Catriona Fallon – Executive Vice President and Chief Financial Officer Chris Lien – Chief Executive Officer, Founder and Chairman of the Board.

Analysts:.

Greetings and welcome to the Marin Software’s Fourth Quarter 2016 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, Catriona Fallon, Chief Financial Officer of Marin Software. Thank you Ms. Fallon, you may being..

Thank you. Good afternoon everyone and welcome to Marin Software’s fourth quarter 2016 earnings conference call. My name is Catriona Fallon, Marin’s Executive Vice President and Chief Financial Officer and joining me today is Chris Lien Marin’s Chief Executive 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 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’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, and statements about historical results that may suggest trends of our business. We make these statements as of February 28, 2017, 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-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 2016 earnings press release. With that, let me turn the call over to Chris..

Thank you Catriona. Good afternoon everyone and thank you for joining our call today. I’ll review the quarter and our full-year results, including an update on some of recent wins, provide an update on our initiatives to return Marin to growth, including new product features that we recently debuted and the status of our new platform.

Catriona will then provide additional detail on our quarterly and full-year results and our outlook for the first quarter. As you’ll recall I’ll return the CEO at the end of August along with my Co-Founder and EVP of Product and Technology, Wister Walcott. Our goal is to return Marin to growth and to maximize shareholder value.

We intend to do this by focusing and meeting the needs of our customers, the world’s leading advertisers and their agencies as they seek to optimize the returns from their online advertising investments.

Working with our team members and partners we’ve been busy over the past six months putting in place the foundation which we believe we will return Marin the growth over the course of 2017. I’ll talk more about our initiatives to return to growth in a few moments. But first let me comment on our financial performance in Q4 and for the full-year 2016.

As we work toward this return to growth, we have to acknowledge that Marin will experience some difficult quarters as we address our challenges. As announced in today’s earnings release, Q4 revenues came in at $23 million and full-year revenues were $99.9 million, which were both above the high-end of our guidance, but down from the prior year.

While our current revenue performance has been disappointing, I’m pleased to report that we have operated with financial discipline which enabled us to deliver breakeven adjusted EBITDA for Q4 and $2.4 million of adjusted EBITDA for the full-year, which also was above the high-end of our guidance.

Free cash flow in the quarter was close to breakeven and this also was true from the full-year period. We ended the year with total cash of $35.7 million, which is down just $1.6 million from the ending amount in the prior year. Non-GAAP gross margin was 69% for the quarter and 70% for the full-year.

Despite our ongoing revenue challenges, the underlying operating leverage in the business, along with cost and efficiency initiatives are enabling us to continue to invest meaningfully in Marin’s future.

Before I discuss the initiatives to return to growth over the balance of 2017, I want to highlight some of our recent customer wins, which provide evidence of green shoots as we invest for a brighter future.

Over the past few months, Marin has singed up, renewed or expanded our commercial relationships with leading advertisers in the business services, entertainment, financial services, real estate, retial technology and travel verticals.

We believe each of these leading advertisers chose Marin for a combination of our ability to deliver market-leading performance, time savings and better business insights, supported by a global enterprise class customer success footprint.

These advertisers carefully evaluated their alternatives versus other providers in the market and chose Marin for the future growth of their online advertising programs. We are pleased to count each of them as a Marin customer.

As I spend time with our customers, prospects, partners and team members, I’m reminded both of Marin’s opportunities and our near-term challenges.

Marketers seek to maximize the value of their online advertising investments, that they face an advertising world by the two leading publishers, Google and Facebook, account for some 75% of online traffic and approximately 60% of all online advertising.

These two publishers operate as walled gardens leaving advertisers to figure out the growing complexity of their customers’ path to purchase, plus multiple advertising and device touch point.

This dynamic gives Marin enduring competitive advantage, as the publisher tool sets for not addressed cross-publisher, cross-channel need and a lack of independence calls into question the measurement budget allocation and optimization functionality that these closed platforms can provide.

And even with this concentration in Google and Facebook, we still the rise of new publishers with the opportunity to reach new customers or to routine and engage in interesting ones. And large-scale marketers cannot afford to miss out on the rest of the online audience and need a partner that can deliver performance inefficiency at scale.

Our open independent cross channel performance advertising platform enables leading brands to measure manage and optimize billions of dollars of online advertising investments across channels, devices and publishers, while leveraging their first-party data, as well as other data sets to reach the best audiences through their products and services.

We believe that our SaaS platform can drive financial lift, time savings and better business insights through greater transparency, efficiency and return on advertising spend. We my return to Marin and with the support of our team, we were operating with renewed urgency to deliver for our customers.

