Marin Software's (MRIN) CEO Dave Yovanno on Q2 2014 Results - Earnings Call Transcript

Aug. 6.14 | About: Marin Software (MRIN)

Marin Software Incorporated (NYSE:MRIN)

Q2 2014 Earnings Conference Call

August 6, 2014 5:00 PM ET


Greg Kleiner – ICR, Investor Relations

David A. Yovanno – Chief Executive Officer

John Kaelle – Chief Financial Officer and Executive Vice President


Frank J. Robinson – Goldman Sachs & Co.

Nandan G. Amladi – Deutsche Bank Securities, Inc.

Karen Leanne Russillo – Wells Fargo Securities, LLC

John S. Byun – UBS Securities LLC


Greetings, and welcome to the Second Quarter 2014 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.

I’d now like to turn the conference over to your host, Greg Kleiner from Investor Relations of Marin Software. Thank you, Greg. You may now begin.

Greg Kleiner

Thank you. Good afternoon, everyone and welcome to Marin Software’s Second Quarter 2014 earnings conference call. Joining me today are David Yovanno, Marin’s Chief Executive Officer; John Kaelle, Marin’s EVP and Chief Financial Officer; and Chris Lien, Marin’s Founder and Executive Chairman.

By now you should have received the copy of our earnings release, which crossed the wire approximately one hour ago. If you need a copy of the release, please go to to find an electronic version. Call 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 the Investor Relations section of our website within a few hours.

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 August 6, 2014 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 risks relating to our business in general, we refer you to the sections entitled Risk Factors in our most recent report on Form 10-Q and our other filings with the SEC.

This presentation contains certain financial performance measures that are different from the financial measures calculated in accordance with GAAP and may be different from calculations or 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 second quarter 2014 earnings press release.

With that, let me turn the call over to Dave.

David A. Yovanno

Thank you. Good afternoon and welcome to everyone on the call today. Since I now have the role of CEO for full quarter, I wanted to start today’s discussion regarding our plans for the organization, specifically sales and how we see the Perfect Audience acquisition having a positive impact on our business and strategy moving forward.

Starting with the organization, a few weeks we announced that Peter Wooster, the former Chief Revenue Officer of Marine, had to decide to leave the Company after years of service. Peter had done a good job, having to scale the company to this point. So we all thank him for his service. As we look to scale our revenues by meeting more of the digital advertising needs of our prospects and customers now it’s also the right time to make a few changes in our sales organization. At a high level we’ll be working to improve both the efficiency and the effectiveness of our sales efforts.

We saw some weakness in both our strategic account and agency bookings in the past quarter. In particular, we saw some sales cycles expanding some deals flip out of the quarter as a quarter. We also encountered some issues with the productivity ramp at some of the recent hires. As the organization gets larger we need to improve our ability to both higher and ramp new sales executives effectively.

We believe that these issues are self-inflected and not an indication of the market opportunity we are pursuing, our products or competitive landscape. We will be working on both the sales and operational processes required to improve our execution and better scale the business in the months ahead.

To ensure our success with these initiatives, I’ll be taking a hands-on approach with our go-to-market efforts. That will also help drive the emerging display part of our business that I will outline in a moment.

As part of these changes, I have also promoted Russell Wirth, a Marin Vice President and veteran sales executive to Senior Vice President of Sales for Americas. He along with heads of both EMEA and APAC will report directly to me. We have a strong leadership team in place and feel very good about the current team.

The second major initiative underway is our position through the steady market through the acquisition we announced in early June of Perfect Audience, leading under in the display and social retargeting market. For those of you unfamiliar with the term retargeting it refers to efforts to recapture the traffic driven to our site that does not convert during initial visit.

Digital marketers spend significant amounts of money in an effort to bring potential customers to the website, but typically less than 5% of those prospects convert to actual customers. This story retargeting refers to the efforts to place additional ads in some of those prospects in an effort to pull them back to the advertiser’s website and convert them to customers. To that end search marketing and display retargeting go hand-in-hand to performance marketers.

