Marin Software Incorporated
Q1 2018 Earnings Call Transcript

Published: 11 May 2018

[Operator:]

Greetings, and welcome to the Marin Software First Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Kinnish, Chief Financial Officer from Marin Software. Thank you. Mr. Kinnish, you may begin.

[Brad Kinnish:]

Thank you. Good afternoon, everyone, and welcome to Marin Software's first quarter 2018 earnings conference call. My name is Brad Kinnish, Marin's CFO. Joining me today is Chris Lien, Marin's CEO. By now, you should have received a copy of our earnings release, which crossed the wire a short time ago. If you need a copy of the release, please go to investors.marinsoftware.com to find an electronic version. Call participants are advised that the audio of this conference call is being recorded for playback purposes and that this recording will be made available on the Investor Relations section of our website within a few hours. Before we begin, I'd like to note that our discussion today will include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements include statements about our business outlook and strategy, historical results that may suggest trends for our business, expectations about our ability to return to growth, impact of investments in product and technology, progress on product development efforts, product capabilities and future financial results. We make these statements as of May 10, 2018, and disclaim any duty to update them. For more information regarding these and other risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements as well as risks relating to our business in general, we refer you to the sections entitled Risk Factors in our most recent report on Form 10-K and our other filings with the SEC. This presentation contains certain financial performance measures that are different from the financial measures calculated in accordance with GAAP, and may be different from calculations or measures made by other companies. A quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our first quarter 2018 earnings release. With that, let me turn the call over to Chris.

[Christopher Lien:]

Thank you, Brad. Good afternoon, everyone, and thank you for joining our call today. I'll review the quarter and provide an update on our initiatives to return Marin to growth. Brad will then provide additional detail on our quarterly results and our outlook for the second quarter. Since I returned to the CEO role at the end of August 2016, along with my cofounder and EVP of Product and Technology, Wister Walcott, our goal has been and remains to return Marin to growth and to maximize shareholder value. As we have discussed, we are focused on meeting the needs of our customers, the world's leading advertisers and their agencies, as they seek to grow and optimize the returns from their online advertising investments. Working with our team members and partners, we've been putting various initiatives in place that we believe will position Marin to return to growth. I'm pleased to provide an update on these activities. While our top line financials continue to be challenged, today's update will highlight the progress we are making to return Marin to growth in the coming quarters. As announced in today's earnings release, Q1 revenues came in at $15.4 million, which was above the high end of our guidance of $14.8 million, but still down from the prior year. Our cash balance at the end of Q1 was $23.3 million. Before going into specifics regarding Q1, I want to take a moment to highlight Marin's strategic positioning. The vision we are pursuing that we believe both delivers a compelling solution for leading advertisers and agencies and a meaningful increase in shareholder value. The future of online advertising will require that brands and agencies be able to integrate the customer's journey across channels, devices and publishers to show the right ad at the right point of the journey and at the right price. Brands will seek an ally in digital who can help them strategically determine where to spend their online dollars to deliver the best bang for the buck. With time, as more commerce goes online, those brands that fail to embrace online marketing performance as a core competency and key source of competitive advantage will lose their leadership positions to those who embrace these changes. As John Wanamaker, the famous merchant, commented, "Half the money I spend on advertising is wasted. The trouble is, I don't know which half." Marin's mission is to solve Wanamaker's dilemma for the modern marketer, leveraging our leading platform to deliver superior advertising performance and efficiency across their most important channels and publishers. Advertisers today operate in a world where Google and Facebook command more than 80% of all Internet time and more than 60% of all online advertising dollars. As marketers embrace an omnichannel strategy, where they want to meet their customers and prospects wherever they are, the need for an online advertising platform that can connect the walled gardens of Google and Facebook becomes ever more important. When one layers in the growing importance of Amazon, yet another walled garden, as a key starting point for more than half of all product searches, one can see how Marin's approach to connect the world's leading publishers to enable marketers to measure, manage and optimize their online advertising investments from a unified platform is the future of digital advertising. Marin's your ally in digital tagline positions us to play an advertiser-focused role, as marketers seek to thrive in an online world, where leading publishers dominate and may not have the same priorities. Each of these publishers understandably seeks to maximize the advertising spend on their respective properties, which may or may not be in the best interest of a particular advertiser. We live in a world where students don't grade their own homework, players are not the referees and one doesn't ask the barber if it's time for a haircut. Yet a surprising number of advertisers and agencies are willing to turn over the evaluation and management of their online advertising programs to publisher media buying tools. We believe best-in-class performers will look to objective, independent third-parties to measure performance and guide actions. The publisher tool sets are media buying tools for those publishers and unlikely to tell an advertiser to shift budget or to spend incremental dollars on another publisher. In fact, most publisher tools don't interoperate among the major publishers, as Google, Facebook and Amazon are unwilling to share API connections and data among themselves for the benefit of advertisers and their programs. We believe Marin's open, independent cross-channel strategy will lead to sustainable competitive advantages and position Marin to return to growth. At the same time, we need to ride out this period of transition and continue to serve the world's leading brands and their agencies who put a premium on digital advertising performance. As I highlighted on our last call, Marin is uniquely positioned to meet this growing demand, but our vision remains ahead of many brands and agencies who suffer from lack of informed thought leadership, organization structure, technology limitations and inertia with the status quo. Over time, we believe this open, independent cross-channel approach will become the new standard, and we believe Marin will be rewarded for its leadership as the online advertising management category evolves to this new state. Our return to growth is based on progress in 3 areas

