Marketo's CEO Discusses Q2 2013 Results - Earnings Call Transcript

| About: Marketo (MKTO)

Marketo Inc. (NASDAQ:MKTO)

Q2 2013 Earnings Call

July 30, 2013 5:00 PM ET


Erica Abrams – IR

Phillip Fernandez – President and CEO

Frederick Ball – CFO


Greg Dunham – Goldman Sachs

Philip Winslow – Credit Suisse

Terry Tillman – Raymond James

Richard Davis – Canaccord Genuity Inc.

Patrick Walraven – JMP Securities LLC


Ladies and gentlemen, thank you for standing by. And welcome to the Marketo second quarter financial results conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Tuesday July 30, 2013. I would now like to turn the conference over to Ms. Erica Abrams of the Blue Shirt Group. Go ahead ma’am.

Erica Abrams

Thank you Joel. Thank you all for joining us today for Marketo’s second quarter of fiscal 2013 financial results conference call. Joining me on the call today are Phil Fernandez, CEO and Fred Ball, CFO of Marketo.

Before we get started today I would like to remind you that this call is being webcast and recorded. The webcast can be accessed live on the Investor Relations section of our website and via replay on our website shortly after the conclusion of the call. The website can be accessed at

On this call today, we will provide you with details about our performance in Q2 of fiscal year 2013. Some of our comments may include forward-looking statements such as statements regarding our outlook for the third quarter and fiscal year 2013. These forward-looking statements are based on certain assumptions and are subject to a number of risks and uncertainties. Actual results may vary materially.

Please refer to the section entitled forward looking statements in our earnings release and read the risk factors included in our filings with the SEC. Most recently our S1A as filed May 18, 2013. I would like to point out that the results reported today include certain non-GAAP financial measures and that the measures discussed on this call will be non-GAAP unless stated otherwise. We provide non-GAAP financial measures because we believe they are the most valuable way to review our core operating results.

We have provided a reconciliation of non-GAAP measures to their comparable GAAP measures in our earnings release which is available on our website and has also been filed on Form 8-K. The forward-looking statements and risks stated in this conference call are based on current expectation as of today and Marketo assumes no obligation to update or revise them whether as a result new developments or otherwise.

Now I will turn the call over to Phil for his remarks. Please go ahead.

Phillip Fernandez

Thank you, Erica and thanks for joining us today as we report our financial results for the second quarter of 2013. We’re delighted to be conducting our first earnings call after our debut as a public company with such good results. In the quarter revenue increased 62% year-over-year and 14% sequentially to $22.5 million and other key metrics were well in line with our expectations and operating goals

Before I discuss the quarter I would like to take just a minute to welcome our new Public Investors who have chosen to join us on our journey to build a great and very valuable public company. I would also like to do a true heart felt shout out to each and every one of our employees in Marketo for the incredible role you have all played in our success to-date. We couldn’t have done it without each and every one of you.

And finally I would like to thank our customers who have put their trust and confidence in our solution and our vision. I believe that our continued success and growth confirms the customer is very much want to do business with an innovator that is solely focused on building the industry’s best marketing platform. For those of you new to Marketo let me quickly recap our vision. We provide the leading cloud based marketing software platform. One that is built to enable organizations to excel in modern relationship marketing. We serve a very large addressable market ranging from small business to the world’s largest global enterprises and across business-to-business and business-to-consumer industries ranging from technology to healthcare, business services, education, manufacturing, media and entertainment, telecom, financial services and consumer brands.

Our success is driven by our passion and commitment to our customer’s success and by a sustained track record of our leadership and technology innovation that can only come from our singular focus on creating great products for marketing professionals.

As you know the category we serve continues to be very dynamic and active. We historically owned the innovation agenda for marketing software and if anything I believe that the moves we’ve seen in the marketplace over the last couple of quarters clears the path for us to continue to be that agenda setter and we expect to continue to thrive in this large and very fast growing marketing software category.

