Millennial Media Management Discusses Q1 2013 Results - Earnings Call Transcript

| About: Millennial Media, (MM)

Millennial Media (NYSE:MM)

Q1 2013 Earnings Call

May 08, 2013 5:00 pm ET


Andrew J. Jeanneret - Chief Accounting Officer, Senior Vice President of Accounting and Controller

Paul J. Palmieri - Co-Founder, Chairman, Chief Executive Officer and President

Michael B. Avon - Chief Financial Officer and Executive Vice President


Heath P. Terry - Goldman Sachs Group Inc., Research Division

Michael Graham - Canaccord Genuity, Research Division

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Jordan Monahan - Morgan Stanley, Research Division

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Rory Maher

Kerry K. Rice - Needham & Company, LLC, Research Division

James Cakmak - Telsey Advisory Group LLC

Mark J. Zgutowicz - Northland Capital Markets, Research Division


Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Millennial Media Incorporated Earnings Conference Call. My name is Regina, and I'll be your conference operator for today. [Operator Instructions] As a reminder, today's event is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Andrew Jeanneret, Chief Accounting Officer. Please go ahead, Mr. Jeanneret.

Andrew J. Jeanneret

Good afternoon, and welcome, everyone, to the Millennial Media earnings call for the first quarter of 2013.

Before we begin, I would like to remind you that during the 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 the results discussed in the forward-looking statements.

For detailed disclosures of the risks and uncertainties that could cause our results to differ from today's discussion, 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-Q that we will file for the quarter ended March 31, 2013.

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 measure are provided in today's press release and 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 1 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'll turn the call over to Paul Palmieri, Co-Founder, President and CEO of Millennial Media.

Paul J. Palmieri

Thanks, Andrew, and thanks to everyone joining us today on the call.

On today's call, we will cover our performance for the first quarter of 2013, company initiatives and our outlook for the second quarter and the rest of 2013.

The first quarter of 2013 was another growth quarter for the business of mobile advertising. Across the industry, as we saw in previous quarters, there was significant movement of advertising budgets to mobile, trailing but chasing the significant consumer phenomenon of increased time spent on the mobile Internet and the app economy. Developers and publishers of applications and mobile and tablet-based consumer services continued with their adoption of the free and ad-supported business model, and the data networks and devices that deliver these experiences to consumers also saw solid growth in the quarter.

Millennial Media is at the center of these secular trends, helping to drive both the monetization of the app economy and the market for mobile advertising. We want to continue to power the app economy by showing marketers the power of mobile, and we are proud of the results that we are generating for our partners and the market as a whole.

We got off to a good start this year, with solid growth and continued innovation. Usage of our platform continued to grow. We delivered a major new release of our SDKs, we closed on our acquisition in the programmatic mobile space, and we delivered financial performance that was consistent with or ahead of guidance.

For the first quarter of 2013, we finished the quarter with revenues of $49.4 million, in the upper portion of our guidance range of $48 million to $50 million. Revenue was up 50.1% over Q1 2012. Adjusted EBITDA for the quarter was a loss of $767,000. This was better than our guidance of an adjusted EBITDA loss of $1 million to $1.5 million for the period.

Our GAAP earnings per share was a loss of $0.05 per share and our non-GAAP earnings per share was a loss of $0.01 per share. You can find a reconciliation between non-GAAP earnings per share and GAAP earnings per share in today's press release.

As we've discussed before, there are 4 major components of our strategy: one, to deliver differentiated and scalable mobile advertising solutions to marketers and agencies; two, to deliver superior monetization to developers via a complete data, tools and service platform; three, build a significant and robust data asset based on the power of unique mobile data, such as location; and 4, continue to build, evolve and extend our global tech platform to enable all components of our strategy and, ultimately, make the power of mobile core to advertisers' and developers' businesses. It is these 4 pillars that have guided our business priorities and customer focus to date, and it will be these 4 pillars that will continue to drive our strategic growth for the long term.

In the near term, and in support of these pillars, we have defined 4 key priorities for 2013, which I shared with you on last quarter's call. I'd like to use my time with you today to do 2 things: to give new investors a brief overview of our business and an assessment of how we're doing with each of the 2013 key priorities. I'll start with a brief overview.

The consumption of content on mobile devices is skyrocketing. Applications and mobile web apps, including mobile radio, news sites, utilities and games, often give their apps away for free. The monetization primarily comes through advertising. Millennial Media plays a key role in monetization for developers, generating over $100 million in net payouts to developers and publishers in 2012.

Our suite of free developer tools, combined with our monetization capabilities and independence, makes Millennial a key partner for thousands of mobile developers and publishers.

While there are certainly a few large developers who have their own ad sales teams and monetize inventory themselves, the vast majority of mobile developers and publishers use third-party platform providers like Millennial Media.

And when you look at the third-party mobile monetization business, Millennial Media is the clear leading independent player. According to IDC's most recent market share report, we increased our market share to 18% of the third-party U.S. mobile advertising market in 2012. This put us second only to Google.

Advertisers, of course, want to reach consumers regardless of what content they're consuming. For marketers, it's critical to reach consumers at the right time in the right place when they are making buying decisions. For these marketers, it doesn't matter whether the consumer is playing a game, checking the weather or, frankly, checking in. And that is where the power of our platform is.

Our technology and data capabilities allow us to offer advertisers access to more than 420 million unique users each month across more than 42,000 apps and sites enabled on our platform. Using our Relevance Graph, built upon the more than 350 million unique anonymous user profiles, we can deliver relevant ads to consumers wherever they are. MYDAS, our technology platform, is managing approximately 2 billion advertising transactions each day.

Advertisers wanting to reach consumers across multiple apps and sites across devices really only have a few choices of partners with any scale to work with. For all of the discussion in the market about new entrants, both large and small, it remains the case that few companies can deliver the scale, reach and property diversity that advertisers, particularly brand advertisers, demand. The importance of scale and reach for Fortune 500 advertisers can't be emphasized enough.

