Brad Kinnish - Chief Financial Officer Chris Lien - Chief Executive Officer, Founder & Chairman of the Board.

Analysts:.

Greetings and welcome to the Marin Software Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Brad Kinnish. Thank you. You may begin..

Thank you. Good afternoon everyone and welcome to Marin Software's second quarter 2017 earnings conference call. My name is Brad Kinnish, Marin's CFO. Joining me today is Chris Lien, Marin's CEO. By now you should have received a copy of our earnings release, which crossed the wire short time ago.

If you need a copy of the release, please go to investors.marinesoftware.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, historical results that may suggest trends for our business, expectations about our ability to return to growth, impact of investments on product and technology, progress on product development efforts, product capabilities, and future financial results including outlook for the third quarter of 2017.

We make these statements as of August 10th, 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 second quarter 2017 earnings press release. With that, let me turn the call over to Chris..

Thank you, Brad. Good afternoon everyone and thank you, for joining our call today. I'll review the quarter, and provide an update on our initiatives to return Marin to growth, including product features that we've recently debuted and the status of our new platform.

Brad will then provide additional detail on our quarterly results and our outlook for the third quarter. It’s been almost a year since I returned to the CEO role 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 are focused on meeting the needs of our customers, the world’s leading advertisers and their agencies as they seek to grow and optimize the returns from their online advertising investment.

Working with our team members and partners, we’ve been busy over the past year putting in place the initiatives which we believe will return Marin to growth over the balance 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 Q2.

As announced in today’s earnings release, Q2 revenues came in at $18.7 million, which was above the high-end of our guidance, but down from the prior year.

While our current revenue performance continues to be disappointing, I am pleased to report that we have continued to operate with financial discipline and we ended the quarter with total cash of $33.8 million, which is down just $0.5 million from Q1 levels.

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

Marketers seek to maximize the value of their online advertising investments, but they face an advertising world where 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 across multiple advertising and device touch points.

Marin sees managing search and social investments together as driving what we call the multiplier effect whereby conversion rates, volumes and efficiencies exceed what can be achieved in one channel on its own.

As part of our thought leadership on this topic, we have published a Google and Facebook playbook with cross-channel success and recently held the webinar in partnership with Facebook on this topic.

This webinar which was held in early July achieved an all-time record in Marin’s history with regard to total registrants and attendees providing strong market validation of the interest from advertisers for solutions to manage these two leading channels in an integrated fashion.

Our focus now is to convert this high level of webinar interest into new customers and add-on bookings. An encouraging sign in Q2 was the uptick that we saw in both social deals and search plus social deals for new and add-on business.

Marin’s ability to address this complex fragmented customer journey dynamic for leading brands gives us enduring competitive advantage as the publisher toolsets will not address cross publisher, cross-channel needs.

Additionally, the lack of independence from publisher toolsets calls into question the measurement, budget allocation and optimization functionality that these closed platforms can provide and even with the concentration in Google and Facebook, we still see the rise of new publishers with the opportunity to reach new customers or who retain and engage existing ones.

Marketers cannot afford to miss out on the rest of the online audience and need a technology partner that can deliver performance and efficiency at scale.

Marin’s support for Gemini, Baidu, Yandex, Yahoo Japan and Twitter are good examples of how we help advertisers to reach their prospects and customers across the online landscape outside of Google and Facebook properties.

Our open independent advertising platform enables leading brands to measure, manage, and optimize billions of dollars of online advertising investments across channels and devices. Advertisers can leverage their first-party data, as well as other datasets to reach the best audiences for their products and services.

Our many customer case studies demonstrate that Marin’s SaaS platform can drive financial lift, time savings and better business insights through greater transparency, efficiency and return on advertising spend. Despite our ongoing revenue challenges, we also continue investing meaningfully in Marin’s future.

As a company, we continue to operate with renewed urgency to deliver for our customers. As I have highlighted on prior calls, our initiatives to return Marin to growth focus on sales and marketing execution, account management and customer success delivery and customer-facing product innovation.

As we execute on these initiatives, we also acknowledge that Marin will have some difficult quarters as we address ongoing challenges. In the sales and marketing area, we are positioning Marin as the leading ad management platform that can deliver the best value to advertisers and agencies.

Even as we add to Marin’s feature set in search, social and cross-channels, our efforts are centered on delivering value to advertisers via financial lift and time savings.

We’ve increased our investments in sales and marketing including adding to our quota-carrying sales and lead generation teams worldwide and deploying more advanced technologies to improve our opportunity creation output.

We also have invested in additional sales training, so that our team can better convey Marin’s open independent cross-channel value proposition. Our customer success teams continue to focus on retention and account growth.

A priority is to convey Marin’s business value to our customers while partnering with them to drive efficient revenue growth and customer acquisition. Current customer growth initiatives include efforts to increase adoption of Marin’s shopping functionality, Marin’s social, Yahoo, Gemini Mobile ad formats and audiences among others.

As part of our efforts to return to growth, Marin also is focused on customer-facing product innovations as we invest to increase our bookings and to improve our retention rate. During the past quarter, we launched SmartFeed to support retail advertisers seeking integrated product feed management and campaign optimization.

In addition, Marin, in partnership with Facebook debuted in beta for a subset of customers TruePath, an industry first, cross-channel measurement solution using proprietary data that reveals the true unbiased customer journey from first touch to conversion.