On the call today we’ll touch on several elements of the growth strategy that we have articulated previously including an intense focus on customer acquisition across each of the broad markets we serve expanding revenue yield within our growing install base finding success in additional and adjacent markets and verticals in innovating to extend our marketing [thought] leadership.

Overall our business in the second quarter was very strong. I was particularly happy with the diversity of new customers we acquired during the quarter both small businesses and global enterprises across all of the geographies in which we sell and industries that we serve. And well not taking anything away from our continued strength selling to small and medium business. I note that our quarter was particularly robust in the enterprise segment.

I believe that our own success combined with recent market dynamics have led us really begin to emerge as a defacto marketing standard for large enterprises. We continue to see great strength in the ecosystem but also saw our strongest quarter ever in terms of diversification in the other ecosystems and including very significant traction working with customers who use Microsoft Dynamics CRM. For example in the quarter we earned our largest Microsoft customer to-date, a universal technical institute.

Even more strategically in Q2 we saw significant [payback] on our efforts to grow within the B2C vertical complementing our historic and continue strengthen in B2B. I am particularly excited about one of the B2C wins we had in the quarter and one of the world’s largest cosmetic brands who chose Marketo for a key new social media marketing application and reflective of the incredible agility we offer marketers their first major campaign went live last weekend less than 45 days after we secured that new business.

Other notable B2C wins in the quarter includes Curbs International, Blue Cross & Blue Shield of Rhode Island and University of Miami. I particularly love how these examples continue to validate the broad applicability of our platform. In the B2B segment we added customers like (inaudible), Genesys Telecommunications Laboratories, Kaspersky Lab, Konica Minolta,– Lazard Asset Management, Microsoft, Telstra Global and Ziff Davis.

In addition to strengthen North America, Europe and Australia we also expanded our presence in Japan adding Osaka Gas. Overall, in Q2 we added more than 200 new caliber customers close the quarter with 2,592 active customers. In addition to this new customer acquisition success we also saw significant expansion at existing customers like Accenture, Medtronic, Panasonic and Samsung just to name a few. Our strength in customer acquisition and expansion in Q2 was mirrored by expansion of our partner ecosystems.

We saw continued growth and traction with our LaunchPoint solution ecosystem closing the quarter with more than 140 partners onboard. We also achieved major progress in building expanded relationships with global system integrators including Bluewolf and Cap Gemini.

No customer discussion will be complete without mentioning our annual Marketo Marketing Nations Summit which we hosted in San Francisco last April. At this action packed three day there we had almost 3,000 customers, partners and prospects from around the world.

I was really struck by the energy among our customers and I took particularly note that our customers are increasingly able to quantify with hard data, the positive impact that our solution is having on the top and bottom line with their organizations. In fact so much so that we were oversubscribed with entries to our third annual Revvie Awards that we held at the summit, where customers literally compete with each other to tell the best revenue growth story. Revvie Award winners this year included RICOH, SunGard, Deluxe, Vantiv and Navitas who won the Revvie Awards for most successful global revenue campaign by documenting an amazing global campaign they ran with Marketo in nine languages in across 30 countries.

Turning the innovation we continued our furious pace in Q2 and delivered several significant new products including Marketo Financial Management. With this new application we expanded our platform to embrace marketing management alongside our marketing automation social media marketing and revenue analytics applications. We saw nice early traction with this product and we believe that we are the only cloud marketing software company to unify this kind of marketing management capability together with the complete marketing automation solution.

Also in the quarter we delivered a significant innovation extending our already leading marketing automation application. With the release of our new customer engagement engine, our users can create truly individual communication streams with each and every one of their customers with unprecedented ease and agility. Applications of the customer engagement engine range from superior lead nurturing for our B2B customers to maximizing customer lifetime value and loyalty for consumer brands. The delivery of this new capability is a really key stuff in our mission to move the marketing and e-mail factors from the historic batch and blast mentality, the one that we believed in one of individual personal communications across channel and over time. We are not aware of any competitor large or small with the similar capability in market today.

