Marketo Announces Revenue Increase of 65% for Third Quarter 2013

SAN MATEO, Calif., Oct. 24, 2013 /PRNewswire/ -- Marketo (NASDAQ: MKTO), provider of the leading cloud-based marketing platform for building and sustaining engaging customer relationships, today announced its third quarter 2013 financial results.  

(Logo: http://photos.prnewswire.com/prnh/20070917/AQM011LOGO)

Highlights:  

  • Revenue increased 65% year over year to $25.5 million
  • Largest transaction in quarter from B2C customer
  • Strong cross sell contribution from new Marketo Financial Management application
  • Customer Engagement Engine adopted by more than 1,000 customers in less than one quarter
  • Data center transition improves gross margin

"We are delighted to report another outstanding financial quarter, with top line growth accelerating and gross margin increasing as a result of our data center transition efforts," commented Phil Fernandez, President and CEO of Marketo. "In the quarter, our SMB and mid-market business was particularly robust and our competitive win rate continued to be very strong.  I was also particularly pleased to see good initial contribution from several of our key growth initiatives."

Results for the third quarter of 2013:

  • Revenue: Revenue was $25.5 million, an increase of 65% over the prior year period and an increase of 13% from the quarter ended June 30, 2013.
  • Deferred Revenue: Deferred revenue at September 30, 2013 was $30.6 million, up 86% year over year from $16.5 million at September 30, 2012, and flat compared to $30.6 million at June 30, 2013.
  • Net Loss: GAAP net loss was $10.0 million, and net loss per common share, basic and diluted, was $(0.27). Non-GAAP net loss was $7.8 million, and net loss per common share, basic and diluted, was $(0.21), which excludes approximately $2.0 million in stock-based compensation expense and $125,000 of amortization of acquired intangible assets. GAAP and non-GAAP net loss per common share calculations are based on 37.1 million weighted average common shares outstanding.
  • Total Cash and Cash Equivalents: As of September 30, 2013, total cash and cash equivalents was $140.9 million, which includes net proceeds received in the third quarter of $22.5 million in connection with our follow-on offering completed on September 13, 2013.

Outlook
As of October 24, 2013, Marketo is initiating revenue and EPS guidance for its fourth quarter of 2013 and updating full year 2013 guidance.

For the fourth quarter of 2013, Marketo expects to report:

  • Revenue in the range of $26.2 to $26.7 million
  • GAAP net loss per share in the range of $(0.32) to $(0.34)
  • Non-GAAP net loss per share in the range of $(0.25) to $(0.27), excluding stock-based compensation expenses of approximately $2.5 million and $125,000 of amortization of acquired intangible assets assuming approximately 38.3 million weighted average common shares outstanding

For the full year 2013, Marketo expects to report:

  • Revenue in the range of $93.9 to $94.4 million
  • GAAP net loss per share in the range of $(1.77) to $(1.81)
  • Non-GAAP net loss per share in the range of $(1.43) to $(1.46), excluding stock-based compensation expenses of approximately $8.1 million and $500,000 of amortization of acquired intangible assets assuming approximately 24.7 million weighted average common shares outstanding

Conference Call Information
Marketo will host a conference call and live webcast to discuss the financial results at 2:00 p.m. Pacific Time, 5:00 p.m. Eastern Time, today, Thursday, October 24, 2013. The conference call can be accessed by dialing 1-888-846-5003, or 1-480-629-9856 (outside the U.S. and Canada).  A live webcast will be available on the Investor Relations page of the Marketo corporate website at www.marketo.com and via replay beginning approximately two hours after the completion of the call for 90 days.  An audio replay of the call will also be available by dialing 1-800-406-7325 or 1-303-590-3030 (outside the U.S. and Canada) and entering passcode 4645518#.

Use of Non-GAAP Financial Information
Marketo provides financial statements that are prepared in accordance with generally accepted accounting principles (GAAP). To help understand Marketo's 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 is not computed according to GAAP and 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 company's consolidated financial statements prepared in accordance with GAAP.  Specifically, management is excluding the following items from its non-GAAP historic and estimated net loss and net loss per common share, basic and diluted:

  • Stock-Based Compensation Expenses: The company's 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 company's 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.

"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995
This press release contains forward-looking statements. These forward-looking statements include general statements about our opportunities for growth and specific statements about our expected GAAP and non-GAAP financial results for the third quarter and the full year of 2013, including revenue, net loss, EPS, stock-based compensation expenses and amortization of acquired intangible assets. 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, the company's results could differ materially from the results expressed or implied by the forward-looking statements we make.

