Brad Kinnish - CFO Chris Lien - CEO.

Greetings, and welcome to Marin Software Second Quarter 2018 Financial Results 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, Brad Kinnish..

Thank you. Good afternoon, everyone, and welcome to Marin Software's second quarter 2018 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 a short time ago.

If you need a copy of the release, please go to investors.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 this recording will be made available on the Investor Relations section of our website within a few hours.

Before we begin, I'd like to note that our discussion today will include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.

These forward-looking statements include statements about our business outlook and strategy, historical results that may suggest trends for our business, expectations about our ability to return to growth, impact of investments in product and technology, progress on product development efforts, product capabilities and future financial results.

We make these statements as of August 09, 2018, 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 related 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 in our second quarter 2018 earnings 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 view the quarter and provide an update on our initiatives to return Marin to growth. Brad will then provide additional detail on our quarterly results and our outlook for the third quarter.

At the end of this month, it will have been two years since I returned to the CEO role along with my Co-Founder and EVP of Product and Technology, Wister Walcott. As founders and meaningful shareholders, our goal has been to return Marin to growth and enhance my shareholder value.

We're focused on meeting the needs of the world's leading advertisers and their agencies, as they seek to grow and optimize returns from their online advertising investments. Our goal has been to put in place initiatives that we believe will position Marin to return to growth.

While these efforts are taking longer than any of us would like, we're making progress even as our top line financials remain challenged. I continue to believe that Marin's return to growth will unfold in the coming quarters, as these initiatives gain critical mass.

As announced in today's earnings release, Q2 revenues came in at 14.3 million, which was above the high end of our guidance, but still down from the prior year. Our cash balance at the end of Q2 was 17.2 million.

Even with our challenging revenue performance in the most recent quarter, I highlight that Marin's cross channel revenue in Q2 was up 36% year-over-year, which reflects significant progress made in delivering cross-channel solutions to our customers.

Search engine for retargeting and prospecting continues to be our most popular cross-channel offering where Marin's platform captures the search query and uses the signal to create a retargeting or look alike audience on Facebook, a solution more efficient and cost effective than manual efforts and resulting in greater financial performance.

Before going into greater detail regarding Q2, I want to reiterate and emphasize Marin's strategic positioning, the vision we are pursuing that we believe both delivers a compelling solution for leading advertisers and agencies and a meaningful increase in shareholder value.

As was true last quarter and remains so today, advertisers operate in a world where Google and Facebook command more than 80% of all Internet time and more than 60% of all online advertising dollars.

As marketers embrace an omnichannel strategy, where they want to meet customers and prospects wherever they are, the need for an online advertising platform that can connect the well gardens of Google and Facebook becomes ever more important.

When one layers in the growing importance of Amazon, yet another walled garden as a key starting point for more than half of all product searches, one can see how Marin's approach to connect the world's leading publishers to enable marketers to measure, manage and optimize their online advertising investments from a unified platform will be the future of digital advertising.

Brands will need and seek an ally in digital who can help them strategically determine where to spend their advertising budgets to deliver the vast bang for the buck.

Marin's approach positions us to play an advertiser focused role as marketers seek to thrive in an online world where reading publishers dominate and may not share the same priorities as their advertisers.

Each publisher understandably seeks to maximize advertising spend on their respective properties, which may or may not be in the best interest of our particular advertiser.

Publisher trolls are not impartial measures of advertising performance, but instead are optimized to encourage advertisers to buy more ads on that publisher and more importantly, publisher tools don't interoperate.

Can you imagine Google providing analytics to increase ad investment on Facebook or Amazon or to shift budget from Google to one of these other publishers? Of course not.

For one, they don't have access to the API data from their competitors and secondarily, it is not in their business interest to recommend if the next online advertising dollar might be best spent on a competing publisher.

Given these realities, the need for an objective independent third party advertising management platform such as Marin's is quite clear and growing. As I've said before, we live in a world where students don't grade their own homework, players are not the referees and one doesn't ask a barber if it's time for a haircut.

