Q2 2022 Marin Software Inc Earnings Call

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Good afternoon, ladies and gentlemen, and welcome to the Marin software second quarter 2022 financial results Conference call.

During the presentation, all participants will be in a listen only mode.

If at any time during the conference you need to reach an operator, Please press star and zero as a reminder, this conference is being recorded.

I'd now like to turn the call over to Bob Bertz CFO . Please go ahead.

Thank you good afternoon, everyone and welcome to Marin software second quarter 2022 earnings Conference call.

My name is Bob Bertz, I'm, <unk> CFO and joining me today is Chris lien <unk> 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 Dot Marin software Dot com.

All 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 $19 33, and the Securities Exchange Act of $19 34.

These forward looking statements.

Statements about our business outlook and strategy.

Expectations for customer adoption and use of armor in one platform hyster.

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.

The impact of investments in product and technology <unk>.

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 advertising spending.

And our expected Q3 and future financial results.

We make these statements as of August 4th 2022, 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.

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 quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

Is available in our second quarter 2022 earnings release.

With that let me turn the call over to Chris.

Thank you Bob good.

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 second quarter results for 2022, and our outlook for the third quarter of 2022.

As I highlight each call, we remain committed to return marin to growth and 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 maximize the returns from their online advertising investments.

We call this platform <unk>.

Our efforts are focused on <unk> returned to growth and we continue to believe that our strategy is sound as we reported a moderation in our revenue decline on a year over year basis.

This past quarter, we saw an improvement in customer retention and good new business activity.

I am pleased to share that given the encouraging customer feedback that we've received we are increasing our investment in marketing activities across the rest of this year to bring marine one to the attention of more brands and their agencies.

As announced in today's earnings release Q2 revenues came in at $4 7 million, which was in the middle of our previously published guidance for Q2, but still down from Q2 in the prior year.

A key factor in our revenue results for the second quarter was the decline that we have observed an existing customer digital advertising spending, which we believe is due to current economic headwinds.

In previous economic downturns, we saw transitory pullbacks in digital advertising spending is this spending can be positive reduce relatively quickly when compared to other investments or expenses that have contractual commitments or longer lead times for adjustment in.

In 2008 for example, we saw multimodal pullback in digital advertising spending as businesses evaluated the economic downturn and then we saw a resumption in AD spend given the highly trackable and measurable results from these channels.

We don't have a crystal ball at Marine So we don't know for how long this spending pullback from existing customers will last but our view is that on a relative basis brands will return to digital advertising in the channels that can be managed by our marine one platform given the performance oriented nature of the spending to drive revenue and customer acquisition.

Our guidance for Q3 accounts for the SaaS spend pullback that we are observing across our customers.

Our Q2 operating loss was at the low end of our guidance due to our lower revenue for the quarter, even as we continue to invest in marine one and our team.

Our total cash balance at the end of Q2 was $37 5 million, providing more in with significant resources to pursue our strategy and to support our customers.

At the end of the second quarter, our global head Count was approximately 165 about half of our team is in technology roles, reflecting our significant investment in delivering products to drive results for leading brands and their agencies.

So it's been our practice, we will continue to monitor our cash use closely balancing investments with cost management.

As I have discussed on past calls 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 journey and as we have highlighted the walled gardens of Google.

Facebook Amazon and the other publishers do not play well together, leading brands to connect the dots Brian .

<unk> helps these advertisers to measure manage and optimize their online advertising investments driving performance time savings and better business insights.

Our marine one platform as a performance layer to enable brands to drive greater returns from their digital advertising investments across search social and e-commerce channels, including the rapidly growing retail media channel.

High performance layer I'm, referring them ring, one as a complement to the robust tools that each of the publishers provides to its customers. These publisher tools understandably are focused on the AD units of each publisher and encourage brands to spend more with that publisher.

The publisher tools generally don't compare advertising performance across publishers don't highlight opportunities to reallocate spend across publishers to improve performance and don't provoke a unified view of a customer's journey across channels devices and publishers.