As part of our measure, manage, optimize approach, we believe objective measurement informed by all of the relevant data is a foundation from which advertisers can then optimize their online advertising investments. Delivering on our cross-channel focus, we added cross-channel campaigns.

This is platform functionality that seamlessly joins search and social campaigns and greatly simplifies in otherwise tedious campaign creation process, while ensuring maximum brand exposure in advertising performance. This reflects our goal to deliver automation at scale for our customers.

In the optimization area, we continued adding artificial intelligence advancements in our core ad optimization algorithms with a major upgrade of budget forecasting using deep data analysis for more insightful results over diverse date ranges.

And I am pleased to share that during the past quarter; Marin also added full support for Google display network responsive display ads to greatly simplify the marketers workflow while simultaneously increasing reach on traditional and custom high-performance native ad placements.

As an update from our last call, we also continue to make progress on our investment in our next-generation infrastructure, which uses distributed big data technology. This investment provides Marin with a state-of-the-art architecture on which we can innovate for years to come.

This effort has taken longer than we originally had estimated, but we are deploying this functionality using a hybrid approach to enable more benefits to flow to our customers sooner.

During the quarter, we onboarded additional customers to our Platform Beta program to enable initial users to leverage new functionality including improved data loading, application speed and scale handling.

Using this infrastructure, Marin will be able to innovate in the areas of audiences, devices, geo locations and intraday functionality to enable our customers to maximize the returns from their online advertising investments.

This infrastructure which runs side-by-side with our existing platform and is seamlessly accessible by our customers also will enable Marin to innovate more rapidly by leveraging the micro services architecture of our Platform Beta investment. Early feedback from the initial Platform Beta users is positive and encouraging.

We continue to add more customers to Platform Beta and are accelerating our Platform Beta onboarding activity across the rest of 2017 while also expanding our Platform Beta functionality.

As brands are seeking to address the fragmented customer journey across channels, devices and publishers, in our always on, always connected world, we believe Marin is well positioned as the preferred technology partner for this mission.

We believe these factors play favorably into our business strategy given our 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.

While we still have more work to do in our efforts to return to growth, we are making progress, even if this is not yet apparent in our financials, nor in our near-term outlook. I continue to believe that Marin has a tremendous opportunity and that our best days lie ahead.

And now, Brad will review our second quarter financial results and our outlook for the third quarter. .

Thank you, Chris. I'll provide a brief overview of the quarter and then go through the detail. During the second quarter, we maintained our focus on balance sheet management while selectively making investments in our business. We ended the quarter with $33.8 million in cash, which reflects $470,000 of cash burn during the quarter.

Our cash position benefited from strong AR collections as DSOs declined from 70 days in Q1 to 62 days in Q2. As we progress through 2017, we will continue to focus on balance sheet management and will further align our revenues and costs. Now on to the details. First, I’ll address revenue.

For the second quarter of 2017, Marin exceeded the high-0end guidance with net revenues of $18.7 million, down 27% year-over-year. The decline in revenues was primarily driven by customer churn which has remained higher than our historical norms.

In addition, our revenues were negatively impacted by a $400,000 out of period adjustment to correct previously overstated revenues for our display product offering. In the second quarter, 66% of our revenues were generated in the U.S. and 34% of revenues were generated internationally, which is in line with the split from Q1.

In terms of direct versus agency relationships, our revenue in the second quarter was 62% from direct customers and 38% from agency relationships. This split is consistent with our split from Q1. Over time, we expect our revenue from direct customers to increase as a percentage of total.

This is a result of transitioning certain customers from agency contracts to direct contracts. 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 second quarter, non-GAAP gross profit was $11.48million, resulting in a non-GAAP gross margin of 63%, which compared to a non-GAAP gross margin of 71% during the second quarter of 2016. For the second quarter, non-GAAP operating loss was $4.7 million, as compared to a loss of $1 million for the second quarter of 2016.

The $4.7 million loss exceeded the high-end of our guidance by $800,000. We delivered a non-GAAP operating margin of negative 25%, which compared to a non-GAAP operating margin of negative 4% during the second quarter of 2016. Adjusted EBITDA was a negative $3.4 million for the second quarter, down from a positive $544,000 in Q1 of 2016.

For the second quarter, non-GAAP net loss was $5.6 million, resulting in a loss of $0.14 per share based on a weighted average share count of 39.5 million shares. The $0.14 loss per share was in line with our guidance for a loss of $0.14 to $0.15 per share.

For comparison purposes, we generated a non-GAAP net loss of $922,000 and a non-GAAP EPS loss of $0.02 per share in Q2 of 2016, based upon a weighted average share count of 38.3 million shares in the second quarter of 2016. As mentioned earlier, we ended the quarter with $33.8 million in cash and cash equivalents. Moving on to guidance.

As Chris mentioned, we are encouraged by the initiatives our team has put in place to return Marin to growth. However, for Q3 we anticipate customer churn will continue to outpace new customer bookings as we make progress with Platform Beta, we expect to see improvements in churn and new bookings over the latter part of 2017 and in 2018.

With that in mind, for the third quarter of 2017, we expect revenues to be in a range of $17 million to $17.5 million.

Non-GAAP operating income is expected to be in the range of a negative $7 million to negative $6.5 million and non-GAAP net income per share is expected to be in the range of a $0.18 to $0.19 loss per share, based upon a weighted average share count of 39.5 million shares. With that, I want to thank you for your time.

This concludes our Q2 2017 quarterly conference call..

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