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Millennial Media, Inc. (NYSE:MM)

Q2 2014 Earnings Conference Call

August 11, 2014, 17:00 PM ET

Executives

Michael Barrett - CEO

Andrew J. Jeanneret - SVP and Chief Accounting Officer

Joseph Wilkinson - VP, IR

Analysts

Kerry Rice - Needham & Company

Heath Terry - Goldman Sachs

Todd Van Fleet - First Analysis

Jed Kelly - Oppenheimer & Co.

Operator

Ladies and gentlemen, good afternoon and thank you for joining the Second Quarter 2014 Millennial Media Earnings Call. My name is Ryan. I’ll be the operator on the event. At this time, all participants are in listen-only mode. Later, we will be opening the lines to facilitate questions and answers. (Operator Instructions). As a reminder, we are recording the event for replay.

Now, I’ll turn the call over to your host for today, Mr. Joe Wilkinson, Vice President, Investor Relations.

Joseph Wilkinson

Thank you. Good afternoon, and welcome everyone to Millennial Media Earnings Call for the second quarter 2014.

Before we begin, I'd like to remind you that during the call, we'll make some forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products or services, anticipated market demand or opportunities and other forward-looking topics. 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-K for the year ended December 31, 2013, which was filed on March 13, 2014 and our 10-Qs filed for the first and second quarters of 2014.

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 of the most directly comparable GAAP financial measures 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 have provided a schedule of quarterly pro forma results for the quarters and full years 2012 and 2013 in past filings.

Today's call is available via webcast, and a replay will be available following the conclusion of this call for one week until August 18. To access the press release, supplemental financial information or webcast replay of today's call, please visit the IR 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 second quarter 2014 earnings call. Q2 is my first full quarter at Millennial Media and I’ve met with more of our customers, partners and potential partners as well as a number of investors and analysts and have gained perspective.

To say the least, these are exciting dynamic and challenging times in the mobile media space and we’re hitting our share of challenges along the way. But this much is clear to me; we are still in the early stages of a great opportunity in mobile advertising and I believe Millennial Media has an excellent foundation of great data, great tech, great products and a great team to address this opportunity with increasing success.

Although we still have plenty of work to do, I believe we have many of the necessary pieces gathered and with some work towards organizing assembly and operationalizing what we already have, plus adding a few more capabilities, I believe we will make steady progress towards reaccelerating revenue growth in the coming quarters.

So I remain optimistic and enthusiastic and believe we have an unique opportunity in mobile advertising than can build on an excellent foundation already in place with Millennial, especially related to the brand segment, our fast growing exchange business and the company’s valuable mobile data assets.

We are beginning to execute on our areas of focus and I’ll give some brief updates. But before I get into that, let me take a moment to give a quick overview of Q2 results. Although we fell short of our expectations, the substance and themes of Q2 were about what we expected.

In the second quarter, we saw a significant year-over-year and sequential drop-off of performance revenues largely attributable to a small number of very large app download advertisers. This anticipated drop off in the performance segment was partially offset by strong growth from our programmatic platform business while still growing of a small base and healthy growth in the brand sector but not as strong as we expected.

We’re not satisfied with these results but as we move through the quarter, we validated our high level plans for our four key areas of focus. Let me quickly take you through a few highlights from Q2 and then review our areas of focus. The brand business grew by 24% in Q2 as our relationships with the largest global brand including 90 of the Ad Age top 100 translated to growth in number of campaigns in campaign spend globally.

This was helped by growth in video and rich media campaigns which more than doubled from last year’s second quarter with strong results both domestically and internationally. Video, in which media campaigns are experiencing greater demand and command greater eCPMs.

We also saw quarterly strength from some of our newer product launches which I’ll talk about in a moment. Our exchange business again grew very well during Q2 and while the revenue is still gaining off a modest base, we believe the long-term potential through programmatic exchange base revenue production in mobile is large and we believe we have a unique opportunity with MMX.