Turning to operations of our cloud side. At the end of the second quarter and ahead of schedule we successfully completed the initial phase of our long range datacenter transition as we shuttered the first of our legacy high class datacenters right at the end of Q2. I am very happy with the progress we’ve made on this important initiative and we are on-track to complete the final phase of this transition before year-end in a similar way in Q2 we also completed a very substantial long range upgrade to our e-mail delivery infrastructure.

We linked this upgrade to a much lower cost and more robust email infrastructures particularly important in context of the rapidly declining market price points and margins we see for e-mail. As we articulated in the past our strategy also includes pursuits for select strategic acquisitions in the highly fragmented marketing technology space. We continue to actively evaluate interesting opportunities, particularly the tuck-in nature which will be complementary to our platform strategy in current channels.

In summary, the second quarter was a great start to this new phase of our corporate journey as a public company and the continuation of what we expect to be an excellent 2013 with strong revenue performance and great customer acceptance and success. Now Fred will discuss more details about our financial performance in the quarter and our outlook for the coming periods. Fred please go ahead.

Frederick Ball

Thanks Phil. As Phil stated we had a very solid Q2 but before I get started let me be clear on how I will present the numbers. I will state all numbers on a non-GAAP basis unless I indicate otherwise, you will find a reconciliation of GAAP to non-GAAP results in the financial tables we provided to you today. The non-GAAP amounts exclude the impact of stock based compensation expense and the amortization and intangibles acquired in connection with the acquisition of Crowd Factory one year ago.

Now for the numbers, revenue for the second quarter totaled 22.5 million up 62% year-over-year and 14% sequentially recurring subscription and support revenue was 19.9 million in Q2 increasing 61% year-over-year and 13% sequentially. We experienced healthy new customer growth across the entire business but particularly strong growth in our enterprise segment. Subscription dollar retention rates continue to average approximately 100% over the past four quarters reflecting ongoing customer success with our platform.

Professional services and other revenue for the second quarter was $2.6 million up 69% year-over-year and 20% sequentially driven by a significant increase in our delivered as well as strong educational revenue coming from our user summit in April. In Q2, gross margins on subscription and support revenue was 69% as a reminder we are transitioning from our managed hosted service provider to a new co-location facility. As Phil mentioned we completed the transition out of one of these legacy data centers at the tail end of Q2 and we are on-track to complete this transition by the end of 2013.

We will begin to see some gross margin benefit from this ongoing transition late in the back half of this year, with meaningful gross margin improvements expected to occur in 2014. Professional services gross margin continue to improve to negative 13% from negative 32% a year ago, and negative 16% last quarter, as we significant increase delivered hours and improve staff utilization rates during the period.

Turning to operating expenses, research and development were $5 million for the quarter and represented 22% of total revenue in Q2 as compared to 37% a year ago and 24% last quarter. We will continue to make investments in product development as we go forward but at a lower percentage of total revenue overtime as we make progress towards our long term model. So the marketing expenses were $14.6 million or 65% of total revenue in Q2 as compared to 69% a year ago and 61% last quarter reflecting higher than expected commissions and variable compensation cost due to sales over performance in the quarter. As a reminder the expense commission cost within the quarter earned resulting in increased spending in the current quarter with increases in revenue occurring in future quarters as we recognize the related revenue ratably over the contract period.

Total headcount in the sales and marketing organization was up slightly relative to Q1 as we added a few heads in line with plan. Going forward we will continue to add sales and marketing capacity selectively to support growth opportunities.

G&A expenses were $3.3 million or 15% of revenue in Q2 as compared to 20% a year ago and in line with last quarter. We do expect to have incremental cost related to operating as a public company in the back half of 2013. Our operating loss in the second quarter was $9.5 million or 42% of total revenue as we continue to invest and scale our business. We expect our investment to continue in 2013 and start to moderate in 2014 as we achieve operating leverage from expected top line growth.

Net loss in Q2 was $9.6 million and net loss per share was $0.49 based on 19.8 million weighted average common shares outstanding for the quarter. This reflects the weighted average impact of conversion of our preferred stock to common on May 16th in addition to the 7.2 million shares issued in connection with our IPO including the over allotment.

