Marin Software Incorporated

Greetings and welcome to the Marin Software fourth quarter 2020 financial results conference call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Birz. Thank you, Mr. Birz. You may begin.

Thank you. Good afternoon, everyone, and welcome to Marin Software's fourth quarter 2020 earnings conference call. My name is Bob Burtz. I'm Marin's CFO, and joining me today is Chris Lean, 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 effects of the continuing COVID-19 global pandemic, and expected trends in ad spending and economic activity, our expectations for migrating our customers to our MoranOne platform, our estimated potential cost savings from our recent restructuring plan, 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 products and technology, progress on product development efforts, product capabilities, our relationships with publishers and other partners in the digital advertising market, and our expected Q1 and future financial results. We make these statements as of February 25th, 2021, and disclaim any duty to update them. Note that the extent to which the COVID-19 global pandemic may continue to impact our business is uncertain at this time, and difficult to predict considering the evolving landscape. 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 this section entitled Risk Factors in our most recent reports on Form 10Q and Form 10K, as well as our other SEC filings. 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 fourth quarter 2020 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 fourth quarter and our outlook for the first quarter. 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 investment. We call this platform MarinOne, and we are making encouraging progress migrating our customers to this next generation offering that delivers performance, time savings, and better business insights. As I've discussed in prior calls, our efforts to return Marin to growth are taking longer than any of us would have preferred, and our revenues continue to be 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. Additionally, there are some encouraging signs present even if not yet sufficient to return Marin to growth. We've seen an upturn in new business activity and improvements in retention, which lead us to believe that we are on the right track. As announced in today's earnings release, Q4 revenues came in at $7.3 million, which was above the high end of our previously published guidance for Q4 but still down from Q4 in the prior year. Our Q4 2.5 million operating loss was slightly above the low end of our guidance. Our total cash balance at the end of Q4 was 14.8 million, providing Marin with the resources to pursue our strategy and to support our customers. At the end of the fourth quarter, our global headcount was just over 160 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 will continue to monitor our cash use closely, balancing investments with cost management. 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. 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 Marin One. our next-generation cross-channel platform. We continue to migrate more of our customers and revenue to our new platform. As of today, about half of our revenue is running on MarinOne, and we expect to migrate the balance of our customers later this quarter. MarinOne feedback has been very positive, and customers like the new platform and functionality that enables them to extract greater performance from their online advertising investments while saving time and unlocking more business insights. We continue to expand and enhance the platform's functionality, including enabling the digital marketer to better understand their program and to complete needed tasks more quickly. On the performance front, we also launched MarinOne Bidding, Marin's newest machine learning powered optimization algorithms designed to deliver better performance for 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. As part of our investments in bidding, we introduced the ability to forecast future performance at the bid strategy level. This allows customers to predict future trends in clicks, conversions, revenue cost, and profit based on historical data. Marin will continue to invest in our support of budget forecasting and pacing, which is less developed in the publisher tools. As a cross-channel platform, we continue to invest to expand our support for Amazon ads. Recall that Marin supports the three leading ad types on Amazon, sponsored brands, sponsored products, and sponsored display campaigns. We added syncing, reporting, and bidding support for Amazon-sponsored brand video campaigns. We also improved our Amazon support by introducing extended attributes, which makes it easier for advertisers to identify products and creatives in our grid. Attributes include ad, headline, image, price, ratings, review, and availability. These attributes go above and beyond what's available within the Amazon Publisher tool. We enhanced our support of Amazon keyword expansion to allow more filtering and sorting functionality. To allow advertisers to operate more efficiently, we added Amazon to our linking wizard, which simplifies the process of adding new Amazon accounts to Marin1. We also upgraded the way we process Amazon cost and revenue data, allowing for faster and more efficient data downloads and fewer data delays. As part of our focus on cross-channel capabilities to mirror the online customer journey, we expanded the functionality of Amazon Attribution, introducing support for Facebook, If an advertiser has Facebook ads sending traffic to an Amazon store page or product page, these conversions and revenue can now be tracked using the Amazon Attribution API solution. We also enhanced the Amazon Attribution API solution to include additional publishers such as Snapchat, LinkedIn, Twitter, YouTube, Verizon Media, TikTok, Reddit, and others. As part of our investments in MarinOne, we continue to add to our social capabilities to complement the robust functionality that Facebook provides in its tools. Of note, we introduced scheduled actions in Marin Social, allowing advertisers to set specific days or hours when they would like their ads to be active or paused. During Q4 and continuing in 2021, we have seen good interest in Marin's BI Connect offering, which enables brands to automatically push normalized data from Marin to the business intelligence or BI platform of their choice. Marin always has sought to be an open platform with capabilities that make it easy to import or export data. Leading BI platforms that Marin supports via BI Connect include Google Data Studio, Tableau, and Amazon's Redshift, among others. 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, for example, with the UK's ICO standard, 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. Our activities to support brands and their agencies take place against an active backdrop of antitrust investigations at the federal and state levels, as well as in the EU of the businesses of leading publishers in the digital advertising market. Marin enjoys coopetition relationships with the leading publishers, and we do not foresee significant changes in these relationships. As I've shared in the past, despite our current challenges and the additional burden of COVID-19, 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 a 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. And now, Bob will review our fourth quarter financial results and our outlook for the first quarter of 2021. Thank you, Chris.

