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Millennial Media, Inc. (NYSE:MM)

Q2 2012 Earnings Results Conference

August 8, 2012 05:00 PM ET

Executives

Paul J. Palmieri - President, CEO and Director

Michael Avon - CFO and EVP

Andrew J. Jeanneret - SVP-Accounting and Controller

Analysts

Jordan Monahan – Morgan Stanley & Co.

Heath Terry - Goldman Sachs Group Inc., Research Division

Mark May - Barclays Capital Inc.

Jordan Rohan - Stifel, Nicolaus & Co., Inc., Research Division

Jason Helfstein - Oppenheimer & Co. Inc., Research Division

Michael Graham - Canaccord Genuity Inc.

Robert Coolbrith - ThinkEquity LLC

Rory Maher - Capstone Investments

Operator

Good day ladies and gentlemen and welcome to the Second Quarter 2012 Millennial Media Earnings Conference Call. My name is Jeff and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, today’s conference call is being recorded for replay purposes.

I’d now like to turn the conference over to your host for today, Mr. Andrew Jeanneret, Chief Accounting Officer. And you have the floor sir.

Andrew J. Jeanneret

Good afternoon and welcome to Millennial Media’s call for the second quarter ended June 30, 2012. Before we begin, I’d like to remind you that during this call, we will make 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. These statements are subject to risks, uncertainties and assumptions. Accordingly, actual results could differ materially from the 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 discussions, please refer to today’s press release as well as the documents we filed from time to time with the Securities and Exchange Commission, including the Form 10-Q that we filed for the second quarter ended June 30, 2012.

Also I’d like to remind you that during the course of this conference call we may discuss non-GAAP measures of our performance. Reconciliations to the most directly comparable GAAP financial measures are provided in today’s press release and on our website under the Investor Relations section.

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

Now I will turn the call over to Paul Palmieri, Co-founder, President, and CEO of Millennial Media.

Paul J. Palmieri

Thanks, Andrew. Good afternoon. And thanks to everyone joining us on the call. This is both our second quarterly earnings report and our second consecutive quarter of delivering strong revenue growth ahead of expectations since our IPO in March.

We continue to be at the center of the massive secular trend of mobile and are experiencing the growth that is consistent with the promise of this exciting market. For the second quarter of 2012, we reported a 76% year-over-year increase in revenue to $39.4 million. Strong gross margin of 39.7%. Continued sequential improvement in adjusted EBITDA and bottom line performance, growth in key metrics in Millennial Media’s developer base, unique users and large brand advertising clients and to reflect our strong Q2 performance and positive outlook we’re raising our full-year guidance on both revenue and adjusted EBITDA.

Our performance in the period reflects the positive momentum we’ve established in the mobile advertising market. As the industries leading independent provider, we’re positioned for continued growth and market share gains on the strength of our scale, our differentiated technology platform, our advanced targeting capabilities based on this large and growing data asset and our deep integration and relationships with app developers and advertisers alike.

At Millennial Media we’re singularly focused on delivering superior results in the market and to our clients. Mobile is all that we do, and we have differentiated scale in that market. It is because of the years of this singular focus that we’re succeeding in mobile monetization where others are not. We have built the technologies and products that solve for the complexities and challenges inherent in mobile, while also taking advantage of an entirely new opportunity presented by mobile and as consumers look increasingly to mobile as the primary screen for the intersection of entertainment and utility, we’re growing right along with them.

As a technology and data platform company, delivering mobile advertising is only part of what we do. App developers and other mobile publishers partner with us as we provide them critical tools and solutions and provide a true monetization platform through the industries most robust software development kits for SDKs. Advertisers are focusing spend on targeted audience buys through Millennial and they rely heavily on our deep data and back end analytics to optimize that mobile spend. As the independent industry leader and as a cross OS solution, we believe we offer the most value to both developers and advertisers.

Quick simply we’re delivering a highly effective solution for our customers and partners to the mobile monetization problem that has plagued other internet companies who have been unable to translate traffic into revenue. Millennial Media has been exceptional in this regard and our results for the second quarter underscore this success in helping our partners generate substantial return on investment in the mobile advertising market.

As we look to build on our established market position, we’re focused on four key growth objectives. They are widen and deepen our developer relationships, build our base of advertising clients, expand internationally and invest in our industry leading technology and data. First, we continue to widen and deepen our developer relationships. During the second quarter, we increased the number of apps enabled on our platform by nearly 17% to more than 35,000 apps. Shelf space with developers is limited. Most developers can integrate only a small number of SDKs in to their apps. So the growth of our app pace is indicative of how critical our platform is for large and small developers and strong recognition of the value they see in direct implementations with Millennial Media.

Our relationship with the developer starts with our SDK, which is a key piece of our ad serving technology and is provided to the developer at no cost to them. The SDK once embedded into their apps enables developers to receive ads in three different formats, rich media, banner display, and video.

Our ability to enable developers to accept that in multiple formats for multiple devices is increasingly important as all trends point to accelerated growth in rich media to support more targeted interactive brand marketing. Our embedded software tools help us partner more effectively with the app developer by enabling us together anonymous data while balancing differing and important data security and privacy considerations.

