• by Tobi Elkin  @tobielkin, February 21, 2017

Programmatic marketing provider Rocket Fuel Inc. announced financial results for Q4 and fiscal year 2016 late Tuesday. The company said it generated $21 million in operating cash flow and $4.6 million in non-GAAP free cash flow for 2016. It also reported revenue growth from its platform solutions business of 97% year-over-year.

Non-GAAP net revenue came in at the high end of the company’s guidance range, and adjusted EBITDA was above its guidance range. In addition, the company reported it was cash-flow positive for the full year 2016.

As it segues and grows into a platforms-based business, Rocket Fuel said it saw 22% total revenue growth in Q4 in its platforms business vs. 11% of total revenue growth a year ago. In late January, the company said it was restructuring into a Software as a Service (SaaS) company and cutting expenses, including shedding nearly 100 jobs.

The Q4 developments were attributed to the company’s restructuring of sales and service teams and cuts in expenses.

Rocket Fuel, which is now describing itself as a predictive marketing software company, reported a 75% increase in the total number of customers for its platforms business, which now has more than 100 customers. Randy Wootton, CEO, Rocket Fuel, said the company is focusing on selling directly to marketers and agencies, and has been working hard to forge relationships with agency holding companies in North America—their trading desks, programmatic units, and media agencies. Revenue from holding companies was up 25% in Q4 year-over-year.

Rocket Fuel works with media agencies which buy insertion orders (IOs).  The agencies can access Rocket Fuel via IOs or through their trading desks which use the Rocket Fuel platform. “The holding companies continue to be a major focus for us, and we have a lot of work to do. It’s an ongoing effort,” Wootton said. Rocket Fuel is also working with system integrators, such as professional services firms, to help build financial services products around predictive banking.

Wootton said as the company continues to segue from the media services business, it’s focused on how it can communicate the real value of its artificial intelligence (AI), specifically machine learning. Wootton said the media services now comprises about 70% of the company's business, while the platforms business is at about 30%--that was an 80/20 split for the prior quarter. He's looking for a 60/40 split. "We've still got a lot of work to do," he said.

Rocket Fuel also said that independent agency and platform customer, Diamond Merckens Hogan, recently added managed service campaigns running on Rocket Fuel’s platform. "We chose Rocket Fuel's predictive marketing platform because of the results we have seen in early testing and because we believe predictive marketing is the most effective solution for our clients,” stated Elizabeth McMahan, Integrated Media Director at Diamond Merckens Hogan.

Rocket Fuel’s AI-driven predictive marketing platform aims to offer insights and transparency based on unique data, analytics, and algorithms. Wootton said the company is looking to combined AI with human intuition. Rocket Fuel suggested that predictive marketing involves consumers wanting brands to anticipate their needs and be available when and where they want them. In addition, consumers expect brands to move beyond personalization and relevance based on old segmentation rules, to recognizing specific moments creating experiences based on those moments. Plus, brands need to become experts at capturing and analyzing billions of digital signals and synthesizing into actionable intelligence. Wootton said this requires a combination of AI and human intelligence working together.

The question is: “How do you anticipate customer needs? Are you able to anticipate what your customers want? Programmatic is really automated buying. AI, and machine learning, aren’t just bidding and buying in real-time. It’s about scoring the moments of influence to understand and anticipate when a consumer will engage and what will work,” Wootton said. “It’s all about access to data,” he said. “You have to understand what the value of engaging with a person is in the moment.”

Wootton said Rocket Fuel is applying AI to site decisioning for large financial services companies—five out of the top 10 credit card companies. He also said brands are starting to think about how they want to aggregate data and what services they want. Rocket Fuel is also building campaign management groups as an access point to big brands. “We find brands that they’re wrestling with how to gain data sciences capabilities and insights.

Among the earnings highlights Rocket Fuel reported for Q4:

GAAP Revenue: It was $124.8 million vs. $125.4 million for Q4 2015. Revenue derived from North America was $101.8 million, flat with Q4 last year. Revenue from outside North America was $23.0 million, down 1% from last year. The Media Services comprised 78% of revenue vs. 89% last year.

Non-GAAP Net Revenue: It came in at $61.2 million vs. $74.7 million for the Q4 2015.

GAAP Net Loss: $(17.5) million, or $(0.38) per share, compared to a net loss of $(12.7) million, or $(0.29) per share for Q4 2015.

Non-GAAP adjusted EBITDA: $6.5 million vs. to $8.9 million in Q4 2015.

Financial Highlights for the Fiscal Year ending December 31, 2016:

GAAP Revenue: $456.3 million compared to $461.6 million for 2015.

GAAP Net Revenue: $252.1 million compared to $272.5 million for 2015.

GAAP Net Loss: $(65.7) million, or $(1.47) per share, inclusive of an aggregate $8.1 million in restructuring and impairment charges, compared to a net loss of $(210.5) million, or $(4.95) per share, for 2015, which included the impairment charges of goodwill.