Our initiatives to return Marin to growth focused on sales and marketing execution, account management and customer success delivery and customer facing product innovation. In the sales and marketing area, we’ve put in place leaders and team members who are better able to deliver solutions to digital marketers.

We’ve placed renewed emphasis on solution selling and meeting the business challenges of our customers, as a opposed to future based selling that is more transitory and easily copied. This also positions Marin to be a better partner for these advertisers and agencies as their digital marketing needs grow in scale and complexity.

We also continue to develop our team that calls on agencies after our initial sales engagement to form these accounts, to add more clients, and to expand the use of Marin’s platform by existing agency clients. And we are making greater investments in marketing, thought leadership and other lead-generation activities to highlight Marin the prospects.

A recent white paper called, The Multiplier Effect of Integrating Search & Social, is one example of this kind of activity. In our customer success function, which is responsible for retention and growth, we have reorganized our service delivery teams to provide a single point of contact to our larger customers, including brands via agencies.

We also have efforts underway to cross train members on search and social to better meet the needs of these accounts. We believe our efforts will enable Marin to address the emerging trend of coordinated marketing across search and social channels.

Even though we are still in the early days for marketers to coordinate their spending across channels, Marin is already delivering results for its customers.

For a large automotive customer, Marin was able to enable our agency to use search intent to create custom audiences on Facebook, to retarget into prospect, resulting in a 77% decrease in overall cost per lead and 132% increase in monthly conversions.

Also in Europe, TUI Netherlands via their agency was able to use Marin to leverage search intent to remarket on Facebook resulting in 53% of conversions via mobile newsfeed with a 23% decrease in conversion cost.

These are early examples of solutions Marin can deliver now to drive better performance for brands harnessing the cross channel power of search and social. Marin is also focused on customer facing product innovation.

As I mentioned Marin is already delivering the ability to harvest search intent to drive social advertising programs, resulting in measureable financial lift and as they are viewing updates to our optimization functionality to further enhance Marin’s ability to deliver performance, including faster bid calculations, easier bid set up due to advance clustering technology, device specific tools and more advanced forecasting [indiscernible] and budget allocation.

In social Marin debuted our own proprietary global media plan functionality to support larger, more complex campaigns, better support for fee driven ads, support of lead ads and the services objective, as well as budget allocation functionality across access to drive improved performance.

In making these investments we are able to deliver automation at scale for social marketers. We also continue to make good progress in our investment and our next generation infrastructure which uses distributed big data technologies and micro services.

This investment, which has taken longer than we had originally estimated, provides Marin with a state-of-the-art architecture on which we can innovate for years to come. We look forward to delivering more customer facing functionality built on this infrastructure.

We are deploying this functionality using a hybrid approach to enable more benefits to flow to our customers sooner. The bidding enhancements I highlighted earlier leverage this investment.

Additionally, beginning this quarter, we will begin to invite certain customers to participate in what we are calling our platform data program, so that they can use more of this new functionality, including improved data loading, application speed and scale handling.

This infrastructure, which will run side by side with our existing platform and be seamlessly accessible by our customers also will enable Marin to innovate more rapidly by leveraging the micro service architecture of our platform data investment.

As brands are seeking to meet the consumer at every stage of the buyers journey across channels, devices, and publishers and are always on always connected world, we believe Marin is well-positioned as the preferred technology partner for this mission.

We believe these forces play favorably into our business strategy given our unique SaaS based delivery model with cross channel API integrations into many of the world’s largest online publishers and our independent and transparent approach to digital advertising.

As excited as I am about these changes, our near-term outlook remains challenged, leading to a cautious view of Marin’s business during this period, as you work to improve the execution in sales and marketing, account management and product delivery.

I expect Marin to return to growth over the course of 2017 as our various initiatives begin to deliver result. I also want to take this opportunity to thanks two members of our Board of Directors for their service as they transition off of Marin’s Board.

Bruce Dunlevie, who is a General Partner with Benchmark Capital and who lead Marin’s first institutional fund raising in 2008, left Marin’s Board earlier this month to return to his focus on earlier stage investing.

Paul Auvil, who is the Chief Financial Officer at Proofpoint will step down from Marin’s Board at our April annual meeting having served on our Board since 2009. I want to thank Bruce and Paul for their counsel and contributions to Marin over the years. But we still have significant work to do in our efforts to return to growth.

I believe that Marin has a tremendous opportunity and that our best days lie ahead. And now Catriona will review our financial results and our outlook for the first quarter..

Thank you Chris. For the fourth quarter 2016 Marin exceeded the high-end of guidance with net revenues of approximately $23 million, down 5% sequentially and down 21% year-over-year.