Founded in 2012, Perfect Audience was created to help digital marketers solve these problems to across both display and social channels. We believe that the combination of our company was incredible powerful for a couple of reasons. First, using search-based intend data to power the retargeting engine of these products is a significant differentiator for our combined offerings.

Marin is a leading independent vendor in enterprise search and utilizes this data at the core of our efforts on the search side of our business. We are now in a position to leverage the same dataset to build less and targetable segments that can be applied to display and social campaigns. Combining these efforts will drive improvements in effectiveness of these campaigns along with additional value of the customers by enabling them to run campaigns across these channels and then platforms.

Secondly, we believe that we are bringing a disruptive new model into the display and social retargeting space. The majority of other established players in the retargeting arena operate a managed service that is essentially a black box that while effective in delivering performance lacked the transparency, control, insights and price effectiveness that brands and agencies demand today.

Brands are taking more control of their data and the supply is rapidly moving to programmatic display, putting pressure on the legacy models that justify the high margins they charge for their managed service. By putting these retargeting tools directly in the hands of marketers and their agencies, we believe that we can remove some of the friction in this market and improve the effectiveness and return on investment for everyone involved.

Reception so far has been quite strong from both customers and prospects. We continue to sign new customers for the Perfect Audience product post acquisition and believe that future is bright for risking product line. So we’re looking to bring this functionally to our existing customer base as well as over the coming quarters.

John will discuss the financial impact of our business shortly. Let me transition back to some of the highlights for the quarter. Revenue for the second quarter was $23.9 million, up 31% year-over-year. Absent a contribution of over $300,000 for Perfect Audience, the base business grew 29% year-over-year. Growth in mobile continues to be a driver for the business, now accounting for just over 30% of the spend to our system and up come the mid to high 20s in Q1.

I’m pleased with the progress we’re making in social where it was a very modest contributor to revenue in Q2. At that time, we assess our product and strategy in this category and we’ll be dedicating additional resources here to ensure we accelerate our share of social spend in the coming quarters.

On the new business front, we won some outstanding deals with leading brands, but as mentioned earlier, we did not perform as I would have hoped on the new booking side. Through our agency customer in a public group we added Morgan Stanley to the Marin platform last quarter. The flexibility of our architecture allowed Morgan Stanley to easily carry out a complex integration with double-click for advertisers who would have otherwise proven quite challenging for our competitors.

Similarly, our ability to capture and track results of clearing some multiple conversion types, such as contact need for those, point of request, inside gave Morgan Stanley more accurate and actual insights and to the effectiveness of their campaigns. We were pleased and excited by New York Life Insurance after participating in a rigorous selection process. In the end the strength of our toolset value added demand platform shown through. In particular, our index reporting capabilities and automated bidding features combine with our easy-to-use interface through New York Life to adopt our platform.

We also added Splunk as a new Marin customer. Aside from our key bidding tools Splunk was impressed that our reporting capabilities and the flexibility they give their team to analyze specific campaigns. And particular, when dimensions arise into the segment and NOI campaign beyond the constraints of publish redefine metrics. This allows Splunk to get a clear view of the effectiveness of their campaign according to their unique business model and means as opposed to a one-size-fits-all approach.

In the UK, we added luxury menswear retailer, MR PORTER and it’s women fashion counterpart, the Outlet. The high end fashion retailer has chosen Marin because of our open architecture. MR PORTER and the Outlet plans to build an integrated new marketing technology stack centered on the Marin platform. They plan to measure, analyze and optimize the possibility of their global search, social and display campaign using Marin as their foundation.

The flexibility of our platform enables them to use our existing systems to accomplish their goals as opposed to being forced to change to tools to satisfy the closed architecture of some of our competitors.

On the product front, team released a number of important enhancements to our platform during the quarter to help marketers make better use of their data, improve their targeting and do more in less time.

We continue to release enhancements beyond the functionalities found in the publisher platforms and deliver value for our customers. We are first independent digital marketing platform to announce support for Google Remarketing Lists for Search Ads or RLSA. By combining Marin enabled first-party audience data with Google RLSA, we can better segment and target for resulting retargeting campaigns. This functionality will also enhance our efforts with Perfect Audience.

