Hello and welcome to the TechTarget Reports Fourth Quarter and Full Year 2022 Financial Results Conference Call and Webcast. My name is Lauren, and I will be coordinating your call today. [Operator Instructions]. I will now hand you over to your host, Charlie Rennick, General Counsel, to begin. Charlie, please go ahead.

Thank you, Lauren, and good morning. Joining me today are Greg Strakosch, our Executive Chairman; Mike Cotoia, our CEO; and Dan Noreck, our CFO. 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 posted our shareholder letter on the Investor Relations section of our website and furnished it on a Form 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 and are not guarantees of our future performance. Actual results may differ materially from our forecast 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 filing 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, to the extent available without unreasonable effort, accompanies our shareholder letter. With that, I'll turn the call over to Greg.

Great. Thank you, Charlie. For the full year 2022, GAAP revenue grew 13% to approximately $297.5 million; adjusted revenue grew 9% to approximately $299.2 million. Net income was approximately $41.6 million, an increase of 4,285%; adjusted EBITDA grew 16% to $122.4 million; net income margin was 14%; adjusted EBITDA margin was 41%. GAAP gross margin was 74%; adjusted gross margin was 77%. Longer-term revenue grew 18% to $123.5 million, representing 41% of total revenue. Cash flow from operations was $90.7 million; free cash flow was $76.7 million. For Q4 2022, GAAP revenue was approximately $73 million, a decrease of 5%; adjusted revenue decreased 7% to approximately $73 million. Net income was approximately $7.2 million, an increase of 145%; adjusted EBITDA decreased 9% to $29.5 million. Net income margin was 10%; adjusted EBITDA margin was 40%. GAAP gross margin was 73%; adjusted gross margin was 76%. Longer-term revenue grew 5% to $29 million, representing 40% of revenue. Cash flow from operations was $19.8 million; free cash flow was $16.6 million. I will now open the call to questions.

[Operator Instructions]. Our first question is from Justin Patterson from KeyBanc.

Two, if I can. First, just with respect to the macro environment, you've been through cycles before. So could you give some context on just how the current environment compares to past periods of anxiety and elongated sales cycles that you've seen? And how long do you think that could last and pressure some of the KPIs that you said deteriorated a bit in Q4? And then secondarily, I just wanted to talk about efficiency. I saw the head count reduction in there. You alluded to some other potential savings on excess office space. So kind of walk through what savings is contemplated in the guide today and where you think you have some further opportunities over the course of the year.

Great. Yes, Justin, in terms of the macro cycles, what we've seen is -- I think it's been highlighted and documented over the last 45 days, how quick and material companies are laying off and it's very widespread. So we started seeing signs of that a little bit after our Q3 earnings call in November, but it really was the middle of December and all the way through today where there is widespread, quick and very deep cuts. So when we see that -- and I don't recall in past cycles, the material cuts and the deep cuts and how fast they came. So there's a behavior element to that where when customers cut head count, they were also very nervous on allocating any budget, and they made those quick decisions to hold on. So everything that our brands seeing, conversations with customers, partners, so even some of the competitors is Q4 got worse. It got really bad at the end of December, worse than Q3, and Q1 is off to a slow start because of this behavior. So I think that's something that we've seen on that. And that's obviously going to elongate sales cycles, budget reviews, approvals, and that's continuing as we see in today currently. In terms of efficiency, yes, we had a reduction in head count in December of about 5% of the workforce. And as we go into this year, we've announced a 90-day hiring freeze and a budget freeze on that, only imperative business travel for customer and employing customer engagement. We are looking at lease and subletting some of the buildings and office space. And we feel that we're in a pretty good shape. It's really important that even during a downturn that we stay opportunistic around the key priorities that will help, which we've seen historically covered us for a while, where we take an opportunity to take market share by making the right investments. So yes, we've down -- we've lowered our overall EBITDA margin guidance to 35%. Could we have maintained at 40%? We believe we could, but I don't think it would have been the right decision in terms of addressing the short-term opportunity to take advantage and gain market share for the long-term growth opportunity because the overall trends that we've seen and we've talked about over the last 3 years haven't changed. When you look at our customers, their sales and marketing departments have to be modernized, and they really want to focus on first-party data, having access to real first-party data, not only at the account level but the individual prospect level, is really critical to our customers. And privacy and compliance concerns that continue to go -- address this market really put us -- those long-term elements and those long-term, I'll call it, tailwinds don't really go away even during a downturn in the macro. So...