Yet, a surprising number of advertisers and agencies are willing to turn over the evaluation and management of their online advertising programs to publisher media buying tools. We believe best-in-class advertisers will look to objective independent third-parties to measure performance and guide actions.

As highlighted on our last call, Marin is uniquely positioned to meet this growing demand, but our vision remains ahead of many brands and agencies who are not yet ready to make this change.

Over time, we believe Marin's approach will become the new standard and Marin will be rewarded for its leadership as the online advertising management category evolves to this new state. It is with this changing landscape in mind that we are focused on initiatives to return Marin to growth. Our return to growth is based on progress in three areas.

Better sales and marketing execution, better customer success execution and delivery of customer facing product innovation.

As we began to see in the first quarter and an encouraging trend that we are seeing continue, our marketing efforts have produced more opportunities for our sales team, which we expect to lead to increase bookings and incremental monthly recurring revenue in the coming months.

We also are seeing an ongoing uptick in cross channel new business and growing interest in our fixed fee platform pricing. We believe this shift from a percentage of spend model will prove highly disruptive in the marketplace and be well received by advertisers.

This pricing model reduces the friction of integrating all advertising data into a single platform, enabling advertisers to easily adjust budgets, across channels to deliver the best advertising returns.

In customer success, our efforts remain focused on improving both retention and platform adoption by highlighting the value that advertisers can derive from using Marin's platform, including functionality for bidding, shopping ad management, Amazon advertising and search intent.

We also had several trials this past quarter where Marin's bidding outperformed publisher bidding, highlighting Marin's ability to add value beyond publisher tools to deliver greater performance, control and transparency. In product, our core focus remains to deliver Marin 1, our next generation cross channel platform to the market.

Our Q2 efforts focus primarily on data job reliability and data stability, as we move closer to bringing this platform into general release. Marin Software has also been a mission critical business decision platform and we want to ensure that new Marin 1 customers enjoy enterprise class experience along with Marin 1's exciting new functionality.

These daily efforts took us more time than expected and have moved our prior onboarding timetable back by about a quarter. As a result, we now expect to begin onboarding new customers to Marin 1 by the end of Q3 or early Q4 and also to have 75% of our monthly recurring revenue running on Marin 1 by the end of Q4.

As we move to a general availability of Marin 1 later this year, we've begun to build industry awareness and sales pipeline, including our June launch of SMX Advanced, which was well received. As part of our cross channel focus, we continue to see strong and growing interest in Amazon ads.

Marin's functionality supports Amazon's most popular ad formats, headlined search and sponsored product ad. While still early, we see a clear triopoly emerging among Google, Facebook and Amazon.

In fact, Marin's state of digital advertising 2018 Survey of digital marketers asked, what trends will most impact your digital marketing in 2018, with 42% of respondents citing the increased dominance of Google and Facebook and 33% highlighting the rise of Amazon. Amazon ads in Q2 was Marin's fastest growing publisher.

We will continue to invest in our support for Amazon ads. Since our last call, the EU's general data protection regulation referred to as GDPR went into effect and consistent with our prior statements on this issue, we've not seen any material impact for Marin and our customers.

Our customers have appreciated that Marin prepared for GDPR well in advance and was in a position to offer thought leadership and guidance to ensure our customers were in compliance. In a similar vein, Marin is working closely with our customers to support Google's parallel tracking and Apple's intelligent tracking prevention or IPP and initiatives.

These are additional examples of how Marin serves as your ally in digital to benefit advertisers as they navigate regulatory and publisher complexity.

As one thinks about the needs of leading brands looking to engage with their customers, it is important to understand that no individual publisher or group of publishers can deliver on this vision, particularly given that Google, Facebook and Amazon are unlikely to cooperate now or in the future.

This of course leaves an independent third party such as Marin to connect these silos for the benefit of advertisers.

As we've highlighted in past calls, Marin has adopted a mindset of building our value on top of the publishers and interoperating with their tools, recognizing that our customers will work both in Marin's platform and with the publishers.

Marin's positioning as your ally in digital is built on three hallmark stuffs, integrate, align and amplify, to maximize advertising performance and efficiency. By integrate, we believe it is critical to have all of your key data in one platform. All publisher data as well as an advertiser's first party customer and revenue data.

