YuMe's (YUME) CEO Jayant Kadambi on Q4 2015 Results - Earnings Call Transcript

| About: YuMe, Inc. (YUME)

YuMe, Inc. (NYSE:YUME)

Q4 2015 Earnings Conference Call

February 18, 2016 5:00 PM ET

Executives

Gary Fuges - Vice President of Investor Relations

Jayant Kadambi - Chairman and Chief Executive Officer

Tony Carvalho - Chief Financial Officer

Analysts

Chris Merwin - Barclays Capital

Ross Sandler - Deutsche Bank AG

Kerry Rice - Needham & Company, LLC.

Murali Sankar - Boenning & Scattergood

Gene Munster - Piper Jaffray

Operator

Good afternoon. My name is Connor and I will be your conference operator today. At this time, I would like to welcome everyone to the YuMe Fourth Quarter 2015 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you. Gary Fuges, Vice President of Investor Relations, you may begin your conference.

Gary Fuges

Thank you. Good afternoon and welcome to YuMe’s fourth quarter and financial year 2015 financial results conference call. Joining me on the call today are Jayant Kadambi, Chairman and Chief Executive Officer; and Tony Carvalho, Chief Financial Officer.

This call contains predictions, estimates or other information that might be considered forward-looking statements. Such forward-looking statements involve various known and unknown risks and uncertainties. Actual results may differ materially from the results in timing expressed or implied by such forward-looking statements.

Reported results should not be considered an indication of future performance. We make these statements as of February 18, 2016, and YuMe undertakes no obligation to update any forward-looking statements. We refer you to our SEC filings for the discussion of important factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements, including the section entitled Risk Factors and our Quarterly Reports on Form 10-Q for the quarter ended September 30, 2015 that has been filed with the SEC, and in our future filings and reports with the SEC, including our Form 10-K for the fiscal year ended December 31, 2015.

Also I’d like to remind you that during the course of this conference call we will discuss both GAAP and non-GAAP financial measures in talking about the company’s performance. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the press release.

With that, I’d like to turn the call over to Mr. Jayant Kadambi, Chairman and CEO of YuMe. Jayant?

Jayant Kadambi

Thank you and good afternoon. I’ll start with a review of our fourth quarter results. Tony will discuss our Q4 financials and outlook in greater detail, and then I’ll provide some comments on our 2016 priorities. We will then take your questions.

We delivered a solid fourth quarter driven by top 20 advertiser growth, sequential gross margin expansion, and a year-over-year decline in operating expense dollars. Q4 revenue and adjusted EBITDA exceeded the high-end of the respective guidance ranges with gross margin within our long-term target range and Q4 adjusted EBITDA margin surpassing 10%.

Along with our strong financial performance, we completed the launch of our YuMe for Publishers sell-side platform making us the only independent provider of video specific demand and sell-side offerings. Fourth quarter revenue was $53.8 million. A key driver of revenue performance was growth from our largest customers, as revenue from top 20 clients increased 19% year-over-year.

In Q4, we saw improved traction in a number of larger accounts we referenced on our Q2 call in August. Second-half process and organizational changes resulted in better Q4 execution, particularly with larger U.S. agencies. Our lifetime customer metrics reflect our Q4 traction with larger advertisers. 145 lifetime clients now have spent more than $1 million with us, up from 130 in Q3. This is the largest sequential increase in this metric in recent history.

Our $5 million lifetime clients now totaled 25, up sequentially from 23. We continue to do well with the largest brands at 67 of the ad 8,100 [ph] spent with us in Q4. We also continue to differentiate through our unique multiscreen breadth, which is powered by a proprietary software and data science capabilities. Close to one-third of Q4’s total revenue was generated through mobile, tablet, and connected television impressions, which do not support cookie-based targeting.

Additionally, we ran campaigns that utilized, at least, two screen categories for almost 60% of our Q4 advertisers. Consumers continue to ship that digital video usage to mobile and connected television screens, which is reflected in our revenue mix. Given our strength in multiscreen campaign optimization, we believe we continue to be well-positioned to benefit from this secular trend.

Within multiscreen, connected television is of particular interest to our clients. As in prior quarters, our advertisers find our connected television differentiation compelling, as more audiences migrate from linear television to over-the-top video offerings. With connected television impressions brands engaged with these consumers before they start over-the-top video consumption and they can leverage our desktop and mobile impressions to drive campaign reach and improve frequency equality with these consumers.