We use that data along with other performance data we measure within our platform to create a unique and growing data asset that allows us to deliver more relevant ads to consumers and thereby deliver more money and better results to developers. We also provide developers access to features, including mediation tools to allocate ad request, cost promotion tools to assist with the discovery and promotion and ultimately distribution of their own apps and analytics and insights to help the developer better understand their app business.

Our relationships with app developers are not just about monetization for their apps. Many developers also rely on Millennial Media to help them promote their apps to drive distribution in a very crowded marketplace. We’ve seen an acceleration of this trend, which further builds our relationships with these developers. Several of our large advertisers during Q2 were actually app developers who also monetize their apps using the Millennial Media platform. Additionally, many smaller developers made advertising purchases on our platform through our self service tools to promote their apps.

The rise of the app economy has powered many of the small businesses to quickly capture the imagination of the market with exciting content and application. These smaller developers and publishers need a platform partner like Millennial to help fuel their business as they grow and by way of example, here are just two quick examples of smaller developers who use Millennial Media’s platform in the second quarter to drive monetization for their business.

Logos Quiz, by a Spain based developer named after AticoD, exploded on the mobile application scene in the second quarter. Logos Quiz launched an advertising supported title in May and has been ranked the number one free game in 59 countries. In June Logos Quiz requested over 800 million global ads from Millennial. To support the release of their next title, after they had all those users, and their next title was called Flags Quiz, AticoD, instead of monetizing leveraged our house ads feature in our self serve tool to show their own ads with their new app, driving downloads and distribution. This widespread promotion helped Flags Quiz quickly reach the top 100 games in 46 countries.

Entertainment app developer Smule began working with Millennial Media in the second quarter. Their music app Glee Karaoke has been ranked in the top five music apps in 115 countries. Millennial Media partnered with Smule to promote Glee Karaoke and their Magic Piano apps. Magic Piano reached number one in 07 countries. At the same time, both of these applications were also leveraging Millennial Media’s SDK to monetize with mobile banners, rich media and video apps.

Turning now to our second key priority, we’re intent on building our base of advertising clients and cultivating deeper more strategic relationships. Current secular trends support a narrowing of the gap between consumption of media on mobile devices, which represented 10% of total time spend during 2011 and ad spend on mobile which represented just 1% of total media advertising spend.

To capitalize on this migration of consumer content consumption to mobile, advertisers look to Millennial Media to deliver targeted audiences across multiple operating systems at scale. With a singular focus on mobile and the largest independent platform, we provide advertisers with audience reach across the vast majority of mobile connected devices and operating systems. This provides advertisers with the ability to reach more than 350 million unique users worldwide, a 17% increase from the 300 million monthly unique users in March on our platform.

As we focused on extending our business to Europe and Asia Pac, we’ve seen significant increases in reach, which has translated into an increasingly global business with many of our larger advertising partners. With our proprietary MYDAS technology and our large and growing data assets, we’re able to build real world audiences from mobile specific data such as location data or point of sale data. We use that data to better target ads to the right people at the right time, so that they’re more likely to engage with that ad. Once the campaign has run, we’re able to provide increasingly more comprehensive analytics and insights enabling them to develop even more effective campaigns in the future on our platform.

One recent example of using real world data to deliver results, is a campaign we’ve been running with Auntie Anne's and Coca Cola. Together with Sparkfly, a point of sale redemption technology partner we enabled Coke and Auntie Anne's to run highly targeted ads exclusively on our platform with offers that can be redeemed at any Auntie Anne's. Using our audience intelligence capabilities, we targeted these ads to audiences that are most likely to engage with the ad and go to an Auntie Anne’s to redeem the offer.

By measuring redemption rates at the point of sale, down to the item level, we can deliver a comprehensive analysis of the effectiveness of each ad to our clients. We are also able to see that point of sale redemption data into our system to further refine our targeting capabilities. This unique campaign underscores that we have the brand relationships and trust, attract best-in-class partners that can swiftly plug in and innovate on our platform and that we can provide differentiated data and insights for advertisers.

In May Advertising Age magazine published its list of top 100 advertisers for 2011. We are proud to count 75 of Ad Age top 100 as Millennial Media clients which represents an uptick from the 73 we last reported from Ad Age 2010 list. Of the top 25, we now work with 24, which includes one addition from our previous reporting. With strong developer tools and services and advertiser relationships and results in the U.S., we’re also focused on growing our international presence, which represents our third key priority.

Our global developer asset continues to bring Millennial impressions all over the world. And we’ve enabled to grow this asset in an operationally efficient manner. On the advertiser side, many of our top brands or global brands that require solutions enabling them to reach consumers in multiple regions. As we’ve been increasing our focus on new geographies, particularly in Western Europe and Asia Pac, we’ve been able to generate more spend from some of these top brands as well as other region specific advertisers.

While we’ve been able to leverage both our global developer asset and our U.S. sales team to grow revenue in markets where we don’t maintain a presence, we believe we can more effectively serve regional and local markets by building operational hubs. As our developer base is already global, our focus is on adding local ad sales people. By adding only localized expenses and then relying on fixed cost G&A technology and data in the U.S., we believe we can cost effectively leverage the core business into new markets around the globe.

