Marin Software Inc (MRIN) 2016 Q4 法說會逐字稿

Greetings, and welcome to the Marin Software fourth-quarter 2016 financial results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Catriona Fallon, Chief Financial Officer for Marin Software. Thank you. Ms. Fallon, you may begin.

Thank you. Good afternoon, everyone, and welcome to Marin Software's fourth-quarter 2016 earnings conference call. My name is Catriona Fallon, Marin's Executive Vice President and Chief Financial Officer. And joining me today is Chris Lien, Marin's Chief Executive Officer.

By now, you should have received a copy of our earnings release, which crossed the wire a short time ago. If you need a copy of the release, please go to investors.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 would 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 February 28, 2017, 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-K 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 direct comparable GAAP financial measures is available on our fourth-quarter 2016 earnings press release. With that, let me turn the call over to Chris.

Thank you, Catriona. Good afternoon, everyone, and thank you for joining our call today. I will review the quarter and our full-year results, including an update on some of our recent wins, provide an update on our initiatives to return Marin to growth, including new product features that we've recently debuted, and the status of our new platform. Catriona will then provide additional detail on our quarterly and full-year results, and our outlook for the first quarter.

As you will recall, I returned to the CEO role at the end of August, along with my co-founder and EVP of Product and Technology, Wister Walcott. Our goal is to return Marin to growth and to maximize shareholder value. We intend to do this by focusing on meeting the needs of our customers, the world's leading advertisers and their agencies, as they seek to optimize the returns from their online advertising investment.

Working with our team members and partners, we've been busy over the past six months putting in place the foundation which we believe will return Marin to growth over the course of 2017. I will talk more about our initiatives to return to growth in a few moments. But first, let me comment on our financial performance in Q4 and for full-year 2016.

As we work towards this return to growth, we have to acknowledge that Marin will experience some difficult quarters as we address our challenges. As announced in today's earnings release, Q4 revenues came in at $23 million, and full-year revenues were $99.9 million, which were both above the high end of our guidance, but down from the prior year. While our current revenue performance has been disappointing, I'm pleased to report that we have operated with financial discipline, which enabled us to deliver break-even adjusted EBITDA for Q4, and $2.4 million of adjusted EBITDA for the full year -- which also was above the high end of our guidance.

Free cash flow in the quarter was close to breakeven, and this also was true for the full-year period. We ended the year with total cash of $35.7 million, which is down just $1.6 million from the ending amount in the prior year. Non-GAAP gross margin was 69% for the quarter and 70% for the full year. Despite our ongoing revenue challenges, the underlying operating leverage in the business, along with cost and efficiency initiatives, are enabling to us continue to invest meaningfully in Marin's future.

Before I discuss the initiatives to return to growth over the balance of 2017, I want to highlight some of our recent customer wins which provide evidence of green shoots as we invest for a brighter future. Over the past few months, Marin has signed up, renewed or expanded our commercial relationships with leading advertisers in the business services, entertainment, financial services, real estate, retail, technology, and travel verticals.

We believe each of these leading advertisers chose Marin for a combination of our ability to deliver market-leading performance, time savings and better business insights, supported by a global enterprise-class customer success footprint. These advertisers carefully evaluated their alternatives versus other providers in the market, and chose Marin for the future growth of their online advertising programs. We are pleased to count each of them as a Marin customer.

As I spend time with our customers, prospects, partners and team members, I'm reminded both of Marin's opportunities and our near-term challenges. Marketers seek to maximize the value of their online advertising investments, but they face an advertising world where the two leading publishers, Google and Facebook, account for some 75% of online traffic, and approximately 60% of all online advertising. These two publishers operate as wild gardens, leaving advertisers to figure out the growing complexity of their customer's path to purchase across multiple advertising and device touch points.

This dynamic gives Marin enduring competitive advantage, as the publisher tool sets will not address cross-publisher, cross-channel needs. And the lack of independence calls into question the measurement, budget allocation and optimization functionality that these closed platforms can provide. And even with this concentration in Google and Facebook, we still see the rise of new publishers, with the opportunity to reach new customers or to retain and engage existing ones. And large scale marketers cannot afford to miss out on the rest of the online audience, and need a partner that can deliver performance and efficiency at scale.

Our open, independent, cross-channel performance advertising platform enables leading brands to measure, manage, and optimize billions of dollars of online advertising investments across channels, devices and publishers. While leveraging their first-party data, as well as other data sets, to reach the best audiences for their products and services. We believe that our staff platform can drive financial lift, time savings and better business insights through greater transparency, efficiency and return on advertising spend.

