%. Is the slowdown more on the ad side? Just a little bit more color there would be helpful. Thank you. Yeah. I mean, we're seeing the slowdown. Again, when we reported Q3 numbers, we had a, you know, reported 11% growth. I think if you looked at, you know, constant currency, it would be close to the 13% growth. You're seeing some pullback in the, you know, in the U.S. I would say EMEA, as we've all seen, you know, we think the economy's challenging right now in North America. I mean, EMEA is in pretty tough shape. I mean, they're with the recession, high prices, costs, the war in Ukraine. I mean, there's a lot of challenges going over there, as well as some of the political turmoil. We're seeing that across the regions. I would say the hardest hit region is probably EMEA right now. In terms of products, you know, we saw some good growth with Priority Engine. As I mentioned in the previous question, we are seeing some shifts in product or budget allocation from the branding or the ad spend, which again, is roughly 10% of our overall business. Customers that spend on that, they will quickly pull back on that because that's probably the hardest product to measure and show ROI. They may shift on some of their programs, demand gen programs, and reshift that budget to what I call further down the sales funnel types of products. We've got qualified sales opportunities and HQLs, high-quality leads. That's really what they're doing there for is they're trying to get as much opportunity to close any outstanding deals that they have in their pipeline, so they're trying to drive immediate revenue. 'Cause looking at new logos and closing deals is taking longer for them. That's kind of what we're seeing in the product mix, but we're keeping an eye on it. What we are also seeing is the customers will need really good content to make sure that they're getting their message out there. We're navigating this right now, and based on what we see, those are some of the shifts, and we're seeing the impact on the slowdown, EMEA as well as North America. Great. Any changes to your kind of expense growth plans for 2023? It sounds like you're gonna maybe take a little bit more careful approach, but any plans, a change in hiring plans, et cetera? Yeah. You know, throughout our 23-year history, you know, part of our DNA is to invest wisely and smartly, and we'll make sure that we continue to invest in the right areas and the right priorities that will, you know, help grow and support our long-term, short and long-term priorities around the company. We do keep a close eye on expenses. As you'll see, we'll finish the year at 40% EBITDA margin. We're projecting 2023 to 2024 at 40% EBITDA margin. We'll manage the expenses in accordance to the revenue projections. We have a good track record of doing that as well as, you know, spending on free cash flow. We'll continue to execute on what we've done in the past, and it's really paid well, paid dividends for us. Great. Thank you. Our next question is with Bhavin Shah from Deutsche Bank. Bhavin, your line is open. Great. Thanks for taking my question. Just kind of focusing back on the guide for 4Q and I guess into 2023, can you just maybe elaborate a little bit more? I know you talked about it a bit, but just in terms of some of the underlying assumptions in terms of the macro. Are you expecting the macro to get worse and budgets to get worse? Like, kind of what's embedded as we think about the guide and we think about that deceleration in the revenue growth in 4Q and the first half of the year? Yeah. Bhavin, I mean, what we look at is we look at our customer behavior. You know, based on the, you know, the real-time global macro uncertainty, this behavior is not surprising to us, and it's kind of predictable. When we got into September and we saw the pullback, and we saw the global markets really drop, I look back and say, "Okay. How has our business performed over the last couple of years all the way into the summer of 2022, where we were outperforming our growth, penetration across the different regions was going really well?" When this happens, and this happens quickly, and when we first really saw this was coming back from Labor Day, where deals were delayed and deals were pushed and budgets, some budgets were cut. Not for all customers, but we saw it across, you know, small, large, and mid-sized customers. What typically happens is they do a reset. They get direction from their management that things are on hold. Reducing your budget, you're cutting your budget, you're putting things on pause. They take a look, and they start reassessing what I would call the must-have quality investments versus the nice-to-haves. You know, during a high tide, you know, rises all boats, right? So a lot of companies went out and made extra expenditures, investments in different areas. I'm not saying that they didn't scrutinize ROI, but they were a little bit more free in terms of investing on that. Well, now they're gonna reset. They're gonna take a look at every single one of their investments. How long that takes, I really can't tell you. What I've seen in the past, it could take a couple quarters to really get that reset. They'll identify the best solutions, data, and partners that can help them accelerate and meet those numbers that they're gonna have to hit. In the next quarter or two, we see them really trying to scrutinize, reset, and then drive back to that flight, you know, flight to quality. I think it will end up, in the long term, probably being good for our customers and good for us as well in terms of the flight back to quality and assessing must-have ROI-driven solutions. That's helpful there. I guess third of the quarter and post Labor Day, like, have you seen any outside impact from any of your larger