TechTarget, Inc. ($TTGT)

All right. Thank you very much. We're here today with Informa TechTarget's CEO, Gary Nugent. Gary, thanks for being with us. We'll do a little bit of a Q&A for the next 30 minutes. Gary, why don't we start with an overview of Informa TechTarget for those not familiar with the company and with a bit background on the nature of the business and also how it came together with the merger of Informa Tech and the TechTarget business and how it has transformed the business for what it is today.

Yes. Well , first of all, thank you. Pleasure to be here. Well, let's start. First of all, I would describe the business is really sitting at the intersection of 2 quite exciting and large and dynamic markets, which the first being the B2B technology industry and the second being the B2B marketing world. And our business kind of sits really right at the intersection of those 2 markets. I would think about the first -- it's really a 2-sided business model. The first side is that we inform and we educate the buy side of the industry. In other words, we are really informing the buying journey of decision-makers and influencers whose role it is to invest in information technology and communication technology to improve their businesses or governments. And then the second side of the business is as we serve the sell side of the industry. And really, our proposition there is growth, right? We help the sell side of the industry meet the buyers and position themselves as the best choice for those buyers. So that's really the kind of high-level gist of the business. If I talk a little bit about some of the fundamentals and really, the business is underpinned by 2 proprietary data assets. The first is what we would call the market data, the proprietary market data, which is 25-plus years of insight into the B2B technology industry market and its size, its shape, it's growth rates, it's trends, et cetera. And then the second data asset is our permissioned audience data, which really talks about actually how does the market think and feel and act today and the here and now. So there's those 2 data assets and those 2 data assets really underpin all of the products and services that we offer to the marketplace and in particular, offer to the sell side of the industry. If I then just talk a little bit about the kind of the combination between Informa Tech and TechTarget, really, that was a story of breadth and scale. The market that we are in is actually a large market. I estimate it to be about a $20 billion market addressable across all the products and services that we offer. And I suspect we are -- through the combination, we are the largest player in that market, but actually we're the largest player with only 2.5% market share. It is an incredibly fragmented landscape of competitors or players in the marketplace, but a large and dynamic market. And really, the combination was about establishing some breadth and scale because most of the companies that are out there are relatively small. They have a finite supply capability for the industry. And therefore, the market has to invariably deal with many, if not multiple partners at any given point in time. And of course, that's a bind for most of my customers. They would much rather do business with a fewer number of more strategic larger partners. And really, the combination was about creating a player of that ilk.

And perhaps coming out of that merger, you talked in the past about 2025 being a year of combination and integration and 2026 being about growth and growth acceleration. What operating and sales changes have you made to the business that gives you confidence that you're now on the right track when it comes to growth acceleration?

Most of the usual things you would expect when two 2 large companies come together, large players come together, we did, first and foremost, a kind of harmonization of the go-to-market, so the sales and marketing efforts of the company. And in particular, a strategic shift as well, not just effectively the kind of rationalization and harmonization of all of that, but actually a shift in emphasis and a shift in the focus to focus those go-to-market efforts on the larger players in the industry that we serve. So that was really number one. And then the other things which are obvious, of course, are the consolidation of brands and products and services within the portfolio. Invariably, when you bring two companies together, there is overlap, there is duplication in the portfolio of products and services. We went through a fairly structured and diligent process of deciding what was the strategic portfolio moving forward and then recasting that portfolio in the marketplace and the brands associated with that. Those are probably the 2 kind of key component parts. Beyond then there's a lot of processes and systems work that you need to do, really designed to make sure that again, you're consolidating, you're rationalizing, you're harmonizing the products and systems that either, a, are making you easier to do business with in the marketplace; or b, you're making it easier for the colleagues within the business to do their job. And those are the kind of two key things.

Gary, in the last part, you touched upon the concentration and the focus of your go-to-market efforts. How does it compare with how your customers' profiles kind of scale across your curve, right? I mean there is clearly a lot of -- I mean, you serve the pretty much top 200 tech vendors and tech players with -- globally. How do you think about your go-to-market for that part of the market, which is a very significant portion of your TAM? And at the same time, capturing kind of the mid-market and at the same time, the more kind of high growth and kind of, I would say, start-up end of the market, which is obviously very vibrant and expected to continue to grow, particularly with AI being an enabler of company creation and things like that. So top end of the TAM, big players, a lot of the part of the curve in the middle and then a pretty vibrant kind of start-up. So how do you think about your go-to-market?

