Good day and welcome to the Marin Software First Quarter 2020 Financial Results Conference Call. All participants will be listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Bob Bertz. Please go ahead..

Thank you. Good afternoon, everyone, and welcome to Marin Software's first quarter 2020 earnings conference call. My name is Bob Bertz, I'm Marin's CFO and 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.

The release can also be obtained on our website at investors.marinsoftware.com. Call participants are advised that the audio of this conference call is being recorded for playback purposes and that the 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, including the potential effect of the COVID-19 global pandemic, our expectations for the receipt of loan funds under the Paycheck Protection Program, historical results that may suggest trends for our business, our expectations about our ability to improve customer retention and new business bookings and return to growth; our ability to manage our expenses and cash resources; the impact of investments in product and technology, progress on product development efforts, product capabilities, and future financial results.

We make these statements as of May 7th, 2020 and disclaim any duty to update them. Note that the extent to which the COVID-19 global pandemic may impact our business is particularly uncertain at this time and difficult to predict considering the rapidly evolving landscape.

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 reports on Form 10-Q and Form 10-K as well as our other SEC filings.

This presentation contains certain financial performance measures that are different from the financial measures calculated in accordance with GAAP and may also be different from similar calculations or measures used by other companies.

A quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our first quarter 2020 earnings release. With that, let me turn the call over to Chris..

Thank you, Bob. 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. Bob will then provide additional detail on our first quarter and our outlook for the second quarter.

As we have discussed before, we remain focused on returning Marin to growth and maximizing shareholder value. Our plan to achieve this is focused on delivering a leading cross-channel advertising management platform to enable brands and their agencies to grow and optimize returns from their online advertising investments.

We call this platform MarinOne. Our efforts to return Marin to growth are taking longer than any of us would have preferred and our revenues continue to be under pressure. At the same time, we continue to believe that our strategy is sound and that our initiatives will show results in the coming quarters.

Additionally, there are some encouraging signs present even if not yet sufficient to return Marin to growth. Our view is that as we deliver a more compelling product to our market, then good results will follow. As such, we continue to invest a substantial amount in product development to better meet the needs of the digital marketer.

As announced in today's earnings release Q1 revenues came in at $8.7 million, which was at the high end of our previously published guidance for Q1, but still down from Q1 in the prior year. We also beat our guidance for our forecasted operating loss for Q1.

Our total cash balance at the end of Q1 was $9.6 million, reflecting our ongoing commitment to manage costs. We will continue to monitor our cash used closely, balancing investments and our products with cost savings.

This earnings call is a first for Bob and me and that we are conducting it remotely as the entire world grapples with COVID-19, which is both a global health emergency and economic disrupter.

As significant effects from COVID-19 did not arise until late in the first quarter, Marin's first quarter financial results were not significantly impacted by COVID-19. However, more significant effects are being felt now in our second quarter. Overall, we anticipate our business in Q2 to be down about 20% from pre-COVID expected level.

I'm encouraged to share that although our overall business is down, we've begun to see some recovery in most spend verticals from our COVID low point, even as spend remains below pre-COVID levels.

Given the trackability and accountability of digital advertising spend; we believe that Marin is well-positioned to weather the impact of coronavirus as our customers use our platform to drive revenue and to acquire customers.

As one might guess, the impact of COVID has fallen most heavily on the travel vertical as well as on those activities that take place in person. At the same time, we've seen an increase in certain verticals including parts of ecommerce spending.

Overall, COVID is a negative on Marin's business due to the reduction in spend in certain verticals and the overall increase in business uncertainty, which leads to a more conservative advertising investment level. On a relative basis, we believe that digital advertising budget should fare better than non-digital spend.

Marin is operating remotely now given the various shelter-in-place orders for office locations around the world. Our priority is on our team health and we believe that we can operate remotely indefinitely if needed.

Fortunately, our team is able to support our customers globally without disruption and to continue to advance our products that, especially MarinOne. As we have discussed before, Marin seeks to be an ally in digital for the world's leading brands and their agencies.