Thus far, on MMX, we have amassed more than 350 buyers and billions of impressions and we continue to integrate new buyers and grow available inventory. I’ll talk more in a moment about our exchange and programmatic aspirations.

Last quarter, I laid out a few key areas of focus where we’re concentrating our efforts for the balance of the year and into next. We believe that driving success in these areas will lead to a reacceleration in revenue growth. The areas of focus are one, expanding our programmatic platform presence to capture more streams of revenue. Two, investing in new products and features for our brand business. Three, re-accessing and fixing our performance business. And four, continuing expansion in international markets.

Addressing these priorities will clearly mean making some changes as we reposition the business including organizational changes we made, some of which I’ll review in a moment. These changes will require some remaking of Millennial Media and will take some time and patience and as we are still seeing, we’ll continue to see choppiness in 2014 revenue.

Here’s a quick review of our priorities. As I mentioned when I first arrived, one of the great opportunities here at Millennial Media is the ability to leverage our network business as we build an end-to-end mobile programmatic platform company. We believe by making this transition we are positioning Millennial Media for greater participation in expanded and more diverse revenue sources with greater presence in more segments of the mobile advertising value chain and less reliance on a single revenue source.

This repositioning is key to unlocking future growth potential as more advertisers move their dollars to mobile, programmatic platforms as we’ve seen online and you’ll see us move aggressively on improving this functionality in the coming quarters. Some of the pieces are already in place and others need further build-out.

Millennial has a good start with our cross-screen data management platform, MM DMP, and our demand side platform, MM DSP came through the Jumptap acquisition as well as a strong third party data asset in intellectual property assets with the growing portfolio of more than 85 issued patents and many more pending covering a wide range of the technology that is core to mobile advertising.

This is an addition to 650 million active user profiles and massed over the last several years by data gathered from software development kits embedded in approximately 60,000 sites and apps. We believe our data and capabilities are unique and believe a true end-to-end platform is the best way to fully leverage and maximize the strategic and revenue producing value of these assets.

We’re constantly refreshing and renewing our user profiles and adding the most recent data and activity to these profiles. This rigorous refresh of the profiles keeps our audience building capabilities rich and relevant to best serve our end users campaign. In addition, these profiles allow cross-screen attribution and combined with our DMP can unlock desktop cookie data for mobile audience targeting.

As the top online DSPs and agency trading desks turn more of their focus to mobile, we see a significant business opportunity in using these combined assets and capabilities to create a mobile ad technology platform that much more effectively matches advertisers demands with mobile content supply, enables through our data and technology and fueled by the audience monetization from the more than 650 million active user profiles.

These profiles and the audience targeting capabilities they enable are not easily replicable and are a huge competitive advantage for us. Leveraging this data and linking buyers and sellers to the mobile advertising space on an exchange basis is the key to effectively unlocking more value and participating in greater revenue opportunities. We believe the opportunity is enormous and we are well positioned to win a significant share of mobile exchange revenue.

In late 2013 we rolled out MMX, our own exchange platform and while still in the early stages we’ve already seen some excellent indicators. We have seen very healthy growth and available inventory and impressions and have attracted more than 350 buyers across the platform, including most of the largest and most well known online DSPs and agency trading desks. Impressions are growing and so is demand. This is still very early stage for most of the players here who are just beginning to participate in mobile exchanges. And based on their success with online exchanges, they intend to ship large portions of their mobile budgets to exchanged base platforms.

We’ll continue to improve our platform capabilities and work with the advertisers and their agents as well as developers to best coordinate and consolidate supply and demand on our platform and expect continued strong growth from MMX. In the first couple of quarters since the MMX rollout, we’ve seen a very rapid revenue ramp up and you’ll see us focus lots of attention on the programmatic front in the next couple of quarters. We expect continued strong growth in this part of the business.

