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Millennial Media, Inc. (NYSE:MM)

Q4 2012 Earnings Conference Call

February 19, 2013 17:00 ET

Executives

Andrew Jeanneret - Senior Vice President, Accounting and Controller

Paul Palmieri - Co-Founder, President, and Chief Executive Officer

Mike Avon - Executive Vice President and Chief Financial Officer

Analysts

Jordan Monahan - Morgan Stanley

Mark May - Barclays

Jed Kelly - Oppenheimer

Michael Graham - Canaccord

Nat Brogadir - Stifel

Rory Maher - Hillside Partners

Richard Fetyko - Janney Capital

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Millennial Media Inc. Earnings Conference Call. My name is Shaun Tiley and I will be your facilitator for today’s call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Mr. Andrew Jeanneret. Please proceed.

Andrew Jeanneret

Thanks operator. Good afternoon and welcome everyone to Millennial Media’s earnings call for the fourth quarter and full year ended December 31, 2012. Before we begin, I would like to remind you that during this call, we will make forward-looking statements which may include projected financial results or operating metrics, business strategies, anticipated future products or services, anticipated market demand or opportunities and other forward-looking topics. These statements are subject to risks, uncertainties, and assumptions. Accordingly, actual results could differ materially from those results discussed in the forward-looking statements.

For detailed disclosure of the risks and uncertainties that could cause our results to differ from today’s discussions, please refer to today’s press release as well as the documents we file from time-to-time with the Securities and Exchange Commission, including the Form 10-K that we will file for the year ended December 31, 2012.

Also I would like to remind you that during the course of this conference call we may discuss non-GAAP measures of our performance. Reconciliations to the most directly comparable GAAP financial measures are provided in today’s press release and are on our website under the Investor Relations section.

Today’s call is available via webcast and a replay will be available following the conclusion of the call for one week. To access the press release, supplemental financial information or the webcast replay, please consult the Investor Relations section of the Millennial Media website.

Now, I will turn the call over to Paul Palmieri, Co-Founder, President, and CEO of Millennial Media.

Paul Palmieri

Thanks, Andrew and thanks to everyone for joining us on the call. We’ve got a lot of ground to cover today as we’d like to discuss our fourth quarter performance as well as the year.

2012 was a big year for the massive consumer shift to mobile, and it was a big year for Millennial Media as well. We entered the year as a company that was already an integral part of the high-growth consumer phenomenon of mobile. We were and are at the center of several major secular trends. Still there were questions about our model whether our margins would expand and could we prove to be a profitable company while delivering strong top line growth. Continuing to deliver all of this while proving the models was a challenging path for us as we had always had larger competitors which drove us to rely highly on the differentiators of our platform model and our superior ability to create value from mobile-specific data.

Through 2012, we navigated these waters to grow our developer and advertiser base. We invested in technology and grew our platform in terms of scale and customer toolsets. We achieved swift and substantial adoption of our newest releases of our embedded software products, or SDKs. We invested more deeply into our relevance graph asset and brought it out as a mobile audience solution to market in a consumer-friendly way both in the U.S. and in Europe. We entered the Asia-Pacific market and expanded across Continental Europe. We continued to be essential to the developer app ecosystem with our software development kits embedded in tens of thousands of apps and our platform generating more than 100 million in monetization for our developer partners.

And as we conduct this call today, there is no question Millennial Media is the leading independent platform in the mobile advertising business empowering the app economy. There now also can be no doubt that our model is proven and strong. Our platform is having success and our investments in technology and data are delivering the solutions that show marketers the power and value of mobile. We are pleased with the progress we made, but we are not content and we are not standing still. We are continuing to innovate and invest in our technology and delivery service model.

I will discuss this more in a minute, but first let me walk you through Q4 performance. Revenue increased 68% year-over-year in the fourth quarter to $58 million. On a sequential basis, revenue increased by over 22% from the third quarter of 2012. Adjusted EBITDA was $5.6 million in Q4 which was well ahead of our expectations. While year-over-year revenue growth of 68% is exceptional even for an internet company, Q4 performance on revenue was below our expectations for the period.

On revenue, we have some choices that we made in Q4 consistent with our long-held strategy on whether to change the business in some performance segments or to continue to focus on large budget brand campaigns and premium performance campaigns that have always been our bread and butter business. It wasn’t until very late in the quarter that we saw that our choice not to participate in some of these lower end performance segments coupled with a few large brand deals that didn’t materialize would moderate our revenue growth metric for the quarter.

Now, since going public, we have articulated a strategy focused on using technology and data to serve the particular needs of brand marketers and premium performance advertisers. And while we could have chosen to chase a lower value incentivized downloads business segment, where small companies with limited technology battles to drive downloads that are of limited lifetime value or LTV to developers, we chose and we will continue choose adherence to our long-term strategy of providing value. We are building Millennial Media for long-term sustainable growth and plan to stay tuned to our core principals.

