NEW YORK--(BUSINESS WIRE)--Halper Sadeh LLC, an investor rights law firm, is investigating whether the merger of Marchex, Inc. (NASDAQ: MCHX) and Archenia, Inc. is fair to Marchex shareholders. Halper Sadeh encourages Marchex shareholders to click here to learn more about their legal rights and options or contact Daniel Sadeh or Zachary Halper at (212) 763-0060 or sadeh@halpersadeh.com or zhalper@halpersadeh.com. The investigation concerns whether Marchex and its board violated the federal secu. ...

Revenue Performance - Revenue decreased by $1.1 million, or 9%, to $11.5 million for the three months ended September 30, 2025, compared to $12.6 million for the same period in 2024[79] - For the nine months ended September 30, 2025, revenue decreased by $1.6 million, or 4%, to $34.6 million from $36.2 million in the prior year[79] Cost and Expenses - Cost of revenue for the three months ended September 30, 2025, was $4.2 million, representing 37% of revenue, compared to 34% in the same period of 2024[80] - Total operating expenses for the three months ended September 30, 2025, were $12.5 million, which is 108% of revenue, compared to 107% in the same period of 2024[77] - Loss from operations for the three months ended September 30, 2025, was $941,000, or -8% of revenue, compared to a loss of $825,000, or -7% in 2024[77] - Sales and marketing expenses decreased by $0.3 million, or 9%, to $2.9 million for the three months ended September 30, 2025[82] - Product development expenses decreased by $0.7 million, or 23%, to $2.4 million for the three months ended September 30, 2025[84] - General and administrative expenses increased by $0.2 million, or 7%, to $2.9 million for the three months ended September 30, 2025[86] - General and administrative expenses increased by $1.0 million, or 13%, to $8.5 million for the nine months ended September 30, 2025, compared to $7.5 million for the same period in 2024[87] - Stock-based compensation expense totaled $920,000 for the three months ended September 30, 2025, compared to $411,000 in the same period of 2024[78] Cash Flow and Financial Position - Cash used in operating activities was $1.5 million during the nine months ended September 30, 2025, primarily due to a net loss of $2.9 million, adjusted for non-cash items of $3.4 million[92] - Cash used in investing activities was $0.9 million for the nine months ended September 30, 2025, primarily for software development costs for new products[93] - Cash used in financing activities was $25.0 thousand for the nine months ended September 30, 2025, consisting of payments for equipment financing lease obligations[94] - As of September 30, 2025, the company had cash and cash equivalents of $10.3 million, down from $12.8 million as of December 31, 2024[91] - Cash used in operating activities was $2.0 million for the nine months ended September 30, 2024, primarily due to a net loss of $3.0 million[92] Tax and Valuation - The effective tax rate differed from the expected tax rate of 21% due to valuation allowance and non-deductible stock-based compensation[89] - The company recorded a full valuation allowance for deferred tax assets as it is more likely than not that these assets will not be realized[90] Future Outlook - The company aims to leverage AI and data analytics to enhance customer interactions and drive revenue growth[64] - The company believes its resources will be sufficient to fund operations for at least twelve months, but macroeconomic factors could significantly influence this[95] - Intangible amortization expense was $0 for the nine months ended September 30, 2025, as all intangible assets from acquisitions reached the end of their useful lives[88]

Core Insights - Marchex (MCHX) reported break-even quarterly earnings per share, missing the Zacks Consensus Estimate of $0.01, compared to a loss of $0.01 per share a year ago, resulting in an earnings surprise of -100.00% [1] - The company posted revenues of $11.51 million for the quarter ended September 2025, missing the Zacks Consensus Estimate by 3.49%, and down from $12.55 million year-over-year [2] - Marchex shares have declined approximately 8.6% year-to-date, contrasting with the S&P 500's gain of 16.5% [3] Earnings Outlook - The future performance of Marchex's stock will largely depend on management's commentary during the earnings call and the company's earnings outlook [4][6] - The current consensus EPS estimate for the upcoming quarter is $0.01 on revenues of $11.33 million, and for the current fiscal year, it is -$0.01 on revenues of $46.31 million [7] Industry Context - The Internet - Services industry, to which Marchex belongs, is currently ranked in the bottom 41% of over 250 Zacks industries, indicating potential challenges ahead [8]