We’re building out our platform capabilities on a foundation of strength in the brand network business. This business services huge advertisers with large budgets who are only beginning to spend in mobile and we expect to grow with them over time. Nearly half of all digital spend is brand spend and only a small fraction of that has moved into mobile thus far. As consumers spend more and more time consuming content on their mobile devices, it is only natural that we’ll see a shift of more brand dollars to mobile. And as that shift accelerates, I believe we are well positioned to capture an increasing share of those dollars.

Brand advertisers like our independence and our open platform. We use technology, data and people to help brand advertisers reach, target and engage consumers across devices. We’re here to serve the needs of the brands and their agencies as the neutral third party with the goal of building audiences to best serve these brand clients through the best data and content inventory available regardless of source, and this positioning has created a level of trust in the mobile brand advertising market.

I mentioned briefly strong uptake and success with some of our new and emerging products. Video; rich media; location-based products, POINT and cross-screen functionality, PATH and post campaign measurement, Omni. As we enhance our own capabilities through better data, tech and creative services and augment our abilities through partnerships with others, we are continually improving mobile advertising experiences and effectiveness. We work hand-in-hand with our large brand clients to create these services and believe the evolution of these abilities will lead to more effective advertising, which will in turn drive greater dollars into this space.

In the past few months, we had several campaigns with large advertisers that are illustrative of the demand for our improving brand products. We’ve already had success with some very large automakers and national retailers using our POINT suite of location-based capabilities. This suite of capabilities is in partnership with Esri, the world’s leader in spatial analytics and mapping technology. Advertisers find significant advantages for audience identification using the various location-based geographic targeting parameters enabled by the POINT suite of solutions that are unique to the mobile environment.

We’ve also seen success with the financial services, insurance industries with our attribution products including Omni Measurement, power and cross-screen attribution and we’re showing dramatically improved conversion rates with these clients. There is a constant demand and the strong growth for our interactive video units so we released the new shoppable video unit that was first utilized in Q2. The unit has multiple clickable hotspots appearing over the video that will allow for additional user engagement and the opportunity to drive sales. Our advertising customers are hungry for more interactive video ad units and we’re working aggressively towards even greater capabilities.

Our brand business is still largely a full service network business at the moment. But we are also well positioned to capture brand dollars as they ultimately shift to programmatic. Our current high touch, high service insertion order driven brand business had limitations on its ability to scale and grow. With increasing opportunity, choice and competition, brands in their agencies are assessing their digital and mobile alternatives and are signaling that they will move increasing volumes of their business to programmatic platforms where they can make more of their own decisions as to how, where and when their ad dollars are spent.

As we mentioned, the shift first occurred in the online environment and is underway in mobile. We are moving aggressively in that direction of the company. In the first half of 2014, we’ve reached agreements with several of the largest agency holding company trading desks to provide preferred access to our inventory programmatically and on an insertion order network basis. And as we mentioned, we’ve expanded our total exchange buyers in MMX to more than 350 DSPs and agency trading desks. This will give us an advantage over other mobile marketplaces given our scale and breadth of audience targeting capabilities.

As I mentioned, our exchange MMX is connected to the trading desks of many of the top brands which are just beginning to test programmatic spend in mobile. The near-term goal is to move smaller dollar transactions to high volume automation by exchange while allowing longer term, highly creative large dollar campaigns more personal attention.

As we mentioned in our last quarterly call and our summary of Q2, we’ve recently experienced a very significant drop off in our performance business due mainly to a small number of large clients spending far less with us than at this time last year. While there are a number of factors that play here, clearly a few big players entering the mobile space are taking significant chunks of the app download business.

We need improvement here and we need to drive a greater percentage of the performance business through programmatic real time bidding across our growing platform, exchange and by DSPs. This change will better accommodate a broader, more diverse list of clients and their individual needs. Programmatic platforms like our exchange MMX will allow advertisers small and large to access Millennial’s broad base of inventory and tap into our proprietary dataset to more efficiently run performance campaigns through real-time bidding.

