Jason Starr - VP of Investor Relations David Yovanno - Chief Executive Officer Catriona Fallon - EVP, Chief Financial Officer.

Nandan Amladi - Deutsche Bank Ian Strgar - UBS Parker Lane - Stifel.

Greetings and welcome to the Marin Software fourth quarter and full year 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.

It is now my pleasure to introduce your host, Mr. Jason Starr, Investor Relations for Marin Software. Thank you. Mr. Starr, you may begin..

Good afternoon everyone and welcome to Marin Software's fourth quarter and year end 2015 earnings conference call. Joining me today are David Yovanno, Marin's Chief Executive Officer and Catriona Fallon, Marin's Executive Vice President and Chief Financial Officer.

By now you should have received a copy of our earnings release, which crossed the wires a short time ago. If you need a copy of the release, please go to investor.marinsoftware.com to find an 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 would 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 and statements about historical results that may suggest trends for our business. We make these statements as of February 18, 2015 and disclaim any duty to update them.

For 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 the risks relating to our business in general, we refer you to the sections of Risk Factors on our most recent report on Form 10-K 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 on our fourth quarter 2015 earnings press release. With that, let me turn the call over to Dave..

Thank you. Good afternoon everyone and welcome to today's call. I am pleased to report that Marin finished 2015 with record financial results in the fourth quarter and that we made significant strides in our efforts to transform our company from a search-oriented ad management platform and closer to realizing our broader multichannel ad cloud vision.

Q4 revenues came in at $29 million, an increase of 10% year-over-year on a constant currency basis, driven by stronger than anticipated seasonal spend by our customers as well as growth in our customers' social and display spend.

For the year, revenues were $108.5 million, up 9% or 14% in constant currency and exceeded the high end of our guidance by $1.4 million.

This result, coupled with the cost and efficiency initiatives we implemented in the second half of last year enabled Marin to not only surpass our long stated objective of generating breakeven adjusted EBITDA by year-end 2015, but also to deliver our first full quarter of positive free cash flow and non-GAAP net income.

Catriona will provide greater detail on this momentarily, but these results represent a significant milestone in Marin's journey and are important proof point of the operating leverage the business is capable of achieving. Beyond the financial results, 2015 was also an important year of progress in the pursuit of our ad cloud vision.

As we shared last quarter, for the past year we have been in the midst of a significant platform upgrade project to significantly scale and enhance the underlying data infrastructure that supports the Marin application.

We expect this to improve customer experience, provide greater data analytics capability and also capture more of our customers' advertising spend with new features that are enabled by the new platform.

We have made great progress to this end and as we deliver the new platform and complete our customers' migration in the second half 2016, we believe this will set us up to reaccelerate growth heading into 2017.

We also completed the integration of SocialMoov which bolstered our ability to serve our customers in managing their Facebook, Instagram and Twitter advertising campaigns in our social channel.

Organizationally, we made several adjustments to senior leadership throughout 2015 as well as the broader Marin team in order to operate more efficiently and effectively to support our longer-term growth opportunity.

Importantly, we continue to see solid customer interest for our SaaS based platform approach to digital advertising across search, social and display channels and growing focus on transparency, control and measurement.

We think advertisers increasingly prefer an independent, self-service, programmatic ad buying solution that integrates with and complements the growing walled gardens versus an arbitrage managed services model.

In Q4, we had several notable wins in the quarter from new and existing customers including CapitalOne, hotels.com, Hyatt Hotels and Resorts, Keurig Green Mountain, LendingTree, Microsoft, Volkswagen and Zendesk.

These wins, along with continued growth in customer spend on our social and display offerings enable Marin to achieve its goal of generating 10% of our revenues from non-search channels in the quarter. Finally, I am also pleased to report that at the end of Q4, Marin platform managed over $7.8 billion of annualized ad spend for our customers.

This is an increase of $600 million since last year and extends our lead as the largest independent provider of ad cloud services globally. The result all highlight the significant strides we have made in our transformation over the past several quarters.

While significant work remains, we are confident in our vision and remain excited about the opportunity in front of us. I would also like to take a moment to thank all of the employees of Marin for such a strong finish to 2015 and I am proud of what our team delivered.

I would like to now provide you with some color on a few of the wins that we had in the fourth quarter, many of which resulted through our relationships with agency partners and our platform's open architecture.

Marin's partner program now include over 50 certified integrations with industry-leading solutions such as Adobe, DoubleClick, Sizmek and Visual IQ.

