Marin Software Inc (MRIN) 2013 Q1 法說會逐字稿

Greetings, and welcome to the Marin Software First Quarter 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Greg Kleiner. Thank you, sir. You may begin.

Thanks, Jen. Good afternoon, everyone, and welcome to Marin Software's 2013 first quarter earnings conference call. Joining me today are Chris Lien, Marin's Founder and CEO, and John Kaelle, Marin's EVP and Chief Financial Officer.

By now you should have received a copy of our press release, which crossed the wire approximately an hour ago. If you need a copy of the press release, you can go to investor.marinsoftware.com to find a electronic copy. All participants are advised that the audio of this conference call is being recorded for playback purposes and that a recording of this call will be made available on our website within a few hours. You can access these recordings through the Investor Relations section of our website.

Before we begin, I'd like to note that our discussion today will include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements include statements about our business outlook and strategy and statements about historical results that may suggest trends for our business. We make these statements as of May 8, 2013, and disclaim any duty to update them.

For more information regarding these and other risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risk relating to our business in general, we refer you to the sections entitled Risk Factors in our S-1 registration statement and our other filings with the SEC.

I would also like to note that any forward-looking statements made on this call reflect information and analysis as of today. This presentation contains certain financial performance measures that are different from the financial measures calculated in accordance with GAAP and may be different from calculations that measures made by other companies. A quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our first quarter 2013 earnings press release.

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

Thank you, and welcome to everyone joining us on the call today for our first conference call as a public company. Since some of you on the call maybe new to the Marin story, I'm going to discuss a brief overview of our company before going into the highlights from the quarter.

We posted strong results in Q1, further validating our leadership position in a rapidly growing new market called revenue acquisition management, or RAM. RAM is the next generation of online advertising management made possible by the advent of cloud-based technologies and applied big data.

During the March quarter, we delivered revenues of $17.2 million, up 32% on a year-over-year basis. In addition, I'm proud to say that our strong business momentum abled us to deliver our record 16th straight quarter of sequential quarterly revenue growth.

Also during the quarter, we completed our IPO on the New York Stock Exchange. This event was a major milestone for Marin, as it helps to further our brand, raise awareness for our category, and provide us with additional capital to fuel our growth plans as we look to capitalize on our multi-billion-dollar market opportunity.

Marin provides a software-as-a-service platform, allowing digital marketers to manage their search, display, social and mobile advertising investments. Marin's platform ties the digital advertising cost to the downstream revenue or business event. Our closed-loop system enabled advertisers and agencies to improve financial performance, realize efficiencies and time savings, and make better business decisions.

The proliferation of channels, devices, publishers, and ad units, along with biddable media and dynamic business goals, makes realizing the full potential of digital marketing very challenging. And as consumers spend more time online, marketers are seeking to reach these prospects online, too. Marin's revenue acquisition management platform is designed to meet the needs of today's digital marketers.

According to MAGNA GLOBAL, the overall advertising market is estimated to grow from $480 billion in 2012 to $619 billion in 2017. Within this overall market, traditional advertising is expected to grow at a 3% CAGR, while the digital component is expected to grow at a 12% CAGR, almost doubling from $98 billion in 2012 to $174 billion by 2017.

Paid search spending comprises $45 billion of the total market today and is projected to continue with strong growth going forward. Of the remaining online advertising spend worldwide, display accounts for $41 billion, with social and mobile each accounting for about $6 billion of spend.

Currently, approximately 90% of our revenue is from paid search. Mobile -- and by that I mean smartphones and tablets -- touches all of our channels and accounts for about 20% of the overall media managed by our customers on our platform. Marin is well positioned to benefit from the ongoing adoption of mobile advertising by our customers, especially with mobile search as the largest mobile ad unit.

The rapid growth and pace of change in online advertising is driving increased complexity, fragmentation, and scale requirements for digital marketers. Marketers now seek to engage with prospects across all online channels, including search, display, social and mobile.

The rate of change in innovation in these online channels is high, and leading marketers are leveraging Marin's platform to turn this dynamic online advertising market to their advantage, driving superior revenue outcomes, time savings, and better business insights.

When we started Marin in 2006, we saw an underserved market filled with inadequate tools. Our view was that the market would increasingly demand a broader and more automated approach to this problem, a solution that delivered both power and ease of use, a solution designed by expert online marketers and leading software developers to meet the day-to-day needs of the digital marketer.

