Marin Software Inc (MRIN) 2021 Q2 法說會逐字稿

Greetings, and welcome to the Marin Software Second Quarter 2021 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bob Bertz. Thank you, Bob. You may begin.

Thank you. Good afternoon, everyone, and welcome to Marin Software's Second Quarter 2021 earnings conference call. My name is Bob Bertz. I'm Marin's CFO. And 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. The release can also be obtained on our website at investors.marinsoftware.com. Call participants are advised that the audio of this conference call is being recorded for playback purposes, and that the 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, including the potential lingering effects of the COVID-19 global pandemic, our expectations for migrating our customers to our MarinOne platform, historical results that may suggest trends for our business, our expectations about our ability to improve customer retention and new business bookings and to return to growth, our ability to manage our expenses and cash resources, the impact of investments in product and technology and any headcount increases, progress on product development efforts, product capabilities, our relationships with publishers and other parties in the digital advertising market, expectations for future economic activity and digital ad spending and our expected Q3 and future financial results.

We make these statements as of July 30, 2021, 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 section entitled Risk Factors in our most recent reports on Form 10-Q and Form 10-K as well as our other SEC filings.

Any comments on recent trading activity in our stock are not predictive of any potential future trading activity. This presentation contains certain financial performance measures that are different from the financial measures calculated in accordance with GAAP and may also be different from similar calculations or measures used by other companies. A quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our second quarter 2021 earnings release.

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

Thank you, Bob. Good afternoon, everyone, and thank you for joining our call today. I'll share my observations on the quarter and provide an update on our initiatives to return Marin to growth. Bob will then provide additional detail on our second quarter and recent events and our outlook for the third quarter.

As always, we remain committed to return Marin to growth and to maximize shareholder value. Our plan to achieve this is focused on delivering a leading cross-channel advertising management platform to enable brands and their agencies to grow and optimize returns from their online advertising investments. We call this platform MarinOne.

As I've discussed on past calls, our efforts to return Marin to growth have taken longer than any of us would have preferred, and our revenues remain under pressure. At the same time, we continue to believe that our strategy is sound and that our initiatives will show results in the coming quarters.

In addition, there are some encouraging signs present, even if not yet sufficient to return Marin to growth. With the positive feedback that we are receiving on MarinOne, we believe that we are on the right track after many quarters of investment to develop and launch our new platform.

As announced in today's earnings release, Q2 revenues came in at $6.1 million, which was above the high end of our previously published guidance for Q2, but still down from Q2 in the prior year. I should note that the decline in revenue has moderated quite a bit from prior levels of year-over-year decline, which we believe is an early sign of business improvement. And our Q2 $2.8 million non-GAAP operating loss also was better than the high end of our guidance.

Recent weeks have been some of the most unusual in Marin's history as a public company. Beginning June 23, 2021, for reasons that we still can't fully explain, Marin's stock began to increase in price and trading volume. On that day, Marin had announced support for advertising on Instacart, the popular delivery service, but the trading activity on that day was probably attributable to more than just that announcement.

We also note that there are various pending antitrust and competition lawsuits in the U.S., U.K. and the EU that involve the major publishers that Marin interconnects with, including Google, Facebook, Amazon and Apple. Depending upon how each of these matters is resolved, Marin could benefit if there are restrictions put on how publishers are able to support their advertising placements and publisher tools.

Google also recently announced a delay for a year of its blocking of third-party advertising tracking in Chrome, the world's most popular browser, which may have led to increased investor interest in advertising technology-related companies, even though Marin is not dependent on third-party cookie-based tracking. And as I highlighted just earlier, we are receiving encouraging feedback on our MarinOne platform from prospects and customers.

Any one of these items or a combination of them and other reasons may be behind the trading activity in Marin's stock. The activity also may be an outgrowth of what has happened in the past with companies such as GameStop and AMC due to investor activity on Reddit Forums and other investor websites. We do not know with certainty what has been driving the activity in our stock in recent weeks, but we do welcome the increased interest in Marin's strategy and our products.

As a result of this increased stock trading activity, Marin was able to raise additional equity capital. I'm pleased to share that we now have more than $50 million in cash as we supplemented our ending second quarter cash balance of $14.4 million, with net proceeds of $38.8 million from aftermarket offering activities in the past few weeks. Bob will provide additional detail in his section after my comments.

With more than $50 million of cash, Marin now has more financial resources than at any time in the past several years to pursue our strategy and to support our customers. At the end of the second quarter, our global headcount was just over 150 team members, reflecting the team reduction that we implemented last summer. About half of our team is in technology roles, reflecting our significant investment in delivering products to drive results for leading brands and their agencies.

