Greetings, and welcome to the Marin Software's Third Quarter 2021 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Bob Bertz, Marin Software's CFO. Thank you, Mr. Bertz. You may begin..

Thank you. Good afternoon, everyone, and welcome to Marin Software's Third Quarter 2021 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 a 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 lingering effects of the COVID-19 global pandemic, our expectations for migrating our customers to our MarinOne platform, historical results that may suggest trends for our business, our expectations about our ability to improve customer retention and new business bookings and to return to growth, our ability to manage our expenses and cash resources, the impact of investments in product and technology and any headcount increases, progress on product development efforts, product capabilities, our relationships with publishers and other parties in the digital advertising market, expectations for future economic activity and digital ad spending, and our expected Q4 and future financial results.

We make these statements as of November 4, 2021, 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 section entitled Risk Factors in our most recent reports on Form 10-Q and Form 10-K as well as our other SEC filings.

Any comments on recent trading activity in our stock are not predictive of any potential future trading activity. 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 measures or calculations 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 third quarter 2021 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 share my observations on the quarter and provide an update on our initiatives to return Marin to growth. Bob will then provide additional detail on our third quarter and our outlook for the fourth quarter.

We remain committed to return Marin to growth and to maximize 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 have taken longer than any of us would have preferred. Based on discussions with digital advertisers, we continue to believe that our strategy is sound and more importantly, our initiatives are beginning to show early positive results.

With the encouraging feedback that we are receiving on MarinOne, we believe that we are on the right track after many quarters of investment to develop and launch our new platform.

As announced in today's earnings release, Q3 revenues came in at $6.2 million, which was above the high end of our previously published guidance for Q3, but still down from Q3 in the prior year. I should note that the decline in revenue has moderated significantly from prior levels of year-over-year decline.

On an encouraging note, our sequential revenue from Q2 to Q3 of this year was up for the first time in many quarters. In our Q3, $3 million non-GAAP operating loss was toward the high end of our guidance.

As I noted in our last call, with more than $50 million of cash at the end of Q3, Marin now has more financial resources than at any time in the past several years to pursue our strategy and to support our customers.

We also announced the renewal of our revenue share agreement with Google for a subsequent three-year period, which provides Marin with further financial resources to invest in product development.

At the end of the third quarter, our global headcount was just over 150 team members with about half of our team in technology roles, reflecting our significant investment in delivering products to drive results for leading brands and their agencies.

We expect to see headcount growth as we increase investments in areas supporting our return to growth, including sales and marketing, and technology. Marin seeks to be an ally in digital for the world's leading brands and their agencies. Customers and prospects traverse a range of channels, devices and publishers online on their path to purchase.

Marketers need a cross-channel platform to engage at all points of this customer's 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.

The rise of retail media, including newer entrants such as Instacart, Criteo Retail Media and Citrus Ads and outside of retail media with publishers such as Apple Search Ads and LinkedIn Marketing Solutions further fragment the advertising landscape, increasing the value of a third-party platform.

Marin helps these advertisers to measure, manage and optimize their online advertising investments, driving performance, time savings and better business insights. As we've highlighted, tools from the publishers understandably focus on how to enable a given advertiser to spend more money on ads from that particular publisher.

Brands seek a view of their online advertising investments focused on customers and revenues, not the individual publisher silos. Marin serves as a performance layer to supplement the publisher capabilities and to provide an objective independent measurement of advertising performance.

With 100% of our revenue now running on MarinOne, we continue to gather feedback on MarinOne as part of its rollout and adoption across Marin's customer base and to further tune the user experience.

Feedback continues to be encouraging, but we also faced the expected challenge of change management, as long-time users need to adopt to new platform with its enhanced functionality.

Even when something is better, there is a nurture around change, and our account management teams are engaging with those customers to help them to make the transition to MarinOne and to unlock its benefits for their advertising programs.

Continuing an early trend that we saw in the first and second quarters of 2021, we are seeing improvements in retention due to MarinOne. This is taking place across a range of industry verticals.

