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Edited Transcript of MRIN.OQ earnings conference call or presentation 5-Nov-20 10:00pm GMT

·14 min read

Q3 2020 Marin Software Inc Earnings Call San Francisco Nov 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Marin Software Inc earnings conference call or presentation Thursday, November 5, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Christopher A. Lien Marin Software Incorporated - Founder, Chairman & CEO * Robert Bertz Marin Software Incorporated - CFO ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to the Marin Software Third Quarter 2020 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, Mr. Bertz. You may begin. -------------------------------------------------------------------------------- Robert Bertz, Marin Software Incorporated - CFO [2] -------------------------------------------------------------------------------- Thank you. Good afternoon, everyone, and welcome to Marin Software's Third Quarter 2020 Earnings 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 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, our expectations for migrating our customers to our MarinOne platform, our estimated potential cost savings from our recent restructuring plan and other planned cost savings measures, 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 and our expected Q4 and future financial results. We make these statements as of November 5, 2020, 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 particularly uncertain at this time and difficult to predict considering the rapidly 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 10-Q and Form 10-K 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 third quarter 2020 earnings release. With that, let me turn the call over to Chris. -------------------------------------------------------------------------------- Christopher A. Lien, Marin Software Incorporated - Founder, Chairman & CEO [3] -------------------------------------------------------------------------------- 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 third quarter and our outlook for the fourth 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 on prior calls, our efforts to return Marin to growth are taking longer than any less 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. As announced in today's earnings release, Q3 revenues came in at $6.8 million, which was above the high-end of our previously published guidance for Q3, but still down from Q3 in the prior year. Our Q3 $2.8 million operating loss was at the high-end of our guidance. Our total cash balance at the end of Q3 was $9 million. Since the end of the third quarter, Marin has issued and sold 1.9 million shares of common stock under our aftermarket offering program, netting proceeds of approximately $6 million, strengthening our cash position. We will continue to monitor our use of cash closely, balancing investments with cost management. As we mentioned on our last call, beginning in mid-July, we made reductions of approximately 60 team members across the company to bring our operating costs more in line with our revenues while preserving our ability to support our customers and to deliver on our vision for MarinOne. While these changes were not undertaken lightly, we believe they were the right ones for us to make, given Marin circumstances and the added uncertainty of COVID-19. We've begun to realize these savings and expect to see additional benefit from them in Q4 2020 and across 2021. At the end of the third quarter, our global headcount was just over 160 team members. COVID-19 continues to disrupt the business of many of our advertisers, with overall ad spend still below March pre-COVID levels. Over the past few months, we are seeing an ongoing recovery in ad spend across most industry verticals. At the same time, we expect greater ad spend volatility as public health guidelines fluctuate as part of overall efforts to manage the effects of the pandemic. Marin continues to operate remotely around the world. Our priority is on team health, and we believe that we can operate remotely indefinitely, if needed. Fortunately, our team is able to support our customers globally without disruption and to continue to advance our product set, especially MarinOne. As we have 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, 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 publisher capabilities and to provide an objective independent measurement of advertising performance. Marin's focus on adding 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 upgraded the first phase of our customers to MarinOne this past October. What this means is that at login the default experience for the upgraded customers is MarinOne. This first phase of this customer upgraded to MarinOne covered about 15% of our revenue and about 30% of our customers. Feedback is encouraging, and we will upgrade the next customer group later in November, with this next phase representing just over 1/4 of our revenue and about a similar proportion of our customers. We then plan to upgrade our remaining customers post-holiday in Q1 of 2021. Throughout the quarter, we also continued to enhance MarinOne. As part of these efforts, we launched support for all clients' view and dashboard widgets to enable advertisers to quickly view performance across brands, lines of business or geographies, all in one place. Marin enhanced our cross-client reports to enable more granular reporting on campaign objects. And we added support for being responsive search ad formats as we seek to provide brands with the ability to leverage high performing ad units across leading publishers from one integrated workspace. We added Marin insights to MarinOne this quarter, giving our customers automated recommendations on specific actions that will improve the performance of their accounts. These insights are aligned with each advertiser's goals and provide an estimate of the potential impact when implemented. These capabilities are designed to deliver greater performance and time savings to leading brands as they manage their online advertising investments via MarinOne. During the third quarter, Marin continued to expand our support for Amazon Ads. Marin also