Customers and prospects diverse a range of channels, devices, and publishers online on their path to purchase. Marketers need a cross-channel platform to engage in all points to this customer journey.

And as we have highlighted, the walled gardens of Google, Facebook, and Amazon do not play well together, leaving brands to connect the dots on their own. Marin help these advertisers to measure, manage, and optimize their online advertising investments to maximize their results, to acquire customers, and to drive revenue.

Tools from the publishers understandably focus on how to enable a given advertiser to spend more money on ads from that particular publisher. Marin serves as a performance layer to supplement their capability and to provide an objective independent measurement of advertising performance.

As we've highlighted in previous discussions, can you imagine a publisher toolset informing an advertiser that his or her marginal dollars should be invested on a competitor's platform, Marin is uniquely positioned to meet this growing demand, but as we have shared before, 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 that Marin will be rewarded for its leadership as the online advertising management category evolves to this new state. As we invest in product innovation, we're creating more compelling reasons for brands and their agencies to select Marin.

We continue to invest in the development and adoption of MarinOne, our next generation cross-channel advertising platforms. Our focus now is on adding sufficient functionality so that our customers can spend the majority of their day-to-day activities in MarinOne.

During the past quarter, we released several enhancements to MarinOne, including custom column, a complete bid strategy side panel, and MarinOne linking wizard for Google. We also added dimensions, which is Marin's flexible meta-tagging functionality, as well as support for prominence metrics, an additional historical data to the device's grid.

These enhancements give Marin's customers more transparency and control of their campaigns than what is provided in the publisher tools. As part of our investments in MarinOne, we made significant advances in our social capability to complement the robust functionality that Facebook provides in its tools.

Marin enhanced social pacing dashboards to enable advertisers to track how their campaigns are performing against the KPI. Customers are able to gain insight into their current results alongside daily expected data based on their target and project's expected timeframe, allowing them to shift more money into better performing campaigns.

Marin also added support for additional Facebook placements, including Marketplace, Search, and Instagram Explore. As more people spend time on social media during the COVID-19 lockdown, these new placements offer advertisers new placement options in areas of Facebook that are not entirely overrun with competitor advertising.

We also expanded automated rules for social campaigns in MarinOne, allowing advertisers to offload tasks they perform regularly throughout the day, such as checking that they are within budgets or that there CPAs, ROIs, or ROAs are within their targets KPIs.

In e-commerce, we continue to invest in our support for Amazon advertising, and launch Dayparting for Amazon-sponsored product campaigns. Dayparting enables advertisers to bid higher and lower throughout the day, down to 15-minute intervals if desired.

In addition, advertisers can take daypart campaigns scheduled by day of week, for example, to bid more aggressively on weekdays versus weekends. This is especially useful functionality, as we all adjust to new work from home patterns during the widespread shelter-in-place activity, which also have impacted online shopping behavior.

In the past quarter, we also introduced full campaign management for Amazon-sponsored brands and sponsored display campaigns. Amazon advertisers can now use Marin bulk and automated bidding functionality for each of the Amazon advertising campaign sites, giving them more performance and time savings.

As I mentioned last quarter, Marin continues to work with participants in the Amazon attribution beta, which provides advertisers with insights into how their marketing investments outside of Amazon contribute to shopping activity on Amazon.

Brands advertising on Google, Facebook, and other channels and see how many conversions occurred on Amazon, giving them a more accurate understanding of the ROI on those investments. In addition to our ongoing investments to support Amazon advertising, you'll recall that we shared last quarter that we also now support Walmart advertising.

This past quarter Marin also added reporting for Google Smart Shopping campaigns and improved display of product information, including Product Title, which gives the marketer more insight into his or her campaign and expand Marin's analytics to action for e-commerce.

You may have seen the recent announcement that Google has expanded its shopping listing, including adding placements at no cost to assist consumers to find more of the products that they're seeking. We see these news by Google is wants to seek to offset the product search games of Amazon in the past year.