The risks and uncertainties referred to above include - but are not limited to - risks associated with: possible fluctuations in the company's financial and operating results; the company's rate of growth and anticipated revenue run rate, including the company's ability to convert deferred revenue and unbilled deferred revenue into revenue and, as appropriate, cash flow, and the continued growth and ability to maintain deferred revenue and unbilled deferred revenue; errors, interruptions or delays in the company's service or the company's Web hosting; breaches of the company's security measures; the financial impact of any previous and future acquisitions; the nature of the company's business model; the company's ability to continue to release, and gain customer acceptance of, new and improved versions of the company's service; successful customer deployment and utilization of the company's existing and future services; changes in the company's sales cycle; competition; relationships with platform providers; various financial aspects of the company's subscription model; unexpected increases in attrition or decreases in new business; the emerging markets in which the company operates; unique aspects of entering or expanding in international markets, the company's ability to hire, retain and motivate employees and manage the company's growth; changes in the company's customer base; technological developments; regulatory developments; litigation related to intellectual property and other matters, and any related claims, negotiations and settlements; unanticipated changes in the company's 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 the company's real estate and office facilities space; and general developments in the economy, financial markets, and credit markets.

Further information on these and other factors that could affect the company's financial results is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings we make with the Securities and Exchange Commission from time to time.

Marketo assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

About Marketo: Marketing Software. Easy, Powerful, Complete.
Marketo (NASDAQ: MKTO) provides the leading cloud-based marketing software platform for companies of all sizes to build and sustain engaging customer relationships.  Spanning today's digital, social, mobile and offline channels, the Marketo® solution includes a complete suite of applications that help organizations acquire new customers more efficiently, maximize customer loyalty and lifetime value, improve sales effectiveness, and provide analytical insight into marketing's contribution to revenue growth. Marketo's applications are known for their breakthrough ease-of-use, and are complemented by the Marketing Nation™, a thriving network of more than 150 LaunchPoint™ ecosystem partners and over 30,000 marketers who share and learn from each other to grow their collective marketing expertise.  The result for modern marketers is unprecedented agility and superior results.

Headquartered in San Mateo, CA with offices in Europe and Australia, Marketo serves as a strategic marketing partner to more than 2,700 large enterprises and fast-growing small companies across a wide variety of industries. For more information, 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.

MARKETO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)








 September 30, 


 December 31, 



2013


2012



 (unaudited) 



ASSETS





Current assets:





  Cash and cash equivalents 


$            140,920


$            44,247

  Accounts receivable, net 


13,398


14,106

  Prepaid expenses and other current assets 


4,441


2,379

  Total current assets 


158,759


60,732

Property and equipment, net 


13,072


5,617

Goodwill 


9,537


9,537

Intangible assets, net 


2,584


2,734

Other assets 


524


536

Total assets 


$            184,476


$            79,156






LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:





  Accounts payable 


$                4,108


$              2,217

  Accrued expenses and other current liabilities 


15,471


8,945

  Deferred revenue 


30,585


20,642

  Current portion of credit facility 


1,814


582

  Total current liabilities 


51,978


32,386

Credit facility, net of current portion 


6,035


3,058

Deferred rent 


1,481


148

Total liabilities 


59,494


35,592






Stockholders' equity:





  Convertible preferred stock


-


119,121

  Common stock


4


-

  Additional paid-in capital 


238,923


6,499

  Accumulated other comprehensive income 


121


145

  Accumulated deficit 


(114,066)


(82,201)

  Total stockholders' equity 


124,982


43,564

Total liabilities and stockholders' equity 


$            184,476


$            79,156

    

MARKETO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)












Three Months
Ended September 30, 


Nine Months
Ended September 30, 



2013


2012


2013


2012






Revenue:









 Subscription and support


$  22,504


$ 14,064


$  59,942


$   37,464

 Professional services and other


3,003


1,363


7,805


4,102

   Total revenue


25,507


15,427


67,747


41,566

Cost of revenue (1):









 Subscription and support


6,245


4,402


18,386


11,144

 Professional services and other


3,568


2,162


9,307


6,068

   Total cost of revenue


9,813


6,564


27,693


17,212

Gross profit:









 Subscription and support


16,259


9,662


41,556


26,320

 Professional services and other


(565)


(799)


(1,502)


(1,966)

   Total gross profit


15,694


8,863


40,054


24,354

Operating expenses (1):