During the quarter, we continue to invest in our Singapore operation, which serves as our main hub in the Asia Pacific region. As the Singapore office was established in Q1 of this year, this was our first full quarter operating in this market and we’re pleased with the results. We built out a core team in Singapore with a small sales office also in Indonesia. We have already begun to see brands and performance advertisers choosing the Millennial Media platform in multiple markets in Asia and we’ve only just begun our efforts in that region. We see a tremendous opportunity there and are investing for the long-term.

In Europe we built our core sales and support operation in London, which serves as our hub for other markets in EMEA beyond the U.K. We are growing nicely in Europe and have been rolling out in new markets. In Q2 we opened our sales office in France, and began to develop advertising business in that market. We are also now up and running in Germany with a new managing director hire in place and a sales office opened in July.

While we continue to make investments in Europe, and recognize the long-term potential in this market, we made a strategic decision to proceed at a slower pace in our roll out in the region during the quarter in light of the prevailing macroeconomic conditions and instead opportunistically have shifted some OpEx to facilitate our growth in Asia along with greater investment in extending our technology differentiation.

That brings to me our fourth key priority, continued investment in our industry leading technology and data platform. At its core, Millennial Media is the platform company that uses technology and data to enable access to the mobile advertising marketplace in a more targeted and defective way. The product of our audience intelligence technology is our proprietary data asset, which is the only one of its kind in the mobile market and its truly delivering the unique power of mobile.

With better data, comes more targeted ads and more engaged consumers which benefits advertisers. And of course better results for advertisers drive more money for developers. Millennial Media is at the heart of this virtuous circle and our unique technology data, tools and insights will make it all possible.

During the quarter we made further investments in our technology team with numerous new hires in areas including data, audience intelligence and embedded software. Millennial Media now has three main development offices with our Baltimore headquarters housing our core tech ad serving and decisioning teams, our Washington DC hub managing audience intelligence and data science and our San Francisco hub consisting of our embedded software team responsible for our SDK and device capabilities.

We will continue to grow each of these teams to ensure our differentiated technology and leadership position remains uncompromised. To recap, our key priorities are; expand and further penetrate our developer base, expand and deepen our relationships with advertising clients, grow our international presence and invest in technology and data. In each of these areas we made significant progress in the second quarter, as reflected in our key financial and non-financial metrics. We believe both our recent and sustained performance speaks to our success in establishing Millennial Media as the go-to provider for mobile advertising, audience scale and monetization for developers.

Where others are struggling to adapt to the new mobile world, Millennial Media is excelling. With market leading technology and a singular focus on mobile supported by the continued migration of ad budgets to mobile, we're excited about our prospects and remain passionate about driving ROI for our developer and advertiser partners in the emerging mobile market.

And with that let me turn it over to Mike Avon our CFO, who will give you more details on our financial performance and outlook. Mike.

Michael Avon

Thank you, Paul. We are pleased with our results for this quarter and excited for our future growth prospects. I’d like to walk you through our financial results for the second quarter in more detail and will then discuss our outlook for the third quarter and for the full-year.

For the second quarter of 2012, we generated revenue of $39.4 million, a 76% increase from revenue of $22.4 million in the second quarter of 2011. Revenue in the second quarter of 2012 from existing advertiser clients was $28.2 million representing 71% of revenue, while revenue from new advertiser clients was $11.2 million representing 29% of revenue.

We continue to cultivate new advertiser relationships and saw a year-over-year revenue increase of 21% from new advertisers in the second quarter. However our primary focus has been on driving growth among our current base of advertisers where we already enjoyed broad reach across most major brand and performance advertisers. It is also more cost effective for us to sell into this existing customer base than to acquire new customers.

As a result of this focus and on further penetrating our existing base, revenue from existing clients increased 118% in this period which highlights our ability to deliver ROI for these repeat advertisers. I note that for quarterly reporting purposes we consider a new client for Q2, 2012 as a client who was not using our platform in Q2, 2011 or before while the new client for Q2, 2011 would be a client that was not using our platform in Q2, 2010 or before. All clients who are not new clients for a particular reporting period are classified as existing clients for that period.

As expected in the second quarter, we saw a more brand advertising than in the first quarter of the year which is consistent with typical seasonality in the advertising business. Brand advertising in Q2, 2012 was close to our long-term target of 60% of overall revenue and performance advertising was near 40% of our business in the quarter. As a result of the higher concentration of brand advertising in a quarter and consistent with typical seasonality for the second quarter, pricing and fill rates both trended higher as compared to the first quarter of 2012.

Revenue from international operations for the second quarter of 2012 was $4.6 million or about 12% of total revenue, while revenue from international operations in the second quarter of 2011 was $1.8 million or about 8% of total revenue for that quarter. This growth is principally driven by our expanding operations in Europe, so we did begin to see good results from Asia Pacific in the second quarter this year. As Paul discussed earlier, while European operations did grow well in Q2, we’re cognizant of macro difficulties in the European market and have tailored the piece of our investment in our near-term expectations in that market accordingly.