This best of breed ecosystem is a competitive differentiator that enables the Marin platform to quickly integrate with our customers' choice of applications for display ad serving or to leverage their exiting revenue tracking and attribution approaches to drive better advertising performance, for example.

One example was Beachbody, a leading provider of home fitness, nutrition and weight loss program such as the P90X and INSANITY workouts. This opportunity, targeted by Marin for years, was brought over the line through our partnership with agency 3Q Digital.

Beachbody was not effectively able to integrate their attribution vendor with their existing search ad management platform and as a result was experiencing inconsistencies in campaign reporting and optimization. Fortunately the attribution vendor was already a certified platform integration within the Marin partner program.

Once the customer migrated to Marin for search advertising, our team was able to quickly automate and improve the accuracy of the customer's reporting in tandem with the attribution vendor and virtually eliminate the inconsistencies that they had been experiencing.

Another interesting win that occurred in the quarter was LendingTree, one of the largest online marketplaces for loans and credit-based offerings. LendingTree has been a long time Marin search customer and during the renewal process we were able to uncover interest in advertising with Yahoo's new Gemini native offering.

Given our early API integration with this publisher, we were able to expand our relationship to include this native display channel in addition to search. This is a great example of the power of our efforts in cross-selling existing search customers with our new display and social offerings.

Another fourth quarter win was Keurig Green Mountain, a leading manufacturer of personal beverage systems. Our ad agency partner, MediaVest included Marin in their proposal as Keurig Green Mountain had expressed interest in cross channel retargeting for an always-on strategy regarding demand fulfillment.

They specifically wanted to apply their search intent data to their social advertising campaigns as well to improve their overall advertising returns, workflow and reporting efficiency.

Marin's unique approach to blending search and social data was important in this decision and our pre-existing integration with their IBM revenue data system allowed us to quickly integrate their existing systems into the Marin application.

We also had an important win in our display channel from a leading global pharmaceutical manufacturer who had recently begun using our search application. As they became more familiar with Marin's capabilities, they expressed an interest in learning more about our recently enhanced display offering.

Unlike many traditional display solutions and direct publisher [media wise] [ph], with Marin they gain improved transparency, insight and greater flexibility and control of their campaigns.

I would like to now provide you with a brief update on some of the new features that we released in the fourth quarter as well as an overview of the new initiative we have launched to drive more efficiency in our customer success organization. In search, we rolled out several new features in the fourth quarter as indicated in our press release today.

PositionLock provides advertisers intraday bidding optimization to help them maintain their preferred ad positions on a page across multiple devices for their high traffic keywords.

We also released new features from Microsoft Bing including support for Bing Shopping, which enables retail brands to advertise their products via images in search results as well as initial support for Bing native advertising on Microsoft owned sites such as MSN.com.

Finally, we released support for Google call-only ads which enables advertisers to insert a phone number in their search ads through which their customers can simply click and automatically call their business via their mobile device.

We made several enhancements to our display offering including the release of a new real-time bidding platform which we rolled out in the fourth quarter and discussed briefly on our last call.

This has now been directly integrated with several leading advertising exchanges such as the Rubicon Project, PubMatic, OpenX and MoPub, which has helped reduce our cost, improve our advertising reach, improve our advertiser campaign performance and has led to several meaningful wins as a result.

These enhancements are also helping us provide our customers unprecedented visibility into the real-time decisioning behind their display campaigns. In a traditional world, execution details of ad buys are often hidden behind search order and network placements.

We plan to bring the same visibility, predictability and transparency to display that marketers have seen in the search channel for several years. And given our market leadership position in search, we are uniquely positioned to accomplish this. Marin also launched Marin University as a strategy to secure customer onboarding and adoption.

One module within this is Marin Live which features a team of our digital marketing experts who demonstrate best practices through instructor led training sessions, video tutorials and hands-on step-by-step guides.

To-date, over 13,000 of our users have accessed this virtual supper center from over 17 countries and consumed over 1,600 hours of training provided via Marin Live.

This kind of automation has enabled our customer success team to prioritize more of their time in executing strategies to help our customers more effectively target their ads, chose appropriate publishers to advertise on and identify cross-channel audience opportunities.

Overall feedback from our customers regarding Marin University has been quite strong and we are excited about our momentum and improving results. This is also a great example of an initiative designed to enable our teams to work more productively and efficiently of our customers' success.

Beyond these, our team is largely focused on the migration of our three applications to the new Marin platform. We have already successfully completed the initial phases of our social migration with the final phase expected to be completed by end of this month.

Afterwards and throughout the first quarter, we will then roll out several new enhancements that have already been developed but dependent on the new platform's release.