Now to the balance sheet, we closed the quarter with $122 million in cash and cash equivalents. This represents an increase of $85.7 million compared to March 31, 2013 driven primarily by net proceeds of $85.3 million received in the second quarter from our initial public offering and concurrent private placement. We also closed the quarter with deferred revenue of $30.6 million up approximately 81% year-over-year and 25% sequentially from last quarter. Our deferred revenue balance was positively impacted by the increasing number of our customers opting for annual upfront payments.

We have historically seen billing frequencies that were predominantly quarterly. However our enterprise and large S&B customers are increasingly opting for annual over quarterly billing terms. We have calculated that approximately $2 million of the increase in deferred revenue during the period was related to this trend. While we expect this dynamic to continue predicting deferred revenue going forward continue to be challenging as customer mix shift from quarter-to-quarter. We expect deferred revenue growth to be more modest in Q3 as it is proven in the past to be a seasonally slower period.

Cash flows used in operations in Q2 was close to breakeven driven by the $6 million increase in deferred and a $5.1 million increase in accounts payable that accrued expenses due impart to our payment cycle as well as the accrual of commissions and bonuses to be paid out in Q3 and at the end of the fiscal year. While I am very pleased we had a strong cash flow quarter I do not expect this to repeat in Q3. Cash flows will fluctuate in Q3 and in future period depending on the timing of many factors including billing frequencies which I described earlier and the timing of cash outflows related to items like variable compensation plans.

CapEx for the quarter was $3 million reflecting equipment purchased in connection with our co-location transition and we recent improvements associated with facilities expenses completed in the quarter. We financed 3.1 million of equipment purchases increasing amounts under our credit facilities of $6.6 million. We expect CapEx to be in the range of $2 million to $3 million for the remainder of the year.

Total headcount at June 30, 2013 was 416 up 43 from March 31. Turning to our outlook for the third quarter. We expect revenue in the range of $23 million to $24 million and non-GAAP net loss per share in the range of $0.23 to $0.26 excluding stock based compensation expense of $2 million and 125,000 of amortization of acquired intangible assets. This assumes approximately 37 million weighted average common shares outstanding.

For 2013 we expect revenue in the range of $89 million to $91 million and non-GAAP net loss per share in the range of $1.38 to $1.50, excluding stock-based compensation expenses of $7.6 million and $500,000 of the amortization of acquired intangible assets. This assumes approximately 24.6 million weighted average common shares outstanding for the year.

With that I will turn the call back over to Phil for closing remarks.

Phillip Fernandez

Thanks Fred. As I am sure you can tell we are really quite pleased with our results for the quarter. We are executing well across each element of our growth strategy and we are seeing clear competitive success in each of the segment in the industries that we serve. As I said at the start of my remarks I believe that our success in Q2 continues to show that customers want to do with an innovator that is solely focused on building industry’s best marketing platform. We are only in the early innings of the emergence of this marketing software category and I believe the immense size of this market and our position as a leader within it will serve us very well for many years to come.

With that I open the call up to Q&A. Operator please go ahead.

Question-and-Answer Session


Thank you, sir. (Operator Instructions). Our first question comes from the line of Greg Dunham with Goldman Sachs. Go ahead please.

Greg Dunham – Goldman Sachs

Hi, yes, thanks for taking my question and congrats on the first quarter (inaudible) as a public company. I guess Phil this one is for you we have seen a number of big guys larger software players enter the space which speaks of the attractiveness of the market. Your numbers are showing no signs of slow down even if I look at your billing and adjust for the 2 million in terms of the prepayments you are still operating at the mid-50. So clearly the momentum is continuing so just from an anecdotal perspective what our customers saying since the recent moves from some of the ancillary players in the market from the field what are they telling you?