To better solve this problem, we built an end-to-end cloud-based system with a multitenant architecture that today holds more than 250 terabytes of data and manages approximately 4.7 billion ad units. The power of our platform comes from the closed-loop system that we've built that provides marketers with the ability to measure, manage and optimize their digital advertising spending.

By allowing marketers to execute the full spectrum of their advertising spend within one platform, we have freed them from a large portion of what used to be a manual process of campaign management. In our most recent customer survey, many of our customers reported a time savings of 25% or more by using our platform. This automation drives a significant increase in efficiency, which frees up time to use the analytics embedded in our platform to drive better decision-making, which then delivers a material increase in financial performance.

And many of our client case studies show that customers realize financial lift of 20% or greater from using our platform through a variety of means, such as increased volumes of revenue or leads, higher profits, improved advertising ROI, and lower customer acquisition costs.

With our participatory economic model, whereby our customers pay Marin based on a percentage rate of the media they manage on our platform, as our customers' online advertising spending grows, so do our subscription fees.

To grow our business, we follow a land and expand model. As we build the business, we focus on both landing new clients and growing our revenue within our installed base. As our customers see significant business improvements by utilizing our platform, we've historically seen an increase in their spending over time at levels well above overall industry growth. And in the background, digital spending overall continues to grow rapidly, increasing the number of customers that can benefit from using our platform.

The combination of our powerful platform and world-class services team has allowed us to assemble an impressive customer list comprising some of the top advertisers and agencies in the world. Our platform was designed to serve the needs of both direct advertisers and agencies, driving the mixed of business that has approximated a 50/50 split over our history.

This broad focus has allowed us to assemble a list of blue-chip global customers, including advertisers such as GM, Macy's, and Hotels.com, as well as our doing business with the largest advertising holding companies.

I'd now like to turn to our first quarter 2013 results. During March, we saw broad strength across the globe. We had 542 active advertisers during Q1, an increase of 24% compared to 436 in the year-ago period. In the US, we signed new deals with household names, such as Mercedes Benz and Ancestry.com. In EMEA, we added customers such as feelunique and [Brendos], while in APAC, we inked deals with [Jalan] and others.

Let me take a moment to tell you more about the Ancestry.com deal. Ancestry, through digital agency 360i, chose Marin for two reasons instrumental to their online success -- Marin's ability to track and optimize Ancestry's subscription acquisitions cost and Marin's powerful forecasting tools.

Certain keywords produced higher quality leads, and Marin's ability to measure and model the value of each subscription helped Ancestry optimize their program for the most valuable subscribers. By evaluating a variety of lead attributes, Ancestry can effectively forecast and manage their bids in pursuit of the highest value subscribers.

Another deal I'd like to quickly highlight is Mercedes, who in Q1 shifted a larger portion of their spend to Marin. Last December, with Resolution Media, Marin won Sprinter Vans, a portion of the Mercedes business. Both Mercedes and Resolution were pleased with our platform's focus on revenue and results, along with the quality of our client services team. The quick success of Sprinter Vans with Marin and Resolution drew the attention of the other lines of business at Mercedes, and they subsequently directed more spend to our platform.

We also made significant progress on the product front during the quarter, launching several important advancements. I mentioned earlier the challenges presented to marketers as the result of the proliferation of multiple devices. During this quarter, we released new features designed to support the enhanced campaign functionality in Google's AdWords platform, allowing advertisers to more easily optimize their programs across multiple channels.

To further our support for the rapidly growing social advertising market, we introduced a Facebook campaign wizard that allows advertisers to more easily execute and optimize their spending on this important new medium. In addition, we furthered our capability supporting Google's product listing ads functionality designed to improve retail advertising effectiveness.

In summary, we were very pleased with our performance during the quarter and are optimistic about the prospects for our business going forward. To give you a sense of the untapped opportunity that remains ahead for us in this market, in December 2012, our customers managed $4.7 billion in annualized advertising spend on our platform, as compared to $98 billion spent in aggregate on all digital advertising in 2012. While we believe that we are a leading independent vendor in this market, we are in the early innings of this multi-billion-dollar market opportunity.

And now let me turn it over to John for more detail on the financials.

