Marin Software Incorporated (NASDAQ:MRIN) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Good afternoon, ladies and gentlemen, and welcome to the Marin Software First Quarter 2023 Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Bob Bertz, Marin Software CFO. Please go ahead.

Bob Bertz: Thank you. Good afternoon, everyone, and welcome to Marin Software’s first quarter 2023 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, the impact of investments in product and technology, 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, our exploration of potential cost savings initiatives or additional sources of financing and our expected Q2 and future financial results.

We make these statements as of May 4, 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 first quarter 2023 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 provide an update on our initiatives to return Marin to growth. Bob will then provide additional detail on our first quarter results for 2023 and our outlook for the second quarter of 2023. We are 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 maximize the return from their online advertising investments. We call this platform MarinOne. We continue to believe that our strategy is sound. Our marketing activities across the rest of this year are designed to bring MarinOne to the attention of more brands and their agencies.

As announced in today’s earnings release, Q1 revenues came in at $4.6 million, which was just above the high end of our previously published guidance for Q1, but still down from Q1 in the prior year. I should highlight that Marin’s revenues declined about 11% year-over-year, showing moderation in our revenue decline. Our Q1 non-GAAP operating loss was within our guidance despite our investment in MarinOne and our team. Our total cash balance at the end of Q1 was $23.7 million. Marin seeks to be an ally in digital for the world’s leading brands and their agencies. 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 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 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 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.

The goal with MarinOne is to provide user-friendly reporting and analytics capabilities to brands and agencies to enable a business or a customer view of their advertising investments rather than a publisher-centric one of the publishers and their tools. As part of these efforts, we launched MarinConnect, a reporting-focused solution for advertisers looking to collect their performance marketing data from a variety of sources and send the data warehouses, BI tools and spreadsheets. We also added support for Google Analytics 4 in order to prepare for the upcoming migration away from Universal Analytics. We expanded charting options to include stacked bar charts. Stacked bar charts allow users to stack metrics to see how allocations across objects have changed over time.

And we debuted a Streamlined View Builder to show only the columns relevant to the publishers that have been linked to a specific account. We also seek to complement the publisher tools by enabling management at scale for large paid media programs, driving time savings and financial lift. In the past quarter, we launched Find and Replace for Ads, giving advertisers another tool to edit ads at scale across accounts. This functionality can save time and effort when adjusting seasonal or promotional messaging on large campaigns or ads with many different assets such as responsive search ads. We added a Copy tool to MarinOne, giving users the ability to copy objects, including campaigns, groups, keywords and placements. And we enhanced MarinOne’s URL builder to work across publishers and enhance customer parameters to simplify and reduce errors in URL tagging.

We are always looking for ways to save marketers time and unlock financial lift. This quarter, we introduced MarinOne Scripts, enabling users to leverage the power of Python to create customized solutions for reporting, management and optimization, to boost performance and save time. With Scripts, advertisers can change an object status, set campaign budgets, set bids, tag dimensions and much more. And we have begun exploratory efforts to bring ChatGPT and other AI and machine-learning tools to MarinOne for the benefit of our customers. We’ll share updates on this work as we have results to share in the coming quarters. A meaningful focus of our product development efforts at this time is Marin’s investment in budget optimization capabilities for digital advertisers and agencies.

Marin offers the ability to set and then face the budget across a group of publishers and associated campaigns while managing to a business performance target such as return on ad spend, or ROAS, or cost per lead. 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. We recently introduced Priority Campaigns to Budget Optimizer, allowing advertisers to allocate fixed budgets to specific campaigns, making it easier to prioritize spend for specific initiatives such as Branded campaigns. Marin’s investment in social publishers during the quarter included simplified audience targeting on Meta campaigns with customizable Interest Clusters that allow advertisers to reuse groups of interest across Ad Sets and Campaigns for more efficient management at scale or large social advertising programs.