In Q4, our connected television revenue again grew by more than 50% year-over-year. Q4 gross margin of 46.4% increased 160 basis points sequentially and this metric is back within our long-term target range of 46% to 48%. We’re succeeding and monetizing impressions, where our software development kit is embedded, and in Q4 a large majority of our ad impressions will run on our SDK.

Our SDK enabled inventory provides us with unique data signals and survey information, which we leveraged through our data management platform to drive better audience targeting and campaign insights for our advertisers and better monetization for our media partners. We also continue to remain focused on driving operating efficiencies.

Q4 total GAAP operating expenses decreased 9% year-over-year and 3% sequentially. We will continue to manage operating expenses going forward without sacrificing responsible investment in our U.S. direct business and our programmatic and international initiatives. Q4’s revenue gross margin and operating expense performance combined to drive adjusted EBITDA margin to 10.4%, up 230 basis points year-over-year.

We think this bottom line results continues to validate our model and it positions us to drive financial performance, as we begin to scale our programmatic platform offerings. Regarding programmatic in Q4, we launched our YuMe for Publishers sell-side platform on schedule. We are now the only independent provider of both sell-side and buy-side programmatic platforms through video.

As we’ve said in the past, we think our end-to-end approach unified by a common data management platform, optimize for digital video branding campaigns gives us competitive differentiation in key areas like brand safety, multiscreen breadth, and audience segmentation. I’d like to take you further on our programmatic strategy later in the call.

Our Q1 outlook illustrates our continued confidence in the business. We expect to improve Q1 adjusted EBITDA year-over-year through revenue and gross margin stability combined with continued operating efficiencies. Specifically, on operating efficiencies, we expect a sequential improvement in expenses from Q4 2015. And as Tony will discuss, we expect to reduce full-year 2016 operating expenses from 2015 levels.

In summary, the fourth quarter was a successful combination of top line execution, gross margin improvement, and operating discipline, which drove strong bottom line results. We launched YuMe for Publishers on time to complete our platform offerings, and we believe we are well-positioned to take share in this nascent part of the market. Our Q1 outlook reflects our continued focus on operating efficiencies, while we go – while going to market aggressively with our end-to-end programmatic platform.

Finally, in conjunction with our earnings, we announced the $10 million buyback program. We believe this illustrates our optimism in the business and we view this as a sizable program. While we continue to use cash as a strategic asset that provides the flexibility to run the business for the long term, our Q4 performance and Q1 outlook allow us to deploy some of our cash to repurchase shares.

For more color on our Q4 results, our Q1 outlook, and our buyback announcement, I’ll hand the call over to Tony. Tony?

Tony Carvalho

Thank you, John. I’ll now review our fourth quarter results and our outlook. Please note the growth rates I’ll discuss are on a year-over-year basis unless otherwise noted.

Fourth quarter revenue of $53.8 million was above the high-end of the $46 million to $52 million guidance range provided in our prior call. Sequentially, revenue increased 39%. The benefit from improved traction with larger clients as illustrated by our 19% revenue growth from the top 20 advertisers. We believe this was due primarily to improved sales execution with larger agencies.

We work with 601 advertisers in the quarter, up 12%. Average spend per advertiser decreased 16% to $88,000, due primarily to growth in new advertisers who typically start with smaller campaigns. In 2015, we work with 1,001 advertisers, an increase of 14%. Average spend per advertiser over this period was $171,000, down 14%, due primarily to growth in the smaller new advertisers.

In 2015, we worked with 285 advertisers that spent at least $100,000 during the period, flat from the year ago period. Average spend for this advertiser category was approximately $547,000, down a nominal 3%.

Fourth quarter gross margin was 46.4%, a sequential increase of 160 basis points. This was due primarily to the ad operations, process improvements initiated in the second quarter, which resulted in greater monetization of higher margin SDK enabled inventory. We believe our fourth quarter gross margin illustrates success of these process improvements in our technology platform and we remain focused in managing gross margin going forward.

In the fourth quarter we made significant progress in operating expenses. Quarter four total GAAP operating expenses decreased 9%, due to continued expense management in sales and marketing and G&A. As a result, fourth quarter adjusted EBITDA was $5.6 million above the high-end of previously issued guidance of $2.2 million to $5.2 million.