With my return to Marin, and with the support of our team, we are operating with renewed urgency to deliver for our customers. Our initiatives to return Marin to growth focus on sales and marketing execution, account management and customer success delivery, and customer-facing product innovation. In the sales and marketing area, we have put in place leaders and team members who are better-able to deliver solutions to digital marketers. We have placed renewed emphasis on solution selling and meeting the business challenges of our customers, as opposed to feature-based selling that is more transitory and easily copied.

This also positions Marin to be a better partner for these advertisers and agencies as their digital marketing needs grow in scale and complexity. We also continue to develop our team that calls on agencies after our initial sales engagement, to farm these accounts, to add more clients, and to expand the use of Marin's platform by existing agency clients. And we are making greater investments in marketing, spot leadership and other lead-generation activities to highlight Marin to prospects. Our recent white paper called: The Multiplier Effect: Integrating Search and Social, is one example of this kind of activity.

In our customer success function, which is responsible for retention and growth, we have reorganized our service delivery teams to provide a single point of contact for our larger customers, including brands via agencies. We also have efforts underway to cross-train team members on search and social, to better-meet the needs of these accounts. We believe our efforts will enable Marin to address the emerging trend of coordinated marketing across search and social channels.

Even though we are still in the early days for marketers to coordinate their spending across channels, Marin is already delivering results for its customers. For a large automotive customer, Marin was able to enable their agency to use Search Intent to create custom audiences on Facebook, to re-target and to prospect, resulting in a 77% increase in overall cost per lead, and a 132% increase in monthly conversion.

Also in Europe, TUI Netherlands, via their agency, was able to use Marin to leverage Search Intent to remarket on Facebook, resulting in 53% of conversions via mobile news feed, with a 23% decrease in conversion costs. These are early examples of solutions Marin can deliver now to drive better performance for brands, harnessing the cross-channel power of search and social.

Marin is also focused on customer-facing product innovation. As I mentioned, Marin is already delivering the ability to harvest Search Intent to drive social advertising programs, resulting in measurable financial lift. And is debuting updates to our optimization functionality to further enhance Marin's ability to deliver performance, including faster big calculations, easier bid set-up due to advanced clustering technology, device-specific goals, and more advanced forecasting what if and budget allocation.

In social, Marin debuted our own proprietary global media plan functionality to support larger, more complex campaigns, better support for feed-driven ads, support for lead ads and the store visit objective, as well as budget allocation functionality across ad sets to drive improved performance. In making these investments, we're able to deliver automation at scale for social marketers.

We also continue to make good progress on our investment in our next-generation infrastructure, which uses distributed big data technologies and micro services. This investment, which has taken longer than we had originally estimated, provides Marin with a state-of-the-art architecture on which we can innovate for years to come. We look forward to delivering more customer-facing functionality built on this infrastructure. We are deploying the functionality using a hybrid approach, to enable more benefits to flow to our customers sooner. The bidding enhancement I highlighted earlier leveraged this investment.

Additionally, beginning this quarter, we will begin to invite certain customers to participate in what we are calling our Platform Beta program, so that they can use more of this new functionality, including improved data loading, application speed and scale handling. This infrastructure, which will run side by side with our existing platform and be seamlessly accessible by our customers, also will enable Marin to innovate more rapidly by leveraging the micro services architecture of our Platform Beta investment.

As brands are seeking to meet the consumer at every stage of the buyer's journey across channels, devices, and publishers in our always-on, always-connected world, we believe Marin is well-positioned as the preferred technology provider for this mission. We believe these forces play favorably into our business strategy, given our unique staff-based delivery model, with cross-channel API integration, into many of the world's largest online publishers, and our independent and transparent approach to digital advertising.

As excited as I am about these changes, our near-term outlook remains challenged, leading to a cautious view of Marin's business during this period, as we work to improve our execution in sales and marketing, account management, and product delivery. I expect Marin to return to growth over the course of 2017 as our various initiatives begin to deliver results.

I also want to take this opportunity to thank two members of our Board of Directors for their service, as they transition off of Marin's Board. Bruce Dunlevie, who is a General Partner with Benchmark Capital, and who led Marin's first institutional fundraising in 2008, left Marin's Board earlier this month to return to his focus on earlier-stage investing. Paul Auvil, who is the Chief Financial Officer of Proofpoint, will step down from Marin's Board at our April annual meeting, having served on our Board since 2009. I want to thank Bruce and Paul for their council and contributions to Marin over the years.

While we still have significant work to do in our efforts to return to growth, I believe that Marin has a tremendous opportunity, and that our best days lie ahead. And now Catriona will review our financial results and our outlook for the first quarter.

Thank you, Chris. For the fourth-quarter 2016, Marin exceeded the high end of guidance, with net revenues of approximately $23 million, down 5% sequentially, and down 21% year over year. Remember that Q4 of 2015 was our strongest revenue quarter in Marin history. However, the year-over-year decline was due to both reduced seasonality of customer spend and customer churn over the past 12 months.