Thanks, Chris. As this is our first earnings call as a public company, I wanted to start with a brief overview of our financial model before going into the Q1 results.

Marin is a 100% software-as-a-service subscription model, with the benefit of participatory economics. Our business is almost evenly weighted between our direct and advertising agency customers, and they both generally us fees based on a percentage of total advertising spend that they manage on the Marin platform. So as our customer ad spend and corresponding revenues grow, our revenues grow, as well.

When we sign up a new direct customer, the contract is typically six months to one year in length and has monthly minimum fees typically pegged at roughly 50% of the anticipated monthly revenues. This contract structure is the most common, though some customers do sign fixed-price contracts based on their anticipated level of spend.

Our implementation cycles generally take about four to six weeks, and the monthly minimum fee, when applicable, is in effect during this period. We do not charge separately for professional services, so this revenue helps offset the cost of our implementation teams during the initial onboarding phase. Once the customer is fully configured on our platform, they generally begin to ramp their ad spend and typically exceed the minimum fee threshold shortly thereafter and then move to the contracted rate tiers.

So, as we can see, as we delivered successful outcomes for our customers, their spend increases, thereby driving higher revenues for us. This focus on mutual success drives the virtuous cycle for both parties.

On the agency side, most of our larger network agencies do not have minimum fees set in their contracts, as their activity is based on their engagements with their individual clients. Our contract lengths with agencies typically are one to two years in length and provide an umbrella agreement for their advertiser clients.

Our customers are billed monthly in arrears, so the flow of our business generates little deferred revenue on our balance sheet. However, we are starting to move more of our clients to prepay minimum fees going forward, so we believe that deferred revenue balance should grow in the future.

One of the powerful elements of our business model is that we have a highly diversified customer base, as our largest advertiser was just over 2% of our total revenue in 2012. Retail is our largest vertical at a little more than 20% of revenue in 2012, but we also have double-digit percentage contributions from the travel, technology, finance, and B2B industries. Managing the increasing complexity of digital advertising is a broad horizontal problem across many different industries, and we are proud to serve a wide variety of customers and verticals.

With that background, let me now move to our first quarter results. I am pleased to report that revenues were $17.2 million, up 32% year over year and representing our 16th consecutive quarter of sequential revenue growth. In addition to growing our customer base and increasing the spend level on our platform from our existing customers, one of the other key enablers of our revenue growth is our strong renewal rates, which is a result of our customers realizing one or more of the many benefits of our platform.

Revenue retention, which we define as revenue from all advertisers in the prior period that remained advertisers in the current period of our total revenue from the prior period, was once again above 100% in Q1. Going forward, we plan to disclose the actual revenue retention percentage number on an annual basis.

Another powerful growth driver for Marin's revenue is global expansion. We currently have 12 offices located around the world, with a presence in the U.K., Germany, France, Ireland, Japan, Australia, and Singapore, with more planned in the future. Our global presence is a distinct competitive advantage that we expect to continue to leverage going forward.

In Q1, we generated 30% of our revenue from international clients, a favorable increase as compared to the 26% figure that we recorded in Q1 of last year. Over time, we believe our long-term revenue mix will be directionally consistent with the global mix of digital advertising, which is currently roughly 50/50 domestic and international.

Before moving on to the profit and loss items, I'd like to point out that I will be discussing non-GAAP results going forward, unless otherwise stated, which for the first quarter of 2013 excludes a total of $1.2 million in stock-based compensation, $300,000 of non-cash expenses from the revaluation of preferred stock warrants, and $200,000 of amortization of capitalized research and development costs, while adding back $600,000 of capitalized R&D costs. As a reminder, a detailed reconciliation of our non-GAAP results to the GAAP results can be found in our earnings release.

For the first quarter, non-GAAP gross profit was $10.2 million, up 30% when compared to $7.9 million in the year-ago period. Non-GAAP gross profit margin for the March quarter was 60% compared to 61% in Q1 of last year. We are continuing to invest aggressively to scale our infrastructure to better meet anticipated demand and adding key personnel to support our rapid growth in the newer international markets.

While the non-GAAP gross profit margin will likely fluctuate from quarter to quarter, we are targeting annual improvement, and in a long term basis, we expect non-GAAP gross profit margins to be in the range of 70% to 72%.