We continue to see strong demand from our brand customers and believe that brand advertisers will continue to migrate to mobile to reach and engage users. Millennial Media has become a go to partner for large brand advertisers and we expect that to continue. In fact we now count 85 of Ad Age top 100 advertisers among our clients, up from 75 just one year ago.

Now interestingly the choices I just described were evidenced by higher effective CPMs in Q4 and in our Q4 gross margin performance of 41.2%, up from 39% year-over-year. Our choices also helped us to deliver significant growth in profitability with an adjusted EBITDA margin of 9.6% in the quarter. This was significantly better than our outlook. Net income was $2.6 million with earnings per share of $0.03. If we think the question earlier in 2012 whether or not we could deliver our business profitably, we felt we answered that question clearly in Q4. We plan to continue to implement our long-term strategy in 2013 and I would like to take a few minutes to talk about some areas of focus for us in 2013.

As part of our long-term plan, we are working to make it easier and more effective for both brand and performance advertisers to buy on our platform. The bulk of our advertising business today is delivered as a high-touch managed service which we are able to deliver profitably. This has been the preferred model for large brands and their agency partners and we have excelled at this model. Over the past year we have added self service interfaces to enable various advertisers particularly performance advertisers to access the power of our platform more directly. This was the direct extension of our success in building self service interfaces for our thousands of developer partners. We plan to continue to build innovative self service tools and interfaces to enable our advertiser clients to buy in whatever way what’s best for them.

As we enhance the self service capabilities on our platform, advertisers and developers will ultimately have more direct access to the real time bidded marketplace that is at the core of our Midas technology platform. As the mobile market matures some advertisers will choose to buy media on a programmatic basis. And we plan to be the preferred solution for them in mobile, but we plan to offer a solution that is uniquely mobile also highly effective and based on the core Midas platform we have been building for nearly seven years. We think that our technology platform delivers better results for both advertisers and for developers. We have a long track record of building powerful mobile advertising technology. We also have had success in integrating emerging ad technology through acquisitions.

Today, I am pleased to announce our acquisition of San Francisco based Metaresolver. You will see our formal press release tomorrow morning. Metaresolver is the media buying and data platform for mobile that was founded by former executives from AdMob and M. Metrics. This small but strategic all cash acquisition will help us deliver additional programmatic buying solutions to advertisers and will enhance our ability to capture and analyze highly relevant data to produce better results for advertisers and developers. We are excited to add the Metaresolver technology and team to Millennial.

Data has always been a key part of our offerings and our competitive advantage particularly for brand advertisers. On last quarter’s call I talked a little bit about our relevance graph investment. This proprietary data asset is built on core audience algorithms and it’s the engine behind our customer facing mobile audience solutions. We have been building our proprietary data assets for most of our history, but just began using the term relevance graph last year. By using consumer interests, location, social and mobile profile data coupled with the insights of the devices that engage with any particular ads, we help brands to target consumers when and where their message will be the most relevant.

Our relevance graph takes location based data to the next level and empowers advertisers to realize superior results. The relevance graphs and our mobile audience solutions for advertisers that we based on that relevance graph have been a big hit with brand advertisers in 2012. Samsung, Adidas, Pandora Jewelry, General Motors, Olympus, and Activision are just a few examples of companies that utilized these solutions in 2012.

In 2013, we see great potential to continue to deliver products and solutions to advertisers, particularly brand advertisers that leveraged the power of the relevance graph. When we started the company in 2006, we had a belief that mobile would ultimately be synonymous with media consumption. That was a bold prediction in the time before the iPhone, before Android, the iPad or Kindle, but today mobile is everywhere encompassing a broad range of devices and an ever increasing percentage of media consumption time by consumers.

Today, we deliver ads on more than 7500 distinct device types and about 20% of our ad impressions are on devices that aren’t actually phones, including tablets and gaming devices among others. Over time, we think that both the number of device types and the percentage of non-phones will continue to increase as more and more devices are designed to be inherently mobile devices. In 2013, we will continue to focus our development efforts on delivering highly affecting advertising across many different types of mobile and app economy driven devices. We do a lot of business on tablets today. For example, we think we have just scratched the surface of what’s possible on these devices. The tablet experience presents the larger powerful brand advertisers to tell their story and get users engaged.

Our product development teams are fast at work on even more innovative advertising solutions for tablets and other devices that you should expect to see later in 2013, but even today, tablets are enabling us to deliver unique and compelling advertising for our clients. For example, tablets offer unique ability to reach co-viewing audiences as they are watching television while using a tablet. This past weekend, we worked with the National Geographic channel to drive consumers to tune into Killing Lincoln, a new documentary. Using our mobile audience solutions, we delivered a full screen video highlight that’s dynamically updated to reflect what was going on in the program on TV.