Moving to our profitability, gross profit increased $6.9 million or 78% from $8.8 million in the second quarter of 2011 to $15.7 million in the second quarter of 2012. Our gross margin percentage increased to 39.7% in the second quarter of 2012 from 39.1% in the second quarter of 2011 principally driven by ads placed on developer applications with higher margins to us as well as improved optimization. Sequentially gross margin improved from 39.5% in the first quarter of this year.

Our continued improvement in gross margin reflects the importance that our developer partners plays on our business and the results that we deliver. Developers look to the Millennial Media platform as a broad business platform using multiple tools that we offer including ad serving, house ads and analytics. And when we’re able to deliver a higher return on inventory and a higher net payout for available impression than our competitors, we win more business and we win that business at a higher margin.

Sales and marketing expense increased $2.4 million or 67% from $3.6 million in the second quarter of 2011 to $6.0 million in the second quarter of 2012. This increase was primarily driven by growth in headcount. Within the United States we grew the number of salespeople by about 70% year-over-year. Internationally we increased our sales team to more than 20 principally in Europe and to a smaller extend in Southeast Asia as we continue to build out our operations in those regions.

While we continue to be in an investment mode and building out our sales team, we have seen increased efficiencies and leverage in our U.S. sales team and expect to see similar efficiencies globally as we reach scale in new geographies.

Technology and development expense increased $1.6 million or more than 130% from $1.2 million in the second quarter of 2011 to $2.8 million in the second quarter of 2012. This increase was primarily driven by $1.1 million in additional salary and benefit costs as headcount increased almost 100%. Non-employee IT support cost and internally developed software amortization represented most of the remaining increase.

In Q2 we continue to invest in self-service tools and automation, which empowers our customers both developers and advertisers to better control their interactions with Millennial Media. The focus on self-service through our mMedia portal enables us to cost effectively serve developers and advertisers of all sizes and it has helped drive our improved gross margins. Other automation tools and technologies enable our team to deliver a global full service business more efficiently.

Another area of focus has been tools and technologies to better serve our brand advertising clients, including audience intelligence targeting capabilities, rich media tools and enhanced analytics and reporting, and we have continued to make a meaningful investment in building our core data asset which we believe is the key to delivering better results to both advertisers and developers. We expect to continue to invest in each of these areas throughout the remainder of 2012.

Now it’s important to note that not all of our investment in technology, data and products are reflected in the technology and development line of our financials. Technology and development that’s laid out in our financials represents pure research and development of new products. Our significant spend in operating our business day-to-day which requires engineering resources and data sciences and generates meaningful new value to our business in the form of our increased data assets and a more efficient delivery platform is all included in our G&A expenses as operational and information technology expenses.

General and administrative expense increased to $9.2 million in the second quarter of 2012 from $4.7 million in the second quarter of 2011. As with the case for sales and marketing in technology and development, the increase in G&A expenses was also driven by increased headcount. Approximately 50% of the headcount increase in related costs was in our operations and developer support groups as well as the IT group that supports those groups. The remaining costs were incurred in our general information technology and product management areas and our finance, general corporate and human resources areas as we make the transition to being a public company.

Total other income for the second quarter of 2012 was $106,000 which was primarily the result of a non-cash gain recorded due to a final change in the fair value of our preferred stock warrant liability during the quarter before it was reclassified to equity in early April upon the closing of our IPO. At that time the warrant to purchase preferred stock was converted into a warrant to purchase common stock.

Our adjusted EBITDA which excludes non-cash stock based compensation expense of approximately $1 million for the second quarter of 2012, with a loss of $700,000 for the second quarter of 2012 versus a loss of $100,000 in the second quarter of 2011 and compared to a loss of $2.4 million in the first quarter of 2012. Adjusted EBITDA, the key metric that we track internally and we will continue to report this metric moving forward. As noted at the beginning of the call, adjusted EBITDA the non-GAAP financial measure and we provided a reconciliation of adjusted EBITDA to net income or net loss the nearest GAAP measure and to these earnings release which is also available on our website.

Net loss attributable to common shareholders was $2.2 million in the second quarter of 2012, compared to a loss of $1.4 million in the second quarter of 2011 that compared to a loss of $5.3 million in the first quarter of this year. Basic and diluted earnings per share, was $0.03 loss for the second quarter of 2012, versus $0.09 for the second quarter of 2011. And I wanted to provide some share count data you might find useful for the second half of 2012.

We estimate our share count used in our basic and diluted EPS calculation to be approximately 73.3 million shares for the third quarter and 55.1 million shares for the nine month period ended September 30, 2012. This also assumes that we have a net loss for the period that no new equity awards are granted and that no options are exercised prior to September 30. As far as taxes, we still expect to incur a net loss for the year, so our income tax expense is expected to be minimal for the remaining quarters of 2012.