customers and having a more pronounced impact on your business, whether it's on the brand side or anything else? Like, were there one or two specific customers that materially pulled back on spend? Yeah, you know, in terms of the brand, we definitely saw the brand business pull back. Again, that's the fastest thing that customers can pull back on and cancel. It's because it's also the hardest product to measure. Now, if you look back at our business 10, 15 years ago, it was probably closer to 30% of our business, and right now it's approximately 10% of our business. Maybe even a little less than 10%. Yeah, it impacts us, but it doesn't impact us like, you know, somebody that's 100% advertising marketing business. It's not one customer that's said, "Okay, we're." We don't have a 10% customer, so it wasn't where somebody just pulled back and canceled. You're seeing, and I think you're seeing this as well across, you know, the market, where customers, whether they're small or middle or large, are just really managing, scrutinizing every expense that they are gonna look to put, you know, invest in. It's gonna take a little bit of time to assess that. Again, as I go back to when we've seen this back in the last financial, you know, pullback, customers still have numbers and targets to hit. They have a pipeline to feed. They have sales reps to make sure that they are supporting. There is always a flight back to quality in terms of data, and insights for both sales and marketing organizations. That's helpful. Just a last quick one, and it's great to see that 40% EBITDA target for next year despite the uncertain macro. How committed are you to that target? I mean, if the macro gets worse and revenue kind of continues to be impacted, will you continue those kind of expenses to kind of hit that target? Or given some of the longer term opportunities, might you have to kind of rebalance from that? You know, we'll take a look at it. The good thing about it is we have a 23-year DNA of investing wisely, not over, you know, spending in areas that are not gonna impact the business. I think having that DNA and that type of discipline has paid well for us. We made a lot of really key investments in 2022. We doubled the product, the software and development teams to help us with our Priority Engine enhancements and features and roadmap. We're glad we did that. We don't wanna pull back on that. There are some other investments that we're making towards our content enablement services that we know that our customers are gonna need really good content to engage with a self-service buying team that we wanna keep going. The way we've managed our expenses over 23 years, we'll keep an eye on it. If there's something that provides an opportunity to accelerate growth, then we have to, you know, if the% here or there, we'll look at that. We have done a really good job. We are well-disciplined in cost management, and it's also we're very well-disciplined investing in the right business areas, and we're gonna continue to execute on that path discipline. Super helpful. Thanks for taking that question. Our next question is with Jason Kreyer from Craig-Hallum. Jason, your line is open. Hey, Cal here on for Jason. You kinda talked about a little bit earlier with the customer behaviors, but I was just wondering if you could kinda talk about the business metrics around that. You know, like contract duration, sales cycles, churn, and if you're seeing the macro have any impact on these KPIs. Yeah, I mean, what I can share with you is that we've seen some of the deals that we have forecasted, and as you saw in our, you know, shareholder letter, this is the first time since Q3 of 2010, 46 quarters, over 12 years, that TechTarget has missed both the quarterly revenue and adjusted EBITDA numbers. What we're seeing is a delay in terms of budgets. Customers are also telling us that their budgets are frozen. If we had something in the forecast that we committed at 70%, we have a really good track record of knowing when that's gonna come in, when that's gonna land, and when that's gonna run and recognize. Some of those deals have been delayed, and we've seen customers just pull back on budget, where they wanna reset and make sure they're assessing the right quality investments. Again, I can't repeat this enough, flight to quality will eventually happen, and that's what we're seeing through customer behavior. We've also, as I mentioned, have seen some customers shift their product strategy in terms of what they are investing with TechTarget from, yes, some of that brand or demand gen campaign focus to more bottom of the funnel, lower end of the funnel qualified sales opportunities and HQLs to help their sales teams land the lowest hanging fruit that they can get right now to support their current numbers 'cause they're going through the same thing, and I'm sure you've seen that on some of your other calls. That's the guidance I can give you, and that's what we're seeing, and we're keeping a close eye on it. Perfect. Thanks. Just last one here from me. As you went through COVID, you know, we kind of saw more TechTarget products, or prospects up for shorter duration engagements as opposed to some of the Priority Engine deals. Just wondering if you're seeing any of that here in the early stages of this recession. Thanks. I think yeah, we're seeing some of that where people are. Some of our customers are gonna delay making long-term commitments, one, two, three-year commitments. There are some signs of that, so we're keeping an eye on that. I think that's a safe assumption over the next quarter or so as people navigate through this, that you might see similar patterns and behavior as the beginning of 2020. Okay. Our next question is from Joshua Reilly from Needham. Joshua, your