 Research and development


5,938


4,661


16,919


13,835

 Sales and marketing


15,244


10,844


43,050


28,451

 General and administrative


4,356


3,086


11,659


8,361

   Total operating expenses


25,538


18,591


71,628


50,647

Loss from operations


(9,844)


(9,728)


(31,574)


(26,293)

Other income (expense), net


(98)


(36)


(245)


(51)

Loss before provision for income taxes


(9,942)


(9,764)


(31,819)


(26,344)

Provision for income taxes


9


2


46


5

Net loss


$  (9,951)


$  (9,766)


$ (31,865)


$ (26,349)










Net loss per share of common stock, basic and diluted


$    (0.27)


$    (3.35)


$     (1.58)


$     (9.61)

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


37,054


2,915


20,144


2,742










Comprehensive loss:









 Net loss 


$  (9,951)


$  (9,766)


$ (31,865)


$ (26,349)

 Other comprehensive income (loss):









   Foreign currency translation adjustments 


(36)


(10)


(24)


9

Comprehensive loss 


$  (9,987)


$  (9,776)


$ (31,889)


$ (26,340)



















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















Three Months
Ended September 30, 


Nine Months
Ended September 30, 



2013


2012


2013


2012






Cost of subscription and support revenue 


$       140


$        75


$       317


$        143

Cost of professional services and other revenue 


198


30


445


121

Research and development 


458


110


1,605


391

Sales and marketing 


553


377


1,646


800

General and administrative 


674


334


1,627


705

   Total stock-based compensation expense 


$    2,023


$      926


$    5,640


$     2,160

    

     

MARKETO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)












Three Months Ended
September 30,


Nine Months Ended
September 30,



2013


2012


2013


2012

Cash flows from operating activities:









Net loss 


$   (9,951)


$ (9,766)


$ (31,865)


$ (26,349)

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









  Depreciation and amortization 


1,250


440


3,037


1,090

  Stock-based compensation expense 


2,023


926


5,640


2,160

  Changes in operating assets and liabilities:









    Accounts receivable, net 


3,615


1,709


759


(1,624)

    Prepaid expenses and other current assets 


(855)


(693)


(2,088)


(622)

    Other assets 


132


45


(51)


(695)

    Accounts payable 


(1,549)


(249)


1,057


(1,373)

    Accrued expenses and other current liabilities 


3,012


245


6,099


2,765

    Deferred revenue 


(86)


(420)


9,846


5,313

    Deferred rent 


58


(2)


144


(29)

      Net cash used in operating activities 


(2,351)


(7,765)


(7,422)


(19,364)

Cash flows from investing activities:









  Purchase of property and equipment 


(2,371)


(1,333)


(8,234)


(3,715)

  Capitalized software development


(124)


-


(345)


-

  Cash acquired in acquisition 


-


-


-


698

      Net cash used in investing activities 


(2,495)


(1,333)


(8,579)


(3,017)

Cash flows from financing activities:









  Proceeds from initial public offering, net of underwriting discount


-


-


80,506


-

  Proceeds from follow-on offering, net of underwriting discount


22,519


-


22,519


-

  Proceeds from private placement


-


-


6,500


-

  Proceeds from issuance of common stock upon exercise of stock options 


1,062


103


2,478


516

  Repurchase of unvested common stock from terminated employees 


(4)


(9)


(20)


(59)

  Withholding taxes remitted for the net share settlement of an equity award


(124)


-


(124)


-

  Proceeds from issuance of debt


1,411


1,120


4,500


2,220

  Repayment of debt


(176)


-


(292)


-

  Payment of deferred initial public offering and follow-on offering costs 


(846)


-


(3,383)


-

      Net cash provided by financing activities 


23,842


1,214


112,684


2,677

Effect of foreign exchange rate changes on cash and cash equivalents 


42


(67)


(10)


16

Net increase (decrease) in cash and cash equivalents 


19,038


(7,951)


96,673


(19,688)

Cash and cash equivalents — beginning of period 


121,882


55,663


44,247


67,400

Cash and cash equivalents —end of period 


$ 140,920


$47,712


$ 140,920


$   47,712

     

MARKETO, INC.

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except per share data)

(Unaudited)


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 Marketo's 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.

