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Marketo Announces First Quarter 2016 Results

The following excerpt is from the company's SEC filing.

SAN MATEO, Calif. April 26, 2016

Marketo, Inc. (NASDAQ: MKTO), the leading provider of engagement marketing software and solutions, today announced its first quarter 2016 financial results.

Highlights:

First quarter revenue increased 35 percent year over year to $62.2 million

Deferred revenue increased 37 percent year over year to $91.7 million

Improved operating leverage year over year

Launched new solutions to address expanded range of customer demand

Our first quarter performance marks a solid start to 2016 as we saw strong revenue gr owth and improved operating leverage. said Phil Fernandez, chairman and CEO of Marketo. Marketing automation has expanded beyond just the marketing department and is becoming a strategic weapon among CMOs as well as CIOs and the entire C-suite. Marketo is well positioned to capitalize on the broader market opportunity in 2016 as companies expand their digital transformation agendas.

Results for the first quarter of 2016:

Revenue:

Revenue was $62.2 million, an increase of 35 percent over the same period of the prior year.

Deferred Revenue:

Deferred revenue at March 31, 2016 was $91.7 million, compared to $92.0 million at December 31, 2015 and $66.9 million at March 31, 2015.

Calculated Billings:

Calculated billings were $62.0 million, an increase of 24 percent over $49.9 million in the same period of the prior year.

Net Loss:

GAAP net loss attributable to Marketo was $18.4 million, and net loss per common share, basic and diluted, was $(0.42). Non-GAAP net loss was $7.7 million, and non-GAAP net loss per common share, basic and diluted, was $(0.17).

Cash Flow:

Cash used in operating activities was $10.0 million as compared to cash used in operating activities of $8.5 million in the same period of the prior year.

Total Cash and Cash Equivalents:

As of March 31, 2016, total cash and cash equivalents was $94.7 million.

Outlook

As of April 26, 2016, Marketo is initiating revenue and EPS guidance for its second quarter and updating full year 2016 guidance.

For the second quarter of 2016, Marketo expects to report:

Revenue in the range of $65 to $66 million

GAAP net loss per share in the range of $(0.41) to $(0.43)

Non-GAAP net loss per share in the range of $(0.12) to $(0.14)

For the full year 2016, Marketo expects to report:

Revenue in the range of $269 to $275 million

GAAP net loss per share in the range of $(1.56) to $(1.60)

Non-GAAP net loss per share in the range of $(0.46) to $(0.50)

Reconciliations of the non-GAAP financial measures included in this release to their nearest GAAP equivalents are provided at the end of this release.

Conference Call Information

Marketo will host a conference call and live webcast to discuss financial results at 5:00 p.m. ET/2:00 p.m. PT, today, Tuesday, April 26, 2016. The conference call can be accessed by dialing (888) 572-7033, or +1 (719) 325-2376 (outside the U.S. and Canada). A live webcast will be available at http://investors.marketo.com. An audio replay of the call will also be available by dialing (888) 203-1112 or +1(719) 457-0820 (outside the U.S. and Canada) and entering passcode 9155433#.

Use of Non-GAAP Financial Information

Marketo provides financial statements that are prepared in accordance with generally accepted accounting principles (GAAP). To help understand Marketos past financial performance and future results, Marketo has supplemented its financial results that it provides in accordance with GAAP with certain non-GAAP financial measures. The method Marketo uses to produce non-GAAP financial results may differ from the methods used by other companies. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the companys consolidated financial statements prepared in accordance with GAAP. Specifically, management is excluding the following items from its non-GAAP historical and estimated net loss and net loss per common share, basic and diluted:

Stock-Based Compensation Expenses: The companys compensation strategy includes the use of stock-based compensation to attract and retain employees and executives. It is principally aimed at aligning their interests with those of our stockholders and at long-term employee retention, rather than to motivate or reward operational performance for any particular period. Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period.

Amortization of Acquired Intangible Assets: The company views amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired companys research and development efforts, trade names, customer lists and customer relationships, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.

Adjustment to the value of redeemable non-controlling interest to the redemption amount is excluded as the company believes it may not be indicative of future operating results and that investors benefit from an understanding of the companys operating results without giving effect to this adjustment.

Additionally, the company believes the following supplemental non-GAAP financial information is useful to investors and others in assessing its operating performance. A calculation of the supplemental non-GAAP financial information is provided in the table titled Non-GAAP Supplemental financial information.

Calculated billings is calculated as revenue plus the change in total deferred revenue as presented on the balance sheet.

Free cash flow is calculated as cash flow provided by (used in) operations less the purchase of property and equipment and capitalized software development costs presented on the statement of cash flows.

Marketo believes calculated billings offers investors useful supplemental information regarding the performance of its business, and will help investors better understand the sales volumes and performance of its business. The free cash flow metric is useful as it provides investors an enhanced view of the companys operational performance and the cash available to fund on-going operations. The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity.