I mean a few things. I mean I said earlier on that I think we estimate it to be about a $20 billion addressable market. Within the top 200 companies that we do business with, they probably represent about half of that market. They represent about $10 billion of that $20 billion. That's why it's really important to be a strategic partner and a player to those companies. They are invariably also large-scale companies, $1 billion -- multibillion-dollar revenues. They're all trying to grow their business by 8% to 10% year-on-year. Actually, many of them are successfully growing their business by 8% to 10% year-on-year at the moment. And that's a scale go-to-market problem. I mean you can't solve that with low numbers. And what that means is they've got scale problems and they have demand for our products and services, which is very consistent. Week in, month in, quarter in, year in, year out, very high predictable consistent demand for what we do. That's why we placed some -- a focus and an emphasis there. And we have -- we've done so, we've invested there. But to put that into perspective, that's 200 of the customers. We have over 7,000 customers as a business. But that's the remaining -- that remaining long list of customers are relatively small players. They are either start-ups, they are scale up. Some of them are established players in the kind of hundreds TechTarget, Inc. of millions. But the reality is that the demand for our services tends to be a little bit less consistent. They usually have to digest and then generate the ROI and move on, et cetera. So really, you need a very different go-to-market model for that space actually. And so we've kind of -- we've kind of bifurcated the go-to-market model to deal with those 2 slightly different dynamics. The last thing I would say, which is more of a kind of how does this compare to maybe how the world looked 5 years ago or 4, 5 years ago. The very, very, very vibrant start-up scale-up world doesn't really exist in the same way it used to. When the cost of capital was almost nothing, there was a very kind of -- there was a lot of money down in that space as companies were being funded and they were looking to try and establish themselves and grow. Obviously, I think it's a much more discerning world than it was now internally because the cost of capital is much higher. And so what you tend to find down there is that it's a slightly more stable market than it used to be, but it's not a bigger market as it used to be.

Gary, picking up on another theme you touched upon when you talked about the path over the last few years and how Informa TechTarget got formed and your focus on integration. You've now moved into reporting on 2 segments, B2D and I&A. Can you give us some color about the 2 segments, how they're performing and how investors should think about also the profiles of each of the 2 when it comes to growth and profitability and long-term growth rates for each?

Yes, certainly. I mean, obviously, I think it's a good thing because it gives the market a little bit more transparency and a bit more granularity into the business. The way I would think -- I mean, the way I certainly think about it is Intelligence & Advisory are the services that we provide to the customers quite early on in their thinking. they're much more strategic in their nature. Usually, we're helping our customers work through their market strategy. So we're helping them try to identify what are the most attractive markets. We're helping them figure out what their product strategy should be and whether or not they have strong product market fit for the markets that they want to go after. And then we're helping them work on their go-to-market strategy. And it's about 1/3 of the business. And we reported in the first quarter that, that business was a mid-single-digit decline, low to mid-single-digit decline, largely due to the advisory part of that business, which is more of a kind of consulting project nature of the business. 2/3 of that business is a subscription business. It's the subscription to that proprietary market data that I spoke about earlier on that customers use in their corporate development and their corporate strategy and their product business units and their product management to make those strategic decisions that we talked about earlier on. It's definitely a slightly more mature market. It's a maturer market where the players that we compete against are maturer competitors. And the long-term growth prospects for that market are probably kind of GDP plus 1 or 2 percentage points, I would say, in the long run. The B2D side of the business then is really on the subject of execution. So I've sort of worked with you. We've made our strategic decisions about attractive markets around product strategy, road map and fit around the go-to-market strategy. It's now about executing that in the marketplace. It's about raising awareness for your brand. It's about establishing thought leadership for your business. It's about ensuring that you're going to be considered, it's about making sure that you have the appropriate messaging and content for the marketplace. And then it's about putting that in front of qualified decision-makers and influencers for what it is you have to sell. So it's really all about growing revenue. That's the market that's much more fragmented. That's an area that we would normally expect to see mid- to high single-digit growth rates in the marketplace. I think it has been a little bit subdued that market over the past couple of years as what you see from the technology, the B2B technology industry is they're trying to funnel as much cash and capital as they can into AI R&D. But generally speaking, that's a good long-term indicator for the health of our business because every single one of those R&D dollars at some point will turn into a product or a service. And that product or service will have to get launched. And then after being launched in the marketplace, they will need to make sales and we'll need to get an ROI on that R&D spend. So I certainly look at the pent-up R&D spend that exists within the B2B technology marketplace as being a really strong indicator of the health of the business moving forward. So hopefully, that gives you...

And perhaps a follow-up on like you commented on the growth profile of each, very clearly articulated like where you play and where the opportunities are. How about the margin profile of each of the 2?