We also announced support for Google Shopping Campaigns, the next version of Google Product Listing Ads, or PLAs. We have driven significant success with PLAs for our customers in the past and believe the automation and management features we released around shopping campaigns will extend that track record. We could also use the purchase intent data from shopping campaigns to help power our leading targeting products. In social we added support for management tracking and bidding on new Facebook ad types including Shop Now, Learn More, Sign Up, Book Now and Download.

These new ad types often generate higher conversion rates for advertisers. We also announced a partnership with Channel Factory, leading video distribution and data platform. As a result of this relationship, we will be able to leverage the data from Channel Factory’s video advertising efforts in our research and social campaigns and vice versa.

The resulting combination will allow both firms to optimize campaign performance across a broadest set of channels. This integration came out of Marin lab’s effort, multi-disciplinary team of experts focused on tackling leading edge issues and digital marketing that we watched two quarters ago.

In addition, we launched a new relationship with Productsup, a leading provider of car based product data management technology to help retailers better manage their marketing campaign based on product deals and inventory levels. Retailers often struggle dealing with changing inventory and product attributes across thousands if not millions of products. Through our Dynamic Campaigns product and the integration with product up, marketers can manage and optimize their campaign as the inventory levels fluctuate when new products are introduced

Overall, we have made some changes to further improve our sales execution, but we continue to make good progress against our overall set of strategic initiatives. The acquisition of Perfect Audience had expanded both our product footprint and our market opportunity, as well

The market is increasingly looking for one platform to serve their need across multiple channels, publishers and devices. We believe that we have the people, products, partners, and customers, in place at Marin to create a much larger company. I will be working to scale the business and improve our seller execution to best capture the tremendous opportunity in front of us.

So with that let me turn the call over to John to discuss the financials in more detail.

John Kaelle

Thanks Dave and good afternoon everyone. As Dave mentioned our Q2 revenue came in at $23.9 million, up 31% year-over-year and 5% sequentially. As in the contribution from Perfect Audience, we produced revenue of $23.5 million, up 29% year-over-year and 3% sequentially, this is about our prior guidance of $22.9 million to $23.3 million. During the last quarter, we saw balance performance from both our direct and agency customers with a mix this quarter coming in at 52% from our direct clients and 48% from our agency clients, respectively.

We also saw a small uptick in our effective take rate once again in the second quarter. Our geographic mi of revenue in the quarter was 66% domestic and 34% international. We served 776 total active advertisers in Q2, with 2013 coming from the Perfect Audience acquisition. This was up 72 sequentially from the first quarter of 2014 and 192 or 33% from the second quarter of 2013. In addition to the contribution from Perfect Audience, the increase in this metric was also helped slightly by a number of advertisers moving above the $2,000 revenue threshold inherent in our active advertiser metric definition.

As we’ve discussed in the past, there will always be a certain amount of variability from quarter-to-quarter caused by advertisers that is still active, but moving above and below for $2,000 mark. As a result, the long term trend in this metric is a better indicator of the growth of our business and customer base.

Contract link in the quarter for all active enterprise contracts was over 14 months in duration, up slightly from Q1. For the quarter, our revenue retention metric remained above 100%, driven by the strength and spend, and related revenues from our advertisers. As a reminder, revenue retention tracks revenue from all advertisers in the corresponding prior year period that remained advertisers in the current period and includes growth in spend from retained advertisers net of churn.

Before moving on to the profit and loss items I’d like to point out that I will be discussing non-GAAP results going forward, unless otherwise stated. A detailed reconciliation of our GAAP results to the non-GAAP results can be found in our earnings release.

Gross margins for the second quarter were 66%, consistent with Q1 of this year and up from 61% in Q2 of last year as we are seeing continued leverage from our prior investments in the service and support infrastructure.

Sales and marketing expenses were $11.5 million for Q2, up from $10 million in the year ago period. The year-over-year increase was driven largely by higher investments in sales capacity and customer success.

