UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to             

Commission File Number: 001-35838

 

Marin Software Incorporated

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

20-4647180

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

123 Mission Street, 27th Floor, San Francisco, CA

(Address of Principal Executive Offices)

 

94105

(Zip Code)

 

(415) 399-2580

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock, $0.001 Par Value Per Share

 

MRIN

 

The Nasdaq Global Market

 

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.    Yes      No 

 

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).    Yes      No 

 

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

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

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 May 4, 2020, the registrant had 6,870,000 shares of common stock outstanding.

 

 

 


Table of Contents

 

PART I.

FINANCIAL INFORMATION

 

3

Item 1.

Financial Statements (unaudited)

 

3

 

CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2020 AND DECEMBER 31, 2019

 

3

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

 

4

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

 

5

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

 

6

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

Controls and Procedures

 

29

PART II.

OTHER INFORMATION

 

30

Item 1.

Legal Proceedings

 

30

Item 1A.

Risk Factors

 

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

47

Item 3.

Defaults Upon Senior Securities

 

47

Item 4.

Mine Safety Disclosures

 

47

Item 5.

Other Information

 

47

Item 6.

Exhibits

 

48

SIGNATURES

 

49

 

 

 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value)

 

 

 

At March 31,

 

 

At December 31,

 

 

 

2020

 

 

2019*

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,583

 

 

$

11,134

 

Restricted cash

 

 

972

 

 

 

971

 

Accounts receivable, net

 

 

7,081

 

 

 

8,939

 

Prepaid expenses and other current assets

 

 

3,085

 

 

 

3,522

 

Total current assets

 

 

19,721

 

 

 

24,566

 

Property and equipment, net

 

 

7,306

 

 

 

8,524

 

Right-of-use assets, operating leases

 

 

12,685

 

 

 

7,705

 

Intangible assets, net

 

 

 

 

 

95

 

Other non-current assets

 

 

967

 

 

 

1,403

 

Total assets

 

$

40,679

 

 

$

42,293

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,293

 

 

$

1,679

 

Accrued expenses and other current liabilities

 

 

6,677

 

 

 

9,010

 

Operating lease liabilities

 

 

6,970

 

 

 

3,786

 

Total current liabilities

 

 

14,940

 

 

 

14,475

 

Operating lease liabilities, non-current

 

 

6,865

 

 

 

5,181

 

Other long-term liabilities

 

 

1,276

 

 

 

1,577

 

Total liabilities

 

 

23,081

 

 

 

21,233

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value - 142,857 shares authorized, 6,830 and 6,810 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

7

 

 

 

7

 

Additional paid-in capital

 

 

299,689

 

 

 

299,263

 

Accumulated deficit

 

 

(281,083

)

 

 

(277,112

)

Accumulated other comprehensive loss

 

 

(1,015

)

 

 

(1,098

)

Total stockholders’ equity

 

 

17,598

 

 

 

21,060

 

Total liabilities and stockholders’ equity

 

$

40,679

 

 

$

42,293

 

 

*

Derived from the Company’s audited consolidated financial statements as of December 31, 2019.

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)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenues, net

 

$

8,660

 

 

$

13,448

 

Cost of revenues

 

 

5,345

 

 

 

5,811

 

Gross profit

 

 

3,315

 

 

 

7,637

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

2,312

 

 

 

4,634

 

Research and development

 

 

3,437

 

 

 

4,895

 

General and administrative

 

 

1,981

 

 

 

3,221

 

Total operating expenses

 

 

7,730

 

 

 

12,750

 

Loss from operations

 

 

(4,415

)

 

 

(5,113

)

Other income, net

 

 

469

 

 

 

540

 

Loss before provision for income taxes

 

 

(3,946

)

 

 

(4,573

)

Provision for income taxes

 

 

25

 

 

 

33

 

Net loss

 

 

(3,971

)

 

 

(4,606

)

Foreign currency translation adjustments

 

 

83

 

 

 

(71

)

Comprehensive loss

 

$

(3,888

)

 

$

(4,677

)

Net loss per share available to common stockholders, basic and diluted (Note 10)

 

$

(0.58

)

 

$

(0.77

)

Weighted-average shares used to compute net loss per share available to common stockholders, basic and diluted

 

 

6,819

 

 

 

5,945

 

Stock-based compensation expense is allocated as follows (Note 7):

 

 

 

 

 

 

 

 

Cost of revenues

 

$

94

 

 

$

125

 

Sales and marketing

 

 

110

 

 

 

180

 

Research and development

 

 

167

 

 

 

281

 

General and administrative

 

 

75

 

 

 

99

 

Amortization of intangible assets is allocated as follows:

 

 

 

 

 

 

 

 

Cost of revenues

 

 

47

 

 

 

234

 

Sales and marketing

 

 

 

 

 

64

 

Research and development

 

 

48

 

 

 

234

 

General and administrative

 

 

 

 

 

 

Restructuring related expenses are allocated as follows (Note 4):

 

 

 

 

 

 

 

 

Cost of revenues

 

 

(7

)

 

 

6

 

Sales and marketing

 

 

50

 

 

 

157

 

Research and development

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

See accompanying notes to the condensed consolidated financial statements.

4


MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands)

 

 

 

Three Months Ended March 31, 2020

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders'

Equity

 

Balances at December 31, 2019

 

 

6,810

 

 

$

7

 

 

$

299,263

 

 

$

(277,112

)

 

$

(1,098

)

 

$

21,060

 

Issuance of common stock from vesting of restricted stock units (Note 7)

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted stock units

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

 

 

 

(20

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

446

 

 

 

 

 

 

 

 

 

446

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,971

)

 

 

 

 

 

(3,971

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

83

 

 

 

83

 

Balances at March 31, 2020

 

 

6,830

 

 

$

7

 

 

$

299,689

 

 

$

(281,083

)

 

$

(1,015

)

 

$

17,598

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders'

Equity

 

Balances at December 31, 2018

 

 

5,938

 

 

$

6

 

 

$

295,116

 

 

$

(264,713

)

 

$

(1,038

)

 

$

29,371

 

Issuance of common stock from vesting of restricted stock units (Note 7)

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted stock units

 

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

 

 

 

(56

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

685

 

 

 

 

 

 

 

 

 

685

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,606

)

 

 

 

 

 

(4,606

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(71

)

 

 

(71

)

Balances at March 31, 2019

 

 

5,954

 

 

$

6

 

 

$

295,745

 

 

$

(269,319

)

 

$

(1,109

)

 

$

25,323

 

 

See accompanying notes to the condensed consolidated financial statements.