The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the related reconciliations, to more fully understand its business. Reconciliations of these GAAP and non-GAAP financial measures are presented in the tables at the end of this release.

Safe harbor statement under the Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as expects, anticipates, believes, could, seeks, estimates, intends, may, plans, potential, predicts, projects, should, will, would or similar expressions and the negatives of those terms. Examples of forward-looking statements include, but are not limited to, statements about our opportunities for growth and our GAAP and non-GAAP financial guidance for the second quarter and the full year of 2016, including revenue, net loss, EPS, stock-based compensation expenses, amortization of acquired intangible assets and adjustments to the value of redeemable non-controlling interest to the redemption amount. The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make.

The risks and uncertainties that could cause actual results to differ from the results predicted include, but are not limited to, risks associated with: possible fluctuations in our financial and operating results; our rate of growth and anticipated revenue run rate, including our ability to convert deferred revenue into revenue and, as appropriate, cash flow, and the continued growth and ability to maintain deferred revenue; errors, interruptions or delays in our services or Web hosting; breaches of our security measures; competition and competitive pressures, including discounting by our competitors; the nature of our business model; our ability to continue to release, and gain customer acceptance of, new and improved versions of our services; successful customer deployment and utilization of our existing and future services; changes in our sales cycle; the financial impact of any previous and future acquisitions; relationships with platform or service providers; various financial aspects of our subscription model; unexpected increases in attrition or decreases in new business; the emerging markets in which we operate; unique aspects of entering or expanding in international markets; our ability to hire, retain and motivate employees, to ramp our sales team, and to manage our growth; changes in our customer base; technological developments; regulatory developments; litigation related to intellectual property and other matters, and any related claims, negotiations and settlements; unanticipated changes in our effective tax rate; fluctuations in the number of shares we have outstanding and the price of such shares; foreign currency exchange rates; collection of receivables; interest rates; factors affecting our deferred tax assets and ability to value and utilize them; the risks and expenses associated with our real estate and office facilities space; and general developments in the economy, financial markets, and credit markets.

Further information about potential factors that could affect our financial results is included in public reports we file with the Securities and Exchange Commission, including, but not limited to, the Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations sections of our Forms 10-K and 10-Q, and the Forms 8-K and other documents we file from time to time.

Any forward-looking statement made by us in this press release speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We assume no obligation and do not intend to publicly update these forward-looking statements, whether as a result of new information, future developments, or otherwise, except as required by law.

About Marketo

Marketo (NASDAQ: MKTO) provides the leading engagement marketing software and solutions designed to help marketers develop long-term relationships with their customers - from acquisition to advocacy. Marketo is built for marketers, by marketers and is setting the innovation agenda for marketing technology. Marketo puts Marketing First. Headquartered in San Mateo, CA, with offices around the world, Marketo serves as a strategic partner to large enterprise and fast-growing small companies across a wide variety of industries. To learn more about Marketos Engagement Marketing Platform, LaunchPoint® partner ecosystem, and the vast community that is the Marketo Marketing Nation®, visit www.marketo.com.

Marketo, the Marketo logo, Marketing Nation and LaunchPoint are trademarks of Marketo, Inc. All other trademarks are the property of their respective owners.

IR Contact:

Anne Marie McCauley

650-727-6845

amccauley@marketo.com

PR Contact:

Stefanie Gordish

Marketo

415-590-9722

sgordish@marketo.com

MARKETO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

94,703

107,218

Accounts receivable, net

48,505

50,678

Prepaid expenses and other current assets

15,029

Total current assets

158,237

166,969

Property and equipment, net

24,273

21,323

Goodwill

29,201

Intangible assets, net

Other assets

Total assets

219,967

225,078

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS EQUITY

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

24,445

25,706

91,520

91,735

Current portion of credit facility

Total current liabilities

122,896

123,880

Credit facility, net of current portion

Deferred revenue, long-term

Other liabilities

Total liabilities

126,990

127,310

Redeemable non-controlling interests

Stockholders equity:

Common stock

Additional paid-in capital

358,175

344,727

Accumulated other comprehensive loss

Accumulated deficit

(269,581

(251,332

Total stockholders equity

88,552

93,125

Total liabilities, redeemable non-controlling interests and stockholders equity

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended

March 31,

Subscription and support

55,348

40,100

Professional services and other

Total revenue

62,216

46,000

Cost of revenue (1):

12,310

Total cost of revenue

21,378

16,411

Gross profit:

43,038

31,026

(2,200

(1,437

Total gross profit

40,838

29,589

Operating expenses (1):