This is a much more efficient way to serve small and mid-sized performance advertisers which will help us build a performance business that is based on many smaller transactions by multiple parties instead of reliance on a small number of very large clients. As we mentioned last quarter, it takes time to make this shift and build this business back up again. Additionally, we’ve done some digging on our own DSP conversion features and have discovered some opportunities for creating better performance conversion outcomes in the future.

We’re working to get back share in the performance business with less reliance on wells, more reliance on programmatic and improving our own performance capabilities but we recognize these improvements are going to have significant impact to our performance business for at least a few quarters. Suffice it to say these areas of focus also apply to international markets. Though we’ve seen some of the same challenges in the performance business in the international arena, the overall overseas market opportunity is huge.

Over the last couple of years, Millennial Media has expanded and it’s grown the international business impressively. From our operational hubs in the UK and Singapore, we’ve grown our international footprint in Europe and Asia. And in Q2 we added a presence in Korea, a very vibrant and growing mobile advertising market. We’re seeing growth of our brand business in Asia where we launched about a year and a half ago and we are now looked to as the mobile brand leader in much of Asia. This market is active and engaged with their mobile usage and we’ve seen steady uptake including strong performance from our video products.

We’re continuing our excellent engagement with large international brands who are seeking longer term, multinational branding campaigns. The trend towards programmatic is also taking hold internationally and we’ve rolled MMX out across most regions and we’re seeing steady growth in overseas exchange base revenue. An example of this is the Latin-America market where our revenue growth is driven largely by growth in programmatic revenue which is now a majority of the region’s total expected revenue.

Making some of the changes I’ve described requires different focus and direction. As you might expect, I’ve been making some changes and additions to the organization. For the past month or two, we’ve made announcements to two new additions to the senior management leadership team; Marc Theermann as Executive Vice President of Business Strategy and Myles Presler as Senior Vice President of Business Operations, both are reporting to me.

Marc comes to us from Google where we led mobile platform sales. Marc previously helped me build the AdMeld platform and he also co-founded two wireless companies, so he comes to us with a great combination of deep mobile and programmatic experience. Marc will oversee our strategy and go-to-market execution for the overall business and will oversee international development with the overall goal of accelerating the company’s programmatic platform presence.

Myles Presler comes to us from McKinsey & Company where he helped multiple businesses grow in scale and where he had great success with organizational change management. Myles is responsible for cross-functional projects and will work closely with senior leadership from each business unit to improve our operational effectiveness. I’ve had the privilege of working with both Marc and Myles in the past with excellent results. I feel very fortunate to have them on our team and I am thrilled that they have joined us. Marc and Myles have been very well received by the overall team and are already making a significant positive impact on our business.

There are a couple of other quick items to make you aware of on the leadership front. Our head of sales and operations, Mollie Spilman will be departing from the company on August 15. Mollie was instrumental in leading the sales teams from the newly public Millennial Media and helped the company grow important brand relationships during her tenure here. We wish Mollie all the best in our future endeavors.

Additionally, Alan MacIntosh will step down from the Millennial Board of Directors at the end of August. Alan was an early investor in support of Millennial Media and he has decided to focus his full attention to his fund dedicated to early-stage businesses.

So to close, I continue to see a great early-stage opportunity here at Millennial. We have work to do and we’ll continue to see challenges in the near future. I am optimistic about the changes we’re making and I look forward to keeping you up-to-date with the progress as we make this transition.

Once again, our key areas of focus are; one, expanding our programmatic platform presence to capture more streams of revenue. Two, investing in new products and features for our brand business. Three, re-accessing and fixing our performance business. And four, continuing expansion in international markets.

We have a solid foundation on which to make this transition and we’re working hard towards assembling and operationalizing many of these assets in order to best serve the growing mobile advertising market including making aggressive moves towards further build-out and improvement of our end-to-end mobile advertising platform. We believe in the coming quarters we’ll report on bringing this vision together and reaccelerating revenue growth.