5


MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(3,971

)

 

$

(4,606

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

893

 

 

 

499

 

Amortization of internally developed software

 

 

864

 

 

 

750

 

Amortization of intangible assets

 

 

95

 

 

 

532

 

Loss on disposals of property and equipment and right-of-use assets

 

 

1

 

 

 

14

 

Amortization of deferred costs to obtain and fulfill contracts

 

 

258

 

 

 

364

 

Unrealized foreign currency losses (gains)

 

 

24

 

 

 

(11

)

Stock-based compensation expense related to equity awards

 

 

446

 

 

 

685

 

Provision for bad debts

 

 

(144

)

 

 

180

 

Net change in operating leases

 

 

(110

)

 

 

(116

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,032

 

 

 

2,175

 

Prepaid expenses and other assets

 

 

623

 

 

 

(679

)

Accounts payable

 

 

(380

)

 

 

(424

)

Accrued expenses and other liabilities

 

 

(2,391

)

 

 

(1,079

)

Net cash used in operating activities

 

 

(1,760

)

 

 

(1,716

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

-

 

 

 

(46

)

Capitalization of internally developed software

 

 

(540

)

 

 

(482

)

Net cash used in investing activities

 

 

(540

)

 

 

(528

)

Financing activities

 

 

 

 

 

 

 

 

Payment of principal on finance lease liabilities

 

 

(191

)

 

 

(338

)

Employee taxes paid for withheld shares upon equity award settlement

 

 

(57

)

 

 

(91

)

Proceeds from employee stock purchase plan, net

 

 

17

 

 

 

55

 

Net cash used in financing activities

 

 

(231

)

 

 

(374

)

Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash

 

 

(19

)

 

 

(19

)

Net decrease in cash and cash equivalents and restricted cash

 

 

(2,550

)

 

 

(2,637

)

Cash and cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

12,105

 

 

 

11,503

 

End of period

 

$

9,555

 

 

$

8,866

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment recorded in accounts payable and accrued expenses

 

$

-

 

 

$

31

 

 

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. The Company’s corporate headquarters are located in San Francisco, California, and the Company has additional offices in the following locations: Austin, Chicago, Dublin, London, New York, Paris, Portland and Shanghai.

Liquidity

The Company has incurred significant losses in each fiscal year since its incorporation in 2006, and management expects such losses to continue over the next several years. The Company incurred a net loss of $3,971 for the three months ended March 31, 2020 and a net loss of $12,408 for the year ended December 31, 2019. As of March 31, 2020, the Company had an accumulated deficit of $281,083. The Company had cash, cash equivalents and restricted cash of $9,555 as of March 31, 2020. Management expects to incur additional losses and experience negative operating cash flows in the future. 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 market conditions and the potential effect of the novel coronavirus (COVID-19) pandemic. The recent global outbreak of COVID-19 has disrupted economic markets and the full economic impact, duration and spread of the COVID-19 is uncertain at this time and difficult to predict considering the rapidly evolving landscape. Since mid-March 2020, some of the Company’s customers have reduced the amount of digital advertising spend that they manage using the Company’s products, which has had an adverse effect on the Company’s results of operations, and some of the Company’s customers have requested extended payment terms, reduced fees or fee waivers, early contract terminations and other forms of contract relief. Although the Company is pursuing 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. Accordingly, the Company plans to reduce its expenses in 2020 by approximately 30%, which will be achieved through operating and other cost savings including a reduction in personnel costs. The ability of the Company to continue as a going concern is dependent upon its ability to successfully implement the plans described above.

In May 2020, the Company entered into a loan agreement with Harvest Small Business Finance, LLC as the lender (“Lender”) for a loan in an aggregate principal amount of $3,320 (the “Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and implemented by the U.S. Small Business Administration. The Company intends to use the funds provided by the Loan to cover payroll costs and other costs constituting permitted use of proceeds during this time of particular uncertainty.

In March 2019, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”), which was declared effective by the SEC on May 10, 2019, under which it may offer a variety of equity and debt securities, with an aggregate offering price of up to $50,000. As part of that shelf registration, the Company entered into an equity distribution agreement with JMP Securities LLC, or JMP Securities under which it may sell shares of its common stock up to a gross aggregate offering price of $13,000 (Note 5). For the three months ended March 31, 2020 and 2019, no shares were sold under the agreement. For the year ended December 31, 2019, the Company sold 658 shares of its common stock under this agreement for net proceeds of $1,643. The total amount of cash that may be generated under this equity distribution agreement is uncertain and depends on a variety of factors, including market conditions and the trading price of the Company’s common stock.

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, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, 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, 2019 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.

7


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, 2019, filed with the SEC on March 23, 2020.

The World Health Organization declared in March 2020 that the recent outbreak of the coronavirus disease named COVID-19 constitutes a pandemic. The Company has undertaken measures to protect its employees and customers. There can be no assurance that these measures will be effective, however, or that the Company can adopt them without adversely affecting its business operations. In addition, the COVID-19 pandemic has created and may continue to create significant uncertainty in global financial markets, which may decrease technology spending, depress demand for the Company’s platform and harm the Company’s business and results of operations. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may impact the Company’s financial condition, liquidity, or results of operations is uncertain. 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 cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at amounts that approximate fair value due to the short-term nature of those instruments. Based on borrowing rates available to the Company for loans with similar terms and maturities and in consideration of the Company’s credit risk profile, the carrying value of outstanding lease liabilities approximates fair value as well.

Allowances for Doubtful Accounts and Revenue Credits

The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the Company’s receivables portfolio based on historical experience, specific allowances for known troubled accounts and other available information. The Company does not require collateral from its customers, and it performs a regular review of its customers’ payment histories and associated credit risks. 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. As of March 31, 2020 and December 31, 2019, the Company recorded an allowance for doubtful accounts of $1,376 and $1,559, respectively.

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, 2020, and December 31, 2019, the Company recorded an allowance for potential customer credits in the amount of $438 and $319, respectively.

