UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
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(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter time period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of April 28, 2023, the registrant had
Table of Contents
PART I. |
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Item 1. |
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CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2023 AND DECEMBER 31, 2022 |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
MARIN SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except par value)
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At March 31, |
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At December 31, |
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2023 |
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2022* |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use assets, operating leases |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease liabilities |
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Total current liabilities |
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Operating lease liabilities, non-current |
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Other long-term liabilities |
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Total liabilities |
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) |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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*
See accompanying notes to the condensed consolidated financial statements.
3
MARIN SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except per share data)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Revenues, net |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses |
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Sales and marketing |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income, net |
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Loss before income taxes |
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( |
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Provision for income taxes |
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Net loss |
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( |
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Foreign currency translation adjustments |
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Comprehensive loss |
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$ |
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$ |
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Net loss per share available to common stockholders, basic and diluted (Note 11) |
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$ |
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$ |
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Weighted-average shares used to compute net loss per share available to common stockholders, basic and diluted |
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See accompanying notes to the condensed consolidated financial statements.
4
MARIN SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
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Three Months Ended March 31, 2023 |
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Common Stock |
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Shares |
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Par Value |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balances at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock from vesting of restricted stock units (Note 7) |
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— |
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— |
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— |
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— |
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— |
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Tax withholding related to vesting of restricted stock units |
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— |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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( |
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( |
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Balances at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Three Months Ended March 31, 2022 |
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Common Stock |
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Shares |
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Par Value |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balances at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of common stock from vesting of restricted stock units (Note 7) |
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— |
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— |
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— |
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— |
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— |
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Tax withholding related to vesting of restricted stock units |
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— |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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Balances at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
5
MARIN SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities |
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Depreciation |
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Amortization of internally developed software |
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Amortization of deferred costs to obtain and fulfill contracts |
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Forgiveness of Paycheck Protection Program loan |
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Interest expense |
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Loss on disposals of property and equipment and right-of-use assets |
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Unrealized foreign currency losses |
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Stock-based compensation related to equity awards |
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Provision for bad debts |
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( |
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Net change in operating leases |
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Deferred income tax benefits |
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Changes in operating assets and liabilities |
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Accounts receivable |
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Prepaid expenses and other assets |
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Accounts payable |
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( |
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Accrued expenses and other liabilities |
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( |
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( |
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Net cash used in operating activities |
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( |
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Investing activities: |
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Purchases of property and equipment |
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Capitalization of internally developed software |
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Net cash used in investing activities |
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Financing activities: |
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Repayment of Paycheck Protection Program loan |
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Employee taxes paid for withheld shares upon equity award settlement |
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Proceeds from employee stock purchase plan, net |
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Net cash provided by (used in) financing activities |
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Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash |
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( |
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Net decrease in cash and cash equivalents and restricted cash |
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Cash and cash equivalents and restricted cash: |
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Beginning of period |
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End of the period |
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$ |
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$ |
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Supplemental disclosures of non-cash investing and financing activities: |
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Forgiveness of Paycheck Protection Program loan |
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$ |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
6
Marin Software Incorporated
Notes to Condensed Consolidated Financial Statements
(dollars and share numbers in thousands, except per share data)
1. Summary of Business and Significant Accounting Policies
Marin Software Incorporated (the “Company”) was incorporated in Delaware in March 2006. The Company provides enterprise marketing software for advertisers and agencies to integrate, align and amplify their digital advertising spend across the web and mobile devices. Offered as a unified software-as-a-service (“SaaS”) advertising management solution for search, social and eCommerce advertising, the Company’s platform helps digital marketers convert precise audiences, improve financial performance and make better decisions.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring items, considered necessary for fair statement have been included. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or for other interim periods or future years.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of December 31, 2022 is derived from audited financial statements as of that date but does not include all of the information and footnotes required by GAAP for complete financial statements.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission ("SEC") on February 23, 2023.
Liquidity
The Company has incurred significant losses in each fiscal year since its incorporation in 2006. The Company incurred a net loss of $
Based on the funds it has available as of the date of the filing of this report and the effective implementation of cost saving measures that the Company believes is probable it will achieve, the Company believes that it has sufficient capital to fund its current business plans and obligations over, at least, 12 months from the date that these financial statements have been issued. The Company’s ability to achieve its business objectives and to continue to meet its obligations is dependent upon maintaining a certain level of liquidity, which could be impacted by several factors, including the extent of customer acceptance, adoption and use of its MarinOne platform and general macroeconomic conditions such as inflation or the extent and duration of any recession. Although the Company has pursued, and may continue to pursue, additional sources of liquidity, including additional equity and debt financing, there is no assurance that any additional financing will be available on acceptable terms, or at all. The Company’s ability to continue as a going concern is substantially dependent upon its ability to reduce its expenses, enter into strategic partnerships, improve customer retention rates and increase new bookings. If the Company is unable to raise sufficient additional capital or unable to consummate other strategic agreements, it is probable that the Company may be required to initiate further cost savings activities.