Our capital spending was a little over $1.9 million for the first six months of 2012 and we expect our full-year 2012 capital spending to be in the range of $4 million to $5 million. Though we don’t give specific guidance on stock based compensation expense, we do know that we expect certain stock based compensation expense in Q3 due to changes in the restricted stock vesting schedules for some of the employees that joined us as part of our acquisition of Condaptive in May 2011. Specifically we expect $1.3 million in additional stock based compensation expense in Q3 of 2012 primarily in connection with these changes. $1 million of this amount will represent a onetime impact in the third quarter of 2012 and the remaining $300,000 will continue in each quarter to the second quarter of 2013. This is an addition to any ordinary core stock-based compensation expense.

In terms of future outlook, I would like to share our thoughts regarding the third quarter and the full-year 2012 based on information available to us today. For the third quarter we are initiating guidance with anticipated revenue in the range of $43.5 million to $45 million or 76% year-over-year growth at the mid-point.

We anticipate adjusted EBITDA to be in the range of negative $600,000 to negative $800,000 for the quarter. For the full-year of 2012 we are raising revenue guidance and now expect revenue in a range of $176 million to $179 million or a 71% year-over-year growth at the mid-point and we’re improving our outlook for adjusted EBITDA which we now expect to be in the range of negative $1 million to negative $2 million for the full-year.

In summary, we remain excited about our market leadership and positioning at the forefront of the mobile ad market. We believe that we have a unique market opportunity, and plan to invest in building our business towards long-term sustainable growth.

We are currently focused on several key growth areas including international growth, the continued build out of our global sales team and development of our core technology and data platform. We expect investments in these areas will help us extend our leadership position in the fast growing mobile advertising market. We believe that we have the right strategy, technology platform and people to grow the business. Our second quarter results give us confidence that we’re on the right track to do so.

I would like to thank you again for joining our earnings call. Operator, can we please open the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And it looks like our first question comes from the line of Jordan Monahan with Morgan Stanley. Please proceed.

Jordan Monahan – Morgan Stanley & Co.

Hi, thank you. Just one question about the competitive environment; I think there may be potentially a perception in the market that there are some new entrants that may possess data assets similar to yours. I am just wondering if you can talk about your views on potential competition and then also do you think you’re taking share or is the market growing at a similar rate?

Paul J. Palmieri

Got it. So, this is Paul. I’ll take that. Hi, Jordan. Just to start off I would say, yeah I think that there are new entrants that are coming into the market all the time. The way we view the business is, our data asset is very unique and specific, and we’ve been building the technology to be able to make that valuable for years. And so, while there will be some new entrants in the overall mobile market we think that our data asset continues to become more and more robust over time. It’s unique and differentiated and defensible. What was your second question Jordan?

Jordan Monahan – Morgan Stanley & Co.

The second was just around potential share gains. Do you believe you’re gaining share or do you think you’re growing at about the rate of mobile advertising market growth.

Paul J. Palmieri

I think we’re ahead of the market growth. So, I do think that we continue to take share. Mike might have a comment more specifically, but we think we’re ahead of where the market is growing.

Michael Avon

Yeah, that’s right Jordan. As you know most of the market share data comes out on an annual basis, but we believe its best as we can tell that we’re growing at a rate faster than the market and it continued to do so.

Jordan Monahan – Morgan Stanley & Co.

Great. Thank you.

Operator

Our next question comes from the line of Heath Terry with Goldman Sachs. Please proceed.

Heath Terry - Goldman Sachs Group Inc., Research Division

Great, thank you. Mike, I was wondering if maybe you could give us a little bit of color obviously without – I am not expecting to go into the full numbers, but just the trends that you’re seeing and metrics like fill rate and CPMs and what they’re saying to you about kind of overall supply and demand; are we still at a place where overall handset usage and uses of mobile internet is growing faster than, than advertisers can keep up?

Michael Avon

This is Mike, I’ll take that Heath. How you’re doing? So yeah, again we don’t disclose specific data on pricing or fill rates as you point out. But from a trend point of view, as I said during the call, both fill rates and CPMs improved from Q1 to Q2 for us I mean at a seasonality, but some of that is a reflection of continued – the continued rates by advertisers are more targeting and more engaging ads which ultimately drives higher pricing. We’re still at a point in mobile where in certain segments supply is growing at a faster rate than demand. And so there are certainly segments of the market where that has affected pricing. Other segments of the market we’ve seen significant price improvements. Overall we do expect the makeshift over time towards more targeted ads and more engaging ads to play in our favor and that’s what we’re really focused as a business.

Paul J. Palmieri

And I’ll point out Heath, this is Paul. I’ll just point out that, we grew our number of apps by 17% and we grew our audience by 15% year-over-year and are reporting 76% revenue growth in that time period. That is quite just a position from a lot of the advertising catching up with consumers, the numbers that you see out there. So we think if anybody is doing a great job monetizing we’ve got the numbers to show that.

Heath Terry - Goldman Sachs Group Inc., Research Division

Yeah, absolutely. Is there a – you mentioned makeshift is there a trend that you would point to or anything that you’re seeing in the mix between performance based advertising versus more display based, and to the extent that there are any specific categories or verticals of advertising that you feel like are outperforming that would also be useful?

