Greg Kleiner - IR David Yovanno - CEO John Kaelle - EVP and CFO.

Frank Robinson - Goldman Sachs Parker Lane - Stifel, Nicolaus & Co. Karen Russillo - Wells Fargo.

Greetings and welcome to the Marin Software First Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Greg Kleiner, Investor Relations of Marin Software. Thank you. You may begin..

Thank you. Good afternoon, everyone and welcome to Marin Software’s first quarter 2015 earnings conference call. Joining me today are David Yovanno, Marin’s Chief Executive Officer and John Kaelle, Marin’s EVP and Chief Financial Officer. By now you should have received a copy of our earnings release, which crossed the wire a short time ago.

If you need a copy of the release, please go to investor.marinsoftware.com to find electronic version. Call participants are advised that the audio of this conference call is being recorded for playback purposes and that a recording of this call 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 discussions today will include forward-looking statements within the meanings of the Securities Act of 1933 and the Securities Exchange Act of 1934.

These forward-looking statements include statements about our business strategy and outlook and strategy, and statements about historical results that may suggest trends for our business. We make these statements as of May 06, 2015 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 sections entitled Risk Factors in our most recent report on Form 10-Q and our other filings with the SEC.

This presentation contains certain financial performance measures that are different from the financial measures calculated in accordance with GAAP and may be different from calculations or measures made 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 2014 earnings press release. With that, let me turn the call over to Dave..

Thank you. Good afternoon everyone and welcome to the call today. Our Q1 results exceeded our guidance on both the top and bottom line despite a continued headwind from foreign exchange. Importantly, we saw tangible signs of progress with our Ad Cloud vision in the quarter.

While still in the early stages, we are winning an increasing number of multiproduct deals and our broader vision for this space is helping to influence deals across our product portfolio.

Overall, we continue to make good progress with our cross channel good market strategy and are seeing this play out as planned as the productivity of our sales force has increased. In addition, our pipeline for social and display deals continues to build as we’re traction in both new and existing customers with these products.

Having a best in class social product is generating an increasing number of opportunities with prospects in existing clients alike. The value we can provide in our platform by combining search, social and display capabilities is positively impacting our win rates as well.

Our channel and opportunity now is to get involved in more sales cycles by showing that we are no longer just a search company, but can now provide a true cross channel ad management platform that solves a growing number of proxy needs for digital advertisers.

This effort will be an increasing focus of the company as we move forward in order to deliver fully on our Ad Cloud vision. Related to the core search business, the growth in search spending across the better market has slowed somewhat.

We believe this has been driven primarily by some customers taking search spend [ph] steady to fund social and display campaigns given the growth and attractive economics available in many cases.

More and more, we are seeing advertisers shift their thinking about search, display and social channels away from individual silos to a more holistic approach where digital advertising dollars move freely to our audiences and highest area available.

I should point out that we don’t yet have our fair share of our customers in social and display budgets, but we are well-positioned to grow our share in these non-search categories while maintaining our leadership in enterprise search.

While early, the number of multiproduct deals closed in Q1 was up significantly from the levels we saw in the prior quarter. In addition, our pipeline reflects a continuation of this trend that we hope to deliver on going forward. Both social and display have a wrap period as these are less matured categories in search.

So the initial contributions to revenue so far remain modest. By combining these products and leveraging the data inherent in each across the platform, our Ad Cloud vision is uniquely suited to address the evolving and ever more complex needs of digital advertisers.

More importantly, we believe that we will more fully capture this ship and spend as we continue to execute. To that end, in the second half of this year, we expect to report non-search revenues exceeding 10% of our total revenue for the first time. We are pleased to win several notable advertisers in the last quarter.

One example was the new relationship with Solarwinds, a provider of IT management software. In evaluating platforms, Solarwinds was looking for solution with powerful bidding capabilities which was lacking in their previous provider.

What drew Solarwinds to Marin was our platform’s proven patented bidding algorithm as well as the transparency allowed in our bidding and reporting. Marin’s no black box approach was key to Solarwinds as they wanted complete visibility as to how and why automated bid calculations were being made.

