MaxPoint Interactive's (MXPT) CEO Joe Epperson on Q1 2016 Results - Earnings Call Transcript

| About: MaxPoint Interactive (MXPT)

MaxPoint Interactive. (NYSE:MXPT)

Q1 2016 Results Earnings Conference Call

May 16, 2016, 05:00 PM ET

Executives

Denise Garcia - Investor Relations

Joe Epperson - Co-Founder and Chief Executive Officer

Brad Schomber - Chief Financial Officer

Analysts

Kerry Rice - Needham

Ross Sandler - Deutsche Bank

Operator

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to MaxPoint First Quarter 2016 Earnings 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]

I will now turn the call over to Denise Garcia, Investor Relations; you may begin your conference.

Denise Garcia

Good afternoon and welcome to MaxPoint’s first quarter 2016 financial results conference call. Joining me on the call today are Joe Epperson, Co-Founder and Chief Executive Officer, and Brad Schomber, Chief Financial Officer. Please note that the earnings release issued after the market closed today, along with the live broadcast of this earnings call, are both available on our investor relations website at ir.maxpoint.com. A replay of this call will also be available later today on our Investor Relations website.

Before we begin discussing our results, I would like to remind you that our press release, this presentation, and our comments include forward-looking statements. These statements may include information concerning our guidance where possible or assumed future results of operations and expenses, business strategies and plans, market sizing, competitive position, the industry environment, and potential growth opportunities. These statements are subject to risks, uncertainties and assumptions. Actual results and the timing of certain events may differ materially from the results anticipated by our forward-looking statements.

Please see our press release issued today, as well as our Form 10-Q filing for the first quarter for more details about such risks. We make these statements as of May 16, 2016, and disclaim any obligation or duty to update any forward-looking statements made during this call. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information.

Also I would like to remind you that we may discuss certain non-GAAP measures of our financial performance during the course of this call, such as revenue ex-TAC, adjusted EBITDA, non-GAAP net loss, and non-GAAP net loss per basic and diluted share.

We also use our number of enterprise customers, which is an operating performance metric. Definitions of these metrics and reconciliations to the most directly comparable GAAP financial measures are provided in the press release, and accompanying financial tables issued earlier today. These non-GAAP measures are not intended to be considered in isolation from, or a substitute for, or superior to our GAAP results. Unless otherwise stated, growth comparisons made in the course of this call, are against the same period of the prior year.

Lastly, all share and per share amounts mentioned in this call have been adjusted to reflect the one for four reverse stock split of our outstanding shares of capital stock on April 25, 2016.

With that, I'd like to turn the call over to Joe Epperson, MaxPoint's Co-Founder and Chief Executive Officer.

Joe Epperson

Thank you, Denise. Good afternoon, everyone, and thank you for joining our call today.

During today’s call, we’ll review our financial highlights for the first quarter of 2016 and discuss the progress we have made against our 2016 strategic objectives. Then I’ll turn the call over to Brad who will provide more details on our financial results and we’ll open the call to your questions.

In the first quarter, revenue excluding traffic acquisition cost increased 15% compared to Q1 of the prior year to $19.4 million, exceeding the high end of our guidance range. Adjusted EBITDA was a loss of $7.2 million also ahead of our expectations and at the high end of our guidance range. During the quarter, we added 42 new customers across a variety of industries including notable companies in CPG and telecommunications. We also leveraged our sales and marketing spend where we reduced cost by approximately 730 basis points as a percentage of revenue ex-TAC compared to the first quarter last year.

During the quarter, we remain laser focus on executing across our strategic initiatives that I outlined earlier this year. As a reminder, they are one, expanding accessibility to MaxPoint’s data and intelligence, two, enhancing our products and more closely integrating with our customers and finally growing internationally.

I’ll provide an update on our progress against each starting with expanding accessibility to MaxPoint’s data and intelligence. During the first quarter our team worked diligently to make MaxPoint’s data intelligence more accessible by working with various marketing platforms and teams. Since the start of this year, we made important progress to further integrate our data with a large enterprise software provider and data services company. We already partnered with each company to help their clients optimize at targeting and this quarter we made important progress in expanding our relationships to help them improve measurement

Our second year progress in 2016 is enhancing our products and more closely integrating with our customers. In terms of enhancing our product, recall that we launched two measurement products, MaxPoint traffic analytics and MaxPoint trade analytics last year.

Traffic Analytics helps clients measure their advertising success based on offline for traffic and store visitation. But trade analytics, delivers store level measurement for in store trade promotions. This quarter we performed traffic studies for eight name brand customers. We also conducted instore promotional studies for ten leading CPG companies.

