Marin Software Inc (MRIN) 2013 Q3 法說會逐字稿

Greetings and welcome to the Marin Software third-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, Investor Relations for Marin Software. Thank you. Mr. Kleiner, you may begin.

Thank you. Good afternoon, everyone, and welcome to Marin Software's 2013 third-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 earnings release which crossed the wire approximately 1 hour ago. If you need a copy of the press release, please go to investor.MarinSoftware.com to find an electronic version.

Call 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 the Investor Relations section of our website within a few hours.

Before we begin, I'd like to note that our discussions 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 November 6, 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 risks relating to our business in general, we refer you to the sections entitled Risk Factors in our most recent report on Form 10-Q 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 or 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 third-quarter 2013 earnings press release.

And with that, Let me turn the call over to Chris.

Thanks Greg. Good afternoon and welcome to everyone on the call today. We posted another strong quarter in Q3 with results above our guidance on both the top and bottom line. Our revenue grew 30% year-over-year in the quarter and the results marked our 18 straight quarter of sequential revenue growth as well. We also became the first independent provider in our industry to achieve $5 billion of annualized ad spend managed worldwide by our customers through our platform.

As the revenue acquisition management, or RAM, market continues to grow and evolve, advertisers and agencies alike are turning to our industry-leading platform. Digital marketers across the globe are tasked with managing their spend across an increasingly fragmented and complex environment. The power of our flexible closed-loop platform is driving financial performance, time savings, and better business insights for meeting advertisers across a variety of industries and geographies. Our platform's ability to enable marketers to measure, manage and optimize their digital advertising spend across a growing menu of channels, devices, publishers, and ad units is one of the many reasons that set us apart from our competition.

Mobile advertising spend continues to increase in importance for us, now accounting for a mid-20s percentage of overall ad spend through our platform, up from the low 20s% during Q2. During the third quarter, Marin debuted additional enhanced campaign functionality to enable our customers to better leverage this new functionality from Google, including device level reporting at the keyword level and mobile bid boost adjustment at the keyword level.

Our customers continue to use the Marin platform to maximize the benefit of the new enhanced campaign functionality. The mobile opt-in rate for Marin advertisers on Google is approximately 70%, meaning that roughly 70% of Google campaigns managed on Marin have some mobile spending enabled. To date, the impact of enhanced campaigns on overall ad spending on our platform has been neutral, but we anticipate that, as this functionality is leveraged more in coming quarters, overall advertising spending on mobile devices will continue to grow rapidly.

Overall, we served 610 active advertisers across the globe during the third quarter. This is up from 584 in Q2 of this year and 502 in Q3 of last year.

On the new customer front, we won business across a variety of verticals and geographies. We signed significant direct deals with Home Depot, the world's fifth-largest retailer, and REI, the adventure retailer with more than 5 million active members. We also worked closely with our global agency partners and landed trusted outdoor brand L.L. Bean with more than $1.5 billion in annual sales globally, and Sky, the UK and Ireland's leading home entertainment cable company.

Here are a few other new customer stories that I'd like to highlight. Ameriprise Financial, founded in 1894 with over $700 billion in assets under management and administration, selected the Marin platform in Q3. The Ameriprise team selected Marin software for our streamlined workflow and bidding optimization features, which enabled Ameriprise to increase ROI through Marin's proven bidding intelligence. Marin's ability to better track inversions as well as our easy data integrations were also key factors in their decision. Ameriprise is consolidating management and reporting of both their search and their Facebook advertising campaigns within the Marin platform.

Lonely Planet is the largest travel guidebook publisher in the world. The Lonely Planet brand includes award-winning websites, a range of mobile and digital travel products, and a dedicated traveler community who have purchased over 100 million books in nine languages. Lonely Planet has ambitious plans to expand their reach globally in the travel sector and environmental TV programming. Lonely Planet chose Marin due to our vertical expertise in travel and commitment to customer success. Having many affiliate channels, they were also attracted Marin's Channel Connect, a new offering I will discuss in a moment, along with our open technology stack.

Hotwire, a leading discount travel site, was looking to improve the efficiency of their digital advertising efforts as they continued to scale. The Marin bidding algorithm will help Hotwire optimize for both high and low volume keywords by taking seasonality into account. In addition, the Marin platform will enable Hotwire to easily test and then scale geo-targets for dayparts for further optimization.

Marin's Channel Connect also played a key role in the decision. Now Hotwire can more easily connect the key data partners and accurately manage it scale, both online and off-line data, to better manage their business.