Non-GAAP sales and marketing expense was $10.2 million in Q1, compared to $6.4 million in Q1 of last year. This was driven by our continued investment in sales capacity and marketing initiatives to drive our growth going forward. Non-GAAP research and development expense was $5.4 million in Q1, compared to $2.9 million in Q1 of the prior year. We expect 2013 to be an investment year for R&D, as we are focused on further increasing our technological lead in the market.

Non-GAAP G&A expenses were $3.6 million in Q1, compared to $2.4 million in last year's Q1. This increase was driven by the costs of operating as a public company, certain expenses driven by our initial public offering, and infrastructure additions associated with the growing scale of Marin's global operations.

Our non-GAAP operating loss was $9 million in the current period, up from an operating loss of $3.8 million in Q1 of the prior year. We are clearly in investment mode at the moment, as we have a leadership position in a rapidly growing and very large market opportunity ahead of us.

We believe we have a unique opportunity to build a very large company over time, and we are confident in the long-term scalability of our business model, due in part to the improvements in our gross margins over the last several years. We have expanded our gross margins from 40% to 60% thus far. And as I mentioned a moment ago, we expect gross margins to increase to the 70%-plus level in the years ahead.

From the long-term perspective, we believe our business model can generate healthy non-GAAP operating margins of 20% to 22%. Our non-GAAP net loss for Q1 was $9.4 million, which led to a non-GAAP loss per share of $0.39 based upon a weighted average share count of 24.2 million. This compares to a non-GAAP net loss of $3.8 million and a non-GAAP loss per share of $0.18, based upon a weighted average share count of 21.5 million in Q1 of last year.

Adjusted EBITDA was a loss of $8 million in the quarter, compared to a loss of $3.3 million in Q1 of the prior year.

We ended the first quarter with $115.5 million of cash and cash equivalents on our balance sheet, up from $31.5 million at the end of the year. We generated approximately $94.9 million in net proceeds from our initial public offering at the end of March. Subsequent to quarter end, the underwriters exercised the greenshoe, which added an incremental $14.6 million in net cash proceeds.

Our deferred revenue balance, while small, increased to $1.4 million in the quarter. This is up from $600,000 in the fourth quarter of 2012. While still relatively modest, the increase was due in part to our efforts that I mentioned previously to transition our customer base from paying in arrears to paying the minimum fees upfront for the use of our platform services.

Because we currently do not have upfront payment terms covering the majority of our existing customers, it's important to understand that quarter-to-quarter movement in our deferred revenue balance is not a good indicator of the momentum or expected growth rate of our business.

Now I will turn to guidance for our June quarter and the 2013 year as a whole.

For the quarter ending June 30th, we expect revenues to range from $17.6 million to $18 million, or a growth of 25% to 28% year over year. Non-GAAP loss from operations should range from $9.8 million to $9.4 million, leading to a non-GAAP net loss per share in the range of $0.33 to $0.31, based upon a weighted average share count of $32.2 million.

For the 2013 calendar year, we expect revenues to range from $75 million to $76.2 million, or a growth of 26% to 28% year over year. Non-GAAP loss from operations should range from $34.5 million to $33.5 million, leading to a non-GAAP net loss per share in the range of $1.19 to $1.16, based upon a weighted average share count of 30.7 million shares.

As a final point regarding our guidance, I would like to highlight that we plan to continue to reinvest any upside performance in terms of revenue back into the business rather than deliver any near-term upside in terms of profitability or cash flow.

So, in summary, we are pleased with the results from our first quarter and continue to invest in expanding both our product footprint and sales capacity. Our land and expand strategy is working, and we believe we are well positioned to continue adding new customers and growing the advertising spend of our existing customer base going forward. We are at the very early stages of a rapidly growing, multi-billion-dollar digital advertising market and are optimistic about the future.

With that, I want to thank you for your time, and I'll turn it back over to the Operator to open it up for questions.

Thank you. (Operator Instructions). Our first question comes from the line of Greg Dunham with Goldman Sachs. Please proceed with your question.

Hi, yes, guys. Thanks for taking my questions, and congratulations on being a public company.

First question for you, you mentioned the international opportunity. If you look at the international revenues this quarter, it looks like they accelerated from last quarter. Can you just help us frame where we are in your international expansion and maybe talk to some of the regions where you're seeing the most success?