I’ll turn the call over to Andrew Jeanneret, Millennial’s Chief Accounting Officer to take you through the numbers and then come back for some final comments. AJ?

Andrew J. Jeanneret

Thanks, Michael. I’ll jump into the numbers for the second quarter and our Q3 outlook. In Q2 we delivered 67.3 million in revenue, an increase of 18% from our standalone Q2 GAAP revenue and a 17% decrease from 2013’s Q2 pro forma combined revenue including Jumptap of 81.3 million.

Adjusted EBITDA was a loss of 6.1 million for Q2, driven by lower than expected revenue but partially offset by lower associated expenses. Once again, our Q2 revenue was largely driven by strength in the brand business, which grew by 24% year-over-year compared to our pro forma combined 2013 Q2 results. The brand growth, however, was offset by a significant drop off in the app download performance business both year-over-year on a pro forma combined basis and sequentially since last quarter.

As Michael mentioned, this decrease in performance revenue can be attributed to a number of factors including a significant drop off of a few large performance advertisers as well as competitive pressures. This Q2 performance drop off was expected but brand didn’t grow in Q2 quite as much as we expected. This calls us to fall short of our expectations.

Growth of our video offerings, rich media campaigns and audience targeted brand campaigns all helped drive top line brand growth both in the U.S. and globally. We added new brand customers during the quarter and also we’re able to increase spend from existing customers. We saw particular strength in categories such as automotive, retail and consumer packaged goods during the quarter. We continue to enhance and improve existing products such as POINT, PATH and Omni Measurement, which resulted in revenue from some very large brand advertisers.

For Millennial Media as a whole, overall pricing was solid in the quarter. Global effective CPMs grew by about 19% in Q2 of 2014 as compared to Q2 of 2013. Effective CPM increases were primarily driven by a higher concentration of more highly targeted brand businesses as well as an increase in advertisers’ use of video, native and other highly engaging ad formats. In Q2, for example, we more than doubled our total video revenue versus the prior year quarter with strength in both video domestically and internationally. We believe these increasing effective CPMs are a good indication of the strong competitive position of our business, particularly in the brand portion of the market.

In Q2, our international operations also gained on brand revenue but we saw a steep production performance revenue. As we mentioned on our Q1 call, performance revenue was more concentrated in our international results due to revenue from a small number of clients primarily booked out of the EMEA region. This concentration did not repeat in Q2. Our revenue generated through international sales offices represented around 15% of total revenue during the quarter.

Our exchange MMX grew rapidly during the quarter. While still small, this rapid growth is a good early indication of growth in buyers, sellers, inventory and active participation in this new mobile technology. While still in the early stages, MMX allows access to more than 350 DSPs, agency trading desks and ad networks and MMX is live in more than 40 countries.

eCPMs and margins on MMX are tracking above expectations and we are now starting to see more meaningful revenue growth rates as more buyers and their demand draws more inventory onto the platform. Though still not quite large enough a number to breakout, if activity and growth rates continue on their current trajectory, we expect MMX platform revenue generation to add meaningfully to overall revenue several quarters from now and we expect we’ll break that platform revenue out.

Each quarter we share a number of nonfinancial metrics that we use to measure and monitor the scope, scale and reach of our business. For example, in Q2 2014 our total reach was more than 650 million monthly unique users. Our reach included approximately 170 million monthly unique users in the U.S. alone. The number of sites in apps enabled on our platform increased to approximately 60,000 as compared to just over 45,000 a year ago.

We also have developed more than 650 million active anonymous user profiles and approximately 58 million of these are cross-screen profiles that link users across mobile devices and PCs. These profiles are a key asset of the company enabling us to identify unique users on a completely anonymous basis across mobile devices and to target ads more effectively based on demographics, interest or location of the consumer.

Our gross margin was 40.2% in Q2 2014. This was slightly lower than our 40.6% gross margin from Q2 2013 on a pro forma combined basis. Because the network brand business generates somewhat higher margins, the slight decrease in our margin percentage is somewhat affected by our growing exchange business. In the near term, we expect gross margins to be around 40%. However, as we aggressively grow our exchange business, our gross margins may go lower than 40%.

Operating expenses in Q2 were slightly lower than initially anticipated. This was driven primarily by lower than forecasted personnel costs and IT-related costs. Our adjusted EBITDA for Q2 2014 was a loss of 6.1 million. This compares to an adjusted EBITDA loss of 400,000 on a pro forma combined basis in the second quarter of 2013. Our Q2 adjusted EBITDA was slightly lower than our guidance due to lower than expected revenue but partially offset by lower than forecast operating expenses.

Our GAAP earnings per share for the quarter was a loss of $0.14 per share while our non-GAAP earnings per share for the quarter, which is adjusted EBITDA divided by outstanding shares, was a loss of $0.06 per share. Our balance sheet remains strong with over 90 million in cash and cash equivalents as of June 30, 2014. Our days sales outstanding and receivables continue to remain within expected ranges with no material deviations from prior periods.

We now have 107 million shares outstanding. In addition, we have another 10 million potentially dilutive shares mainly represented by unexercised stock options. Our capital expenditures for the first six months were 6.1 million, which was in line with expectations and we are on track to spend about 22 million for the year. We expect stock-based compensation to be a bit higher this year than last year due to recent and expected grants to new executives. We anticipate stock-based compensation will be almost 4 million per quarter this year.

Now turning to our future outlook, I’ll share our thoughts regarding the third quarter of 2014 based on information available to us as of today, August 11, 2014. For the third quarter of 2014, we anticipate revenue to be in the range of 65 million to 70 million. We anticipate adjusted EBITDA in the third quarter of 2014 to be a loss in the range of 7 million to 8 million.

With that, I’ll turn the call back to Michael for some final comments.

Michael Barrett

Thanks, AJ. Listen, I’m not happy with where we are in the second quarter and the guidance were weaker than I anticipated but I’ve now been here about six months and at this point I feel like I’ve got a very good sense of the opportunity we have, the challenges we face and how we are positioned. And I’m convinced we have many of the component pieces here to have a great mobile advertising business.

This won’t happen overnight and it will take lots of hard work and some patience. It’s not going to take three years but it won’t happen in a quarter or two either. We believe in time. You’ll see a substantial reacceleration of revenue growth and I hope you’ll continue to monitor our progress. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes through from Kerry Rice with Needham.

Kerry Rice - Needham & Company

Thanks a lot. A couple of questions, if I might. When you think about the brand kind of more direct sales and MMX kind of on the self service side, do you see those as two different sets of customers or is it just two different types of campaigns is the first one? The second question is, how would you think about or how do you – what’s your perspective how important the MM DMP is to your success? Do you feel that’s critical? And then just one final question on patents. How do you think about monetizing those? Thank you.

Michael Barrett

Great. So just to repeat the first question was is there a difference between the advertisers that would be – brand advertisers versus on the exchange?

Kerry Rice - Needham & Company

Yes. If they’re two – you think of those as two sets of advertisers, one leveraging the exchange versus one that kind of goes through the direct sales process.

Michael Barrett

Yes. It used to be a lot more clear and differentiated. There was advertising dollars that were primarily focused on length of campaign, guaranteed impressions, guaranteed price. And that was then the class of advertisers that were willing to buy on the impression basis with no guarantee of the inventory sell. And you’re starting to see this blended world and we’re seeing it out of MMX where campaigns that used to be put through the insertion order network business are now being executed on the exchange platform and I think this is happening because there’s a growing sophistication on the buy side and a growing sophistication on the tool side so that you’re able to kind of meet halfway the needs that these buyers had when they were primarily buying through the network and they are also realizing that. There are some things they’re willing to give up and from an execution standpoint for the added targeting benefits that they receive. Does that answer the first of the question?