Phillip Fernandez

Well it’s really fascinating Greg and thank you for the kind words. Customers see this world a little differently than those that are still sort of inside the game where we looked at all of those M&A and the big players in. As I alluded to you several times in my script, customers really do seem to be looking for the thought leader and the opinion leader and the innovator in the space and I think we are just clearly continuing to step out particularly as others maybe are distractive a little bit with that continuing pace of innovation and I don’t see customers necessarily looking to make a sweet purchase as opposed to really looking for best of breed and knowing that they can integrate together very effectively in the cloud.

So I could point to individual anecdotes of every sort along the way of CIO that works very closely with Oracle swaying at the (inaudible)– direction to Alacra or a sales person at Salesforce wanting to bring exact target into a deal but at some time I think we just had tremendous awareness in people that are choosing to want to do business with what we bring to the market. So we have seen net very little except great continuing progress in the business.

Greg Dunham – Goldman Sachs

Okay. And second one if you permit. You mentioned B2C as a highlight you stated couple of customer examples, how big of an opportunity is that for you relative to kind of your current mix of business and maybe give us a sense of how that should layer in from an impact perspective, is that going to be a 2013 event ‘14 event or ‘15 event before it becomes more meaningful to overall billings?

Phillip Fernandez

Yes, yes and yes in some sense I mean it’s a long term journey, broadly speaking notionally B2C markets are two thirds of a global economy or two thirds of U.S. and as a results probably represent a two third segment of the overall addressable market. Now the B2B market we go out is huge and we could build a very, very big company just right there, but we are seeing this tremendous crossover pull as B2C realize that the same customer interaction and big data capabilities we have in our B2B platform apply directly to customer acquisition and customer lifetime loyalty in their markets. And so as a results we see just this awakening in B2C space of how our products apply to the business problems there.

And as you look across our customer base, we actually have many, many B2C names already in education and healthcare and consumer brands and media et cetera. So we have not made projections about the exact distribution quarter-to-quarter and year-to-year but I think the basic notion that we are in a very large addressable market and as we get stronger in B2C that market expands by a factor of three we think boards very well for the future.

Greg Dunham – Goldman Sachs

Okay. One last one Fred on the data center conversion that you mentioned little earlier than expected which is good. How big of an impact does that have on a gross margin line? Can you remind us that I know it probably doesn’t hit until 2014 but just so we have that straight? Thanks.

Phillip Fernandez

Yes, I think the transition along and even excluding the incremental benefits to give a scale up or going to be 4 to 5 margin points next year and then you’ll get scale up on top of that improving production services margins. So, there is a whole set of other things even on top of that add value.

Greg Dunham – Goldman Sachs

Great. Thanks I will pass it on.


And our next comes from the line of Phil Winslow with Credit Suisse. Go ahead please.

Philip Winslow – Credit Suisse

Thank you and congrats guys on a great quarter. just wanted to get sense of the pricing environment that you are seeing out there sort of building on Greg’s point obviously we have seen a lot of moving parts over the past few months in the space, just curious about what you are seeing from a pricing standpoint? I mean also you guys have been consistently rolling out new and new features and some new packages, so I wonder if you could provide us just an update on just where you are seeing in terms of customer interest in some of the new products like social resource management et cetera?

Phillip Fernandez

Sure, pricing because we serve such a wide diversity of markets we are obviously exposed to very different price points from the very, very low end of our market that can be at $1,000 a month range to a much, much larger packages obviously in global enterprise I would say with the occasional straight deal we have been very consistent kind of price performance in the marketplace and our various trends continue strong and consistent with past quarters that have shown kind slow nudge ups and quarter-to-quarter performance. And so from that perspective we don’t see anything going on any of the changed competitive dynamics that seem to be affecting our price points. Your second question was…

Philip Winslow – Credit Suisse

Just uptick of products.