Marin's Smart Feed functionality enables a marketer to post products to both Amazon Ads and Google Shopping, as well as Facebook's Dynamic Product ads for maximum product search coverage. Marin continues to invest to help our customers to stay at the forefront of the rapidly changing privacy landscape.

In the past quarter, we debuted our upgraded Marin Tracker offering, which supports Chrome's latest privacy updates, requiring advertisers to label third-party cookies with same site. This means that Marin Tracker customers can continue to measure cross-site across multiple domains where required with minimal disruption to their current solution.

As I've shared in the past, despite our recent and current challenges and the additional burden of COVID-19, I continue to believe that Marin has a tremendous opportunity. And now, Bob will review our first quarter financial results and our outlook for the second quarter of 2020..

Thank you, Chris. I'll provide an overview of our first quarter results and then share our forecast for the second quarter. I'll begin with a review of our income statement.

For the first quarter of 2020, Marin generated $8.7 million in revenue at the high end of our guidance for the quarter, but down 36% when compared to total revenue for the first quarter of 2019 or 31% when adjusted for the revenue impact resulting from the sale of our perfect audience business in late 2019 and the revised timing of revenue recognition under our strategic agreement with Google.

During the first quarter, we signed an amendment to our existing strategic agreement with Google that removed the right for Google to terminate the agreement after the second contract year.

This amendment increases our total expected revenue over the life of the contract as it now includes the third contract year and we are now recognizing the increased expected total revenue from the agreement over a longer term that includes the additional third contract year.

The new longer revenue recognition period have the effect reducing revenue recognized in the first quarter of 2020 under the agreement by approximately $700,000, as compared to the first quarter of 2019.

Absent this accounting adjustments, we would have beat the high end of our revenue guidance for Q1 2020 by approximately $600,000, primarily as a result of lower than anticipated churn.

Although we began to see a reduction in advertising spend, during the second half of March as a result of the COVID-19 pandemic, the impact on our first quarter revenue was not significant. Our geographic shift for revenue in the first quarter was approximately 75% U.S. and 25% international. Moving on to our operating results and the balance sheet.

As a reminder, our financial statements and a reconciliation of our GAAP to non GAAP financial measures can be found in our earnings release issued earlier today. Our non-GAAP operating loss was $3.5 million for the first quarter of both 2020 and 2019.

The $3.5 million operating loss in Q1 2020 was $200,000 better than the high end of our guidance and also includes the impact of the $700,000 adjustment in timing of revenue recognition under the Google agreement, without which we would have beat the high end of our guidance by approximately $900,000.

During the quarter, we continue to take meaningful steps to reduce our overall cost structure. As a result, our non-GAAP operating expenses were down 36% on a year-over-year and we ended the quarter with 219 total headcount versus 280 a year ago. We will continue to align our costs with revenue in 2020 as we seek to operate at breakeven.

In terms of our balance sheet, we ended the quarter with a total cash balance of $9.6 million, representing a net decrease in cash of $2.5 million from the Q4 balance. The decrease in cash was primarily attributable to a reduction in accrued liabilities, the cost of capitalized software, and our net loss.

To help us respond to the recent and anticipated effects of the COVID-19 pandemic on our business and to maintain our workforce during this time of uncertainty and continue our planned business activities, we applied for a $3.3 million SBA loan under the Paycheck Protection Program.

Our application has been approved, but we have not yet received the funds from this loan. We expect to receive the proceeds in the second quarter of 2020. Moving on to our outlook.

For Q2 2020, we expect revenues to be in the range of $6 million to $6.5 million and our non-GAAP operating loss is expected to be in the range of $4.8 million to $5.3 million.

Our guidance reflects our current estimate of the anticipated impact of the COVID-19 pandemic on our financial results for the second quarter, including a reduction of revenue of approximately 20% from our pre-COVID-19 outlook. This concludes our call for today.

Thank you for your time and we look forward to updating you again during our Q2 2020 earnings call..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..