In addition to our scale, we bring a focus on delivering solutions to brands and mobile, along with our independent positioning that only Millennial Media can offer. These differentiators have enabled us to build strong relationships with both brand and direct advertisers when it comes to mobile advertising, and our goal is to build on that leadership position.

On April 1, we closed our acquisition of Metaresolver. Metaresolver had a relatively small team, but we have been impressed with their leadership and their technology for quite some time.

In particular, Mike Rowehl, Metaresolver's Co-Founder and CTO, is someone we've known of and respected for many years. Also, Seamus McAteer, the CEO and Co-Founder of Metaresolver and the Co-Founder of M:Metrics prior to that, is someone who's been a luminary in the mobile advertising market and an authority in mobile measurement for years. We were excited to add Seamus, Mike and their other team members to our team last month.

Now on our last call, I talked about our areas of focus in 2013. And I'd like to give you an update on our progress with each. These key areas of focus and investment in 2013 are critical to Millennial achieving its strategic goals.

Our first area of focus for 2013 is to make it easier to buy and transact on our platform. First, we've done a lot of work over the past year to make it easier for clients to buy and transact on our platform.

Today and throughout our history, most advertisers access the power of our platform through our sales force whether, that's our field sales force or inside sales operation. From there, we take over as a managed service.

Now over the years, some of our advertisers wanted to access the power of the platform more directly, without the assistance of our sales and operating teams. To support that, we launched our first version of mMedia last year, our self-service interface for advertisers. This has shown good success. And as certain advertisers prefer to interact via the self-service channel, this has been quite good for the company.

For example, in Q1 of 2013, a European mobile performance agency spent 3.7x what they did on full-serve in the previous quarter. They actively used the agency hierarchy features, creating campaigns across Germany, Italy, Spain and France. They ran a variety of campaigns, including game downloads, entertainment and sports content and health content. All campaigns were managed from beginning to end by the client.

The second area in making it easier for clients to buy and transact on the platform is programmatic buying and selling. We are determined to be a major player in premium programmatic media. We have made some aggressive moves in Q1 to move in that direction, and we intend to invest and make more moves in the coming quarters.

It's important to note that our MYDAS platform operates via a realtime bidded marketplace, and has throughout our history. So adding the interfaces for the strategic and growing sales channel is an extension of the platform and not a change to it.

In 2013, we are adding capabilities to mMedia to allow more programmatic access to MYDAS to support our advertisers to buy in the way that works best for them. We acquired Metaresolver, a mobile DSP, or demand-side platform, that had interesting interfaces, sophisticated bidder technology and great partnerships. We are now integrating this functionality into mMedia. You will continue to see a lot of additional functionality in mMedia throughout the year as we complete the integration of Metaresolver and roll out new products and interfaces that our team has been working on to support a more programmatic approach to mobile advertising.

Also in 2013, we expanded the number of third-party demand sources that help us to provide monetization to developers. Within the next 2 quarters, we believe the timing will be right to offer developers exchange capabilities for the programmatic sale of their inventory using our platform. And when we arrive to market with this capability, we intend to not just trade impressions, but rather premium opportunities, richly fortified by our deep and proprietary mobile profiles.

Our second key area of focus for 2013 is to grow our proprietary data asset. From the earliest days of our company, we've had a relentless commitment to building a proprietary data asset and using that data to deliver more relevant and engaging ads to consumers and better results for advertisers as a consequence.

We call our data asset the Relevance Graph. In 2013, we've continued to enhance our Relevance Graph through investments in incremental development and data licensing. Last year, we announced a comprehensive suite of Mobile Audience Solutions, or MAS, for advertisers and marketers that leverages the Relevance Graph to deliver better targeting and engagement to advertisements. MAS enables advertisers to target consumers based on proprietary audience segments, demographics, behavior or location. In 2013, we've made enhancements to MAS, rolling out new audience categories and further enhancing the effectiveness of those categories.

We have also put a lot of effort into selling MAS in the marketplace. In Q1, we embarked on a roadshow to many top brands and agencies, meeting with CMOs, agency executives and other marketers to introduce them to the power of Mobile Audience Solutions. And the results for us have been really great. We've increased the number of advertisers using MAS while driving larger campaigns and better results for our advertisers. We've seen accelerated adoption of MAS in categories like automotive, retail, restaurants and telecom.

One of our clients who has used MAS earlier this year was Elizabeth Arden. That campaign targeted tech-savvy social audiences aged 18 to 34. The campaign was further targeted to specific mobile consumers who were likely to interact with the ad and then share their experiences through social media outlets like Facebook and Twitter. We helped Elizabeth Arden, along with their agency, PHD, to create unique interactive ad units that used the shake functionality within mobile phones to create an ad that looked like a magic 8 ball, giving the audiences different messages each time they shook the phone. This functionality drove rich engagement among the target audience and encouraged them to share the results with their friends.

And following on the success of MAS in the U.S., we rolled out MAS in the U.K. earlier this year. The response from advertisers and agencies has been enthusiastic. Based on the success of MAS in the U.S. and the U.K., we plan to roll it out in other markets later in 2013.

Our third key area of focus for 2013 is delivering effective advertising across many different mobile-driven devices. Today, we offer advertisers the ability to reach consumers through more than 7,500 distinct device types, including phones, tablets, gaming devices and even stationary app-based devices that really don't seem mobile at all. We think that virtually all new devices will look much more like mobile devices than PCs moving forward. And in the first quarter of 2013, we delivered a step change in the immersive experiences that can be delivered for advertisers on them. We're actively investing in development for new device types, and here's how:

We've recently released our new 5.0 software development kit, or SDK, which is designed to enhance monetization of apps across smartphones, tablets and other connected devices. SDK 5.0 enhances our video advertising and rich media capabilities while adding new functionality like interactive voice ads and integration with iOS's Passbook for coupon and voucher-based campaigns. We've also introduced enhanced video solutions for mobile browsers, which is particularly important on the tablet, where consumers use the browser with more frequency than they do on smartphones. In addition, we developed and deployed workflow toolkits for designers to access these features, also in the first quarter.

