Marin Software Incorporated

We continue to expand and enhance MarinOne's functionality to positive customer feedback. In Q2, we completed the rollout of MarinOne Bidding, unlocking better performance and improved accuracy with dynamic clustering and improved intraday optimizations for all customers. We also introduced MarinOne's support for ad scheduling or day parting via multi-edit, allowing advertisers to improve the performance of their ads by adjusting when they are and are not shown. We also significantly improved our dimensions aggregation tools. These are user configurable metadata tags by introducing campaign level roll-up views, view dimension over time, and the ability to segment dimension data by device, match type, and publisher. These changes further reduce the need for offline data analysis and enable brands to view their advertising programs in a flexible way that fits their business needs and not the predefined views of the publishers. In addition, We introduced two new insights, including RSA coverage, which identify groups without any responsive search ads or RSAs, and first page minimum bid, which identifies objects performing below the bid strategy efficiency goal and whose bids are artificially raised to publisher first page minimum bids. We also streamlined the onboarding of new users, allowing advertisers to get new hires up and running on MarinOne more quickly and efficiently. And we introduced chat functionality directly in MarinOne, so it's possible for customers to reach our customer support team and ask for help without ever having to navigate away from their own account. All of these enhancements improve the ability of MarinOne to drive better advertising program performance and efficiency, as well as improving usability when compared to the publisher's tools and other competitive offerings. For social publishers, we launched the Social Rules Engine to help automate key workflows. With the rules engines, users can set triggers based on any aspect of campaign performance that will adjust bid, status, messaging, and more. And we made it easier to amplify organic posts by adding the ability to duplicate message booster rules. As a cross-channel platform, we continue to invest to expand our support for Amazon ads. We have an Amazon webinar planned for later this quarter to highlight the potential of Amazon ads for brands and their agencies, and Marin's robust capabilities supporting this fast-growing e-commerce publisher. Marin also was recently given verified partner status, acknowledging Marin's breadth and depth of support for Amazon ads. As an official Apple search ads partner, we continue to invest to support our customers who use apps to engage with their customers. We held an Apple webinar in Q2, which gave us an opportunity to highlight the benefit of Apple search ads as part of a marketer's cross-channel campaign for app downloads and customer acquisition. Apple recently announced more ad placements in the App Store that Marin will support once these placements go live in Apple's Ads API, which is expected before the holiday season later this year. Apple's App Store currently offers two slots to advertisers, one on the store's search tab and one in the search results. Now, two new App Store ads will bring additional slots one to the App Store's Today homepage, and one on individual app pages. These additional ad placements will provide more app discovery opportunities for brands and their prospects. As we mentioned in last quarter's call, Marine also was recently made an ads partner for TikTok, the fast-growing global social publisher. Endless estimate that brands will spend some $12 billion on TikTok ads in 2022, with strong growth forecast for the coming years. There is talk in the digital advertising industry that ad budgets are shifting from one or another digital channels to TikTok, but we are not seeing this behavior in our limited data. In general, digital ad budgets historically have pulled dollars from non-digital channels that are less trackable and measurable. Our integration with TikTok's ad manager gives brands better insights and improves the performance of their TikTok campaigns through machine learning and automation. With 1 billion monthly active users globally, TikTok provides brands the opportunity to connect authentically with highly engaged and passionate consumers through the power of shared experience. I'm pleased to share the news that Marin was recently recognized as a strong performer in the Forrester Wave B2B Advertising Solutions Q3 2022 and cited as best in class for B2B search and social advertising based on a thorough evaluation by Forrester of our MarinOne platform. Forrester is a highly respected third-party technology advisory firm, and in this role is able to access and review the leading providers in a given market space. Forrester's validation of our cross-channel strategy for B2B marketers is a sign of the importance of coordinating a brand's messaging across channels to reach prospects. We expect more B2B marketers to consider MarinOne for their marketing needs as a result of this recognition. As I mentioned on our last call, we continue to see strong interest in Marin's managed services