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Millennial Media, Inc. (NYSE:MM)

Q4 2013 Earnings Conference Call

February 19, 2014, 05:00 PM ET

Executives

Joseph Wilkinson - Vice President, Investor Relations

Michael Barrett - Chief Executive Officer

Michael Avon - Executive Vice President and Chief Financial Officer

Analysts

Michael Purcell - Stifel

Jason Helfstein - Oppenheimer

Andrew McNellis - Evercore

James Cakmak - Telsey Advisory Group

Kerry Rice - Needham

Richard Fetyko - ABR Investment Strategy

Jordan Monahan - Morgan Stanley

Heath Terry - Goldman Sachs

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter 2013 Millennial Media, Inc. earnings conference call. My name is Jackie, and I will be your coordinator today. (Operator Instructions) I would now like to turn the presentation over to Mr. Joe Wilkinson, Vice President of Investor Relations. Please proceed, sir.

Joseph Wilkinson

Thank you. Good afternoon, and welcome, everyone, to Millennial Media's earnings call for the fourth quarter and full year 2013. Before we begin, I'd like to remind you that during the call, we'll make forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products or services, anticipated market demands or opportunities and other forward-looking topics. The matters covered by these statements are subject to risks, uncertainties and assumptions.

Accordingly, actual results could differ materially from the expected 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 our Form 10-Q for the third quarter 2013, which was filed on November 14, 2013, and our Form 10-K for the year ended December 31, 2013, which will be filed in the coming weeks.

Also, I'd 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.

On this call, we're also discussing a number of combined pro forma financial measures that are a combination of Millennial's results with those of Jumptap. We've provided the schedule of quarterly pro forma results for the quarters and full year of 2012 and 2013.

Today's call is available via webcast and a replay will be available following the conclusion of the call for one week until February 26. To access the press release, supplemental financial information or the webcast replay of today's call, please visit the Investor Relations section of the Millennial Media website.

Now, I'll turn the call over to Michael Barrett, CEO of Millennial Media.

Michael Barrett

Thanks, Joe. And welcome to Millennial Media's fourth quarter earnings call. I am very glad to be here. And I am looking forward to meeting many of you in the coming months. Mike Avon will handle the specific details of the quarter and the full year. But first, I wanted to share a few things with you.

First is why I am so attracted to the opportunity to join Millennial and why I am so excited to be here. As I evaluated the company, I was and still am impressed by the sheer size of the opportunity in mobile advertising. I believe we are in very early stages of a huge market shift, as advertising dollars move into the mobile medium at scale.

As more and more people use their mobile devices as their media hub, to communicate, get information, be entertained, shop and share, advertisers will do what they have always done, shift their dollars to where the eyeballs are. But this shift is not just about where advertisers buy, it's about how they buy.

The mobile ad industry is moving from traditional insertion order-based media buying to programmatic or automated buying, and this change is happening at a faster rate than it did in our mind. I believe the reason for this is that mobile is more complex medium to execute, and when you couple that with data available in mobile, it creates a very significant opportunity for advertisers to make automated audience buying a very attractive option.

With Millennial's differentiated supply and data asset sitting on top of a market-leading tech platform, I believe the company is uniquely positioned to capitalize on this new market dynamic. So although I am only three weeks into the job, I've been impressed with how Millennial has navigated the competitive mobile landscape. I feel very fortunate to have the chance to join the company, as it enters its next stage of growth.

Internally, I witnessed the talented, motivated and passionate team that is enthusiastic about the company's opportunities. As I mentioned earlier, Millennial spent 2013 executing on its long-term plan to build and acquire more assets to offer its clients the ability to transact business on its platforms in all the way they want.

Whether that is through human interaction or machine automation, the result is accompanied with the solid foundation necessary to continue growing and take more market share, offering the robust suite of solutions for developers who want help monetizing their inventory and for advertisers who want to connect their messages to their targeted audiences on mobile devices in across all screens.

I look forward to working with the Millennial team to build upon these assets, to best serve the market and generate maximum revenue. In the coming months, I will spend most of time and effort executing on our business. And therefore, I won't spend a lot of time with investors. Later this year, I intend to meet with many of you and discuss Millennial Media successes and opportunities in more detail.

The next thing I want to do is to welcome two new Directors to Millennial Media's Board. Earlier this afternoon, we announced the appointment of Ross Levinsohn and Tom Evans to our Board of Directors. You can look at our press release for the rundown of their individual backgrounds, but suffice it to say, both of these new Directors bring a wealth of experience from their extensive careers and executive roles in digital media advertising and web-based businesses of some of the best know properties in this space.

I've had the pleasure of working with Ross and Tom in the past. And I have complete confidence they'll be great additions and contributors to our Board and we look forward to working alongside them.

And the last thing I want to touch on, before I turn things over to Mike Avon, is to give some broader context on Millennial Media's Q4 results and our outlook. Q4 is typically the seasonally strongest quarter in advertising, and in Q4 2013 we saw better than expected results on both the top and bottomlines.