With a global rollout plan for the near future, Solarwinds is also looking to take a cross channel approach to their campaign management. As a result, our capabilities in both social were key influences in their decision.

Also signing with Marin this quarter, was Digicel Group, a large mobile telecommunications operator in the Caribbean and Central American market. Digicel saw the value of using both Marin search and display tools together to help push their customers faster to the sales phone [ph].

In doing so, Digicel will be able to specifically retarget converting customers increasing their retention rate as well as pipe in audience data to Twitter to promote tweets to those prospects that have visited Digicel’s website. Well, the other key benefits Digicel anticipates taking advantage of, by using Marin, with their flexible reporting.

Using Marin Dimensions and our suite of reporting tools, Digicel will be able to reduce the amount of time spent on campaign management across regions allowing them to invest more time on new opportunities and grow their business. Another brand that we’ve probably brought on board this quarter is Time Inc.

Partnering with our agency customer, AKQA, Time required its agency team to use Marin to create more transparency across the publisher’s multiple accounts. Looking for a single view of their data, Time will be able to consolidate 26 different publications in its campaigns on the Marin platform.

Now, Time will have various campaign search data available at their fingertips for easy data analysis and program optimization. We also made numerous product enhancements designed to improve the value we’re able to deliver across the platform.

In search, we released new features to improve our abilities to drive campaigns across the major players in the market. For Google, we expand a functionality to better manage Google shopping ads. For Bing, Marin debuted mobile and tablet bid adjustments among other capabilities.

And for Yahoo’s Gemini offerings, Marin launched a bidding support for native and mobile campaigns as well as campaign creators enabling our advertisers to better leverage this fast growing publisher channel. In social, we’ve been hard at work integrating our recent acquisition of industry leading SocialMoov.

We’ve completed Phase I of our deliverables where we connected SocialMoov to our Channel Connect module to improve cross channel visibility and performance along with adding the ability to pass revenue data back to our social product.

As we complete the integration of the SocialMoov backend over the rest of 2015, we’ll be able to leverage Marin’s share platform services to provide SocialMoov with Marin’s enterprise class scalability and uptime.

Those will free up our core social development team to focus even more on rapid, customer-facing innovation such as support for Facebook’s recently introduced dynamic product ads. And while on the subject of Facebook, we also completed the integration of Facebook’s relaunched Atlas tracking technology.

In addition, we released one of our first core share services features, which have implications with the value we can deliver across the platform. In Q1, we launched a cross device feature which allows Marin to uniquely identify the same person on multiple devices. This is an important feature as consumers continue to shift their usage to mobile.

In fact, in Q1, approximately 40% of search spend, 50% of display spend and 60% of social spend that Marin managed on the platform were ads shown on mobile devices.

So with Marin’s new cross device feature, as an example, if a person visits a brand’s website on their laptop, Marin can now retarget that same person on their mobile device with a display ad.

As we continue to execute on our cross channel platform vision, platform shared services such as data which includes cross device bid optimization, personalization and recording and analytics are critical.

We will continue to release features in these areas from a robust development roadmap that’s applied broadly across all products in the platform as we deliver on our Ad Cloud vision. We also announced today that John Kaelle has resigned from the company to pursue other opportunities and spend more time with his family.

He will be staying with us in the roll of CFO until May 15th and then as a special adviser until June 4th. I’d like to thank John personally on behalf of myself, the board, and the entire company for his service over the last four years.

John has built not only the processes, but also the team that has helped the company scale from a private company through our IPO and then to the public markets. We all wish him the best in his feature endeavors.

Stephen Kim, our EVP and General Counsel will be stepping into the role of interim CFO while we conduct the search for a permanent replacement. In addition, Parveen Nandal, our VP of Finance will be assuming the role of interim Principle Financial Officer.

And Jugnu Bhatai, our Corporate Controller will be assuming the role of interim Principle Accounting Officer to help us through this transition. Our full confidence in our entire finance team and expect the finance function to run smoothly until we find a new leader to take John’s place.