7
In August 2021, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective by the SEC on August 19, 2021 and provides that the Company may offer its common stock, preferred stock, debt securities, warrants, subscription rights and units having an aggregate offering price of up to $
The Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.
Fair Value of Financial Instruments
The Company’s financial instruments, including accounts receivable, accounts payable and accrued expenses are carried at cost, which approximates fair value because of the short-term nature of those instruments. Cash equivalents are comprised of money market funds recorded at fair value and are classified as Level 1 within the fair value hierarchy.
Allowances for Credit Losses and Revenue Credits
The Company performs a regular review of its customers’ payment histories and associated credit risks and it generally does not require collateral from its customers. Certain contracts with advertising agencies contain sequential liability provisions, whereby the agency does not have an obligation to pay the Company until payment is received from the agency’s customers. In these circumstances, the Company evaluates the credit worthiness of the agency’s customers, in addition to the agency itself. The Company maintains an allowance for credit losses which reflects its best estimate of potentially uncollectible trade receivables and is based on both specific and general reserves. General reserves are maintained on a collective basis by considering factors such as historical experience, the age of the receivable balances, current economic conditions and a reasonable and supportable forecast of future economic conditions.
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Total |
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Balance at December 31, 2022 |
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$ |
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Current period provision for expected losses |
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Write-offs charged against allowance |
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Balance at March 31, 2023 |
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$ |
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From time to time, the Company provides credits to customers that typically relate to customer disputes or billing adjustments and are recorded as a reduction of revenue. Reserves for these revenue credits are accounted for as variable consideration under authoritative revenue recognition guidance (see Note 2) and are estimated based on historical credit activity. As of March 31, 2023, and December 31, 2022, the Company recorded an allowance for potential customer credits in the amount of $
Long-Lived Assets Impairment Assessment
The Company evaluates long-lived assets, excluding goodwill, for potential impairment whenever adverse events or changes in circumstances or business climate indicate that the expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets. An impairment loss is recognized only if the carrying value of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying value of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. There were
8
Revenue Recognition
The Company generates revenues principally from subscriptions either directly with advertisers or with advertising agencies to its platform for the management of search, social and eCommerce. The Company also generates revenues from strategic agreements with certain leading publishers. Under the subscription agreements, the Company receives consideration based on the advertising spend that customers manage on its platform. Revenues are recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.
See Note 2 for further discussion of the Company’s revenues.
Accounting Pronouncement Adopted in 2023
On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326), using the modified retrospective transition method. Upon adoption, we changed our impairment model to utilize a forward-looking current expected credit losses model in place of the incurred loss methodology for financial instruments measured at amortized cost, primarily the Company’s accounts receivable. The cumulative effect from adoption was immaterial to the Company’s condensed consolidated financial statements.
Recent Accounting Pronouncement Not Yet Effective
None.
2. Revenues
Revenue Recognition
The Company generates its revenues principally from subscriptions, either directly with advertisers or with advertising agencies, to its platform for the management of search, social, eCommerce and display advertising. It also generates a portion of its revenues from long-term strategic agreements with certain leading publishers. Revenues are recognized when control of these services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company determines revenue recognition through the following steps:
Subscription
The Company’s subscription contracts provide advertisers with access to the Company’s advertising management platform. Advertisers do not have the right to take possession of the software supporting the services at any time. These contracts are generally
9
The Company’s subscription services comprise a single stand-ready performance obligation satisfied over time as the advertiser simultaneously receives and consumes the benefit from the Company’s performance. This performance obligation constitutes a series of services that are substantially the same in nature and are provided over time using the same measure of progress. Revenues derived from these arrangements are recognized over time using an output method based upon the passage of time as this provides a faithful depiction of the pattern of transfer of control. Fixed minimum monthly platform fees are recognized ratably over the contract term as the single performance obligation is satisfied. Variable fees are allocated to the distinct month of the series in which they are earned because the terms of the variable payments relate specifically to the outcome from transferring the distinct time increment (month) of service and because such amounts reflect the fees to which the Company expects to be entitled for providing access to the advertising management platform for that period, consistent with the allocation objective of authoritative revenue guidance under Accounting Standards Codification 606 (“ASC 606”).
Expected future revenues for subscription services related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2023 were as follows:
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Subscription Services |
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(remaining nine months) |
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$ |
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Total |
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$ |
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The Company applies the optional exemption under ASC 606 and does not disclose the value of unsatisfied performance obligations on subscription contracts with an original term of
Strategic Agreements
The Company has entered into long-term strategic agreements with certain leading search publishers which are generally billed on a quarterly basis.
