Marchex Announces Fourth Quarter and Full Year 2018 Results

SEATTLE–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/marketing?src=hash” target=”_blank”gt;#marketinglt;/agt;–Marchex,
Inc.
 (NASDAQ:MCHX), a leading provider of call analytics that drive,
measure, and convert callers into customers, today announced its
financial results for the fourth quarter and full year ended December
31, 2018.

Q4 and Full Year 2018 Financial Highlights

  • Revenue was $23.1 million for the fourth quarter of 2018, compared to
    $21.8 million for the fourth quarter of 2017. Revenue was $85.3
    million for 2018, compared to $90.3 million for 2017.
  • Core analytics revenue was $10.9 million for the fourth quarter of
    2018, compared to $7.4 million for the fourth quarter of 2017. Core
    analytics revenue was $35.4 million for 2018, compared to $29.4
    million for 2017.
  • Net loss applicable to common stockholders was $0.6 million for the
    fourth quarter of 2018 or $0.01 per diluted share, compared to a net
    loss of $0.8 million or $0.02 per diluted share for the fourth quarter
    of 2017. Net loss applicable to common stockholders was $2.7 million
    for 2018 or $0.06 per diluted share, compared to a net loss of $6.4
    million or $0.15 per diluted share for 2017.
                 
Q4 2017 Q4 2018 FY 2017 FY 2018
Revenue $ 21.8 million $ 23.1 million $ 90.3 million $ 85.3 million
Net cash provided by operating activities $ 0.0 million $ 1.0 million $ 1.7 million $ 5.1 million
Cash Balance $ 104 million $ 45 million
Non-GAAP Results1:
Adjusted EBITDA $ 1.0 million $ 1.2 million $ 1.0 million $ 2.2 million
 
  • Adjusted non-GAAP income (loss) per share1 for the fourth
    quarter of 2018 was $0.02, compared to $0.01 for the fourth quarter of
    2017. Adjusted non-GAAP income (loss) per share1 for 2018
    was $0.00, compared to ($0.03) for 2017.

1

   

Reconciliations of non-GAAP measures are included in the
financial tables attached to this press release and we encourage
investors to examine the reconciling adjustments between the GAAP
and non-GAAP measures.

 

Strategic Priorities Update

Grow New and Existing Client Relationships. In the fourth
quarter, with the addition of Callcap and Telmetrics, Marchex added more
than 300 new clients, including enterprise brands in verticals like
Auto, Healthcare, Home Services, Telecommunications and Small and
Medium-Sized Business Resellers.

Accelerate Product Innovation. In 2018, Marchex expanded its
conversational data footprint to more than one billion minutes of
consumer-to-business conversations. This foundational asset gives
Marchex one of the largest data sets to leverage as a building block for
innovation in developing new sales acceleration solutions to help
businesses grow.

During the year, the company significantly grew its data science
organization and also launched the Marchex Innovation Development (MIND)
Lab, a new research and development group, to support product innovation
and help businesses engage and nurture customer relationships across
communications channels, including voice and text. The MIND Lab is
incubating new technologies and products utilizing Marchex’s continuing
investment in speech technology, artificial intelligence, personalized
customer solutions and conversational analytics. Marchex appointed
Dr. Junmei Zhong, a pioneer in artificial intelligence (AI) and natural
language processing (NLP), as the Company’s Chief AI Scientist.

Expanded conversational analytics leadership with the acquisition of
Callcap.
In addition to the company’s previously announced
acquisition of Telmetrics, in November, Marchex announced the
acquisition of Callcap, a leading call monitoring and analytics company.
With the addition of Callcap, Marchex adds a team that specializes in
call monitoring and analytics solutions for more than twelve industry
verticals, including home services, healthcare, automotive, and
telecommunications. Callcap’s innovative technology powers complex,
custom evaluations of millions of calls each month, providing deep
insights into consumer and business conversations with numerous
integrations into the call center environments of many franchise
businesses.

“In 2018, we made considerable progress in building a leading
conversation analytics company through a combination of product
innovation, customer progress and strategic initiatives, which is
helping to accelerate our growth,” said Mike Arends, Chief Financial
Officer. “In 2019, we expect to leverage our industry leading
conversational data assets based on hundreds of millions of
consumers-to-businesses conversations to introduce new sales
acceleration solutions that solve critical pain points for our
customers. As we expand to include new communication channels across
voice and text, we will continue to invest in our artificial
intelligence and data science initiatives to create more long-term
growth opportunities for Marchex.”

Business Outlook

The following forward-looking statements reflect Marchex’s expectations
as of February 13, 2019.

  • For the first quarter, the Company anticipates $12.5 million or more
    in Marchex’s core analytics revenue, representing a more than 50%
    increase year-over-year.
  • For the first quarter, the Company anticipates seeing stabilization or
    potentially a modest increase in revenue related to Marchex’s
    marketplace products as compared to the fourth quarter 2018.

