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Executives

Greg Kleiner - ICR

Chris Lien - Founder & CEO

John Kaelle - EVP & CFO

Analysts

Greg Dunham - Goldman Sachs

Nandan Amladi - Deutsche Bank

Brent Thill - UBS

Tom Roderick - Stifel Nicolaus

Jason Lerner - Wells Fargo

Marin Software (MRIN) Q1 2013 Earnings Call May 8, 2013 5:00 PM ET

Operator

Greetings. And welcome to the Marin Software First Quarter 2013 Financial Results Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Greg Kleiner. Thank you, sir. You may begin.

Greg Kleiner

Thanks, Jane. Good afternoon everyone and welcome to Marin Software’s 2013 first quarter earnings conference call. Joining me today are Chris Lien, Marin’s Founder and CEO and John Kaelle, Marin’s EVP and Chief Financial Officer. By now you should have received the copy of our press release, which crossed the wire approximately an hour ago. If you need a copy of the press release you can go to investor.marinsoftware.com to find a electronic copy. All participants are advised that the audio of this conference call is being recorded for playback purposes and that a recording of this call will be made available on our website within a few hours.

You can access these recordings through the Investor Relations section of our website. Before we begin, I’d like to note that our discussion today will include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements include statements about our business outlook and strategy and statements about historical results that may suggest trends for our business.

We make these statements as of May 8, 2013 and disclaim any duty to update them. For more information regarding these and other risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements as well as risk relating to our business in general, we refer you to the sections entitled “Risk Factors” in our S-1 registration statement and our other filings with the SEC.

I’d also like to note that any forward-looking statements made on this call reflect information and analysis as of today. This presentation contain certain financial performance measures that are different from the financial measures calculated in accordance with GAAP and maybe different from calculations that measures made by other companies.

A quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our first quarter 2013 earnings press release.

With that let me turn the call over to Chris.

Chris Lien

Thank you. And welcome to everyone joining us on the call today for our first conference call as a public company. Since some of you on the call maybe new to the Marin story, I’m going to discuss a brief overview of our company before going into the highlights from the quarter.

We posted strong results in Q1 further validating our leadership position in a rapidly growing new market called revenue acquisition management or RAM. RAM is a next generation of online advertising management made possible by the advent of cloud-based technologies and applied big data. During the March quarter we delivered revenues of $17.2 million up 32% on a year-over-year basis. In addition, I’m proud to say that our strong business momentum enabled us to deliver our record 16 straight quarter of sequential quarterly revenue growth.

Also during the quarter, we completed our IPO on the New York Stock Exchange. This event was a major milestone for Marin as it helps to further our brand raise awareness for our category and provide us with additional capital to fuel our growth plans. As we look to capitalize on our multi billion dollar market opportunity. Marin provides the software as-a service platform allowing digital market is to manage their search, display, social and mobile advertising investments. Marin’s platform ties the digital advertising cost to the downstream revenue (or) business event.

Our closed loop system enabled advertisers and agencies to improve financial performance realize efficiencies and time savings and make better business decisions. The proliferation of channels, devices, publishers and ad units along with biddable media and dynamic business goals makes realizing the full potential of digital marketing very challenging. And as consumers spend more time online marketers are seeking to reach these prospects online too.

Marin’s revenue acquisition management platform is designed to meet the needs of today’s digital marketers. According to Magna Global, the overall advertising market is estimated to grow from $480 billion in 2012 to $619 billion in 2017. Within this overall market traditional advertising is expected to grow at a 3% CAGR while the digital component is expected to grow at a 12% CAGR almost doubling from $98 billion in 2012 to $174 billion by 2017.

Paid search spending comprises $45 billion of the total market today and is projected to continue with strong growth going forward. Of the remaining online advertising spend worldwide display accounts for $41 billion with social and mobile each accounting for about $6 billion of spend. Currently approximately 90% of our revenue is from paid search. Mobile and by that I mean smartphones and tablets touches all of our channels and accounts for about 20% of the overall media managed by our customers on our platform.

Marin is well positioned to benefit from the ongoing adoption of mobile advertising by our customers, especially with mobile search as a largest mobile ad unit. The rapid growth in pace of change in online advertising is driving increased complexity fragmentation and scale requirements for digital marketers. Marketers now seek to engage with prospects across all online channels, including search, display, social and mobile.