The emergence of video advertising on the tablet, in particular, has been exciting. In February, we ran a number of ads targeting tablets during the Super Bowl. Now some of these ads were from large advertisers already spending on Super Bowl commercials who also spent significant sums on coordinated mobile buys to reach consumers who were co-viewing the event on 2 screens. We also had advertisers who advertised on the tablet instead of a Super Bowl ad.

We've run other campaigns that have synchronized television and mobile, including an exciting campaign that offered video and rich media in the same unit during a television premiere. The fact that advertisers can now buy video and rich media across smartphones and tablets at scale and also reach consumers during their consumption of TV is opening up an entirely new opportunity for us.

Our fourth key area of focus for 2013 is to continue our global expansion within existing and expanded regions. In Q1, 18.4% of our revenue was generated outside of the United States. Growth in EMEA and Asia Pac exceeded our expectations in Q1, as consumers have adopted smartphones and tablets in ever-increasing numbers and advertisers have flocked to mobile to reach those consumers.

In Europe, we have enhanced our market position in our key markets and are growing our business. In Asia Pacific, we now have launched Japan, which is an exciting mobile market full of promise. Out of Singapore, we are now generating business across Southeast Asia, in Australia, China and India as well as our core markets there. We plan to continue to expand in Asia Pacific, supporting these markets from our operational hub in Singapore.

In closing, we had a solid start to the year in an incredibly exciting market. We've seen strong growth in engagement with the platform, strong product evolution, both organically and via acquisition, and solid financial results. We are attacking the future market opportunity aggressively by building on our strategic pillars and remain incredibly bullish on the mobile advertising opportunity.

And now I'll turn it over to Mike Avon, our Executive Vice President and Chief Financial Officer.

Michael B. Avon

Thanks, Paul. For the first quarter of 2013, revenue was near the top of our guidance range at $49.4 million, a 50.1% increase from $32.9 million in Q1 of 2012. 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 during the quarter.

Now as is typical, revenue in Q1 was more heavily weighted towards performance advertisers than during other quarters of the year. About half of our revenue came from performance advertisers in Q1, which was consistent with our expectations and consistent with our historical Q1 performance. For the balance of the year, our brand performance mix tends to trend closer to a 60%-40% mix in favor of brands.

As we have discussed on previous calls, in Q1, many app developers want to target consumers right after the holidays as those consumers are installing new apps on their new smartphones and tablets that they may have received as gifts during the holidays. At the same time, brand advertisers tend to limit their spend in the first 2 months of the year after their heavy spending during the holiday period.

While we have a strong performance business, we are, at our core, brand specialists, and we have more competition in performance advertising, particularly from Google, which is historically been focused on performance advertising. Facebook has also showed some strength in advertising app downloads to consumers. Yet even with this competition, our performance business did very well in Q1 and continues to perform well early into the second quarter.

We also saw a strong brand business in the quarter. Notably, we saw a positive trend in spending from the retail sector, which performed in line with expectations in Q1 after performing below our expectations during the holiday period. This strength in the retail sector, and the strength more generally in brand spend has continued into the first part of the second quarter.

In particular, we saw a surge in video advertising from many of our large brand clients in the first quarter. In fact, March was a record month for video revenue for us, and we believe video will continue to grow as a percentage of our overall revenue this year. We see video ads increasing as a share of our business both on smartphones and on tablets. Video ads tend to drive higher effective CPMs because they tend to drive higher engagement rates than do banner ads or many rich media ads. This allows us to drive more value out of available impressions on our platform.

Historically, we tend to see acceleration in our growth rates during the year as brands spend more in the second, third and fourth quarters than they typically do in the first quarter.

For example, last year in 2012, we grew 53% year-over-year in the first quarter while we grew 71% overall for the year in 2012 over 2011. While we're not -- while we have not forecast that type of acceleration in the back half of 2013, we do think we will see faster revenue growth for the full year of 2013 than we did in the first quarter.

We continue to see strong growth from our international regions, as you heard Paul talk about. Revenue generated from our international sales offices comprised 18.4% of Q1 revenue in 2013, compared to 12.1% of revenue in Q1 of 2012.

We also increased a number of nonfinancial metrics that we report during the quarter, which influence our performance. For example, the number of apps enabled on our platform increased to more than 42,000 by the end of Q1 2013 as compared to 39,000 at the end of Q1 -- excuse me, 39,000 at the end of 2012 and 30,000 at the end of Q1 -- 39,000 at the end of 2012 and 30,000 at the end of Q1 2012.

In March 2013, our platform reached more than 420 million unique users worldwide, including more than 160 million unique users in the United States, while we have more than 350 million anonymous user profiles, up from approximately 150 million profiles a year earlier. These profiles are a core ingredient in our Relevance Graph, which enables us to deliver more relevant ads to consumers.

Global effective CPMs were up approximately 6% in Q1 of 2013 as compared to Q1 of 2012. Global fill rates were also higher in Q1 than they were in Q1 of last year. Both fill rates and effective CPMs dropped in Q1 as compared to Q4 of last year, which was consistent with our expectations and with normal industry seasonality. We do think that our year-over-year effective CPM increase is notable, as many in the industry are talking about declining CPMs because of a glut of supply of inventory and due to competitive forces. We believe that our higher effective CPMs and higher fill rates year-over-year are good indications of the strong competitive positioning of our business in this fast-growing market.

Total revenue from existing advertisers increased by 71.1% in Q1 2013 over Q1 of 2012, representing 69.8% of Q1 2013 revenue. For reporting purposes, when referring to existing advertising clients for any period, we mean advertising clients who had, as of the beginning of that period being discussed, previously advertised on our platform at any time. If an existing client advertises a new brand on our platform or a subsidiary of an existing client begins advertising on our platform, we also categorize those as existing clients.