Adjusted EBITDA was 10.4%, which expanded 230 basis points from the year ago period. Adjusted EBITDA benefited from revenue performance and continued improvements in gross margin and operating expenses. We generated net income by diluted share of $0.05 in the quarter compared to $0.06 in the year ago period. We ended the quarter with no debt and $60.2 million in cash, cash equivalents and marketable securities or $1.72 per diluted share.

I’ll now review our outlook. For the first quarter, we expect revenue in the range of $35.5 million to $37 million, and adjusted EBITDA loss of between $2.5 million and $1.5 million. This outlook assumes typical sequential revenue seasonality, gross margin in the range of our long-term operating model targets, and GAAP operating expense improvement of approximately $2 million relative to the year ago period.

Now, I’ll provide our operating expense outlook for this year. We expect – we anticipate 2016 total GAAP operating expenses to decrease by approximately $4 million from 2015, driven primarily by efficiencies in sales and marketing and G&A lines. For 2016, we anticipategross margin will be within our long-term target range of 46 to 48 with some quarter-to-quarter variability.

Our outlook assumes typical seasonal trends in our direct business and minimum programmatic platform revenue contributions. Note that platform businesses typically have longer sales cycles in [indiscernible] order businesses and beyond the early stages of ramping up our platform business. We’ll update you on our platform businesses impact on the model over the course of this year.

Before I hand the call back to Jayant, I would like to highlight today’s buyback announcement. This is a significant level of buyback, representing approximately 9% of our total shares outstanding at today’s stock price And we believe it strikes a prudent balance between utilizing our balance sheet and preserving our cash.

With that, I’ll turn the call back to Jayant.

Jayant Kadambi

Thank you, Tony. Before we take your questions, I wanted to offer my thoughts in the year ahead and our key initiatives for the year. In 2016, we expect to see continued growth in digital video consumption and fragmentation will remain a key secular trend. Audience has continued to migrate to digital and consume digital video content on multiple screens and content providers.

Mobile devices and connected televisions are now mainstream and we’re seeing this trend reflected in our business. Revenue from mobile and connected television impressions represent an increasing percentage of our total revenue.

The fragmentation of audiences and the underlying data used to target campaigns and measure viewability and traffic quality makes it increasingly more challenging for advertisers to scale campaigns that hit their brand metrics, and for all, but the largest digital inventory providers to capture brand dollars on their own digital platforms.

We continue to believe we are well-positioned to benefit from this market dynamic, as our platform was built and refined to solve for audience and data fragmentation. With the completion of our end-to-end programmatic platform, we can now serve brands and media partners seeking more automated transactions, as well as multiscreen breadth, audience segmentation, and brand safety.

Since we’re capturing data across supply and demand, we believe we are in a stronger competitive position compared to others who focus only on one side of the transaction. We also believe our market will continue to become more global in 2016, especially if the programmatic channel becomes more important to video.

Our international footprint serves as a base from which to expand our programmatic offerings globally. As such, our international business remains an important part of our long-term strategy. We will continue to apply financial rigor to our international media and platform businesses, balancing long-term growth investments with driving bottom line results.

Now, I’ll highlight our 2016 priorities; programmatic and continued adjusted EBITDA improvements. We plan to drive bottom line results, while expanding into the programmatic channel. With YuMe for Advertisers and YuMe for Publishers now live, we’re going to market aggressively.

We’re seeing great interest in both our buy-side and sell-side platforms, as the data inherent in our end-to-end approach is proving to be a true differentiator. We continue to believe, programmatic video is a large and early-stage opportunity, and we believe our SDK-based brand focused approach will allow us to capitalize on this market more fully than platforms focused on only one side of the ecosystem.

To-date, we’re in process with a number of demand and supply side platform licensing agreements and the pipeline is building well. Based on the metrics we used to measure our traction with prospects, we believe we are going to market with the right solution. And we continue to be very encouraged that our differentiated offerings are resonating with our target clients. And we’ll keep you updated as we progress on this initiative.

We’ll also continue to balance investing for long-term growth and driving the bottom line. We stated on our prior call that we expected to improve adjusted EBITDA in 2016 through a combination of programmatic revenue generation, a slower R&D ramp, and operating expense efficiencies. I want to emphasize that we expect meaningful year-over-year reductions in our 2016 operating expenses, driving bottom line improvement remains a top priority.

In summary, we delivered very solid fourth quarter results and our outlook reflects increasing conviction in the business. We’ve improved our engagement with larger advertisers and we’re seeing early traction in our programmatic channel, and we’re on track to reduce operating expenses year-over-year in 2016, and our confidence is reflected in our meaningful share buyback program.