To reinforce our leadership position, we recently announced several initiatives on the product front. Marin Connect is a core component of our open platform strategy and the data on-ramp layer that enables our customers to easily incorporate their own sources of data, such as revenue and product inventory, into the Marin platform.

Channel Connect is a new module at Marin Connect that allows digital marketers to gain visibility into their programs across a broad spectrum of marketing channels and nontraditional publisher networks. The automated synchronization provides marketers such as Lonely Planet and Hotwire a single source from which to measure performance, track revenue and optimize bidding.

Marin is the only platform able to provide bid recommendations for all integrated channels. Channel Connect not only allows our customers to expand their advertising initiatives across new media channels, but also provides Marin with a scalable way to build out a rapidly growing ecosystem. Current partners in Marin's Channel Connect offering at this time include AdLux, adMarketplace, AOL, BrightEdge, Conductor and Sendori, the owner of Ask.com.

We also expanded the functionality of the Marin Campaign Wizard to better serve advertisers working with Facebook, enabling them to create thousands of ads and target audience combinations in minutes with a variety of bidding options.

More recently, we launched Marin Labs, a multidisciplinary team of search, display, social, and mobile experts focused on developing and delivering innovative solutions to complex digital marketing problems. We opened the Marin platform to this team, creating a new sandbox development environment that leverages the full suite of Marin's capabilities without compromising scale or performance.

By providing a collaborative environment and open platform for our customers and partners to build solutions for their most pressing issues, the Marin Labs team is driving innovation at an even more rapid pace and functioning as a fast prototyping group that complements our iterative development process. As part of this effort, Marin is now fielding interdisciplinary teams to partner with customers to maximize the value they derive from the use of the Marin platform, and to enable them to achieve their digital marketing goals beyond just search.

One of the first initiatives to come out of Marin Labs is a unique technology called PositionLock, an innovation to help digital marketers maintain ad listing positions. PositionLock complements revenue or profit maximizing bidding strategies by keeping critical high-volume turns in target positions despite constantly changing in highly competitive advertising options.

Unlike alternative approaches that struggle with sample bias and latency, PositionLock provides a publisher compliant low latency closed-loop approach to position management. As a result, our platform allows advertisers to sense shifts in ad position and to automatically adjust keyword bids throughout the day, thereby providing advertisers a competitive advantage in maintaining their paid search ad position. Early adopters of PositionLock include customers in the retail and financial services verticals.

Another unique solution coming from Marin Labs is intra-day creative rotation targeted at optimizing Facebook campaign performance. Facebook ad campaigns can experience significant performance fluctuations throughout the day due to ad fatigue along with competitive factors. Intra-day creative rotation allows marketers to monitor real-time performance of images, headlines, and landing pages and automatically cycle through ads based on their results. We look forward to continuing to work with our customers and partners on these cutting-edge problems to further the pace of innovation and extend our leadership position.

In order to help guide the company forward, we added to our board in early October by welcoming both James Barrese and Allan Leinwand. James has more than 25 years of experience spanning the military, academic, and business worlds. He is currently the CTO of PayPal, having previously spent time as VP of Technology at eBay, also at Andersen Consulting and in other roles.

Allan is the VP and CTO of Cloud Platform and Infrastructure at ServiceNow. Allan is also a 25-year veteran of the technology industry, most recently as the CTO of Infrastructure at Zynga, one of Facebook's largest partners. Prior to that, Allan held senior roles at Vyatta, Proficient Networks, and Cisco. With deep knowledge of eCommerce and cloud infrastructure, I look forward to their contributions as we continue to scale Marin to meet the needs of digital advertisers worldwide.

So, in summary, we were pleased to deliver strong results once again on both the top and bottom line. We continued to extend our leadership position in the revenue acquisition management space, helping advertisers worldwide optimize their digital marketing programs and deliver superior business results. We remain optimistic about the significant opportunity in front of us.

Let me turn the call over now to John to discuss the financials in more detail.

Thanks Chris. As Chris mentioned a moment ago, revenue for the quarter came in at $20.1 million, up 10% sequentially and 30% year-over-year. We saw broad strength across both our direct an agency clients with the revenue mix this quarter coming in at 52% and 48% respectively.

Our international investments continued to pay off with the percentage of revenue coming from outside the United States right into 33% in the quarter, up from 26% in the year-ago period.