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Financial Data and Key Metrics Changes - Revenue for Q3 2025 was $11.5 million, down from $11.7 million in Q2 2025, with some revenue migration dilution due to technology platform migration [8][9] - Cash decreased to $10.3 million from $10.5 million at the end of Q2 2025, primarily due to the timing of customer payments [9] - Anticipated sequential decline in revenue and adjusted EBITDA for Q4 2025, but expected sales growth moving into 2026 [9][10] Business Line Data and Key Metrics Changes - Continued progress in launching new products and accelerating sales bookings to the highest levels of the year [6] - Focus on large vertical markets, delivering industry-specific AI solutions across various sectors including automotive, healthcare, and advertising [6][7] Market Data and Key Metrics Changes - The company is positioned to expand into a larger addressable market by selling bundled solutions that integrate insights, actions, and outcomes [21][14] - The potential combined company with Arcaneum could achieve a revenue run rate of approximately $15 million quarterly, growing in the 15%-20% range in 2026 [14] Company Strategy and Development Direction - The company aims to evolve from providing strategic analytics to delivering comprehensive AI-powered solutions that enhance customer acquisition and optimization [4][5] - The acquisition of Arcaneum is expected to create a vertically focused, AI-driven customer acquisition platform, enhancing market reach and strategic flexibility [13][14] Management's Comments on Operating Environment and Future Outlook - Management believes the company is at a positive inflection point, with significant opportunities for growth through AI-driven solutions [4][5] - The focus will be on maximizing revenue growth while maintaining positive adjusted EBITDA margins of 10% or more [22] Other Important Information - The agreement to acquire Arcaneum includes a $10 million convertible promissory note and an earnout based on performance metrics [11][12] - The anticipated closing date for the acquisition is in the first half of 2026, pending approval from disinterested stockholders [12] Q&A Session Summary Question: What is the TAM for the combined solution? - The addressable market for the combined company is expected to be multiples of the current market, with significant customer acquisition budgets tied to insights [21] Question: How does the company view the trade-off between growth and profitability? - The focus is on maximizing revenue growth while maintaining positive adjusted EBITDA margins, prioritizing customer penetration and scaling [22] Question: How does growth break down between new and existing customers? - The company believes it can achieve a $100 million revenue opportunity much sooner with the combined capabilities, leveraging existing customer relationships [23][24]

Financial Performance - GAAP revenue for Q3 2025 was $11.5 million, a decrease from $12.6 million in Q3 2024[6] - Revenue for Q3 2025 was $11,514 million, a decrease of 8.3% compared to $12,553 million in Q3 2024[31] - For the nine months ended September 30, 2025, Archenia's estimated revenue was over $14 million, with a projected full-year revenue of more than $17 million[16] - Marchex anticipates a revenue growth run rate of approximately 10% in 2026, driven by ongoing product launches and platform migration completion[4] - Marchex believes the combined company could achieve quarterly revenue run rates of approximately $15 million, or $60 million annualized, with growth in the 15-20% range in 2026[24] Adjusted EBITDA - Adjusted EBITDA for Q3 2025 was $0.6 million, up from $0.3 million in Q3 2024, with a potential adjusted EBITDA gain of $1.1 million after excluding reorganization costs[6] - Adjusted EBITDA for Q3 2025 was $621 million, an increase of 98.7% from $313 million in Q3 2024[35] - The company expects Adjusted EBITDA margins to reach 10% or more in 2026 due to increasing revenue and lower operating expenses[4] - Marchex expects sequentially lower revenue and Adjusted EBITDA in Q4 2025 due to typical seasonality and revenue migration dilution[5] Operating Expenses and Losses - Total operating expenses for Q3 2025 were $12,455 million, down from $13,378 million in Q3 2024, reflecting a reduction of 6.9%[31] - Net loss applicable to common stockholders for Q3 2025 was $1,020 million, compared to a loss of $831 million in Q3 2024, representing a 22.7% increase in losses[31] - Basic and diluted net loss per share for Q3 2025 remained at $(0.02), consistent with Q3 2024[37] - Stock-based compensation for Q3 2025 was $920 million, significantly higher than $411 million in Q3 2024[35] Cash and Assets - Cash and cash equivalents as of September 30, 2025, were $10,321 million, down from $12,767 million at the end of 2024[33] - Total assets decreased to $41,145 million as of September 30, 2025, from $43,200 million at the end of 2024[33] - Total liabilities decreased to $9,203 million as of September 30, 2025, from $10,567 million at the end of 2024[33] - The company reported a total accumulated deficit of $(329,096) million as of September 30, 2025, compared to $(326,178) million at the end of 2024[33] Strategic Initiatives - Marchex has entered into an agreement to acquire Archenia for a $10 million convertible promissory note, with interest at 6%[12] - The potential combination with Archenia could create a vertically focused, AI-driven customer acquisition platform, enhancing revenue scale and market reach[17] - The company launched new AI-powered solutions for healthcare and senior living industries, enhancing its product offerings[10][11]

Company Analysis - Marchex, Inc. has a Return on Invested Capital (ROIC) of -15.82% and a Weighted Average Cost of Capital (WACC) of 12.69%, indicating it is not generating returns above its cost of capital, which is a concerning sign for investors [1] - comScore, Inc. shows a ROIC of -22.54% with a WACC of 5.57%, resulting in a ROIC to WACC ratio of -4.05, highlighting significant inefficiencies in generating returns relative to its cost of capital, indicating potential financial struggles [2] - Liquidity Services, Inc. has a ROIC of 10.21% and a WACC of 8.71%, leading to a ROIC to WACC ratio of 1.17, indicating it is generating returns above its cost of capital, making it the most efficient among its peers and an attractive option for investors [3]