We regularly talk about the revenue growth from existing repeat advertisers because we think it provides good evidence of the compelling ROI that advertisers see when they work through the Millennial Media platform.

We think it is very important in these still early days of mobile advertising to demonstrate to advertisers the powerful ROI that they can see when they use a scaled platform like ours to deliver wherever, whenever advertising to consumers regardless of the app they're using at any given moment.

With the powerful targeting capabilities made possible by our Relevance Graph and more than 350 million anonymous user profiles, new advertisers tend to test the Millennial platform with smaller campaigns to gauge the ROI from our services. Then, once they're repeat advertisers, they tend to spend much larger amounts as they reach and engage mobile audiences at scale with more campaigns, larger campaigns and campaigns from new brands within their portfolio.

Gross margins were 41.6% in Q1 of 2013 as compared to 39.5% in Q1 of 2012. That was up from 41.2% in Q4 of 2012 and well within our long-term target range of 40% to 42%.

We have been able to use enhanced optimization techniques and technologies to place more ads with developers where we may have more favorable revenue share deals while still delivering equal or superior results to advertisers through those apps or sites.

While we've been happy about our continued gross margin improvements, we continue to reiterate to investors that we expect gross margins to float within our 40% to 42% target range for the foreseeable future and we do not expect gross margins to continue to increase as they have over recent quarters. We believe that the 40% to 42% target range maximizes our long-term developer relationships and will therefore help us maximize long-term profitability, even if that's at the expense of shorter-term profit maximization.

Now on to operating expenses, where I'd like to give some color on where we have spent in Q1 and where we are making investments in our growth. Sales and marketing expense was $8.1 million for the first quarter of 2013 versus $4.6 million in Q1 of last year. We continue to build out our global sales force, with a particular focus on building up our international sales offices and continuing to build our inside sales capabilities.

Overall, the number of people in our sales and marketing group as of March 31, 2013, was 130, up from 84 as of March 31, 2012.

Technology and development expense increased from $2.6 million in the first quarter of 2012 to $4.2 million in the first quarter of 2013. We have invested and will continue to invest in technology and development as we expand and extend our MYDAS technology platform and enhance the Relevance Graph. We've also accelerated our technology spend to add programmatic capabilities to our mMedia self-service interfaces to allow advertises more flexibility and control in managing their campaigns.

We plan to accelerate spend in this area in the coming quarters as we integrate the Metaresolver platform into mMedia following the close of the acquisition earlier this quarter. We're also accelerating development of technologies and products to support additional cross-device capabilities. These include enhanced video and rich media capabilities on tablets and other connected devices.

General and administrative expense was $12 million in the first quarter of 2013 versus $8.7 million in the first quarter of 2012. Growth in our G&A expenses were predominantly related to increases in our operations and developer support groups, as well as our information technology and product groups that support those groups. Our G&A function supports both domestic and international operations.

Adjusted EBITDA in the first quarter of 2013 was a loss of $767,000 as compared to a loss of $2.4 million in the first quarter of 2012. This was ahead of our guidance range of negative $1 million to negative $1.5 million. Our better-than-expected adjusted EBITDA performance was driven by our gross margin performance and operating expenses being slightly lower than our plan.

For the first quarter of 2013, adjusted EBITDA excludes noncash stock-based compensation expense of $1.7 million and $1 million of depreciation, amortization, interest and income tax expense.

In addition, adjusted EBITDA also excludes $361,000 in direct acquisition-related expenses, including legal fees, associated with our $14 million acquisition of Metaresolver, which closed on April 1. This is our first acquisition as a public company, and going forward, we will continue to adjust adjusted EBITDA for acquisition-related costs associated with acquisitions that we may undertake, including $2 million of the Metaresolver purchase price that is contingent on future service of the Metaresolver team with us and which we will amortize as an expense over the 2-year period following the closing. There's a reconciliation between adjusted EBITDA, which, again, is a non-GAAP measure, and net loss, the closest GAAP equivalent, in our press release and 8-K filed earlier today.

Again, stock-based compensation was $1.7 million for the first quarter of 2013. I would note that we expect stock-based compensation in the second quarter of 2013 to be considerably higher than in the first quarter. We've recently made several equity grants to certain executives and other leaders in the company that have increased overall SBC. Also, we expect to have approximately $1.6 million in onetime stock-based compensation expenses in Q2 associated with the departure of certain employees. We expect stock-based compensation to be in the range of $3.9 million to $4.2 million for the second quarter and expect stock-based compensation to be approximately 4% to 5% of revenue for the full year of 2013.

Net loss attributable to common shareholders was $3.75 million in the first quarter of 2013 compared to a net loss attributable to common shareholders of $5.3 million in the first quarter of 2012. Basic and diluted GAAP EPS was a loss of $0.05 per share in the first quarter of 2013 versus a loss of $0.32 per share in the first quarter of 2012. I'd note that Q1 2012 EPS included preferred stock accretion expense of $0.08 per share prior to all of the preferred shares converting into common in our IPO.

Non-GAAP EPS, which is calculated as our adjusted EBITDA divided by the weighted average number of common shares outstanding during the period, was a loss of $0.01 per share for the first quarter of 2013 compared to a loss of $0.15 per share for the first quarter of 2012.

As I already mentioned, the 2013 loss excludes stock-based compensation cost and acquisition-related costs. We plan to report non-GAAP EPS going forward and have included a reconciliation to GAAP EPS in our 8-K and press release that we issued earlier today.

Our weighted average share count used in our basic and diluted EPS calculations were approximately 79 million shares for the first quarter of 2013 and 17 million shares for the first quarter of 2012 as the -- that number in the first quarter 2012 did not yet reflect the conversion of our preferred stock, which converted in our IPO that closed on April 3, 2012. We continue to anticipate that we will not release our NOLs until Q4 of 2013 or Q1 of 2014 at the earliest. We will continue to update anticipated timing of such a release in future calls.