The rate of change in innovation in these online channels is high, and leading marketers are leveraging Marin’s platform to turn this dynamic online advertising market to their advantage, driving superior revenue outcomes time savings and better business insights.

When we started Marin in 2006, we saw underserved markets filled with an adequate tools. Our view is that the market would increasingly demand a broader and more automated approach to this problem. A solution that delivered both power and ease of use. A solution designed by expert online marketers and leading software developers to meet the day to day needs of the digital marketer.

To better solve this problem we built an end-to-end cloud based system with a multi-tenant architecture that today holds more than 250 terabytes of data and manages approximately $4.7 billion ad units. The power of our platform comes from the closed-loop system that we built that provides marketers with a ability to measure, manage and optimize their digital advertising spending.

Allowing marketers to execute the full spectrum of their advertising spend within one platform, we had freed them from a large portion of what used to be a manual process of campaign management. And our most recent customer survey, many of our customers reported a time savings of 25% or more by using our platform. This automation drives a significant increase in efficiency which frees up time to use the analytics embedded in our platform to drive better decision-making which then delivers a material increase in financial performance.

And many of our plan case study show that customers realize financial lift of 20% or greater from using our platform through a variety of means such as increased volumes and revenue leased, higher profits, improved advertising ROI and lower customer acquisition costs.

With our participatory economic model whereby our customers paying RAM based on a percentage rate of the media they manage on our platform as our customer’s online advertising spending grows so do our subscription fees. To grow our business, we follow a land and expand model. As we build the business, we focus on both landing new clients and growing our revenue within our installed base. As our customer sees significant business improvements by utilizing our platform, we’ve historically seen an increase in their spending over time at levels well above overall industry growth. And in the background, digital spending overall continues to grow rapidly, increasing the number of customers that can benefit from using our platform.

The combination of our powerful platform and world-class services team has allowed us to assemble an impressive customer list comprising some of the top advertisers and agencies in the world. Our platform was designed to serve the needs of both direct advertisers and agencies driving the mixed of business that has approximated a 50-50 split over our history.

The smart focus has allowed us to assemble a list of Blue-Chip global customers including advertisers such as GM, Macy’s and Hotels.com as well as are doing business with a largest advertising holding companies.

I’d now like to turn to our first quarter 2013 results. During March we saw lot of strength across the globe, we had 542 active advertisers during Q1 an increase of 24% compared to 436 in the year ago period. In the U.S., we signed new deals with household names such as Mercedes Benz and Ancestry.com. In EMEA, we added customers such as Phil Unique and Brandos, while in APAC, we added deals with JLAN and others.

Let me take a moment to tell you more about the Ancestry.com deal. Ancestry through digital agency 360i, chose Marin for two reasons instrumental to their online success. Marin’s ability to track and optimize Ancestry’s subscription acquisitions cost and Marin’s powerful forecasting tools. Certain keywords produced higher quality leads and Marin’s ability to measure and model the value of each subscription helped ancestry optimize their program for the most valuable subscribers.

By evaluating a variety of lead attributes Ancestry can effectively forecast and manage their bids in pursuit of the highest value subscribers. Another deal, I’d like to quickly highlight is Mercedes. Q1 shifted a larger portion of their spend to Marin last December with Resolution Media, Marin won sprinter vans, a portion of the Mercedes business, both Mercedes and Resolution were pleased with our platform’s focus on revenue and results along with the quality of our client services team.

The quick success of sprinter vans with Marin and Resolution through the attention of the other lines of business at Mercedes and then subsequently directed more spend to our platform.

We also meet significant progress on the product front during the quarter, launching several important advancements. I mentioned earlier the challenges presented to marketers as the result of the proliferation of multiple devices. During this quarter, we released new features designed to support the enhanced campaign functionality in Google’s AdWords platform, allowing advertisers to more easily optimize their programs across multiple channels. To further out support for the rapidly growing social advertising market, we introduced the Facebook campaign wizard that allows advertisers to more easily execute and optimize their spending on this important new medium.

In addition, we furthered our capability supporting Google’s product listing ads functionality designed to improve retail advertising effectiveness. In summary, we were very pleased with our performance during the quarter and are optimistic about the prospects for our business going forward.