Sure, Greg. And, again, thank you for the well wishes. Overall, we have been selling overseas since 2009. We are the most widely used platform in Europe. And we entered Asia a little more than a year ago. And you're correct to observe the acceleration of our international penetration. Right now, the markets that are showing the most acceleration for us internationally would be in Japan, and then also in Australia, in the Asian market. And then with regard to Europe, we're seeing good uptake in France and Germany over and above our early leadership in the United Kingdom.

So those would be the main international markets that I would highlight right now that are performing particularly well for Marin.

Okay, and a couple of more from me just quickly. You mentioned the support of Google Enhanced Campaigns. I know -- I get a lot of questions on that topic. Can you -- can you maybe describe, you know, what that is for some that maybe are not as educated on that dynamic and -- and how it impacts Marin and what the opportunity is there? Thanks.

Sure, Greg. So what Enhanced Campaigns will enable through Google is you'll have a single campaign, and then you can set a boost to target mobile devices at a -- at a different bid level than a desktop device. So, again, think of a person using a desktop computer. Then they might be targeted on a smartphone or on a tablet, and smartphone and tablets would count for mobile.

And what Google is enabling is a single campaign that can then have two different bid settings, one for desktop and one for mobile, because each of those ad placements performs differently. It's a different use case for a potential prospect. And then the ads themselves perform differently, in terms of click-through rates and conversion and ultimate customer value.

So Google's making this change to simplify this for advertisers. And it's a functionality that Marin will be in the forefront of supporting over the course of this summer, as the transition is made in the Google system.

Okay. One last one for me. The only thing that -- that kind of -- well, you beat on revenues, you beat big on gross margins -- relative to my model, you did spend more on sales and marketing, and I know you mentioned, John, on spending some of the upside. Was that more in -- in higher capacity or -- or variable expense? How should we think about the spending in sales and marketing?

Yes, Greg. I'd look at it two ways. The first, as we've talked about, we're continuing to ramp the sales team, so some of that is the incremental sales headcount that we brought on, and they're continuing to ramp.

The second part of that I'd characterize as positioning really around the IPO. We've done some marketing work, so there was variable spend related to that in the quarter just around our messaging. So it's really two drivers there.

Great. And I'll hand it off to others. Thanks, guys.

Thanks, Greg.

Thank you. Our next question comes from the line of [Nandan Amwajaz] with Deutsche Bank. Please proceed with your question.

Hi, good evening. Two questions. The first one is big picture. What are you seeing in digital marketing budgets overall, as we start this year off, relative to what we saw last year? And how did that translate into your spend under management during this quarter? And how do you expect that to trend over the remainder of the year?

Sure. So we're continuing to see double-digit growth in industry-level digital advertising budgets. Obviously, Marin is growing well above the industry growth levels. And the -- the primary funding mechanism for the digital budgets is the shift from offline advertising budgets, which are less accountable and less measurable, to the more measurable and more accountable digital budgets. So that trend continues and is basically as forecast by the industry, if you will.

The question around spend under management, that's something that we're going to share on an annual basis or when we cross what we would consider a notable milestone, but it's not something we're going to share on a quarterly basis.

Okay, thank you. And perhaps a question for John on the billing terms. I know your deferred revenue is fairly modest at this point and you're pushing to standardize prepayment terms. What is your target? And where are you now?

In terms of the total deferred revenue balance? Is that the question?

No, no, in terms of how much in advance you would bill. Would it be quarterly, semi-annual --

Yes, you know, I think -- I think it depends on the advertiser. We're pushing for both quarterly and annual prepayments. And, again, how we're trying to build that balance is for the direct advertisers, they have minimum fees.

So we're looking at those minimum fees to have them pay those in advance, so that's, you know, roughly half the business that would have a minimum fee. That would be something that we could seek prepayment on. So we are just starting to push that with our advertisers and clients and feel like we're making progress there and can show more progress on that going forward.

Okay. Thank you.

Thank you. Our next question comes from the line of Brent Thill with UBS. Please proceed with your question.

Good afternoon. Nice job out of the gate, Chris and John. Quick question, Chris, just to follow up on the Google Enhanced Campaigns, just a question I think that we're getting in terms of the impact to Marin. And what do you think this will mean for you going into the summer, as they launch this? Can you just help provide a little more color of how you navigate this? And do you view it as a headwind? Or is it no wind in your -- from your perspective?