Goodwill Impairment Assessment

The Company evaluates goodwill for impairment annually in the fourth quarter of its fiscal year, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. For the purposes of impairment testing, the Company has determined that it has one reporting unit. The Company performs its goodwill impairment test using the simplified method, whereby the fair value of the reporting unit is compared to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not considered impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the goodwill is considered impaired by an amount equal to that difference. In November 2019, the Company performed a goodwill impairment assessment and recorded an impairment of goodwill of $1,910, reducing the goodwill balance to zero.

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 no such impairment losses recorded in any of the periods presented.

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 on the Company’s revenues.

8


Recent Accounting Pronouncements Adopted in 2020

In August 2018, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standards Update, (“ASU, 2018-13”), Fair Value Measurement (Topic 820), which is designed to improve the effectiveness of disclosures related to fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020, which did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 35-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted ASU 2018-15 on January 1, 2020, which did not have a material impact on its consolidated financial statements.

Recent Accounting Pronouncements Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326), which changes the impairment model for most financial assets and certain other financial instruments to require the use of a new forward-looking “expected loss” model that will generally result in earlier recognition of allowances for losses. This ASU will also require disclosure of more information related to these items. As the Company meets the SEC’s definition of a “smaller reporting company”, ASU 2016-13 is effective for annual periods beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step-up in the tax basis of goodwill and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. ASU 2019-12 is effective for annual periods beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.

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:

 

Identification of the contract, or contracts, with a customer;

 

Identification of the performance obligations in the contract;

 

Determination of the transaction price;

 

Allocation of the transaction price to the performance obligations in the contract; and

 

Recognition of revenue when, or as, the Company satisfies its performance obligations.

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 one year or less in length. The subscription fee under most contracts consists of the greater of a minimum monthly platform fee or variable consideration based on the volume of advertising spend managed through the Company’s platform at the contractual percentage of spend. The variable portion generally includes tiered pricing, whereby the percentage of spend charged decreases as the value of advertising spend increases. The tiered pricing resets monthly and is consistent throughout the contract term. The Company has concluded that this volume-based pricing approach does not constitute a future material right as the pricing tiers are consistent throughout the term of the contract and similar pricing is typically offered to similar classes of customers within the same geographical areas and markets. Certain subscription contracts consist of only a flat monthly platform fee. Subscription fees are generally invoiced on a monthly basis in arrears based on the actual amount of advertising spend managed on the platform. In certain limited circumstances, the Company will invoice an advertiser in advance for the contractual minimum monthly platform fee for a defined future period, which is typically three to 12 months.

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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, 2020 were as follows:

 

 

 

Subscription Services

Revenues

 

2020 (remaining nine months)

 

$

2,684

 

2021

 

 

850

 

2022

 

 

37

 

Total

 

$

3,571

 

 

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 one year or less. The amounts disclosed above as remaining performance obligations consist primarily of fixed or monthly minimum fees under contracts with an original expected duration of greater than one year. The amounts exclude estimates of variable consideration such as volume-based contracts, as well as anticipated renewals of contracts.

Strategic Agreements

The Company has entered into long-term strategic agreements with certain leading search publishers. Under these strategic agreements, the Company receives consideration based on a percentage of the search advertising spend that its customers manage on its platform. These strategic agreements are generally billed on a quarterly basis.

The majority of the Company’s strategic agreement revenue is concentrated in one revenue share agreement, executed with Google in December 2018, with an effective date of October 1, 2018 (the “Google Revenue Share Agreement”). Under the Google Revenue Share Agreement, which constitutes a single performance obligation, the Company receives both fixed and variable revenue share payments based on a percentage of the search advertising spend that is managed through the Company’s platform. The Google Revenue Share Agreement requires the Company to reinvest a specified percentage of these revenue share payments in its search technology platform to drive innovation. The performance obligation is expected to be satisfied ratably over the two-year contractual term using the output method based upon the passage of time, as Google simultaneously receives and consumes the benefit from the Company’s performance, which provides a faithful depiction of the pattern of transfer of control. The Google Revenue Share Agreement has a three-year term; however, until March 2020, when the Company and Google executed the first amendment to the original agreement (the “First Amendment”), Google could terminate the Google Revenue Share Agreement after two years, with no penalty if the Company did not meet certain financial metrics. Accordingly, the Company accounted for the Google Revenue Share Agreement as a two-year agreement with one optional renewal year. The revenue impact of the third year is being accounted for prospectively as of the execution of the First Amendment in March 2020.

The Company evaluates the total amount of variable revenue share payments expected to be earned from the Google Revenue Share Agreement using the expected value 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. For the three months ended March 31, 2020 and 2019, the Company recognized $2,283 and $2,921, respectively, in revenues from the Google Revenue Share Agreement. As of March 31, 2020, the Company expects to recognize revenues totaling approximately $6,849 for the remaining nine months of 2020, and $9,132 for the year ending December 31, 2020, related to remaining performance obligations under the Google Revenue Share Agreement.

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Disaggregation of Revenues

Revenues by geographic area, based on the billing location of the customer, were as follows for the periods presented:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

United States of America

 

$

6,555

 

 

$

10,041

 

United Kingdom

 

 

1,000

 

 

 

1,545

 

Other (1)

 

 

1,105

 

 

 

1,862

 

Total revenues, net

 

$

8,660

 

 

$

13,448

 

 

(1)

No individual country within the “Other” category accounted for 10% or more of revenues, net for any period presented.

Revenues by nature of services performed were as follows for the periods presented:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Subscriptions

 

$

6,333

 

 

$

10,426

 

Strategic agreements

 

 

2,327

 

 

 

3,022

 

Total revenues, net

 

$

8,660

 

 

$

13,448

 

 

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 doubtful accounts 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 doubtful accounts and revenue credits, as of March 31, 2020 and December 31, 2019 are presented in the accompanying condensed consolidated balance sheets. Included in the balance of accounts receivable, net as of March 31, 2020 and December 31, 2019 was $2,300 and $3,101, respectively, related to the Google Revenue Share Agreement, which represented 32% and 35%, respectively, of accounts receivable, net.

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.