Our capital spending was approximately $1.8 million for the first quarter of 2013. We continue to expect capital spending for 2013 to be in the range of $11 million to $13 million for the year.

Our balance sheet remains very strong with $133.5 million in cash and cash equivalents as of March 31, 2013. Our days sales outstanding and receivables continue to remain in expected ranges, with no material deviations from private period -- from prior periods. We continue to have no outstanding debt.

And now turning to our future outlook. I'd like to share our thoughts regarding the second quarter and the full year 2013 based on information available to us as of today, May 8, 2013.

For the second quarter of 2013, we anticipate revenue in the range of $58 million to $60 million. We anticipate adjusted EBITDA to be in the range of a loss of $500,000 to $1.5 million in the second quarter. We expect approximately $500,000 of onetime severance expenses to be included in that projected adjusted EBITDA range in the second quarter. We also plan to accelerate our investment in the programmatic capabilities of our platform during the quarter.

And we are reiterating our guidance for the full year of 2013. As of today, we continue to expect our 2013 annual revenue to be in the range of $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. As Paul said earlier, we continue to be very excited about our business opportunity in 2013 and beyond as we build upon our leadership position in the fast-growing mobile advertising market.

And with that, I'd like to ask the operator to open up the line for questions.

Question-and-Answer Session


[Operator Instructions] And your first question today comes from the line of Heath Terry with Goldman Sachs.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

I'm wondering if you can give us a sense of what's going to -- what we're going to see on the CPI side from investments being made in that area, particularly as Facebook kind of moves into that inventory more?

Paul J. Palmieri

So I think, again, the first quarter for us is more of a performance quarter. I think we did well in Q1, and I think we had business that was in the CPM, CPC and cost per install markets, and we saw some strength there. So we continue to think that the performance business is represented by a mix of direct marketers, local businesses and app developers seeking downloads for their apps. That segment of the market, we think, will remain strong as we go throughout this year.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

And as we look at sort of the other segments within -- particularly the sort of higher-value, more targeted inventory, GEO targeting, the video inventory that you have available to you, what are the growth rates like in that segment relative to sort of the more kind of run of mobile banner inventory that you see?

Michael B. Avon

Yes, Heath, it's Mike. I'll take that one. As I said in my remarks, video is growing as an overall percentage of our business. It grew very nicely in Q1, and we expect video to grow as a percentage of our business during the year. We haven't broke out the specific growth rates, but we are seeing very healthy growth rates in video. I think that's true across the industry. It certainly is true with us. As far as GEO targeting, we continue to see locally targeted ads and behaviorally targeted ads to grow as an overall percentage of our business. We think that's certainly where our technology and data advantage is most pronounced. And so we think a lot of people come to us because of our advantages in delivering behavioral targeting, audience segment targeting and local and hyperlocal targeting. So we have certainly seen significant growth rates there. And I believe that locally targeted ads and impressions with location information are increasing overall in the market today as well, faster than the overall growth rate of the market.


The next question is from the line of Michael Graham with Canaccord.

Michael Graham - Canaccord Genuity, Research Division

Two questions. One is just I think one of the thoughts investors are having about Facebook growing so quickly in mobile is just -- are we going to move to sort of a direct-to-publisher framework in this sector faster than we thought, say, when you guys went public? I mean, I think the whole explosive growth of Facebook in mobile is kind of new. So I'm just wondering if you can comment on has your thinking changed on that going forward? And then similarly, as you look out for this full year guidance, and it's great that you still feel confident in that outlook, can you just comment on anything that has happened recently to give you more confidence in that? And Mike, what are the swing factors? Like if it ends up being better or worse, like, what are the kind of key considerations that will have transpired?

Paul J. Palmieri

Michael, this is Paul. I'll take the opening to that question and -- on the direct-to-publishers, and I'll let Mike answer the other. While there's certainly a few large developers who have their own ad sales teams and monetize their inventory themselves, still, the vast majority of mobile developers and publishers use third-party platforms like us to monetize their applications. And the reason for that is, if you think of our business as a developer looks at it, almost like a platform-as-a-service model, what we do is very complex. And for most developers, even some of the larger developers, it makes little sense to replicate all of what we built, be it our technology or our data capabilities or our sales teams and operations teams. So these developers are effectively buying monetization services from us on a per-drink basis to avoid a heavy upfront investment cost. And we think that cost and that complexity really will be a barrier over the long term. Now it's true, 2 -- a couple of new companies did begin to generate mobile advertising as of year end, namely Facebook and Twitter. And they both had early successes in monetizing their own mobile inventory, which is a single property. Look, we're excited that they're both in the market and joining to show advertisers the power of mobile and what that can do and particularly using data to target. But we, of course, believe that the most efficient model in mobile includes working with third-party platform providers like us. And we think that the value that advertisers get from that property diversity, as well as the reach and the targeting that we provide and the richness that we provide, will win the day over the long term. But in the near term, we think, look, Facebook and Twitter have jumped in, and they are helping to further stimulate the market and increase overall spend.

Michael B. Avon

And Mike, this is Mike. To your second question on the full year guidance, so again, we reiterated the full year guidance that we had given on last quarter's call. That was the best view of our business when we gave it a quarter ago, and it's the best view of business today. What we have seen that's changed that's been positive during that period is we did see a blip in retail spending. Retail is our single biggest category. We saw a bit of a blip in December. And as I said in my remarks, we saw retail come back nicely in Q1 and into Q2 in line with our expectations. So we think that's a good recovery from that sector, and we certainly haven't seen a continued drop-off in that sector. Swing factors for the year, we build our guidance, as we've talked about before, by looking at a lot of data, both internal bottoms-up build and a market analysis as well. Swing factors on the upside could be continued outperformance in international growth and faster-than-expected uptake of self-service and programmatic offerings, but it's very much executing against the plan and expectation that has us growing at roughly the market rate this year.