Examples of these include a feature for search shopping customers to quickly launched Facebook dynamic product ads and increase support for Facebook's reach and frequency tool which manages ad exposure to the same individual.

Overall, we continue to see strong growth trends in social, particularly with increased customer engagement with Facebook and our recent support for Instagram. We have also seen a substantial increase in ad formats such as dynamic product ads and carousel as well as sequential improvements in clickthrough rates and CPCs throughout the year.

We expect social spend to growing nicely as we more aggressively roll out new features on the new platform. In closing, Marin made tremendous progress in our company's transformation in the pursuit of our ad cloud vision in 2015.

As we enter 2016, we believe that we are well-positioned as the largest independent provider of multichannel ad cloud services over $7.8 billion in annualized advertising spend managed on our platform.

As we conclude our platform rollout, we see an opportunity to capture an even larger portion of total advertising spend, estimated to grow from over $180 billion this year to over $250 billion by the end of this decade.

As the market shifts towards greater concentration of inventory among the largest publishers, we believe we are uniquely positioned to capitalize on this as our SaaS based advertising platform is already directly integrated via APIs to leading publishers such as Facebook, Google, Instagram, Microsoft Bing, Twitter and Yahoo, which capture the majority of this total digital ad spend today.

Our open architecture enables our customers the ability to choose additional best-in-class technology solutions for their ad placements, revenue tracking and marketing attribution needs as opposed to a less flexible vertically integrated advertising stack which may not be optimal at all levels.

The Marin platform empowers advertisers to have increased controls in the transparency of their advertising spend and to maximize their returns. This transparency is increasingly important for advertisers and our multichannel value proposition is resonating in the industry.

We believe that the investments we are making in enhancing the Marin platform will yield strong returns and enable us to better serve our customers capitalize on our longer-term growth opportunity and deliver stronger operating results for our shareholders.

With that, let me turn the call over to Katrina to review our financial results in greater detail..

Thanks Dave. We are very pleased that for the first time in the history of Marin Software, we delivered not only positive adjusted EBITDA but also positive non-GAAP operating profit. Positive non-GAAP EPS and positive cash flow.

The discipline around prioritization of investments including improving the efficiency of our sales, marketing and administrative functions as well as the focus on execution is paying off. We produced record revenue of $29 million in the fourth quarter, exceeding the high end of our guidance by $1.4 million.

The revenue upside was driven by greater than anticipated seasonal advertising spend by our customers, including stronger-than-expected revenue contributions from our social and display products. In the quarter, revenue grew approximately 7% year-over-year and 10% when adjusting for the effects of currency.

For the full year, we delivered revenues of the $1085 million, up 9% and up 14% when adjusting for the effects of currency. From a geographic perspective, we continue to see stronger performance in the U.S. where we are focusing on cross-selling our social and display platforms across the search customer base.

For the quarter, 68% of revenues were from the U.S. and 32% was international, while the full year split was 67% and 33% respectively. The revenue mix was 55% direct and 45% through agencies in the fourth quarter, while the full year mix was 54% and 46% respectively.

We served 833 active advertisers in the fourth quarter compared to 818 in Q4 of last year.

As we have mentioned in previous quarter, this metric is less indicative of our revenue growth than it had been when we were predominantly a search ad management platform and it fails to capture many of our social and display customers as well our cross-selling efforts. As a result, we will discontinue this metric going forward.

Our revenue retention metric tracks revenue growth from the prior year advertisers that remained advertisers in the current year, net of churn. For 2015, revenue retention was 87% in constant currency and 84% as reported, down from 97% in 2014.

This was due to moderation of same-store sales within our existing search client base to remotely license specialized higher growth areas of search which we expect to support more fully on the new platform later this year. Churn across the year remained largely consistent when compared with the prior year. Moving on to the operating results.

Our detailed financials as well as a reconciliation of our GAAP to non-GAAP financials can be found in our press release. My comments will now focus primarily on non-GAAP results. For the fourth quarter, non-GAAP gross margin was 72%, up from 66% in Q3 and up from 69% in the fourth quarter of last year.

The quarter the increase was due to the increased revenues and cost savings initiatives including the restructuring executed in Q3. For the full year of 2015, non-GAAP gross margin was 68%, up from 67% in the prior-year.

Non-GAAP operating profit was $1.7 million for the quarter, an improvement of $6 million sequentially and an improvement at $6.3 million year-over-year. For the full year 2015, we had a non-GAAP operating loss of $14.9 million.