Under the terms of service of the Company’s former Perfect Audience business, which was divested in November 2019, individual customer advances that were not used by the customer for a period of 180 days become the property of the Company. The Company recognized advances from customers that had remained outstanding for this period of time as breakage revenues at the time the Company has received full consideration and has no remaining obligations to the customer. For the three months ended March 31, 2020 and 2019, the Company recognized $0 and $59 in breakage revenues, respectively.

Deferred Strategic Agreement Revenues

Due to the timing of revenue recognition under the Google Revenue Share Agreement, the contractual billings exceed revenue recognized to date, resulting in a contract liability. As March 31, 2020 and December 31, 2019, the Company recorded deferred strategic agreement revenues of $2,199 and $2,182, respectively, 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”).

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The deferred costs to obtain and fulfill contracts are amortized over the expected period of benefit, which the Company has determined to be approximately 30 months. This expected period of benefit takes into consideration the duration of the Company’s customer contracts, historical contract renewal rates, the underlying technology and other factors. Amortization expense for deferred costs to obtain and fulfill contracts is included in sales and marketing expense and cost of sales, respectively, on the accompanying condensed consolidated statements of comprehensive loss.

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 31,2020 were as follows:

 

 

 

Deferred Costs

to Obtain

Contracts

 

 

Deferred Costs

to Fulfill

Contracts

 

Balances at December 31, 2019

 

$

779

 

 

$

281

 

Costs deferred

 

 

49

 

 

 

32

 

Amortization

 

 

(188

)

 

 

(70

)

Balances at March 31, 2020

 

$

640

 

 

$

243

 

 

3. Balance Sheet Components

The following table shows the components of property and equipment as of the dates presented:

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

Estimated Useful Life

 

2020

 

 

2019

 

Software, including internally developed software

 

3 years

 

$

28,514

 

 

$

27,974

 

Computer equipment

 

3 to 4 years

 

 

22,360

 

 

 

22,424

 

Finance lease ROU assets

 

Shorter of useful life or lease term

 

 

5,067

 

 

 

5,067

 

Leasehold improvements

 

Shorter of useful life or lease term

 

 

4,631

 

 

 

4,631

 

Office equipment, furniture and fixtures

 

3 to 5 years

 

 

1,986

 

 

 

1,986

 

Total property and equipment

 

 

 

 

62,558

 

 

 

62,082

 

Less:  Accumulated depreciation and amortization

 

 

 

 

(55,252

)

 

 

(53,558

)

Property and equipment, net

 

 

 

$

7,306

 

 

$

8,524

 

 

Finance lease ROU assets consist of computer equipment. Depreciation and amortization of internally developed software for the three months ended March 31, 2020 and 2019 was $1,757 and $1,249, respectively.

The following table shows the components of accrued expenses and other current liabilities as of the dates presented:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued salary and payroll-related expenses

 

$

1,540

 

 

$

3,204

 

Deferred strategic agreement revenues

 

 

2,199

 

 

 

2,182

 

Accrued liabilities

 

 

426

 

 

 

1,165

 

Income taxes payable

 

 

458

 

 

 

480

 

Finance lease liabilities

 

 

422

 

 

 

601

 

Advanced billings

 

 

399

 

 

 

376

 

Sales and use tax payable

 

 

 

 

 

9

 

Other

 

 

1,233

 

 

 

993

 

Total accrued expenses and other current liabilities

 

$

6,677

 

 

$

9,010

 

 

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4. Restructuring Activities

2019 Restructuring Plan

During the three months ended December 31, 2019, the Company initiated an organizational restructuring plan (the “2019 Restructuring Plan”) designed to reduce operating expenses in response to declines in revenues. The 2019 Restructuring Plan included a headcount reduction of approximately 6% of the Company’s workforce and the closure of certain leased facilities. Actions pursuant to the 2019 Restructuring Plan were substantially complete as of December 31, 2019, and further costs associated with this plan are not expected to be material in future periods.

2018 Restructuring Plan

In January 2018, the Company initiated an organizational restructuring plan (the “2018 Restructuring Plan”) designed to reduce operating expenses in response to declines in revenues. The 2018 Restructuring Plan included a headcount reduction of approximately 13% of the Company’s workforce, the closure of certain leased facilities and the consolidation of space in the Company’s San Francisco headquarters. Actions pursuant to the 2018 Restructuring Plan were substantially complete as of March 31, 2019, and further costs associated with this plan are not expected to be material in future periods. The Company initiated certain other organizational restructuring plans during 2018 that also aimed to reduce operating expenses and primarily consisted of further headcount reductions.

For the three months ended March 31, 2020, the Company recorded $43 of restructuring-related expenses in connection with the 2019 Restructuring Plan in the accompanying condensed consolidated statements of comprehensive loss. For the three months ended March 31, 2019, the Company recorded $163 of restructuring-related expenses in connection with the 2018 Restructuring Plan, as well as other organizational restructuring plans, in the accompanying condensed consolidated statements of comprehensive loss.

5. Shelf Registration Statement and At-the-Market Offering

On March 14, 2019, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective by the SEC on May 10, 2019 and enables the Company to offer its common stock, preferred stock, debt securities, warrants, subscription rights and units having an aggregate offering price of up to $50,000. As part of this shelf registration, the Company entered into an equity distribution agreement with JMP Securities, pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $13,000 through an at-the-market offering program administered by JMP Securities. The Company is not required to sell any securities under this offering program. JMP Securities is entitled to compensation of up to 5.0% of the gross proceeds from sales of the Company’s common stock pursuant to the equity distribution agreement.

No shares were sold under this equity distribution agreement for the three months ended March 31, 2020 and 2019. For the year ended December 31, 2019, the Company sold 658 shares of its common stock under this equity distribution agreement and received proceeds of $1,643, net of offering costs of $210, at a weighted average sales price of $2.82 per share. The amount of any future proceeds that may be realized from this equity distribution agreement depends on a variety of factors, including market conditions and the price of the Company’s common stock. As of March 31, 2020, the Company had common stock with an aggregate offering price of up to $11,147 available for issuance under the equity distribution agreement.