We believe our results in Q4 are an indication of the kind of revenue production that this company is capable of. Millennial has a lot of great capabilities many of which were organically built over many years, but some of which are newly acquired.

We are at an important and unique time in the evolution of the mobile advertising industry, and the same goes for our company. As the industry is in the state of evolution, transition and growth, so it's Millennial. As the industry sees more and more brand dollars coming to mobile, Millennial has continued to grow and build upon its historically strong brand business.

At the same time, the rise of programmatic mobile buying is happening at a fast pace and the company fits in a premium position to bring in that demand to our platform. Clearly, the market and company transitions do not happen without causing some turbulence.

In Q4, we delivered some very strong results, but we also had some revenue generation during the quarter, which is not likely to repeat in Q1. I believe this is a business that should grow its topline at 20% or maybe a bit more, based on where the market is today, with some quarters growing faster and some quarters growing slower.

Mike Avon will give you some more color on our revenue dynamic and our outlook, but suffice it to say, there are parts in the market we serve that are more inconsistent and less predictable than others. This is normal in the advertising business and is expected during this industry and company transition.

Millennial's transition is fundamental of capturing the next phase of growth and mobile advertising spend. And I feel very good about Millennial Media's foundation for making these changes. This will be disruptive. It may make our revenue forecast a bit more variable in the coming quarters, but we believe as we work through this phase we will merge as a company much better positioned to capture significant portion of the ad dollars flooding into mobile, and we believe our Q4 results were an early indication of that potential.

Now, I'll turn the call over to Mike Avon, Millennial's CFO and Executive Vice President, who will take you through some of the highlights and details of the fourth quarter and full year 2013.

Michael Avon

Thanks, Michael. 2013 was a transformative year for Millennial Media. During the year we made a number of aggressive moves, which grew our global mobile advertising business and positioned us for future success. We made these moves through building, buying and partnering, and thus Millennial Media enters 2014 as a stronger and more diverse company, with a better suite of products and service offerings for advertisers, developers and publishers.

As we enter 2014, we are not only larger and more capable, we are also positioned towards where we believe the mobile industry is headed. Millennial Media has historically taken a leadership position in mobile brand advertising and now has added strong capabilities and performance advertising as well as in programmatic buying and selling.

I should note, building our leadership position was time consuming and difficult, but we think it was well worth the effort and puts us in a strong defensible position with leading advertisers from both, the brand and performance perspective.

Putting these products and services together with scalable technology well over 0.5 billion mobile profiles, a great mobile advertising IP portfolio and a management team with experience to execute on the huge opportunity in mobile advertising, all goes along way towards taking us to the next level of revenue growth.

I'll get into some details of Q4 and full year numbers in a few moments. But first I want to give a quick rundown of some of the moves we made in 2013, and how they translate into our current mobile ad platform capabilities and our value to the mobile advertising market we serve.

During the course of 2013, we established Millennial Media as a full stack mobile advertising platform. By full stack, I mean the comprehensive set of technologies, products and services, to best align advertisers demand with content provider supply. Among other things this full stack solution includes a Data Management Platform or DMP, a Demand-Side Platform or DSP, an Exchange which we call MMX, and supply side tools and interfaces for developers and publishers which we call mMedia.

This full service platform is at the core of the array of services, we offer advertisers and content developers to help them match advertising revenue with mobile content inventory. And the key is that we now enable our clients to transact on a platform in a way that suits them best, either as a managed service or as an automated service through programmatic.

Of course, our biggest move in 2013 was our acquisition of Jumptap, which closed in early November. The addition of Jumptap's assets and capabilities help fill some gaps and added important new services to our platform, including programmatic buying or DSP capabilities to serve performance advertisers.

A powerful third-party data asset via partnerships with more than 20 external data sources, coupled with robust demand management platform and Data Management Platform capabilities. Cross-Screen capabilities with more than 50 million Cross-Screen profiles that can be targeted across both mobile devices and PCs. Our robust intellectual property portfolio with more than 70 issued patents, covering broad aspects of fundamental technology and digital advertising for the mobile environment.

In the addition of a great team of seasoned industry professionals including some great additions to our management team as well as to our tech and product teams.

Integration is underway. Our cultures and combined abilities are meshing very well and is evidenced by our fourth quarter results, we began to see some immediate results from the acquisition. And we begin to realize some early cost savings through headcount reductions in areas where there was overlap.

We've seen early indications of success from our combined sales team in numerous market categories. For example, on the automotive category where we've each had individual success in the past, we saw our Q4 combined revenue performance significantly exceed our standalone revenue expectations from this category.

But there is a lot more we accomplished beyond the Jumptap acquisition in 2013. For example, we dramatically enhanced our data and targeting capabilities during the year. Our data asset, which we call the Relevance Graph, is one of our most important attributes, enabling us to deliver more relevant ads to consumers and better results for advertisers.