line is open. All right. Thanks, guys, for taking my questions here. I wanted to hit on the customer base difference. I think this is an interesting point to highlight with investors that four or five years ago, you know, we all know you had a very different customer base back then. Are you surprised that some of these more software-oriented customers are pulling back maybe a bit more than we would have expected, given their secular growth versus the legacy guys who had a little bit more cyclical growth? Yeah, Josh. Yeah, that's a good point. On the, you know, four or five years ago, where you didn't have as many cloud, you had a lot of on-prem hardware enterprise customers where, you know, when they pulled back, they pulled back for a while, and, you know, we had a bigger percentage of our customer segmentation allocated to those folks. I would say that, you know, over the last few years, too, we've also gone from, you know, if you look in the last 10 years, you know, almost 1,000 customers to over 3,000 customers. We have different product suites. We have different entry points. We have different capabilities, which has really evolved in our business and also having 42% of our revenue on long-term contracts, all very favorable. When you also get hit with a global macro uncertainty, you will see a lot of these customers at least pull back. They won't necessarily cancel and be gone, but they will pull back, and you're seeing in the market cost cutting and reductions that they're doing, you know, across, you know, small VC-backed firms, midsize growth firms, even some of the largest stalwarts that you see out in the market are all doing that. It happened so fast that if you looked at some of this data from the middle of September till today, I think it's really these folks trying to assess, reset, and reprioritize and making sure that they're focused on ROI. Yeah, they're more insulated from what's happened versus five years ago, but they're not immune to it, so there will be some pullback. Okay. Got it. That's helpful. Then if you look at the 15% growth in Priority Engine, how much of that, you know, you had been trending pretty consistently at 20% for a long time. How much of the decel is due to weakness in the SMB Express product versus just, you know, more general demand there? I think you see it across more of the general demand as people are looking to, whether they're renewing and saying, "I wanna hold off and see how this goes for another couple quarters or a month." I think it's across. You see it a little bit across the board. We've also seen some of our Priority Engine customers, you know, increase their spend, their investment, their commitment. But I think it's not just in one area right now because of this sudden pullback in the, you know, in the global, macro environment, that you're seeing it across different customer segments to say, "Let's stop. Let's assess. Let's make sure that we have the right investments." What plays well for us is that we've always seen a flight back to quality. When you have first-party intent data, you watch Google eliminate, you know, announcing the elimination of third-party cookies, get a permission-based audience, you really got a strong content investment. You know, my prediction on this is it plays well, as we navigate through this and come out picking up market share on the back end. Got it. Maybe I'll just sneak one more in here. You know, you mentioned in the letter that investing here in the downturn, which makes a ton of sense. How should we think about your appetite for M&A here versus buybacks given, you know, the stock is obviously down and the valuation's come down and do you have to have a pretty high threshold in terms of growth and returns from an acquisition to make an acquisition versus buying back stock here? Thank you. Yeah, that's a good question. I mean, so we're gonna manage and be opportunistic. We announced a $200 million buyback, but we're also very involved in looking for the. We've talked about this in the past, and we think there's gonna be some really good opportunities based on the recent valuation resets with companies around content, intent, audience, peripheral capabilities as well as adjacent markets. We are gonna be opportunistic on that. When we see the right organization that can help TechTarget at the right valuation, that's our playbook along with the buybacks. Yeah, I mean, we're fortunate. We're in a position we can do both. We've got $384 million in cash. We think we'll generate $100 million of cash flow next year. We think that we're gonna be able to do both in terms of be aggressive with buybacks and also you know obviously taking advantage of any you know downward valuations in our share price, but also downward valuations in acquisition targets. You know, and again, like I said, we have a good history on this of taking advantage of downturns previously in terms of reinvesting to take market share, buying back shares at good prices. We have a good history of that and making you know smart acquisitions at good prices. You know, that's the silver lining of these global pullbacks. It gives you know strong companies the opportunity to really strengthen themselves, and you know we look forward to taking advantage of that. All right. Thanks, guys. Good luck. Our next question is with Brian Bergen from Cowen. Brian, your line is open. Hey, this is Gareth Gasset on for Brian. I just wanted to touch on Priority Engine, and I was hoping for an update on the overall progress of the sales use case version of it, and now that we're lapping year one anniversary and maybe going into, you know, how the performance has been versus your expectations, where there have been positive surprises, and then maybe where things might be a little bit