The next question is from the line of Jason Helfstein with Oppenheimer & Co.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

I'll ask 2 questions, one more on Facebook and then the other on some of the technology initiatives related to data. So when you just think about advertisers, would you say that generally, the types of advertisers that you are selling to -- how would you compare, I guess, the types of advertisers you are seeing versus the types of advertisers we're seeing on Facebook? And when you're talking to the advertisers, how much of it do you think is an either/or. I mean, is your opinion that they're looking more at Facebook as something different than you will call a ton of ads and apps? The second question, as you think about the integration of Metaresolver, mMedia and the MAS data, what it sounds like we're hearing is using the data to effectively maintain gross margin or get better value for what you're doing even under a more RTB or direct-driven sales strategy. Can you just talk a bit more about kind of how you expect that to play out?

Paul J. Palmieri

Yes. Again, Jason, I'll take the first part, and we'll have Mike take the second part. So Facebook, are they selling something different? Yes, fundamentally, they are. In general, we still see Facebook as a social sale that is coming out of a social bucket. They are selling in mobile. The public comments that we've seen from Facebook is that a great deal of that is a performance sale, which is mostly on the app developer side. So that's what we can say about where Facebook is. Again, our strength and our core business really lies in the brand area and some of the performance stuff. I don't think we're selling the same thing. Again, with the breadth of properties that we have, number one, and the notion that really the advertiser is looking to a very, very broad reach across a range of things that consumers are doing on their devices with outcomes that are very, very tangible. And by tangible, I mean an experience around a consumer packaged goods product, a car that you're able to experience, for example, in a rich media ad, and that's a little bit different from the social sale, which is selling somebody the opportunity to have somebody like your product or very strictly just do some kind of a transaction. So Mike?

Michael B. Avon

Yes. And then, Jason, this is Mike. To your question on RTB and programmatic as we integrate Metaresolver, and I think as you asked, are we using data to maintain our margins. I think -- first of all, I think data is very tightly intertwined with programmatic, that ultimately, we look at programmatic as just a different way for advertisers to buy. It's an interface to allow access to our core platform, which runs on a realtime basis. As Paul said earlier, if advertisers want to buy through self-service or through a more programmatic interface, that's great for us. We ultimately want to enable advertisers to buy in any way that they want. Same thing with developers. We want to enable them to sell their impressions in the way that works best for them. Ultimately, the real trick of what we're really offering is the ability to put the right ad in front of the right person at the right time when they're making a buying decision, and that is all about technology and data. So we certainly plan to use our data advantage as we move more deeply into programmatic to deliver better results and, ultimately, not only protect margins but drive better operating margins over time, as we have to have fewer people per dollar spent internally to service those accounts.


Your next question comes from the line of Jordan Monahan with Morgan Stanley.

Jordan Monahan - Morgan Stanley, Research Division

Just actually a couple of quick questions and potentially a follow-up. The first one is just bigger picture, when you think about the opportunities to add a new customer or to run a new campaign from an existing customer, how do you think about prioritizing revenue growth versus margin? And maybe if you could talk about some of the trade-offs that you've experienced in the market over the past couple of quarters. And then the second question is, I think your unique user profile account was flat Q-on-Q. And we were just curious why that was the case, if there are some users that are dropping off and you're adding some or if there was just no change and why.

Michael B. Avon

Yes, Jordan, this is Mike. I'll take those. First of all, on your bigger-picture question, as we run new campaigns, the tradeoff of revenue growth versus margin. There is less of a direct tradeoff than I think most people think here. Ultimately, we want to bring on new customers, and then very quickly, we want to make them existing customers that spend a lot more, as I talked about in my remarks. We want them to come on test, see the ROI and then spend -- then run bigger campaigns, run more campaigns and run campaigns for various brands within their portfolio. The gross margin side of our business is really driven by our revenue share relationships with developers. Those are indirectly linked. Certainly, the higher-priced advertising that we can drive over time allows us to ultimately increase our gross margins, but they're not directly linked. So we're not making that tradeoff day in and day out to run a specifically-priced campaign that may or may not drive gross margins up or down. So ultimately, those 2 are not linked on a direct day-to-day basis. As far as tradeoffs there, we're looking to run campaign -- we're looking to run our overall business in that target 40% to 42% gross margin range, but we certainly are looking to grow revenue, as our guidance suggests. For the unique user profile account, you're right that the $350 million was flat in the quarter. That comes to a relatively conservative definition of those profiles for us. As we've talked about before, we want to look at -- we count profiles and report profiles that have multiple points of data to allow audience targeting. And as we've worked on cleansing data and grooming those audiences, we want to make sure that we are counting the audiences that are most valuable for us. So as we brought the Metaresolver team on that has some real expertise in cleansing data and grooming audiences of those kinds, we decided to keep that number flat as we exited some people from audiences that had somewhat stale data.

Jordan Monahan - Morgan Stanley, Research Division

Okay, great. And actually, just one quick follow-up, if I can. Just on your earlier comment, I'm wondering if you can just maybe give a little more color around the comment about accelerating tech and development spending. Maybe it's not possible to do that, but when you say accelerate, I'm just curious what you mean.

Michael B. Avon

Yes, I really can't quantify it beyond what I said earlier. You heard Paul talk about some key areas that we're focused on. And certainly, programmatic, self-service interfaces are an area that we are spending more this quarter than we probably had planned at the beginning of the year. Again, our overall spend for the year goes unchanged given the unchanged guidance.


Your next question comes from line of Michael Purcell of Stifel, Nicolaus.