In summary, we are pleased with the initial results from our broadened go-to market strategy as the interest for our expanded suite of Ad Cloud products is growing. In addition, our vision to seamlessly combine search, social and display in a single platform is positively impacting business and the individual product lines as well.

We will be working over the course of the year to build on this early success and increase the awareness of our product suite. We continue to believe that the company is uniquely suited to meet the ever changing needs of digital advertisers and their agencies worldwide.

So with that, let me turn the call over to John to discuss the financials in more detail..

Thanks, Dave. I really appreciate the kind words. I’d also like to thank the entire Marin team including our employees, board of directors, customers and partners along with all the investors and analysts that I’ve had the pleasure working with for the past four years.

There’s never a right time to leave a company, but I’ve decided to take some time off to spend some more time with my family. I would echo Dave’s comments about our finance team as I believe they’re fully capable to assist Steve and the rest of the company through this transition. That being said, let me turn to the first quarter results.

Revenue for the first quarter came in at $26.4 million, up 16% year-over-year and down 2% sequentially from our sequentially from our seasonally strong Q4.

This was above our guidance of $25.5 million to $26.0 million and was despite in impact from foreign exchange in the quarter of approximately $500,000 sequentially, a slightly higher headwind than our expectations of approximately $400,000 when we provided guidance in February.

Overall, our revenue would have been up 21% year-over-year and in line sequentially with Q4 on a constant currency basis. Consistent with Q4, our geographic revenue mix was 34% international and 66% domestic. And this international contribution is driving the FX impact I just described given the strength of the dollar.

The business continues to produce a balance performance from both our direct and agency customers with the mix this quarter coming in at 52% from our direct clients and 48% from our agency clients respectively. We served 820 active advisers in the first quarter.

This is up 16% from the 704 in Q1 of last year and up 2% sequentially from the fourth quarter. There are several drivers in our active advertiser metric. So let me impact the number for a moment. We added 12 new advertisers to the Q1 count from the acquisition of SocialMoov which closed on February 12th of this year.

I would note that there were more than 40 additional SocialMoov advertisers that overlap with existing Marin advertisers already in the count. As we discussed in the last call, we did also see some additional impact from our decision to focus our support efforts on larger customers.

Though the impact to this metric was lower than it was on Q4, some smaller advertiser again fell out of the count this period.

One other point to note for this metric, as in past Q1s, we did see a net number of advertisers moving below the $2,000 revenue threshold that is inherent in our active advertiser metric definition during the quarter that still remained on the platform.

In the quarter, the average length for all active enterprise contracts was approximately 14.5 months, just under the 15-month mark at the end of Q4. In Q1, our revenue retention metric on a constant currency basis was in the low 90s.

As a reminder, revenue retention tracks revenue from all advertisers in the corresponding prior year period that remained advertisers in the current period and includes growth and spend from retained advertisers net of churn.

This metric was impacted in the first quarter by the moderation in same-store sales growth of search spend from our existing customers given the macro issues in search Dave described earlier. Churn on a dollar basis has been fairly stable over the last several quarters.

Before moving on to the profit and loss items, I’d like to point out that I will be discussing non-GAAP results going forward, unless otherwise stated. A detailed reconciliation of our GAAP results to the non-GAAP results can be found in our earnings release.

For Q1, our gross profit margin was 67%, down 2% sequentially, but up 1% from 66% in the year ago period. The year-over-year increase is reflective of the continued leverage in the business along with recent actions aimed at improving the efficiency of the support organization.

Sales and marketing expenses were $11.3 million for Q1 compared to $11.6 million in Q1 of last year driven by efficiency gains and lower variable compensations. Research and development expenses were $7.5 million in Q1 compared to $6.3 million in Q1 of last year.

This increased spending was driven by our ongoing efforts to expand the functionality in breadth of our platform to deliver on our Ad Cloud vision. Additionally, this climb was impacted by roughly a month and a half of R&D expense from the SocialMoov acquisition.