Interest, the margin profile is relatively similar. There's not a lot to choose between them. Certainly, I mean, both sides of the house have parts of the portfolio that are very highly geared in terms of the incremental revenue very quickly to the bottom line. And then they have bits of the portfolio where we do project work for customers, and it's mainly in the advisory side of the house and the content side of the house where they are. So actually, if you look at the margin profile between the I&E and the B2D segments, it's actually on a blended basis, it's pretty similar.

Got it. And perhaps before we talk about AI in terms of how you have and you plan to use it, implement it product-wise inside the organization, why don't we start with the foundational layer that you also touched upon in one of your answers before, which is the proprietary data assets. Can you elaborate a little bit more like how do you protect it, how proprietary they are? Can they be accessible from a public scraping standpoint? That's really the key debate as to can a large language model or an AI play access to the data and replicate it somehow?

Well, I mean let me talk about, first and foremost, how we actually garner those 2 assets. So we have over 700 market experts within the business, analysts, researchers, editors, journalists. Most of those individuals have 5, 10, 15, 20 years of experience in the marketplace and relationships in the marketplace. And as I say, there's really 2 data assets. The first data asset is the market data, and that comes from our deep relationships with all of the B2B technology companies around the world and spending time with their leadership and spending time with their product business units and product management teams and building up that profile of the industry. And that's the first data asset. The second data asset is the audience, our membership asset. And that's really the editorial journalism. We operate over 200 technology-centric B2B media properties, and we observe the behavior of our audiences of our members in terms of what content they consume and when they consume that content and what's the nature of the content they're consuming, et cetera, et cetera. That builds a picture of the buy side of the industry. So we have a very strong lens on the sell side of the industry and a very strong lens on the buy side of the industry between those 2 data assets. In terms of how do we protect those data assets, I suppose my flippant answer is we don't make conflicts for [ MDLs, ] right? It's [indiscernible] small tool. We don't license our data to other people to create products and services off of the back of that. It is our data. We protect it, and we build it into our products and services that we offer to our customers, but we don't license it elsewhere.

There's a good segue to geo and the other AI-enabled tools that you have launched. How do you guys think about AI in terms of revenue driver revenue growth accelerator, retention enhancement? And if you can expand a little bit on your product strategy to capitalize on the AI opportunity and give us some examples of things that you have launched and...

Certainly, I am firmly of the opinion that the phenomenon that is AI or the technology that is AI is a net positive for my business and generally for businesses of ELK. I look at it across sort of 4 different dimensions. I mean the first thing, of course, is that our job as a company is to connect the buyers and sellers of technology and AI is a technology. So we're actively participating in the market that is the buy side of the industry is trying to educate itself on what is AI and how can I apply it usefully to my business. And the sell side of the industry is desperately trying to convince everybody that it's got really high-quality AI technology that can grow your business and improve your costs. We actively participate in that market every day. I track what I would call 55 genuine AI players. And what I mean by genuine AI players are not companies who are taking AI and embedding it in existing products. I'm talking about companies who are genuinely bringing new AI products to market, products that didn't exist before rather than enhancing or improving existing propositions. And we track our penetration rate and growth rate in that marketplace, and it's a great market for us. That's number one. Number two is the obvious one, which is the -- how does it make us more through the adoption within our business and embracing it in our business, how does it make us more efficient and more productive. The sweet spot of most of the AI use cases are the heart of what we do for a business, right? We collect data, we aggregate data, we analyze that data. We produce insights from that data. We create content. We display that content in front of highly qualified decision-makers and influencers. And AI, all the use cases of AI are right in that sweet spot. So in terms of our ability to leverage AI to improve the quality of what we do, in terms of our ability to leverage AI to reduce the costs associated with what we do to a very strong opportunity for us there. The third thing then is that how do you -- how do we leverage AI to actually improve our products and services, the actual products that our customers buy. Most of that is about how do we actually -- certainly most of that thus far has been about how do we either, a, put AI conversational interfaces in front of our data. So we put an AI conversational interface in front of our audience experience to let our audiences more easily discover the content to synthesize the content to basically inform their decision-making, their buying journey. We similarly put AI conversational interfaces in front of our audience data and our intent data from our audience data, which enables them to much more readily extract value from the data that we're offering them. Now it sort of does 2 things in my opinion. The first thing it does is it just makes it generally easier for customers to extract value from the data that we're providing them, but it actually also increases the addressable market for it. If you work on the principle that if you make it easier for people to be able to interrogate and analyze data and content, then more people can interrogate and analyze data and content. You don't have to be an expert, right? And it's that basic phenomenon that AI conversational interfaces are actually making our products and services much more accessible and addressable in the marketplace. So those -- that's effectively what the product road map is doing there, plus the basic principle of integration, right? So AI is an actual fabulous tool to better enable integration into the landscapes of our customers. So it makes it much easier for me to get my value into my customer systems and for the customer then to be able to kind of extract value from within their systems. So those are the key things there. The area that, of course, I think most people talk about is that how is it affecting the buying journey? How is the kind of notion of AI and answer engines and LLMs impacting our buying journey as we move from largely what was a search economy to an answer economy. And certainly, our experience of that over the last 12 to 18 months, it's certainly having a significant impact on the buying journey. It is changing the buying journey, but not to the detriment of our business model because effectively, what we are seeing is that as a trusted provider of original authoritative information about the industry and what's going on, that all really the AI is doing is it's sort of filtering out the nonqualified buyers from the not very serious researchers, and I'm not having to then filter out, right? So I just have to filter out all of those non particularly serious decision-makers and influencers and to the point where that's really being done for me. And so I'm just getting a much more highly qualified set of traffic to the business which were then converting into membership at much higher rates and converting into active members at much higher rates. So I think the notion that somehow it fundamentally changes or its businesses of our nature, I think, is all wrong. And I have that conversation with investors all the time. I mean the reality is that -- I mean, everybody in this audience could quite easily have plugged into an answer engine a question along the lines of I've got $3 billion to invest, and I'm this type of investor, could you please just give me a list of companies to invest in? And it would have given me a list of companies to invest in. But you wouldn't have deployed capital against that. You would have then taken that information at the early stages of your journey and you would have then done your deeper research. And it's no different from my customers. My customers are not making sort of capital investment decisions. They're making technology procurement decisions. And those technology procurement decisions are in the tens of millions, if not hundreds of millions. And they have big -- they have large ROIs associated with them. So they use it as part of their early stage research, but it's not where the journey stops and actually -- it actually feeds me with the fuel value.