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

First question for Paul is, you mentioned earlier in your prepared remarks, and I hope I'm following it correctly, but you said you're helping developers exchange capabilities, trade inventory impressions. I'm wondering if you're speaking -- is this within the RTB system, in terms of the developers trading the impressions? And how does that really benefit you guys in terms of -- does that give you more to monetize? Or if you could just kind of walk me through that more in layman's terms? And then on the international side, if I'm doing my math right, it looks like the growth continues to be very healthy, plus 100% internationally. And I'm wondering -- we all know that's a big opportunity, but I'm wondering how many salespeople you have now, how many you're going to put on the ground and what are the friction points? Is it getting the SDK installed in new app developers? Is it just breaking new client relationships, et cetera?

Paul J. Palmieri

Great. So first, on the exchange piece around developers, so we provide developers a complete solution, a complete monetization platform. It includes tools, services and analytics and data. And today, we offer them a suite of tools that includes embedded software. That embedded code allows them to not only run ads within their apps but to run incredibly rich ads in those apps and swap out video for rich media, for static as well. We have always offered the opportunity -- or we've offered for years the opportunity to yield manage a bit and let them take some impressions and redirect them to another source. What I mentioned earlier in my prepared remarks was that in 2013, we believe that the time will be right for us to provide exchange capabilities for developers. And so again, bringing Metaresolver in brought in a lot of good interface technology, partnerships and bidder functionality and things along those lines. And so over the next couple of quarters, again, we intend to roll out this exchange capability for developers, which is a little bit different than -- a little bit different than our current model.

Michael B. Avon

And then this is Mike to your question about international. You're right, international is growing at a healthy clip. We've been very happy with the results, both in EMEA and Asia Pacific. We launched in EMEA about 3 years ago. We launched in Asia Pacific in Singapore just over a year ago. You asked about friction points. Certainly, we do need to add new salespeople in each new market as we sell. But we took an approach of setting up regional hubs: our EMEA hub in London, our Asia Pacific hub in Singapore. Those were the primary friction points to build out the infrastructure, both the time -- to have the right support people in the right time zone, the right languages, et cetera, for our higher-touch -- particularly for our higher-touch brand clients. We have made that heavy investment to date, and now we're reaping the benefits of that. Now as we open up in each new market in those regions, it's a much smaller investment. It's typically a small sales office in a new country like Indonesia. Even Tokyo, which is a very large market opportunity, we're building out a relatively small team to go to market there, leveraging Singapore for our operations, which is in a nearby time zone and where we can have the language skills necessary to support. As far as developer inventory, our developer inventory is really global. And so that really is not a fiction point for us. Certainly, we want to being on inventory that is specifically local in each new market that we're targeting. We have a lot of impressions in countries all around the world now, so we are able to start with a real advantage in each new market, having impressions that we're able to fill and having the brand relationships that we're able to go and harvest. So you will certainly see us continue to invest in international expansion, as you heard Paul talk about in his remarks.

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Okay, great. That did sound a new capability to me.


Your next question is from the line of Rory Maher with Hillside Partners.

Rory Maher

A couple of big picture questions. There's been a lot of press about Google Glass recently, and on a recent conference call, there was a -- it was actually from a fairly large mobile company that has speculated that tablets might go away in 5 years or so. So I'm wondering, as you prepare long term, do you believe that you could see such drastic changes in platforms? And do you think that's generally a good or bad thing? And then secondly, you're talking a lot about building user profiles over time, and I think a lot of that has to do with location data. So I'm wondering if you see any opportunity over the long term or even the short term to partner with companies from other media that might like to leverage that kind of location data that is unique to mobile?

Michael B. Avon

Rory, it's Mike. Let me take those. First of all, on Google Glass, yes, Google have obviously a lot of hype in the market right now. Do I think those are going to -- do I think tablets are going to go away? Absolutely not. I think tablets are in explosive growth phase, but I do think what's interesting with Google Glass or other new categories is that there are a lot of different types of mobile devices, whatever they may be, whether wearable tablets, smartphones, et cetera. All of these are connected devices, and all create opportunities for us over time. Obviously, tablets didn't even exist when we -- or in their current form when we started the business, and that's just been an enormous opportunity for us. So we do think we will see new forms of mobile devices over time and it will create additional opportunity for us. As far as location data, you're right, location data is a very valuable data point that helps us build up our audience profiles. Today, we keep those ourselves, and we use those profiles ourselves to advertise, and that's our expectation going forward. But you are right that data is an extremely valuable part of our business, and we certainly look at it that way.


Your next question is from the line of Kerry Rice with Needham & Company.

Kerry K. Rice - Needham & Company, LLC, Research Division

well, you kind of answered my question about your thoughts about opening up your kind of closed exchange to third-party bidders. But as you think about rolling that out, it sounds like you're building it yourself. Do you see any obstacle there to kind of, I guess, advertisers or other ad networks linking in, I guess, their APIs into that exchange? Or have you already had those conversations and you're seeing a lot of interest from those parties? That's the first question. And then the second question is, as you think about your retention of existing advertisers and the growth of their spending over time, I think we're nearing, of the ones you've talked about, it's like around $1 million per -- I think it was quarter or year. Where do you think that can get to? Does that start to plateau around $2 million to $5 million, or do you think that kind of sky is the limit there?

Paul J. Palmieri

This is Paul. On the exchange side of the house, I don't think we're really ready to talk about how the APIs work and how the connections will occur. But I will say is that it is not lost on those companies who would be very interested in what we've built and wanting to get after this inventory asset. We've said before that we believe that real large scale is -- really only exists in a couple of places. And so even our initial conversations on this have shown a lot of interest from groups, certainly in the mobile space, but very much in the online space as well.

