Q3 2024 Marin Software Inc Earnings Call

Speaker Change: Greetings and welcome to Morin Software's third quarter 2024 financial results conference call.

at this time all participants are in a listen-only mode.

Speaker Change: If anyone who require operator assistance, please press stars there on your telephone keypad.

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Bertz, Chief Financial Officer of Marin Software. Thank you. You may begin.

Thank you. Good afternoon, everyone, and welcome to Marin Software's third quarter 2024 earnings conference call.

Bob Bertz: 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.

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, our expectations for customer adoption and use of our services, historical results that may suggest trends for our business,

Bob Bertz: Our expectations about our ability to improve customer retention and new business bookings and to sustain or grow our business. Our expectations about our expenses and cash resources.

The impact of investments in product and technology, progress on product development efforts,

Product Capabilities and Benefits, Our Relationships with Publishers and Other Parties in the Digital Advertising Market, and the Expected Revenue under our Strategic Agreement with Google.

Expectations for future economic activity and digital advertising spending. Expected restructuring cost and cost savings from our restructuring efforts.

Our efforts to raise additional financing or to negotiate and complete potential strategic transactions, and our expected Q4 2024 and future financial results.

We make these statements as of October 31st, 2024, 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,

Bob Bertz: 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.

Bob Bertz: A quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our third quarter 2024 earnings release.

Speaker Change: With that, let me turn the call over to Chris.

Chris Lien: Thank you, Bob. Good afternoon, everyone. Thank you for joining our call today. I'll share my observations on the quarter and provide an update on our initiatives to sustain and grow our business.

Bob will then provide additional detail on our third quarter results for 2024 and our outlook for the fourth quarter of 2024.

Speaker Change: As we highlight each quarter, we are committed to sustaining and growing our business and maximizing shareholder value.

Bob Bertz: 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 return from their online advertising investments.

Bob Bertz: As announced in today's earnings release, Q3 revenues came in above our guidance range at $4.3 million, down about 4% year-over-year, as our revenue decline moderates with progress in improving customer retention and new bookings.

Bob Bertz: Our 2-3 non-gap operating loss also beat the high end of our guidance.

Bob Bertz: Our non-GAAP operating loss was $1.1 million lower on a year-over-year basis, reflecting the benefits of our July 2023 Restructuring and Reduction in Force plan.

Our total cash balance at the end of Q3 was $5.6 million.

Bob Bertz: In mid-October, subsequent to the end of the quarter, we reduced head count by 26%. The reduction is projected to result in annualized savings of approximately $3.6 million.

Bob Bertz: We took this difficult step to better align our costs with our current revenues and to move Marin closer to breakeven.

As we announced last quarter, I am pleased to share that Marin Software has renewed its Strategic Partnership Agreement with Google for another three years, commencing on October 1, 2024.

The renewal is substantially similar to the revenue share agreement with Google that expired on September 30, 2024, including the same minimum quarterly payments.

This agreement underscores our commitment to fostering innovation, providing advertisers with unparalleled tools for managing and optimizing their page search campaigns.

Bob Bertz: As I've shared before, Marin seeks to be an ally in digital for the world's leading brands and their agencies.

Bob Bertz: The online path to purchase traverses a range of channels, devices, and publishers. Marketers need to engage at all points of this customer journey. And the walled gardens of Google, Facebook, Amazon, and the other publishers, including TikTok, Snap, and LinkedIn, do not play well together.

Brands must connect the dots. Marin helps these advertisers to measure, manage, and optimize their online advertising investments, driving performance, time savings, and better business insights.

We do this by serving as a performance layer that complements the tools that each of the ad platforms provides to its customers.

These ad platform tools are understandably focused on the ad units offered on each platform and encourage brands to spend more within their walls guard.

The ad platform tools generally don't compare advertising performance across platforms. They don't highlight opportunities to reallocate spending across platforms to improve performance, nor do they promote a unified view of a customer's journey across channels and devices.

Bob Bertz: We supplement our software with support from our experienced team of digital marketing experts who can help brands navigate the complex but rewarding world of digital advertising.

Bob Bertz: To address the varying needs of digital marketers and their agencies, we offer three primary products.

Connect is a reporting focused solution for advertisers looking to collect their performance marketing data from various sources and send it to data warehouses.

Marin provides marketers with unified revenue cost and ad performance data via our Connect offering.

Building on the data foundation provided by Connect, Ascend is our budget management, pacing, and forecasting solution.

It enables marketers to leverage Marin's AI-based optimization methodologies to deliver budget compliance, understand what-if from increased or decreased advertising spend, and understand optimal spend allocation across campaigns, publishers, and channels.

Bob Bertz: ASCEND supports a range of publishers and channels, including LinkedIn, TikTok, Apple Search Ads, Amazon, Reddit, X, formerly known as Twitter, and Taboola.

Bob Bertz: in addition to Google and Meta.

Assent complements the robust in-channel publisher bidding and provides an independent measure and means to allocate and pace online advertising investment, delivering optimal financial results and significant time savings compared to alternative manual approaches.

This past quarter in Ascend, we introduced new budget floor controls, ensuring campaigns maintain a minimum spend to maximize impact and avoid underperformance due to budget shortfalls.

Bob Bertz: These enhancements provide users with automated budget management that adheres to both maximum and minimum thresholds across all campaigns and publishers.