As has been our practice, we'll continue to monitor uses of cash closely, balancing investments with cost management, but we do expect headcount to grow as we increase investments in areas supporting our return to growth, including sales and marketing and technology.

As we've discussed before, Marin seeks to be an ally in digital for the world's leading brands and their agencies. Customers and prospects traverse a range of channels, devices and publishers online on their path to purchase. Marketers need a cross-channel platform to engage at all points of this customer journey. And as we have highlighted, the walled gardens of Google, Facebook and Amazon do not play well together, leaving brands to connect the dots on their own.

The rise of retail media, including newer entrants, such as Instacart, Criteo Retail Media and CitrusAds further fragments the advertising landscape, increasing the value of a third-party platform. Marin helps these advertisers to measure, manage and optimize their online advertising investments, driving performance, time savings and better business insights.

Tools from the publishers understandably focus on how to enable a given advertiser to spend more money on ads from that particular publisher. Brands seek a view of their online advertising investments, focused on customers and revenues, not the individual publisher silos. Marin serves as a performance layer to supplement the publisher capabilities and to provide an objective independent measurement of advertising performance. Our focus is to add value for brands to maximize the returns from their online advertising investments across search, social and e-commerce channels.

Key to our doing this is MarinOne, our next-generation cross-channel platform. We continue to upgrade more of our customers and revenue to our new platform. As of today, I'm pleased to share that 100% of our revenue is running on MarinOne, up from 70% last quarter. We continue to gather feedback on MarinOne as part of its rollout and adoption across Marin's customer base and to further tune the user experience.

Feedback continues to be encouraging, but we also faced the expected challenge of change management as long-time users need to adopt a new platform with its enhanced functionality. Even when something is better, there is inertia around change, and our account management teams are engaging with those customers to help them to make the transition to MarinOne and to unlock its benefits for their advertising programs.

Continuing an early trend that we saw in the prior quarter, we're seeing an upturn in both retention and new business activity due to MarinOne. This is taking place across a range of industry verticals for B2C and B2B advertisers and agencies. Across the balance of this year, we will be investing more in Marin's marketing activities to bring MarinOne to more brands and agencies. MarinOne serves as a foundation on which all Marin innovation is based, as we continue to add to its functionality and to bring marketers more tools to enjoy financial performance gains and management at scale. Core to MarinOne is MarinOne Analytics, which gives our customers powerful and flexible analysis capabilities using Intraday data, fractional conversions and device-level segmentation.

We also provide cross-client and cross-publisher reporting to enable brands to take a business-centric or customer-centric approach to their advertising versus the publisher-centric approach of the publisher tools. This functionality also enables MarinOne customers to easily compare performance across publishers as they evaluate current and future advertising investments.

I mentioned on our last call that as part of MarinOne's rollout, we also launched MarinOne Bidding, Marin's newest machine learning-powered optimization algorithms designed to deliver better performance through improved accuracy. Advanced clustering algorithms simplify bidding setup and faster bid calculations. Our benchmarking has shown an average of 10% to 20% improved performance versus Marin's prior bidding, which already was industry-leading. This technology also enables faster bid processing for intraday bids and larger accounts.

In recent head-to-head bid trials versus Google's SA 360 bidding, Marin has delivered better results, reinforcing Marin's positioning for performance-driven advertisers. This quarter, we integrated organic search data from Google's search console to enable advertisers to adjust their paid search bidding based on organic results, leading to better program efficiency.

MarinOne Bidding also supports Google Smart Bidding to provide more choices for our customers and for those advertisers wanting to leverage Google's AI and ML optimization capabilities. Marin customers are able to set target CPA and target return on advertising spend goals in the MarinOne UI, as well as to upload third-party revenue to Google. Marin's overlay functionality is supporting Google Smart Bidding, this past quarter, we added support for Google's Dynamic Search Ad targets, enables advertisers and their agencies to leverage these capabilities at scale versus the native offerings from Google.

As part of our focus on cross-channel capabilities to mirror the online customer journey, we added support for Instacart ads to help brands connect with customers at the point of purchase on one of the largest delivery services offerings in the U.S. We also were made an official Apple search ads partner with a specialization in campaign management. This is important for those brands who also have an app offering.

We continue to invest in LinkedIn Marketing Solutions and Criteo display advertising, including bidding, bulk management and reporting. And we also are expanding our support for Criteo Retail Media, a leading network of retail partners. All of these publishers provide advertisers and agencies with more opportunities to find prospects and customers across the Internet.