Research and development expenses were $6.7 million for the quarter, compared to $5.5 million in Q2 of last year. This increased spending was driven by our continued efforts to expand the functionality of our platform. G&A expenses were $4.5 million for the quarter compared to $3.6 million for the year ago period.

Operating losses came in at $6.8 million for the second quarter compared to a loss of $8.1 million in Q2 of last year. This was better than our guidance of a loss of $8.7 million to $8.3 million due to slightly higher revenue in gross margins along with continued cost optimization efforts across all lines. The acquisition of Perfect Audience had a negligible effect on our operating profitability in the quarter.

Net loss for the quarter was $7.3 million compared to a loss of $8.4 million in the year ago period. Based on our weighted average share count of 33.8 million this produced a net loss per share of $0.22 exceeding our guidance of a loss per share of $0.28 to $0.26. This compares to a loss per share of $0.26 in the second quarter of last year based on a weighted average share count of 32.2 million.

I would note that we did issue roughly 1.7 million shares in conjunction with the acquisition of Perfect Audience and the weighted average count for Q2 included roughly 400,000 additional shares related to the acquisition.

For the quarter, our adjusted EBITDA was a loss of $5.5 million compared to a loss of $7 million in Q2 of last year. We continue to target breakeven adjusted EBITDA in the second half of 2015.

On the balance sheet we ended the second quarter with $83.9 million in cash and cash equivalents, compared to $96.1 million at the end of the first quarter. In addition to the cash used for operations during the current quarter we also spend a total of $4.2 million net for the Perfect Audience acquisition. As we have indicated in the past, we believe we have more than enough cash on the balance sheet to fund us through the second half 2015 breakeven goal.

Before I move onto guidance, I wanted to discuss expectations for Perfect Audience for the balance of the year. As mentioned earlier, Perfect Audience contributed over $300,000 of revenue and results in breakeven from a non-GAAP operating income point of view for the period in which we run the company in Q2.

For the second half of the year, we expect Perfect Audience to contribute approximately $2 million to the top line and have a similar negligible impact at the operating line. Given the relative size of the Perfect Audience contribution to the total Marin business, we do not plan to break up the financial contributions individually going forward. So we’ll continue to report on the progress of our newly targeting display offering.

We are initiating guidance for the third quarter and updating our annual guidance for the full year 2014, which now includes Perfect Audience. For the quarter ending September 30, we expect revenues to ranges from $25 million to $25.4 million and non-GAAP loss from operations is expected to range from a loss of $8.4 million to a loss of $8 million. This should lead to a non-GAAP net loss per share in the range of $0.25 to $0.23 based upon a weighted average share count of $34.9 million.

For the 2014 calendar year, we expect revenues to now range from $98.2 million to $99 million and non-GAAP loss from operations is expected to range from a loss of $28.8 million to a loss of $28 million. This should lead to a non-GAAP net loss per share in the range of $0.87 to $0.85, based upon a weighted share count of $34.2 million.

To provide further context on our updated guidance, excluding the contribution from Perfect Audience, we are lowering our expectation to base business by approximately $1.5 million for the second half of the year to reflect the sales execution issues that Dave discussed earlier. We are assuming that it will take a few quarters to realize the benefits from the initiatives we currently have underway.

That being said, the base business is still growing nicely. Further, we believe the opportunity in the cross-channel ad management market remained significant and we are well- positioned to take advantage of it. And, the addition of the Perfect Audience team and display and social retargeting offering should only help to improve the integrated cross-channel value we can deliver to marketers worldwide.

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


Thank you. We will now be conducting a live question-and-answer session. (Operator Instructions) Thank you. And our first question comes from the line of Greg Dunham with Goldman Sachs. Please proceed.

Frank J. Robinson – Goldman Sachs & Co.

Hi, guys. Thanks for taking my question. You have Frank Robinson on for Greg Dunham. To start, David, you listed out a number of things that, I guess, you marked for change of being 90 days. There you’re pushing to display with Perfect Audience, the Salesforce changes, dedicating more resource of social. How should we think about you’re prioritizing that going forward? And also, I guess, what are the things that were precious so far?