[Brad Kinnish:]

Thank you, Chris. I'll provide an overview of our results and then share our forecast for the upcoming quarter. I'll begin with a review of our income statement. For the first quarter of 2018, Marin generated $15.4 million in revenues, leading the high end of our guidance for the quarter by $600,000. Q1 '18 revenues were down 24% versus Q1 '17. Our largest channel remains our search marketing business, which continued to experience pressure during the quarter. Although new bookings within our search business were strong in Q1, customer churn remained high and exceeded bookings, which led to an overall decline. Meanwhile, our social business exhibited growth during the quarter, which was driven by reduced customer churn and increased customer spend as compared to the prior year. In addition, when we look at our cross-channel search and social customers, revenue was up more than 50% for the quarter when compared to the prior year, and was also up sequentially from Q4. In terms of geographic split for the first quarter, 66% of our revenues were generated in U.S. and 34% generated internationally. And in terms of direct versus agency, 63% of our revenues were generated from direct customer relationships and 37% via agencies. Moving on to the operating results. Our financials, including a reconciliation of our GAAP to non-GAAP financials, can be found in our earnings release. My comments will now focus primarily on non-GAAP results. For the first quarter, non-GAAP gross profit was $9.4 million, resulting in a non-GAAP gross margin of 61% compared to a non-GAAP gross margin of 66% during the first quarter of 2017. For the first quarter, non-GAAP operating loss was $6 million as compared to a loss of $3.2 million for the first quarter of 2017. The $6 million loss was better than our guidance for the quarter by $1 million. We delivered a non-GAAP operating margin of negative 39%, which compared to a non-GAAP operating margin of negative 16% during the first quarter of 2017. For the first quarter of 2018, non-GAAP net loss was $6 million, resulting in a loss of $1.05 per share based upon a weighted average share count of 5.7 million shares. This beat the high end of our EPS guidance by $0.23 per share. For comparison purposes, we generated non-GAAP net loss of $3.3 million and a non-GAAP EPS loss of $0.59 per share based upon a reverse split-adjusted weighted average share count of 5.6 million shares in the first quarter of 2017. In terms of our balance sheet, we ended the quarter with $23.3 million of cash and cash equivalents, which reflects cash burn of $5.6 million during the quarter. Our cash burn was in line with our internal forecast and reflects, amongst other areas, our operating losses as well as cash outlay related to annual bonuses and severance payments. Our change in working capital provided a positive inflow of cash during the quarter and served as an offset against our cash outlays during the period. Further, to our announcement on January 24, we have substantially completed the restructuring plan designed to reduce operating expenses to better align costs with revenues. As part of this restructuring, we reduced our global head count by approximately 11% and incurred $900,000 of primarily severance-related costs. As a result of this restructuring, we expect annualized savings of $6 million to $7 million. We are mindful of continuing to operate with financial discipline and will look to narrow cash burn and operating losses throughout 2018. Now moving on to our outlook. During Q1, we were encouraged to see improved bookings performance. For Q2 and the remainder of 2018, we will continue to be focused on bookings execution as well as customer retention as the key strategies to improve our financial performance. We expect our launch of Marin 1 will be a benefit to our sales and retention efforts over the remainder of 2018. Going forward, we will provide both revenue and operating loss guidance. We view these metrics as the 2 key measures most helpful to investors. As a result, we will no longer provide guidance on non-GAAP loss per share going forward. With that in mind, for the second quarter of 2018, we expect revenues to be in the range of $13.5 million to $14 million, and non-GAAP operating loss is expected to be in the range of $6.2 million to $6.7 million. With that, I want to thank you for your time. This concludes our Q1 2018 quarterly conference call.

[End of Q&A:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.