Q4 2023 Marin Software Inc Earnings Call

Participants

Rob Bertz; CFO; Marin Software Inc

Chris Lien; Founder, Chairman and CFO; Marin Software Inc

Presentation

Operator

Greeting and welcome to the Marin Software Fourth Quarter 2023 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 Bertz. Thank you. You may begin.

Rob Bertz

Thank you. Good afternoon, everyone, and welcome to Marin Software's Fourth Quarter 2023 earnings conference call. My name is Bob Bertz. I'm Marin CFO. And joining me today is Chris Lien or NCE. 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 dot Marin Software.com. All 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, our expectations for customer adoption and use of our services historical results that may suggest trends for our business, our expectations about our ability to improve customer retention and new business bookings and to grow or sustain our business, our expectations about our expenses and cash resources, the impact of investments in product and technology, progress on product development efforts, product capabilities and benefits. Our relationships with publishers and other parties in the digital advertising market, expectations for future economic activity in digital advertising spending, expected restructuring costs and cost savings from our restructuring efforts and our expected Q1 2024, your financial results. We make these statements as of February 22, 2024, 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-K and Form 10-Q as well as our other SEC filings.
This presentation contains financial performance measures that are different. 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 2023 earnings release.
With that, let me turn the call over to Chris.

Chris Lien

Thank you, Bob. Good afternoon, everyone, and thank you for joining our call today. I'll share my observations on the quarter and full year and provide an update on our initiatives to grow our business. Bob will then provide additional detail on our fourth quarter and full year results for 2023 and our outlook for the first quarter of 2024. As I discuss on each call, we remain committed to returning Marin to growth and maximizing 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 maximize the returns from their online advertising investments. Our efforts are focused on growing our business, and we continue to believe that our strategy is sound as we report ongoing moderation in our revenue decline on a year-over-year basis. And as I did on our last call, I'm pleased to share that we continue to receive encouraging customer feedback on our new offerings from brands and agencies. As announced in today's earnings release, Q4 revenues came in at $4.4 million, which was in line with the high end of our previously published guidance for Q4, but still down from Q4 in the prior year. On a sequential basis, rental revenues were down just slightly from Q3. Our Q4 non-GAAP operating loss was also above the high end of our guidance despite our lower revenue for the quarter and continued investment in Marin one and our team, our total cash balance at the end of Q4 was $11.4 million, providing Marin with resources to pursue our strategy and to support our customers. At year end, our global headcount was approximately 108. 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 balance investments with cost management. We have been investing significantly over the past quarters to give brands and agencies a user-friendly cross-channel advertising management platform, enabling them to sell more with the platform that unifies the fragmented world of performance marketing in talking to our customers and prospects. We also have discovered that digital marketing needs varied and we need to better tailor our product offering and associated marketing messaging to better meet the needs of leading digital marketers as part of these learnings and to better meet the varying needs of digital marketers. You will now see on our website at www. Marin Software.com, three offerings from Marin Connect, Ascend and Marin one Connect as a reporting focused solution for advertisers.
Looking to collect or performance marketing data from a variety of sources and send to data warehouses, BI tools and spreadsheets. Step one of understanding your digital advertising spending is to have reliable comprehensive reporting in a format that addresses your particular business, needs a set and built on the data foundation provided by Connect, helping advertisers maximize the return on their marketing investment.
I sense, AI. based optimization methodologies, support budget compliance at scale for agencies. It also allows brands to estimate the impact of increased or decreased advertising spend and to understand optimal spend allocation across campaigns, publishers and channels. Historically, these budgeting decisions have been done with spreadsheets and a highly manual and potentially error-prone approach. Marin provides marketers with a powerful way to automate these budgeting decisions while providing flexible budgeting controls. These tools are compatible with various bidding approaches, including support for Google smart bidding, Ascend supports a range of publishers and channels and just this quarter, we enhanced our support for Linktone TikTok, Apple search ads and to Buhler to include Marin's proprietary forecast and budget models and simulations. This functionality uses machine learning, combined with customizable rules to help advertisers maximize the return on the marketing investment. Marin will continue to advance and expand our budget optimization functionality as we see this as an enduring area for an independent ad management platform to add value. It is impractical and not feasible for a publisher to provide forecasting and pacing for other publishers, creating what we believe is a compelling opportunity for Marin's optimization offering. I'm pleased to report that initial customer results with Marin Ascend are encouraging for both financial lift and time savings using our Ascend functionality. Marin's platform save time and increased revenue for an agency customer by 20% with intelligent budget pacing with dynamic allocation. And in Q4, Marin doubled lead volume for alumni ventures and reduced cost per lead by 33% with our budgeting optimization functionality. We are looking forward to sharing more customer-specific case studies and testimonials in the coming months as we continue to add to ascend functionality. Ascend already has played a role in various customer renewals as well as new business wins. We also seek to complement the publisher tools by enabling management at scale for large paid media programs driving time savings and financial risk customer examples in the past quarter include increased revenue for Yodel by 323% using Marin's Google, the Microsoft sync and Internet brands increased revenue 30% by uniting customer lifecycle data with Marin's revenue hub in the past quarter, Marin continued to expand our support for Amazon ads. Our team enhanced in-app e-commerce data to include Amazon shop shopping, product level cost and revenue across both paid and organic sales for greater transparency and more comprehensive revenue reporting. We also enabled support for Amazon stores, spotlight and sponsored brand video, critical ad types to breadth to drive brand awareness to deliver more comprehensive campaign management on Amazon's platform with many companies facing uncertain business outlooks and reducing their staffing levels. Marin stands ready to provide managed services capabilities flexibly to supplement a self-service SaaS platform as new publishers become more important and full-time staffing levels come under increased pressure, rentability supplement in-house teams at brands and agencies with Marin's experience. Digital marketers is resonating in the marketplace. Our activities to support brands and their agencies continue to take place against an active backdrop of governmental antitrust investigations at the federal and state levels and in the have of the businesses of leading publishers in the digital advertising market. There is also the potential of federal legislation to regulate certain conduct and the leading publishers, which could benefit Marin's role as an independent ad management platform. Marin enjoys competition 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 target in these investigations, Marin spent less than $100,000 in Q4 on legal fees, in conjunction with responding to official requests that Marin has received related to these various investigations, we expect to spend at similar levels in the coming quarter based on the legal activity that we are seeing, which is primarily providing information in response to various subpoenas.
As I've shared in prior calls, I believe Marin has a tremendous opportunity. Our Marin one development efforts have taken longer and required more investment than originally projected. Rent can benefit 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 in an increasingly fragmented online advertising landscape, we are seeing growing interest in brands, taking a cross-channel approach to their digital advertising investments, including early interest in Marin's budget optimization functionality, which we call Marin this end, Marin with our Marin one 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 fourth quarter and full year financial results and our outlook for the first quarter of 2024.