Remember that Q4 of 2015 was our strongest revenue quarter in Marin history, however, the year-over-year decline was to both reduced seasonality of customer spend and customer churn over the past 12 months. Full-year 2016 net revenues totaled $99.9 million, a year-over-year decrease of 8%, when compared to $108.5 million in 2015.

Form a geographic perspective, in both the fourth quarter and the full-year, 69% of revenues were generated I the U.S. and 31% of revenues were generated internationally.

In terms of revenue mix, for the full year 58% of revenue was generated to direct advertisers and 42% was form advertisers contracting through agencies, this compares to 54% direct and 46% form agencies in 2015.

In the fourth quarter, 60% of total revenue was form direct contracts with advertisers and 40% of revenue was form advertisers contracting through agencies. This shift in the mix towards direct contracts is do in part to our focus on strengthening our relationships with key advertisers and bringing them on to direct contract.

We continue to view agencies as an important channel, but also recognize greater competition in the segment resulting in lower retention and a decline in same-store sales among agency advertisers. 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 profit was $15.8 million, resulting in the non-GAAP gross margin of flat from the third quarter 2016 and down from $21 million in non-GAAP gross profit and in non-GAAP gross margin of 72% in the fourth quarter of 2015.

For the full year 2016 non-GAAP gross profit was $70.2 million, compared to a non-GAAP gross profit of $73.3 million in 2015. This resulted in an improvement in gross margin to 70%, in 2016, compared to 68% in the full-year of 2015.

Non-GAAP operating loss was $1.4 million down from a profit of $1.7 million in the fourth quarter of 2015, and exceeding the high end of our guidance by $1.7 million. We delivered a non-GAAP operating margin of negative 6%, which compared to a non-GAAP operating margin of a positive 6% during the fourth quarter of 2015.

For the full-year 2016, we delivered a non-GAAP loss from operations of $3.7 million, an improvement of $11.2 million compared to a non-GAAP loss from operations of $14.9 million in 2015. Adjusted EBITDA was positive $31,000 for the fourth quarter, down from $3.5 million in Q4 of 2015.

On an annual basis adjusted EBITDA was $2.4 million, compared to a negative $7.9 million for the full-year of 2015. For the fourth quarter non-GAAP net loss was $1.9 million resulting in the loss of $0.05 per share based upon a weighted average share count of 38.7 million shares and exceeding the high-end of our guidance by $0.04.

This is down from an net profit of $1.7 million, and EPS of $0.04 per share in Q4 of 2015, based upon a weighted average share count of 37.2 million shares in the first quarter of 2015. For the year non-GAAP net loss was $4.2 million, or negative $0.11 per share based on 38.3 million weighted average shares outstanding.

This compares to a non-GAAP net loss of $15.7 million in 2015, or negative $0.43 per share, based upon 36.6 million weighted average shares outstanding during 2015. For the full year cash flow from operations was a positive $5.7, an improvement of $12.7 million compared to negative $7 million in 2015.

We ended the year with $35.7 million in cash and cash equivalents, including $1.3 million in restricted cash which represented an decrease of approximately $700,000 sequentially and a decrease of $1.6 million over the full year of 2016.

The decrease, which is inclusive of $1 million of unfavorable currency impacts reflects investments in property, plant and equipment and internally developed software, as well as repayments of notes payable somewhat offset by the positive operating cash flow for the year.

Moving on to guidance, as Chris mentioned, we are excited about some of the key renewals that occurred in Q4 and about the opportunity that roll out customer enhancing features on Platform Beta.

With that said our recent revenue decline is indicative of customers that have churned over the past 12 months, as well as softer new business bookings, which will continue to impact our revenue trajectory going forward.

There was downward pressure on revenue when churn exceeds new customer bookings in samestore sales and given the nature of our monthly revenue, it can take time for an uptick in bookings to impact the topline. Additionally, Q1 tends to have lower seasonal spend than Q4.

With that in mind for the first quarter of 2016 we expect revenues to be in the range of $19 million to $19.5 million. Non-GAAP operating income is expected to be in the range of negative $5.6 million to negative $5.1 million.

And non-GAAP net income per share is expected to be in the range of negative $0.14 to negative $0.13 based upon our weighted average share count of 39.1 million shares. With that I’d like to thank you for your time and I’ll turn the call back over to the operator to open it up for questions..

It appears we have no questions at this time. I’d like to turn the floor back over to management for closing comments..

Sure it’s Chris here Marin’s CEO. I just want to thank everyone for dialing in to listen to the quarterly call and we look forward to providing you updates over the coming quarters as we work to return to growth. Again thank you for your support..

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation..