Marin Software Inc (MRIN) 2014 Q4 法說會逐字稿

Greetings and welcome to the Marin Software fourth quarter 2014 earnings financial results conference call.

(Operator Instructions)

As a reminder this conference is being recorded. I would now like to turn the conference to our host Mr. Greg Kleiner, Investor Relations at Marin Software. Please begin.

Thank you. Good afternoon everyone and welcome to Marin Software's fourth quarter 2014 and year-end earnings conference call. Joining me today are David Yovanno, Marin's Chief Executive Officer; 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 one hour ago. If you need a copy of the 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'd 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 Securities Exchange Act of 1934. These forward-looking statements include statements about our business, outlook and strategy, statements about historical results that may suggest trends for our business. We make these statements as of February 5, 2015, 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.

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 fourth quarter 2014 earnings press release. With that, let me turn the call over to Dave.

Thank you. Good afternoon and welcome to everyone on the call today. We made several significant enhancements to the business over the course of 2014, from executive leadership to sales management to our first acquisition, to the realignment of our go-to-market model to better support our platform vision across search, display, and social.

These changes are now largely complete. Now, with the acquisition of SocialMoov that we announced today we're taking another significant step towards realizing our goals in the Ad Cloud market. I'll talk more about what SocialMoov means to the future of Marin in a moment.

But let me start with update on the business. As John will describe in his remarks, our Q4 results came in above our guidance on both the top and bottom line. Strong seasonal spending on our platform helped to offset the continued headwinds from foreign exchange movements.

I'm also pleased to report that our customers around the world use our platform to manage $7.2 billion of annualized ad spend as of year end 2014, up 20% from the $6 billion figure we reported at the end of 2013.

The size and scope of this spend reinforces our position as the leading independent Ad Cloud vendor world-wide. In the fourth quarter we served 818 active advertisers up 22% year-over-year. However, this was down slightly on a sequential basis.

We recently established service tiers focused on dedicating more support to larger, more profitable customers as part of a conscious strategy to improve the efficiency of our sales and customer success efforts. As a result, we allowed some smaller customers to churn off the platform as we refocused our time and attention on larger customers.

This was just one of the actions we took over the course of Q4, as we continue to make improvements on our go-to-market model focused on both improving productivity and training our teams to better execute on our broader messaging.

Beyond an increase focus on larger customers, we also moved responsibility for cross-selling to our sales teams and away from the customer success team. As well as selling to new brands within our existing agency clients. We believe that the continual involvement of sales will allow us to address this portion of our business more effectively.

In addition, with the completion of sales kick-off event in early January we have now completed the realignment and training of our global sales team. The event was a big success and the team now begins the year fully focused on our multi product platform and tighter execution on our pipeline.

We are assuming that it will still take a few quarters for the team to fully hit their stride and translate new bookings into revenue, but the adjustments to our sales force are now largely behind us. To help accelerate our ambitions and further advance our position in the Ad Cloud market, today we announced the signing of acquisition of SocialMoov, a prominent social media platform serving agencies and brands world wide.

Based in Paris, SocialMoov is one of the leading independent companies focused on helping advertisers and agencies measure, manage and optimize their social spending. We expect the acquisition to close later this month and once complete, the transaction will allow us to advance our social functionality significantly, and create one of the industries most comprehensive social advertising solutions.

SocialMoov currently supports Facebook and Twitter as well as all of their ad units. In fact SocialMoov also plans to debut support for LinkedIn in the coming months. As we completed our due diligence, SocialMoov consistently received high marks for both innovation and a commitment to customer success.

With the acquisition of SocialMoov we have assembled the critical components of our platform vision. Our Perfect Audience acquisition from last June, gave us a demand side platform or DSP with biddable display and retargeting capabilities.

Once completed, we believe the SocialMoov purchase will give us best in class social capabilities. This is all in addition to our leadership position in Search which provides unique purchase and other intent data flowing from that business.

When combined and managed in a single interface through our Audience marketing suite, our Ad Cloud offering provides an unmatched value for advertisers and their agencies. We are now the only independent vendor to provide this breadth and depth of functionality and to do so in an open, transparent manner.

We anticipate that the power of our broad platform will help fuel both our ability to attract new brands and provide a significant add on opportunity into our install base. We also have line of sight to getting the non-Search component of our revenue above 10% on a quarterly basis this year.

Overall we believe Marin is uniquely positioned to benefit from the larger industry trends in play right now. That is digital advertisers shifting their spend from managed services to open platforms, point solutions being replaced by integrated Cloud offerings, ad supply becoming programmatic, and access to unique data being the most critical differentiator.