G&A expenses were $4.4 million for the quarter compared to $4.0 million for the year ago period. Operating losses came in at $5.4 million for the quarter compared to a loss of $6.7 million in Q1 of last year, significantly improved from our guidance of a loss of $7.0 million to $6.5 million.

Net loss for the first quarter was $5.4 million compared to a loss of $6.9 million in Q1 of last year. Based on a weighted average share count of $35.7 million, this produced a net loss per share of $0.15, exceeding our guidance of a loss of $0.21 to $0.19.

This compares to a net loss per share of $0.21 in the first quarter of last year based on a weighted average share count of $33.1 million.

It’s also worth noting that while the movement in foreign exchange rates did impact our top line in the quarter, the impact to the bottom line was minimal given the cost we incur in local currencies from our people and facility spread across the globe.

Adjusted EBITDA was a loss of $3.8 million in the quarter compared to a loss of $5.4 million in Q1 of last year as continued to make progress towards our breakeven target. On the balance sheet, we ended the year with $52.8 million in cash and cash equivalents compared to $68.3 million at the end of Q4.

As a reminder, as part of the February SocialMoov acquisition, we used $7.5 million of net cash for the transaction. Moving on to guidance. For the quarter ending June 30th, we expect revenues to range from $26.7 million to $27.2 million and non-GAAP loss from operations to range from a loss of $7.9 million to a loss of $7.4 million.

This should lead to a non-GAAP net loss per share in the range of $0.23 to $0.21 based upon a weighted average share count of $36.5 million. As you consider our guidance for operating losses in Q2, please recall that we will be observing a full quarter of expenses from SocialMoov in the quarter.

For the full year 2015, we are updating our guidance and expect revenues to range from $114 million to $116 million and non-GAAP loss from operations to range from a loss of $21 million to a loss of $19 million. This should lead to a non-GAAP net loss per share in the range of $0.60 to $0.55 based upon a weighted average share count of $36.5 million.

I would like to note our guidance is based on current spot rates. Given the recent strengthening of the dollar, our growth rates are being negatively impacted year-over-year by about six points in Q2 and five points for the year as a whole.

Finally, I’d like to reiterate that we continue to anticipate reaching adjusted EBITDA breakeven in the fourth quarter of this year. So, overall, we are pleased with the results from the quarter and the early signs of success from our go-to-market realignments.

Though we have seen some moderation in the broader market search spend and currency changes continue to impact our top line growth, we do believe we have the right assets and strategy with our Ad Cloud vision and offer a compelling value proposition for advertisers around the world.

With that, I want to thank you for your time and I’ll turn it back over to the operator to open it up for questions..

Hi, guys. Sorry about that. I was on mute. Thanks for taking my question. I actually wanted to start with the sales force. Could you give us the average 10-year of the reps? I know you said you’re making productivity gains.

I guess, how far out are we from being - or from sales force being what you consider fully productive and I guess what are your plans in terms of adding reps to the year?.

As we reflected on our last call, we are complete through the core training that we embarked on the second half of last year, moving from a single product primarily to multiple products. We had a successful sales kickoff event in January. So we’re the early stages of kind of building and closing the pipeline of these deals.

When you look at Q1 activity specifically, we’ve had really good increase in terms of opportunities with multiple products attached to them. And so it’s just continuing to execute on the plan that we had started. In terms of 10-year, we don’t report specific 10-year.

I don’t have that at hand in terms of how long reps are doing [ph] - we’ve been building this team over the course of the last couple of quarters. We’ve kind of refined the experience that we thought could grow beyond search. So as we’ve brought on new reps, we’ve looked for a more diversified set of experiences.

But as you can expect, sales forces are continually evolving. We’ll continue to add reps roughly at the rate of growth. We’ve seen an increase in productivity per head while keeping the support cost for those folks relatively flat. So we’ve seen really good improvement with regards to productivity in the sales organization in the first quarter..

Can you talk about I guess the segmentation of the sales force? If you’re talking about the Ad Cloud vision, are reps going to customers with the entire platform or are they segmented to where you could have separate deals in search and social and digital?.

We have essentially four different levels in our sales organization. We’ve got our mid-market teams. We’ve got what we call our - that’s mostly an Inside Sales team. We’ve got our territory or geographic reps that are assigned by geo-region, that are selling at a slightly higher spend per month.

We’ve got our strategic sellers that are selling to our largest spending clients. And then we have our agency team. I think across the board, within each of those groups, we are not trying to sell the entire package all at once.

This has been part of the training exercise to get in there and do some proper qualification, info gathering and start with the pressing needs.

To give you one example, sometimes we’ll, in a situation where there’s an existing search contract in place that may not be due or up for renewal for another six months, we’ll get in there now and try and assess an opportunity to sell through a display or a social sort of opportunity.

Sometimes it’s the same buyer or sometimes these are different buyers of these decisions. But by and large, our strategy is to get one hook in, demonstrate success and then kind of introduce them to multiple products in time..

Great. Two more questions. You said that you expect first non-search revenue or non-search business account for 10% of revenue this year. Could you share what it was last year? And then last one, higher level.

Given the acquisitions into social and digital, I guess how do you think about - how would you define your TAM at this point? And how big the market is and who are your biggest competitors?.

So in terms of how big our non-search revenue was last year, we’ve been consistent in talking about that each earnings report. It’s less than 10%. As we’ve indicated here on this report, we expect that to be greater than 10% in the second half of this year. So we’ll provide more detail as we get to that.

In terms of our addressable market, there is a lot of debate in terms of the trends in the space with about the majority of advertising moving to what’s called programmatic where there’s automation applied to the buying and selling of advertising across all channels.

And so the percent of the spend that goes towards platforms or technologies or analytics is the category that Marin falls into. Each of those channels - I think we talked about when we look at the Magna global report, we look at search being an $80 billion global market, if I recall specifically. Gentlemen, correct me if I misstate here.

I think the display market is roughly in the $40 billion range globally but there’s a programmatic part of that that is growing very fast and expected to be more than 50% of that spend within a few years. And then you’ve got the social spend which is - I would expect it’s kind of in the $20 billion range.

It’s a combination of Facebook, Twitter and the other large social publishers. I think if you add all that up, it’s roughly in the $20 billion range globally right now. Those are the addressable markets for us. But we are a percent of that spend, if you will, that goes towards the investment in the ad management technologies.

You can apply our average take rate to that which has been pretty consistent. As we expand into the new channels of social and display, there’s potential for that take rate to pick up a bit..

Thanks, guys..

Thank you. Our next question comes from the line of Nadan Amladin with Deutsche Bank. Please proceed..

Hi. This is Samir Kozar [ph] calling in for Nadan. I was wondering if you could provide us a little more color on the sort of weak trends on the social display ads that you’re seeing. Is it specific to some geographies or some large or small accounts? Any segmentation you could provide..

Were you referring to my comments specifically about the trends in search spending that I referred to in the call?.

Yes, in the beginning that you mentioned..

Right. So that is specific to search. When you look at the reports from the other companies, including Google and Yahoo, you see some of that same indication.

In terms of the broader market trends in search spending, we’re seeing clients either holding that spend consistent or taking from search to apply it to emerging channels like social and programmatic display. Our biggest challenge right now I think as a company is that we’re still today primarily seen as a search company.

And it’s up to us to kind of go to market. We’ve got our sales and marketing execution to capture our fair share of that shift in budget from search into these other channels.

Does that make sense?.

It’s basically [ph] broad-based then?.

Yes, it is. It’s not a Marin specific trend. It’s broad across the market. I think when you look at the Q1 report from the other search specific publishers, you’ll see that. And that’s been happening for several quarters..

Got it. And then my second thing is on the timelines for the new CFO search.

Any plans you have in mind right now?.

Now, this is a relatively new change for us. I feel very good and confident in the team that we have in place. John has done an amazing job in building a strong team, strong processes. But Parveen and Jugnu are strong in their respective areas of finance and accounting. I don’t feel a hurried rush to just fill a CFO slot.