Full-year 2016 net revenues totaled $99.9 million, a year-over-year decrease of 8% when compared to $108.5 million in 2015. From a geographic perspective, in both the fourth quarter and the full year, 69% of revenues were generated in the US, and 31% of revenues were generated internationally.

In terms of revenue mix, for the full year, 58% of revenue was generated through direct advertisers, and 42% was from advertisers contracting through agencies. This compares to 54% direct and 46% from agencies in 2015. In the fourth quarter, 60% of total revenue was from direct contracts with advertisers, and 40% of revenue was from advertisers contracting through agencies.

This shift in the mix towards direct contracts is due in part to our focus on strengthening our relationships with key advertisers and bringing them on to direct contracts. We continue to view agencies as an important channel, but also recognized greater competition in the segment, resulting in lower retention and a decline in same-store sales among agency advertisers.

Moving on to the operating results, our detailed financials, as well as a reconciliation of our GAAP to non-GAAP financials, can be found in our press release. My comments will now focus primarily on non-GAAP results. For the fourth quarter, non-GAAP gross profit was $15.8 million, resulting in a non-GAAP gross margin of 69%, flat from the third quarter of 2016, and down from $21 million in non-GAAP gross profit and a non-GAAP gross margin of 72% in the fourth quarter of 2015.

For the full year 2016, non-GAAP gross profit was $70.2 million, compared to a non-GAAP gross profit of $73.3 million in 2015. This resulted in an improvement in gross margin to 70% in 2016, compared to 68% in the full year of 2015.

Non-GAAP operating loss was $1.4 million, down from a profit of $1.7 million in the fourth quarter of 2015, and exceeding the high end of our guidance by $1.7 million. We delivered a non-GAAP operating margin of negative 6%, which compared to a non-GAAP operating margin of a positive 6% during the fourth quarter of 2015. For the full-year 2016, we delivered a non-GAAP loss from operations of $3.7 million, an improvement of $11.2 million compared to a non-GAAP loss from operations of $14.9 million in 2015.

Adjusted EBITDA was a positive $31,000 for the fourth quarter, down from $3.5 million in Q4 of 2015. On an annual basis, adjusted EBITDA was $2.4 million, compared to a negative $7.9 million for the full year of 2015. For the fourth quarter, non-GAAP net loss was $1.9 million, resulting in a loss of $0.05 per share, based upon a weighted average share count of 38.7 million shares, and exceeding the high end of our guidance by $0.04. This is down from a net profit of $1.7 million and EPS of $0.04 per share in Q4 of 2015, based upon a weighted average share count of 37.2 million shares in the fourth quarter of 2015.

For the year, non-GAAP net loss was $4.2 million, or negative $0.11 per share, based on 38.3 million weighted average shares outstanding. This compares to a non-GAAP net loss of $15.7 million in 2015 or negative $0.43 per share, based upon 36.6 million weighted average shares outstanding during 2015.

For the full year, cash flow from operations was positive $5.7 million, an improvement of $12.7 million compared to negative $7 million in 2015. We ended the year with $35.7 million in cash and cash equivalents, including $1.3 million in restricted cash, which represented a decrease of approximately $700,000 sequentially, and a decrease of $1.6 million over the full year of 2016. The decrease, which is inclusive of $1 million of unfavorable currency impacts, reflects investments in property, plant, and equipment, and internally developed software, as well as repayments of notes payable -- somewhat offset by the positive operating cash flow for the year.

Moving on to guidance, as Chris mentioned, we're excited about some of the key renewals that occurred in Q4, and about the opportunity to roll out customer-enhancing features on Platform Beta. With that said, our recent revenue decline is indicative of customers that have churned over the past 12 months, as well as softer new business bookings, which will continue to impact our revenue trajectory going forward.

There is downward pressure on revenue when churn exceeds new customer bookings and same-store sales. And given the nature of our monthly revenue, it can take time for an uptick in bookings to impact the top line. Additionally, Q1 tends to have lower seasonal spend than Q4.

With that in mind, for the first quarter of 2016, we expect revenues to be in the range of $19 million to $19.5 million. Non-GAAP operating income is expected to be in the range of negative $5.6 million to negative $5.1 million. And non-GAAP net income per share is expected to be in the range of negative $0.14 to negative $0.13, based upon a weighted average share count of 39.1 million shares. With that, I want to thank you for your time, and I would now like to turn the call back over to the operator to open it up for questions.

(Operator Instructions)

It appears we have no questions at this time. I would like to turn the floor back over to management for closing comments.

Sure. It's Chris here, Marin's CEO. I just want to thank everyone for dialing in to listen to the quarterly call, and we look for word to providing you updates over the coming quarters as we work to return to growth. Again, thank you for your support.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.