Yes. So with regard to the Enhanced Campaigns, we believe, over the medium term, it will lead to growth in online advertising spending, as advertisers can better target desktop performance versus mobile performance.

In the near term, over the next several months, it's really too early for us to make any prediction on this. I would guide folks that we would expect spend to stay at above the level it is now. Some advertisers may increase their spend to take advantage of the new functionality. Others may chose to be more conservative and pull back.

I think -- I think, on the whole, we expect it to be neutral as we make the transition. But ultimately, once the functionality is more widely adopted, we would expect spend to accelerate, given the additional targeting functionality, in particular around better able to -- better being able to target specific performance by device.

Okay. And, John, just in Q1, you look at the number of net new deals decelerating year on year, and when you look at the sequential growth, Q4 to Q1, I think you were running 13%-14% the last couple Q1s, this quarter, you know, sub-1% sequential. Is there something you're seeing from a macro perspective or something else that is having an impact as it relates to net new attraction? Or am I missing something there?

Brent, you're talking about the advertisers there? Is that the metric you're looking at?

Well, yeah, the new customer number and also the sequential revenue growth this quarter versus the last two Q1s you've seen stronger sequential Q4 to Q1.

Yes, I guess, I'd point to, relative to the prior quarters, you know, I think we are -- now we're normalizing in terms of the comparison period, right? We were last year, in '12 and then in '11, coming off a much smaller base. So now we're starting to settle into -- to what I'd called normalized growth rates.

As it relates to that advertiser metric, again, the one thing I want to point there is that metric is going to be a little bit noisy, because we draw a line on the bottom end that advertisers that we earn revenues from in excess of $2,000, so there is some [titling] over and under that line which -- which will create a bit of noise there.

Okay, great. Thanks.

Thank you. Our next question comes from the line of Tom Roderick from Stifel Nicolaus. Please proceed with your question.

Hey, gentlemen. Good afternoon. So let me -- let me just follow up on Brent's question there, and I think it sort of gets to the heart of the idea that, you know, last year you were coming off from a much smaller base of revenue, so the comps are clearly -- clearly tougher.

But as you look at the environment and as you look at sort of the mid-term here, how should investors think about what the sustainable -- call it two- to three-year rate of growth is in the business? Is it, you know, sort of feasible to think that things could sort of stabilize in the mid- to high-20s as you guided for this year? Is it a little too early to say? I'm just trying to get a feel for -- for where this growth rate stabilizes as you get to scale here. Thanks.

Sure. So, again, we're very comfortable with the updated guidance for this year, and we would guide you to think about that as a reasonable rate of growth for the next one to two years. And, obviously, as we move through the year and understand more about our trajectory, we'll update that. But we're comfortable with the updated guidance for the rest of this year, and that certainly would be a good placeholder for the following year, as well.

Right. And maybe -- I might have missed the metric. I heard $4.7 billion for ad spend under management, but perhaps that was the number for the end of fiscal year '12, so maybe you could just correct me if I'm wrong about that.

But thinking about ad spend under management, can you walk us through a typical seasonality, as you look at it from the standpoint of your customers, in the way that they spend? Obviously, it would seem that Q4 would be a much higher sort of seasonal uptick, but maybe -- maybe give us a sense as to how we should expect seasonality to trend from the ad spend perspective?

Yes, I'll take a stab, and then I'll see if Chris has any addition to that. The first is your question on that metric. The $4.7 billion in annualized ad spend, that is as of the end of 2012. Ad spend as a metric is something that we plan to provide annually, so that is the -- you know, the last number that we did provide.

As it relates to seasonality, we've got a fairly well-distributed set of advertisers in terms of the industry verticals, and we've talked in the past our single largest vertical is retail, at just over 20% of the total revenue mix. So you do see some of that seasonality in Q4 into Q1, into those retailers. You know, they moderate their spend in the first quarter.

You know, I think in terms of the go-forward, that -- that would be the most pronounced, because you do see a heavier spend in that fourth quarter. But the rest -- you know, the rest of the seasonality, it's fairly well dispersed in terms of the client mix.