6. Equity Award Plans

In April 2006, the Company’s Board of Directors (the “Board”) adopted and the stockholders approved the 2006 Stock Option Plan (“2006 Plan”), which provided for the grant of incentive and non-statutory stock options. In February 2013 the Board adopted and the stockholders approved the 2013 Equity Incentive Plan (“2013 Plan”), which became effective on March 21, 2013. At that time, the Company ceased to grant equity awards under the 2006 Plan. Under the 2013 Plan, 643 shares of common stock were originally reserved for issuance. Additionally, all reserved and unissued shares under the 2006 Plan are eligible for issuance under the 2013 Plan. The 2013 Plan authorizes the award of incentive and non-statutory stock options, restricted stock awards, stock appreciation rights, restricted stock units (“RSUs”), performance awards and stock bonuses to the Company’s employees, directors, consultants, independent contractors and advisors. On January 1 of each calendar year through 2023, the number of shares of common stock reserved under the 2013 Plan will automatically increase by an amount equal to 5% of the total outstanding shares as of the immediately preceding December 31, or such lesser number of shares as determined by the Board. Pursuant to terms of the 2013 Plan, the shares available for issuance increased by 341 shares of common stock on January 1, 2020. As of March 31, 2020, 1,131 shares of common stock were available for future grants under the 2013 Plan.

13


Stock Options

A summary of stock option activity under the 2006 Plan and 2013 Plan is as follows:

 

 

 

Options Outstanding

 

 

 

Number of

Shares

 

 

Weighted Average

Exercise Price

Per Share

 

 

Weighted Average

Remaining

Contractual Term

(in Years)

 

 

Aggregate

Intrinsic Value

 

Balances at December 31, 2019

 

 

500

 

 

$

23.38

 

 

 

5.77

 

 

$

 

Options forfeited and cancelled

 

 

(57

)

 

 

13.24

 

 

 

 

 

 

 

Balances at March 31, 2020

 

 

443

 

 

 

24.69

 

 

 

6.23

 

 

 

 

Options exercisable

 

 

309

 

 

 

33.39

 

 

 

5.03

 

 

 

 

Options vested

 

 

309

 

 

 

33.39

 

 

 

5.03

 

 

 

 

Options vested and expected to vest

 

 

432

 

 

 

25.17

 

 

 

6.17

 

 

 

 

 

RSUs

A summary of RSUs granted and unvested under the 2013 Plan is as follows:

 

 

 

RSUs Outstanding

 

 

 

Number of

Shares

 

 

Weighted Average

Grant Date Fair

Value Per Unit

 

Granted and unvested at December 31, 2019

 

 

1,104

 

 

$

4.55

 

RSUs granted

 

 

56

 

 

 

1.44

 

RSUs vested

 

 

(20

)

 

 

9.47

 

RSUs cancelled and withheld to cover taxes

 

 

(71

)

 

 

5.48

 

Granted and unvested at March 31, 2020

 

 

1,069

 

 

$

4.24

 

 

Employee Stock Purchase Plan

In February 2013, the Board and stockholders approved the 2013 Employee Stock Purchase Plan (“2013 ESPP”), under which 143 shares of common stock were originally reserved for issuance. The 2013 ESPP became effective on March 22, 2013. The 2013 ESPP generally provides for six-month purchase periods and the purchase price for shares of common stock purchased under the 2013 ESPP is 85% of the lesser of the fair market value of the common stock on (1) the first trading day of the applicable offering period and (2) the last trading day of each purchase period in the applicable offering period. On January 1 of each calendar year following the first offering date, the number of shares reserved under the 2013 ESPP automatically increases by an amount equal to 1% of the total outstanding shares as of immediately preceding December 31, but not to exceed 100 shares. Pursuant to terms of the 2013 ESPP, the shares available for issuance increased by 68 shares on January 1, 2020. As of March 31, 2020, 206 shares were reserved for issuance under the 2013 ESPP. During the three months ended March 31, 2020 and 2019, zero shares were issued under the 2013 ESPP.

7. Stock-Based Compensation

For stock-based awards granted by the Company, stock-based compensation expense is measured at grant date based on the fair value of the award and is expensed over the requisite service period. The Company recorded stock-based compensation expense of $446 and $685 for the three months ended March 31, 2020 and 2019, respectively.

Stock Options

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options. This model requires the input of highly subjective assumptions including the expected volatility, risk-free interest rate and the expected life of options. There were no stock options granted during the three months ended March 31, 2020 and 2019. 

The Company estimates the expected volatility of its common stock and expected life of its stock options based on its own historical experience. The expected volatility reflects the actual historical volatility of the price of the Company’s common stock since it began trading publicly in March 2013. The expected life represents the period of time that stock options are expected to be outstanding, based on historical exercise and employee departure behavior. The Company has no history or expectation of paying cash dividends on its common stock. The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the options in effect at the time of grant.

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There were no exercises of stock options during the three months ended March 31, 2020 and 2019.

Compensation expense, net of estimated forfeitures, is recognized ratably over the requisite service period. As of March 31, 2020, there was $183 of unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 1.6 years.

RSUs

As of March 31, 2020, there was $3,126 of unrecognized compensation expense, net of estimated forfeitures, related to RSUs, which is expected to be recognized over a weighted-average period of 2.3 years. The Company uses the fair market value of the underlying common stock on the dates of grant to determine the fair value of RSUs.

Employee Stock Purchase Plan

The Company estimates the fair value of purchase rights under the 2013 ESPP using the Black-Scholes valuation model. The fair value of each purchase right under the 2013 ESPP is estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with assumptions substantially similar to those used for the valuation of stock option awards, with the exception of the expected life. The expected life is estimated to be six months, which is consistent with the purchase periods under the 2013 ESPP.

8. Leases

Operating and Finance Leases

The Company evaluates new contractual arrangements at inception to determine if the contract is or contains a lease. For any contracts that are or contain a lease, the Company determines the appropriate classification of each identified lease as operating or finance. For all identified leases, the Company records the related lease liabilities and ROU assets based on the future minimum lease payments over the lease term, which only includes options to renew the lease if it is reasonably certain that the Company will exercise that option. For leases with original terms of twelve months or less, the Company recognizes the lease expense as incurred and does not recognize lease liabilities and ROU assets. The Company has operating leases for corporate offices worldwide and for space at a data center. Additionally, the Company leases computer equipment through various finance leases.