To give you a sense of the uncapped opportunity that remains ahead for us in this market. In December 2012, our customers managed $4.7 billion in annualized advertising spend on our platform as compared to $98 billion spent in aggregate on all digital advertising in 2012. While we believe that we are a leading independent vendor in this market we are in the early innings of this multibillion dollar market opportunity.

And now let me turn it over to John for more detail on the financials.

John Kaelle

Thanks Chris. This is our first earnings call as a public company, I wanted to start with a brief overview of our financial model before going into the Q1 results. Marin is a 100% software as-a service subscription model with a benefit of the participatory economics. Our business is almost evenly weighted between a direct in advertising agency customers and in both generally ASP based on the percentage of the total advertising spend that they manage on the Marin’s platform.

So as our customary ad spend in corresponding revenues growth our revenues grow as well. When we sign up any direct customers the contract is typically six months to one year in length. And as a monthly minimum fees typically paid at roughly 50% of the anticipated multi revenues. This contract structures the most common to some customers do sign fixed price contracts based on the anticipated level of spend.

Our implementation cycle generally take about 46 weeks and the monthly minimum fee when applicable is in factoring this period. We do not try to separately for professional services so the revenues help to offset the cost of our implementation teams during the initial on boarding phase. Once the customer is fully configured on our platform they generally begin to ramp our ad spend and typically see the minimum fee threshold shortly thereafter and then move to the contract for eight years.

So, as you can see, as we delivered successful outcomes for our customers, their spend increases thereby driving higher revenues for us. This focus on mutual success drive the virtual cycle of the both parties.

On the agency side, most of our larger network agencies do not have minimum fees in segment contrast as rest of these based on their engagements with their individual clients. Our contract links with agencies typically are one to two years in length and provided an umbrella agreement for their advertiser clients.

Our customers have built monthly arrears so the flow of our business generally from little to deferred revenue on our balance sheet. However, we are starting a new more and more clients to prepay minimum fees going forward. So we believe that deferred revenue balance should grow in the future. One of the powerful elements for our business model is that we have a highly diversified customer base as our largest advertisers were just over 2% of our total revenue in 2012.

Retailers are our largest vertical at a little more than 20% of revenue in 2012, but we also have double-digit percentage contributions from the travel, technology, finance in B2B industries. Managing an intriguing complexity of digital advertising into broad horizontal problem across many different industries and we have products of a wide variety of customers and verticals.

With that background let me now move to our first quarter results. I'm pleased to report that revenues were $17.2 million, up 32% year-over-year and representing our 16th consecutive quarter of sequential revenue growth. In addition to growing our customer base and increasing the spend level on our platform from our existing customers one of the other key enabler is of our revenue growth is our strong renewal rates which as a result of our customers realizing one or more of the many benefits of our platform.

Revenue retention which we defined as revenue from all the advertisers in the prior period that remained advertisers in the current period our total revenue from the prior period was once again above 100% in Q1.

Going forward, we plan to disclose the actual revenue retention percentage number on an annual basis. Another powerful growth driver for Marin’s revenue is global expansion. We currently have 12 offices located around the world with the presence in the UK, Germany, France, Ireland, Japan, Australia and Singapore with more planned in the future. Our global presence is a distinct competitive advantage that we expect to continue to leverage going forward.

In Q1, we generated 30% of our revenue from international clients a favorable increase as compared to the 26% figure that we recorded in Q1 of last year. Over time we believe our long term revenue mix will be directionally consistent with the global mix of digital advertising which is currently roughly 50-50 domestic and international. A formal end of the profit and loss items I’d like to point out that I will be discussing non-GAAP results going forward unless otherwise dated which for the first quarter of 2013 excludes the total of $1.2 million of stock based compensation $300,000 of non-tax expenses from the revaluation of preferred stock lines and $200,000 of amortization of the capitalized research and development cost while adding back $600,000 of capitalized R&D profits.

As a reminder, a detailed reconciliation of our non-GAAP results to the GAAP results can be found in our earnings release. For the first quarter non-GAAP gross profit was $10.2 million up 30% when compared to $7.9 million in the year ago period. Non-GAAP gross profit margin for the March quarter was 60% compared to 61% in Q1 of the last year. We are continuing to invest aggressively to scale our infrastructure to better meet anticipated demand and adding key personal support of rapid growth in the newer international markets. While the non-GAAP gross profit margin will likely fluctuate from quarter-to-quarter we are targeting annual improvement and in the long term basis we expect non-GAAP gross profit margins to be in the range of 70% to 72%.