We served 610 active advertisers in Q3, up 26 sequentially from the second quarter, with our gross advertisers additions healthy and consistent with the second quarter. The increase in this metric was also aided by a small number of advertisers moving above the $2000 revenue threshold inherent in our active advertiser definition. As we discussed in the past, there will always be a certain amount of variability from quarter to quarter caused by advertisers that are still active but moving above and below the $2000 mark. As a result, the long-term trend in this metric is a better indicator of the growth of our business and customer base.

In the quarter, we saw continued progress in the extending contract lengths with new contracts now averaging more than 12 months in duration, further proof that customers continue to value the business benefits they are receiving from the use of our platform.

Our revenue retention metric improved slightly in the third quarter and remained in the high 90s%. As a reminder, revenue retention tracks revenue from all advertisers in the corresponding prior-year period that remained advertisers in the current period, and includes growth in spend from retained advertisers net of churn.

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 third quarter of 2013 excludes a total of $1.4 million in stock-based compensation, $53,000 of non-cash expenses from the issuance of warrants, and $303,000 of amortization of capitalized research and development costs while adding back $1 million of capitalized R&D costs. A detailed reconciliation of our GAAP results to the non-GAAP results can be found in our earnings release.

We showed continued progress with our non-GAAP gross margins in the quarter improving to 63% versus 61% in Q2, and 60% in the year-ago period. We will continue to invest in infrastructure and international expansion as well as our global services organization, but we are starting to see some of the leverage we had anticipated on earlier investments. We continue to target non-GAAP gross margins in the 70% to 72% range longer-term and plan to make annual progress towards those goals.

Non-GAAP sales and marketing expenses were $9.9 million for Q3, up from $8.5 million in the year-ago period. Spending on this line item was down slightly on a sequential basis. As we mentioned on the last call, we had a pause in some hiring and expenditures ahead of our new CMO Matt Ackley's arrival. While this has picked up, we are still a little behind where we would like to be hiring-wise. We will address this issue throughout the course of Q4, and you should see the full expense impact from the new additions in expenditures in the quarters to come.

Non-GAAP research and development expenses came in at $5.7 million in the quarter compared to $3.9 million in Q3 of last year. As we have discussed in the past, we plan to continue to invest aggressively in R&D going forward to further extend the capabilities of our platform.

Non-GAAP G&A expenses were $4.2 million for Q3 compared to $2.8 million for the year-ago period, the year-over-year cost increase being driven by public company costs and our continued global expansion. Our non-GAAP operating performance was above our guidance with a loss of $7.2 million in the period compared to a loss of $5.9 million last year. The results here were due to the revenue and gross margin upside along with hiring delays I discussed a moment ago. As mentioned on our previous call, we will continue to invest in growth as we seek to capture a larger share of this vast market.

Non-GAAP net loss for the quarter was $7.4 million compared to $6.1 million in Q2 of last year. Based on a weighted average share count of 32.5 million, this produced a non-GAAP net loss per share of $0.23. This compares to a loss of $0.28 in Q3 of last year, though it was based on a weighted average share count of 21.7 million.

Our adjusted EBITDA for the quarter was a loss of $5.9 million compared to $5.2 million in the year-ago period. We ended the quarter with $111.7 million in cash and cash equivalents, down from $120.6 million at the end of the previous quarter.

Our deferred revenue balance at the end of the quarter was $2.9 million compared to $3.8 million at the end of the second quarter. While the majority of our customers still pay us one month in arrears based upon their spend on our platform, as we pointed out last quarter, the Q2 results included a very large prepayment from one customer. Going forward, this figure will be volatile on a quarterly basis and not indicative of the overall health of our business in any given period.

Now let me turn to our updated guidance for the balance of the year. For the quarter ending December 31, we expect revenues to range from $21 million to $21.4 million and non-GAAP loss from operations should range from a loss of $7.4 million to a loss of $7 million. This should lead to a non-GAAP net loss per share in the range of $0.24 to $0.22 based upon a weighted average share count of 33 million.

For the 2013 calendar year, we now expect revenues to range from $76.5 million to $76.9 million and non-GAAP loss from operations should range from a loss of $31.6 million to a loss of $31.2 million. This should lead to a non-GAAP net loss per share in the range of $1.08 to $1.06 based upon a weighted average share count of 30.6 million.

So, in summary, we were pleased with our results in the third quarter. We are putting the right pieces in place to capitalize on this large and growing market. As the digital marketing space grows ever more complicated, we will continue to push our market-leading product portfolio forward in an effort to better serve advertisers and agencies around the world.

With that, I'd like to thank you all for your time and I'll turn it over to the operator to open it up for questions.

(Operator Instructions). Greg Dunham, Goldman Sachs.