Financial Guidance for the First Quarter ending
March 31, 2019

Total Revenue         $25 million or more
Income (loss) from operations ($3) million or better
Adjusted OIBA1,2 breakeven or better
Adjusted EBITDA1,2 $1 million or better
 

2

   

First quarter GAAP income (loss) from operations is expected to
be ($3) million or better, assuming stock-based compensation and
amortization of intangibles between $2.8 and $3 million for the
quarter.

 

Conference Call and Webcast Information

Management will hold a conference call, starting at 5:00 p.m. ET on
Wednesday, February 13, 2019 to discuss its fourth quarter and year
ended December 31, 2018 financial results and other company updates.
Access to the live webcast of the conference call will be available
online from the Investors section of Marchex’s website at www.marchex.com. An
archived version of the webcast will also be available at the same
location two hours after completion of the call.

About Marchex

Marchex
understands the best customers are those who call your company – they
convert faster, buy more, and churn less. Marchex provides solutions
that help companies drive more calls, understand what happens on those
calls, and convert more of those callers into customers. Our actionable
intelligence strengthens the connection between companies and their
customers, bridging the physical and digital world, to help brands
maximize their marketing investments and operating efficiencies to
acquire the best customers.

Please visit http://www.marchex.comwww.marchex.com/blog or @marchex
on Twitter (Twitter.com/Marchex), where Marchex discloses material
information from time to time about the company, its financial
information, and its business.

Forward-Looking Statements:

This press release contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than
statements of historical facts, included in this press release regarding
our strategy, future operations, future financial position, future
revenues, other financial guidance, acquisitions, dispositions,
projected costs, prospects, plans and objectives of management are
forward-looking statements. We may not actually achieve the plans,
intentions, or expectations disclosed in our forward-looking statements
and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the
plans, intentions and expectations disclosed in the forward-looking
statements we make. There are a number of important factors that could
cause Marchex’s actual results to differ materially from those indicated
by such forward-looking statements including but not limited to product
demand, order cancellations and delays, competition and general economic
conditions. These factors are described in greater detail in the “Risk
Factors” section of our most recent periodic report and registration
statement filed with the SEC. All of the information provided in this
release is as of February 13, 2019 and Marchex undertakes no duty to
update the information provided herein.

In the event the press release contains links to third party websites or
materials, the links are provided solely as a convenience to you.
Marchex is not responsible for the content of linked third-party sites
or materials and does not make any representations regarding the content
or accuracy thereof.

Non-GAAP Financial Information:

To supplement Marchex’s consolidated financial statements presented in
accordance with GAAP and to provide clarity internally and externally,
Marchex uses certain non-GAAP measures of financial performance and
liquidity, including Adjusted OIBA, Adjusted EBITDA, and Adjusted
non-GAAP income (loss) per share. Marchex also provides Enterprise
Revenue, which represents revenue excluding Yellowpages.com LLC (“YP”)
revenue generating contracts and, subsequent to Dex Media, Inc.’s
acquisition of YP (collectively “DexYP”), DexYP revenue generating
contracts.

Adjusted OIBA represents income
(loss) from operations excluding stock-based compensation expense,
amortization of intangible assets from acquisitions, and acquisition
related costs. This measure, among other things, is one of the primary
metrics by which Marchex evaluates the performance of its business.
Adjusted OIBA is the basis on which Marchex’s internal budgets are based
and by which Marchex’s management is currently evaluated. Marchex
believes these measures are useful to investors because they represent
Marchex’s consolidated operating results, taking into account
depreciation and other intangible amortization, which Marchex believes
is an ongoing cost of doing business, but excluding the effects of
certain other expenses such as stock-based compensation, amortization of
intangible assets from acquisitions, and acquisition related costs. Adjusted
EBITDA
 represents income (loss) before interest, income
taxes, depreciation, amortization, stock compensation expense and
acquisition related costs. Marchex believes that Adjusted EBITDA is
another alternative measure of liquidity to GAAP net cash provided by
(used in) operating activities that provides meaningful supplemental
information regarding liquidity and is used by Marchex’s management to
measure its ability to fund operations and its financing obligations.
Financial analysts and investors may use Adjusted OIBA and Adjusted
EBITDA and Enterprise Revenue to help with comparative financial
evaluation to make informed investment decisions. Adjusted
non-GAAP income (loss) per share
represents Adjusted
non-GAAP income (loss) divided by GAAP diluted shares outstanding.
Adjusted non-GAAP income (loss) generally captures those items on the
statement of operations that have been, or ultimately will be, settled
in cash exclusive of certain items that are not indicative of Marchex’s
recurring core operating results and represents net income (loss)
applicable to common stockholders plus the net of tax effects of: (1)
stock-based compensation expense, (2) acquisition related costs, (3)
interest and other income (expense), and (4) amortization of intangible
assets from acquisitions. Financial analysts and investors may use
Adjusted non-GAAP income (loss) per share to analyze Marchex’s financial
performance since these groups have historically used EPS related
measures, along with other measures, to estimate the value of a company,
to make informed investment decisions, and to evaluate a company’s
operating performance compared to that of other companies in its
industry.