Non-GAAP sales and marketing expense was $10.2 million in Q1 compared to $6.4 million in Q1 of last year. This was driven by our continued investment in sales capacity and marketing initiatives to drive our growth point forward. Non-GAAP research and development expense was $5.4 million in Q1 compared to $2.9 million in Q1 of the prior year. We expect 2013 to be an investment year for R&D as we are focused on further increasing our technological lead in the market.

Non-GAAP G&A expenses were $3.6 million in Q1 compared to $3.4 million in last year’s Q1 this increase was driven by the costs of operating as a public company certain expenses driven by our initial public offering and infrastructure additions associated with the growing sale Marin Global Operations.

Our non-GAAP operating loss was $9 million in the current period up from an operating loss of $3.8 million in Q1 of the prior year. We are clearly in investment mode at the moment as we have a leadership position in a rapidly growing and very large market opportunity ahead of us. We believe we have the unique opportunity to build a very large company over time and we are confident in the long term scalability of our business model to in part the improvements in our gross margins over the last several years.

We have expanded our gross margins from 40% to 60% thus far and as I mentioned a moment ago we expect gross margins to increase to the 70% plus level in the years ahead. From a long term perspective we believe our business models can generate healthy non-GAAP operating margins of 20% to 22%. Our non-GAAP net loss for Q1 was $9.4 million lead to a non-GAAP loss per share of $0.39 based up on a weighted average share count of $24.2 million. This compares to a non-GAAP net loss of $3.8 million and a non-GAAP loss per share of $0.18 based up on a weighted average share count of $21.5 million in Q1 of last year.

Adjusted EBITDA with a loss of $8 million in the quarter compared to a loss of $3.3 million in Q1 of the prior year. We ended the first quarter with $115.5 million of cash and cash equivalent on our balance sheet up from $31.5 million at the end of the year. We generated approximately $94.9 million in that proceeds from our initial public offering at the end of March. Subsequent to quarter end the underwriters exercised the green shield which added an incremental $14.6 million in net cash proceeds.

Our deferred revenue balance was small increased to $1.4 million in the quarter this is up from $600,000 in the fourth quarter of 2012 was still relatively modest the increase were driven part to our efforts that I mentioned previously transition our customer base from paying in arrears to paying the minimum fees upfront for the use of our platform services. Because we currently do not have upfront payment terms covering the majority of our existing customers it's important to understand that quarter-to-quarter movement in our deferred revenue balance is not a good indicator at the momentum or expected growth rate of our business.

Now, I will turn to guidance for our June quarter and 2013 year as a whole. For the quarter ending June 30th we expect revenues to range from $17.6 million to $18 million or a growth of 25% to 28% year-over-year. Non-GAAP loss from operations should range from $9.8 million to $9.4 million leading to a non-GAAP net loss per share in the range of $0.33 to $0.31 based up on a weighted average share count of $32.2 million.

For the 2013 calendar year we expect the revenue to range from $75 million to $76.2 million or a growth of 26% to 28% year-over-year. Non-GAAP loss from operations should range from $34.5 million to $33.5 million leading to a non-GAAP net loss per share in the range $1.19 to $1.16 based up on a weighted share count of 30.7 million shares.

As a final point regarding our guidance, I would like to highlight that we plan to continue to reinvest in the upside performance in terms of revenue backing to the business rather than deliver any near term upside in terms of profitability or cash flow.

So, in summary, we are pleased with the results from our first quarter and continue to invest in expanding both our product footprint and sales capacity. Our line and expense strategy is working and we believe we are well positioned to continue adding new customer and drilling the advertising spend of our existing customer base going forward. We are at the every early stages of our rapidly growing multi-billion dollar digital advertising market and are optimistic about the future.

With that, I want to thank you for your time and I’ll turn it back over to the operator to open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from the line of Greg Dunham with Goldman Sachs. Please proceed with your question.

Greg Dunham - Goldman Sachs

Hi, yes, guys, thanks for taking my questions and congratulations on being a public company. First question for you, you mentioned the international opportunity, if you look at the international revenues in this quarter it looks like you accelerated from last quarter can you just help us frame where we are in your international expansion and maybe talk to some of the regions where you’re seeing the most success?