Michael Avon

Yeah, I would say two different trend’s, certainly brand advertisers have continued to embrace highly targeted ads using our audience intelligence solution which will drive pricing up, Paul talked about one specific example involving quick service restaurant and a large food brand. We’ve seen a number of different verticals that have shown great results. We just put some research out in the market about a week ago around the travel vertical with a lot of data about success in that vertical. We’ve also seen some significant improvement in pricing in certain performance categories so, data targeting, audience targeting is not just about brands, it’s also about getting the right performance out in front of the right person and ultimately delivering better results for both advertisers and developers.

We’ve continued to see nice growth in app developers who are advertising their apps in mobile as well and that’s great for us, where we already have a deep relationship with these app developers where in many cases we’re monetizing their apps and we have many of them that are now choosing to spend significant dollars with us to promote their new apps and in many cases we’re able to use our data asset that was initially really developed with brands in mind to also drive better results for them. I think you’re seeing a little bit of the distinction between brand and performance in certain areas breakdown a bit as you’re seeing some nice pricing for some of those performance advertisers.

Heath Terry - Goldman Sachs Group Inc., Research Division

Great. Thank you.

Michael Avon

Thank you.

Operator

Our next question comes from the line of Mark May with Barclays Capital. Please proceed.

Mark May - Barclays Capital Inc.

Hi, thanks for taking my questions. The first one is; I believe in your commentary it’s about Europe. It suggested that maybe you tempered your growth expectations there a bit. And maybe if you could give us a sense of the magnitude of the adjustment there and then clearly you tweaked your guidance up overall up and so you’re seeing strength in other territories that is more than offsetting that maybe if you could identify where from a geographic standpoint you’ve seen greater than expected growth since your last updated guidance. And then, the follow-up is on UDID, I wonder if you could comment on what impact the restriction of UDID on the iOS platforms has had on the mobile ad industry? Thanks.

Michael Avon

Thanks, this Mike. I’ll take your first question and I think Paul will take the question on UDID. As far as Europe, as both Paul and I said, Europe did very well. We saw very nice growth in Europe in Q2, in fact Europe tracks right along with the overall business and growth. We understand in the overall macro environment and given that we’re still in expansion stage in mobile in Europe. We tempered our, the aggressiveness of our investment in Europe.

We still look at it as a great opportunity for us over the long-term and for the rest of the year. We’ve just been a bit slower in rolling out new markets in Europe and we think that’s the prudent thing to do given the current environment. We’re not meaningfully changing our expectations in Europe, but we have seen faster growth than initially expected in Asia Pacific and also in North America. But again on Europe we’ve opened two new offices, I think that should be a good sign that we still certainly believe in the opportunity in Europe, but we are prudent and we certainly understand the environment where we’re going to continue to invest in a prudent way.

Paul J. Palmieri

So, just to wrap up on that; prudence with – still very good results. And so we’re not really tempering what we think the results will be, it’s just we’ve been a little bit prudent here with how we’re rolling out these markets. UDID, Mark, Millennial Media has had its own unique identifier since very early on in the company. Some of the expertise that exist in the company comes out of the carrier world with the deep understanding of gateways and the handshake between handsets and gateways across apps and across browsers. And so, our MMID technology we’ve had for years, it predated UDID and so as UDID is in Apple’s terminology decremented over time. We're in a great position; we’re actually in probably a – competitively a bit better position because we have a different approach all together to unique user identification.

Mark May - Barclays Capital Inc.

Do you think that that’s enabled you to take share in iOS since the UDID restrictions?

Paul J. Palmieri

I think that the UDID restrictions and the challenge that companies that don’t have the kind of technology that we do will face, we haven’t seen yet. But I do think we're doing a very good business and seeing solid growth in iOS, but I think in this Q2, what I would say is that has a lot more to do with the quality of our demand and the quality of our overall solution, I don’t think we’ve yet seen some of those companies kind of fall away who were exclusively relying on UDID.

Mark May - Barclays Capital Inc.

Okay. Thanks a lot.

Operator

Our next question comes from the line of Jordan Rohan with Stifel, Nicolaus. Please proceed.

Jordan Rohan - Stifel, Nicolaus & Co., Inc., Research Division

Thanks guys. I know you don’t provide guidance going out very far. But it seems like you, the company is approaching EBITDA breakeven and it’s only a slight train on cash quarter-to-quarter which I think is a good thing. The question is, as you look at the potential to open up new international markets which would require some investment, as you said prudent investment. Should we expect that the company should stay at or near EBITDA breakeven going out for a while? Is significant EBITDA profitability something that’s on your mind as you look at 2013 or 2014? What should the trajectory in margins really be? Thank you.

Michael Avon

Thanks, Jordan this Mike. As you said we don’t give guidance out beyond this year and I really can't talk about 2013 at this point. And I will say that we have a plan in place to grow internationally and we expect to continue to execute on that plan.

Jordan Rohan - Stifel, Nicolaus & Co., Inc., Research Division

Okay. The follow-up question is, how long does it take to breakeven in a market and how many salespeople are in many major market outside the U.S. can you give us some idea on that?