We saw continued signs of our expanded product vision taking hold in the fourth quarter, as more and more customers are realizing the benefits of combining search, display, and social functionality in a single platform. One example was a recent win with Redfin, a high growth, technology powered, real state brokerage.

Redfin took a tiered approach to onboarding the Marin advertising Cloud, starting with search and social and then most recently adding Marin display. Having struggled in the past when it came to connecting the dots between their online advertising initiatives and the sales process, Marin provides Redfin a turnkey solution to optimizing their search, social and display campaigns against CRM data, such as leads, sales and lifetime value metrics.

With this new capability, Redfin is now empowered to make more informed decisions about their advertising buys and automate optimization across a coordinated set of campaigns. Given their unique real estate business model Redfin also has highly customized bidding and optimization requirements, specifically dependent on geography.

With Marin, Redfin gains increased visibility and control over their digital advertising campaigns. Ultimately improving their ability to capitalize and respond to changes within the real estate industry. Another compelling example was SeatGeek a search engine for finding tickets to live events.

SeatGeek originally came to us for our display retargeting solutions, after finding publisher tools too limiting for what they were trying to accomplish. After examining the value of our broader solution set, SeatGeek selected Marin's platform to manage and optimize their paid search campaigns as well. They were also able to utilize shared user and campaign data across both our display retargeting and search efforts.

Leveraging Marin SeatGeek boosted ad conversions almost immediately by 20% and doubled their click-to-rate with dynamic Facebook retargeting. With Marin's single tracking pixel, SeatGeek was able to streamline their tagging structure enabling their team to become more efficient and retarget at a more granular level.

Likewise the significant time savings SeatGeek experienced using Marin's automated fitting algorithm allowed them to focus more on strategic projects, such as testing ads to identify top performing creatives. In the first month after deploying Marin, SeatGeek experienced a140% increase in traffic month over month.

Another brand that signed with Marin in Q4 is Hootsuite a leading social media management system. In evaluating platforms, Hootsuite sought a solution that allowed a degree of customization and control as the company looked to expand its marketing internationally. Using our dimensions functionality Hootsuite is able to create custom reports based on their unique business goals.

Using Marin's proven analytics to action reporting, Hootsuite is now able to make changes directly from their reports. The flexibility of our platform, paired with the visibility Marin provides into campaign performance, played a vital role in Hootsuite selecting Marin in an effort to reduce time spent on campaign management. Hootsuite credits Marin with enabling them to invest more time on new opportunities and to grow their business.

In Q4 we also continued to expand the functionality of our products by launching several enhancements across publishers and channels. Across Google, Yahoo, Bing, and Facebook we launched a number of new advancements designed to further optimize reporting, work flow, and campaign automation along with specific functionality to better understand performance across devices and support location-based targeting.

To better support our multi-channel vision, we released the ability to budget and forecast on a monthly basis at the client account level across search, social and display. We also greatly enhanced our ability to identify and target users across devices and platforms, allowing marketers to create an audience once then push ads through the appropriate medium.

This capability has become especially important as we saw advertisers spend nearly 50% of their search budget on mobile devices during this past quarter. In summary, I'm very proud of the hard work the Marin team has put in over the course of the year. The opportunity to help digital advertisers around the world manage their search, display, and social spend on one platform is significant.

We are proud to be leading the charge in the evolution of the Ad Cloud market with our open, independent SaaS platform. We enter the new year fully focused and aligned around this vision and look forward to the road ahead. With that let me turn the call over to John to discuss the financials in more detail.

Thanks, Dave, and good afternoon, everyone. Revenue for the fourth quarter came in at $27 million up 24% year-over-year and 5%, sequentially. This was above our guidance of $25.8 million to $26.2 million and was despite a foreign exchange impact of nearly $0.5 million relative to when we gave guidance in early November.

We have been impacted by the recent FX declines as our geographic revenue mix for the quarter was 33% international and 67% domestic, while the full year was 34% and 66%, respectively. Consistent with prior quarters we saw a balanced performance from both our direct and agency customers with the mix this quarter coming in at 51% from our direct clients and 49% from our agency clients, respectively.

The results for the full-year showed a similar mix. As Dave mentioned we served 818 active advertisers in Q4 up 145 or 22% year-over-year, although down 7 sequentially from Q3's count. We did see increase in active advertiser churn this quarter as part of a conscious decision to focus our support efforts on larger customers.

A majority of advertisers that fell out of the county contributed less than $5,000 per month. This metric was also helped by a small number of advertisers moving above the $2,000 revenue threshold inherent in our active advertiser metric definition during the quarter.