Adjusted EBITDA was a positive $3.5 million for the fourth quarter, an improvement of $6.6 million year-over-year, significantly higher than our expectations of breakeven to $500,000 and benefited by the greater than expected revenues and a focus on expense management.

This represents an improvement of $6 million compared to negative $2.5 million in Q3. On an annual basis, adjusted EBITDA was negative $7.9 million compared to negative $18.8 million in 2014. Non-GAAP net income for the fourth quarter was a positive $27 million, up $6.9 million year-over-year from negative $5.3 million in Q4 a year ago.

Based on a weighted average share count of 37.2 million shares this produced a non-GAAP net profit per share of $0.04, up $0.19 year-over-year and at the high-end of our guidance negative $0.06 cents to negative $0.04. For the year, non-GAAP net income was negative $15.7 million compared to negative $25.9 million in 2014.

We ended the quarter with $37.3 million in cash and cash equivalents, an increase of $4 million sequentially. This was driven by our strong operating results, receipt of our leasehold improvements refund and an improvement in accounts receivable.

We are managing our cash balances diligently and believe that we have sufficient cash on hand to fund our operations through 2016 and beyond. As our Q4 results indicate, the actions we have implemented to improve the efficiency and effectiveness of the business are yielding significant improvements in our operating results.

I would like to reiterate that this financial discipline will continue to be a core tenet in how we will operate the business throughout 2016 and manage to a sustainable level of ongoing profitability.

Our 2016 plans sets the foundation for our longer-term trajectory of growth with the upgrade to the social platform and the planned release of the search platform which we believe will increase the revenue and growth potential of the company over the longer-term. With that said, let me now provide our outlook.

For the first quarter of 2016, we expect revenues to be in the range of $26.4 million to $27 million.

Non-GAAP operating income is expected to be in the range of negative $1.9 million to negative $1.3 million and non-GAAP net income per share is expected to be in the range of negative $0.06 to negative $0.04 based on a weighted average share count of 37.8 million shares.

As we look at the full year, the expect acceleration of revenue growth remains dependent upon the planned release the new platform for our search, social and display channels as well as customer adoption of the enhanced product features it enables. As Dave noted, we expect to complete the final phase of our social migration this month.

As we plan for the search migration, we will carefully manage the rollout to our customers to help minimize disruption using a phased approach to migrate customers to the new platform. We expect this process to carry over into at least the third quarter with some customer adoption extending into the fourth quarter.

At this time, we will have an impact on our projected revenue uptick. We now expect revenues to be relatively flat in the first half of the year and to grow in the low to mid single digits by the fourth quarter. As I noted earlier, throughout this period we will manage expenses in relation to the product release and our quarterly revenue expectations.

We are committed to delivering positive adjusted EBITDA for the full year of 2016. For modeling purposes, remember that the first half of the year has higher seasonal expenses, including the reset of payroll taxes and merit increases.

So we expect adjusted EBITDA to be closer to breakeven in the first half of the year and to increase in the second half as the platform is released and customer spend increases. We will also be diligently managing our cash balance and expect it to remain about $30 million throughout the year.

In closing, wee strongly believe that Marin's differentiated advertising cloud vision supported by our new platform will enable us to reaccelerate growth in 2017 and longer-term. We believe this business can deliver double-digit profitable revenue growth, positive free cash flow and strong shareholder returns.

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

[Operator Instructions]. Our first question comes from the line of Nandan Amladi with Deutsche Bank. Please proceed with your question..

Good afternoon. Thanks for taking my question. So the first question is on the spend under your management relative to the overall revenue growth. As you have more products to sell, presumably your ARPU, revenue per customer will go up.

But how do we get a sense for how that's tracked [indiscernible]?.

Hello Nandan. This is Dave.

Just so I understand the question specifically, are you talking about contribution from non-search products and how that's affecting spend under management?.

Yes. Exactly..

So non-search, in our call, we talked about it representing 10% of total spend in the quarter. So it's still not a significant factor and I think driving that overall metrics, so 90% of that spend under management is search, that $7.8 billion.

I think as non-search becomes a higher part of the mix, I think you will start to see some of the dynamics around take rate and others..

Okay.

And then in terms of bookings from new customers growing their search spend versus up-selling of display and social, do we have any more visibility into that? Are there any other metrics you could provide us [indiscernible]?.

I would say, overall I have been pleased with the progress that we have been making in optimizing our go-to-market strategy. Collectively for 2015, one-third of our total transactions were cross-sell deals.

So if it was an existing search customer, one third of our customer, one-third of our transactions, for example were selling in existing customers - customer either our social or display product. So that gives you a sense of some of the progress that we have made there.