In 2013, we increased the number of user profiles on our platform from a little over 350 million at the start of the year to more than 625 million by the end of the year, including more than 50 million Cross-Screen profiles. These profiles have been build out cumulatively, since the earliest days of our company, with multiple behavioral, usage and location data points and patterns. And they are kept current through continual monitoring and measuring. These profiles form the foundation for the audiences, our advertising clients use for targeting an attribution.

Our specific audience targeting abilities are key reason why brands buy mobile ad campaigns from us and are linchpin to delivering better results for performance advertisers. A lot of work went into building this difficult to replicate data asset and we are continuously growing and improving our data card targeting capabilities.

In September, we launched our mobile advertising exchange, MMX in partnership with AppNexus. MMX offers demand-side platforms, agency trading desks and third-party ad networks, the ability to buy mobile advertising on a real-time basis from Millennial Media's vast mobile developer and publisher footprint.

MMX is in its early stages, but we already have access to more than 150 DSPs, agency training desks and ad networks and we're live in more than 40 countries, across Europe, Asia and the Americas. eCPMs and margins on MMX are tracking to our expectations and we're now seeing meaningful growth and exchange revenue each month.

In Q3, we launched Omni Measurement, our advanced suite of measurement and attribution tools, which help advertisers' evaluate and determine the effectiveness of their mobile ad campaigns. This set of tools was built partially on the foundation of our early 2013 acquisition of Metaresolver and also involves numerous third-party partners.

We are offering these services for larger advertisers committing to longer-term campaigns and the market has been very receptive to these services so far. We intend to continue to develop the capabilities of Omni measurement in 2014 and beyond.

In April of 2013, we launched our software developer kit SDK 5.0 for app developers. As always, our SDK is free for app developers and enables them to access the tools and monetization available through the Millennial Media platform. And the uptake of this SDK release has been very successful.

Importantly, this new SDK version allows for new and more engaging ad formats, including rich media, video and native ads. These ad formats facilitate highly relevant and engaging advertisements typically leading to higher CPMs. The use of these engaging ad formats in mobile is growing fast and we're very well positioned to capitalize.

During the year we also added additional tools and capabilities to mMedia, our portal for developers and publishers. Today, more than 50,000 apps and sites are enabled on the Millennial Media platform and many of our developer clients use their media to manage the monetization of their apps and in many cases their entire businesses.

All-in-all, in 2013 we made a number of significant and important moves, giving us a much more capable mobile advertising platform coming into 2014, all while expanding our global footprint, scaling up operations in EMEA, while growing and expanding in Asia-Pacific.

Our large scale independent full stack platform is unique in the mobile space and sets us up well going forward in the global mobile advertising market for both brand and performance advertisers. And with our recently enhanced programmatic capabilities, our Q4 performance was an early indication of how this platform can deliver growth.

Moving on to our results for Q4 and the full year. In Q4, we delivered $109.5 million in combined pro forma revenue, a 44% increase from 2012s pro forma Q4 revenue. And we delivered $341.8 million in combined pro forma revenue for the full year in 2013, an increase of over 40% from 2012s full year pro forma combined revenue.

Pro forma combined adjusted EBITDA was $7.7 million for Q4, or about a 7% adjusted EBITDA margins for the quarter. Both our Q4 revenue and adjusted EBITDA were well ahead of our initial guidance ranges of $95 million to $100 million and breakeven to $2 million respectively.

Our out performance on revenue was driven by stronger than expected branded performance spending on our platform during the quarter. Our adjusted EBITDA performance was driven by a combination of better than expected revenues combined with less operating expense than initially expected driven largely by Jumptap integration proceeding efficiently.

Again, our pro forma combined revenue is derived by adding together Millennial Media standalone revenue and Jumptap standalone revenue and then netting out any inter-company activity for the entire fourth quarter and full year. Q4 GAAP revenue of $96.7 million and adjusted EBITDA $7.6 million for the quarter, reflects the consolidation of Jumptap's results starting on November 6.

During the fourth quarter, Millennial Media showed continued strength in brand advertising both in the U.S. and globally. Growth of our video offerings, rich media campaign and audience targeted brand campaigns, all helped drive topline growth. And with the addition of Jumptap's performance capabilities, we also delivered significant growth in the performance segment, particularly among performance advertisers buying programmatically.

Overall, on a combined basis our brand of performance revenues split for Q4 was approximately 50-50, which is consistent with the historical patterns for the company on a pro forma basis. As you would expect there was growth in mobile brand spending from retail advertisers during the holiday buying season and there were strong mobile ad spending via Millennial from advertisers in automotive, telecom, home improvement and apparel among other industry verticals.

In Q4, once again we saw strong growth from our international operations. Our GAAP revenue from international operations was $22.3 million for the quarter, which is nearly double international revenue from Q4 2012. And we generated $62.1 million international revenue for the full year in 2013l.

We saw strong year-over-year growth in both Europe and Asia-Pacific and some good early results from our partnership in Latin America. Our EMEA business, which is predominantly focused on the U.K., France and Germany, grew within our expectations in 2013, predominantly driven by strong growth in U.K. performance business and nice growth in our brand business in France.

