Marin Software Inc (MRIN) 2017 Q4 法說會逐字稿

Greetings, and welcome to Marin Software Fourth Quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Brad Kinnish, CFO. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Marin Software's Fourth Quarter 2017 Earnings Conference Call. My name is Brad Kinnish, Marin's CFO. Joining me today is Chris Lien, Marin's CEO.

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 this recording 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 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; historical results that may suggest trends for our business; expectations about our ability to return to growth; impact of investments in product and technology; progress on product development efforts; product capabilities; and future financial results. We make these statements as of February 22, 2018, and disclaim any duty to update them. For more information regarding these and other risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risks related 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 in our fourth quarter 2017 earnings release.

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

Thank you, Brad. Good afternoon, everyone, and thank you for joining our call today. I'll review the quarter and provide an update on our initiatives to return Marin to growth. Brad will then provide additional detail on our quarterly results and our outlook for the first quarter.

It's been about 18 months since I returned to the CEO role along with my co-founder and EVP of Product and Technology, Wister Walcott. Our goal has been and remains to return Marin to growth and to maximize shareholder value. We're focused on meeting the needs of our customers, the world's leading advertisers and their agencies, as they seek to grow and optimize the returns from their online advertising investments. Working with our team members and partners, we've been putting various initiatives in place that we believe will position Marin to return to growth.

As announced in today's earnings release, Q4 revenues came in at $17.7 million, which was in line with our guidance, but still down from the prior year. Our cash balance at the end of Q4 was $28.8 million.

As we share this update on 2017 and our 2018 outlook, I want to highlight how we think about the evolution of Marin's market and our strategic positioning. The first chapter of Marin's success was one of replacing single-channel publisher tools and spreadsheets, which were poorly designed and didn't meet the needs of world's leading advertisers. Since that time, publisher tools have become good enough for many marketers, while advertisers face a more complex online landscape to reach their customers and prospects. These changes have eroded Marin's traditional advantages over publisher tools, while also creating a significant cross-channel opportunity, an opportunity where Marin is focusing its efforts in investments, as we work to return to growth over the coming quarters.

The future of online advertising will require that brands and agencies be able to integrate the customers' journey across channels, devices and publishers to show the right ad at the right point of the journey and at the right price. Brands will seek an ally in digital who can help them strategically determine where to spend their online dollars to deliver the best bang for the buck. With time, as more commerce goes online, those brands that failed to embrace online marketing performance as a core competency and key source of competitive advantage, will lose their leadership positions to those who do embrace these changes. As this next chapter unfolds, Marin's open independent cross-channel strategy will lead to sustainable competitive advantages and position Marin to return to growth. But this return to growth remains a few quarters out. We have said we are about 6 months behind where we had hoped we would be in our return to growth efforts, and this continues to be the case even as we make progress. We need to write out this period of transition as we evolve to serving the world's leading brands and their agencies who put a premium on digital advertising performance. Marin is uniquely positioned to meet this growing demand but this vision is still ahead of many brands and agencies who suffer from lack of informed thought leadership, organization structure, technology and inertia with the status quo. Over time, we believe this open independent cross-channel approach will become the new standard and we believe Marin will be rewarded for its leadership as the online advertising management category evolves to this new state.

During 2017, we believe we put the right team and initiatives in place to drive Marin to a brighter future. In marketing, we launched Marin's Your Ally in digital positioning as well as efforts to highlight our unique cross-channel capabilities, such as our search and social playbook, with a focus on performance and efficiency. Our new lead generation leadership, which was put in place in November 2017, has driven a significant increase in opportunity creation, and we are now on pace to have sufficient opportunities to meet our bookings goals, which has not been the case earlier in 2017.