Michael Avon

It certainly depends on the market. So, we have two primary hubs outside of the U.S. one in the U.K. in London which is an operational sales report hub for EMEA for Europe, middle-east and Africa and then one in Singapore supporting Asia Pacific generally. Each of those takes some reasonable period of time to get to breakeven, multiple quarters as we do staff up initially and then ramp up the operations there. In each new country or market that we go to, we typically will support with just a couple of salespeople to start and it depends on the market whether that’s a quarter or two or multiple quarters to get to breakeven. But it’s a model with very nice leverage particularly once we have those hubs up and running.

Jordan Rohan - Stifel, Nicolaus & Co., Inc., Research Division

All right. Thank you very much.

Michael Avon

Thanks, Jordan.

Operator

Our next question comes from the line of Jason Helfstein with Oppenheimer & Company. Please proceed.

Jason Helfstein - Oppenheimer & Co. Inc., Research Division

Thanks. So you talked about some near-term trends with pricing and fill rates improving. Can you talk about what your expectations are with 4G iPhone coming out, I think that’s an well publicized information that CPMs tend to be better on iOS and how you think that can impact the business? Thanks.

Michael Avon

Hey, Jason this is Mike. Well I hadn’t heard a new iPhone was coming out, no I am just kidding. So, as you said I think there are, there is certainly reports out in the market that iOS monetizes very well. We put reports on the market that, that talks about that as well, and I think there is a belief that the faster the connection the better the opportunity to deliver richer more engaging ads and certainly richer more engaging ads drive higher CPMs. So, we are excited about a 4G environment and certainly excited about the rumors we hear about the upcoming iPhone, but beyond that they’re just rumors at this point and we’ll be excited to see the final phone when it’s launched.

Jason Helfstein - Oppenheimer & Co. Inc., Research Division

And just a follow-up to that, I guess with that 4G point. You mentioned in your comments just how the way applications are designed, they’re really limited to a small number of SDKs and (indiscernible) so you have to pick who your partner is for the advertising side. As we move to more of a 4G world does that put at risk that more SDKs will be enabled into apps and as a result just, how do you think about that?

Paul J. Palmieri

Yeah, no this is Paul. No, I don’t think so. It’s more a function of the size of the app and the resources that the app uses while that app is open. And so it’s not a – it’s not driven by the network speed or any kind of the network interfaces, it’s all really about embedded software and [heap] size on the device and number of files what are being called as the app is running, and so that shelf space issue I think is a structural issue in the app economy.

Jason Helfstein - Oppenheimer & Co. Inc., Research Division

Thanks, and we’ll see you next week.

Michael Avon

Thank you.

Operator

Our next question comes from the line of Michael Graham with Canaccord Genuity. Please proceed.

Michael Graham - Canaccord Genuity Inc.

Hi, thanks. I just wanted to ask a question about your gross margins and your take rate. Just wondered if you would give us your updated thinking on, can that keep expanding nicely, seasonality aside as it has in the recent past and can you comment on whether there is a – how big the spread is between big app developers and smaller ones and the things you do to manage that?

Michael Avon

Hi, Michael this is Mike, I’ll take that, and thanks for the question. On take rate we have seen a nice trend in gross margin upward now the 39.7% in Q2, as we have reported before our long-term targets are in the 40% to 42% range for gross margin, so we are approaching that with recent results and the expectation is that, that we will not go above that target range. So that limits the upside for gross margin going forward although we see a nice trend in the upward direction. As far as the spread, we really don’t get into the specifics of different cohorts or pricing for different cohorts, again we consider that pricing information. But certainly given the number of app developers on our platform, we do have a unique ability to optimize around a number of different parameters including gross margin.

Michael Graham - Canaccord Genuity Inc.

Okay. No, that’s helpful. And just as a follow-up, can you talk about if you get an app developer that gets, to be pretty big in size, I think one thing that people are trying to figure out as how likely they’re to do a little more direct selling and I’m just wondering if you can give us any experiences or any color around, how you think about that issue and maybe some examples of how you dealt with it.

Paul J. Palmieri

Okay. What I would, this is a good question. What I will say is that, it is a difference here between mobile and app developers and the web, when the web came to its growth and that is that web publishers were generally media companies first that had ad sales forces, went online and then kind of went into that online media business. The app developer is just that, a software developer and/or an entertainment software company in many cases that’s used to maybe selling their product. But certainly no expertise as a general matter in ad sales as the average developer and so I think we will see a lot less of that in this market.

I think there are some key large apps that I’m sure that you guys cover as well that due some of their own monetization, but I think what we have to offer the developer overall as a platform helps them I think continue to be with us over the long-term. Its things like giving them insights and analytics about their app having nothing to do with monetization. Its helping them to distribute their apps etcetera and so ultimately this is an app economy with so many different apps.

And the average app developer is so small, but I think for the long-term you’re going to continue to see phenomenon out there or phenomenon out there like this Logos Quiz that we discussed in the call, where you got this app that takes off and you got an enormous audience in a very short period of time and those are generally coming from smaller app developers without the expertise in advertising.

Michael Graham - Canaccord Genuity Inc.