Our operations in Asia-Pacific performed above our expectations for the year. The good balance of branded performance revenue, mostly booked out of our Singapore office, targeting consumers across Asia including Malaysia, Korea, Thailand, Japan and Indonesia among others. And this was coupled with significant performance spend coming out of China during the year.

Asia is the largest market of mobile users in the world with our 2 billion mobile users and we're just beginning to get traction in the region. We have plans to open multiple new sales offices in Asia this year, and we're setting the stage for meaningful expansion in the region moving forward.

Global effective CPMs grew more than 17% in Q4 2013 as compared to Q4 of 2012 and were up 20% sequentially over Q3 of 2013. CPM increases were primarily driven by a higher concentration of more highly targeted brand business as well as an increase in advertisers' use of video, native and other highly engaging ad formats.

In Q4, we once again had excellent growth in mobile video advertising. We more than tripled our total video revenue versus the prior year quarter and grew nearly 50% sequentially as compared to the third quarter of 2013. We believe that our higher effective CPMs are good indication of the strong competitive positioning of our business in this fast growing market.

Each quarter we share a number of non-financial metrics that we used to measure and monitor the scope, scale and reach of our business. For example in 2013, we counted 90 of the ad age top 100 advertisers as our client including all of the top 25. This was up from 85 of the ad age top 100 advertisers who were our clients in 2012.

Our total combined company reach as of yearend was more than 600 million monthly unique users across approximately 9,000 mobile device types. Our reach included more than 170 monthly unique users in the U.S. alone. The number of apps available on our platform increased to more than 50,000 by yearend of 2013 as compared to approximately 40,000 at the beginning of the year. We also have developed more than 625 million active anonymous user profiles and over a 50 million of these linked users across mobile devices and PCs.

Our combined pro forma gross margins were 38.2% in Q4 2013 compared to 40.6% in Q4 2012 and 38.6% in Q3 of this year. For the full year 2013, pro forma gross margins were 39.4% compared to 40% for the year full year in 2012. This is slightly below our historical long-term gross margin of approximately 40% and reflects incorporation of a greater percentage of Jumptap's lower margin business into the 2013 numbers.

Combined pro forma adjusted EBITDA in the fourth quarter was approximately $7.7 million compared to $2.2 million for the same pro forma measure in 2012. This result was driven by the out performance in our pro forma combined revenue and by lower than anticipated operating cost during the period. We were also able to recognize some cost synergies from our combination with Jumptap earlier than initially expected. For the full year 2013, pro forma adjusted EBITDA was $3.3 million compared to a pro forma adjusted EBITDA loss of $6.9 million in 2012.

Our balance sheet remains very strong with $99.2 million in cash and cash equivalents as of December 31, 2013. Our days sales outstanding and receivables continue to remain in expected ranges with no material deviations from prior periods. We now have approximately 107 million shares outstanding, in addition we have another 7.7 million potentially dilutive shares mainly represented by on unexercised stock options.

For the full-year 2013, we spend approximately $5 million in standalone CapEx. In 2014, we expect CapEx to temporarily increase above normal rates, reflecting two significant projects. First, a network build out, combining the ad servers and data centers of Millennial and Jumptap into one with consolidated next generation data architecture. A portion of this build is one-time or some of it reflects data processing needs as the business grows.

We plan to spend approximately $15 million on this project. In 2014 we are also expanding our headquarters location in Baltimore. We've recently signed a lease to nearly double our square footage into the building adjacent to our current Baltimore headquarters location.

Our recently signed 10-year lease allows room for future growth and also locked in favorable lease rates, but also requires one-time cost of approximately $10 million for improvements to the building next door. All told, our CapEx plan for 2014 is approximately $25 million.

We expect stock-based compensation to be a bit higher this year than last year, due to recent grants to certain executives. We think stock-based compensation will be approximately $4 million per quarter this year. We also note that we have approximately $55 million in intangibles from the Jumptap acquisition that we'll amortize over a period of approximately 6.5 years, which equates to about $2.2 million of additional amortization for quarter.

Now turning to our future outlook. I'll share our thoughts regarding the first quarter 2014, based on information available to us as of today, February 19, 2014. Please keep in mind that in the near-term, our operations and financial results will be affected by acquisition and integration expenses.

For the first quarter of 2014, we anticipate revenue to be in the range of $72 million to $76 million. We anticipate adjusted EBITDA in the first quarter of 2014 to be in the range of a loss of $5 million to $6 million. In 2014 we'll be following many of our peers in the digital advertising industry, by not giving formal annual guidance.

We do expect revenue and adjusted EBITDA to drop from Q4 to Q1, consistent with normal seasonality. That seasonality combined with some variability in the spend from some large performance advertisers who spend more with us than expected in Q4 and a bit less in Q1 along with our ongoing integration of Jumptap, results in more quarterly volatility than normal.