Research and development

11,001

Sales and marketing

37,113

30,032

General and administrative

10,872

Total operating expenses

58,986

48,509

Loss from operations

(18,148

(18,920

Other income (expense), net

Loss before provision for income taxes

(18,285

(18,400

Provision for income taxes

Net loss

(18,687

(18,612

Net loss and adjustment attributable to redeemable non-controlling interests

Net loss attributable to Marketo

(18,423

(18,158

Net loss per share of common stock, basic and diluted

Shares used in computing net loss per share of common stock, basic and diluted

43,992

41,613

(1) Amounts include stock-based compensation expense as follows:

Cost of subscription and support revenue

Cost of professional services and other revenue

Total stock-based compensation expense

10,000

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

Net loss:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Stock-based compensation expense

Deferred income taxes

Provision for allowance for doubtful accounts

Changes in operating assets and liabilities:

Accounts receivable

(3,027

(5,541

(4,170

(1,549

Net cash used in operating activities

(9,980

(8,535

Cash flows from investing activities:

Increase in restricted cash

Purchase of property and equipment

(4,587

(4,092

Capitalized software development

Net cash used in investing activities

(5,923

(4,828

Cash flows from financing activities:

Proceeds from issuance of common stock upon exercise of stock options

Proceeds from issuance of common stock issued under employee stock purchase plan

Investment from redeemable non-controlling interests

Withholding taxes remitted for the net share settlement of equity awards

Repayment of debt

Net cash provided by financing activities

Effect of foreign exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

(12,515

(8,876

Cash and cash equivalents beginning of period

112,644

Cash and cash equivalents end of period

103,768

MARKETO, INC.

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

To supplement our condensed consolidated financial statements presented on a GAAP basis, Marketo uses non-GAAP measures of operating loss, net loss and net loss per share, which are adjusted to exclude certain costs, expenses, gains and losses we believe appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Marketos underlying operational results and trends and our marketplace performance. In addition, these adjusted non-GAAP results are among the information management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles in the United States of America.

December 31, 2015

March 31, 2016

March 31, 2015

51,711

Total Revenue

58,267

Cost of revenue reconciliation:

GAAP Subscription and support

11,284

Amortization of acquired intangible assets

Non-GAAP subscription and support

10,167

11,171

GAAP Professional services and other

(1,105

(1,212

Non-GAAP professional services and other

Gross profit and gross margin reconciliation:

Non-GAAP subscription and support gross profit

41,544

44,177

32,022

Non-GAAP professional services and other gross profit

Non-GAAP gross profit

41,392

43,189

31,522

Non-GAAP subscription and support gross margin

Non-GAAP professional services and other gross margin

Non-GAAP gross margin

Operating expenses reconciliation:

GAAP Research and development

10,476

(1,716

(1,805

(2,316

Non-GAAP research and development

As a % of total revenues, non-GAAP

GAAP Sales and marketing

33,723

(2,724

(3,074

(2,802

Non-GAAP sales and marketing

30,862

33,902

27,093

GAAP General and administrative

10,588

(3,223

(3,147

(2,607

Non-GAAP general and administrative

Loss from operations reconciliation:

GAAP loss from operations

(15,617

Stock-based compensation

Non-GAAP loss from operations

(5,512

(7,551

(9,042

Net loss reconciliation:

GAAP Net loss attributable to Marketo

(17,151

Adjustment to redeemable non-controlling interests

Non-GAAP Net loss attributable to Marketo

(5,525

(7,652

(8,280

Basic and diluted net loss per share

Shares used to compute basic and diluted GAAP and Non-GAAP net loss per share

43,383

NON-GAAP SUPPLEMENTAL FINANCIAL INFORMATION

1) Calculated Billings

Add increase (decrease) in total deferred revenue

Total calculated billings

61,964

49,939

2) Reconciliation of GAAP Operating Cash Flow to Free Cash Flow

GAAP net cash used in operating activities

Less purchases of property plant and equipment

Less capitalized software development

(15,168

(13,148

RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET LOSS PER SHARE TARGETS

Three Months Ending

Twelve Months Ending

June 30, 2016

December 31, 2016

GAAP net loss per diluted share range

Adjustments:

Amortization of acquired intangibles per share

NCI adjustment to redemption value

Non-GAAP net loss per diluted share range

Weighted Average Shares Outstanding

44,528

44,713

The GAAP and non-GAAP net income per share targets provided below and elsewhere in this press release are estimates. Marketos future performance involves risks and uncertainties and the Companys actual results could differ materially from such estimates. Some of the factors that could affect the Companys operating results are set forth under the caption Safe harbor statement under the Private Securities Litigation Reform Act of 1995 in this release.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Marketo's EVP & Chief Operating Officer just cashed-in 2,500 options - April 15, 2016
Marketo releases salary data. CEO sees compensation fall -25% - April 13, 2016
President of Marketo just cashed-in 47,242 options - April 6, 2016
Marketo's EVP & Chief Operating Officer just cashed-in 11,740 options - April 6, 2016