    




Three Months Ended
June 30, 2013


Three Months Ended
September 30, 2013


Three Months Ended
September 30, 2012


Nine Months Ended
September 30, 2013


Nine Months Ended
September 30, 2012

Revenue:












Subscription and support


$                              19,883


$                              22,504


$                              14,064


$                              59,942


$                              37,464


Professional services and other


2,621


3,003


1,363


7,805


4,102

Total Revenue


$                              22,504


$                              25,507


$                              15,427


$                              67,747


$                              41,566













Cost of revenue reconciliation:












GAAP Subscription and support


$                                6,321


$                                6,245


$                                4,402


$                              18,386


$                              11,144


  Stock-based compensation


(114)


(140)


(75)


(317)


(143)


  Amortization of acquired intangible assets


(57)


(57)


-


(172)


-


Non-GAAP subscription and support


$                                6,150


$                                6,048


$                                4,327


$                              17,897


$                              11,001














GAAP Professional services and other


$                                3,121


$                                3,568


$                                2,162


$                                9,307


$                                6,068


  Stock-based compensation


(154)


(198)


(30)


(445)


(121)


  Amortization of acquired intangible assets


-


-


-


-


-


Non-GAAP professional services and other


$                                2,967


$                                3,370


$                                2,132


$                                8,862


$                                5,947













Gross profit and gross margin reconciliation:












Non-GAAP subscription and support gross profit


$                              13,733


$                              16,456


$                                9,737


$                              42,045


$                              26,463


Non-GAAP professional services and other gross profit


(346)


(367)


(769)


(1,057)


(1,845)


Non-GAAP gross profit


$                              13,387


$                              16,089


$                                8,968


$                              40,988


$                              24,618


Non-GAAP subscription and support gross margin


69.1%


73.1%


69.2%


70.1%


70.6%


Non-GAAP professional services and other gross margin


-13.2%


-12.2%


-56.4%


-13.5%


-45.0%


Non-GAAP gross margin


59.5%


63.1%


58.1%


60.5%


59.2%













Operating expenses reconciliation:












GAAP Research and development


$                                5,985


$                                5,938


$                                4,661


$                              16,919


$                              13,835


  Stock-based compensation


(937)


(458)


(110)


(1,605)


(391)


  Amortization of acquired intangible assets


-


-


(72)


-


(132)


Non-GAAP research and development


$                                5,048


$                                5,480


$                                4,479


$                              15,314


$                              13,312


As a % of total revenues, non-GAAP


22.4%


21.5%


29.0%


22.6%


32.0%














GAAP Sales and marketing


$                              15,488


$                              15,244


$                              10,844


$                              43,050


$                              28,451


  Stock-based compensation


(863)


(553)


(377)


(1,646)


(800)


  Amortization of acquired intangible assets


(43)


(43)


(43)


(128)


(78)


Non-GAAP sales and marketing


$                              14,582


$                              14,648


$                              10,424


$                              41,276


$                              27,573


As a % of total revenues, non-GAAP


64.8%


57.4%


67.6%


60.9%


66.3%














GAAP General and administrative


$                                3,876


$                                4,356


$                                3,086


$                              11,659


$                                8,361


  Stock-based compensation


(548)


(674)


(334)


(1,627)


(705)


  Amortization of acquired intangible assets


(25)


(25)


(25)


(75)


(46)


Non-GAAP general and administrative


$                                3,303


$                                3,657


$                                2,727


$                                9,957


$                                7,610


As a % of total revenues, non-GAAP


14.7%


14.3%


17.7%


14.7%


18.3%













Loss from operations reconciliation:












GAAP loss from operations


$                             (12,287)


$                               (9,844)


$                               (9,728)


$                            (31,574)


$                            (26,293)


  Stock-based compensation


2,616


2,023


926


5,640


2,160


  Amortization of acquired intangible assets


125


125


140


375


256


Non-GAAP loss from operations


$                               (9,546)


$                               (7,696)


$                               (8,662)


$                            (25,559)


$                            (23,877)













Net loss reconciliation:












GAAP Net loss


$                             (12,390)


$                               (9,951)


$                               (9,766)


$                            (31,865)


$                            (26,349)


  Stock-based compensation


2,616


2,023


926


5,640


2,160


  Amortization of acquired intangible assets


125


125


140


375


256


Non-GAAP Net loss


$                               (9,649)


$                               (7,803)


$                               (8,700)


$                            (25,850)


$                            (23,933)













Basic and diluted net loss per share












GAAP


$                                 (0.63)


$                                 (0.27)


$                                 (3.35)


$                                (1.58)


$                                (9.61)


Non-GAAP


$                                 (0.49)


$                                 (0.21)


$                                 (2.98)


$                                (1.28)


$                                (8.73)













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


19,822


37,054


2,915


20,144


2,742

SOURCE Marketo



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