Our next question is from Aaron Kessler from Raymond James.

Maybe a couple of questions on kind of the guidance as well. Just in terms of kind of the reduction in spend, is that kind of across all client types, all sizes? And second, any product areas you would call out specifically where you see more pressures are more in the advertising side versus Priority Engine, et cetera?

Yes. We're seeing reduction across all customer bases from SMB, mid-market to enterprise. It is -- like I mentioned in the previous answer, it's been really quick and really wide and really deep on that. So we've seen that across the board. I think customers are trying to reset their costs, manage their budget, figure out what's going on. And I've seen probably the highest level of uncertainty than I've seen in previous downturns. In terms of product mix, yes, we actually do see a mix in product spend and product mix. The first thing that will absolutely get pulled back is the brand. And we've talked about this in the past. It's less than 10% of our overall business, really hard to measure for companies, and they pull that back. When markets get better, that's probably one of the first things they come back on, and they will increase their brand investments on that side. We also see a reallocation. We'll see that some of the long-term contracts, which might be a Priority Engine, might get reallocated to short-term product needs. So we have a qualified sales opportunity HQL type of product, where our customers are trying to win any deal that they can see right now and they want to have more form of the funnel type of product mix that they can do. So we'll start seeing that mix. I've talked to some customers where they had allocated to appointment setting for the short term. What I would say on that is it's really important for customers to manage their pipeline because this is what we typically see. We see customers will retreat, leverage their own data right now, try to orchestrate it in a very organized way. And they are looking at a pipeline that they appear to be healthy. And if that pipeline doesn't progress over the next quarter or 2 quarters and it doesn't progress into closed deals, they then realize that they still have numbers to hit. They have to quickly get that pipeline built up. And what we've seen historically, and we've predicted this will happen again, there's a quick flight back to quality. And that's where our first-party intent data at -- not only at account level but at the prospect level is really what we believe is the quickest path and the truest path to our company's next deal, our customers' opportunity to land the next deal.

Got it. Great. And any more color you can provide -- or, in the letter, you talk about investments in the Content Enablement Services as well as the Content to Close concept. Can you just provide a little bit more details around that?

Yes. We believe that, that is still a really good growth area, and we're seeing that part of the business continue to grow. We talked about the dynamics and the demographics of today's buyer. Today's buyer, we've seen in multiple studies and what we're seeing in our own research, a majority of those buyers today want a rep-less experience when they're dealing with their next purchase or their next opportunity. And what does that mean? They want to engage relevant information, relevant content, project-based content really to help guide them without having to take a call for the sales rep. We made the acquisition of ESG a couple of years ago, and we really focused on our efforts around making sure that our customers have a good content experience to help them position their product, position their overall company's value prop against the competitive set. But also, and especially in times like this, there's economic validation. Why should you be buying my solution right now in a downturn? And our customers are really craving for that, saying, we need to make sure that we're taking advantage of the downturn to capture market share as well. So that's all part of this end-to-end Content to Close concept: helping our customers build, create and execute on the right content and messaging strategy, putting that content into the right executable programs to engage the right buyers, and then helping prioritize those buyers in accounts back into their sales force through our Priority Engine and other platforms that we can then help them close more deals quickly.

Our next question is from Joshua Reilly from Needham.

The Q1 guidance implies below normal seasonal trends that typically include a sequential decline in revenue of roughly 10%. What does this imply for the normal seasonal pattern for the business in 2023, where Q2 and Q4 are typically your strongest quarters? Do you still expect that dynamic to play out in 2023 just off of an overall lower revenue base, implying that revenue should improve sequentially in Q2?