I would also note that while we expect our adjusted EBITDA to be negative for the first part of the year, due to seasonality and costs associated with the continued integration of Jumptap, we do expect adjusted EBITDA to be meaningfully positive in the back half of the year, as we more fully recognize the synergies associated with the Jumptap acquisition.

As Michael discussed earlier, we are a company in transition, as we complete our integration of Jumptap and the build-out of our full stack platform and we operate in a market that is transitioning to the next phase in mobile advertising. While this transition may result in some choppiness in quarter-to-quarter results, we think our results from Q4 are a clear indication of the opportunity ahead of us with our more complete and powerful platform.

Over the past year, we've transformed Millennial Media through significant investments, partnerships and acquisitions, and we enter 2014 a much stronger company that is well-positioned to pursue the exciting market opportunity in front of us.

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

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Michael Purcell with Stifel.

Michael Purcell - Stifel

First off, I was just wondering if you can give us a little bit more color on the guidance. You're growing pro forma combined 40-ish percent in the last two quarters and this, by our math, is about 15%. You did call out some one-time performance-based in 4Q, but I was just wondering what you were seeing quarter-to-date that put your guide where it is? And then, Michael, I believe you saw that or said that the industry should go about 20%, I'm wondering was that comment to the industry or where you think the company will grow?

Michael Barrett

I think that my comment was a reflection of someone who has been here for a little over three weeks, but someone who has been in the industry for sometime, and so as I spent some time with the team as the new kid on the block, the decision was that we would forego strict annual guidance. And as we discussed the numbers and the opportunities, we felt comfortable with talking about a growth range in the 20% range for the year.

Michael Purcell - Stifel

And if I may, have you guys been making more progress with cross-screen platform opportunities within the company?

Michael Avon

We have developed significant IP and capabilities around being able to identify unique users across multiple devices, not just multiple mobile devices, but also PCs as well. So we're now more than 625 million unique profiles, more than 50 million of those link individuals on an anonymous basis across, not only multiple mobile devices, but the PC as well.

That enables us to run ad across any number of mobile devices as well as PCs. But the actual demand for that today is relatively limited, but we think that's an interesting growth opportunity for us over the long-term. And we think we're very well-positioned. We have run cross-screen campaigns and we're very excited about the opportunities.

Operator

And your next question comes from the line of Jason Helfstein with Oppenheimer.

Jason Helfstein - Oppenheimer

Three questions kind of two for Michael Barrett and then one for you Mike Avon. So Michael Barrett, I mean you were on the board of Tremor, you ran AdMob, you were at Yahoo! for a period to time. I mean why did you just choose to join Millennial Media, so just kind of what the potential you really saw in this company? That's first question.

And the second question is jumping on that 20% kind of general long-term revenue outlook. I mean I think most people probably think that the mobile industry is growing faster than that, if you think about all of the different types of mobile ad products. So does that kind of imply that there are things happening out there that Millennial is not involved in and could Millennial get involved in those to potentially grow even faster than 20%?

And then lastly, Mike Avon, by our math it looked like the core U.S. in the quarter grew about 18% that was much better than the flat in the third quarter. How much of that do you think was kind of seasonal versus some of the factors that impacted third quarter, you guys have moved beyond?

Michael Barrett

So why Millennial Media, just for clarity purposes, I did sit on the board of Tremor and several other companies, but I ran a company called AdMeld not AdMob. Listen, for some of the reason I said in the opening and that is first-off the market opportunity. The market opportunity in mobile is immense, it's early stages. The winners are long from being crowned.

And I think when I started to get to really understand the Millennial team, the technology, the platform, the amazing sales force that they built, I really saw that this is a company I could be a winner in that space. So a combination of the tech market opportunity and market position really drove me to Millennial.

As far as the annual guidance, again, it is my choice as the new kid on the block that the direction we're going in this year is taking an overall look at both the market opportunities with some of the capabilities we have, capabilities that we're building upon. And we think that it's fair to say that this is a company we expect 20% growth this year. I think that that's all we can say about it at this juncture.

Michael Avon

To your question about domestic versus international growth in Q4, you're right. We did see nice growth both internationally and domestically in Q4. I always cautioned that the split between international and domestic can be a bit skewed by where people are buying. So we recognize revenue based on where the advertisers' buying, but many advertisers are global advertisers.

So we've certainly seen some advertisers who are based internationally, buying internationally, but buying the ability to target across the globe including in the United States. And we're incredibly well-positioned to serve those advertisers to why we've invested in being an international company.

But right, we did see nice growth in the core U.S. business in Q4 and certainly some acceleration from Q3. And we think it was certainly expected, we had some unique circumstances in Q3, as we were between sign and close the Jumptap deal, we had advertisers who want to buy in a certain way, some advertisers wanted to buy from Jumptap, some wanting to buy from us.

It made for some results were a bit complicated to explain at the end of the quarter, but ultimately put us in the best position to serve those clients going forward. We always have a philosophy that we'll sell the client the way they want to buy, and then ultimately will report the numbers that come from that.

