Marin Software Incorporated (NASDAQ:MRIN) Q2 2022 Earnings Conference Call August 4, 2022 5:00 PM ET
Company Participants
Chris Lien – Chief Executive Officer
Bob Bertz – Chief Financial Officer
Conference Call Participants
Operator
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. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the call over to Bob Bertz, CFO. Please go ahead.
Bob Bertz
Thank you. Good afternoon, everyone, and welcome to Marin Software’s second 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. 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 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 to 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, and our expected Q3 and future financial results.
We make these statements as of August 4, 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. A 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.
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 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 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 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 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. And 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 rest of this year to bring MarinOne 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 a decline that we have observed in 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 as the spending can be [indiscernible] reduced relatively quickly when compared to other investments or expenses that have contractual commitments or longer lead times for adjustment.
In 2008, for example, we saw a multi-month 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 of these channels. We don’t have a crystal ball at Marin, so we don’t know for how long the spending pullback from existing customers will last. But our view is that on a relative basis, brands will return to digital advertising and the channels that can be managed via our MarinOne platform, given the performance-oriented nature of the spending to drive revenue and customer acquisition.
Our guidance for Q3 accounts for this ad 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 MarinOne and our team. Our total cash balance at the end of Q2 was $37.5 million, providing Marin with significant resources to pursue our strategy and to support our customers.
At the end of the second quarter, our global headcount 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. As has been our practice, we will continue to monitor our cash use closely, balancing investments with cost management.
As I’ve 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 of 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 online 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 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. We continue to expand and enhance MarinOne’s functionality to positive customer feedback. In Q2, we completed the rollout of MarinOne Bidding, unlocking better performance and improved accuracy with dynamic clustering and improved intraday optimizations for all customers.
We also introduced MarinOne support for ad scheduling or dayparting 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 roll-up views, view dimension over time and the ability to segment dimension data by device, match type and publisher. These changes further reduce the need for off-line data analysis and enable brands to view their advertising programs in a flexible way that fits their business needs and not the predefined views of the publishers.
In addition, we introduced two new insights, including RSA coverage, which identify groups without any responsive search ads or RSAs and first-page minimum bid, which identifies objects performing below the bid strategy efficiency goal and whose bids are artificially raised to publisher first-page minimum bids. We also streamlined the onboarding of new users, allowing advertisers to get new hires up and running on MarinOne more quickly and efficiently, and we introduced chat functionality directly in MarinOne. So it’s 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 MarinOne to drive better advertising program performance and efficiency as well as improving usability when compared to the publishers’ tools and other competitive offerings.
For social publishers, we launched the Social Rules Engine to help automate key workflows. With the Rules Engines, users can set triggers based on any aspect of campaign performance that will adjust bid, status, messaging and more, and we made it easier to amplify organic posts by adding the ability to duplicate message booster rules.
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 Marin’s robust capability supporting this fast growing e-commerce publisher. Marin also was recently given verified partner status, acknowledging Marin’s 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 the marketers cross-channel campaign for app downloads and customer acquisition. Apple recently announced more ad placements in the App Store that Marin will support once these placements go live in Apple’s 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 search tab and one in the search results. Now two new App Store ads will bring additional slots, one to 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, Marin also was recently made an ads partner for TikTok, the fast-growing global social publisher. Analysts estimate that brands will spend some $12 billion on TikTok ads in 2022 with strong growth forecast for the coming years. There is a talk in the digital advertising industry that ad budgets are shifting from one or another digital channels such as TikTok, but we are not seeing this behavior in our limited data.
In general, digital ad budgets historically have pulled dollars from non-digital channels that are less trackable and measurable. Our integration with TikTok’s Ad Manager gives brands better insights and improves the performance of their TikTok campaigns through machine learning and automation. With 1 billion monthly active users globally, TikTok provides brands the opportunity to connect authentically with highly engaged and passionate consumers through the power of shared experience.
I’m pleased to share the news that Marin was recently 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.
As I mentioned on our last call, we continue to see strong interest in Marin’s 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 Marin’s experienced 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 of government 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 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 target in these investigations, Marin spent approximately $100,000 in Q2 on legal fees in conjunction with responding to official requests that Marin has received related to these various investigations.
I continue to believe that Marin has a tremendous opportunity ahead. Marin benefits as consumer 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.
We’re seeing increasing interest in brands taking a cross-channel approach to their digital advertising investments and 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 second quarter financial results and our outlook for the third quarter of 2022.
Bob Bertz
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. For the second quarter of 2022, 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 1, 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 rates 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 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 $4.6 million for the second quarter of 2022 as compared to a $2.8 million loss for the second quarter of 2021. The $4.6 million non-GAAP operating loss in Q2 was at the lower end of our guidance. The increase in operating losses 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 efforts.
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 are making in our sales and marketing and product development activities, along with slightly higher professional fees. We ended the quarter with 165 total headcount versus 153 a year ago. We expect our headcount 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 on to our outlook for the third quarter. For Q3 2022, we expect revenue to be in the range of $4.5 million to $5 million, and our non-GAAP operating loss is expected to be in the range of $4.9 million 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.
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.
Question-and-Answer Session
Operator
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