David A. Yovanno

Yes, thanks. The immediate opportunities that I’m focused on, I have a lot of experience in building and scaling sales organizations. So I’m very much looking forward to digging in day-to-day in hands on approach. So I’ve been spending some quality time doing that, especially in the last month or so and having a lot of time. That actually – it’s an amazing and have had some great client engagements. So I’m bullish on what we can do there.

I think when you combine that with basically a brand new product that’s been brought into the mix, giving us a whole new addressable market to go after, again an area I have a lot experience in display, and this is all new and innovative. We’re using search data to drive better performance in both display and social. And what has impressed me most is just kind of the tremendous opportunity that we’ve got. I think it’s a matter of just ensuring that we’ve got the right people in place, believe we’ve got the right plan in place already. It’s about heads down execution.

Frank J. Robinson – Goldman Sachs & Co.

All right. And then, looking at the weak new business or bookings in the quarter, were there any consistent things that played out, that caused that? And are there any specific steps that you took to address them? And secondly, even excluding the new advertisers from Perfect Audience than 59 new additions, looks like from my account, the second best quarter in history based on the data I have. So is there any way to kind of give us some kind of indication of whether most of that was just coming from people who – going back above that threshold or how do we reconcile that with the comment that new bookings wasn’t as you planned?

David A. Yovanno

I can comment. This is Dave. I can comment on the new booking strand and then maybe have John comment on the other metrics. Honestly I think it’s just a matter of – there’s a number of changes that went on in organization in Q3. You got a new CEO, you got a change in head of sales, it happens to the be the same guy. You’ve got the integration of a new acquisition, I think it’s a matter of us taking our eye off the ball a little bit in terms of, the end of quarter is always an important time in terms of closing deals. It is a matter of getting back on track in terms of consistency, monthly deal flow. And just getting the sales management and operations dialed in with some of the reorganization that we put in place.

David A. Yovanno

John do you want to add something?.

John Kaelle

Sure yes. Frank, on your question about – you are correct. If you take a paternity test that we talked about for Perfect Audience, it’s still a really good and healthy quarter for us in terms of customer adds. I did mention in the script those advertisers going over the $2,000 threshold within that add in this quarter. But I would say it was kind of consistent with what we’ve seen in past quarters. It did materially adjust the numbers. So I would point to, it was a good quarter for us for the gross adds.

Frank J. Robinson – Goldman Sachs & Co.

Thanks guys.

John Kaelle

You’re welcome.


Thank you. And our next question comes from the line of Nandan Amladi with Deutsche Bank. Please proceed.

Nandan G. Amladi – Deutsche Bank Securities, Inc.

I had a bookings question a little bit more. We had another company kind of say, sooner saying like customers taking longer time to make decisions. Are you seeing any of that, or what you saw in your quarter was totally all company related?

David A. Yovanno

Yes there was some cycles were extended. However, our feeling is that it was more self-inflicted if you will than anything else. These are deals that are still live in the pipeline that we do expect to close, but the cycles were extended. We see this more self-inflicted than a larger market trend for us.

Nandan G. Amladi – Deutsche Bank Securities, Inc.

All right, thank you.


Thank you. And our next questions comes from the line of Karen Russillo with Wells Fargo Securities. Please proceed.

Karen Leanne Russillo – Wells Fargo Securities, LLC

Hi thanks a lot. I just wanted to follow-up a little bit on some of the sales and marketing changes and just distribution in general – as we go into the back half of the year, and as advertising gets more important towards the end. Is some of the execution – is this going to result in some additional turnover where you’re going to need to try and find more people to fill up that distribution that you are planning on adding to the rest of the year?

David A. Yovanno

I think we’re already through that, frankly. I think that we have been busy filling open headcounts. We still have a couple more to go. I think the other factor in the quarter has been just how quickly new individuals that we’ve added have ramped. I think for some of the reasons I have explained earlier, it did take us a little bit longer to ramp total capacity carrying rest. So those point to another factor that would be it.