That's great. Last question from me. Just may be helping to educate us on the mix between direct advertisers and agencies, when we look at the agency business -- or maybe just high level, can you give us an update as to what that mix of business looks like today? And then at a high level, as we look at the agencies, how well penetrated do you feel that you are across all of the agency segments? And how well penetrated within those certain accounts do you feel like you have from a wallet share perspective?

Sure. Sort of high level, the mix of the agency and direct business has been about 50/50 over the last several years for us, and we would expect it to stay at that split, plus or minus a couple of points, as a guide to you all.

In terms of our penetration of agencies, you really have to unpack that one. If you take it at the highest level, in terms of the agency-holding companies, so that'd be the WPPs, the Omnicoms, the Publicises of the world, there are certain of their agency divisions where we would have 90% penetration, but the vast majority of them we would be down at the -- call it 30% to 40% penetration level, if that. So there's significant additional clients that they currently have that we can add to our platform.

And then related to that, as they go out and win new clients, we can work with them on that, as well. So, for example, when we partnered with iProspect on winning the G.M. business in the past year, that's an example of a new client win both for iProspect and for Marin. So there's significant upside within the existing client base for the agencies that we service, as well as partnering with them to go win new clients.

Great. Thanks, Chris. That's helpful. Nice job, guys.

Thank you. Our next question comes from the line of Jason Maynard with Wells Fargo. Please proceed with your question.

Hey, guys. Good afternoon. I have two questions. First one, following a little bit about working with agencies and obviously selling directly to end customers, what's -- how would you characterize the changes with the CMOs or the marketing organizations and, you know, all of the digital -- the customer touchpoints becoming digitized?

How is that, if you will, changing the dynamic, in terms of a CMO working with an agency? What does it mean in terms of them wanting to perhaps deal with you directly? And how does that, in a broad way, impact the sales cycle and sales process?

Sure, Jason. At a high level, I think as we all can understand, as more media becomes digitized, as you reference it, CMOs realize that properly managing and measuring and optimizing their digital advertising spend can be tied back to driving better revenue or business outcomes. So CMOs are certainly much more engaged then they might have been in the past with understanding they can turn those dials to directly affect business outcomes.

Related to your question in terms of how are they engaging with their agency or with us, and is it more though agencies or more direct, there really hasn't been any change in that, even -- even as the role of digital advertising has become more important. Certain companies and their CMOs like to engage with Marin through their agencies, and others preferred to engage with Marin directly.

I would say that, overall, we are seeing CMOs being more engaged. So even if they're working with Marin through an agency, they're aware of Marin and they're aware of the capabilities and benefits of our platform. So that would be my main observation, that CMOs are more engaged in understanding they have a role in helping to drive better revenue and business outcomes by properly managing their digital advertising investments through a platform such as Marin's.

And then, maybe a follow-up on social media advertising and starting to think about mobile. What are some of the underlying trends you see there? And how would you sort of help us understand where that opportunity is maybe relative to something like paid search? Thanks.

Sure. So I'll share that -- our observation from our perspective. So taking it in reverse order, mobile is about 20% of the media managed on our platform, and call it 90%-plus of that would be mobile search or mobile paid search, if you will. And so we are well exposed to the mobile opportunity, and this would be on smartphones and on tablets, and are seeing our customers increase their mobile app spending budgets, and we're a direct beneficiary of that.

With regard to social, social remains less than 10% of our revenue. We're seeing our clients experiment with social. We believe social will become a permanent part of the online digital marketing mix, but it's still very early days for social advertising. As we referenced in the MAGNA GLOBAL, it's about a $6 billion category more or less in 2012, and that will grow at double-digit rates going forward.

But paid search, on the other hand, is already a $45 billion category and still growing at double-digit rates, although lower than social. So Marin, for the foreseeable future, will remain with the vast majority of our revenue coming from paid search. We have good exposure to mobile adoption -- 20%-plus already in the media managed by our clients -- and social is less than 10% of the media that our clients manage on our platform, but we expect to see healthy growth in that over the coming year to two.

Great, thank you very much, and congratulations.

Thanks.

Thank you. Ladies and gentlemen, at this time, I'd like to turn the conference back over to Chris Lien for closing comments.

Great. I want to thank everyone for participating in our first earnings call as a public company. And John and I look forward to spending time with many of you as you learn about the Marin story and look to become investors in our company.

Again, thank you for your time today.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.