In sales, we have staffed up our enterprise team as well as trained our account executives to be cross-channel sellers, with cross-channel deals growing each quarter. We also have refocused on enterprise advertisers, and as of January 2018, disbanded our separate mid-market professional sales team. In customer success, we've continued our efforts to build direct relationships focused on Marin's measurable value. Our teams have been flattened to increase our engagement with customers. We've had good early success driving adoption of Marin TruePath and Search Intent. We also began a brand-direct engagement program, whereby we contacted over 900 executives whose companies use Marin via large agencies. Most of these executives had little awareness of Marin, and these efforts provide the opportunity to highlight Marin's value and to create a cross-channel dialogue. We believe these brand-direct efforts will lead to improved retention and expanded customer relationships across 2018.

In product, we continue to focus on launching Platform Beta for more customers, which is making progress but remains behind schedule. At the same time, we've debuted audience reporting, leveraging Platform Beta's infrastructure. TruePath, Search Intent, innovative shopping functionality and early support for both Amazon and Pinterest. I highlight our support of Amazon and Pinterest as further examples of the fragmentation across the online advertising landscape and the need for an independent platform such as Marin's to enable advertisers and agencies to leverage all of these opportunities with a single view of the customer.

I want to take a moment to address some recent impending industry changes that are receiving a fair amount of press and investor coverage. Apple introduced intelligent tracking prevention, which is referred to as ITP techniques, for iOS and Safari, in September 2017. Intelligent Tracking Prevention is designed to increase user privacy by making it more difficult for companies to track customer web browsing habits across websites. Under ITP, there is a 1-day window in which these cookies may remain available in third-party contacts, such as retargeting and conversion tracking. With iOS' market share, ITP impacts over half of all mobile traffic. Marin's tracking is all first party and is not impacted by these changes. We have previously mentioned Google's pending parallel-tracking initiative, which is planned for broader rollout later in 2018. Marin's tracking infrastructure is well positioned to support these changes, and we are partnering with our customers to navigate these developments. None of these tracking developments has had, nor is projected to have, a material impact on Marin's business. I also want to address the EU's General Data Protection Regulation, referred to as GDPR, which goes into effect on May 28, 2018. This regulation is intended to strengthen and harmonize data protection regulations across the European Union. Marin Software has been engaged in an enterprise-wide program since early 2017 to ensure compliance with all aspects of GDPR. Marin does not expect that GDPR will materially impact our customers' ability to leverage Marin solutions globally. These industry changes highlight Marin's role as your ally in digital, as advertisers and agencies turn to Marin to help them navigate these and other changes without disruption to their advertising programs. As one thinks about the needs of leading brands looking to engage with customers, it is important to understand that no publisher can deliver on this vision. Google, Facebook and Amazon are unlikely to cooperate, leaving an independent third party such as Marin to connect these silos for the benefit of advertisers. We believe advertisers and agencies will come to realize that their priorities and those of the publishers likely diverge, putting a premium on independent technology and advice. As one Marin customer put it to me recently, would you ask the IRS to do your taxes? This is what you're doing when you rely on publisher tools to make your advertising investment decisions. At the same time, there is a lot of capability in the publisher tools that Marin will leverage more aggressively. Marin has adopted a mindset of building our value on top of the publishers and have interoperating with their tools, recognizing that our customers will work both in Marin's platform and with the publishers. Focusing on where Marin can add value shifts our product focus from replicating and replacing publisher tools to the your ally(inaudible) in digital commitment to drive performance and efficiency for brands. Marin's future lies in this open, independent cross-channel approach. As we continue to make more progress with customer adoption, retention and product development, Marin's long-term value will grow and Marin will return to growth. While we still have more work to do in our efforts to return to growth, we're making progress, even if this isn't yet apparent in our financials, nor on our near-term outlook. I continue to believe that Marin has a tremendous opportunity and that our best days lie ahead.

And now, Brad will review our fourth quarter financial results and our outlook for the first quarter.

Thank you, Chris. I'll provide an overview of our results and then share our forecast for the upcoming quarter. I'll begin with a review of our income statement.