Finally, I would like to thank all of our YuMe team members who worked hard in 2015 to get two programmatic platforms launched, while also running the day-to-day operations of our direct business. And I look forward to working with them in executing against our 2016 plan going forward.

Operator, we’ll now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Chris Merwin with Barclays. Your line is open.

Chris Merwin

All right, great. Thank you and congrats on the quarter. So I guess my first question is just on programmatic. Can you quantify at all for us how much revenue you generated from programmatic in the fourth quarter? And what you’re implicitly assuming in the 1Q guide, I know you said that it was minimal, but just trying to get a sense of scale. And I guess also when we should expect programmatic to be a bigger driver for top line?

And then second question is just high level on the ad text space more generally. We continue to see a lot of consolidation taking place. So how do you see YuMe’s position evolving in this competitive landscape? You’ve announced the buyback, but is M&A something that interests you as an acquirer of other companies and other partnerships that you think it would be interesting as well, just trying to get a sense for how you’re thinking about that strategically?

Jayant Kadambi

Hi, Chris. This is Jayant. On the programmatic front, we’ve been measuring the progress fairly steadily, not that we have everything launched. And we’ve been very, very encouraged with the way the pipelines are progressing and all the metrics that we’re seeing is part of the – sort of the sales process. We expect meaningful results for this later in the year, this calendar year, but we are not ready to give exclusive guidance on how that affects the models or how you should be thinking about it.

Relative to Q4, I think, the programmatic revenue can be characterized as it has been in the past, which is, it’s running at somewhere between $1 million and $2 million. And we don’t expect – we expect seasonal declines in Q1. We don’t expect anything different relative to what we saw on that – previously on that front.

On the M&A question, I’m not sure, I got it correctly, where you asking about outbound M&A or inbound M&A or both?

Chris Merwin

Well, I guess both, yes.

Jayant Kadambi

So, we continue on the outbound side. From a strategic standpoint, we’re always looking to good a technology that we can use. We’re very careful about what we do and how we do it, and we’re very thoughtful and measured and obviously given our cash situation which we think is strategic, we are fairly careful and measured. We’ve done a couple in the past, but there’s nothing sort of that stands out that is sitting in front of our plate that where we would want to mention, as we want to go do this. So I think it’s – that’s the best way to characterize it.

On a inbound stuff, I think, it’s best to say that we can’t comment on M&A activity in general on the inbound basis.

Chris Merwin

Fair enough. Thanks.

Operator

Your next question comes from the line of Ross Sandler with Deutsche Bank. Your line is open.

Ross Sandler

Hey, Jayant, how is it going. Just I have a couple of questions. So despite coming and above the high-end in the fourth quarter, which we’re obviously happy to see, you guys are still in revenue decline mode. So when do you think based on connected TV growing as fast as it is and the on-boarding of new customers, when do you think we could return to growth? Could that happen in 2016, and if so when?

And then on the programmatic side, so on the $1 million to $2 million a quarter, is that manage programmatic inside YuMe, what happens as you guys sign a licensing agreement, where an agency would be running kind of independent of any interaction with YuMe, is that going to be recorded on a gross or a net basis, when that type of business starts to come in?

And then the third question is, you mentioned that the goal is to reduce OpEx how much or could EBITDA margins go from the previous peak levels or even the run rate we have here in the fourth quarter? Thanks.

Jayant Kadambi

Hey, Ross, Happy New Year. So in terms of return to growth, I think, we believe our direct businesses is stable. I think the operational and process changes we put in place across the gross margin and organization have our solid now and we’ve moved pass them. So we believe there is a stability in the direct business while – so that’s my commentary there.

In terms of returning to growth, I think when the – the most of the growth is happening on the programmatic side of the business. And as the programmatic business launches towards the latter half of this year, we’ll – as we mentioned before we’ll see that to be the growth driver.

On the managing of programmatic revenue when people are using platforms, yes, I mean I think what you’ll see is platform revenue be reported on a net basis and managed service or managed revenue on the platform reported on a gross basis. And so you’ll see two different – we haven’t decided how we’ll report it, but they will be tracked internally, at least, two different sets of revenues. And what was your – the third question sorry?

Ross Sandler

Just the reduction in OpEx and where EBITDA margin could go?

