Q4 2022 Marin Software Inc Earnings Call

Speaker 1: Yeah.

Speaker 2: Greetings and welcome to the Marin Software fourth quarter 2022 Financial Results Conference call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker 2: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Byrts, Marin Software CFO . Thank you, Mr. Byrts, you may begin. Thank you.

Speaker 3: Thank you. Good afternoon, everyone, and welcome to Marin Software's fourth quarter 2022 earnings conference call.

Speaker 3: My name is Bob Burtz. I'm a Marin CFO and joining me today is Chris Lean, Marin's CEO .

Speaker 3: I know 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.

Speaker 3: 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 meaning of the Securities Act of 1933.

Speaker 3: and the Securities Exchange Act of 1934. These forward-looking statements include statements about our business outlook and strategy, our expectations for customer adoption and use of our MarinOne platform, and our

Speaker 3: 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.

Speaker 3: Our ability to manage our expenses and cash resources, our investment in hiring plants, and the impact of investments in product, technology, and marketing initiatives.

Speaker 3: 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 Q1 2023 and future financial results. We make these statements as of February 23, 2023.

Speaker 3: 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.

Speaker 3: In our most recent reports, on Form 10Q and Form 10K, 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 GAP, and may also be different from similar calculations or measures used by other companies.

Speaker 3: The quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our fourth quarter 2022 earnings release.

Speaker 3: 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 in full year and provide an update on our initiatives to return more into growth. Bob will then provide additional detail on our fourth quarter and full year results for 2022 and our outlook for the first quarter of 2023.

Speaker 3: If I discuss on each call, we remain committed to returning or into growth in 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 maximize the returns from their online advertising investments. We call this platform RIN1. Our efforts are focused on RIN's return to growth, and we continue to believe that our strategy is sound as we report ongoing moderation and our revenue decline on a year-over-year basis. And as I did on our last call, I'm pleased to share that given the encouraging customer feedback that we have received, we are increasing our investment in marketing activities across the coming quarters.

Speaker 3: to bring Marin 1 to the attention of more brands and their agencies. As announced in today's earnings release, Q4 revenues came in at $5.2 million, which was above the high end of our previously published guidance for Q4, but still down from Q4 in the prior year. I should highlight that on a sequential basis, Marin's revenues were up from Q3, as Q3 revenues were also up from Q2.

Speaker 3: Our Q4 non-GAAP operating loss also was above the high end of our guidance, despite our lower revenue for the quarter and continued investment in MarinOne and our team.

Speaker 3: Our total cash balance at the end of Q4 was $28 million.

Speaker 3: which enables us to pursue our strategy and to support our customers. At year end, our global headcount was approximately 177.

Speaker 3: 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. We expect to continue to hire selectively in technical, field sales, and customer support roles. As has been our practice, we will continue to balance investments with cost management.

Speaker 3: As I've shared on past calls, Maroon 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.

Speaker 3: 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, leaving brands to connect the dots.

Speaker 3: Marine helps these advertisers to measure, manage and optimize their online advertising investments, driving performance, time savings, and better business insights. Our Marine One platform is a performance layer to enable brands to drive greater returns from the digital advertising investments across search, social, and e-commerce channels.

Speaker 3: including the rapidly growing retail media channel. By performance layer, I'm referring to MarinOne as a complement to the robust tools that each of the publishers provides to its customers. These publisher tools are understandably 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.

Speaker 3: Don't highlight opportunities to reallocate spend across publishers to improve performance. And don't promote 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.

Speaker 3: In Q4, Marin launched Marin One Budget Optimizer, designed to help customers automate hitting their spending targets. This functionality uses machine learning combined with customizable rules to help advertisers maximize the return on their marketing investment. As part of this offering, Marin also debuted casing dashboards and alerts to help advertisers stay on plan. These budget management capabilitieshopelessly implemented

Speaker 3: sit on top of the in-channel bidding capabilities of each of the publishers and also offer the ability to forecast results from potential ad investments using what-if functionality. Marin will continue to advance and expand our budget optimization functionality as we see this as an enduring area for an independent ad management platform to add value. It is impractical and not feasible for a publisher to provide forecasting and pacing for other publishers.

Speaker 3: creating what we believe is a compelling opportunity for Marin's budget optimizer offering. In Q4, we also continue to expand MarinOne Insights with four new recommendations Conversion Latency, Dedicated Group Landing Pages, Group Restructure Opportunities, and Single-Use Landing Pages which help drive greater financial performance and efficiency for Marin customers.

Speaker 3: And to save additional time, almost all of Marin's insights can be actioned via one-click implementation. As part of our investment in retail media advertising, I'm pleased to share that during Q4, Marin interviews support for Walmart Connect, allowing brands and agencies to manage their Walmart retail media programs in MarinOne. The integration includes full campaign management, editing budgets and bids, cost and revenue reporting and other MarinOne functionality.

Speaker 3: We also continue to invest to expand our support for Amazon ads. As you'll recall in Q3, Marin was awarded Amazon Ads Advanced Partner status based on Marin's breadth and depth of support for advertising placements in Amazon ads. We also advanced Marin One's support for Amazon portfolios to provide more management of scale benefits to Marin's customers who are looking to manage multiple Amazon campaigns with different budgets and business goals for sponsored products and sponsored brand campaigns.