Michael B. Avon

Okay. This is Mike. I think your second question about existing advertisers retention and increased spend of existing advertisers. When we last reported, the Ad Age top 100, we work with 85 of the Ad Age top 100, and that's up from 75 earlier last year. And we're certainly very proud of that. And you're right, we have significantly increased the spend from them and from other repeat advertisers on our platform as they see the ROI on our platform. As far as the math of where is the limit or where are the plateaus, really, I don't think -- we certainly don't see a plateau ahead. And though mobile advertising is very exciting and we're very proud to have the deep relationships that we do with the Ad Age top 100, they're spending a very small fraction of their overall spend in mobile today. And we expect those dollars to move in increasing amounts over to mobile. That's where consumers are, and ultimately, all advertisers, particularly brand advertisers, are going to go where consumers are to reach customers as they are consuming media and spending their time. So we do think there is a lot of headroom and no kind of natural caps on average spend per advertiser, particularly of the larger advertisers, any time in the foreseeable future.

Kerry K. Rice - Needham & Company, LLC, Research Division

Great. And maybe just one follow-up really quickly on -- you mentioned that retail was your biggest -- I think your biggest vertical. Can you highlight any other kind of verticals that you're seeing strength in -- or not strength in, but what are big verticals for Millennial?

Paul J. Palmieri

So a lot of the vertical information, we publish in reports that can be downloaded from our website. And so those verticals do change from time to time, but we certainly see strength in auto. We see strength in retail, as Mike said. We see strength in telecom. And depending on the quarter -- again, this was a little bit more of a performance quarter, so we saw more performance advertisers as well. But certainly, we've just published a piece of research on consumer packaged goods as well and -- showing some of the things that CPG is doing in the space as well. So it really goes across the board. To work with 85 of the Ad Age top 100, that really goes across a lot of different categories. Just one other one to mention is financial and insurance has been one that's been a real mainstay for mobile for a while.


Your next question is from the line of James Cakmak with Telsey Advisory Group.

James Cakmak - Telsey Advisory Group LLC

Just one quick one. Can you provide some more detail around just the overall pricing trends? I know you mentioned that globally, CPMs were up this quarter. Was that just the function of video, or are you seeing that across the board? And as we look forward, how much of a tailwind can we really expect from pricing?

Paul J. Palmieri

We saw pricing up pretty consistently year-over-year. And I did call out the 6% growth year-over-year in Q1. Some of that was certainly mix shift to video and rich media, but we saw good pricing improvement. And I'll certainly look at -- when you slice and dice down the subcategories, you can see prices going both up and down. As we've talked about before, the real 2 key drivers of pricing are targetability or the level of targeting on an ad and the level of engagement of the ad. The more targeted an ad is and the more engaging an ad is, the higher the price. And we are continuing to see increases in engagement on our ads across the board, and we're continuing to see more adoption of our targeting capabilities, leveraging our data asset, which has driven prices up.


Your next question is from the line of Mark Zgutowicz with Northland Capital Markets.

Mark J. Zgutowicz - Northland Capital Markets, Research Division

Obviously, a lot of questions have been asked here, and I'll try to keep this short. But I was hoping you could maybe just talk about, Paul, sort of where we are in the pendulum of branders sort of moving from the experimentation phase of mobile to really solidifying budgets and sort of carving out a hard number. I think we've seen and heard of a couple big CPG guys that I think are maybe at the front end of sophistication here. But do you feel that we're about halfway there in terms of seeing other sort of follow suit? And when we see that, is that sort of an inflection point where you actually will see spending on Millennial actually move higher as those budgets become sort of hard numbers in one's overall media budget?

Paul J. Palmieri

Mark, my initial thought process was to answer your question in the way that it's different for every advertiser. So it's a little bit of a walk, and each advertisers is on a different part of that path. But when you suggested 50%, I thought to myself, is it fair to say that of the Ad Age top 100, that 50 of the Ad Age Top 100 are making a large investment in the end experience on a tablet or the end experience on a smartphone such that, to support the success of the way that they do business, they must create a solidification of their ad budgets in mobile? And I think that's actually fair to say at this point. And the easiest example anyone could point to is, if you're a bank, do you have mobile banking? You have to have mobile banking at this point. It's part of the way that your business runs, and consumer usage of mobile devices is driving you in that direction. And so that's one that is very clear. But if you'd say 50% or along that path, where they have substantial investment in business process, I think that's probably fair to say. Now you have innovators, like you said, on the larger CPG companies doing some very innovative things as well. And in between, I think everybody's kind of somewhere along that path. But I like your 50% because I think it's probably fair to say that, that's where the investment probably is, again, in consumer interaction and business process, that would be supported by mobile advertising.

Mark J. Zgutowicz - Northland Capital Markets, Research Division

That's great. And then one last one, Mike, for you on the CPM side. 6% growth is obviously pretty impressive. I mean, we hear all kinds of numbers out there, and I think things get a little distorted when you take averages in a pretty big marketplace. But I was just curious, if -- looking at the year-over-year compares on that 6%, is there much you would attribute to just a greater mix of branding this year? And then maybe if you can also talk about video sort of in the mix. I know you've talked about it sort of ramping up here, but whatever you can quantify in terms of video as a percent of revenue and sort of how you see that trajectory over the next 12 months.

Michael B. Avon

Sure. So to your first question, the brand performance split in Q1 of 2013 was very consistent with the brand performance split of Q1 of 2012. So it's not that there was significantly more brand in Q1 of 2013. And again, we saw price improvements across segments year-over-year, which we're very happy to see. Video has grown as a percentage of our business. We have not -- we chose not to disclose the specific percentage of our business of video, either last year or this year, but it has certainly grown. And video does tend to drive higher effective CPMs, although certainly, there are forms of rich media ads that drive similar CPMs to video. So it really gets down to the level of targeting of the specific ad and the specific levels of engagement of an ad. But generally, video does tend to drive higher prices, and we're always focused on more engaging ads and more targetability in our ads, which tends to drive higher prices over time.


Ladies and gentlemen, this concludes the question-and-answer portion of today's webcast. We'd like to thank you all for your participation. This does conclude the presentation, and you may now disconnect. Have a wonderful day.

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