That's a very important point about AI, how it enables the business in 3 different ways and layers, as you said, Gary, and you anticipated my next question was going to be how are you coping with the change in the search and buyer behavior journey. So perhaps another element of discussions that is prevalent now is how AI and the derivatives of it are changing the revenue model of some of the data and software and related businesses with the concept that seat-based subscription revenue models that were considered ones that kind of go-to or the standards for "the SaaS business" model are now I think of the past and particularly subject to disruption. You have a lot of experience in a model that is, I would call it, hybrid that has a consumption layer that has kind of like a fit for purpose when it comes to where the product and the user and how that fits to the pricing model and the revenue model. So you have an advantage that you've developed over 15 years plus in the organization on how to really kind of go and fit the pricing model to the user experience and the product. Can you elaborate on how do you see that as an advantage for your organization? And how do you see that in the AI world where consumption models is more and more something that is perceived to be prevalent going forward?

Yes. It's a really interesting question. And there's a bit of this is maybe specific to Informa Tech Target, but I think there's a generic kind of trend in all of this as well. I mean the first thing is we were never a seat-based model for monetization. Actually, the company has always largely been a consumption-based model for monetization. So we're not sort of exposed to the phenomenon of your revenues are directly proportional to seats. And if the number of people in the company are going down, your revenues are going down and going up. That was never really part of the model. That's your commercial packaging. I think that's slightly separate from just the notion that the SaaS business model was also just about platforms. Everybody was building a platform. And you consumed the value through the platform and the value is usually some form of data at the end of the day, data in its many shapes and forms. Actually, what the market began to realize was it had this platform proliferation problem. I've got way too many platforms now in my business. And these platforms don't talk to one another, and it's making the workflows very complicated. And so it started to kind of reject the notion of I need another platform, right? It started to really get into the world of, no, no, no, I need you to integrate into my platform. I'm going to make a strategic decision about what my platform is and then you will have to integrate into it. I'm not buying your platform. That's a very different phenomenon. It's much more kind of the phenomenon of how do customers want to consume, not how do they want to pay, right? And so that's where the kind of the heart of like being very good at integration. The ability to take your asset, our data assets and seamlessly integrate them into the customers' environment is an important part of how you compete and win rather than distributing your value through the platform that you create a platform that you create. So I think they are -- those 2 phenomenas are linked, but they're not the same thing. And it's important to kind of keep them distinct in your mind. And we are -- I mean, I think in terms of how you monetize over time, I think it will be interesting to see how do customers want to pay for value over time. I do think you are right that increasingly, as your ability to offer and govern consumption-based models, the marketplace will want to have a more consumption-based view of consuming the value. And you need to be neutral to rate. I mean, anybody who's been in an industry -- I've been in the telecommunications industry for many, many years, telecommunications industry was a consumption-based business model. There are many kind of principles of consumption-based business models that you have to wrap your arms around, right? How do you rate and how do you price, right? And these are the things that I think we're all going to -- all data companies are going to wrestle with in the way that all telecoms companies have to wrestle with as they move from your fixed fee every month to your -- how much do you consume? How many minutes do you consume and how many seconds do you consume?