Yes. Good question, Joshua. So based on what we see right now, the pattern should stay pretty consistent on that. In Q1, as you see, it's lower than our normal seasonality. And that's because what we talked about earlier, the end of December and out of the gates in Jan, we're just seeing a lot of customers really trying to navigate their budgets and their cost cutting. And obviously, that's account of some of massive layoffs that we've seen. But we expect Q2 to grow. Q3 would be relatively consistent with Q2, maybe up slightly. And then Q4 would be our biggest quarter. And when you take a look at that and you compare it even to last year's comps, we still believe that pattern will shake out for 2023.

Got it. That's super helpful. And then if you look at the customer additions of 539 in 2022, that's a really pretty strong impressive number. Given the lower outlook here for 2023, is the slower spending include these new customers that you just brought on in the last year, spending less as well? Or can you give us any color on either the profile of the customers that you added in terms of technology vertical or size? And how are they going to spend in terms of your expectations this year?

Yes. I think in terms of the new customers that we added, it spreads across all of our customer segmentations. So a lot of small customers and some midsized customers and then add on too a few of the larger customers as well. And we've added those customers throughout 2022, but they're also going to be going through -- we're baking into everything of our guidance today of what we know and what we're seeing in the behavior in the market. So those customers will also have decisions to make in terms of budget coming out of the gate, managing expenses and then identifying where they're wide on pipeline. And we believe that the -- a lot of those customers will stay with us. Some will grow, some may reduce their spend, some may delay their spend. But I think the one common theme that we've seen even in past downturns is when you identify the current pipeline within customers not progressing and trying to do it with their own data or leverage what they currently have, there is a fight back to quality. When that happens, we're not sure. I mean this market has changed so much in the last 45 days, and we continue to see announcements every day in terms of massive layoffs. But that's what we expect to see going into 2023.

Our next question is from Bryan Bergin from Cowen.

Zack Ajzenman on for Bryan. First question on guidance and visibility. Just curious on the macro considerations that you're embedding here for the calendar '23 outlook. And what's the underlying Priority Engine growth assumption?

I think the macro considerations that we're taking is today's reality. Like we're taking a look at what we know right now, what we've seen in the last 30 days or 45 days, and that's what we've baked into our guidance. As I mentioned, it's moved so fast in the last 45 days. I mean you can see the announcements, you can see the depth of cuts, and you can see the breadth of cuts. So we can only predict based on what we know and what we're experiencing today. And in terms of Priority Engine, I expect that to slow down this year because that's a commitment to long-term contracts. We've seen that in the past where people might slow it down. We might see a deceleration in revenue for the first couple of quarters on that. And when things turn around, again, what we're doing not only on the business side, on the product development side, we expect to see on the booking side a pickup after we navigate through that. So I think you're going to see it decline a little bit during the year. We've seen that with the behavior of our customers at the end of December and the beginning of January. And that's really what was all based on what we are dealing with right now and today's customer behavior.

Understood. And then a follow-up on the same customer sales metric. It stood at 100% in 2022. So it was about flattish. Can you give us a sense of where this metric stood after the first 9 months of the year? Just trying to get a sense of what changed in 4Q as it relates to the same customer sales metric. And what's the assumption embedded for same customer sales in the 2023 outlook?

So we only disclose that on an annual basis. And that's when we started providing these numbers 2 years ago or 3 years ago, it was on the annual basis. So we don't want to disclose on the quarterly basis. But I would say that there'll be some pressure on that number in 2023. We monitor it. We don't disclose it each quarter, but I would just say there'll be a little bit of pressure just based on today's current customer behavior and their pullback on short-term budgets.

Our next question is from Bhavin Shah from Deutsche Bank.

Just one quick one in terms of the different products that you guys have. And completely understanding that brand marketing can shift pretty quickly depending on the macro. But maybe what are some of the trends that you're seeing in solutions such as Priority Engine? Are customers being proactive here and maybe reducing spend as they're reducing head count? Or is that something that they might look to do upon renewal?