Phillip Fernandez

So we have seen very strong performance we don’t breakout the individual lines of business in our booking but we have seen quite strong performance in the install base section of cross selling and up selling products into the install based I alluded to a key deal in the quarter at a large cosmetics, one of the world’s largest cosmetics brands and it was led by a social media marketing application for example so we see the increasing diversity of product mix actually now leading deals and not just following deals as cross sell and as I said we had really nice uptick of the financial management application which represents a modest, but material uptick in the overall ASP when we sell in as part of a new deal and obviously in cross sell. So we are succeeding in monetizing the increasing products and innovation and I think that represents both entry to new customers and ability to build both initial and lifetime ASPs with the customers.

Philip Winslow – Credit Suisse

Great, thanks guys.


And the next question comes from the line of Terry Tillman with Raymond James. Go ahead.

Terry Tillman – Raymond James

Yes thanks guys for taking my questions and congrats as well on the quarter. Phil maybe a question this is more of a rate of adoption question as it relates to you calling up the large enterprise side which was strong in the quarter. Are you replacing an existing marketing automation solution there like a commercial package or does it tend to be Greenfield where they really didn’t have anything in place?

Phillip Fernandez

It’s huge diversity I believe this market as a whole is only I don’t know depending exactly how you count it, it’s 2% or 3% or 4% penetrated. So there is just tremendous Greenfield opportunities now there has been earlier technology waves of marketing technology that we do often replace in across all of our customers often in e-mail marketing solution gets replaced with a broader marketing platform and with some frequency we see an earlier generation of technology like an – getting replaced with some frequency, but this is a market that is less sort of maybe some of the other cloud application spaces driven less by replacement and by Greenfield investments as customers are still coping with just rapidly merging omni presence into the marketing channels and realizing they need a platform to cope with it. So the business is definitely been driven by Greenfield opportunities.

Terry Tillman – Raymond James

Thanks and then I guess building on that in terms of the international side which is a newer opportunity for you guys with the more recent investments do you see even more fragmented competition there? Do you see actually less competition and what were the any notable dynamics in the international business in the last quarter?

Phillip Fernandez

It’s somewhat more fragmented although clearly our largest competitors for example in Oracle with Alacra on the enterprise side Oracle clearly has broader international presence less clear to me, they have entirely integrated the operations to capitalize on that. So what we don’t see as we don’t particularly indigenous apps in any of the geographies were so there is no kind of wild cards that we are encountering and overall while the European market is maybe six months to a year behind in awareness in adoption of this category the market dynamics actually feel quite similar worldwide.

Terry Tillman – Raymond James

And just my last question and thanks for the answers there. Fred as it relates to the pro services anything we should be thinking about as you guys have more and more success in large enterprise how well are you able to scale up your pro services business or should we keep that somewhat throttled in a lot of this incremental large enterprise business could be aided or service by some of your pro services partners. Thanks again.

Phillip Fernandez

Yes Terry, that is exactly what we do we manage the number or we manage the hours at a certain level so that we can handle and keep our utilization capacity inside at the right level and then we augment that with part from the outside but we are getting a fair amount of tax rate from enterprise customers which is really exceeding the number you have seen in the front half of the year I think we are going to see a little bit of modulation on that in Q3 it tends to be seasonally a little slower and we don’t have that education, what we saw in Q2 from a summit but overall your intuition is absolutely right on regarding that.

Terry Tillman – Raymond James

Okay, thanks. Nice job.


And our next question comes from the line of Richard Davis with Canaccord. Go ahead please.

Richard Davis – Canaccord Genuity Inc.

Thanks. So Greenfield when I see other industries kind of expand into Greenfield, those ties a good thing, the only challenge sometimes that sales people have to face is this if I am the potential buyer I am like while we weren’t spending money on anything we just have these five cabinets and stuff like that. and I know you can talk about quantified returns and paybacks but is there anything that you guys do specifically that helps kind of shake or lose budget and/or what kind of where do you see people is there a generalized way to talk about where you see people getting that budget that comes from someone or something in the previous times?

Phillip Fernandez

Yes, well one of the remarkable things about the business we’ve built and it’s really both our business and what we do for our customers of course is to take a different approach to generating demand than the traditional sales people are trying to shake down trees and shake down budget which is that we cast a broad net and people finally come to us. And so generally part of the great growth story here is how much we’re able to fulfill demand rather than at a sales level create demand we use marketing to create demand.