Thanks, Gary. That's very interesting. And you have an edge as you described and said, like it's an organizational motion that is not necessarily a flip of a switch when it comes to like changing pricing and usage and revenue models. Perhaps looking forward and taking a little bit of a kind of bigger picture approach when it comes to strategic priorities for this year and especially for the next kind of few years and call it, 3, 5 years type of outlook? And how do you think about those vis-a-vis your capital allocation policy and kind of strategy? It's a phenomenal free cash flow business. It's always been -- you've been profitable for a long time. How do you think about capital allocation organically and inorganically vis-a-vis your strategic priorities?

Well, I mean, my #1 strategic priority is to grow the business. As you said earlier on, it's a tremendous business in terms of the drop-through to the EBITDA and in cash flow when the business grows. And that's in part because there's so much of the cost base of the business is largely fixed. So the incremental revenue dollars drop very quickly to the bottom line. So #1 strategic priority is to grow the top line of the business. And as I said earlier on, although we're, I think, one of the largest players, if not the largest, we still only have 2.5% market share. So there's certainly lots of room to go out and to compete and win. And as I mentioned earlier on as well, the strategic focus is on the largest customers in the industry that we serve because they are the ones where I believe that the breadth and scale of the company gives me real competitive advantage, and they are the deepest pockets. I mean I can't remember the name. There was an old American bank robber, that when he was interviewed by the press on the steps of the court, they said, why do you rob banks? And his answer was, well, because that's where the money is, right? So that's -- and our go-to-market model is sort of centered around that principle. So that's my strategic priorities. We've got a little bit of tidying up to do in terms of the combination. There's still a little bit of work to do, but we've really done most of the heavy lifting on that part, but that's largely it. And then it will be about thinking about the different -- what are the 5 growth levers that we have at our disposal. So at the moment, we've got -- I think of the business growth levers as 5. The first one is taking market share in what we call the enterprise IT technology market. And that's really what we're largely kind of working aggressively on at the moment or assertively on at the moment. Then there is expanding the business further into what we call vertical technology markets. There are companies out there that produce technology, information and communication technology that is very specific for particular industry verticals. So fintech for the banking industry, for example, treasury systems and all these sorts of things, or health care systems for the health care industry or telecommunication systems for the telecommunications industry. We think that we have a real competitive advantage in those vertical technology markets, and so we see that as the next lever of growth. Then there's just international expansion. 60% of our addressable market is the North American marketplace, but by definition, that means that 40% is elsewhere. And in particular, I think the real international market expansion opportunity is actually about how do you -- how do we help international technology companies be successful in the North American market and the Western European market. And so that's the kind of the third lever. Fourth lever is a little bit about some of the new product innovation that we have coming down the line. We've got -- I think we've done a fabulous job in terms of creating coherence in the product road maps of the combined company. And we've got a really exciting product road map over the -- that I look forward to. And then the last thing would be inorganic activity, our ability to -- for want of a better expression, roll up this highly fragmented market that we're in. I actually don't see us doing much of that until '27 and a bit, to be honest. You said somebody asked me kind of what's the capital strategy? Well, the capital strategy is grow the business, build the cash on the balance sheet and give ourselves some options. And then what we will do is we'll think about how we apply those options when we get there, I suppose. And it will be the usual things. It to what extent do we want to give that money back to shareholders as opposed to what extent do we want to invest that money for further growth that's going to drop and improve the profitability and the cash flow. And whether that's organic investment from our own R&D and our own product road map or whether that is organically -- inorganically acquiring. I think if we were going to acquire audiences is always an important thing. Reach into the marketplace is an important asset to look for in the market. You'll clearly be wanting to look for things which are going to enhance your product development capability and the skills in AI and in data and in software development in and around that space. And then I think the last thing you also look for is customers. And we did a very small tuck-in at the beginning of this year. It was fundamentally a game of customers that we wanted deeper relationships with and an audience that would have taken me 2 or 3 years to develop and would have probably cost me 2x or 3x what I paid for the company.

Very clear and very well articulated, Gary. Any questions from the audience before we wrap up? Gary, it has been tremendously helpful. Thank you for your clarity and articulation and good luck for the future, very exciting path that you've laid out for the business.

Thank you, G. I appreciate the opportunity to talk to your team and to the invite event. Thank you.

Awesome. Thanks, Gary.