Kerry Rice - Needham & Company

Yes. I mean I guess as a follow-on to that, do you find at all that it’s cannibalistic? Is it kind of the same on the CPM side? I know the margins you said would tick down, but is that a risk or is that not how to think about it?

Michael Barrett

I think CPMs generally speaking are pretty fluid and we’re seeing that brand CPMs executed by the exchange are very similar if not slightly higher than their network CPMs. So I don’t know if CPMs is an exposure risk. As it relates to margins, I think generally speaking the cost structure of both models take into account the margins. So, when you’re running the exchange business and the resources against it and the people against it versus running a network and the people against it, basically I think you can wind up to the same net conclusion even if there’s lower gross margins on one of the two platforms.

Kerry Rice - Needham & Company

Okay. Thanks. And then on the – sorry, my second question on how do you see the importance of the DMP side for your business?

Michael Barrett

I think it’s absolutely critical. It has been many years in the making and so Millennial started-off with this great data exhaust from all the SDKs that were embedded. The Jumptap acquisition brought another layer of data sophistication. Jumptap was an expert in dealing with third party data. So if you want to consider what we scoop up from our SDK is first party data overlaid by 20 other data sources. Now you’re getting this texture to these profiles that never existed before. And in addition, we’ve done a lot of work on both sides of the fence to try to match these individuals with their offline persona. And so therefore – I’m sorry, off mobile onto other devices. And so we have this rich data base of actual deterministic cross-screen profiles that I really think gives us a really big leg up. And primarily we’ve been using the DMP to advantage our sales efforts and I think you’ll start to see in Q3 efforts made where the DMP is being made available on a transactional basis by the exchange for other parties to take advantage of it. I think that will really unleash the value of the DMP that we have. And then lastly, you spoke about patents. We continue to grow our patents. We continue to find great value in them. I said on a previous call last quarter that we are going to go through a process of trying to validate through a third party the strength of these patents in some key areas and that’s still an ongoing process. But so far the results have been extremely positive in that area and we view that as a big asset of the company.

Kerry Rice - Needham & Company

Thank you.

Operator

Next question comes through from Heath Terry with Goldman Sachs.

Heath Terry - Goldman Sachs

Great. Thanks. I’m wondering if you could give us just a sense of how you’re thinking about profitability for the company. Clearly you’ve got some investments to make, you’ve got kind of a new strategy or an evolved strategy that you’re implementing here. How important is getting to profitability in the business and is there any sort of timeframe or just sort of mental target that you have that’s worth thinking about as we’re kind of modeling where things go from here?

Michael Barrett

Yes, great question, Heath. Listen, I think our near-term focus is returning the company to growth mode and obviously keeping an eye towards our cash positions and trying to be as prudent as possible from a fiscal standpoint, but ultimately I don’t see us being able to cut or become profitable without a growing top line. And so that’s the primary focus. We think we’re well positioned to do that. We like where we stand from a financial assets standpoint. And broadly speaking the way we think about this is, this isn’t a business that’s going to require another 600 people to run it. And so if the bulk of our class are of people, we get our revenue back to growth in over the next year or so. We start to add more revenue and keep the cost in line. I think that’s the path we’re looking at in terms of achieving profitability.

Heath Terry - Goldman Sachs

Great. I appreciate that. And then on the – you touched on the major platforms that are sort of sucking a lot of the oxygen out of the room in terms of the app download side of the business. How important will app downloads be in terms of getting that top line growth or is the focus going to be a little bit more broadly on brand or other areas of performance? And to the extent that the weakness that you saw came from a few chunky players for you, are there categories that are either not working within that those fall into or areas of – categories that you see as being better opportunities for Millennial specific platform in terms of engagement whether it’s travel, e-commerce, games is sort of what we’re looking for?