Jayant Kadambi

Well, I mean, we haven’t changed our model from a long-term operating model perspective. I think there was a quarter two years ago wherein Q4 we were operating in 18% or 22% margins. So we feel – we still feel that when things are at the right click, they will be going towards those operating models with sales and marketing R&D and G&A operating at those long-term models.

And I think there – as I said, there has been one quarter, if not two, where we’ve actually become pretty close to that. So we’ve invested a lot of time and energy in programmatic. And so I think you’ll see with OpEx efficiencies that we’re running, the benefits of that combined with the revenue growth through the programmatic will get us there. Yes, Tony, do you have any?

Tony Carvalho

Yes. And the – the guidance for first quarter, if you look at sequentially from fourth to third quarter is in line with what you used to be in the path as well.

Jayant Kadambi

Yes, I mean to responding to your commentary about revenue decline, we last year we saw from Q4 to Q1, we saw 30% seasonal decline in revenue from, I think, $57 million to $40 million and the guidance reflects a similar decline.

I will say that the – we had a good quarter in Q4. The – but seasonal increase from Q3 to Q4 was actually higher than the previous year as well. So from a pipeline guidance and just overall perspective we thought it would be prudent to provide the seasonal number as guidance.

Ross Sandler

Got it. And then last one, so you guys have been engaged and lost some budget from some pretty big and chunky customers in the past for a whole number of reasons, whether it would be on the client side or not having programmatic in place at that time. So are you still in discussions with few of those big, big 20% type customers from a few years ago. And now that you have programmatic could any of them come back in size what’s your thought on that?

Jayant Kadambi

Yes, I mean, I guess we weren’t forceful enough in the prepared remarks here. So I’m – I will be a little bit more forceful. I’ll be trying the – I mean, i.e., we have seen very good reception from our products. The fact that they can actually buy across platforms and measure things across platforms rather than just buying on the web is very strong sort of incentive for them to use it.

We have shown true ROI improvements with our current business as well as with some tests that we’ve been running. So there does not seem to be any reluctance on the side of the customer to try evaluate and run new platforms.

In fact, we think in many cases they are looking for a new platform, because the current ones are wanting. So we feel very strongly about that. We’re on that front, we’re in –it’s a software sales cycle process, it takes time, but we are very rigorous in our methodology and apply management and just general program management of that. But from a receptivity standpoint on both the YuMe for Advertisers demand side, as well as the YuMe Publishers supply side, if you have active and very good deep pipelines.

Operator

Your next question comes from the line of Kerry Rice with Needham. Your line is open.

Kerry Rice

Thanks a lot. Nice quarter, guys. I wanted to ask first about the customer mix in Q3. You indicated on the call, large advertisers were spending with you. Can you talk a little bit, are those new or returning large advertisers, are they existing advertisers have been spending with you? Can you talk a little bit about the mix, because what’s generally been, at least, through 2015 has been a smaller customers, a larger number of smaller customers that are spending less. And so we saw obviously a pickup in revenue per customer in Q4 off Q3 and for most of the year. So, that’s the first question.

The second is, can you talk a little bit about EBITDA and maybe break it out domestically versus international, kind of where that lies? And then on the programmatic, you mentioned 1 million or two of revenue in Q4, not really seeing an incremental increase until the second-half. Is there any other gating items that you are challenged with to ramp that business that you have to get past you, or is it simply there’s some seasonality and you’re not going to turn up the marketing spend on that until the second-half? Thanks.

Jayant Kadambi

So starting with the first question, Kerry, on the – I think the customer mix. There’s a couple of things here. So, if I don’t answer that question – a couple of things you’ve asked, so if I don’t answer the question directly, please don’t hesitate. I think there was a big quarter-over-quarter jump in $1 million lifetime spenders.

I think we are at 15 ads with existing clients, majority was due to incremental spending from existing clients and there wasn’t one person as you asked to just spent more. In general the – it’s difficult for us and we haven’t given cohorts on top 20 advertisers, because they come in and out sometimes on a quarterly basis. But we are pleased to report there’s still relatively low churn across these advertisers on an absolute basis.

And I think your question about spending coming from smaller advertisers, it’s one quarter doesn’t make a trend, but I think what you’ll start to see over time isn’t the advertiser growth numbers started to moderate a little bit. Because as we’ve always said for a TV brand budgets our – the profile of our customer, our largest customer who spend money rather than tens and thousands of little advertisers. So that’s my commentary on customer mix. I will also say that we still do not have any 10% customer, so there’s still good diversification across our customer base in general.