Speaker 3: And in recent new business activities, Marin's Amazon ads capabilities have been favorably received by brands and agencies. As part of our cross-channel strategy, Marin also continues to expand our support for Apple search ads. And in Q4, we updated our Apple search ad support to include creating and updating keywords via bulk and support for search term campaigns and search tab campaigns, which helps brands and agencies to manage their campaigns at scale and to take advantage of expand...

Speaker 3: by forester of our Marin One platform and positions us to win more business in the important category in coming quarters.

Speaker 3: We expect more B2B marketers to consider MarinOne for their marketing needs as a result of this recognition. With many companies facing uncertain business outlooks and making reductions in their staffing levels, Marin stands ready to provide managed services capabilities on a flexible basis to supplement our self-service SaaS platform.

Speaker 3: As new publishers become more important and full-time staffing levels come under increased pressure, Marin's ability to supplement in-house teams at brands and agencies with Marin's experienced digital marketers is resonating in the marketplace. Our activities to support brands and their agencies continue to take place against an active backdrop of governmental antitrust investigations at the federal and state levels as well as in the EU of the businesses of leading publishers in the digital advertising market. There is also the potential of federal legislation to regulate certain conduct of the leading publisher.

Speaker 3: enjoys coopetition relationships with the leading publishers and we do not expect significant changes in these relationships in the near term.

Speaker 3: Although we are not a party to any lawsuits or a target in these investigations, Marin spent approximately $100,000 in Q4 on legal fees in conjunction with responding to official requests that Marin has received related to these various investigations. We expect to spend at similar levels in the coming quarter based on the legal activity that we are seeing, which is primarily providing information in response to the

Speaker 3: for brands to measure, manage, and optimize these investments to acquire customers and drive revenue outcomes in an increasingly fragmented online advertising landscape.

Speaker 3: We are seeing growing interest in brands taking a cross-channel approach to their digital advertising investments, including encouraging early interest in Marin's budget optimization functionality.

Speaker 3: Marin, with our MarinOne 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 fourth quarter and full year financial results and our outlook for the first quarter of 2023. Thank you, Chris. I'll provide an overview of our fourth quarter and full year results and then share our forecast for the first quarter of 2023.

Speaker 3: I'll begin with a review of our income statement. More the fourth quarter of 2022, Marin generated $5.2 million in revenue, exceeding the high end of our guidance by approximately $100,000. Fourth quarter revenue was up sequentially from Q3, but was down approximately 12% when compared to total revenue for the fourth quarter of 2021.

Speaker 4: dollars versus approximately 2.3 million dollars per quarter under the previous agreement.

Speaker 4: Adjusting for the decrease in revenue under the new Google revenue share agreement, our full year 2022 revenue was down approximately 12% when compared to 2021.

Speaker 4: We believe that the macroeconomic environment during 2022 has had and will continue to have a negative impact on the digital advertising market.

Speaker 4: Such factors as inflation rates, recession concerns, layoffs in the technology sector, and to a lesser extent, uncertainty caused by the war in Ukraine, have resulted in a reduction in digital advertising spend by some digital marketers. This is a headwind on a subset of our existing customers.

Speaker 4: as well as some potential new customers. Our geographic split for revenue was approximately 81% US and 19% international for Q4 2022 and was 79% US and 21% international for the full year of 2022. Moving on to our operating results.

Speaker 4: 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 $4.2 million for the fourth quarter of 2022 as compared to a $3.8 million loss for the fourth quarter of 2021. The $4.2 million non-GAAP operating loss in Q4 is a significant increase in the number of non-GAAP operating losses in the last quarter of 2021. The total number of non-GAAP operating losses is a significant increase in the number of non-GAAP operating losses in the last quarter of 2021.

Speaker 4: beat the high end of our guidance by approximately $300,000. The increase in operating losses compared to Q4 2021 is attributable to lower revenue, which was partially offset by lower total operating expenses. Our Q4 non-GAAP operating expenses decreased approximately 3% as compared to the fourth quarter of 2021, primarily due to lower general and administrative expenses.

Speaker 4: For the full year, our non-GAAP operating expenses increased approximately 6% as compared to 2021 due to strategic investments we have made in our engineering and sales and marketing efforts. We ended the quarter with 177 total headcount versus 156 a year ago.

Speaker 4: Our full year 2022 non-gap operating loss with $17.7 million as compared to a $12 million loss in 2021. The increase in operating loss year over year is attributable to a combination of lower revenue and higher operating expenses.

Speaker 4: As I previously discussed, we made strategic investments in our engineering team and sales and marketing operations during much of 2022, which led to an overall increase in operating expenses.

Speaker 4: In terms of our balance sheet, we ended the quarter with a total cash balance of $28 million as compared to $31.7 million at the end of the previous quarter. We will continue to carefully monitor our cash levels as we endeavor to execute on our return to growth strategy.

Speaker 4: Moving on to our outlook for the first quarter of 2023. For Q1 2023, we expect revenue to be in the range of $4 to $4.5 million and our non-GAAP operating loss is expected to be in the range of $5.3 to $4.8 million. Our revenue guidance reflects our estimate.

Speaker 4: of the continued impact of the uncertain economic environment on advertising spend by both existing and prospective customers. This concludes our call for today. Thank you for your time, and we look forward to updating you again during our Q1 2023 earnings call. Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation. Thank you very much for your time and your participation.