Bhavin, I think you cut out for a little bit. But in terms of -- you talked about the brand piece and that just turning it on the Priority Engine. We're seeing some people delay their renewals because they don't want to commit to the annual or multiyear deals. We're seeing a shift on some of those, on the product shift from Priority Engine to some of our qualified sales opportunities and HQL products because, again, customers will look at it. They have a lot of pressure to land the current pipeline that they have in place. They want as much information to help land those deals, identify new deals and close them over the next 30 to 45 days. So we'll continue to see some of those shifts. I mentioned earlier, we're actually speaking to a couple of customers and they said, listen, we're putting a lot of stuff on hold right now. We'll be back in a quarter or we'll back in 2 quarters, and we're looking at appointment setting because we need to see some short-term numbers. You can turn on that and in terms of the -- that approach is, you really negatively impact your pipeline, and you have to be looking at this more than over a 30-day or a 90-day period. So customers might reallocate their budget. We have a lot of customers that want to stay with us in terms of buying the content marketing, content syndication, QSOs. But you will see a shift over the next quarter, possibly 2 in terms of where budgets get tight or reduced, they may reallocate to more of this short-term gratification, I need to be in front of a customer or a prospect ASAP. But that -- we've seen this before, and the pendulum swings back to flight back to quality. I need to get in front of the customers. Where are my customers when they're not with me? The research on the TechTarget sites and communities that our editorial team produces and our analyst team produces, and that will come back in our prediction.

Got it. Super helpful. Just one quick follow-up. In terms of -- just some of what you just mentioned in terms of your content on your websites, what are you seeing in terms of traffic trends or change in registered users more real time? Have you seen a decline as maybe enterprises are less apt to kind of make IT purchases? Or are you seeing that remain stable?

Actually -- it's actually the opposite. It's been very positive. So our organic traffic increased 50% year-over-year. So that tells me that our customers, their prospects and their customers are going to our sites to get information. Now these deals might get extended. It may get elongated as well, just like we were seeing with our customers. But they're actively researching because they know they have to make the right technology decision at the right time, and they're leveraging our sites. And that's also been shown in our Google Search rankings. We have 1.2 million search terms that rank 1 on Page 1 of Google. So we're seeing the activity there. And what we've really said to our customers are, your prospects and your existing customers research with TechTarget. And that is proven based on the organic growth in traffic of 50% and 1.2 million key terms that are ranked on Page 1 of Google organically.

Got it. Super helpful. Just a quick clarification. That 50%, that's an annual number. Any way to think about just what that trajectory looked like in 4Q or even what you're seeing in January?

We report it year-over-year. So that 50% was up from last Q1 in 2022, which, I mean, still some positive trends.

Our next question is from Jason Kreyer from Craig-Hallum.

Just wondering, any comments on churn related to long-term contracts? I'm just -- I'm curious to what degree those are being paused or if there's any instances where those are just being outright canceled.

Yes. Jason, some are being delayed. We have some are being canceled with the beginning of the year with the budget cuts that we're seeing. We're seeing some of them getting reallocated to other products. And then we're also seeing that . I mean there are people that are still buying the long-term contracts. But I just think it goes back to this whole uncertainty over the last 45 days. And you can correct me if I'm wrong, it's been a long time, if ever, that I've seen a period so many times in 45 days in the enterprise tech business versus more of a forecasted and more predictable reduction. So that's what we're seeing in terms of the churn on the long-term contracts as it relates to Priority Engine.

And then in past recoveries, I know you guys have been really successful gaining share. It sounds like you're leaning into that opportunity now. Just curious what specifically you can do or what are the key areas of investment that you think position you for more share gain on the other end of this kind of macro uncertainty.