On the EBITDA question for domestic versus internationally, we’ve taken a look at this. We continue to operate the business where the platform business, the technology business, and the large pieces of business are operated on an across the board basis. And so, we’ve looked at breaking out the data and we continue to believe that the best thing to do is not do that on a domestic internationally EBITDA basis.

But that being said, the commentary in the European regions and the international regions remains the same. We feel strongly about the UK and Spain. UK and Spain business being not losing money, and the rest of the businesses are on the right path to be neutral or profitable. And I’ll reiterate my comments from the prepared remarks, which is being in the market and selling media to these customers using our technology is a very, very good base for them to take the technology inside.

So they can run the media not only with us, but on, when they buy third parties to use our technologies. And we continue to use that as a strong leverage and that’s why we were so bullish on the footprint of businesses that we have.

In terms of the gating item for programmatic seasonality, I think your question is, why isn’t programmatic revenue ramping more quickly? I think what – as we said before in Q3 and Q4 of last year, we sort of took a step where we said let’s get the platform on both sides out there, let’s sell both of them, and let’s run the media business as well as the customers media business on top of the platform. So we really haven’t pushed the media business for programmatic until we get the platforms installed, which we’re doing this quarter and next.

Tony Carvalho

Thank you. It’s Carvalho. Most of the, Kerry, the revenue that we’re talking about the $1 million to $2 million is the average trading desk revenues not the platform license fees as yet, so that hasn’t started to flow.

Kerry Rice

That’s helpful. Thank you, Tony.

Tony Carvalho

Okay.

Operator

Your next question comes from the line of Murali Sankar with Boenning. Your line is open.

Murali Sankar

Yes. Hi, thank you for taking my question. Jayant, you’ve spoken in the past about that are too early days in video programmatic. One of the questions that I had was whether you – whether you’re targeting a different type of marker and publisher perhaps than some of the others that have been in the market a little bit longer.

And you’ve clearly talked about your differentiation, would also be helpful to get your sense on whether you think you’re converting new and lost clients versus existing clients and get a sense of where you think programmatic can help you with essentially gaining wallet share, as well as some impact on how you think maybe it’s too early for that on long – longer-term economics, and I have a follow-up?

Jayant Kadambi

Sure. So the way, I mean, the way we look at programmatic sales is very simple. We’ve been using programmatic technologies to run our businesses for quite sometime on an internal basis at our customers both on the publisher side and the advertiser side are aware of the value of that technology.

So our strategy is very simple from the perspective. We’re going to the customer if it’s an advertiser customer and saying look, we are now offering you the same technology. We use that gives you better brand safety than everybody. We believe better audience segmentation, better reach, better cross platform, reach in frequency that’s driving the ROI. Now you get to use it. So that when you’re buying inventory other than YuMe’s, you have the same benefits in those four areas. And we’re saying the same thing to the publishers as well, we have a set of customers that drive a lot of revenue to your – to you Mr. Publisher. And when you use this technology, you can now take all your inventory and avail yourself of those benefits.

So from a business perspective, the direct answer to your question is it’s pretty much our existing customer base and people like that. I think it will drive incremental accounts that we don’t currently have on both sides. But the profile of the customer is I think one such that it’s the people that we deal with currently.

On your question on loss in existing clients, could you just clarify that a little bit.

Murali Sankar

I think you essentially just answered that by saying that you focus on your existing/similar types of clients. The other follow-up I have was kind of related to whether you think programmatic can help you with wallet share?

Jayant Kadambi

Yes, I mean, absolutely I mean the – one of the primary tenants of our programmatic strategy is to say, look, you spent $15 million, I’m using that as an example. Currently with us you spent the $100 million totally use our technology and now you can spend the other $85 million using my platform.

Tony Carvalho

And so that’s absolutely that, I mean, you hit the nail on the head from the demand or advertiser side.

Murali Sankar

Great. And sort of last question from me, are you seeing any meaningful increases from political and can you quantify any benefits in your outlook potentially for financial year 2016?

Jayant Kadambi

Yes, I mean in 2012, we did about $6 million of political revenue. We’re not giving guidance on political revenue for Q1. There will be sort of de minimis political revenue in Q1. But we anticipate, I think looking at 2012 is instructive in the political environment. It is a Presidential year as well as 2012. And I think this year is a little bit more chaotic than 2012, especially on one side of the ledger. But they will spend money we’re sure.