In Q4 and into 2022, we intend to invest more in Marin's marketing activities to bring MarinOne to more brands and agencies to drive our new business efforts.

MarinOne serves as a foundation on which all Marin innovation is based, as we continue to add to its functionality and to bring marketers more tools to enjoy financial performance gains and management at scale.

Core to MarinOne is MarinOne Analytics, which gives our customers powerful and flexible analysis capabilities using intraday data, fractional conversions and device level segmentation.

We also provide cross-client and cross-publisher reporting to enable brands to take a business-centric or customer-centric approach to their advertising versus the publisher-centric approach of the publisher tools.

This functionality also enables MarinOne customers to easily compare performance across publishers as they evaluate current and future advertising investments.

As a reminder, and as part of MarinOne's rollout, we have launched MarinOne Bidding, Marin's newest machine learning-powered optimization algorithm, designed to deliver better bidding performance through improved accuracy. Advanced clustering algorithms simplify bidding setup and faster bid calculations.

Our benchmarking has shown an average of 10% to 20% improved performance versus Marin's prior bidding, which already was industry leading. This technology also enables faster bid processing for intraday bids in larger accounts.

In recent head-to-head bid trials versus Google's SA360 bidding, Marine has delivered better results reinforcing Marin's positioning for performance-driven advertisers. Our investment in MarinOne Bidding also includes a focus on Marin's Autopilot, which is our functionality for budget pacing and forecasting.

This functionality overlays on Marin's own bidding or Google Smart Bidding to provide brands with more transparency and control over their online advertising investments as they seek to hit business performance targets during a specified time period.

Autopilot is available now for deployment with search campaigns and Marin plans to make this functionality cross channel in the future. MarinOne now supports ad extension reporting across Google Sitelinks, Call Extensions, Call-out Extensions and Mobile App Extensions.

And all extension toggle allows users to switch conveniently between just those extensions with traffic or the complete list, giving marketers more flexibility in how they can view their programs and their results.

As part of our focus on cross-channel capabilities to mirror the online customer journey, we continue to expand our support for publishers outside the big 3 of Google, Facebook and Amazon.

Other publishers that Marin now supports include Instacart Ads, Apple Search Ads, LinkedIn Marketing Solutions, Criteo Display Advertising, Criteo Retail Media, Bing and Yahoo!, as well as Yandex, Naver, Yahoo! Japan and Baidu internationally.

All of these publishers provide advertisers and agencies with more opportunities to find prospects and customers across the Internet. As part of our investment in MarinOne, we continue to add to our social capabilities to complement the robust functionality that Facebook provides in its tools.

An example that is popular with Marin Social customers is Marin's message booster functionality for both Facebook and Instagram. This capability enables the brand on a paid basis to promote organic posts that have shown high engagement to make the post available to an even greater number of users.

Another recent innovation is our debut of an activity log to enable social users to see the sequence of changes that have been made in campaigns, rather than just the current version.

In our e-commerce module, Marin's dedicated space for brands to manage e-commerce and marketplace advertising programs, customers can now view their Instacart, Google Shopping, Microsoft Shopping and Criteo Retail campaigns in a single dashboard, enabling a comprehensive view across publishers, including Amazon.

Marin also added support for Amazon Sponsored Display audience target. And Marin continues to be one of the few Amazon ads partners that overlays our own proprietary bidding technology on Amazon's native bidding to drive better advertising performance for brands.

The digital advertising industry continues to adapt to Apple's changes to user tracking, which were first deployed in its iOS 14.5 update, which asks consumers to opt into tracking versus opt out, a change that has significantly curtailed app-based tracking.

Marine continues to lead in our efforts to support advertisers in a world where privacy and cookie-based tracking are in flux.

In particular, Marin's own Marin Tracker enables server-to-server tracking, which is both privacy compliant and also is able to accurately measure conversions on Apple Safari browser, which is a growing challenge for leading brands using cookie-based tracking approaches.