And during the Super Bowl, we ran ads on both tablets and smartphones that reinforced campaigns running on TV. And while marketers paid $3.8 million to CBS to reach 111 million viewers of this year’s game via a 30-second spot, some of them also spent an additional $500,000 with Millennial Media to add the companion mobile campaign with us that ran across over 100 million impressions during the game, extending their 30 seconds of airtime by offering four hours of continuous engagement. And this is the power of mobile.

The expansion of our international operations continues in 2013. Mobile is an inherently global market. The apps and sites that run on our platform often have a global user base and many of the large brands had large performance advertisers that we work with want to reach consumers throughout the world. We built the client base, technology platform, and operational framework that allows us to extend our business globally in an efficient manner. We are excited about the recent momentum in our European operations and APAC continues to grow at a steady pace. Last year, sales from our international sales offices generated 14.8% of our revenue, up from 10% in 2011. Our results in Europe were particularly encouraging in Q4 after a brief slowdown in that region last summer in its growth.

I was in London just a few weeks ago to help launch our mobile audience solutions in that market and was excited to see the enthusiasm among our clients and partners there. We planned to continue to build our global footprint in 2013 by ramping up our sales operations there in the UK, but also in France, Germany, Singapore, and Indonesia while extending our reach to other markets.

Today, I can announce that we are forming a Japanese subsidiary and have hired a Managing Director to lead our sales office in Japan. We look forward to opening an office and launching operations in Tokyo within the next 30 days. We already have strong customer relationships in Japan and are excited to extend our presence in that market.

The mobile advertising industry has experienced significant growth and change over the past year. We have been and will continue to be a leader in this fast growing market. We have remained focused on brand advertisers and premium performance advertisers as we have continued to invest in technology and data to deliver results both to developers and advertisers. This has helped us prove our model with expanding gross margins and EBITDA margins. We have extended our business to new service models and new geographies and new devices with great success and we have a plan to power the next phase of mobile advertising. In short, we were excited with what we have achieved, but we are even more excited about what lies ahead.

And with that, let me turn it over to Mike Avon, our CFO who will give you more details on our financial performance and outlook. Mike?

Mike Avon

Thanks Bob. For the fourth quarter of 2012, revenue increased 67.8% to $58 million from $34.5 million in Q4 of 2011. For the full year of 2012, revenue increased 71.4% to $177.7 million from $103.7 million in 2011. Our revenue increase year-over-year was driven by additional spend from existing clients and by an increase in the number of advertising clients using our platform.

We also increased the number of non-financial metrics that we reported, which influenced our revenue increases. For example, the number of apps enabled on our platform increased to more than 39,000 by the end of 2012 as compared to 38,000 at the end of Q3 and approximately 28,000 at the end of 2011. In December 2012, our platform reached more than 400 million unique users worldwide, including approximately 160 million unique users in the United States. We now have more than 350 million anonymous user profiles, up from approximately 300 million at the end of Q3, 2012 and approximately 150 million profiles at the end of 2011. These profiles are a core ingredient in our relevance graph, which enables us to deliver more relevant ads to consumers. In Q4 of 2012, we delivered ads to consumers on more than 7500 distinct device types including smartphones, tablets, and other app-based devices which compares to approximately 7000 device types at the end of 2011.

Total revenue from existing advertiser clients increased by 84.4% year-over-year in 2012 representing 83.1% of 2012 annual revenue. Total revenue from new advertiser clients increased 29.8% year-over-year comprising the remaining 16.9% of 2012 annual revenue. For reporting purposes, we consider a new client for 2012 as a client who was not using our platform in 2011 or before, all clients who are not new clients for particular reporting period are classified as existing clients for that period.

As we already maintained very broad reach across major brand and performance advertisers, our primary focus has been on further penetrating existing relationships. This has resulted in a higher proportion of our revenue coming from existing advertisers as advertisers tend to first test mobile to smaller campaigns, and then ramp up spending once they see the results of their campaigns. Even though we generated a majority of revenue from existing clients in 2012, we also increased the overall number of advertisers on our platform by more than 150% year-over-year. These new clients provide a solid base for continued growth moving forward.

In 2012, we counted 85 of the top 100 Ad Age advertisers as our clients, up from 75 in 2011. Total spend from these Ad Age top 100 advertisers comprised approximately 40% of our total revenue last year. Both the total spend and the average spend from these large global advertisers on our platform were up last year over 2011.

Revenue from international operations in the fourth quarter of 2012 was $11.4 million or 19.6% of total revenue, reflecting the increasingly global nature of mobile advertising. This is up from 13.2% of revenue in Q3 of this year and 10.3% of revenue in Q4 of 2011. International revenue for the full year of 2012 was $26.2 million or 14.8% of revenue up from 10% of revenue in 2011. In Q4, we began to see meaningful revenue out of our sales office in Paris, France which we opened in the first half of 2012. That office in Paris saw particular strength in brand revenue during the quarter. We also continued to see early traction from our sales office in Hamburg, Germany which is launched in the second half of 2012 though our operations in Germany are still early. As of December 31, 2012, we had 32 full-time employees based in Europe.