We supplement our marine one platform with support from our experienced team of digital marketing experts, who can help brands to navigate the complex, but rewarding world of digital advertising.

We continue to expand and enhance marine once functionality to positive customer feedback in Q2, we completed the rollout of marine one bidding unlocking better performance and improved accuracy with dynamic clustering and improved intraday optimizations for all customers. We also introduced marine one support for AD scheduling.

Our day party by a multi edit allowing advertisers to improve the performance of their ads by adjusting when they are and are not shown.

We also significantly improved our dimensions aggregation tools. These are user configurable metadata tags by introducing campaign level rollout views view dimension over time and the ability to segment dimension data by device match types and publisher.

These changes further reduced the need for offline data analysis and enable brands to view their advertising programs in a flexible way that fits their business needs and not the pre defined views of the publishers.

In addition, we introduced two new insights, including RSA coverage, which identify groups without any responsive search ads or Rss and fresh page minimum bid, which identifies objects performing below the bid strategy efficiency goal and whose bids are artificially raise the publisher first page minimum bids.

We also streamline the onboarding of new users, allowing advertisers to get new hires up and running on marine one more quickly and efficiently and we introduce chat functionality directly in marine one. So it is possible for customers to reach our customer support team and ask for help without ever having to navigate away from their own account.

All of these enhancements improve the ability of marine wanted to drive better advertising program performance and efficiency as well as improving usability when compared to the publishers tools and other competitive offerings.

Our social publishers, we launched the social rules engine to help automate key workflows with our rules engines users can set triggers based on any aspect of campaign performance that will adjust did status messaging and more and we made it easier to amplify organic posts by adding the ability to duplicate message booster rules.

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As a cross channel platform, we continue to invest to expand our support for Amazon ads, we have an Amazon webinar planned for later this quarter to highlight the potential of Amazon ads for brands and their agencies and Marines robust capabilities supporting this fast growing ecommerce publisher Marin also was recently given verified partner status acknowledging Marines.

Breadth and depth of support for Amazon ads.

As an official Apple search ads partner, we continue to invest to support our customers who use apps to engage with their customers.

We held an Apple webinar in Q2, which gave us an opportunity to highlight the benefit of Apple search ads as part of our marketers Cross channel campaign for App downloads and customer acquisition.

Apple recently announced more AD placements in the App store that marine will support once these placements go live in apples ads API, which is expected before the holiday season later this year.

Apple's App store currently offers two slots to advertisers one on the store's search tab and one in the search results now two new App store ads will bring additional slots one of the App stores today homepage and one on individual app pages.

These additional AD placements will provide more app discovery opportunities for brands and their prospects.

As we mentioned in last quarter's call. Marine also was recently made an ads partner for Tictoc fast growing global social publisher.

Just estimate.

That brands will spend some 12 billion on tech tuck adds in 2022 with strong growth forecast for the coming years. There is talk in the digital advertising industry that AD budgets are shifting from one or another digital channels for <unk>.

We are not seeing this behavior in our limited data in general digital AD budgets historically have pulled dollars from dime digital channels that are less trackable and measurable or integration with Tic Toc AD manager gives brands better insights and improves the performance of their tick tock campaigns through machine learning and automation.

With 1 billion monthly active users globally tick tock provides brands the opportunity to connect authentically with highly engaged and passionate consumers through the power of shared experience.

I am pleased to share the news that marine was recently recognized as a strong performer in the Forrester wave <unk> advertising solutions Q3, 2022 and cited as best in class for BBB search and social advertising based on a thorough evaluation by Forrester of our marine one platform.

<unk> a highly respected third party technology advisory firm and in this role is able to access and review of the leading providers in a given market space.

Forrester is validation of our cross channel strategy for BTB marketers is a sign of the importance of coordinating a brand's messaging across channels to reach prospects we.

We expect more BTB marketers to consider marine one for their marketing needs as a result of this recognition.

As I mentioned on our last call. We continue to see strong interest in Marines managed services capabilities, whereby Marin provides services to customers to support their media buying activities.