Marchex’s management believes that investors should have access to, and
Marchex is obligated to provide, the same set of tools that management
uses in analyzing the company’s results. These non-GAAP measures should
be considered in addition to results prepared in accordance with GAAP,
and should not be considered in isolation, as a substitute for, or
superior to, GAAP results. Marchex’s non-GAAP financial measures may be
defined differently from time to time and may be defined differently
than similar titled terms used by other companies, and accordingly, care
should be exercised in understanding how Marchex defines its non-GAAP
financial measures in this release. Marchex endeavors to compensate for
the limitations of the non-GAAP measures presented by providing the
comparable GAAP measure with equal or greater prominence, GAAP financial
statements, and detailed descriptions of the reconciling items and
adjustments, including quantifying such items, to derive the non-GAAP
measure.

 
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
 
    Three Months Ended     Twelve Months Ended
December 31, December 31,
2017     2018 2017     2018
Revenue $ 21,847 $ 23,131 $ 90,291 $ 85,251
Expenses:
Service costs (1) 11,649 12,720 49,339 47,804
Sales and marketing (1) 3,577 3,513 15,652 13,788
Product development (1) 4,285 4,041 18,094 15,423
General and administrative (1) 2,999 2,798 13,567 10,881
Amortization of intangible assets from acquisitions 781 781
Acquisition related costs       352         462  
Total operating expenses   22,510     24,205     96,652     89,139  
Loss from operations (663 ) (1,074 ) (6,361 ) (3,888 )
Interest income and other, net   182     249     316     1,054  
Loss before provision for income taxes (481 ) (825 ) (6,045 ) (2,834 )
Income tax expense (benefit)   5     (188 )   42     (156 )
Net loss (486 ) (637 ) (6,087 ) (2,678 )
Dividends applicable to participating securities   (355 )       (355 )    
Net loss applicable to common stockholders $ (841 ) $ (637 ) $ (6,442 ) $ (2,678 )
 
Basic and diluted net loss per Class A share applicable to common
stockholders
$ (0.02 ) $ (0.01 ) $ (0.16 ) $ (0.06 )
Basic and diluted net loss per Class B share applicable to common
stockholders
$ (0.02 ) $ (0.01 ) $ (0.15 ) $ (0.06 )
Dividends per share $ 0.50 $ $ 0.50 $
Shares used to calculate basic net loss per share applicable to
common stockholders:
Class A 5,056 5,056 5,056 5,056
Class B 37,930 37,823 37,657 37,389
Shares used to calculate diluted net loss per share applicable to
common stockholders:
Class A 5,056 5,056 5,056 5,056
Class B 42,987 42,880 42,713 42,446
 
(1) Includes stock-based compensation allocated as follows:
Service costs $ 130 $ 97 $ 515 $ 435
Sales and marketing 246 152 1,014 563
Product development 182 80 679 356
General and administrative   539     376     2,389     1,686  
Total $ 1,097   $ 705   $ 4,597   $ 3,040  
 
 
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
    December 31,     December 31,
2017 2018
Assets
Current assets:
Cash and cash equivalents $ 104,190 $ 45,230
Accounts receivable, net 14,860 15,486
Prepaid expenses and other current assets   2,041     3,369  
Total current assets 121,091 64,085
Property and equipment, net 2,405 2,921
Other assets, net 326 917
Goodwill 24,692
Intangible assets from acquisitions, net       20,697  
Total assets $ 123,822   $ 113,312  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 4,928 $ 5,968
Accrued expenses and other current liabilities 5,585 7,195
Deferred revenue and deposits 313 1,782
Dividends payable   21,907      
Total current liabilities 32,733 14,945
Other non-current liabilities   1,090     3,341  
Total liabilities 33,823 18,286
Stockholders’ equity:
Class A common stock 53 53
Class B common stock 387 370
Additional paid-in capital 343,268 350,801
Accumulated deficit   (253,709 )   (256,198 )
Total stockholders’ equity   89,999     95,026  
Total liabilities and stockholders’ equity $ 123,822   $ 113,312  
 
 
MARCHEX, INC. AND SUBSIDIARIES
(in thousands)
(unaudited)
 
Reconciliation of GAAP Loss from Operations to Adjusted Operating
Income Before Amortization (OIBA)
 
   