As we have noted before, Marin uses first-party tracking and is not impacted by this change, but these changes do bring additional burdens to digital advertisers and their agencies. Despite our challenges, I continue to believe that Marin has a tremendous opportunity ahead.

We believe the balance of 2021 will see an uptick in overall economic activity as COVID continues to recede with digital advertising investment earning its fair share as businesses seek to engage with customers and prospects across search, social and e-commerce channels.

Marin with its MarinOne platform deployed should benefit from these expected trends. We also are encouraged with our greater cash resources and our renewed agreement with Google that Marin can invest to advance our products and to better support our customers.

And now Bob will review our third quarter financial results and our outlook for the fourth quarter of 2021..

Thank you, Chris. I'll provide an overview of our third quarter results and then share our forecast for the fourth quarter of 2021. I'll begin with a review of our income statement.

For the third quarter of 2021, Marin generated $6.2 million in revenue, being the high end of our guidance for the quarter by approximately $0.2 million, primarily due to higher search revenue as a result of increased spend and improved retention.

Third quarter revenue was down approximately 9% when compared to total revenue for the third quarter of 2020, but was slightly up sequentially from Q2 of 2021. Our geographic split for revenue in the third quarter was approximately 78% U.S. and 22% international. Moving on to our operating results.

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 million for the third quarter of 2021 as compared to a $2.8 million loss for the third quarter of 2020.

The $3 million non-GAAP operating loss in Q3 was towards the high end of our guidance and included higher-than-anticipated legal and accounting fees associated with our ATM facilities and other matters.

Our non-GAAP operating loss excludes approximately $600,000 in savings from an employee retention credit under the CARES Act that we recorded in the current quarter. We expect to record a credit of a similar amount in the fourth quarter as well. Our non-GAAP operating expenses were essentially flat compared to Q3 of last year.

We ended the quarter with 152 total headcount versus 163 a year ago. We expect our headcount to increase in the near-term as we make investments in our engineering and sales and marketing teams. In terms of our balance sheet, we ended the quarter with a total cash balance of $50.2 million.

In July of 2021, we registered a $40 million at-the-market securities offering facility. Using this facility, we generated net proceeds of $38.8 million in the third quarter on the sale of 4.3 million shares of our common stock.

This third quarter capital raise strengthened our balance sheet and enables us to make product and headcount investments that we believe will accelerate our return to growth strategy.

During the third quarter, we also entered into a new equity distribution agreement with JMP Securities, pursuant to which, we may offer and sell from time to time up to $50 million in common stock. This new facility gives us a tool by which we may be able to raise additional capital in the future.

As Chris mentioned above, we renewed our strategic partnership with Google in September for an additional three-year term, and the new agreement commenced on October 1st.

Under the terms of the new agreement, we expect to recognize approximately $1.8 million in quarterly revenue payments versus approximately $2.3 million in quarterly revenue that we recognized in the first three quarters of 2021 under the expiring agreement.

In addition to the expected quarterly revenue payments, we may also be eligible to earn incremental revenue share payments under the new Google agreement if our managed spend exceeds specified levels. Moving on to our outlook for the fourth quarter. For Q4 2021, we expect revenues to be in the range of $5.6 million to $6.1 million.

Our guidance for Q4 revenue includes the impact of the approximately $500,000 reduction in the amount of quarterly revenue expected to be recognized under the new Google agreement versus the amount recognized under the previous agreement with Google during the first three quarters of 2021.

Our non-GAAP operating loss is expected to be in the range of $4.5 million to $4 million.

Our non-GAAP operating loss guidance includes the impact of expected investments in our engineering and sales and marketing teams as well as the impact of a non-recurring charge of approximately $700,000 related to incentive compensation for achievements expected to occur in the fourth quarter.

Our non-GAAP operating loss guidance excludes the estimated savings of approximately $500,000 from the employee retention credit expected for the fourth quarter. This concludes our call for today. Thank you for your time, and we look forward to updating you again during our Q4 2021 earnings call..

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

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