Bradley Kinnish - Chief Financial Officer Christopher Lien - Chief Executive Officer.

Analysts:.

Greetings, and welcome to the Marin Software Third Quarter 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now pleasure to introduce your host, Brad Kinnish. Thank you, Brad. You may begin..

Thank you. Good afternoon, everyone, and welcome to Marin Software's third 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 November 13, 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 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 made available in our third 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 review 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 fourth quarter.

As we have discussed in prior calls, we remain focused on returning Marin to growth and maximizing shareholder value by 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 are making progress even as our topline financials remain challenged.

I continue to believe that Marin's returned to growth will unfold in 2019 as these initiatives gain critical mass. As announced in today's earnings release, Q3 revenues came in at $13.2 million, which was above the high-end of our guidance, but still down from the prior year. Our cash balance at the end of Q3 was $14.7 million.

I highlight that our cash used in the quarter was $2.5 million versus $6.1 million in Q2, reflecting the impact of various cost savings initiatives and other steps taken to manage our cash position during this challenging period.

Before further reviewing Q3, I want to highlight Marin's current strategy that we believe will deliver a meaningful increase in shareholder value. Digital marketers based on market where they seek to connect with their prospects and customers wherever they are in their customer journey.

At the same time, this market is divided among several large publishers, principally Google and Facebook, with Amazon growing its share quickly. Marin's goal is to connect these publishers to enable marketers to measure, manage and optimize their online advertising investments from a unified platform.

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 leading publishers dominate and may not share the same priorities as their advertisers.

Each publisher understandably seeks to maximize advertising spend on its respective properties, which may or may not be in the best interest of our particular advertiser. Publisher tools are not impartial measures of advertising performance, but instead are optimized to encourage advertisers to buy more ads on that publisher.

We believe best-in-class advertisers will look to objective independent third parties to measure performance and guide actions. 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 with this changing landscape in mind that we are focused on initiatives to return Marin to growth.

Our returned 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. Our activities in these areas remain a work in progress, as our topline results remain poor. One could conclude that we're not making any gains in these areas.

I'm encouraged, however, by our activities that have not yet listen to the service. Our marketing efforts have produced more opportunities for our sales team, which we expect to lead to increased bookings and incremental monthly recurring revenue in the coming quarters.

In the most recent quarter, the team delivered MarinOne and Amazon Advertising webinars, and we held MarinOne roadshow events in San Francisco and London. As we look to further introduce our new platform to advertisers.

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 products, including functionality for bidding, shopping ad management, Amazon advertising, and search intent.

I'm pleased to share that as we saw in previous quarters, we had several trials this past quarter were Marin's bidding outperformed, publisher bidding, highlighting Marin's ability to add value beyond publisher tools to deliver greater performance control and transparency.

In fact, working closely with our customers, we delivered five case studies in Q3 showcasing the success of Nissan, Dale, Buyagift, The Economist and Wiggle with Marin's platform. Let me now share a few product highlights from our most recent quarter, as we are making progress to better serve the needs of digital marketers.

Marin support for Facebook advertising continued to expand with the debut of budget pacing capabilities that enable advertisers to better track and manage multiple Facebook budgets with customizable goals and time periods.

This functionality also includes the ability automatically to reallocate unspent budget from one campaign to another to better achieve business goals. As Facebook expands its stories ads, Marin also delivered support for this format, which is one of Facebook's largest growth opportunities.

Marin also now supports collection ads, another new and growing format. In product, our core focus remains to deliver MarinOne, our next-generation cross-channel platform to the market. Key capabilities include reporting across Google, Facebook, and Amazon, as well as customizable dashboards and powerful reporting and navigation tools.

Our Q3 efforts sauced make significant progress on readying MarinOne for general availability. I am pleased to share that we now expect that all customers will have access to MarinOne by the end of the fourth quarter and we expect that most will be migrating the MarinOne as their primary platform over the first half of 2019.

This is an exciting milestone for this important project, which has taken us longer than we had originally planned. We believe delivering MarinOne broadly to customers in coming quarters can be a key driver and improving new business and retention.

In the past quarter, we continued to see strong interest from our customers in Amazon advertising with Amazon ad spend managed on Marin's platform growing by 82% quarter-over-quarter.

Marin has debuted sophisticated bidding support, leveraging machine learning for Amazon and Marin's customers are using this functionality to drive better advertising performance.

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 leads an independent third-party such as Marin to connect these silos for the benefit of advertisers.

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

Marin's positioning as your ally and digital is built on three hallmarks; 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 advertisers' first party customer and revenue data, aligned refers to coordinating data and messaging across publishers and channels to best understand and address the consumer's path to purchase.

Amplify as 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. Despite our challenges, I continue to believe that Marin has a tremendous opportunity and that our best days lie ahead.

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

Thank you, Chris. I'll provide an overview of our results and then share our forecasts for the upcoming quarter. I will begin with a review of our income statement. Let me start with revenue. For the third quarter of 2018, Marin generated $13.2 million in revenues beating the high end of our guidance for the quarter by $400,000.

Q3 2018 revenues were down 28% versus Q3 2017. During the quarter, we faced continued customer churn in our search and social businesses, which outpaced new bookings. As we began introducing new product to our customers, we are optimistic that our customer renewals and new bookings will be positively impacted.

We would expect to see these impacts reflected in our financial statements during the first half of 2019. In terms of our geographic split for the third quarter, 70% of our revenues were generated in the U.S. and 30% generated internationally. This compares to 66% in the U.S. and 34% internationally during Q3 2017.

The trend towards higher concentration of revenues from the U.S. is in line with our strategy of maintaining our focus on key geographies while being opportunistic in other non-core markets. And in terms of direct versus agency, 61% of our revenues were generated from direct customer relationships and 39% via agencies. This is consistent with Q2.

Now let me move onto 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 third quarter, non-GAAP operating loss was $4.7 million as compared to a loss of $5.1 million for the third quarter of 2017.

The $4.7 million loss was $1.5 million better than the high end of our guidance for the quarter. For the third quarter of 2018, non-GAAP net loss was $4.5 million resulting in a loss of $0.77 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 $5.4 million and a non-GAAP EPS loss of $0.95 per share based upon a weighted-average share count of 5.7 million shares in the third quarter of 2017. In terms of the balance sheet, we saw a cash decline of $2.5 million, which was better than our cash burn during Q2.

As discussed last quarter, we have taken and continue to take meaningful steps to reduce our overall operating expense structure, including headcount reductions, lease restructurings and many other cost saving initiatives.

These actions in conjunction with our management of working capital have served to improve our cash burn when comparing Q2 with Q3. We will continue to focus on cash management during Q4 and expect to narrow our cash burn during the quarter.

Also, as relates to our balance sheet, during the quarter, we took a non-cash charge for goodwill impairment of $14.7 million. This charge does not impact our cash balances no our non-GAAP earnings. The write-off reflects the difference between the fair market value of our stock as compared to the net carrying value of our assets and liabilities.

Then moving onto our outlook. For Q4, we expect revenues to be in the range of $11.6 million to $12.1 million and non-GAAP operating loss is expected to be in the range of $5.9 million to $5.4 million..

Operator:.

Q - :.

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That concludes our call for today. I want to thank you for your time and we look forward to updating you again at the end of Q4..

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a great day..