Chris Lien

Sure, Greg. And again, thank you for the well wishes. Overall, we have been selling overseas since 2009 we are the most likely used platform in Europe and we entered Asia a little more than a year ago and you’re correct to observe the acceleration of our international penetration. Right now the markets that are showing the most acceleration for us internationally would be in Japan and then also in Australia in the Asian market and then with regard to Europe we’re seeing good uptake in France and Germany over and above our early leadership in the United Kingdom. So, those would be main international markets that I would highlight right now that are performing particularly well for Marin.

Greg Dunham - Goldman Sachs

Okay. And then a couple of more from me just quickly. You mentioned the support of Google enhanced campaigns. I know, I get a lot of question on that topic can you maybe describe what that is for some of them maybe or not as educated on that dynamic and how it impacts Marin and then what are opportunities there?

Chris Lien

Sure, Greg. So, what enhanced campaigns will enable through Google is you’ll have a single campaign and then you can set a boost to target mobile devices at a different bid level than a desktop device. So again think of a person using a desktop computer then they might be targeted on a smartphone or on a tablet and smartphone and tablets would count for mobile. And what Google is enabling is a single campaign that can then have two different bid settings one for desktop and one for mobile because each of those ad placements performs differently it’s a different news case for a potential prospect and then the ads themselves perform differently in terms of click through rates and conversion and ultimate customer value. So, Google is making this change to simplify this for advertisers and it's a functionality that Marin will be in the forefront of supporting over the course of this summer as the transition is made in the Google System.

Greg Dunham - Goldman Sachs

Okay. One last, one for me, the only thing that kind of well, it be on revenues, you’re big on gross margins relative to my model, you did spend more on sales and marketing and I know you mentioned John on spending some of the upside was that more in higher capacity or variable expense, how should we think about the spending in sales and marketing?

John Kaelle

Yeah, Greg. I look at it two ways and the first as we've talked about we’re continuing to ramp the sales team, so some of that is the incremental sales head count that we brought on and they’re continuing to ramp. The second part of that I characterize is positioning earlier on the IPO, we've done some marketing work so there was variable spend related to that in the quarter just around the messaging. So, it’s really two drivers there.

Greg Dunham - Goldman Sachs

Great. And I’ll hand it off to others. Thanks guys.

Chris Lien

Thanks, Greg.

Operator

Our next question comes from the line of Nandan Amladi with Deutsche Bank. Please proceed with your question.

Nandan Amladi - Deutsche Bank

Hi, good evening. Two questions. First one is a big picture what are you seeing in digital marketing budgets overall as we start this year off relative to what we saw last year and part of that translate into your spend under management during this quarter, how do you expect that to trend over the remainder of the year?

Chris Lien

Sure. So we’re continuing to see double-digit growth in industry level digital advertising budgets obviously Marin is growing well above the industry growth levels. And the primary funding mechanism for the digital budgets is the shift from offline advertising budgets which are less accountable and less measurable to the more measurable and more accountable digital budgets. So, that trend continues and is basically as forecast by the industry if you will.

The question around spend under management that's something that we’re going to share on an annual basis or when we cross when we would consider a notable milestone but it's not something we’re going to share on that on a quarterly basis.

Nandan Amladi - Deutsche Bank

Okay. Thank you, and perhaps a question for John on the billing terms. I know your deferred revenue is fairly modest at this point and you’re pushing through standardized prepayment terms, what is your target and where are you now?

John Kaelle

In terms of the total deferred revenue balance…

Nandan Amladi - Deutsche Bank

No, no in terms of how much in advance you would bill, would it be quarterly semi-annual…

John Kaelle

Yeah. I think it depends on the advertiser, we’re pushing to both quarterly and annual prepayments. And again how we’re trying to build that balance is for the direct advertisers they have minimum fees. So, we’re looking at those minimum fees to have them pay those in advance so that's roughly half the business that would have a minimum fee that would be something that we could seek prepayment on. So, we are just starting to push that with our advertisers and clients and fell like we’re making progress there and can show more progress on that going forward.

Nandan Amladi - Deutsche Bank

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Brent Thill with UBS. Please proceed with your question.

Brent Thill - UBS

Good afternoon, nice job out of the gate, Chris and John. Quick question Chris just to follow up on the Google enhanced campaigns, just a question I think that we’re gaining in terms of the impact to Marin and what do you think this will mean for you going into the summer as they launch this can you just help provide a little more color of how you navigate this and do you view it as a headwind or is it no wind in your – from your perspective?