We continue to invest to expand our support for Amazon Ads. Based on Marin’s breadth and depth of support for Amazon Ads, Marin holds Amazon Ads Advanced Partner status, and we recently added Impression Share and Impression Rank data for Amazon Campaigns, allowing advertisers to optimize based on these share of voice metrics. As I’ve highlighted on past calls, Marin was recognized as a strong performer in The Forrester Wave B2B Advertising Solutions Q3 2022 and cited as best-in-class for B2B search and social advertising based on a thorough evaluation by Forrester of our MarinOne platform. Forrester is a highly respected third-party technology advisory firm, and in this role is able to access and review the leading providers in a given market space.

Forrester’s validation of our cross-channel strategy for B2B marketers is a sign of the importance of coordinating a brand’s messaging across channels to reach prospects. We expect more B2B marketers to consider MarinOne for their marketing needs as a result of this recognition. And as I mentioned on our last call, Marin was upgraded to a LinkedIn Tier 1 partner, their highest designation, and is now the only campaign optimization tool in this top tier, reflecting Marin’s commitment to this important growing B2B publisher. Our activities to support brands and their agencies take place against an active backdrop of governmental antitrust investigation of the businesses of leading publishers in the digital advertising market at the federal and state levels as well as in the EU.

There also is the potential of federal legislation to regulate the conduct of the leading publishers that could benefit Marin’s role as an independent ad management platform. Marin enjoys coopetition 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 or a target in these investigations, Marin spent approximately $100,000 in Q1 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 various subpoenas.

I continue to believe that Marin has a tremendous opportunity ahead. Marin can benefit as consumers spend increasing time online and ad 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, we’re seeing 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. 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 first quarter financial results and our outlook for the second quarter of 2023.

Bob Bertz: Thank you, Chris. I’ll provide an overview of our first quarter results and then share our forecast for the second quarter of 2023. I’ll begin with a review of our income statement. For the first quarter of 2023, Marin generated $4.6 million in revenue, which beat the high end of our guidance by $0.1 million. First quarter revenue was down approximately 11% when compared to total revenue for the first quarter of 2022. The decrease in revenue year-over-year is primarily attributable to the fact that existing customer churn has outpaced new bookings. Additionally, we’ve seen lower-than-expected advertising spend from some existing customers during the first quarter of 2023, which we attribute to current macroeconomic factors, including fears of a recession and general market pressures.

Our geographic split for revenue was approximately 80% U.S. and 20% international for the first quarter of 2023. 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 $5 million for the first quarter of 2023 as compared to $4.3 million loss for the first quarter of 2022. The $5 million non-GAAP operating loss in Q1 was toward the high end of our guidance. The increase in operating loss as compared to Q1 2022 is primarily attributable to lower revenue in the current period as compared to last year. Our non-GAAP operating expenses in Q1 2023 were essentially flat when compared to the year ago quarter as slight increases in sales and marketing and research and development expenses were offset by lower general and administrative expenses.

We ended the quarter with 176 total headcount globally versus 164 a year ago. 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. In terms of our balance sheet, we ended the quarter with a total cash balance of $23.7 million as compared to $28 million at the end of the previous quarter. Moving on to our outlook. For Q2 2023, we expect revenue to be in the range of $4 million to $4.3 million, and our non-GAAP operating loss is expected to be in the range of $5.6 million to $5.3 million. As we note in our first quarter 10-Q filed today, we need to maintain a sufficient level of liquidity to achieve our business objectives. We are exploring potential cost savings initiatives to better align our expenses with our current revenue levels and our existing cash resources.

We may also explore additional sources of financing. Finally, as we announced earlier this week, we have been notified by NASDAQ that we are not in compliance with one of its continued listing requirements due to the fact that our stock has closed below $1 for more than 30 consecutive business days. We have an initial 180-day period to regain compliance with the continued listing requirements, which ends on October 23, 2023. We are evaluating our options on how to best address this issue. This concludes our call for today. Thank you for your time, and we look forward to updating you again during our Q2 2023 earnings call.

Operator: 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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