Our Asia-Pacific business also grew well in the fourth quarter. From our operational hub in Singapore, we generated revenue from Singapore, Australia, Indonesia, Hong Kong, Mainland China, Japan and many other countries. As Paul discussed earlier, our sales in Japan have been encouraging enough to support the launch of a full sales office in Tokyo. We’ll also explore additional sales offices in the Asia-Pacific region in 2013. As of December 31, 2012, we had 14 employees based on the Asia-Pacific region located in Singapore and Indonesia.

Effective CPMs on our platform were higher in Q4 than they were in Q3 of this year and were also up year-over-year in Q4. Global effective CPMs rose in Q4 approximately 10.3% as compared to Q3 of 2012. Global fill rates in Q4 were higher than they were in Q3 of this year while the overall number of impressions on the platform also grew in Q4 as compared to Q3. We think the continued improvement of pricing in Q4 is reflective of the positive ROI that mobile advertising produces for marketers.

We think that in particular, our ability to use data and technology, especially our relevance graph to deliver more relevant ads to consumers drives ROI for advertisers and ultimately delivers and ultimately leads to higher effective CPMs. But even with price improvements in Q4 there is a long way to go. In certain segments, where ads are highly targeted and highly engaging, we see CPMs that are at or near parity with online CPMs, but the average effective CPM in mobile remains the low dose of online for the time being. With consumers flocking to mobile and advertisers experiencing the positive return on investment associated with mobile ads, we believe the pricing levels of online and mobile advertising will converge over time.

Moving on to profitability, our gross margin increased to 41.2% in the fourth quarter of 2012 up from 39% in the fourth quarter of 2011 and up sequentially from 40.9% in Q3 of 2012. For the year, gross margin was 40.5% in 2012 as compared to 38.7% in 2011. Our improvement in gross margin reflects the continued importance our developers place on our business and the tools we offer them to better monetize their ads. We also think our gross margin is the direct result of the ROI that we create for advertisers, particularly brand advertisers who leverage our relevance graph to deliver more relevant ads to consumers.

More targeted relevant ads drive higher effective CPMs, which ultimately leads to higher gross margins for us. I would, however, note that we are now on our target gross margin range of 40% to 42%, and you should not expect continued sequential improvements in gross margin moving forward. Though our gross margin could be above or below our target range in any given quarter, we plan to continue to target gross margins in the range of 40% to 42% unless market conditions lead us to reassess our long-term target.

Sales and marketing expense was $7.3 million in the fourth quarter of 2012 versus $4.1 million in Q4 of last year. For the year, sales and marketing expense was $23.8 million in 2012 compared to $14.3 million in 2011. The increase in sales and marketing expense was driven primarily by the growth of both our international and U.S. based sales forces during the year.

Technology and development expense increased from $1.9 million in the fourth quarter of 2011 to $3.5 million in the fourth quarter of 2012. We have and will continue to invest in technology and development as we expand and extend our Midas technology platform and enhance the relevance graph.

General and administrative expenses were $10.5 million in the fourth quarter of 2012 versus $7.4 million in the fourth quarter of 2011. Growth in our G&A expense was predominantly related to increases in our operations and developer support groups as well as our information technology and product groups that support those groups. We include all of these groups in our G&A expense line. Our G&A function supports both domestic and international operations.

Our adjusted EBITDA, which excludes non-cash stock-based compensation and other expenses, was $5.6 million in the fourth quarter of 2012 well ahead of our earlier guidance, which initially called for adjusted EBITDA on the range of $3 million to $3.5 million for the quarter. This compares to adjusted EBITDA of $1.2 million in the fourth quarter of 2011 or more than 366% year-over-year growth. For the full year 2012, adjusted EBITDA was $4.5 million representing a 147% increase as compared to 2011 adjusted EBITDA. Adjusted EBITDA is a key metric that we track internally and we will continue to report this metric moving forward. I remind you that adjusted EBITDA is a non-GAAP financial measure and we have provided a reconciliation of adjusted EBITDA to net income or net loss the nearest GAAP measure in today’s earnings release, which is available on our website.

Stock-based compensation was $2.2 million for the fourth quarter of 2012 and $7.5 million for the full year of 2012. Net income attributable to common shareholders was $2.6 million in the fourth quarter of 2012 compared to a net loss attributable to common shareholders of $1.2 million in the fourth quarter of 2011.

Basic and diluted GAAP EPS was $0.03 for the fourth quarter of 2012 versus a loss of $0.07 per share for the fourth quarter of 2011. For the year net loss attributable to common shareholders was $6.8 million in 2012 and basic and diluted GAAP EPS was a loss of $0.11 per share for the year. We estimate our share count used in our basic and diluted EPS calculation to be approximately 78 million shares and 83 million shares respectively for the fourth quarter and 61 million shares for the full year. As we incurred a net loss for the year, our income tax expense was minimal for 2012. As of today, we anticipate that we would not release our NOO until Q4 of 2013 or Q1 of 2014 at the earliest. We will update the anticipated timing of such a release in future calls.