MaxPoint continues to provide leadership in analytic systems which enable marketers to understand the real world impact of their marketing investments. As we further develop our portfolio of products, we are focussed on developing close relationships with clients through the MaxPoint solution group.

As we shared last quarter, in businesses where our data and analytics team are engaged with their counterparts at the client level, we see a higher level of data utilization as clients leverage our technology to solve their business problems and naturally broaden their relationships with us.

In fact, solutions group customers using both advertising and measurement products drove 83% of the revenue from this group. The MaxPoint Solutions group also closed significant deals within CPG, automotive and pharmaceuticals for 2016. I am pleased to say customers in the MaxPoint Solutions Group who utilized us in Q1 have grown revenue at a higher rate than the rest of the business. Our third key initiative is International.

In February of this year, we announced our entry into Europe with the expansion of our Digital Zip technology in France, Germany, Italy and Spain. We have mapped 30,000 new neighbourhoods in Continental Europe, and introduced or Digital Zips, pan European campaigns to both U.S. and European advertisers wanting to reach these Digital Zips.

We continue to increase our revenue in the U.K. This quarter we saw significant growth as U.K. revenue grew 112% over the previous year. We are excited to see our value proposition resonate in the U.K. The dynamic combination of offline and online data is allowing our U.K. clients to reach their key audiences and drive offline actions.

In summary, we are off to a very good start to the year and are executing well against our strategic initiatives. We are building on our core data and technology solutions to broaden our relationships with clients and ultimately drive towards our vision of creating new and innovative datasets from our rich proprietary location based intelligence to enrich consumer data, provide unique business intelligence and inspire transformational changes in how our plants go to market.

We are actively linking in-store, online in consumer touch points for our customers to improve the entire selling process. And we continue to innovate and expand our relationship with clients.

Our technology roadmap is structured to realize the vision of having in-store retailers possess the same or even richer customer data as online retailers. We continue to work on developing new products to expand our geobase technology to the next level including more precise location technology focused on both households and stores and look forward to sharing more details as we develop these products during the year.

I believe we are on track with the right strategy, the right team and the most innovative technology, and I look forward to the rest of the year.

And with that, I’ll turn things over to Brad.

Brad Schomber

Thanks, Joe. Good afternoon, everyone. I will walk you through our financial performance for the first quarter of 2016 in detail, and share our thoughts regarding guidance. We will then open the line for questions. Before I begin discussing results, I’ll take a moment to give a little more color on our 2016 initiatives. We believe that our ability to provide increased access to our data will enable us to expand our potential customer base, increasing revenue. The analytics products have the potential to increase revenue as well as increasing retention and overall advertising spend from our current customers.

And MaxPoint Solutions Group is providing higher levels of service to increase numbers of customers and we expect to increase revenue and improved revenue retention rates from these efforts as the year progresses.

Lastly, our U.K. operations continue to grow nicely for us. Moving onto Q1 results, we had a solid first quarter at MaxPoint. We added 42 enterprise customers in the quarter with a total of 751, up 42% year-over-year. As a reminder, we define enterprise customers as those customers who have spend more than $10,000 with us during the trailing 12 months. We also define them at the parent company level so one customer might have many brands.

In the first quarter, our GAAP revenue increased 3% year-over-year to $29.5 million. We recognized our customer spending on a gross revenue basis in accordance with GAAP. As a reminder, we consider revenue excluding traffic acquisition cost or media cost as a key financial metric and the matter upon which we evaluate the growth of the business.

For the quarter, revenue ex-TAC increased 15% year-over-year to $19.4 million, and above the high end of our guidance range. Our revenue ex-TAC margin was 65.7% for Q1, improving 729 basis points compared to Q1 of 2015. We attribute the lower TAC rate to improvements in our continued media buying optimization including improvements on viewability bidding, placement algorithms and leveraging our buying power and scale.

During the quarter, nondisplay advertising was 43% of our total revenue, up from 24% in the first quarter of last year. In the first quarter, 77% of our enterprise customers utilized both display and nondisplay channels through MaxPoint, up from 62% a year ago. Mobile, which continues to be our fastest growing channel, was up 119% year-over-year in the first quarter.

In the first quarter, our gross profit increased 6% year-over-year to $14.7 million, which represented 76% of revenue ex-TAC. Our gross margin as a percentage of revenue ex-TAC decreased by 640 basis points year-over-year .Our sales and marketing expense was $13.3 million or 69% of revenue ex-TAC, a 732 basis point decrease over the same period last year as we leveraged 2015 hiring investments.