Align refers to coordinating data and messaging across publishers and channels to best understand and address the consumers' path to purchase.

Amplify is Marin's focus to add value to the strong capabilities of the publishers to deliver incremental performance and efficiency, especially cross-channel where individual publishers can't or won't interoperate. As we pursue our strategy, we are mindful of our current challenging revenue outlook and our overall cash position.

We've recently taken steps to realize annualized cost savings on the order of nearly $10 million to move us closer to breakeven while maintaining our investment and on cross channel vision. Over the first two quarters this year, we have reduced overall headcount from 433 to 335.

We will continue to manage our expenses and our headcount aggressively, even as we invest strategically to make progress on our various initiatives to return to growth.

I would highlight that approximately 40% of our current headcount serves in technology roles, including product development, quality engineering and operations, as we invest to deliver our next generation cross-channel platform. Despite our challenges, I continue to believe that Marin has a tremendous opportunity and that our best days lie ahead.

Before turning to Brad, I want to thank James Barrese and Allan Leinwand for their years of service on Marin's Board of Directors. Each provided helpful counsel to me, our leadership team and our other directors over the years. We're grateful for the contributions and wish them all future success.

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

Thank you, Chris. I'll provide an overview of our results and then share our forecast for the upcoming quarter. I'll begin with a review of our income statement. Let me start with revenue. For the second quarter of 2018, Marin generated 14.3 million in revenues, beating the high end of our guidance for the quarter by 300,000.

Q2 '18 revenues were down 24% versus Q2 '17. During the quarter, our enterprise search business continued to face pressure as customer churn remained higher and outweighed new bookings. Although smaller by comparison, revenue from our social and display product offerings showed growth again this quarter.

In terms of our geographic split for the second quarter, 67% of our revenues were generated in the US and 33% generated internationally. And in terms of direct versus agency, 63% of our revenues were generated from direct customer relationships and 37% via agencies.

While our revenue results beat guidance, we're driving for better performance in future quarters. To this end, we realigned our sales team during Q2 and as Chris mentioned, introduced new fixed fee platform pricing options.

We believe these incremental changes coupled with Marin 1's upcoming general lease, will be beneficial to both new bookings and customer renewals. Moving on to the operating results.

Our financials, including a reconciliation of our GAAP to non-GAAP financials can be found in our earnings release, my comments will now focus primarily on non-GAAP results.

For the second quarter, non-GAAP gross profit was $8.8 million, resulting in a non-GAAP gross margin of 61% compared to a non-GAAP gross margin of 63% during the second quarter of 2017. For the second quarter, non-GAAP operating loss was $6.2 million as compared to a loss of 4.7 million for the second quarter of 2017.

The $6.2 million loss was in line with the high end of our guidance for the quarter. For the second quarter of 2018, non-GAAP net loss was $6 million, resulting in a loss of $1.04 per share, based upon a weighted average share count of 5.8 million shares.

For comparison purposes, we generated a non-GAAP net loss of 5.6 million and a non-GAAP EPS loss of $1 per share based upon a weighted average share count of 5.6 million shares in the second quarter of 2017.

In terms of our balance sheet, we ended the quarter with 17.2 million of cash and cash equivalents, which reflects cash burn of 6.1 million during the quarter. During the first six months of 2018, we took steps to reduce our expenses and cash burn.

Our employee headcount decreased by approximately 100 employees or more than 20% during the first two quarters. In addition, we have taken steps to reduce non-headcount costs as well. Together, we believe these actions will serve to reduce the gap between revenue and cost in the upcoming quarters and to reduce our cash burn.

Now moving on to our outlook. For Q3, we expect to see a modest uptick in new bookings, but we also expect to see continued high churn. With that in mind, for the third quarter of 2018, we expect revenues to be in the range of $12.3 million to $12.8 million and non-GAAP operating loss is expected to be in the range of 6.2 million to 6.7 million.

That concludes our call for today. I want to thank you for your time and we look forward to updating your again at the end of Q3..

Q - :.

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