Our capital spending was approximately $3 million in the fourth quarter of 2012. Capital spending for the year 2012 was approximately $5.3 million. Our capital spend in 2012 was focused on datacenter hardware, capitalize internal software development, employee related capital expense and facilities related capital expense. In 2013, we project capital spending to be in the range of $11 million to $13 million as we purchased more of our own co-located hardware and move more of our operations away from managed hosting. We believe this investment will result in lower technology related operating expenses over time.

Now in terms of future outlook I would like to share our thoughts regarding the first quarter and full year of 2013 based on information available to us as of today February 19, 2013. For the first quarter of 2013, we anticipate revenue in the range of $48 million to $50 million. We anticipate adjusted EBITDA to be in the range of a loss of $1 million to $1.5 million in the first quarter. We are also providing our first outlook for the full year 2013. As of today we expect 2013 annual revenue to be in the range $270 million to $280 million or approximately 55% year-over-year growth at the midpoint. We anticipate adjusted EBITDA to be in the range of $17 million to $18 million for the full year.

I would remind you that there is significant seasonality in our business and the first quarter of the year tends to produced revenue that is lower than the fourth quarter of the previous year. We expect that trend to continue this year. Also we do a meaningful portion of our sales hiring in late Q4 and early Q1, which results in a jump in operating expenses in the first quarter. This early year investment in sales personnel is critical to driving revenue growth throughout the year. Therefore, like last year, we expect adjusted EBTIDA to drop in the first quarter as compared to the fourth quarter of the previous year. Typically sales ramp up in the second and third quarters as brand advertisers buy more during those quarters, than in the first quarter of the year.

While the fourth quarter which tends to be the strongest quarter of the year, we typically see our highest level of profitability for the year. At this time, we believe 2013 will follow these typical seasonal trends. I would remind you that our long-term adjusted EBITDA target is 20% of revenue that we saw an adjusted EBITDA margin of more than 9% in Q4, 2012. We will continue to invest to capture the growth opportunity available in the mobile advertising market in the near term. As Paul said earlier, we remain very excited about our business opportunity in 2013 and beyond as we operate at the center of this fast growing mobile advertising market.

And with that I would like to ask the operator to open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Jordan Monahan of Morgan Stanley. Please proceed.

Jordan Monahan - Morgan Stanley

Oh, great. Thank you. Couple of questions if I can, the first is I am wondering if you might be able to expand a little bit more on Paul I think on early comment – earlier comment rather about a few large brand deals that didn’t materialize in the fourth quarter. The first quarter guidance would suggest that you don’t plan for those to materialize in the first quarter. So, I am wondering if you can talk about that. And then second is if you can actually go into a little more detail on the cadence that you expect as we move throughout the year because I think if I am not mistaken the full year guidance implies a bit of a reacceleration as the comps gets a little bit tougher?

Paul Palmieri

Got it. So, I will take the first part and I will kick the second one over to Mike. Thanks for the question, Jordan. So, in terms of the first part, in terms of late in the quarter, we saw a few big brand deals either allocated away from mobile entirely or that didn’t materialize for us. So, I mentioned before some deals that didn’t materialize some of them were also deals that didn’t materialize more through the mobile as well. And again we have a long-term strategy to drive value for our advertising clients and these advertising clients fall into roughly four different buckets in two categories. The categories are brand versus performance. And then there are various categories within performance and its performance we see direct marketers, we see local advertisers and we see mobile developers that are seeking downloads.

And so again, the brand focus that we had is our traditional focus the focus on direct marketers, the higher end app download deals that are driving particularly to long-term value, so not just driving a download for an app developer as an advertiser, but one that then results in the consumer enjoying that app. And so there is a more value based segment that is out there where there are sort of download swapping schemes that produce a download but that generally don’t result in that consumer coming back and opening up the app and enjoying. And then again so we have got again this long-term strategy focused on brands and the higher end side of performance but we have chosen to stay out of that piece and then again on the brand side of the house is brands try mobile and they enter and put their toe in the water and then spend a little bit more and a little bit more I think we see some episodic spending here and there for brands and we certainly saw that happen very late in Q4.

Mike Avon

And Jordan, this is Mike. On your second question which I think was about the cadence of the year in 2013 obviously we have gave guidance on Q1 and for the year, we don’t give guidance and this is the first time we are giving guidance on other quarters. I would say just to follow-up a little bit on my prepared remarks the revenue growth and the revenue sequencing that you saw last year and our company was fairly typical on what we would expect to be pretty typical for a mobile advertising company if you look at the guidance for Q1 of this year as compared to the annual guidance as a percentage is very similar to the actual Q1 of last compared to the actual results. So, I think last is a reasonable guide or at least an illustrative guide to which you would expect this typical sequencing or a typical cadence of the year in our business.

Jordan Monahan - Morgan Stanley

Okay, great. And actually if it’s possible just ask one follow-up don’t mean to be greedy, but I guess just with respect to the few that Paul you talked about essentially choosing quality over quantity, is there a I guess should we think about that being more of a market-based problem that surprised you or has there been potentially a competitor in the market that’s willing to take deals that you are not and potentially that there is a little bit of pressure that way?

Paul Palmieri

No, I think overall this segment has existed out there and for us again this strategy is not new these choices that we made in Q4 were not unique to Q4, it’s a long-held strategy of ours. And this step has been out there for a while and so I think it’s what we look at is, we look at really the three business quality metrics and say okay well did the business quality improve by following this strategy. And if you look at gross margin, if you look at adjusted EBITDA, if you look at CPM growth, yeah, clearly that delivered incremental business quality around its metrics.

Jordan Monahan - Morgan Stanley

Okay, great. Thank you.

Operator

Your next question comes from the line of Mark May of Barclays. Please proceed.

Mark May - Barclays

Thanks for taking my questions. I guess I am less focused on the fact that you didn’t take business that you’ve never really planned to take anyway. I am more focused on I guess more of the brand display business that is your core and that you are focused on, it sounds like that that was softer than you expected. And I am just wondering kind of I think it’s a follow on to the earlier question it looks like that your Q1 guidance at the midpoint was down 15% sequentially, that’s greater than normal particularly when you consider the increasing contribution from the new international markets. Is that it sounds like that the brand or premium side of the mobile ad space that is your core focus continues to be a bit soft? And I am just wondering why is that market share related, is it a particular sector or brand advertisers that where you are seeing that weakness, I am just trying to get a little more color around what’s happening not so much on the performance side of the house, but on your core side of your business.

Paul Palmieri

Yeah. So, I guess what I would say Mark and thanks for your question. What I would say is look our outlook on this market is really unchanged. We are incredibly excited about the brand opportunity and brands continue to spend with us in Q1 in a way that has us, I think very excited about the growth that we can deliver. I think looking on a few brand deals that didn’t materialize late in the quarter, I think that’s what this is not some overarching difference in the way either brands evaluate us or plan to spend with us in 2013. So, I think for us again we look at this as some deals that didn’t materialize on us, not necessarily some major shift or change that’s happened in the market.

Mark May - Barclays

Okay. And I don’t know if it’s related at all, but the Metaresolver deal, does that in some way changed your positioning in the marketplace to help maybe resolve some of these issues, that I mean your growth is still phenomenal, but in terms of the hyper growth, does it somehow help get you back into that kind of seat again or?

Paul Palmieri

Well, what I would say, first I should say very bluntly that we don’t like to not deliver numbers that we made up ourselves and came up with ourselves and gave to you. And so we are very mindful on this call of what all of that means, and so I didn’t want that to not go discussed in this call. Metaresolver, I think it’s an opportunity that we were intending to pursue anyway in terms of incremental programmatic base buying. That’s an opportunity for us. I think Metaresolver gets us there faster. And but if you look at the total opportunity in the method that we were doing business whether that’s direct and high-touch or whether that was self service, there is this incremental opportunity for us around programmatic, and you might ask hey, does that expand the (tam)? It probably does. I can’t really quantify that for you today. But in terms of an overall opportunity, we think programmatic is an exciting opportunity and we intend to be the leaders in that space as well in mobile.

Mark May - Barclays

Okay, thanks a lot.

Operator

(Operator Instructions) Your next question comes from the line of Jason Helfstein of Oppenheimer. Please proceed.

Jed Kelly - Oppenheimer

Good afternoon. This is Jed Kelly on for Jason.

Paul Palmieri

Hey Jed.

Jed Kelly - Oppenheimer

Hey. Just real quick just to touch on how much is on competition coming from real-time bidding and other factors affecting your outlook?

Mike Avon

Yeah, this is Mike. I think real-time bidding today in mobile is a very small percentage of the market. We think it’s a potentially interesting market over the long-term as Paul just talked about both real-time bidding specifically and in programmatic more generally. But today, RTB is a very small percentage of the market we think single-digit percentage. As you probably know and I think most people who follow the company know, our core platform is at its core a real-time bidded marketplace. So, we operate a real-time bidded marketplace on behalf of our clients today as a closed system and we think we are very well positioned to at the right time open that up as Paul talked about during his remarks earlier in the long-term potentially expanding the (tam) for us. But I don’t think any specific competition from RTB in Q4 or today affects – has been affecting our results in anyway.

Jed Kelly - Oppenheimer

Okay, thank you.

Mike Avon

Sure.

Operator

Your next question comes from the line of Michael Graham of Canaccord. Please proceed.