Rob Bertz

Thank you, Chris. I'll provide an overview of our fourth quarter and full year results and then share our forecast for the first quarter of 2024.
I'll begin with a review of our income statement. For the fourth quarter of 2023. Marin generated $4.4 million in revenue, which was at the high end of our guidance. Revenue is down approximately 16% when compared to total revenue for the fourth quarter of 2022. For the full year 2023, revenue totaled $17.7 million, which is a year-over-year decrease of 11% as compared to $20 million in 2022. Our geographic split for revenue was approximately 80% US and 20% international for both Q4 and the full year of 2023.
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.
As I've discussed on previous calls, we commenced the implementation of a restructuring plan in July of 2023. Our restructuring plan is expected to reduce our pretax cost structure by approximately $10 million to $13 million on an annualized basis, close to $10 million of the estimated annualized cost savings is expected to come from the reduction in force, which reduced our workforce globally by 65 positions as well as approximately 15 full-time equivalent contractor roles. The reduction in force was complete. As of the end of the year, we incurred approximately $1.8 million in restructuring costs, substantially all of which relates to severance and other one-time termination benefits. We began to realize the associated savings during the third quarter of 2023, and we expect to fully realize the estimated savings in 2020 for this restructuring helps to bring our expense base more in line with our current revenues.
Our non-GAAP operating loss was $1.9 million for the fourth quarter of 2023 as compared to a $4.2 million loss for the fourth quarter of 2022. The $1.9 million non-GAAP operating loss in Q4 beat the high end of our guidance by approximately $100,000. The decrease in operating loss as compared to Q. for 2022 is attributable to the implementation of our restructuring plan, which was partially offset by lower revenue.
Our full year 2023 non-GAAP operating loss was $14.6 million as compared to a $17.7 million loss in 2022. The decrease in loss year over year is attributable to expense savings in the second half of the year as a result of the restructuring, which was also partially offset by lower revenue.
Our Q4 non-GAAP operating expenses were $4.6 million, which represents a 33% decrease when compared to the fourth quarter of 2022 The decrease is attributable to the restructuring plan we commenced in the third quarter of 2023. For the full year, our non-GAAP operating expenses were $23.4 million which represents a decrease of approximately 14% as compared to 2022, again, primarily due to the implementation of our restructuring plan in the third quarter. We ended the year with 108 total headcount versus 177 a year ago.
In terms of our balance sheet, we ended the quarter with a total cash balance of $11.4 million as compared to a $13.6 million balance at the end of the previous quarter. We will continue to carefully monitor our cash levels.
Moving on to our outlook for the first quarter of 2024. For Q1 2024, we expect revenue to be in the range of $4 million to $4.3 million and our non-GAAP operating loss is expected to be in the range of $2.2 million to $1.9 million. Our revenue guidance reflects our estimate of the continued impact of the uncertain economic environment on advertising spend by both existing and prospective customers.
This concludes our call for today. Thank you for your time, and we look forward to updating you again during our Q1 2024 earnings call.

Operator

You may, you may now disconnect your lines. Thank you for your participation.