Lease liabilities are measured based on the future minimum lease payments discounted over the lease term. The Company uses the discount rate implicit in the lease whenever that rate is readily determinable. For leases where no such rate is determinable, the Company uses its incremental borrowing rate, or the rate of interest that Company would have to pay to borrow an amount equal to the lease payments, on a collateralized basis over a similar term and in a similar economic environment. As of March 31, 2020, the weighted-average rate used in discounting the lease liabilities for ROU operating and finance leases was 6.4% and 6.0%, respectively. Current and non-current operating lease liabilities are presented on the condensed consolidated balance sheet, while current finance lease liabilities are included in accrued expenses and other current liabilities, and non-current finance lease liabilities are included in other long-term liabilities on the condensed consolidated balance sheets.

ROU assets are measured based on the associated lease liabilities, adjusted for any lease incentives such as tenant improvement allowances. ROU assets for operating leases are presented as non-current assets on the condensed consolidated balance sheet, while ROU assets for finance leases are included within property and equipment, net. For operating leases, the Company recognizes the expense for lease payments on straight-line basis over the lease term. As of March 31, 2020, the weighted-average remaining lease term for ROU operating and finance leases was 2.0 years and 0.5 years, respectively.

As of March 31, 2020, the Company had net operating lease ROU assets of $12,685. Operating lease costs, consisting primarily of rental expense, were approximately $1,931 and $1,996, respectively, for the three months ended March 31, 2020 and 2019. Variable rent expense was not significant for the three months ended March 31, 2020 and 2019. In January 2020, the Company executed renewal service orders with a third-party data center. In February 2019, the Company executed a new lease agreement for office space in Paris and exited its prior office space shortly thereafter. There were no material costs incurred associated with that exit. As part of the new lease, the Company was required to enter into an irrevocable $109 letter of credit. The cash used to secure the letter of credit has been classified as restricted cash on the accompanying condensed consolidated balance sheet.

At various dates between August 2015 and October 2016, the Company entered into finance lease arrangements with two separate manufacturers for computer equipment. These finance leases are collateralized by the underlying computer equipment. As of March 31, 2020, the Company had net finance lease ROU assets of $497. Finance lease ROU assets are included in property and equipment on the condensed consolidated balance sheets. Interest expense associated with finance leases is included within other income, net, on the accompanying condensed consolidated statements of comprehensive loss. Finance lease costs for the three months ended March 31, 2020 consisted of $170 in depreciation of the leased assets and $7 in interest expense. Finance lease costs for the three months ended March 31,2019 consisted of $178 in depreciation of the leased assets and $24 in interest expense.

15


The maturities of operating lease and finance lease liabilities as March 31, 2020 are as follows:

 

 

 

Operating Leases

 

 

Finance Leases

 

2020 (remaining nine months)

 

$

5,769

 

 

$

419

 

2021

 

 

7,093

 

 

 

11

 

2022

 

 

1,844

 

 

 

 

2023

 

 

 

 

 

 

Total  lease payments

 

 

14,706

 

 

 

430

 

Less: Amount representing imputed interest

 

 

(871

)

 

 

(8

)

Present value of lease liabilities

 

 

13,835

 

 

 

422

 

Less: Current portion of lease liabilities

 

 

(6,970

)

 

 

(422

)

Non-current portion of lease liabilities

 

$

6,865

 

 

$

 

 

Supplemental cash flow information related to operating leases was as follows:

 

 

 

Three Months Ended

 

 

 

March 31, 2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Financing cash flows from finance leases

 

$

191

 

Operating cash flows from finance leases

 

 

8

 

Operating cash flows from operating leases

 

 

2,014

 

 

 

 

 

 

ROU assets obtained in exchange for lease liabilities:

 

 

 

 

Finance lease liabilities

 

$

 

Operating lease liabilities

 

 

6,666

 

 

The operating lease ROU asset obtained relates to the Las Vegas colocation service orders executed in January 2020, as well as a new Austin office lease executed in January 2020.

Subleases

The Company subleases portions of its San Francisco and Portland office spaces. In August 2018, the Company entered into agreements to (a) extend its existing sublease for a portion of its San Francisco office space through July 2022, and (b) sublease an additional 14,380 square feet of its San Francisco office space to an unrelated third party through July 2020. The Company’s sublease for its Portland office space is with an unrelated third party and expires in May 2020. Income from these sublease agreements is included in other income, net, on the accompanying condensed consolidated statements of comprehensive loss. Sublease income for the three months ended March 31, 2020 and 2019 was $570 and $570, respectively.

Future minimum amounts due under subleases as of March 31, 2020 were as follows:

 

 

 

Operating Sublease Income

 

2020 (remaining nine months)

 

$

1,191

 

2021

 

 

1,105

 

2022

 

 

616

 

Total amounts due under subleases

 

$

2,912

 

 

9. Income Taxes

The Company’s quarterly provision for income taxes is based on an estimated effective annual income tax rate, and it also includes the tax impact of certain unusual or infrequently occurring items, if any. These may include changes in judgment about valuation allowances and effects of changes in tax laws or rates in the interim period in which they occur.

Income tax provision for the three months ended March 31, 2020 was $25 on pre-tax losses of $3,946. As of March 31, 2020, the income tax rate varies from the federal income tax rate primarily due to valuation allowances in the United States and taxable income generated by the Company’s foreign wholly owned subsidiaries.

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The Company reviews the likelihood that it will realize the benefit of its deferred tax assets and, therefore, the need for valuation allowances on a quarterly basis. There is no income tax benefit recognized with respect to losses incurred and no income tax expense recognized with respect to earnings generated in jurisdictions with a valuation allowance. This causes variability in the Company’s effective tax rate. The Company will maintain the valuation allowances until it is more likely than not that the net deferred tax assets will be realized. The CARES Act enacted on March 27, 2020 did not provide an income tax benefit for the Company given the U.S. losses and the full valuation allowance against its net deferred tax assets.

Tax positions taken by the Company are subject to audits by multiple tax jurisdictions. The Company believes that it has provided adequate reserves for its uncertain tax positions for all tax years still open for assessment. The Company also believes that it does not have any tax position for which it is not reasonably possible that the total amounts of uncertain tax positions will significantly increase or decrease within the next year. For the three months ended March 31, 2020 and 2019, the Company did not recognize any material interest or penalties related to uncertain tax positions.