Yes. You know what? I think there's 3 areas that we're really laser-focused on. Number one is the Content Enablement business and making sure that we're investing in the right resources and the functionality to help with our customers who need purpose-built, relevant and impactful content. Because without the content, we're not going to be able to engage with buyers. These are really savvy enterprise tech buyers. As I mentioned earlier, I mentioned in the past couple of earnings calls, close to 50% of those buyers want a rep-less experience. They don't want to be dealing with vendors' sales teams out of the gate. They want information and they need relevant information. It's got to be pretty deep, rich, relevant, technical ROI, TCO type of information. And that's what we see, the metrics over the long term. And those demographics and those buyers are not changed, and they're not going back to the old days. So we're going to continue to invest in that. We've reallocated teams, technology process towards the Content Enablement business. They're a really good opportunity with our Priority Engine platform in terms of -- we've talked about this in terms of having tight integrations into our customers' workflow. We have increased our resources in the development team by 40%-plus over the last 7 months in really the better integration, automation, visualization and really about attribution by marrying our first-party data with our customers' first-party data to help them out and identify clearly at the account, at the prospect level. But not only showing that but also highlighting that in our ROI Dashboards and visual capabilities. And that's really important, and we're working on that. And you're going to see some announcements coming out later in the first half of 2023. We've also put a lot of work into the enhancements around our BrightTALK channel platform. Our customers are coming to us today and they're saying, gosh, we need to have -- we need to stay close to our existing customers, customer retention. We need to find that net new deal. And there's a way to effectively stay part of your customers through episodic content through a webinar platform. And what we've built and what we'll release will show a big focus on engagement and conversions so that they can stay in front of their customers, get better conversion, leverage that information, integrate it also into our overall platform capabilities to help them. So those are 3 key areas that we're really focused on in terms of gaining market share. And again, you've covered us for a long time. And when we've seen a dip, and it's been quick, we typically do the right things, stay opportunistic, manage our cost structure and gain market share and come out strong on the other end.

Our final question comes from Eric Martinuzzi from Lake Street.

I wanted to get a little bit of greater detail on the geographic commentary. You talked about in Q4, EU up 9%; U.S., up 3%. Just as we look at Q1 and your guidance for a revenue decline of about 16%, how is that weighted between the geographies?

We don't disclose how that's weighted, but I would tell you, Eric, that the international markets are a little worse shape than North America. So we've seen that. You've watched all the news in EMEA over the last couple of quarters. You saw it coming. And they're getting hit a little bit more. So I think that North America will hold up a little bit more than the international markets, but it's going to be fairly consistent in terms of the ratio.

Okay. And then the same issues in both geographies, the elongated sales cycles, budget cuts, freezes?

Absolutely. I mean for the folks that have the regional budgets, they're still seeing it. A lot of the regional field marketers and sales teams and marketers are getting the mandates from corporate, and a lot of those corporate offices are in North America and they're saying pull back. They're going to pull back quickly on that, and they're going to wait for the green light to go. So now like I said, it all goes back to pipeline, progression of pipeline, impact of what they're doing and then a flight back to quality. So if it's a quarter, it's a quarter. If it's 2 quarters -- it's going to happen, and we know that. And then there'll be a flight back to quality, and there'll be a flight back to accelerate my pipeline because they all have numbers to hit across each region.

Got it. And then my last question has to do with the buyback. You announced a $200 million buyback in November of 2022. That plan assumed, I want to say, $100 million of free cash flow in 2023. Given the reduction in outlook for 2023, are we going to be less aggressive on the buyback? And then what is the new free cash flow expectation for 2023?

I'll answer the buyback approach on this. And I think we want to continue to be aggressive on the buyback and continue to stick to the plan that we laid out. We've seen over the history of our buybacks, it's been very accretive for the shareholders and for the overall organization. We've taken out close to 40% of our shares over the time at a price that's very attractive. And we believe in the future of the business, and we believe in where we can bring the business. In terms of the free cash flow, I don't know if we gave any guidance on that. So you can make some assumptions based on last year's numbers and this year's guidance what we do for free cash flow.

Thank you. We have no further questions. This concludes today's call. Thank you for joining. You may now disconnect your lines.