bumpier. Yeah. Great. In terms of the sales use case, yeah, we launched that, you know, it's coming up in one year. We've seen really good success on that. As you know, historically, we've sold Priority Engine to marketers, and marketers would leverage that for their nurture email strategy. So at the beginning of 2022, we launched our sales use case module from Priority Engine. We've seen really good adoption on the sales side. We've seen great usage trends on that. Reps using it for various different ways, whether it's around customer retention, making sure it's net new logos, territory management, and we're gonna continue to build upon that. What I'd like to also let you know is I mentioned earlier, and we also brought up in the shareholder letter, that we put a lot of investments in 2022 and a lot of them in the back half, you know, midyear into the back half around our developer software team working on Priority Engine. One of the key, some of the key areas that we're really focused on is the integrations of our data through Priority Engine into our customers' Salesforce. Now, we have that today, but we wanna expand on that, make it easier, enable our customers to leverage our information in their workflow, but also in a bidirectional manner for TechTarget to be able to have access to certain key data points within their Salesforce to help drive ROI and analytics dashboards and updates such as open pipeline, closed win-loss opportunities. Where are these deals in the pipeline? How do we set up our sales reps within our customer's environment to make the most appropriate and relevant follow-up? We also wanna make sure that we are working with our customers to provide more insights across their total campaign with TechTarget, both on the sales side and on the marketing side. What they're doing with their lead generation and demand gen, their content, their branding, the visitors on their website to really bring that end-to-end view into Priority Engine to help fuel and help modernize, which we've been talking about for a couple of years, both sales and marketing. There's a lot that we're doing on the platform. We like where we are with the sales use case. We're gonna continue to expand on that, but we're also not forgetting the marketers as well. Great. Thank you. If I could just add one more here. I know you talked a lot about kind of clients pushing back their budgets and reevaluations, but I was just wondering if you could kind of go into if you're seeing any pushback from clients on pricing and maybe what leverage you guys might have to kind of navigate a more cost-conscious consumer? Yeah. You know, we don't see a lot of pushback in terms of our pricing. I mean, once in a while we do. I think our customers understand that we're the highest priced and the highest value based on how we get our data at both the account and at the individual prospect level. So I think they see that. There are low-cost providers where sometimes we will. You know, if a customer comes back and says, "I want you to drop your CPL to X," if they're not embracing the current value of our opportunity, we might not take that deal and walk away from it. I think that's a strategy that we've been very consistent with, and we're gonna continue to do that. You know, as like I said, when people and customers navigate through this, they reset. They need a flight back to quality, and that means having the most accurate, precision, quickest, and transparent path to get to their prospects, to get to the right accounts, as well as to engage with their existing customers because there's a big customer retention focus. Having access to our data and our capability set through content, campaign activation, insights, intent, what I'd call, you know, content to close capabilities enables our customers to have that. We really won't succumb into the pricing pressures. That's great. Thank you. Our next question is from Max Michaelis from Lake Street Capital Markets. Max, your line is open. Hey, guys, just one from me. Just given the guidance in Q4 and the outlook into 2023, what are your guys' expectations for gross margin as well as, should we plan on baking any wage inflation into operating expenses for next year as well? Thank you. Yeah, I think that our gross margins will be relatively consistent with what they are today, and we've guided to 40%, you know, really projections 40% EBITDA margin. I would, you know, bake that in the model and, I don't think there's gonna be a lot of change to that. Thanks. On my last part of my question though, just like OpEx, just wage inflation, should we plan on baking any of that into 2023 as well? I really wouldn't bake that much into it. I mean, there's, I think you're seeing some of the markets turn right now and, you know, you see a lot of companies out there really trying to manage expenses all across the board, including, you know, headcount, employees and raises. I wouldn't bake much of a change. Okay, thanks. Our next question is with Greg Burns from Sidoti & Company. Greg, your line is open. Hi. Looking at your guidance, revenue guidance for 2023, does that assume growth in Priority Engine? We don't break it down, Greg, by the product, but you know it's. We gave a you know a preliminary how we feel this will run quarter to quarter throughout the year and you know around a mid-digit growth, but we don't break it out by products. Of your 3,200 customers that you called out, what percent of those are currently deploying the sales use case? Yeah, we don't break that out. I mean, it's very small. It's just 'cause that's, it's still- One year. You know, within the first year. You know, growing nicely but still off a small base. Okay, thank you. That concludes our Q&A. Thank you for your participation. You may now disconnect your lines.