In the quarter, the average length of all active enterprise contracts was [15] months, compared to just below 15 months at the end of Q3. For 2014 our revenue retention metric came in at 97%, similar to the results in 2013.

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 and spend from retained advertisers net of churn. On an annual basis this metric is the average of the four calendar quarters.

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. A detailed reconciliation of our GAAP results to the non-GAAP results can be found in our earnings release.

Gross margins in Q4 increased once again to 69% up from 68% in Q3 and 66% in the year ago period. For 2014 as a whole, our gross margin was 67% up nearly 500 basis points from 2013. This increase was reflective of the continued leverage in the business along with recent actions aimed at improving the efficiency of the support organization.

While we do not plan to provide quarterly gross margin guidance, we do expect another 100 to 200 basis points of improvement for the full year of 2015. Although we do anticipate a sequential decline in the first quarter given the seasonally lower revenue and higher payroll taxes.

Sales and marketing expenses were $10.9 million for Q4 compared to $11.4 million in Q4 of last year driven by efficiency gains and lower variable compensation. Research and development expenses were $7.5 million in Q4 compared to $6 million in Q4 of last year. This increased spending was driven by our ongoing efforts to expand the functionality and the breadth of our platforms to deliver on our Ad Cloud vision.

G&A expenses were $4.8 million for the quarter compared to $3.9 million for the year ago period. Operating losses came in at $4.6 million for the quarter compared to a loss of $6.9 million of Q4 of last year. Significantly improved from our guidance of a loss of $7 million to $6.6 million. This was due to higher revenue and gross margins along with continued cost optimization efforts across all lines.

Operating margins in the period improved by nearly 1,500 basis points compared to the fourth quarter of last year as we continued to make progress towards break-even. Net loss for the fourth quarter was $5.3 million, compared to a loss of $7 million in Q4 of last year.

Based upon a weighted average share count of 35.1 million this produced a net loss per share of $0.15, exceeding our guidance of a loss of $0.21 to $0.19. This compares to a net loss per share of $0.21 in the fourth quarter of last year based upon a weighted average share count of 32.8 million.

Adjusted EBITDA was a loss of $3.1 million in the quarter, compared to a loss of $5.6 million in Q4 of last year, as we continue to make progress towards our break-even targets. On the balance sheet we ended the year with $68.3 million in cash and cash equivalents compared to $75.8 million at the end of Q3.

Before moving on to guidance let me discuss the financial impact of SocialMoov for a moment. The deal is expected to close by mid-February. Total consideration for the deal is $18.75 million consisting of $8 million in cash, and $10.75 million in stock. In addition, up to $2 million in retention equity be will also be issued.

We currently expect SocialMoov to have an immaterial impact on our non-GAAP operating income for the full year 2015. In addition, we are expecting the acquisition to add a few million dollars to revenue in 2015 as a whole, which is included in the guidance I'll provide in a moment.

As you contemplate our guidance please consider a few important items. Our Q4 performance was driven largely by existing customers, as Dave discussed.

As we come into a new year, we normally expect our first quarter revenue to be flat to down based on the combination of seasonal spending patterns and new business activity in the second half of the prior year. This year we are faced with a few headwinds.

First, as foreign exchange rates continue to deteriorate, we currently expect an additional $400,000 impact in the first quarter on a sequential basis. To put the impact of foreign exchange into further context, the year-to-year changes in exchange rates are expected to cost us more than 4 points of growth in the first quarter and nearly 4 points of growth for 2015 as a whole.

Secondly, as we are completing the realignment and training of the sales force these actions impacted the near-term levels of new business activity. This was expected but will have an impact on our revenue in the first half of the year until they hit their stride and activity returns to normal levels.

Third, I would remind you that in Q1 of last year we saw an exceptionally strong performance from advertisers in our travel vertical and we expect their spend to be normalized in Q1 of this year. With these considerations in mind we are initiating guidance as follows.

For the full-year 2015, we expect revenues to range from $114 million to $116 million and non-GAAP loss from operations to range from a loss of $21 million to a loss of $19 million. This should lead to a non-GAAP net loss per share in the range of $0.60 to $0.55, based upon a weighted average share count of 37.3 million.

Finally, consistent with our previously stated goal I would like to reiterate that we anticipate reach adjusted EBITDA break-even in the fourth quarter of 2015. For the quarter ending March 31, we expect revenues to range from $25.5 million to $26 million, and non-GAAP loss from operations to range from a loss of $7 million to a loss of $6.5 million. This should lead to a non-GAAP net loss per share in the range of $0.21 to $0.19 based upon a weighted average share count of 36.1 million.