Yes, thanks for taking my question. First off, digging into the sequential growth, 10%, this was the strongest sequential growth quarter you've had since becoming public at a pretty healthy level. You had mentioned that enhanced campaigns year-to-date hasn't had an impact. Did it have an impact here in the 3Q at all?

It's Chris here again. Enhanced campaigns to date has been neutral for us. We are fully supporting its functionality, as we talked in the script, down to the keyword in the device level so that advertisers can tune those bids. We expect to see a positive effect of enhanced campaigns playing out in the coming quarters, but today it's really been neutral on spend.

Okay. And then the follow-up, you had mentioned that 70% of campaigns have attached mobiles. Can you talk about the importance of that and what that means to the business longer-term?

Sure. So, longer-term, it's fundamentally a very nice positive in that we all as consumers are spending more time on our mobile devices. By that we mean smartphones and tablets. And for advertisers to reach those consumers and to have those ads perform at the highest level, they want to craft an ad that's appropriate for that device and then an appropriate bid. And so over time we see this raising the level of advertising spend in the industry and also by taking advantage of this enhanced campaigns or targeting additional functionality for mobile, advertisers can drive better performance out of mobile.

The reality is although we are talking about mobile quite a bit now and we talked about that total spend on the platform as in the mid-20s% in terms of that tied out to mobile, many advertisers are not yet leveraging mobile functionality. And by that, they are not creating a separate ad for a mobile device and an appropriate separate bid for that mobile ad.

Okay. And then the last question for me, you had mentioned the Ameriprise example of them leveraging you guys for Facebook, I know that even emphasizing here your abilities on Facebook. Where are we in that regard, and can you talk about pricing there? Thanks.

Sure. Let me address Facebook at a high level. It continues to be less than 10% of our overall revenue, although it is growing nicely quarter-over-quarter in terms of the traction that we are seeing, both with our existing customers who are beginning to attach Facebook to their marketing programs, and then new customers who are coming in also using our Facebook functionality.

In terms of pricing on Facebook, we generally haven't spoken to that, but if you look out across the industry, generally the percent of media charge for a Facebook ad management technology is higher than what we have shared historically as our take rate, which is our media on the platform, revenues over media on the platform. So in general, the Facebook technology commands a higher rate than the search management technology.

Great. Thanks guys.

Nandan Amladi, Deutsche Bank.

Good afternoon. Thanks for taking my question. I just wanted to ask about your Marin Labs initiative. Is there a separate business model for that? In other words, partners who are participating with you to develop new modules? Is the business model any different or is this entirely funded through your own R&D?

Good to talk to you. It's Chris here. Marin Labs is really leveraging both our own capabilities, so the in-house experts that we have, but then emphasizing the open nature of the Marin platform to integrate data sources or other partners that are obviously driving innovation or data sets that are not from Marin. There isn't a separate business model here. In general, we are offering Marin Labs as part of our form offering. In the future, one could see us productizing different offerings in Marin Labs and offering those up as separate value-added modules, but for now it's part of the same business model.

Okay. Then a quick follow-up, if I might, for John. You said your hiring was a little slower than you had expected. Should we assume that you get caught up in the fourth quarter, or does some of that hiring continue into next year? And how should we think about the marketing and R&D profile spend profile next year?

Yes, let me dissect that a bit. In terms of next year, we are not providing guidance or any indicators on that right now. We'll come back to you on the year-end call and give you a full year and Q1 guidance on that.

We were a little bit slow in terms of the hiring and the spend in the third quarter in the sales and marketing line around the marketing. Again, as I said in the script, Matt Ackley recently joined, so we've been working to ramp there. We fully expect to be -- continued hiring in the fourth quarter and picking up that spend, so the sales and marketing, I would expect it to tick up.

Okay, thank you.

Brent Thill, UBS.

Good morning. Chris, you mentioned an impressive list of household names that you mentioned as new clients. I'm just curious if you are seeing any change in their behaviors coming into the platform relative to maybe what you saw a year ago with some of these new customer signings in terms of their minimum commitment. And I have one quick follow-up.

Sure, Brent. So, in general, we are seeing the same behavior. We call these generally strategic accounts. These are large global advertisers. They are realizing ever more the importance of having a good technology platform to better measure, manage, and optimize their advertising to drive these better revenue or customer acquisition outcomes. I can't say that we are seeing different behavior there. As John alluded to in the script, we are generally seeing longer contract lengths as a trend, so that might be something that I'd flag, but otherwise these large advertisers are continuing to look for technology platforms and we are pleased that we are winning our fair share of those opportunities.