We are going to take our time to find the best possible candidate for Marin Software..

Thanks.

And the last one, how much did SocialMoov contribute in this quarter and what do you think it’s going to contribute in Q2?.

Yes, we’re not breaking it out. What we’ve talked about is again we believe that SocialMoov as well as the contribution on the display side from Perfect Audience from our acquisition last year, we believe if those two combine will cross over the 10% mark in the back half of the year.

We said when we announced the acquisition last quarter that we felt that SocialMoov itself would contribute a few million dollars on the full year..

Yes, you have the few million comment. I was wondering if you have probably more color on that. Got it. No, that’s good enough. Thanks so much..

Thank you. Our next question comes from the line of Tom Roderick with Stifel. Please proceed..

Hi, it’s Parker Lane in for Tom Roderick. I was just wondering if you could comment on the size of your R&D team post integration of SocialMoov and if you expect to make any more hires there throughout the year..

I’ll just give a broad comment and John can maybe follow-up with the specifics if you need more. But we remain committed to R&D. I mean, we are a technology company. We do benchmark a bit higher than other companies in terms of our investment in R&D. We picked up obviously a development team that’s largely based in Paris with SocialMoov.

We have a real opportunity with integrating their backend with the core of Marin Software infrastructure to kind of free up that team. Not use it as a strategy to reduce headcount but have more investment on the frontend and more the innovation features that are literally required in social. So we continue to expand that team.

That is the priority hiring area of our business, along with quota-carrying sales headcount. And do you have any other specific - you can see it in the metrics around percent of revenue, I think we’re in the high 20s in Q1..

Yes, that’s what I’d say is we continue to invest and prioritize that investment. Longer term in the model, we would put out a long term model. It’s in the Investor Relations deck that’s on the website. Overtime, that investment will moderate as a percentage of revenue. But in the near term, it remains an area of focus for the company.

And while we’re looking for leverage on all of the lines and have seen it up particularly in the cost of revenue line, that would be an area - it’s still a prioritization in terms of investment..

I would just add that you’ll recall that we have made some important changes in our product and engineering team starting in Q4 of last year. We brought in Avik Dey who’s got distributed database experiences from companies like eBay, Intel and others.

And we’ve been doing a lot of innovation to Marin’s platform, infrastructure, other features around data specifically - accessibility of data, how we capture and manage data for our clients and use that to drive unique results.

When we talk about the combination of these channels, we’re leveraging data sets from one channel and applying it to another. That’s a relatively new strategy for Marin and so it requires some investment over the next couple of years to bring some of those opportunities to light..

All right. Thanks, guys..

Thank you. [Operator Instructions] Our next question comes from the line of Karen Russillo with Wells Fargo. Please proceed..

Hi. Thanks for the question.

I was just wondering as you move into these other areas and are getting more - advertisers are getting more focused, they’re shifting more dollars to search, shifting more to social, as a company, what are you guys doing to try and promote yourselves to try and get the message out there that you have these other products, that you’re not just search anymore, what sorts of things are you doing to kind of promote yourself?.

Yes. We have a pretty aggressive event calendar throughout the year. You see it in some of our expense lines in Q2. We haven’t let up on that. Last week, for example, we were in New York with our Marin Masters event. We have five of those a year in the major markets. We were oversubscribed for the first time. We were sold out.

We were turning away both clients and prospects. When you start to move into channels like social, that does capture more attention we found. And so we are out there. We’re at CMO [ph] events. We’re hosting our own events and we’re doing what we can to create awareness for ourselves..

Okay, great. And then I just have one quick follow-up. If you could remind us what the CapEx plan is for 2015..

Yes. I don’t think that we’ve given an exact forecast on it. Last year, we were at I believe 6% or 7% of revenue. I would imagine that this year it would be roughly in the same range on the full year..

Okay. Thanks a lot..

Thank you. You have no further questions in queue at this time. This concludes today’s teleconference. You may now disconnect your lines at this time..