So I think we’re across the heavy lifting in terms of staffing and then it’s now about accelerating the ramping of individuals. I’m less concerned about heading into G4. I think we’ve made some really important product enhancements and new releases specifically around Google Shopping, for example. Retail is, I think, our largest vertical of client base. We continue to win business in that category. And I think that’s going to kind of help keep us on track for the remaining part of the year in terms of new bookings.

Karen Leanne Russillo – Wells Fargo Securities, LLC

That’s great. Just following up on that and look at some of these new products that you have, and the Facebook Mobile App, for example, and with the Perfect Audience. How do you guys feel your market position is on some of the social advertising versus kind of where you were a year ago?

David A. Yovanno

Well, social specifically, Marin has had a beta product out for some time. And I have a lot of experience in this area with my time at Gigya. I’ve had an opportunity to kind of dig in and assess the product strategy for making some small tweaks to it and allocating some additional resources. I don’t think that we’ve had enough behind it, to be honest. And so, we’re making some of those changes organizationally and we’ll have that. We’re accelerating in terms of our growth specific and social. Was that where your question was pointing? Was it just on social?

Karen Leanne Russillo – Wells Fargo Securities, LLC

Yes, that’s great. Thank you.

David A. Yovanno



Thank you. (Operator Instructions) Thank you. The next question comes from line of Brent Thill with UBS. Please proceed.

John S. Byun – UBS Securities LLC

Hi, this is John Byun on for Brent Thill. Just had two topics to ask about. One, again, on the new business activity that was soft, could you get into a little bit more detail as to whether it lasted for the quarter? Was it more towards the end? And any specific areas whether it’s by Geo or customer size, or was it just kind of broader across?

David A. Yovanno

It looks most of our deal activity does happen towards the end of the quarter. We had all things. We’re on track throughout the quarter, but you don’t realize it really until towards the end of the quarter. So I’d say that our signed deals are pretty persistent for the quarter, but if anything they wait a little bit towards the end. That’s probably the best feedback I can give you on that. There’s nothing that’s been out that would cause me to think anything about that trend that was out – that would be an indicator.

John S. Byun – UBS Securities LLC

Okay. And on the Perfect Audience acquisition, in terms of what’s the potential like within the core Marin base, would all of them be prospects, or are they already using some other computing solutions? If you could just talk a bit little bit about that.

David A. Yovanno

The Marin client base is 770. John gave the specific metric, but we get close to 800 clients on the Marin application currently. A lot of that is used for search management. We’re just with the early stages of how these two products come together, where I can tell you that our initial client in prospect engagements have been extremely encouraging to us about how these products can come together and add more value.

The idea of having one platform to manage multiple channels is extremely exciting for our clients and prospects. And the reason is that Marine has always had a scope in this transparency, it’s very controllable, it’s very pricing efficient sort of model that doesn’t quite exists broadly in the display market.

So we’re introducing that sort of approach to display to an existing Marin client who is search and we can talk about bundling pricing and things like that and showing reporting and bid optimization, using search-based and time data through their search programs and using that to create targetable segments and to drive optimization in display.

It’s kind of a no-brainer. So the initial reaction from client that we’ve spoken with there’s a lot of excitement about it. Are there some R&D that’s happening, underway, I think in a month we’re going to have at least reporting integrated in the Marin application, and somewhere around midpoint net year we’re planning to have the product more fully integrated. But, yes, it’s very encouraging in terms of our initial engagements.

John S. Byun – UBS Securities LLC

Okay. Thank you.


Thank you. And there are no other questions in the queue. At this time, if you’d like to proceed with any closing comments.

Chris Lien

I would just like to thank you for listening in. We’re extremely proud of our results in Q2, although we kind of brought our guidance out a little bit for the second half of the year. We remain committed to the opportunity that Marin has gotten in front of it in terms of providing this cross-channel ad management platform, being as integrated stack to help our clients manage and optimize and measure their spend in social, and search and display. And we’re excited to come back in future quarters. Talk about our progress by then.


This does conclude today’s teleconference. You may disconnect your lines at this time. We thank you all for your participation.

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