Advertisers often have an interim need for staff, especially during this tight labor market, which is now combined with some level of economic uncertainty and Marines experience digital marketers are able to help them to meet their business needs on a flexible basis.

Our activities to support brands and their agencies take place against an active backdrop with government antitrust investigations at the federal and state levels as well as in the EU of the businesses have leading publishers in the digital advertising market.

Theyre also has the potential of federal legislation to regulate the conduct of the leading publishers that could benefit <unk> role as an independent AD management platform.

Marine enjoys co-opetition relationships with the leading publishers and we do not expect significant changes in these relationships in the near term.

Although we are not a party to any lawsuits are targeting these investigations RIN spent approximately $100000 in Q2 and legal fees in conjunction with responding to official request that marine has received related to these various investigations.

I continue to believe that marine is a tremendous opportunity ahead rent benefits us consumer spend increasing time online and add dollars follow them, creating more need for brands to measure manage and optimize these investments to acquire customers and drive revenue outcome.

We're seeing increasing interest in brands, taking a cross channel approach to their digital advertising investments and marine with our marine one platform and our team of digital advertising experts is well positioned to support leading brands and their agencies in these efforts.

And now Bob will review, our second quarter financial results and our outlook for the third quarter of 2022.

Thank you Chris I'll provide an overview of our second quarter results and then share our forecast for the third quarter of 2022.

I'll begin with a review of our income statement.

So the second quarter of 2020 to Marin generated $4 $7 million in revenue near the midpoint of our guidance second quarter revenue was down 23% when compared to total revenue for the second quarter of 2021.

As we have previously discussed we renewed our revenue share agreement with Google for a new three year term commencing on October one 2021.

The quarterly amount of revenue recognized under the new agreement is expected to be approximately $1 8 million.

Versus approximately $2 $3 million per quarter under the expired agreement.

Adjusting for the change in revenue under the new Google revenue share agreement. Our Q2 2022 revenue was down approximately 16% when compared to Q2 2021.

As Chris previously mentioned, we saw lower than expected spend from some existing customers. During the second quarter of 2022, which we attribute to current macroeconomic factors, including fears of a recession.

Our revenue was also negatively affected by foreign exchange rate due to the strengthening of the U S dollar against the Euro and the British pound.

We do not know for how long the current economic uncertainty will impact advertiser spending activity.

Our geographic split for revenue was approximately 79% U S and 21% international for the second quarter of 2022.

Moving onto 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 $4 6 million for the second quarter of 2022 as compared to a $2 $8 million loss for the second quarter of 2021.

$4 $6 million non-GAAP operating loss in Q2 was at the lower end of our guidance the.

The increase in operating loss as compared to Q2 2021 is attributable to a combination of lower revenue and an increase in operating expenses as we make investments in our sales and marketing and product development effort.

Our non-GAAP operating expenses increased approximately 8% as compared to the second quarter of 2021.

Primarily as a result of strategic investments that we're making in our sales and marketing and product development activities.

Along with slightly higher professional fees.

We ended the quarter with 165 total head count versus 153, a year ago.

We expect our head count to continue to increase in the near term as we make additional investments in our sales and marketing and engineering teams.

In terms of our balance sheet, we ended the quarter with a total cash balance of $37 $5 million.

As compared to $41 $8 million at the end of the previous quarter.

We will continue to carefully monitor our cash levels as we make investments in our product development and sales and marketing efforts.

Moving onto our outlook for the third quarter.

For Q3, 2022, we expect revenue to be in the range of four $5 million to $5 million and our non-GAAP operating loss is expected to be in the range of $4 nine to $4 5 million.

Our revenue guidance reflects our best estimate of the continued impact on advertising spend by our customers due to the uncertain economic environment.

And our non-GAAP operating loss guidance includes the cost impact of expected investments in our engineering and sales and marketing teams.

This concludes our call for today. Thank you for your time and we look forward to updating you again during our Q3 2022 earnings call.

Ladies and gentlemen. 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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