Okay. Thank you very much.

Paul J. Palmieri

Thanks, Michael.

Operator

Our next question comes from the line of Robert Coolbrith with ThinkEquity. Please proceed.

Robert Coolbrith - ThinkEquity LLC

Good afternoon. Thank you for taking my questions. Couple ones, just with respect to your comments on shelf space in the app economy, can you talk about the portion of developers maybe who are using your mediation tools versus those of competitors or partners such as the pure play mediation companies or the ad exchanges. And then also with respect to premium sales, if you want to call that, some of the app developers are maybe using some of the mediation tools or sales automation components to some of the mediation tools to do some up front selling without a sales force, do you think that’s important trend in the market that is – that maybe something that you might be interested enabling at some point and I have one other question as well. Thank you.

Paul J. Palmieri

Yeah. So what I would say is that the mediation business had been a very difficult business, for companies to be in the mobile business and because its really just a routing technology, routing ad request from place to another and from an economics perspective its not really that good of a business. Its something to be added on or as a part of business like we run for example and so while we do offer mediation to a lot of different – to all of our developers and a lot of them take us upon on it.

What I will say is more the cases with the shelf space issue, a developer have to leave enough space for Google and they have to leave enough space for Millennial and then there are some things that they do downstream of that, incrementally around mediation that I think are of lesser value, but I think Millennial Media a while ago hit an escape velocity, if you will, where a developer is putting our SDK into their app and if they’re using mediation services, they’re doing that and those mediation companies again I think it’s a very, very difficult business model to get any kind of decent economics in that and I’m going to add – I’m going to let Mike add to my answer there.

Michael Avon

Robert, yeah – I just add that if you look at many of the quote unquote your pure play mediation companies, many of them we work with, many of those companies are moving into the or attempting to move into the advertising space ultimately we believe owning the full stack is critical and we ultimately believe that mediation is a piece of the puzzle we offer, we offer a very good mediation tool, but we will work with others if the developer wants to use a third-party or build mediation themselves. It is very difficult to go from being a – from delivering a mediation service to trying to build the full stack. We have the full stack today and we think that’s the right approach to the market.

Paul J. Palmieri

And in all cases we have a direct relationship with the developer even if we would participate in the mediation, in all cases we have a direct relationship with the developer.

Robert Coolbrith - ThinkEquity LLC

That’s very helpful. Thank you. One follow-up, just wanted to ask if Facebook is working on developing their model advertising products? Are you looking at that as an opportunity where maybe you could build sort of Facebook or social DSP strategy, have you been working with the API and just sort of any color to the potential there or whether or not you see social as a place where you can add value given your focus on mobile?

Paul J. Palmieri

Well, I think the commonalities between social and mobile are there in terms of the value of data, but its different data. And on partnering with the Facebook or the API, there is nothing we can really comment on it at this point on that. For us we’re out there playing our own game. And I think we’re doing a very, very good job at that game.

Robert Coolbrith - ThinkEquity LLC

Okay. Thank you.

Operator

Our final question comes from the line of Rory Maher with Capstone Investments. Please proceed.

Rory Maher - Capstone Investments

Thanks a lot guys. Couple of questions on the video, the impressive video growth. Does the targeting and reporting on that video inventory, does it differ than other inventory? And are there a concentrated small number of publishers driving that impression growth or is it fairly widespread and then a follow-up question.

Michael Avon

This is Michael. I will take that. Hi, Rory. So video growth as far as the reporting and the targeting is relatively similar. So in our business we’re different than I think many others in the market. We have a single SDK for the – for developers, what we call a three-in-one SDK, enables that developer to or enables us in an add call to deliver a rich media ad, a video ad, or a banner display ad and so we can make the choice of what’s the best ad to serve at this given moment, given a whole host of different parameters. So, ultimately the targeting comes down to putting the right ad in front of the right person to try to drive the best engagement.

As far as reporting, certainly there is some differences in reporting on video, there are certain metrics that video advertisers want to track including completion rates, etcetera. But overall our system is designed to treat any different – any number of different types of ads similarly, which allows us to over time the – somewhat diagnostic as to what kinds of ads worked us and what don’t. Our job is to deliver the ads that do work best and deliver the specific ad that we believe will work best for that person.

As far as concentration, yeah there are some applications out there that either really don’t support a video advertising, they don’t – video just doesn’t work very well in certain types of ads. And certain types of apps in other apps that video can work extremely well. So there is a subset of our overall app universe where a majority of video ads run.

Rory Maher - Capstone Investments

Thanks. That’s helpful. And then quickly is the cost to deliver video ads, is that anymore expensive than regular banner ads and if so, how much?

Michael Avon

It is a little bit more expensive, it’s frankly in line with delivery of rich media ads, we don’t break out the specific amount, but it’s a small, very small cost for us.

Rory Maher - Capstone Investments

All right. Great. Thanks a lot and great quarter.

Michael Avon

Thank you.

Paul J. Palmieri

Thank you.

Operator

Ladies and gentlemen, this will conclude the time we have for questions. Thank you for your participation. You may now disconnect and have a wonderful day.

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