As Dave indicated we are pleased to report Q4 results above our guidance on both the top and bottom line. In addition we're excited to have completed the enhancements to our go-to-market model and our second acquisition.

We enter the new year focused and ready to capitalize on the emerging Ad Cloud market with what we believe is a unique value proposition for advertisers around the world. 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.

(Operator Instructions)

Greg Dunham, Goldman-Sachs.

Hi, thanks for taking my question. I guess first off, on the sales [realignment] and the focus on broadening out the capabilities beyond search, you mentioned six months. What gives you the confidence that six months is a time when these people are going to be fully ramped?

And what are the signs you've seen thus far because this is something that you've talked about now for a couple of quarters. I know it's really just been implemented, but maybe some of the lessons learned and some of the data points there, first.

Sure. This is Dave. We just completed our sales kick-off event in early January. That was essentially a climax for a lot of the training and realignment that was happening in the second half of last year. At that event we held a lot [bake offs], demo sessions and what not. We're already starting to see the pipeline buildup.

So when we talk about a couple of quarters for it to play out in the pipeline, that's what we're anticipating the length of the sales cycles for opportunities to be created and closed and start to translate to revenue. And we've already started to see essentially traction towards that end.

Okay. And then one other for me. The advertiser metric was obviously down in the quarter. We typically would expect this to be up given the seasonality of the spend. Anything to point to that would cause that number to be as weak as it was?

Yes, hey, Greg, it's John. It's just in the prepared comments we talked about the fact that some of the smaller advertisers, there was a conscious decision to let those churn off the platform.

As we've been pushing for productivity increases, efficiencies within the customer success organization, we have rationalized service levels for clients. And some of the smaller advertisers, some of this was just a conscious effort to let them churn away versus in prior periods we might have done more to make a save there.

Makes sense. Thanks.

You see that reflective in the [lean] increasing risk margin as well. So that is an indicator to progress there.

Brent Thill, UBS.

Hi, this is [Jung Kim] in for Brent Thill. If you could talk a little bit more on the SocialMoov acquisition. What features does it add that Marin didn't already have on the social side? And maybe a little bit around the reorganization, anything on the head count of what run rate they were in and maybe geographic presence? Thank you.

Yes, so thanks for the question. We're excited about the acquisition of SocialMoov. It does compliment our existing social product really well. Gives us a few things we didn't have already. One is additional support for Twitter. They have plans to announce support for LinkedIn in a number of months as well.

They support all ad units for both Facebook and twitter now, including Facebook video. Really when you kind of raise it up a couple levels -- one other feature that I think is very innovative and interesting as well, is they've developed a unique capability to synchronize TV commercials in Europe with the social spends.

They can time the two together. There's a lot of interest especially from brand advertisers and that sort of capability. They've really demonstrated strong chops on the innovation front. Beyond that what we get in this partnership is really a dedicated focus, it's a best in class product. They've got strong position in the market. But it's a dedicated team to maintain that best in class position within the iCloud of Marin. And that is what we're excited about.

They have a very strong presence in Europe. They were at a crossing point looking to penetrate the US market. They either needed to raise money to do that or partner with a larger company like Marin. And we think it is an amazing fit considering our distribution within the US market especially and we think it's going to be a good thing for us.

Thank you.

(Operator Instructions)

Karen Russillo, Wells Fargo Securities.

Hi, thank you. John, I was just up first I was wondering if you could tell us what Perfect Audience contributed in Q4 to the total revenue?

Yes, Karen, it is John. We're not breaking out the contribution of Perfect Audience. We were pleased with the contributions. Have been pleased to date with how that product's ramping.

As Dave talked about in the script, the fact that between Perfect Audience and the acquisition of SocialMoov that we've got line of sight to that part of the business, cresting over 10% in the upcoming quarters.

Okay. And then I guess maybe another way. If we look at the guidance for next year and the FX being a negative 4 points hit, and then you have the contribution from SocialMoov and then Perfect Audience probably add you said a couple of million in revenue it would add.

So those would add maybe a couple points of growth. So if we're looking at taking the two pieces together, should it really be more of like a 2% hit is what we should see if we're thinking about organic revenue growth?

Karen, I'm not sure if I follow your math there. We talked about the guidance range being between 14 to 16 on that and the growth rates being 15% to 17% on the full year. And then we talked about the FX hit on the full year was 4%.

So roughly at a $4 million deduct on a year-over-year comparison. And then we did give a -- we said that SocialMoov would contribute a few million dollars onto year, which is contemplated into the guidance.

So it's almost an offset?

Almost an offset, sure.

Okay. Thank you very much.

There are no further questions at this time. So this will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.