For the fourth quarter of 2017, Marin generated $17.7 million in revenues, in line with our guidance for the quarter. Q4 '17 revenues were down 23% versus Q4 '16. During Q4, we saw improvements in our churn versus previous quarters in 2017. However, these improvements were not enough as churn continued to outpace new bookings, leading to a decline in our revenues. For the full year, 2017 net revenues totaled $75 million, a year-over-year decrease of 25% when compared to $99.9 million in 2016. In the fourth quarter, 65% of our revenues were generated in the U.S. and 35% of our revenues were generated internationally, in line with our historic geographical split. In terms of direct versus agency relationships, our revenue in the fourth quarter was 63% from direct customers and 37% from agency relationships, which is generally consistent with the prior quarter. Over the next several quarters, we continue to expect our revenue from direct customers will increase as a percentage of total revenue.

Moving on to the operating results. Our financials, including a reconciliation of our GAAP to non-GAAP financials, can be found in our earnings release. My comments will now focus primarily on non-GAAP results.

For the fourth quarter, non-GAAP gross profit was $11.4 million resulting in a non-GAAP gross margin of 64%, which compared to a non-GAAP gross margin of 69% during the fourth quarter of 2016. For the fourth quarter, non-GAAP operating loss was $5.4 million as compared to a loss of $1.4 million for the fourth quarter of 2016. The $5.4 million loss was in line with our guidance for the quarter. We delivered a non-GAAP operating margin of negative 31%, which compared to a non-GAAP operating margin of negative 6% during the fourth quarter of 2016. Adjusted EBITDA was a negative $4.4 million for the fourth quarter as compared to $31,000 of positive adjusted EBITDA in the fourth quarter of 2016. For the fourth quarter of 2017, non-GAAP net loss was $5.2 million, resulting in a loss of $0.92 per share based upon a weighted average share count of 5.7 million shares. The $0.92 loss per share will be the high end of our split-adjusted EPS guidance by $0.03 per share. For comparison purposes, we generated a non-GAAP net loss of $1.9 million and a non-GAAP EPS loss of $0.33 per share, based upon a reverse split-adjusted weighted average share count of 5.5 million shares in the fourth quarter of 2016.

In terms of our balance sheet, we ended the quarter with $28.8 million of cash and cash equivalents, which reflected a cash burn of $1.8 million during the quarter. Our change in working capital provided positive inflow of cash during the fourth quarter and the full year and served as a positive offset against our operating losses in terms of cash management.

On January 24, subsequent to our fiscal year-end, and excluded from our 2017 year-end results, we announced our restructuring plan designed to reduce operating expenses to better align costs with revenues. As part of this restructuring, we announced a reduction of 48 employees or approximately 11% of the company's workforce. In addition, we noted that 6 employees had previously left the company through attrition for a total head count reduction of 54 employees or 12% of total head count, as compared to our head count on December 31, 2017. As a result of this restructuring, we expect annualized savings of $6 million to $7 million with associated costs and charges of $1 million to $1.5 million, which primarily related to severance, other termination benefits and office space reduction.

Now moving on to our outlook. We're encouraged by certain aspects of our business that highlight our ability to return to growth but realize we have more work to do. We remain focused on improvements in 3 key areas: customer retention, new bookings and increased same-store sales. We expect improvements in these areas will begin to show results in the coming quarters. We balance those expected improvements against lower seasonal spend in Q1 as we forecast our business for the upcoming quarter. With that in mind, for the first quarter of 2018, we expect revenues to be in a range of $14.3 million to $14.8 million. Non-GAAP operating income is expected to be in a range of negative $7.5 million to negative $7 million, and non-GAAP net income per share is expected to be in a range of $1.36 to $1.28 loss per share, based upon a weighted average share count of 5.7 million shares.

With that, I want to thank you for your time. This concludes our Q4 2017 quarterly conference call.

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