Chris Lien

Yeah, so with regard to the enhanced campaigns we believe over the medium term, it will lead to growth in online advertising spending as advertisers can better target desktop performance versus mobile performance. In the near term, over the next several months it's really too early for us to make any prediction on this. I would guide folks that we would expect spend to stay at above the level it is now. Some advertisers may increase their spend to take advantage of the new functionality; others may chose to be more conservative and pullback. I think on the whole we expect it to be neutral as we make the transition, but ultimately once the functionality is more widely adopted we would expect spend to accelerate given the additional targeting functionality in particular around better being able to target specific performance by device.

Brent Thill - UBS

Okay. And John, just in Q1 you look at the number of net new deals decelerating year-on-year and when you look at the sequential growth Q4 to Q1 I think you were running 13% 14% in the last couple of Q1s and this quarter some 1% sequential, is it something you’re seeing from a macro perspective or something else than just is having an impact just as it relates to net new attraction or am I missing something there?

John Kaelle

Brent, you’re talking about the advertisers there? Is that the metric you’re looking at?

Brent Thill - UBS

Well, yeah, but the new customer number and also the sequential revenue growth this quarter versus the last two Q1s you’ve seen stronger sequential Q4 to Q1?

John Kaelle

Yeah, I guess, I'd point to in relative that the prior quarters I think now we’re normalizing in terms of the comparison period, right, we were last year in ’12 and then in ’11 coming off a much smaller base. So now, we’re starting to settle into to what I called normalized growth rates. As it relates to that advertiser metric, again the one thing I want to point there is that metric is going to be a little bit noisy, because we draw a line on the bottom end that advertisers that we are in revenues from in excess of $2,000 so that there is some toddling over and under that line which will create a bit of noise there.

Brent Thill - UBS

Okay, great. Thanks.

Operator

Thank you. Our next question comes from the line of Tom Roderick from Stifel Nicolaus. Please proceed with your question.

Tom Roderick - Stifel Nicolaus

Hey gentlemen, good afternoon. So let me just follow-up on Brent’s question there and I think it sort of get to the heart of the idea that last year you were coming off from much smaller base of revenue so that’s the comps are clearly tougher. But as you look at the environment and as you look at sort of the mid-term here how should investors think about what the sustainable call it two to three year rate of growth that in the business? Is it sort of feet bulls of things that things can sort of stabilize in the mid-to-high 20s as you guided for this year it’s in a little too early to say I'm just trying to get a feel for where this growth rate stabilize and thus you get a scale here? Thanks

Chris Lien

Sure. So again we’re very comfortable with it updated guidance for this year and we would guide even think about that as a reasonable rate of growth for the next one to two years. And obviously as we move through the year end and understand more about our trajectory we'll update at, but we’re comfortable with the updated guidance for the rest of this year and that certainly would be a good placeholder for the following year as well.

Tom Roderick - Stifel Nicolaus

Right. And may be I might have missed on metric I heard $4.7 billion for ad spent under management but perhaps that with the number for the end of fiscal year ’12. So, maybe you could just correct me if I'm wrong about that. Thinking about ad spend under management can you walk us through typical seasonality as you look at it from the standpoint of your customers in the way that they spend obviously it would seem that Q4 would be at much higher sort of seasonal uptick but maybe give us a sense that how we should expect seasonality to trend from the ad spend perspective?

John Kaelle

Yeah, I’ll take a stab and if Chris had any addition to that. The first is your question on that metric the $4.7 billion annualized ad spend that is as of the end of 2012. Ad spend as a metric is something that we plan to provide annually, so that is the last number that we did provide.

As it relates to seasonality, we’ve got a fairly well distributed set of advertisers in some of the industry verticals and we’ve thought in the past our single largest vertical is retail at just over 20% of the total revenue mix. So, you do see some of that seasonality in Q4 and Q1, and those retailers they moderate their spend in the first quarter. I think in terms of the go-forward that would be the most pronounced because you do see a heavier spending in that fourth quarter, but the rest of the seasonality is fairly well dispersed in terms of the client mix.

Tom Roderick – Stifel Nicolaus

That’s great. Last question from me, just may be helping to educate us on the mix between direct advertisers and agencies. When we look at the agency -- or maybe just high level, can you give us some update as to what that mix of business looks like today? And then at a high level as we look at the agencies, how well penetrated do you feel that you are across all of the agency segments and how well penetrated within those certain talents do you feel like you have from a wallet share perspective?