In April 2020, the Company became aware of a new interpretation of a non-U.S. tax law relating to withholding taxes on intellectual property taxes. The Company is currently evaluating this law and any related impact to its financial position or results of operations.

10. Net Loss Per Share Available to Common Stockholders

Basic net loss per share of common stock is calculated by dividing the net loss available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share of common stock is computed by dividing the net loss using the weighted-average number of shares of common stock, excluding common stock subject to repurchase, and, if dilutive, potential shares of common stock outstanding during the period. Basic and diluted net loss per share is the same for all periods presented, as the impact of all potentially dilutive outstanding securities was anti-dilutive.

The following table presents the calculation of basic and diluted net loss per share for the periods presented:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

Net loss available to common stockholders

 

$

(3,971

)

 

$

(4,606

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average number of shares, basic and diluted

 

 

6,819

 

 

 

5,945

 

Net loss per share available to common stockholders

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share available to common stockholders

 

$

(0.58

)

 

$

(0.77

)

 

The following table presents the potential shares of common stock outstanding that were excluded from the computation of diluted net loss per share available to common stockholders for the periods presented because including them would have been anti-dilutive:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

443

 

 

 

430

 

Unvested RSUs

 

 

1,069

 

 

 

854

 

Total

 

 

1,512

 

 

 

1,284

 

 

11. Segment Reporting

The Company defines the term “chief operating decision maker” to be the Chief Executive Officer. The Chief Executive Officer reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it operates as a single reporting and operating segment.

17


12. Commitments and Contingencies

Legal Matters

From time to time, the Company may be involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. In accordance with GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, ruling, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable. If any unfavorable ruling was to occur in any specific period or if a loss becomes probable and estimable, there exists the possibility of a material adverse impact on the Company’s results of operations, financial position or cash flows. As of March 31, 2020, no material amounts are recorded related to legal proceedings on the unaudited condensed consolidated balance sheet.

Indemnification

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, each party may indemnify, defend and hold the other party harmless with respect to such claim, suit or proceeding brought against it by a third party alleging that the indemnifying party’s intellectual property infringes upon the intellectual property of the third party, or results from a breach of the indemnifying party’s representations and warranties or covenants, or that results from any acts of negligence or willful misconduct. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, the Company has not been obligated to make significant payments for these obligations and no liabilities have been recorded on the unaudited condensed consolidated balance sheet as of March 31, 2020 and the audited consolidated balance sheet as of December 31, 2019.

The Company also indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a directors and officers insurance policy that enables the Company to recover a portion of any future amounts paid. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded as of March 31, 2020 and December 31, 2019.

Other Contingencies

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

13. Subsequent Event

On April 23, 2020, the Company, entered into an original loan agreement with Harvest Small Business Finance, LLC as the lender (“Lender”) for a loan in an aggregate principal amount of $3,320 (the “Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and implemented by the U.S. Small Business Administration. The Loan was originally evidenced by a Note dated effective as of April 22, 2020, but such Note was replaced by a Note with substantially the same terms, but with an updated effective date of May 5, 2020 to account for a delay in disbursement of funds. The Loan matures two years from the date of first disbursement of the Loan, which occurred on May 7, 2020. The Company received the loan proceeds on May 12, 2020. The Loan bears interest at a rate of 1% per annum, with all payments deferred through the six-month anniversary of the date of the Note. Principal and interest are payable monthly commencing on the first day of the next month after the expiration of the initial six-month deferment period and may be prepaid by the Company at any time prior to maturity without penalty. The Company may apply to Lender for forgiveness of amounts due under the Loan, with the amount of potential loan forgiveness to be calculated in accordance with the requirements of the PPP based on payroll costs, any mortgage interest payments, any covered rent payments and any covered utilities payments during the 8-week period beginning on the date of first disbursement of the Loan. The Company intends to use proceeds of the Loan for payroll and other qualifying expenses, but there can be no assurances that any portion of the Loan will be forgiven.

18


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with the (1) unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and (2) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2019, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission (the “SEC”), on March 23, 2020. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “believe,” “may,” “potentially,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “project,” “plan,” “predict,” “expect,” “seek” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Form 10-Q. Except as required by law, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We are a leading provider of digital marketing solutions for search, social, and eCommerce advertising channels, offered as a unified software-as-a-service, or SaaS, advertising management platform for performance-driven advertisers and agencies. Our platform is an analytics, workflow and optimization solution for marketing professionals, enabling them to effectively manage their digital advertising spend. We market and sell our solutions to advertisers directly and through leading advertising agencies, and our customers collectively manage billions of dollars in advertising spend on our platform globally across a wide range of industries. We believe this makes us one of the largest providers of independent advertising cloud solutions. Our software solution is designed to help our customers:

 

measure the effectiveness of their advertising campaigns through our proprietary reporting and analytics capabilities;

 

manage and execute campaigns through our intuitive user interface and underlying technology that streamlines and automates key functions, such as advertisement creation and bidding, across multiple publishers and channels; and

 

optimize campaigns across multiple publishers and channels based on market and business data to achieve desired revenue outcomes using our predictive bid management technology.

Our current product lineup consists of MarinOne and our two legacy products, Marin Search and Marin Social.

 

MarinOne. Our next-generation solution brings search, social and eCommerce advertising into a single-platform that helps advertisers maximize a customer journey that spans Google, Facebook and Amazon by combining the power of Marin Search and Marin Social with new channels like Amazon, Apple Search Ads and YouTube.

 

Marin Search. Our original solution for large advertisers and agencies, Marin Search is designed to provide search advertisers with the power, scale and flexibility required to manage large-scale advertising campaigns.

 

Marin Social. Helps advertisers manage their Facebook, Instagram and Twitter advertising spend at scale.

Advertisers use our platform to create, target and convert precise audiences based on recent buying signals from users’ search, social and eCommerce interactions. Our platform is integrated with leading publishers such as Amazon, Apple, Baidu, Bing, Facebook, Google, Instagram, Pinterest, Twitter, Verizon Media, Yahoo! Japan and Yandex. Additionally, we have integrations with more than 50 leading web analytics and advertisement-serving solutions and key enterprise applications, enabling our customers to more accurately measure the return on investment of their marketing programs.