In September 2021, the Company entered into a new revenue share agreement with Google, which has a scheduled three-year term that commenced on October 1, 2021 (the "New Google Revenue Share Agreement") and continues through September 30, 2024. This agreement is similar to the original revenue share agreement that the Company entered into with Google in 2018 in that the Company is eligible to receive fixed and variable revenue share payments based on a percentage of the search advertising spend that is managed through the Company’s platform and in that the Company is required to reinvest a specified percentage of these revenue share payments in its search technology platform to drive innovation.
The Company evaluates the total amount of variable revenue share payments expected to be earned from the New Google Revenue Share Agreement using the most likely method, as it believes this method represents the most appropriate estimate for this consideration, based on historical service trends, the individual contract considerations and the Company’s best judgment. The Company includes estimates of variable consideration in revenues only to the extent that it believes it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company recognized revenues from the New Google Revenue Share Agreement of $
Disaggregation of Revenues
Revenues by geographic area, based on the billing location of the customer, were as follows for the periods presented:
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|
Three Months Ended March 31, |
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
United States of America |
|
$ |
|
|
$ |
|
|
||
United Kingdom |
|
|
|
|
|
|
|
||
Other (1) |
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|
|
|
|
|
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||
Total revenues, net |
|
$ |
|
|
$ |
|
|
||
10
Revenues by nature of services performed were as follows for the periods presented:
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|
Three Months Ended March 31, |
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|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
Subscriptions |
|
$ |
|
|
$ |
|
|
||
Strategic agreements |
|
|
|
|
|
|
|
||
Total revenues, net |
|
$ |
|
|
$ |
|
|
||
Advertisers from outside of the United States represented
Contract Balances
Accounts Receivable, Net
The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoice amount, net of any allowances for credit losses and revenue credits. A receivable is recognized in the period the Company provides the underlying services or when the right to consideration is unconditional. The balances of accounts receivable, net of the allowances for credit losses and revenue credits, as of March 31, 2023 and December 31, 2022 are presented in the accompanying condensed consolidated balance sheets and was $
Customer Advances
In certain situations, the Company receives cash payments from customers in advance of its performance of the underlying services. These advances from customers are included within accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets.
Costs to Obtain and Fulfill Contracts
The Company capitalizes certain contract acquisition costs, consisting primarily of commissions and related payroll taxes, when customer contracts are signed. The Company also capitalizes certain contract fulfillment costs, consisting primarily of the portion of the payroll and fringe benefits of the Company’s professional services team that relates directly to performing on-boarding and integration services for new and existing customers (collectively, “deferred costs to obtain and fulfill contracts”).
The deferred costs to obtain and fulfill contracts are amortized over the expected period of benefit, which the Company has determined to be approximately
The Company classifies deferred costs to obtain and fulfill contracts as current or non-current based on the timing of when the related amortization expense is expected to be recognized. The current portion of these deferred costs is included in prepaid expenses and other current assets, while the non-current portion is included in other non-current assets on the accompanying condensed consolidated balance sheets. Changes in the balances of deferred costs to obtain and fulfill contracts during the three months ended March 31, 2023 were as follows:
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|
Deferred Costs |
|
|
Deferred Costs |
|
||
Balances at December 31, 2022 |
|
$ |
|
|
$ |
|
||
Costs deferred |
|
|
|
|
|
|
||
Amortization |
|
|
( |
) |
|
|
( |
) |
Balances at March 31, 2023 |
|
$ |
|
|
$ |
|
||
11
3. Balance Sheet Components
The following table shows the components of property and equipment as of the dates presented:
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|
|
|
March 31, |
|
|
December 31, |
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||
|
|
Estimated Useful Life |
|
2023 |
|
|
2022 |
|
||
Software, including internally developed software |
|
|
$ |
|
|
$ |
|
|||
Computer equipment |
|
|
|
|
|
|
|
|||
Leasehold improvements |
|
Shorter of useful life or lease term |
|
|
|
|
|
|
||
Office equipment, furniture and fixtures |
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|
|
|
|
|
|
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Total property and equipment |
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|
|
|
|
|
|
|
||
Less: Accumulated depreciation and amortization |
|
|
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
|
|
$ |
|
|
$ |
|
||
Amortization of internally developed software and depreciation for the three months ended March 31, 2023 and 2022 was $
The following table shows the components of accrued expenses and other current liabilities as of the dates presented:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Accrued salary and payroll-related expenses |
|
$ |
|
|
$ |
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Income taxes payable |
|
|
|
|
|
|
||
Advanced billings and customer credits (1) |
|
|
|
|
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Other |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
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