Chris Lien

Sure. So, the high level the mix of a agency and direct business has been about 50-50 over the last several years for us and we would expected to stay at that split plus or minus a couple of points as a guide to all.

In terms of our penetration agencies you really have to unpack that one. If you take that at the highest level in terms of the agency holding companies so that'd be the WPP, the Omnicom, the Publicis of the world. There are certain of the agency divisions where we would have 90% penetration but the vast majority of them we would be down at the call it 30% to 40% penetration level if that. So, there is significant additional clients that they currently have that we can add to our platform. And then related to that as they go out and win new clients we can work with them on that as well. So, for example, when we partnered with iProspect on winning the GM business in the past year that’s an example of a new client when both for iProspect and for Marin. So, there is significant upside within the existing client base for the agencies that we service as well as partnering with them to go win new clients.

Tom Roderick – Stifel Nicolaus

Great. Thanks, Chris. That’s helpful. Nice job guys.

Operator

Thank you. Our next question comes from the line of Jason Lerner with Wells Fargo. Please proceed with your question.

Jason Lerner - Wells Fargo

Hey guys, good afternoon. I have two questions. First one pulling a little bit about working with agencies and obviously selling directly to end customers, how would you characterize the changes with the CMOs or the marketing organizations and all of the digital the customer touch points becoming digitized. How is that, if you will, changing the dynamic in terms of the CMO working with an agency? What is that mean in terms of them wanting to perhaps feel with you directly and how does that in a broad way impact the sales cycle and sales process?

Chris Lien

Sure. Jason, at a high level I think as we all can understand as more media become digitized as you referenced it, CMOs realized that properly managing and measuring and optimizing their digital advertising spend can be tied back to driving better revenue or business outcomes. So, CMOs are certainly much more engaged then they might have been in the past with understanding they can turn those dials to directly affect business outcomes.

Related to your question in terms of how are they engaging with their agency or with us and is it more though agencies or more direct, there really hasn’t been any change in that even as the roles of digital advertising has become more important. Certain companies and their CMOs like to engage with Marin through their agencies and others preferred to engage with Marin directly.

I would say that overall we are seeing CMOs being more engaged. So, even if they are working with Marin through an agency they are aware of Marin and they are aware of the capabilities and benefits of our platform. So that would be my main observation that CMOs are more engaged in understanding they have a role and helping to drive better revenue and business outcomes by properly managing their digital advertising investments through a platform such as Marin’s.

Jason Lerner - Wells Fargo

And then, maybe a follow-up on social, media advertising and starting to think about mobile. What are some of the underlying trends you see there and how would you sort of help us understand where that opportunity is maybe relative to something like paid search? Thanks.

Chris Lien

Sure. So, I’ll share that our observation from our perspective. So taking it in reverse order, mobile is about 20% of the media managed on our platform and call it 90% plus of that would be mobile search or mobile paid search, if you will. And so, we are well exposed to the mobile opportunity and this would be on smartphones and on tablets and are seeing our customers increase their mobile app spending budget since and we’re a direct beneficiary of that.

With regard to social, social remains less than 10% of our revenue. We are seeing our clients experiment with social we believe social will become a permanent part of the online digital marketing mix, but it’s still very early days for social advertising. As we referenced in the Magna Global, it’s about a $6 billion category more or less in 2012 and that will grow at doubled-digit rates going forward. Paid search, on the other hand, is already a $45 billion category and still growing at double-digit rates although lower than social.

So, Marin, for the foreseeable future, will remain with the vast majority of our revenue coming from paid search. We have good exposure to mobile adoption, 20% plus already in the media managed by our clients, and social is less than 10% of the media that our clients managed on our platform but we expect to see healthy growth in that over the coming year to two.

Jason Lerner - Wells Fargo

Great. Thank you very much. Congratulations.

Chris Lien

Thanks.

Operator

Thank you. Ladies and gentlemen, at this time I would like to turn the conference back over to Chris Lien for closing comments.

Chris Lien

Great. I just want to thank everyone for participating in our first earnings call as a public company, and John and I look forward to spending time with many of you as you learn about the Marin story and look to become investors in our company. Again, thank you for your time today.

Operator

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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