Bob Bertz: In just under two months, they improved budget compliance from 9% to 96% Really outstanding results, saving over 15 hours of manual work per week

We are encouraged to see more advertisers and agencies benefiting from Marin Ascend, as well as growing interest in evaluating Ascend. As I've shared, Ascend is already helping drive both new business and renewals.

Marin's third offering is MarinOne, our flagship cross-channel advertising management platform.

Bob Bertz: As part of MarinOne, I'm pleased to announce our enhanced Reddit integration, which now supports full campaign management, including budgeting, forecasting, and automation.

on top of our existing omni-channel reporting capabilities.

Mercurius can manage their Reddit campaigns with the same precision and ease they apply across other publishers in Marin.

I've mentioned Marin's work with AI in prior calls, and I'm pleased to share that we continue to advance ADVISOR, which is Marin's OpenAI-powered virtual teammate.

With this, Marin users can interact with the platform in an entirely new way, unlocking the collective knowledge of digital marketing thought leaders and putting their best practices to work with a simple prompt.

Our new AI-powered virtual assistant allows marketers to streamline their workflow by automating tasks and receiving actionable insights.

Powered by OpenAI and integrated with Marin's entire Knowledge Center, Advisor provides real-time performance analysis, recommended actions, and step-by-step guidance, helping users optimize their campaigns directly within Marin's platform.

Bob Bertz: Advisor is Marin's second AI offering following our chat GPT powered anomaly detection reports designed to identify and summarize performance outliers.

These reports are delivered in a concise, easy-to-understand format via email on a daily or weekly basis, enabling marketers to review and address significant deviations in campaign performance quickly.

Our team intends to expand the application of AI to optimize online advertising and expects to bring additional innovations to market in the coming quarters.

There is also the possibility of federal legislation to regulate the conduct of the leading publishers, which could benefit Marin's role as an independent ad management platform.

Bob Bertz: In particular, there is a pending Google AdTech antitrust case that will hear closing arguments beginning November 25, 2024, with a ruling from the judge expected in Q1 2025.

Any decision by the judge will likely be subject to further hearings and appeals.

Bob Bertz: Marin enjoys competition relationships with the leading publishers and we do not expect significant changes in these relationships in the near term.

And as you've heard me share on prior calls, you see early but encouraging signs that our latest efforts are resonating more with customers and prospects.

Marin can benefit if consumers 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 outcomes.

With the combined online advertising share of Google and Meta below 50% and the growing fragmentation of digital advertising Outside of these two leading publishers be it on Amazon, Apple search ads, LinkedIn, Reddit, or TikTok

Bob Bertz: We see increasing interest in brands taking a cross-channel approach to their digital advertising investments, leveraging Marin's cross-channel reporting, management at scale, and budget optimization.

And now, Bob will review our third quarter financial results and our outlook for the fourth quarter of 2024.

Thank you, Chris. I'll provide an overview of our third quarter results and then share our forecast for the fourth quarter of 2024. I'll begin with a review of our income statement.

For the third quarter of 2024, Marin generated $4.3 million in revenue, which was $0.1 million above the high end of our guidance.

Third quarter 2024 revenue was down approximately 4% when compared to total revenue for the quarter of 2023, indicating a moderation of our revenue decline when compared to prior quarters.

Bob Bertz: The decrease in revenue year over year is primarily attributable to the fact that existing customer returns outpace new bookings.

Our geographic split for revenue was approximately 80% U.S. and 20% international for the third quarter of 2024.

Moving on to our operating results.

Bob Bertz: As a reminder, 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 $1.8 million for the third quarter of 2024, as compared to a $2.9 million loss for the third quarter of 2023.

The $1.8 million non-GAAP operating loss in Q3 was $0.1 million, better than the high end of our guidance due to higher revenue.

Bob Bertz: The decrease in operating losses compared to Q3 2023 is primarily attributable to real-life savings from our restructuring plan implemented during the second half of 2023.

which were partially offset by lower revenue in the current period as compared to last year.

Bob Bertz: Our non-GAAP operating expense in Q3 2024 of $4.4 million represents a 17% decrease when compared to the prior year quarter.

The decrease is attributable to the implementation of our restructuring plan.

Bob Bertz: We ended the quarter with a 103 total headcount globally versus 116 a year ago. The decrease in headcount year-over-year is due to the reduction in force that was commenced in July 2023 as part of our restructuring plan which was completed in Q4 of 2023.

About half of our team is in technology roles, which we believe allows us to continue to deliver new products, features, and functionality to drive results for leading brands and their agencies.

We commence the implementation of a new restructuring plan in October of 2024. This restructuring plan is expected to further reduce our pre-tax cost structure by approximately $3.5 million on an annualized basis.

All of which is expected to come from a reduction in force. The reduction in force will reduce our workforce globally by approximately 27 positions, as well as approximately 7 full-time equivalent contractor roles.

Bob Bertz: We expect the restructuring to be completed by the end of this year, and we expect to incur approximately $0.8 million in restructuring costs, substantially all of which relate to severance and other one-time termination benefits.

In terms of our balance sheet, we ended the quarter with a total cash balance of $5.6 million as compared to a $7.9 million at the end of the previous quarter.

Bob Bertz: As we have disclosed in our recent SEC filings, we are exploring opportunities to raise additional financing as well as potential strategic transactions.

But we cannot provide any assurances about our ability to negotiate or complete any such transaction or the terms or timing of any such transaction.

Moving on to our Outlook.

This concludes our call for today. Thank you for your time, and we look forward to updating you again during our Q4 2024 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.