Michael Graham - Canaccord

Hi, thanks a lot. I just wonder – a couple of quick ones. First, could you – would you care to quantify the size of the brand deals that maybe swift and that might help people and also could you comment on whether those were from existing or new customers because it seems like the mix from existing customers was pretty high, I’m just wondering if maybe it was some new customers that ended up not coming through. And then in your outlook for the next – for this year are we now expecting the business to be significantly more shifted towards brand away from performance because did your forecast consider that this performance stuff maybe will keep sort of fading into woodwork and could we potentially read a positive note into the guidance that its pretty good considering that we are not going have much performance in the mix next year just wondering for your – about your thoughts on that? Thanks.

Mike Avon

Thanks. This is Michael I’ll take those. In Q4 there were a handful of deals within either didn’t come through, didn’t come through the sides that we expected very late in the quarter right around the holidays. And as you know Q4 being very back loaded quarter with significant brand spend between Thanksgiving and holidays for Christmas and New Years and particularly right around Christmas and New Year and we had a handful of deals where different things happened with each deal that really wasn’t an commonality across them. We certainly expected that we were going to hit our initial numbers going deep into December and the deals just didn’t come to fruition. As far as 2013, we continued to do a sizeable amount of performance business again as Paul said our focus is on brand business certainly first and foremost and not makes up again about 60% of our business. But high end or premium performance business is also important for us about half of that adopt downloads and that’s – that can be a lucrative and a viable business and has been for us. So, we will continue to focus on those two areas in 2013 and our guidance reflects that.

Paul Palmieri

Michael, this is Paul just to add to that. I think that as you see companies who are in the app development space, who are public companies who are out there talking about how their business on mobile works. They talk a lot about LTV and they talk a lot about the monetization of their users. And so I’m quite sure that you have heard a continuing theme from these companies over the last several quarters that says we really have to get quality downloaders not just downloads and that LTV is incredibly valuable. And so in terms of the segment that’s kind of app swapping type of the business, yeah I would expect that over time that declines and falls away just as excited homes sells hits to pets.com in the early days of the internet eventually fell away and the real business has emerged.

Michael Graham - Canaccord

Okay, that makes sense. And just a quick follow up to that Paul, would you expect that type of performance business that you’re not going pursue anymore. Is it shifted more heavily towards iOS than the Android, in other words is there a difference across platforms?

Paul Palmieri

I think it’s all across the board and again we’re not making a decision now, nor did we make it exclusively in Q4 this is a long held strategy of ours just to stay out of that, stay out of that market. But again I think it’s across – I think it’s across all platforms. If you’d really may get an answer I would probably say, it’s more Android than iOS, but I really we’ve think it across all.

Michael Graham - Canaccord

Okay. Thank you.

Operator

Your next question comes from the line of Jordan Rohan of Stifel. Please proceed.

Nat Brogadir - Stifel

Hi guys, this is Nat Brogadir in for Jordan. Quickly on the performance leaving the revenue on the table, it seems like the upside from the past couple quarters has resulted in lower CPMs year-over-year and the revenue upside it’s clearly it seems like a strategy that’s now happening in fourth quarter as you get higher year-over-year CPMs but a little bit less revenue. So, can you just confirm that that was a Q4 strategy change or that been throughout the whole year just want some clarification? And I have follow-up after that.

Mike Avon

This is Mike, no I mean the strategy has been the same you are correct that we were CPMs were up globally year-over-year in Q4 as they were up significantly sequentially from Q3 to Q4, but the strategy has been the same throughout the year.

Nat Brogadir - Stifel

Alright, thanks Mike. And then just on fill rate I know a big read in that keeps going up sequentially is because of the international operations expanding. As you guys leave more performance, low-end performance on the table, should that fill rate I mean is that an offsetting factor or should that continue to go up sequentially into 2013?

Paul Palmieri

I mean I don’t anything – Jordan we don’t look at it as anything is materially different than I am sorry Nat. I am looking at my screen and it says Jordan sorry of that. There is nothing materially different about our business today than it was three months ago at all. We are talking about a business that we will never really in on the lower end of the business. So, I don’t think we are exiting anything, I don’t think we are going away from something, it’s not a new strategy, it’s what we are really talking about here is a focus for us in 2013 yes across brands, yes around data and programmatic as we talked about. And ultimately I think that it’s going to allow us to even take maybe medium priced performance business and drive higher value form it as we continue to offer more programmatic solutions that allow us to have interfaces into some of that – some demand and so nothing really has materially changed and I just want to point that out Nat.

Nat Brogadir - Stifel

Thanks guys.

Operator

Next question comes from the line of Rory Maher of Hillside Partners. Please proceed.