I'll provide an overview of our fourth quarter results and then share our forecast for the first quarter of 2021. I'll begin with a review of our income statement. For the fourth quarter of 2020, Marin generated $7.3 million of revenue, beating the high end of our guidance for the quarter by approximately $500,000, primarily due to higher search revenue. Fourth quarter revenue was down 36% when compared to total revenue for the fourth quarter of 2019, or approximately 28% when adjusted for the revenue impact resulting from the sale of our perfect audience business in late 2019 and the revised timing of revenue recognition under a strategic agreement with Google as a result of the amendment signed in Q1 of 2020. For the full year, 2020 revenues totaled $30 million, a year-over-year decrease of 39% as compared to 49 million in 2019, or a decline of approximately 31% when adjusted for the revenue impact resulting from the sale of our perfect audience business in late 2019 and the revised timing of revenue recognition under a strategic agreement with Google as a result of the amendment signed in Q1 of 2020. Revenue for both the fourth quarter and the full year was negatively impacted by the COVID-19 global pandemic. Although we have seen improvement in customer spend across most verticals, spend has not yet returned to pre-pandemic levels in most industries. We believe that COVID-19 will continue to have a negative impact on our business in the near term. but the extent and duration of the impact is uncertain at this time. Our geographic split for revenue in the fourth quarter was approximately 73% U.S. and 27% international. For the full year, the geographic split was 75% U.S. and 25% 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 $2.5 million for the fourth quarter of 2020, as compared to a $2.1 million loss for the fourth quarter of 2019. The $2.5 million non-GAAP operating loss in Q4 includes approximately $700,000 of discretionary bonus expense that was approved by our Board of Directors following the end of 2020 that was not contemplated in our guidance. Without considering the bonus accrual, we would have beat the high end of our guidance. Our full year 2020 non-GAAP operating loss was $12.4 million as compared to an $11.1 million loss in 2019. Our non-GAAP operating expenses were down 29% in Q4 on a year-over-year basis and down 34% for the full year comparison. we ended the year with 162 total headcount versus 229 a year ago. In terms of our balance sheet, we ended the quarter with a total cash balance of $14.8 million, representing a net increase in cash of $5.8 million from our Q3 balance. The increase in cash was largely driven by the issuance of shares under our at-the-market offering program, which resulted in net proceeds of $7.5 million during the fourth quarter. During the first quarter of 2021, we added an additional $3.1 million to our balance sheet by selling 1.2 million shares of our common stock utilizing our at-the-market facility. Moving on to our outlook for the first quarter of 2021. For Q1 2021, we expect revenues to be in the range of $5.5 to $6 million, and our non-GAAP operating loss is expected to be in the range of $3.4 to $2.9 million. Our guidance reflects our current estimate of the anticipated impact of the COVID-19 pandemic on our financial results for the next quarter. This concludes our call for today. Thank you for your time, and we look forward to updating you again during our Q1 2021 earnings call.

This concludes today's teleconference. You may disconnect your lines now. Thank you for your participation, and have a wonderful day.