As part of our investment in MarinOne, we continue to add to our social capabilities to complement the robust functionality that Facebook provides in its tools. One area of focus is providing advertisers with enhanced budgeting functionality to complement the bidding capability in Facebook Ads' business manager. And this quarter, we added performance-based budget rules to drive adjustments using daily and lifetime spend ratios.

We also introduced bulk support for Facebook Ad Set to enable better management at scale. In our recently debuted e-commerce module, Marin's dedicated space for brands to manage e-commerce and marketplace advertising programs, Marin enhanced our support for Amazon-sponsored brand video ads, including attributes such as image, price, title and rating. We also added additional Amazon advertising insights, leveraging Marin's investment in AI and machine learning. And we also debuted keyword expansion and negative keywords to enhance program performance.

As I mentioned on our last call, Apple deployed its iOS 14.5 update, which asks consumers to opt into tracking versus opt out, a change that has significantly curtailed app-based tracking. Marin continues to lead in our efforts to support advertisers in a world where privacy and cookie-based tracking are in flux.

In particular, Marin's own Marin Tracker enables server-to-server tracking, which is both privacy compliant and also is able to accurately measure conversions on Apple's Safari browser, which is a growing challenge for leading brands using cookie-based tracking approaches.

I also note that Google announced a 1-year delay on its blocking in Chrome of third-party cookie-based tracking. Marin uses first-party tracking and is not impacted by this change, but these changes do bring additional burden to digital advertisers and their agencies.

Despite our challenges, I continue to believe that Marin has a tremendous opportunity ahead. In our view, COVID has served as an accelerator of existing digital advertising trends. Over the past few months, we have seen ongoing recovery in ad spend across most industry verticals. As more of the population is vaccinated, we expect ad spend in all verticals to continue to recover, especially in tourism and travel and other in-person activities. We believe the balance of 2021 will see an uptick in overall economic activity, with digital advertising investment earning its fair share as businesses seek to engage with customers and prospects across search, social and e-commerce channels.

I do note that the Delta variant, along with slowing vaccine uptake put pressure on this recovery, but we still expect an increase in quarterly economic activity and digital advertising investment. Marin with its MarinOne platform deployed should benefit from these expected trends. We also are encouraged with our greater cash resources that Marin can invest to better support our customers.

And now Bob will review our second quarter financial results and our outlook for the third quarter of 2021.

Thank you, Chris. I'll provide an overview of our second quarter results, and then share our forecast for the third quarter of 2021.

I'll begin with a review of our income statement. For the second quarter of 2021, Marin generated $6.1 million in revenue, beating the high end of our guidance for the quarter by approximately $0.1 million, primarily due to higher search revenue as a result of improved retention.

Second quarter revenue was down 16% when compared to total revenue for the second quarter of 2020. While we continue to see a lingering impact of COVID-19 on our revenue, customer spend has largely returned to pre-COVID levels in most segments. Our geographic split for revenue in the second quarter was approximately 77% U.S. and 23% international.

Moving on to our operating results. As a reminder, our financial statements and a reconciliation of our GAAP to non-GAAP financial measures can be found in our earnings release issued earlier today. Our non-GAAP operating loss was $2.8 million for the second quarter of 2021 as compared to a $3.6 million loss for the second quarter of 2020. The $2.8 million non-GAAP operating loss in Q2 beat the high end of our guidance by approximately $0.1 million. Our non-GAAP operating loss excludes $500,000 in savings from an employee retention credit under the CARES Act that we recorded in the current quarter. We expect to record a credit of a similar amount in the third quarter as well.

Our non-GAAP operating expenses were down 14% in Q2 on a year-over-year basis. We ended the quarter with 153 total headcount versus 211 a year ago. We will continue to carefully monitor our operating expense base. In terms of our balance sheet, we ended the quarter with a total cash balance of $14.4 million, representing a net decrease in cash of $800,000 from our Q1 balance.

In July of 2021, we registered a new $40 million at-the-market securities offering facility. Using this facility, we have sold 4.3 million shares of our common stock in July, resulting in approximately 15.5 million shares currently outstanding. And we generated proceeds of $38.8 million, net of offering costs. We now have a cash balance in excess of $50 million, which strengthens our balance sheet and enables us to make targeted investments in our product and sales and marketing teams and to execute on our return to growth strategy.

Moving on to our outlook for the third quarter. For Q3 2021, we expect revenues to be in the range of $5.5 million to $6 million, and our non-GAAP operating loss is expected to be in the range of $3.3 million to $2.8 million. Our guidance excludes the estimated $500,000 in savings from the employee retention credit expected for the third quarter.

This concludes our call for today. Thank you for your time, and we look forward to updating you again during our Q3 2021 earnings call.

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