Rory Maher - Hillside Partners

Thanks a lot. Just I want to dig in a little bit more into the performance-based business that you left on the table in the fourth quarter. In the past calls you talked about enough downloads as well as some performance-based driving a significant amount of your growth I think something like 40% business. So and then I think at some point in the call you talked about the business that you left on the table being kind of download swaps, can you go into a little more detail kind of exactly what a download swap is versus a typical in-app download. And then why not just take the revenue it seems like a lot of its self served mobile sell out is pretty low. I guess what is could really be lost not taking that revenue. And then secondly I think part of the long-term viability of mobile and if it’s going to grow to be a business, it has to steal a significant shift from TV dollar. I think your 2013 guidance implies that at least it’s not going to happen in 2013. And I guess one do you agree with that and then if not how does mobile start stealing share from TV ad budgets? Thanks.

Paul Palmieri

Well Rory that’s a lot of questions.

Rory Maher - Hillside Partners

Actually I had a lot more actually if I had time.

Paul Palmieri

Here we go, so we will start with what is this portion of this download swapping business. The performance business yet has been historically roughly 40% of our business. And that’s made up of really three different sets of clients direct marketers, local businesses, and app developers seeking downloads. The segment of business of business that we are not involved in and won’t be involved in is one where the consumer experience is click here to get three coins in return for downloading this app. So, an incentivized download or an incentivized click that says to the user we don’t care whether you ever actually use the app, but if you click here and download it we are going to give you – we are going to swap out some other value you get more tokens in this game or that game and ultimately we will see the robust download of that incremental download isn’t really getting anything. The consumer never really goes into the app to utilize the app and so this is a – this is fool’s gold. And there are a few companies that are pursuing the strategy mostly smaller companies, and I think that we look at it in exactly that way.

Mike Avon

And this is Mike I’ll take the other part of your question around 2013 in TV budget. Yeah, you heard Paul talk a little bit about some of the recent cross-screen TV promotions that we have done including over the weekend with one of our clients and during the Super Bowl as well. So, we are seeing meaningful dollars move on to the platform today have over the past year and seen a significant increase in TV dollars that are reinforcing other advertising that’s being done on TV. Historically, we have done very well with tune-in budget, where TV advertisers, entertainment advertisers are paying us to drive televisions well. So, yet we believe that TV dollars, at least some TV dollars will move to mobile over the long-term and that reflected in our guidance for 2013. So, we do think that’s an important upside over the long-term. It will take some time, but we are seeing some meaningful dollars today and we expect that to continue.

Operator

Your next question comes from the line of Richard Fetyko of Janney Capital. Please proceed.

Richard Fetyko - Janney Capital

Good evening guys. I am little perplexed about the – if the performance base, low-quality performance based business as you define it was never really part of the strategy, this hasn’t been a change in the strategy. I assumed it wasn’t part of the guidance. So, why are we talking about it as a reason for missing the guidance on the revenues? And then secondly on the Metaresolver acquisition, can you sort of clarify what the intentions are with that technology? Is it to offer and sort of leapfrog your efforts to offer self-service programmatic buying solutions to clients or will there be also an opportunity to use the technology to tap into the ad exchanges as a source of inventory for your own needs?

Paul Palmieri

So, first, the reason why we are talking about these incentivized downloads in the context of the moderation of the revenue growth metric in Q4 is that we think some more of the performance dollars moved into that arena. And that coupled with a few – this handful of brand deals that didn’t materialize for us both produced the outcome that we saw. And that’s again not part of the business, but again I have described these three segments of performance. And one of them is app developers seeking downloads and there is a high value good business in there that we do. And so the reason for its inclusion is some more dollars than anticipated went into these incentivized schemes in Q4 that we don’t participate in. Second part of that, could you repeat the second part of that?

Richard Fetyko - Janney Capital

Sure. On the Metaresolver acquisition, just curious what are some of the used cases for it, if you will, one, it sounds looks like you are looking to use some of that technology to accelerate your development of self-service platform. And then I was wondering is that the only used case or will you be also using that technology to tap into the ad exchanges for your own inventory? I am curious also if you could give us an idea how much you paid for, is it less than $10 million or just some ballpark figure? Thanks.

Paul Palmieri

So, we are not disclosing the price of the acquisition at this point. What we’ll say on Metaresolver is that the idea behind Metaresolver is we have an industry leading supply asset. We have in the last several quarters we have brought through the platform not only our own demand, but some third-party demand as well. And well our technology as Mike has described has always been based as a platform on a private RTB methodology. Metaresolver focused on the interfaces into systems like ours. And so what Metaresolver will help us expose in collaboration with our folks is expose our supply to incremental demand. And what I’ll say is Millennial Media and very few others maybe one or two others are the largest holders of mobile ad impression supply. And so, no, Millennial Media is not looking to tap into a mountainous load of supply that exist elsewhere, because it doesn’t exist elsewhere. It exists at Google and Millennial and it exists to a much lesser extent throughout the industry everywhere else. That has continued to be the case for the last four, five years or so and that remains the case today.

Richard Fetyko - Janney Capital

Alright, thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

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