Earnings Transcript for MRIN - Q4 Fiscal Year 2022

Operator: 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. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Bob Bertz, Marin Software CFO. Thank you, Mr. Bertz. You may begin.

Bob Bertz: Thank you. Good afternoon, everyone, and welcome to Marin Software's fourth quarter 2022 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, our expectations for customer adoption and use of 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, our investment in hiring plans and the impact of investments in product, technology and marketing initiatives, 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 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. A 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. With that, let me turn the call over to Chris.

Chris Lien: Thank you Bob. Good afternoon everyone and thank you for joining our call today. I'll share my observations on the quarter and full year and provide an update on our initiatives to return Marin to 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. As I discuss on each call, we remain committed to 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 maximize the returns from their online advertising investments. We call this platform MarinOne. Our efforts are focused on Marin's return to growth and we continue to believe that our strategy is sound as we report ongoing moderation in 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 to bring MarinOne 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. 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. Our total cash balance at the end of Q4 was $28 million, which enables us to pursue our strategy and to support our customers. At year-end, our global headcount was approximately 177. 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. As I've shared 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, leaving brands to connect the dots. Marin helps these advertisers to measure, manage and optimize their online advertising investments, driving performance, time savings and better business insights. Our MarinOne platform is 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. 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, 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 MarinOne 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. In Q4, Marin launched MarinOne 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 pacing dashboards and alerts to help advertisers stay on plan. These budget management capabilities 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, creating what we believe is a compelling opportunity for Marin's Budget Optimizer offering. In Q4, we also continued to expand MarinOne Insights, with four new recommendations

Bob Bertz: 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. I'll begin with a review of our income statement. For 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. For the full year 2022, revenue totaled $20 million a year-over-year decrease of 18%, as compared to $24.4 million in 2021. As I have previously discussed, we renewed our revenue share agreement with Google for a new three-year term, commencing on October 1st of 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 previous agreement. 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. We believe that, the macroeconomic environment during 2022 have had and will continue to have a negative impact on the digital advertising market. 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 as well as some potential new customers. Our geographic split for revenue was approximately 81% U.S. and 19% international for Q4 2022 and was 79% U.S. and 21% international for the full year of 2022. 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 $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 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. 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. Our full year 2022 non-GAAP operating loss was $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. As I've 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. 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. Moving on to our outlook for the first quarter of 2023. For Q1 2023, we expect revenue to be in the range of $4 million to $4.5 million and our non-GAAP operating loss is expected to be in the range of $5.3 million to $4.8 million. Our revenue guidance reflects our estimate 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.

End of Q&A: Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.