Okay. As it relates to your fourth-quarter guidance, I think maybe some of us had thought you would see a bigger seasonal uptick, given what's going on in the broader online space, especially in retail as they are getting ready for the holidays. Can you just comment through the seasonality this year versus what you saw last year, and maybe just compare and contrast what you see as you head into the fourth quarter?

I don't know if I have much color for you on that. Again, we were pleased with the third quarter with respect to the fourth-quarter guidance. It's fairly consistent with what we had anticipated when we gave the guidance in the third quarter, so we feel good about it, the revenue level at these levels right now. As you know, for retailing, a lot of it comes in that November timeframe, so some of it -- or a lot of it is yet to come. But we feel good about the guidance that we've got right now.

Okay, so no anomalies this year for anything that we should consider that's any different than what you saw last year.

No. No.

Okay, thank you.

Tom Roderick, Stifel.

Sure. It's Gur Talpaz on for Tom. So, first question, international was very strong here. Perhaps you could give an update on some of your initiatives internationally and what's happened there to drive that strength.

Sure. It's Chris here. So, again, we continue to lead in Europe. We've got a strong presence in London. We also have our office in Paris and then in Hamburg, and we are seeing good uptick in the platform in Europe. Then as we talked about in a prior call, we have our office in Tokyo that has delivered a good amount of business. We continue to see Japan as a growth market for us. Continuing to do well in Sydney, Australia, and gaining share there. And those are really the drivers of the overseas growth for us, and we continue to see a large opportunity outside the United States.

Great, thank you. Then it was nice to see you guys cross the other $5 billion mark in AUM. You talked about historically sort of AUM kind of seeing a bit of a bigger boost in Q4 due to seasonality. Is that still a fair assumption here in 2013, and should we think about that in that context?

I guess I would say the spend on the platform is not something we're going to guide to. We talked about giving the actual number annually and then throughout the year if there are certain thresholds that we cross, talking about those at that point. So I guess I'd rather come back to you and give you the actual number at the end of the year.

Sure thing. Fair enough. Thank you very much.

Jason Maynard, Wells Fargo.

Good afternoon. I just wanted to circle back on the social platforms and get a little bit more of your take on what will accelerate, or when do you see that starting to become more meaningful.

And then the second question on that is how do you see Twitter fitting into this? And are we at the point yet where mainstream advertisers are thinking about this, starting to look at this as part of their strategies, or are we still primarily in the experimental phase? Thanks.

It's Chris here. The way I would think about social, and first we will talk about Facebook, is in general we are seeing many search advertisers where social is about 10% of their budget at this point. There are certainly companies that are endemic to Facebook where Facebook advertising is a larger share of their budget. But our advertisers are in general experimenting with social and then beginning to make it a modest portion of their overall media mix.

Twitter, which is in its early days and obviously will become public later this week, is a very topical publisher, but the actual dollars that our advertisers are putting into that channel are what I would call at this point largely experimental. But I do think, over time, much as in the past when Google was new, these publishers will mature and become part of the overall media mix. Clearly, all of the audiences are spending more time in social channels and the ad dollars will flow there to reach those audiences. And Marin will be there to support advertisers as they seek to use these new publishers to reach their prospects.

Okay. And then just one -- I wanted to follow up on the hiring questions that you've have. Q4 generally is not the best time to hire the best reps. And if we think about OpEx and you've given guidance on it for this quarter, for 2014, should we sort of consider here a rolling over what sort had been underspent this year into next year, or do you think it's a little bit more static in terms of how you're thinking about your hiring plans? I guess some more color in terms of this, because this is kind of one of those -- this is the time that most companies are doing their next year planning, and as you kind of think about ramping your distribution efforts, it would be interesting to get at least philosophically how you guys are contemplating this issue.

I guess I'll give you a couple different things to think about there. One, I'm not providing guidance into next year, but let me give you a little more color into this year. My comment for Q3 was with respect more to the marketing versus the sales organization. And I thought we were behind a bit on the marketing hiring and some of the marketing spend, so that's what I was commenting toward with respect to into the fourth quarter on that. We do continue to higher across all lines. We are actively hiring in engineering sales as well. So, I would expect that to continue in the fourth quarter and into next year, but my comments are really more towards the marketing spend versus the others.

Okay. Thank you.

Thank you. We have no further questions at this time. I'd like to turn the floor back over to Mr. Lien for any closing remarks.

Okay. I Would like to thank everyone for listening to today's third-quarter results, and we look forward to seeing you at upcoming conferences. Thank you again for your time today.

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