So I think Q3 was quite unique. Q4 we saw a very nice growth both internationally and domestically. And we really saw that across the board from both brand and performance advertisers.

Operator

And your next question comes from the line of Andrew McNellis with Evercore.

Andrew McNellis - Evercore

I was actually just wondering moving away from the guidance, if you could just probably discuss how Apple's crackdown on apps and retrieve user IDs without serving ads might affect your programmatic business? Do you think there will be any headwinds in either data collection or attribution with this?

Michael Avon

All of the major OS providers, Apple and Google, certainly from time-to-time change their rules, some of their privacy rules. And that happen over the course of the industry and has never affected us negatively. We look at a variety of different data points to identify unique user and ultimately to target a user. And we find the consumers want to opt in and share that information with us, whether it's location information that they share within affirmative opt in or other information that they can choose to opt out from sharing that information.

We see that that information is shared with companies like ours to retrieve that information appropriately. We are able to build these now over 625 million server-side profiles on an anonymous basis enable the user to deliver more relevant ads. We haven't seen any changes from any policy changes at Apple or Google or otherwise.

Sometimes that can affect some other players in the market that don't actually have technology behind the scene to identify unique users across multiple devices. And so there are plenty of companies that are built around a single data point that they use to target ads or even identify a user to frequency cap, and if that data point goes away they're in trouble.

And so we do find it, when these rules change from time-to-time, it sometimes does have a disproportional affect on some of the smaller and newer entrance in the market who just don't have the technology or the capabilities behind the scene that we do.

Operator

And your next question comes from the line of James Cakmak with Telsey Advisory Group.

James Cakmak - Telsey Advisory Group

Michael congratulations on your new role. I realize you've only been there a few weeks, and you've discussed some of the positives, which distracted you to the platform. So just can you discuss some areas where you see are underserved at the company and comment on some of your near term objectives?

And then on the revenue outlook, I realize you're expecting 20% growth, but I guess to follow-up on that I want to touch on the variability of revenue commentary, and that industry is growing at a very rapid cliff. So if you can provide some detail around the source and degree of that variability we should expect aside of normal seasonality, just given the strong secular trends, any feedback to help reconcile would be helpful?

Michael Barrett

I think I'll take the first, and have Mike handle the second question. So yes, I think obviously, I pointed out the aspects that were very compelling and appealing about Millennial. And I would just reinforce that, to say that I think where the opportunity lies for us is at there are many pieces, some of them newly acquired, some of them grown over the years. These pieces all haven't been assembled in the most cohesive way with the most market forward messaging.

And so I think that the real opportunity here is that we put those together and we execute ferociously against that, I think we'll have a very unique and differentiated platform. And so I don't see anything lacking in the company's capabilities from the short-period of time, that I've been here that's glaring in the slightest, what I see an abundance of opportunity, abundance of technology put together correctly, packaged correctly and brought to market expertly, is a very, very positive story for the company.

Michael Avon

Your second question about variability of results. I think we certainly will expect to see typical seasonal variability and we certainly see that in Q1 as compared to Q4. But there is also variability as this market transitions, and Michael talked about that earlier, I touched on it a bit in my remarks as well, we have in some cases large performance advertisers who choose spend a lot in one quarter and then spend a bit less in the next quarter. This happens in an industry and we expect that, that we will see some of those advertisers comeback and spend a lot more in future quarters.

Any time you go through a transition in an industry, some times you'll have more variability quarter-to-quarter, when you step back and look over a longer period you tend to see clearer trend lines. If you look at our success in Q4, we're very happy about that, but obviously we're giving an outlook of giving guidance of a little bit lower growth in Q1 and that's really what we're referring to when we're talking about the variability that we might see other coming quarters.

Operator

And your next question comes from the line of Kerry Rice with Needham.

Kerry Rice - Needham

A couple of questions. As you think about the long-term growth of 20%, and I was just kind of thinking back through maybe industry dynamics and maybe you could add some context around them. Obviously, when Millennial went public, Facebook hadn't had their mobile solution kind of up and running yet, and Twitter, really mobile revenue wasn't going full strength then. It was primarily Google and Apple as competitors.

Do you see any other kind of dynamic changes in the marketplace that would shift market share or change the landscape a great deal, if you can comment on that? And then kind of housekeeping-wise, can you make any comments around the average spending per advertiser in Q4 and how you kind of think about that that goes for 2014?

Michael Barrett

Kerry, I'll take the first one and defer to Mike on the second. I think when the marketplace changes, that's tough to crystal ball, given how fast paced frenetic and dynamic the marketplace is. I think we're well aware of folks that are out there like the Facebook's and the Twitter's, we respect them, work closely with them on many fronts.

And it has an interesting impact, on the one hand you might look at a Facebook entrant and say, wireless going to suck a lot of dollars out, but what you often do, you see, and I saw this in display when we launched AdMeld in over the years of being at AOL and Yahoo! is that often times folks that enter offer a huge pool of inventory. It actually creates greater demand from advertisers and so. It's almost a lifting tide effect.