Ending quarter headcount sales and marketing was 198 people, up slightly from the previous quarter and up 11 employees from a total of 187 at the end of Q1 of 2015. We expect further leverage in sales and marketing as we decrease the pace of net hiring in sales and marketing this year.

Research and development expense was $6.5 million during the quarter or 34% of revenue ex-TAC, a 596 basis point increase versus last year, due primarily to an increase in wages and headcount. We added 24 new employees to R&D as compared to the end of Q1, 2015 and ended the quarter at 143 R&D employees.

As we noted on last quarter's call, we will continue to invest in engineering, but the pace of our hiring in 2016 will be much more moderate than the previous two years. General and administrative expense was $5.3 million during the quarter or 27% of revenue ex-TAC, a 734 basis point increase versus last year.

We hired 15 new employees in G&A compared to the ended of Q1, 2015, and ended the quarter at 50 G&A heads. A good portion of the increase of our G&A expenses in the first quarter were expenses related to additional headcount in 2015 and other cost necessary for support being a public company. We have put the personnel in place to support our operation and do not expect to increase headcount meaningful during the year.

Adjusted EBITDA was a loss of $7.2 million in the first quarter compared to a loss of $5.2 million in the first quarter of 2015, better than our forecast of a loss of $7.5 million at the midpoint of our range.

For the first quarter, earnings per share on a GAAP basis were a loss of $0.63, non-GAAP earnings per share was a loss of $1.48. Please note that these per share amounts take into the consideration the 1 for 4 reverse stock splits of our outstanding shares of capital stock on April 25, 2016.

Capital expenditures were $2.8 million in the first quarter of 2016. We ended the first quarter with $33.4 million of cash. Our credit revolver classified as short-term debt is $25.3 million versus $31.2 million at the end of the fourth quarter. As a reminder, our credit revolver is secured by our receivables and serves as a working capital bridge between our receivables and payables.

Going forward, we continue to expect to end 2016 with approximately $20 million to $25 million in cash, depending of the size of our share repurchase program. I would note that our share repurchase program is not factored into our share count forecast.

Through the end of the first quarter we had not repurchased any shares of our common stock via the repurchase program. Before I provide guidance, I would like to say that we are pleased with our results for the first quarter.

We are making progress against our strategic initiatives and believe we are on track with the right strategy to re-accelerate growth. We are executing well against our plans and expect these initiatives to collectively contribute to the top line as the year progresses.

With regard to adjusted EBITDA, we will continue to manage our expenses noting that most of our hiring and significant investments were made in the last two years. And like most of the years we expect our typical seasonal revenue patents to drive a larger second half and naturally improve our EBITDA performance.

Moving on to our revenue and adjusted EBITDA guidance. For the second we expect revenue ex-TAC to be in the range of $22 million to $24 million. We expect our adjusted EBITDA loss to be in the range of $3.5 million to $2.5 million.

We expect our basic and dilutive share counts to be between 6.6 million shares and 6.7 million shares for the second quarter. For 2016, we are increasing guidance for the full year due to stronger than expected Q1 results.

We expect revenue ex-TAC to be in the range of $93 million to $97 million, a $2 million increase at the midpoint of the range from our previous guidance of $91 million to $95 million.

We expect the adjusted EBITDA loss to be in the range of $9.5 million to $7.5 million, an improvement of $0.5 million at the midpoint compared to previously provided guidance.

We expect our basic and dilutive share counts to be between 6.6 million shares and 6.7 million shares for 2016. More recently, we reported the results from our Annual Meeting held April 22. We were pleased that shareholders voted in favour of all the proposals we recommended in our proxy statement.

As a result, Kevin Dulsky was elected to continue as a representative on the Boards of Directors. Deloitte & Touche will continue as a Company's independent registered public accounting firm. And shareholders voted in favour of a reverse stock split of our common stock which began trading on the NASDAQ exchange last Friday.

In closing, we were excited about our progress as we execute our strategic initiatives and believe we have the right plan in place to reach our outlook for 2016 and our longer term goal of reaching profitability on an adjusted EBITDA basis in 2017.

Now, we'll open the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from Kerry Rice from Needham.

Kerry Rice

Thanks a lot. Nice solid quarter guys. Couple of questions, first on the enhanced products, traffic analytics and trade analytics. Is that generating revenue? And if it is, is that the balance between the mobile and the remaining piece of the non-display revenue, just trying to figure out that that's were resides?