supports the 3 leading Ad types on Amazon, Sponsored Brands, Sponsored Products and sponsored display campaigns. We debuted Buy Box monitoring, Sponsored Brand performance by asset and evaluation of bid modifiers by placements for Sponsored Products. Marin's Amazon Ad capabilities are designed to complement publisher functionality to drive better performance and time savings for leading brands and their agencies. Marin's tools provide the ability to manage Amazon Ad campaigns at scale and to augment publisher bidding with time of day and day of week bidding functionality. Marin also continues to work with brands in the Amazon Attribution beta, which provides advertisers with insights into how their marketing investments outside of Amazon contribute to downstream conversions on Amazon. Brands advertising on Google, Facebook and other channels can see how many conversions occurred on Amazon, giving them a more accurate understanding of the ROI from those investments. In September, Marin became one of the first companies with access to the Amazon Attribution API. This means we can now offer our customers an automated, scalable solution to programmatically implement Amazon Attribution across their paid initiatives no matter how many ads or keywords require unique tracking. Marine continues to add active customers to this program. We also held a webinar with the Amazon Ads team at the end of October to showcase how advertisers can drive more revenue through use of this attribution functionality. 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. Marin expanded our campaign automation with automated rules for social, allowing advertisers to trigger workflows based on campaign performance and other criteria, saving time and improving performance. We also added support for new Facebook ad types, including Marketplace search and Instagram Explore ads. Additionally, support was debuted for Facebook housing, employment and credit audiences. Finally, we released support for Facebook's value optimization bid strategy. As part of our development of the MarinOne platform, Marin now offers BI connect for our customers, which enables them to automatically push normalized data for Marin to the business intelligence or BI platform of their choice. Marin always 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. 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. I'm encouraged by our activities in the past quarter and in the weeks just prior to this earnings call. And now Bob will review our third quarter financial results and our outlook for the fourth quarter of 2020. -------------------------------------------------------------------------------- Robert Bertz, Marin Software Incorporated - CFO [4] -------------------------------------------------------------------------------- Thank you, Chris. I'll provide an overview of our third quarter results and then share our forecast for the fourth quarter. I'll begin with a review of our income statement. For the third quarter of 2020, Marin generated $6.8 million in revenue, being the high-end of our guidance for the quarter by $300,000, primarily due to higher search revenue. Third quarter revenue was down 42% when compared to total revenue for the third quarter of 2019 or 34% 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 our strategic agreement with Google as a result of the amendment signed in Q1 of this year. Our third quarter 2020 revenue continued to be negatively impacted by the COVID-19 global pandemic. Although we've begun to see improvements 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 that impact is uncertain at this time. A geographic split for revenue in the third quarter was approximately 74% U.S. and 26% international. Moving on to our operating results and the balance sheet. 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 third quarter of 2020 as compared to a $2.9 million loss for the third quarter of 2019. The $2.8 million operating loss in the current quarter was at the high-end of our guidance. During the quarter, we continued to take meaningful steps to reduce our overall cost structure. As a result, our non-GAAP operating expenses were down 38% on a year-over-year basis, and we ended the quarter with 163 total headcount versus 257 a year ago. As we discussed on the last call, we commenced the implementation of a restructuring plan during the third quarter of 2020, and to further reduce our cost structure by approximately $11 million to $12 million on an annualized basis. Approximately $8 million to $9 million of the estimated annualized cost savings is expected to come from a reduction in force that when completed will reduce our workforce globally by approximately 60 positions. We expect to incur a total of $1.5 million to $2 million in restructuring costs, the majority of which relates to severance and other onetime termination benefits. The reduction in force was largely completed during the third quarter of 2020, and we recorded restructuring-related expenses of approximately $1.1 million. In terms of our balance sheet, we ended the quarter with a total cash balance of $9 million, representing a net decrease in cash of $2.8 million from our Q2 balance. The decrease in cash was largely driven by the onetime severance benefits of approximately $1.1 million as well as our net loss. Our Q3 cash balance includes $3.3 million in proceeds received in May from an SBA loan under the Paycheck Protection Program that we took to help us respond to the impact of COVID-19 on our business. We expect to submit an application during the fourth quarter of 2020, seeking to have approximately $2.8 million of our PPP loan forgiven under the rules of the program. To further shore up our balance sheet, in October of 2020, we sold 1.9 million shares of our common stock, utilizing our existing at the market offering program and received net proceeds of approximately $6 million. Moving on to our outlook for the fourth quarter. For Q4 2020, we expect revenues to be in the range of $6.30 million to $6.8 million, and our non-GAAP operating loss is expected to be in the range of $2.40 million to $1.9 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 Q4 2020 earnings call. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.