So as a result our sales team doesn’t spend a lot of time convincing people to free up budget because people who find their ways to us through the web and online advertising and other strong leadership programs have already chosen to allocate the budget. We do see shift the dollars from e-mail marketing applications that frequently we don’t price for e-mail ourselves but we do a lot of e-mail and we do replace the e-mail engine typically and that can in many, many cases pay for a substantial part of the budget. And the other [price] that budget comes from because marketers think about our tools that help in executing channel.

Our products come from the budget that pays for Google advertising and e-mail marketing and bill boards and TV ads and all that stuff. And so as a result it becomes an allocation of what is a very large if you add advertising and go to market budge it typically gets treated a little differently than when the CFO and the CIO need to find budget for us, an initiative in other department. So one of the great things about this market we serve.

Richard Davis – Canaccord Genuity Inc.

Great. That’s helpful. Thanks.


(Operator Instructions). And our next question comes from the line of Pat Walraven with JMP. Go ahead please.

Patrick Walraven – JMP Securities LLC

Oh great, thank you congratulations guys. Hey Phil I think one area of confusion for investors is that Marketo’s sales force, Adobe, Oracle all refer to their offerings as the marketing cloud and yet sometimes the offerings are quite different. So can you just address at high level how these solutions are different and where Marketo’s sweet spot is?

Phillip Fernandez

Sure yes its bit of a lot of good to have the trademark in marketing cloud, didn’t it? So first of all there is a huge break in market between customer choosing a cloud based solution and customers choosing an on premise solution which is why for example even though, Adobe talks about marketing cloud the (inaudible) is a primarily on premise solution. So we virtually never see it because I think that decision gets made before we ever get exposed to the deal. So we tend to sell against the true multi-tenant cloud based marketing solution represented by (inaudible) now a unit at salesforce or a localized unit at Oracle.

Our sweet spot is where the customer has woken up to the notion that building relationships with their customers over time and across every channel web, e-mail, mobile, text, in-bound, outbound, social, twitter, Facebook, Instagram et cetera, et cetera represents the past long-term customer value. And where they put a premium on the value they can extract from this large customer database, customer behavior and are really being able to present the right message at the right time to the right customer across all of these channels. And if woken up to that the customer starts to look for new generation platform that does that and there is only a couple of them in the market, ourselves and the couple of customers we talk about. And then it becomes really a featured function, integration, partner eco system, who do I align with kind of battle.

But there is really a -- there is this new generation that represented by three or four, five companies they are all about this execution across channels and across time in ways then their marketers can build really powerful campaign.

So I don’t it’s helping but the center of our universe is where marketers are trying to build these one on one relationships with their customers to get them to buy, to get them to buy more to get them to renew, to get them to advocate, tell their friends on Facebook and in building these very personal data driven relationships with customers we’re kind of the gold standard.

Patrick Walraven – JMP Securities LLC

And if I could ask just one more, what is the status of your integration with Microsoft’s data model and you mentioned the deal with Microsoft on the call what as that for?

Phillip Fernandez

So we released deep integration as Microsoft Dynamic CRM both on premise and in cloud a year ago and have seen increasing traction with that so the status of that is full blown interesting mature product that compares to everybody with our integration and we in fact have similar integrations with SAP, Sugar and even Oracle. So our ability to integrate across the wide range of CRM platforms if those customers could have such a thing is strong across all of the players and of course remains super strong with sales force. Microsoft I don’t know if I am, what I am totally permitted to say about Microsoft it’s a significant deal with a significant well known division of Microsoft lot’s more opportunity there, we’ll leave it at that.

Patrick Walraven – JMP Securities LLC

Okay. Thank you.


Ladies and gentleman that does conclude the Marketo’s second quarter financial results earnings call. We thank you for your participation and if you would like to listen to a replay of today’s call you may access it by dialing 303-590-3030 or 1800-406-7325 with the access code 4629830. Thank you again for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!