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

2017     2018 2017     2018
Loss from operations $ (663 ) $ (1,074 ) $ (6,361 ) $ (3,888 )
Stock-based compensation 1,097 705 4,597 3,040
Amortization of intangible assets from acquisitions 781 781
Acquisition related costs       352         462  
Adjusted operating income before amortization (Adjusted OIBA)1 $ 434   $ 764   $ (1,764 ) $ 395  
 
 

Reconciliation from Net Cash provided by Operating Activities
to Adjusted EBITDA

 
    Three Months Ended

December 31,

    Twelve Months Ended

December 31,

2017     2018 2017     2018
Net cash provided by operating activities $ 0 $ 989 $ 1,692 $ 5,051
Changes in assets and liabilities 1,136 317 (392 ) (2,092 )
Income tax expense (benefit) 5 (188 ) 42 (156 )
Acquisition related costs 352 462
Interest income and other, net   (182 )   (249 )   (316 )   (1,054 )
Adjusted EBITDA1 $ 959   $ 1,221   $ 1,026   $ 2,211  
 
Net cash used in investing activities $ (288 ) $ (34,407 ) $ (1,577 ) $ (36,563 )
 
Net cash provided by (used in) financing activities $ 101   $ 43   $ 125   $ (27,448 )
 
1     Includes reorganization costs of approximately $700,000 in Q1 2017.
 
 

Revenue Reconciliations

 
   

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

2017    

2018

2017     2018
Revenue $ 21,847 $ 23,131 $ 90,291 $ 85,251
Less: YP or DexYP Revenue   4,197   6,431   19,013   19,914
Enterprise Revenue2 $ 17,650 $ 16,700 $ 71,278 $ 65,337
 
2     Enterprise Revenue represents total revenue less revenue generated
from contracts with YP, and for the 2018 period, total revenue less
revenue generated from contracts with YP and Dex Media, Inc.
(collectively “DexYP”). In 2017, Dex Media, Inc. acquired YP
Holdings LLC, which is the parent company of YP.
 
       

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2017     2018 2017     2018
Core Analytics revenue3 $ 7,385 $ 10,860 $ 29,406 $ 35,390
Marketplace, Local Leads, and other analytics4   14,462   12,271   60,885   49,861
Total Revenue $ 21,847 $ 23,131 $ 90,291 $ 85,251
 
3     Core analytics revenue includes revenue from analytics customers,
including those that are purchasing or buying products derived from
the company’s speech technology platform.
4 Includes revenue from marketplace, local leads and from tests,
consulting services or other analytics revenues that may continue
for a limited time but are not anticipated to continue in future
periods.
 
 
MARCHEX, INC. AND SUBSIDIARIES
 
Reconciliation of GAAP Net Loss per Share to Adjusted Non-GAAP
Income (Loss) per Share
(in thousands, except per share amounts)
(unaudited)
 
   

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

2017     2018 2017     2018
Adjusted Non-GAAP income (loss) per share $ 0.01   $ 0.02   $ (0.03 ) $ 0.00  
 

Net loss per Class B share applicable to common stockholders –
diluted
(GAAP loss per share)

$ (0.02 ) $ (0.01 ) $ (0.15 ) $ (0.06 )

Shares used to calculate diluted net loss per share applicable to
common
stockholders

42,987 42,880 42,713 42,446
 
Net loss applicable to common stockholders $ (841 ) $ (637 ) $ (6,442 ) $ (2,678 )
Stock-based compensation 1,097 705 4,597 3,040
Acquisition related costs 352 462
Amortization of intangible assets from acquisitions 781 781
Interest (income) expense and other, net (182 ) (249 ) (316 ) (1,054 )
Dividends applicable to participating securities 355 355
Estimated impact of income taxes   (151 )   (231 )   575     (350 )
Adjusted Non-GAAP net income (loss) $ 278   $ 721   $ (1,231 ) $ 201  
Adjusted Non-GAAP income (loss) per share $ 0.01   $ 0.02   $ (0.03 ) $ 0.00  
 
Shares used to calculate diluted net loss per Class B share
applicable to common stockholders (GAAP)
42,987 42,880 42,713 42,446
Weighted average stock options and common shares subject to purchase
or cancellation (if applicable)
  339     274         301  
Diluted shares used to calculate Adjusted Non-GAAP income (loss) per
share 1
  43,326     43,154     42,713     42,747  
 
1     For the purpose of computing the number of diluted shares for
Adjusted Non-GAAP income (loss) per share, Marchex uses the
accounting guidance that would be applicable for computing the
number of diluted shares for GAAP net income (loss) per share.

Contacts

Trevor Caldwell
Marchex Investor Relations
Telephone:
206.331.3600
Email: ir@marchex.com
or
MEDIA
INQUIRIES

Marchex Corporate Communications
Telephone:
206.331.3434
Email: marchex@edelman.com

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