Murali Sankar

Okay. Thank you.

Operator

Your next question comes from the line of Mark May with Citi. Your line is open.

Unidentified Analyst

Hi, guys. This is [indiscernible] on for Mark. Thanks for taking the questions, two quick ones. What’s your hope – the decision to usecash for buybacks instead of investing elsewhere?

And then second, how will you balance this in the future? Thanks.

Jayant Kadambi

I think in our previous comments we stated cash was a strategic asset and we’re regularly looking at buybacks at capital allocation. I think given the Q4 results and outlook and given our 2016 planning cycle was complete the – we decided that this was a prudent use of the balance sheet. I think the decision reflects confidence in the business going forward, and we can consider additional buybacks once the $10 million is executed.

We believe we want to execute this within one-year based on market conditions we can take a look at the time. From our business perspective, this is a sort of thing that we are doing regularly. And it’s just a normal process for us, as part of our cycle of things to do to consider this and bunch of other things as well.

Unidentified Analyst

Thank you.

Gary Fuges

All right. Thank you, operator. We’ll take one final question please.

Operator

Your final question comes from the line of Gene Munster with Piper Jaffray. Your line is open.

Gene Munster

Hey, good afternoon and congrats on the results and guide. I guess, I think just a follow-up on the previous question as far as incremental cash, you guys are buying some stock back, is that kind of, generally how we should think about use of cash longer-term? Would that be your priority, or could you do other strategic things with it?

And then separately just kind of a follow-up on some of the other programmatic comments is that, if you fast-forward few years from now, how does programmatic look as a percentage of your overall business? I mean, is there is any way to try to guess a number of how that plays out? Thank you.

Jayant Kadambi

I think I will answer Gene in the first order on the – how programmatic looks going forward in our business. I think what we’ve done with the technology base, if – when we’re successful with installing the demand side and supply side technology is essentially grow the total available, market available for revenue.

So, if you just take some numbers that are exemplary, we have a $10 business now or a $100 business now and total available market is a $1,000. I think by providing access to the spend through the platform that they’re spending with other people, we get a draw into our current media business, where we can go call on that and say run it on our inventory and use our data technology and we’ll get technology revenue for all our media running through the platform. So I think it just increases the served available market to use a technical term tremendously.

So on the incremental use of cash, I’m not sure I understood the question about the buyback. I mean, we are considering alternatives on capital allocation and the use of cash and how to deploy it from strategic reasons and investment reasons and regularly both from a business perspective and a sort of what technologies do we need, et cetera, and we’re doing that regularly. So I don’t think there was anything different here with related to that. But I’m not sure I answered your question.

Gene Munster

No, no, that was it. I just didn’t know if you had a preference between how you would use some of your cash whether it would be strategic or buyback, but that’s helpful. And then as far as just kind of planning for the business and investing in the business is, do you feel comfortable, I know you are not giving every quarter here, but you feel comfortable that this is kind of the right pace of investment or is that something you kind of revisit on a quarterly basis and maybe just some context in terms of how you think about the investment side of the business through 2016?

Jayant Kadambi

Well, from an investment standpoint it just really depends on what investment we’re making. As I’ve said before, the investments in technology for the demand side and the supply side are fairly long-term investments. We’re very – we’re quite proud of the fact that we’ve invested quite a lot of time and energy not to mention money, and we’ve run a sort of essentially a business where the cash balance has stayed neutral relatively for the last two, three years of these investments.

So the investment cycle if we are going to do programmatic, we do the data analysis. We look at the metrics, and we say it’s going to cost $10, and it’s going to take three years. And we revisited quarterly, but as long as the metrics are being hit and we continue to invest. There are certain investments that you look on a more regular basis, because the return cycle is much shorter. And if you don’t wait years and years for other types of international investments, perhaps, but I think not to be vague on the answer, but it depends on the investment we’re looking at.

Tony Carvalho

I think also look at the capital allocation, we continue to look at it and always assess it. And when you think about the decision to do the buyback, it’s basically what we’re saying is, if it’s a good opportunity, we buy it opportunistically in the market. And the intent is to buy up to the $10 million worth of shares back.

Gene Munster

Great. Thank you.

Operator

There are no further questions at this time. I’ll turn the call back over to the YuMe team for closing remarks.

Jayant Kadambi

Thank you again for your interest in YuMe. We look forward to seeing you at upcoming investor events and have a good afternoon. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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