Our software platform serves as an integration point for advertising performance, sales and revenue data, allowing advertisers to connect the dots between advertising spend and revenue outcomes. Through an intuitive interface, we enable our customers to simultaneously run large-scale digital advertising campaigns across multiple publishers and channels, making it easy for marketers to create, publish, modify and optimize campaigns.

Our predictive bid management and optimization technology also allows advertisers to forecast outcomes and optimize campaigns across multiple publishers and channels to achieve their business goals. Our optimization technology can help advertisers increase advertisement spend on those campaigns, publishers and channels that are performing well while reducing investment in those that are not. This category of solutions, which we refer to as cross-channel bid and campaign optimization, helps businesses intelligently and efficiently measure, manage, and optimize their digital advertising spend to achieve desired business results.

19


In December 2019, the novel coronavirus causing the disease COVID-19 was reported in China and in March 2020 the World Health Organization declared it a pandemic. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, impact on our customers and our sales cycles, and impact on our employees, all of which are uncertain and cannot be predicted. At this time, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain. Since mid-March, some of our customers have reduced the amount of digital advertising spend that they manage using our product which has had an adverse effect on our results of operations and some of our customers have requested extended payment terms, reduced fees or fee waivers, early contract terminations and other forms of contract relief. Also, since mid-March most of our employees have not been able to work from our offices and have been working from home, which could cause some disruptions or delays in our business activities, including our product development efforts.

Components of Results of Operations

Revenues

We generate revenues principally from subscription contracts under which we provide advertisers with access to our search, social and eCommerce advertising management platform, either directly or through the advertiser’s relationship with an agency with whom we have a contract. Our subscription contracts are generally one year or less in length. Under subscription contracts with most of our direct advertisers and some independent agencies, we generally charge fees based on the amount of advertising spend that these customers manage through our platform or a contractual minimum monthly platform fee, whichever is greater. Certain of these customers are charged only a fixed monthly platform fee. Most of our subscription contracts with our network agency customers do not include a committed minimum monthly platform fee, and we charge fees based upon the amount of advertising spend that these customers manage through our platform. Due to the nature of the platform and the services performed under the subscription agreements, revenues are typically recognized in the amount billable to the advertiser.

Our long-term strategic agreements have historically included multiple-year terms and are invoiced quarterly. Our largest agreement with Google was entered into in December 2018 with an effective date of October 1, 2018 (the “Google Revenue Share Agreement”) and includes both a fixed baseline amount and a variable portion based on a percentage of relevant advertising search spend above the baseline threshold that runs through our technology platform. The Google Revenue Share Agreement has a three-year term; however, until March 2020, we and Google executed the first amendment to the original agreement (the “First Amendment”), Google could terminate the Google Revenue Share Agreement after two years, with no penalty if we did not meet certain financial metrics. Accordingly, the Company accounted for the Google Revenue Share Agreement as a two-year agreement with one optional renewal year. The revenue impact of the third year is being accounted for prospectively from the date of the First Amendment. Our other long-term strategic agreements are generally variable in nature, based on a percentage of relevant search advertising spend that runs through our technology platform.

Refer to Note 2 of the accompanying condensed consolidated financial statements for further discussion of our revenue recognition considerations.

The majority of our revenues are derived from advertisers based in the United States. Advertisers from outside the United States represented 24% and 25% of total revenues for the three months ended March 31, 2020 and 2019.

Cost of Revenues

Cost of revenues primarily includes personnel costs, consisting of salaries, benefits, bonuses and stock-based compensation expense for employees associated with our cloud infrastructure and global services for implementation and ongoing customer service. Other costs of revenues include fees paid to contractors who supplement our support and data center personnel, expenses related to third-party data centers, depreciation of data center equipment, amortization of internally developed software, amortization of intangible assets and allocated overhead. Incremental cost of revenues associated with our long-term strategic agreements, including our largest agreement with Google, are generally not significant.

In the near term, we expect cost of revenues to continue to decrease year-over-year in absolute dollars as we realign our cost structure with our revenues.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs, including salaries, benefits, stock-based compensation expense and bonuses, as well as sales commissions and other costs including travel and entertainment, marketing and promotional events, lead generation activities, public relations, marketing activities, professional fees, amortization of intangible assets and allocated overhead. All of these costs are expensed as incurred, except sales commissions and the related payroll taxes, which are capitalized and amortized over the expected period of benefit in accordance with the relevant authoritative accounting guidance (refer to Note 2 of the accompanying condensed consolidated financial statements). Our commission plans provide that commission payments to our sales representatives are paid based on the key components of the applicable customer contract, including the minimum or fixed monthly platform fee during the initial contract term.

20


In the near term, we expect sales and marketing expenses to decrease year-over-year in absolute dollars as we realign our cost structure with our revenues.

Research and Development

Research and development expenses consist primarily of personnel costs for our product development and engineering employees and executives, including salaries, benefits, stock-based compensation expense and bonuses. Also included are non-personnel costs such as professional fees payable to third-party development resources, amortization of intangible assets and allocated overhead.

Our research and development efforts are focused on enhancing our software architecture, adding new features and functionality to our platform and improving the efficiency with which we deliver these services to our customers, including the development of MarinOne. In the near term, we expect research and development expenses to decrease year-over-year in absolute dollars as we realign our cost structure with our revenues.

General and Administrative

General and administrative expenses consist primarily of personnel costs, including salaries, benefits, stock-based compensation expense and bonuses for our administrative, legal, human resources, finance and accounting employees and executives. Also included are non-personnel costs, such as audit fees, tax services and legal fees, as well as professional fees, insurance and other corporate expenses, including allocated overhead.

In the near term, we expect our general and administrative expenses to decrease year-over-year in absolute dollars as we realign our cost structure with our revenues.

Results of Operations

The following table is a summary of our unaudited condensed consolidated statements of operations for the specified periods and results of operations as a percentage of our revenues for those periods. The period-to-period comparisons of results are not necessarily indicative of results for future periods. Percentage of revenues figures are rounded and therefore may not subtotal exactly.

 

 

 

Three Months Ended March 31,

 

 

2020

 

 

 

2019

 

 

 

 

Amount

 

 

% of

Revenues

 

 

 

Amount

 

 

% of

Revenues

 

 

 

 

(dollars in thousands)

Revenues, net

 

$

8,660