capabilities, whereby Marin provides services to customers to support their media buying activities. Advertisers often have an interim need for staff, especially during this tight labor market, which is now combined with some level of economic uncertainty, and Marin's experienced digital marketers are able to help them to meet their business needs on a flexible basis. Our activities to support brands and their agencies take place against an active backdrop of government 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. There also is the potential of federal legislation to regulate the conduct of the leading publishers that could benefit Marin's role as an independent ad management platform. Marin enjoys coopetition relationships with the leading publishers, and we do not expect significant changes in these relationships in the near term. Although we are not a party to any lawsuits or a target in these investigations, Marin spent approximately $100,000 in Q2 on legal fees in conjunction with responding to official requests that Marin has received related to these various investigations. I continue to believe that Marin is a tremendous opportunity ahead. Marin benefits as consumers spend increasing time online and ad dollars follow them, creating more need for brands to measure, manage, and optimize these investments. to acquire customers and drive revenue outcomes. We're seeing increasing interest in brands taking a cross-channel approach to their digital advertising investments, and Marin, with our MarinOne platform and our team of digital advertising experts, is well-positioned to support leading brands and their agencies in these efforts. And now, Bob will review our second quarter financial results and our outlook for the third quarter of 2022. Thank you, Chris.

I'll provide an overview of our second quarter results and then share our forecast for the third quarter of 2022. I'll begin with a review of our income statement. For the second quarter of 2022, Marin generated $4.7 million in revenue near the midpoint of our guidance. Second quarter revenue was down 23% when compared to total revenue for the second quarter of 2021. As we have previously discussed, we renewed our revenue share agreement with Google for a new three-year term commencing on October 1st of 2021. The quarterly amount of revenue recognized under the new agreement is expected to be approximately $1.8 million versus approximately $2.3 million per quarter under the expired agreement. Adjusting for the change in revenue under the new Google Revenue Share Agreement, our Q2 2022 revenue was down approximately 16% when compared to Q2 2021. As Chris previously mentioned, we saw lower than expected spend from some existing customers during the second quarter of 2022, which we attribute to current macroeconomic factors, including fears of a recession. Our revenue was also negatively affected by foreign exchange rates due to the strengthening of the U.S. dollar against the euro and the British pound. We do not know for how long the current economic uncertainty will impact advertiser spending activity. Our geographic split for revenue was approximately 79% U.S. and 21% international for the second quarter of 2022. 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 relief issued earlier today. Our non-GAAP operating loss was $4.6 million for the second quarter of 2022. as compared to a $2.8 million loss for the second quarter of 2021. The $4.6 million non-GAAP operating loss in Q2 was at the lower end of our guidance. The increase in operating losses compared to Q2 2021 is attributable to a combination of lower revenue and an increase in operating expenses as we make investments in our sales and marketing and product development efforts. Our non-GAAP operating expenses increased approximately 8% as compared to the second quarter of 2021, primarily as a result of strategic investments that we are making in our sales and marketing and product development activities, along with slightly higher professional fees. We ended the quarter with 165 total headcount versus 153 a year ago. We expect our headcount to continue to increase in the near term, as we make additional investments in our sales and marketing and engineering teams. In terms of our balance sheet, we ended the quarter with a total cash balance of $37.5 million as compared to $41.8 million at the end of the previous quarter. We will continue to carefully monitor our cash levels as we make investments in our product development and sales and marketing efforts. Moving on to our outlook for the third quarter. For Q3 2022, we expect revenue to be in the range of $4.5 to $5 million, and our non-GAAP operating loss is expected to be in the range of $4.9 to $4.5 million. Our revenue guidance reflects our best estimate of the continued impact on advertising spend by our customers due to the uncertain economic environment, and our non-GAAP operating loss guidance includes the cost impact of expected investments in our engineering and sales and marketing teams. This concludes our call for today. Thank you for your time, and we look forward to updating you again during our Q3 2022 earnings call.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.