Obviously there is always more work to do in sales but we are quite pleased with the progress that we have made there..

Thank you..

Our next question comes from the line of Brent Thill with UBS. Please proceed with your question..

Hi guys. This is Ian Strgar, calling in for Brent Thill. Thanks for taking my question. I just wanted to drill down a little more into the opportunity from the [indiscernible] upgrade.

Is there a way of quantifying how much ad spend you are not able to address with the current platform? Or in other words, what is the incremental opportunity of ad spend that you could gain after the migration to the new platform is totally complete?.

So just to give you some directional feedback on that, there are a couple areas of higher growth in search spend. These are more specialized areas in search.

So there is GDN spend, there is YDN spend, there is shopping spend that as we further enhance our existing support for those features we believe that there is a good upside potential in spend in those areas. And there are many other benefits to the new platform upgrade.

I would look at it as, if you take a look at our revenue retention metric, I expect that as we address with the new platform and enabling support for these higher growth areas, we should expect to return to at least market rate topline growth, which in search is in that 10% range.

It should give you an indication of what those new features are worth on the new platform..

Got it. Okay. Great. That's helpful.

And then next is, can you guys disclose what percent of your search customer base is using social and display? Or I guess what I am trying to at here is, what's left in the up and cross sell opportunities for the search customer base?.

Well, one metric we look at is the revenue mix. So 90% revenue coming from search and 10% non-search. And so that non-search is the combination of both display and social. So that should be some indication. We are kind of just getting started, if you will, in terms of selling social, particularly in the U.S.

We have got more penetration in Europe because the company that we acquired SocialMoov they were based in and are based in Paris. But we have really yet to take that product to market fully here in the U.S. We are nearing completion of the last phase of our social migration. We have got a whole set of features that are part of this final phase.

And so that's coming in the next several weeks. And we expect that to be a catalyst to higher social growth, particularly in the U.S. And again as we complete the rest of our platform migration throughout the year, that will benefit overall.

We are also seeing really good impact of social helping us sell more search because we are seeing those buyers be oftentimes the same buyer whereas display tends to be a different team in most cases. I think long-term, you are going to see more of the programmatic marketing being managed by a more central team.

But today the search buyers are a little bit more similar to the social buyer. Display is still somewhat unique..

Great. Thanks a lot, Dave..

Our final question comes from the line of Tom Roderick with Stifel. Please proceed with your question..

Hi. It's actually Parker Lane in for Tom.

I was wondering how you feel about the progress of your business internationally? Any specific dynamics you feel are unique to some of the markets you play in outside of North America? And maybe how large an opportunity you feel that business could be in this year and beyond?.

International continues to grow. I think the percent mix is 32%.

Is that right, Catriona? In the report that we shared?.

Yes. 32%.

32%, international mix. So that business continues to grow. Although U.S., I expect will grow somewhat faster relative to our international business. I think the big driver there is going to be social in 2016. So I just think we are underpenetrated relative to Europe just in that one product.

And again I am seeing having a strong social product that is helping us sell more search. But we do not have plans for opening up new offices internationally at this point. We may look at that as we have more time under our belt in terms of achieving profitability and what not.

So maybe into 2017, we can look at further expansion office wise in other international markets. But we are focused on the same things internationally as we are in the U.S. We are cross-selling. We are keeping up with the changes in privacy laws in countries specific, Germany for example. But it's business as usual internationally.

Because we are underpenetrated in the U.S. in social, I expect there to be slightly higher growth here in the U.S. just with that social dynamic..

All right.

And then considering some of the cost savings initiatives you put in place, are there any update on the headcount in your sales and marketing organization and is the expectation of that to remain mostly flat year-over-year here looking into 2016 or maybe slightly down or any direction there would be great?.

Our focus in sales headcount, we did drive some efficiencies in some of the support structure and sales. We have been monitoring how that's impacted number of leads and number of opportunities created and we have been able to maintain or actually grow that with some of the restructuring that we have done on the support side of sales.

Headcount has remained constant. We are adding to heads just less than the rate of growth. And so, I would say that as we release features and we have more success in topline growth, we are going to expect to invest more in the new quota carrying heads, but right now the focus is more cross-selling.

I think until we get further penetration with all products and then as the topline further accelerates, we are going to continue to look to add new quota carrying heads..

All right. Thanks for taking my questions..

There are no further questions at this time. This will conclude today's teleconference. Thank you for your participation and you may disconnect your lines at this time. End of Q&A.