Marin Software Incorporated

Greetings, and welcome to Marin Software's first quarter 2021 financial results conference call. It is now my pleasure to introduce your host, Bob Burtz. Thank you, Mr. Burtz. You may begin.

Thank you. Good afternoon, everyone, and welcome to Marin Software's first quarter 2021 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 MarinOne 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 product and technology, progress on product development efforts, product capabilities, our relationships with publishers and other parties in the digital advertising market, expectations for future economic activity in digital ad spendings, and our expected Q2 and future financial results and expected employee retention credit for the second quarter. We make these statements as of May 6, 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 the 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 first 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 Merinda growth. Bob will then provide additional detail on our first quarter and our outlook for the second quarter. We remain committed to return Merinda 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 the 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 many of you know, 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. Moreover, there are some encouraging signs present, even if not yet sufficient to return Merind to growth. We've begun to see an increase in new business activity and improvements in retention, which lead us to believe that we are on the right track after many quarters of investment to develop and launch Merind 1. As announced in today's earnings release, Q1 revenues came in at $6.3 million, which was above the high end of our previously published guidance for Q1, but still down from Q1 in the prior year. And our Q1 2.5 million non-GAAP operating loss was above the high end of our guidance. Our total cash balance at the end of Q1 was $15.2 million, providing Marin with the resources to pursue our strategy and to support our customers. At the end of the first quarter, our global headcount was just under 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 uses of cash 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 in 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 to 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 approximately 70% of our revenue is running on MarinOne, and we expect to migrate the balance of our customers by the end of this quarter. I'm pleased to share that we now have accumulated a good amount of feedback on MarinOne, which has been very positive. Marin's customers enjoy the new UI along with powerful functionality to drive financial lifts, time savings, and better business insights from their online advertising investments. On an encouraging note, we are 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. MarinOne has broad appeal as most marketers increase their digital advertising investments, reflecting the greater time that customers and prospects are spending online. 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 the 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. Part of MarinOne is MarinOne Analytics, which gives our customers powerful and flexible analysis capabilities using intraday data, fractional conversions, and device-level segmentation. 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 SA360 bidding, Marin has delivered better results, reinforcing Marin's positioning for performance-driven advertisers. Marin's one bidding also now supports Google's 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 Marin One UI, as well as to upload third-party revenue to Google. Marin's overlay functionality supporting Google Smart Bidding enables advertisers and their agencies to leverage these capabilities at scale versus the native offerings from Google. I also am pleased to provide an update on our ongoing investment in Marin Insights, which are automated data-driven insights to drive better performance for Marin customers. This library leverages machine learning to highlight opportunities for financial lift and management at scale for the modern marketer, including a landing page checker, bid strategy opportunity suggestions, disapproved ad summaries, and duplicate keyword placement. We will continue to expand this library to bring more efficiency to marketers and their agencies. As part of our focus on cross-channel capabilities to mirror the online customer journey, we expanded our support for Apple search ads and LinkedIn marketing solutions and added to our investment in Criteo display advertising, including bidding, bulk management, and reporting. We also are adding initial support this quarter for Criteo's newest offering, which is called 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 and its tools. Of note, we introduced budget management rules in MarinSocial, providing advertisers with enhanced budgeting functionality to complement the bidding capabilities in Facebook's Ads Business Manager. We also, this past quarter, debuted an e-commerce modular tab in MarinOne to provide retail marketers a dedicated experience for the management of their online ad programs. In this tab, Marin brings together disparate information sources via the publisher APIs to give marketers more insights and control of their advertising investments. For example, Marin brings together both ad performance metrics from Amazon, along with Amazon Buy Box and rating and review information. These data points help inform marketing decisions on the MarinOne platform for Amazon advertisers. Advertisers and their agencies continue to seek signal in the digital noise, investing in data analytics and the underlying enabling technologies. The goal is to drive learnings to drive better advertising performance. Marin's BI Connect offering 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's leading customers leverage BI Connect as part of their Marin 1 subscription. Since our last call, Apple has deployed its iOS 14.5 update, which asks consumers to opt in to tracking versus opt out, a change that is expected to significantly curtail 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 tracker, 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. 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 the existing digital advertising trends. Over the past few months, we've 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 consumer and business customers across search, social, and e-commerce channels. Marin, with its MarinOne platform deployed, should benefit from these expected trends. And now, Bob will review our first quarter financial results and our outlook for the second quarter of 2021. Thank you, Chris.

I'll provide an overview of our first quarter results and then share our forecast for the second quarter of 2021. I'll begin with a review of our income statement. For the first quarter of 2021, Marin generated $6.3 million in revenue, beating the high end of our guidance by approximately $300,000, primarily due to higher search revenue as a result of improved retention. First quarter revenue was down 27% when compared to total revenue for the first quarter of 2020. Revenue for the first quarter 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. Our geographic split for revenue in the first quarter was approximately 76% U.S. and 24% 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 first quarter of 2021 as compared to a $3.5 million loss for the first quarter of 2020. The $2.5 million non-GAAP operating loss in Q1 beat the high end of our guidance by $400,000. 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 second quarter as well. Our non-GAAP operating expenses were down 22% in Q1 on a year-over-year basis. We ended the quarter with 157 total headcount versus 219 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 $15.2 million, representing a net increase in cash of $400,000 from our Q4 balance. During the first quarter, we sold 1.2 million shares of our common stock, utilizing our at-the-market facility, which resulted in approximately $3.1 million in net proceeds. Moving on to our outlook for the second quarter. For Q2 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 and excludes the estimated $500,000 savings from the employee retention credit expected for the second quarter. This concludes our call for today. Thank you for your time, and we look forward to updating you again during our Q2 2021 earnings call.