And then, the second question is, did you say the revenue from the solutions group or customers within MaxPoint 83% of that also used solutions group, maybe some clarification I was trying to understand that better? And then finally just on a macro level, can you talk about promotional advertising trends, spending trend, just in general what you're seeing out that? Thanks.

Joe Epperson

Yes. Hi. Thanks, Kerry. Well, I'll kind of work – almost I'll take them in reverse orders start at the macro level, then work down through what we're seeing in – then your questions about how the measurement products line up into the reported numbers.

From a promotional standpoint, we've had a – it's been, I would characterize it as a more normalized quarter for us. Foreseeing that activity, what we would have normally had expected for Q1 level. On the 83% for the MaxPoint solution group, what that represent is 83% of our MaxPoint solution group revenue came from customer that had both measurement and advertising working together on their programs with us.

And I think that kind of goes to how measurement can work its way into our system both directly and indirectly. If you notice we had mobile revenue grow 119% year-over-year on the quarter. Well, eight of those traffic studies are all mobile centric products, that's a mobile centric measurement product, the traffic study product. So that allows our customers through the mobile channel to gain confidence and validate their spend and then learn and continue to grow their spend with us over time.

On the in-store promotion studies, 10 of those that occurred during the quarter, those are linking into our ability to link into POS data at the individual store and SKU level. And so, once again that is driven by being more closely integrated with our customers. So, both of those measurement studies, they not only do they drive spending but they also drive tighter relationships with our customers.

Brad Schomber

And Kerry, this is Brad. The difference there between the mobile and the non-display also includes any and all revenue that we would get from video and social products as well, so there are other items within there. From the revenue, from the traffic and in-store promotion studies, it is early yet and we do believe that as the year progresses we will see both more additive revenue from our 2016 initiatives, but also improvement in our revenue retention rate because we're engaging our customers to a greater extend during the year.

Kerry Rice

That's helpful. Thank you for the details.

Brad Schomber

Sure.

Operator

And the next question is from Ross Sandler from Deutsche Bank.

Ross Sandler

Hi, guys. I had a couple of questions on I guess expenses. So, the cash burn seems to have come down quite a bit from last quarter, better working capital dynamic, so Brad I guess, how do we think for cash flow for the next couple of quarters? Is this low single digit burn, a reasonable expectation for 2016 each quarter?

And then the second question is on, you guys added some sales and marketing headcount, so can you talk about when you expect growth in the productivity that kick back in from those hires that were six or nine months of learning or is that change at all?

And then last question on traffic acquisition cost. So that was a little bit below trend line, you guys have mentioned in the prepared remarks, some benefits that you saw there. Can you talk about what those were and then the sustainability of the lower than normal TAC? Thank you.

Joe Epperson

Yes. Sure. So, let me try and hit all of those. From a TAC perspective it continues -- our R&D department continues to strive to improve our bidding stack and we continue to see advancement made and improvements in our TAC levels that we're paying for the inventory.

I would say that -- I would expect to see similar trend lines over the course of this year or similar rates that we're seeing now. So, I'm forecasting 62% to 66% on an annual basis of revenue ex-TAC margin. Noting that if there is an annual number and that there are some seasonality ins and outs especially in Q4 as inventory gets more expensive, but we continue to focus on that, but I don't think we'll see the -- as significant jumps as we saw in the past last few quarters of 2015. So that's on the TAC line.

On sales and marketing, we expect the 69 months that you laid out is still ringing true. We expect that our productivity continues to increase as our initiatives take hold throughout the course of the year. We added six heads on a group of 192 sales and marketing, so there was a small increase there. And in Q1 we levered sales and marketing by over 700 basis points and expect to continue to see nice leverage from that group as the year progresses.

And then lastly, the cash burn, we do expect significant improvements from free cash flow during the course of the year. And so, I think we saw some nice improvement in Q1 and that would trend continuously. And that we're setting ourselves up as we end 2016 and move into 2017 with $20 million to $25 million of cash balance at the end of the year. Did that get all of it, Ross?

Ross Sandler

Yes. That's very helpful. And do you think the cash burn will get to more of a breakeven level or kind of look like your adjusted EBITDA as we get like in the 2017 is it going to level out, do you think or is it too early to say?

Joe Epperson

Yes. That's exactly right. We're looking at adjusted EBITDA positive in 2017 with the cash flow following suit as we move along.

Operator

[Operator Instructions] There are no additional questions at this time. This concludes today's conference call. You may now disconnect.

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