Also the business is getting so complicated that folks that may have been characterized as competitors straight out a year ago from Millennial now may there will be partners. We may buy their inventory on behalf of our advertisers. So it's not a zero-some game by any stretch. And I just think that it going back to hark in to the early days, it's great that it's dynamic.

That is actually it's biggest advantage to Millennial's as it is to anybody given our history or relationships, the patterns, the IT, the platform, I think we with the team that we've assembled and the technology we have can be as disruptive as anyone in the space. And we look forward to playing that role.

Michael Avon

I think your other question was about average spending per advertiser, and we haven't historically broken that exact number out, but I can talk about trends a little bit. You asked in Q4 and we certainly saw average spent per advertiser increase in Q4 sequentially from Q3, which you'd expect, but we also saw a nice increase year-over-year as well.

And that's really driven by two things. It's driven by more volume per advertiser. We do tend to see a phenomenon, where advertisers try us out and usually with a relatively small amount of money to see if there is the lift particularly for brands that they would expect to see from the data and the capabilities that we have. When they see that lift over some test campaign, they then tend to spend a lot more. And what we've seen is our repeat customers spent quite a bit more over time.

We also see higher prices and we've seen those higher prices across the board. And that's a result of supply and demand dynamics, as more advertising dollars come into the space. But it's also a result of our investment and targeting capabilities, our data asset and more engaging ad formats, which drive higher prices as well. So all of that together has led to more revenue per client, we've seen that on pretty consistent basis and we certainly saw that in Q4.

Kerry Rice - Needham

And I'm guessing you kind of expect to see that trend continue through 2014?

Michael Avon

We would expect to see that trend continue albeit with the seasonality that you'd expect, where your brand customers, for example, typically do spend quite a bit less in Q1 than they do in Q4. So following typical seasonality, we would expect to see that trend moving forward.

Operator

And your next question comes from the line of Richard Fetyko with ABR Investment Strategy.

Richard Fetyko - ABR Investment Strategy

Just could you outline your sort of vision for the company or perhaps just specifically talk about how you foresee Millennial sort of embracing the programmatic adoption from both the buy-side and the sell-side perspective, where do you see opportunities for the company? And then for, Mike Avon, well both of you guys, just curious is international business that you've been investing so heavily into and will continue, is EBITDA negative, is it this paradigm on the consolidated EBITDA at this point up? What are some of the, for the company with respect to, sort of margin or profitability versus revenue growth for 2014 or 2015?

Michael Barrett

So a bit early and you did caveat your question by saying it, kind of was, but to lay out a robust visionary strategy for the company, but look forward to doing that downstream with you. And I think that you've mentioned specifically programmatic and how we can take advantage of that shift and spend. As Mike mentioned in the 2013 accomplishments, we have a lot of pieces in place.

We have direct relationships on the supply side with over 50,000 developers enrolling. So that's our software, our kit embedded in there applications. So we have access to supply that differentiated. We are running exchange right now. We are a buyer in that exchange to our DSP, and we have BNP capabilities that we share with both the buyer and seller. So we are a full flexed end-to-end programmatic company.

And we've leveraged all those assets and we've package them perfectly to people understand that yet. Is the value proposition being communicated, is the text being completely integrated, no across the board. But I couldn't be more enthusiastic about the term lines for where this is heading for mobile, having kind of been one of the forefront players at AdMeld in stimulating this kind of shift on the display side in online display. And so I think all the pieces are there and we look forward to executing against that.

Michael Avon

To your question on the international business and then a little bit about adjusted EBITDA and margin. So on international business I think your question was does that continue to be a drag on adjusted EBITDA for us. And the answer is we don't breakout international business as a separate segment on our P&L. But the international business is really tip to a point now where it is no longer a meaningful drag. We made the heavy investment to build-out our capabilities to serve those EMEA and Asia-Pac and that's an expensive upfront build.

We're very glad that we did that as we've seen really nice growth in both of those markets. We see a lot of advertisers and firstly all developers who truly are mobile and want us to be located around the globe. So we think it was a very wise investment and we're starting to see a nice return on that investment in most of the geographies that we're in. When you look at all the cost of supporting a global business, certainly it is expensive, but we think we're seeing a really nice ROI on that.

You broke up a little bit on your question, the rest of your question. I think you're asking about revenue growth versus adjusted EBITDA and margin growth. I think the answer is as it has always been for us, we certainly are looking for topline growth, but we're looking ultimately for long-term profitability. And so we're looking for smart topline growth. We're looking to serve our advertisers and our developers the way they want to be served, creating value for all of them and ultimately delivering a highly profitable long-term business here.

And as we talked about before, there is always that trade-off of growth versus profitability. You heard me say in the last earnings call back in November that in 2014, the plan would be after we got to the Jumptap integration to really make sure that we showed a path of profitability in the back half of the year. And you heard me earlier, my remarks today say, adjusted EBITDA will be negative in the first part of the year, we expect to be meaningfully positive in the back half of the year. I think that's the reflection of that mindset.