Michael Barrett

Got it. So from an app download standpoint, I think it’s very important that we participate in that economy. I don’t think the app download business is going anywhere any time soon. I don’t know if it hit its height and it will decrease from here on. I don’t think anyone knows that, but we know it’s a big, big, big driver on the performance side. I think when I say participate, we’re working long and hard in getting our DSP offering and the algorithms there in the interfaces up to market or above standards to be able to compete directly with those ad dollars. We’re also quoting folks that have those ad dollars that even if they’re third party DSP that have app download dollars, we’re quoting them aggressively, plugging them in to MMX and enjoying that ad spend of those app downloads on our inventory if we’re not necessarily the primary relationship between us and the app download dollars. So, I think that it’s important. The performance business in general is important to us and if you look at where we’ve historically done better in performance it’s more of what we kind of refer to as the brand performance business. So folks that sell flowers, folks that sell insurance, folks that sell cars or financial services, we’re stronger historically in those areas and those are a big area of focus that we think is important for the company as well.

Heath Terry - Goldman Sachs

Great. I really appreciate that. Thank you.

Operator

Next question is from Todd Van Fleet with First Analysis.

Todd Van Fleet - First Analysis

Hi, guys. Just one question, I got some background noise here, but I wanted to ask you on the preferred relationship, I think you had signed with some of the trading desk. I want to ask if you have any spending minimum to go along with any of those preferred relationships. Thanks.

Michael Barrett

Todd, I got to be careful here because there are relationships with large multinational companies and I’m not sure if I’m at liberty to discuss details in terms of the structure. We’re more than happy to follow up with you on that if I can give you more details, but I don’t know if I can do that in this kind of venue.

Todd Van Fleet - First Analysis

All right, thanks.

Operator

Next question is from Jason Helfstein with Oppenheimer.

Jed Kelly - Oppenheimer & Co.

Hi. Good afternoon. This is Jed on for Jason. Just two things. Can you just expand on why brand was a little – came in a lower than expected? And then my second question is, given you have 650 million visitors, it’s a pretty intriguing dataset. Have you thought about other ways you could possibly leverage this data moving forward? I mean would you ever license it out to other providers or other parties? Thank you.

Michael Barrett

Great. So I’ll take the last first and then hit the brand piece. So, yes, we are certainly looking at how to leverage or better monetize the data that we have. As I said previously in an answer to another question, primarily we view that data to enrich our ad efforts with direct advertising clients. In Q3 we’re going to start unlocking some of that data so that on a transactional basis, any third party that’s buying from MMX that is looking to enhance their campaigns or their targeting can hit the data base and pay us on a transaction basis. Those are in their early stages, the relationships that we’re building and the negotiations that are taking place, but we’re very encouraged that the folks that have looked at the data base and looked at the data within it feel that it’s as valuable as we think it is. So that’s nice validation. As for brand, I think that there’s not a clear and easy answer for that one. We were six weeks away from the close of Q2 when we gave guidance and we felt pretty confident that brand was going to continue at 30%. And then in the last six weeks of the quarter, we had a handful of campaigns none of them were outsized either shift spend to spend. So it’s hard for me to draw a bigger picture of why we are off by 6 percentage points on that. it’s something we’re paying attention to, working hard at. We started getting really valuable feedback from marketers about our importance to them so it’s an area of focus. Concern is perhaps a strong word, but we’re taking a look at it and seeing if there’s a larger issue other than a weaker half of a quarter than we thought we were going to have.

Jed Kelly - Oppenheimer & Co.

Thank you.

Operator

We have no further questions, so ladies and gentlemen, thank you all for your time and your participation. You may disconnect and have a great rest of the day.

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Source: Millennial Media's (MM) CEO Michael Barrett on Q2 2014 Results - Earnings Call Transcript
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