Operator

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

Jordan Monahan - Morgan Stanley

There is actually a couple of questions. The first is about Jumptap and just looking through the breakout here, it looks like Jumptap was down quite a bit both year-on-year and sequentially. I know there is some seasonality, but I'm wondering if you can just help us understand, because this is a segment that have been growing around a 100%, that's now actually, going the other way?

And then second question, just more broadly, how sticky do you feel to your advertiser base is, because it sounds like you've talked about quite a bit of variability and unpredictability in terms of forecast. And so I'm just curious, is advertisers' stickiness one of the issues or is there something else that's contributing to that unpredictability?

Michael Barrett

I'll take this. First of all Jumptap, if you're talking about Q1 in the guide, we don't breakout Jumptap versus Millennial. We're one company. We've been one company since we closed the deal back in early November.

Jordan Monahan - Morgan Stanley

Sorry, Mike. This is the fourth quarter?

Michael Barrett

The Jumptap portion would have been just for the first month and a few days of Q4. Overall, you have to look at the combined business, and again we grew 44% year-over-year that was a combination of what we bought from Jumptap and what Millennial did as a standalone. So any Jumptap standalone number would have just been for the first month for October and the first couple of days in November before we closed the deal.

So I think that might have turned off the numbers a little bit. Overall, the Jumptap part of the business, the Jumptap team, the Jumptap products that we brought did extremely well in Q4 as we expected. And the Millennial team and Millennial products did very well, as well which blended together to the 44% year-over-year growth that we saw.

Yes, about stickiness of advertisers, the answer to that depends on whether you're talking about brand advertisers or performance advertisers. Our brand advertisers are very sticky and we have long-term relationships with the vast majority, as you see we have 90 of ad age top 100. We've been able to grow spend from the vast majority in those over time.

And we see a reasonable level of predictability with these brand advertisers as much predictability as you can in an advertising business. We also see stickiness with performance advertiser in the sense that the same performance advertisers will typically spend with us quarter-after-quarter. But the amount they spent can change pretty radically throughout the quarter and from quarter-to-quarter based on their own needs.

And that's pretty typical in the business whether it'd be mobile or online. And we certainly see that phenomenon, for example, we saw key performance advertisers who decided to spend much more heavily at the end of Q4 this year and less heavily in the beginning of Q1 for their own business needs, in a market that's still relatively early, it can't affect results.

Operator

And your next question comes from the line of Heath Terry with Goldman Sachs.

Heath Terry - Goldman Sachs

Michael, certainly I appreciate that three weeks, but to the extent that you've begun having conversations with advertisers, how do you see sort of Millennial, what Millennial needs to do to breakthrough to advertisers that at least within mobile seem to be a little bit more focused on sort of the first party side of mobile advertising at the moment Facebook, Twitter that kind of thing versus the opportunity that Millennial's offering through sort of third-party, as a third-party platform.

And then to the extent that there is an opportunity for Millennial to leverage what is a pretty unique or seems to be from the outside a pretty unique data asset in terms of the profiles that you've been able to build, to the extent that there is another way to leverage that data asset off of your own platform or off of the exchange, is that something that Millennial's willing to or able to do or are we even thinking about that the right way?

Michael Barrett

So the first question obviously has to be caveated by the 10-year here and having only met with the handful of our advertisers to date, my suspicions are that ours isn't an adoption issue, if you look at the number of top LNA, the Leading National Advertisers that work with Millennial, we are approaching, we said 85 this year. So it isn't an adoption, it's just an increase in spend that is really the opportunity for us in the present.

And I think that that's generally speaking the mobile story. I think that the mobile story is there is a lot of eyeballs there, I'm going to test, I'm going to see what works, I'm going to spend a little more, I'm going to test and going to see what works. And we're very grateful to be one of those platforms where they make a big investment on and it's hard for me to comment versus Facebook or versus Twitter or versus whomever else, but as far as these third-party platform is concerned, we're very pleased with the penetration we have with those marketers, and that's the first step, right. You get them to spend, they get comfortable with you and then you walk them up as the quarters go on.

As far as the data is concerned, it is too early from me to even comment upon that. Do you think it's a very unique asset? It's an asset that we use for our direct sales efforts to advertisers. I don't think in a world that's as dynamic and changing as the mobile space is, we ever rule out doing anything other than being above board and protective of the data.

But would we ever let that be exposed in our marketplace what other buyers have access to it, I think that these are all things that when you move into this world, the programmatic, when you move into exchange world, an APIs, nothing's really off the table. And I think you have to look at each of these opportunities and determine what the short-term gain is and really what the long-term enterprise value of this company is. And these are the things we're wrestling with in many areas, data being one of them.

Operator

And ladies and gentlemen, that concludes today's Q&A session. And with that I would like to thank everybody for your participation today. This concludes the presentation. You may now disconnect. And have a great day.

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Source: Millennial Media's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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