Executive Team Changes - Edwin Miller, CEO, is stepping down and will serve as a senior advisor to the Chairman [1][2] - Troy Hartless has been appointed as President in addition to his role as Chief Revenue Officer [1] - Francis Feeney has been appointed Chief Operating Officer alongside his role as Chief Corporate and Legal Affairs Officer [1] - Brian Nagle has been appointed Chief Financial Officer, previously serving as Senior Vice President, Controller [1] Company Growth and Strategy - Marchex is positioned for future growth with a focus on AI-driven product offerings and operational efficiencies [2] - The company aims to expand customer penetration and grow its addressable market through a growing portfolio of AI products [2] - The leadership transition is seen as a strategic move to capitalize on increasing opportunities and the company's evolution [2] Financial Performance - Marchex reported GAAP revenue of $11.7 million for Q2 2025, a decrease from $12.1 million in Q2 2024 [8]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section details Marchex's unaudited financial statements, management's analysis, market risk disclosures, and internal controls [Item 1. Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Marchex's unaudited consolidated financial statements, encompassing balance sheets, operations, equity, cash flows, and detailed notes, are presented [Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) Total assets and equity slightly decreased by June 30, 2025, driven by reduced cash and increased accumulated deficit | Metric | June 30, 2025 (in Thousands) | December 31, 2024 (in Thousands) | | :-------------------------- | :--------------------------- | :--------------------------- | | Total Assets | $41,984 | $43,200 | | Cash and Cash Equivalents | $10,491 | $12,767 | | Total Liabilities | $9,941 | $10,567 | | Total Stockholders' Equity | $32,043 | $32,633 | | Accumulated Deficit | $(328,075) | $(326,178) | [Consolidated Statements of Operations (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20(Unaudited)) Marchex achieved **net income of $85 thousand** for Q2 2025, improving from a prior-year loss, but reported a **$1.9 million net loss** for the six months Three Months Ended June 30 | Metric | 2025 (in Thousands) | 2024 (in Thousands) | Change | | :------------------------------------------ | :------------------ | :------------------ | :----- | | Revenue | $11,655 | $12,074 | -$419 (-3.5%) | | Net Income (Loss) applicable to common stockholders | $85 | $(756) | +$841 | | Basic and diluted net income (loss) per share | $0.00 | $(0.02) | +$0.02 | Six Months Ended June 30 | Metric | 2025 (in Thousands) | 2024 (in Thousands) | Change | | :------------------------------------------ | :------------------ | :------------------ | :----- | | Revenue | $23,058 | $23,646 | -$588 (-2.5%) | | Net Income (Loss) applicable to common stockholders | $(1,897) | $(2,206) | +$309 | | Basic and diluted net income (loss) per share | $(0.04) | $(0.05) | +$0.01 | [Consolidated Statements of Stockholders' Equity (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) Total stockholders' equity decreased to **$32.0 million** by June 30, 2025, primarily due to the net loss, partially offset by stock-based compensation | Metric | December 31, 2024 (in Thousands) | June 30, 2025 (in Thousands) | | :------------------------------------------ | :------------------------------- | :----------------------------- | | Total Stockholders' Equity | $32,633 | $32,043 | | Stock-based compensation (six months ended) | N/A | $1,011 | | Net loss (six months ended March 31, 2025) | N/A | $(1,982) | | Net income (three months ended June 30, 2025) | N/A | $85 | [Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Cash used in operating activities decreased to **$1.8 million** for H1 2025, with **$0.5 million** used in investing and **$0.1 million** generated from financing Six Months Ended June 30 (in Thousands) | Cash Flow Activity | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Net cash from (used in) operating activities | $(1,819) | $(2,361) | | Net cash from (used in) investing activities | $(542) | $(81) | | Net cash from (used in) financing activities | $85 | $(188) | | Cash and cash equivalents at end of period | $10,491 | $11,977 | - Cash used in investing activities for **2025** was primarily attributable to software development costs for new products[89](index=89&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed information supporting the consolidated financial statements, covering business description, accounting policies, revenue recognition, segment reporting, concentrations, fair value measurements, equity, earnings per share, property and equipment, leases, commitments, taxes, and a domain asset sale [Note 1: Description of Business and Basis of Presentation](index=8&type=section&id=Note%201:%20Description%20of%20Business%20and%20Basis%20of%20Presentation) Marchex is a conversation intelligence company leveraging AI and data analytics to provide actionable insights for B2B2C vertical markets - Marchex is an AI-powered conversational intelligence company focused on providing actionable insights for operational excellence and revenue acceleration in B2B2C vertical markets[21](index=21&type=chunk) - The company is assessing the impact of **ASU 2023-09** (Improvements to Income Tax Disclosures, effective after Dec **15, 2024**) and **ASU 2025-01** (Disaggregation of Income Statement Expenses, effective after Dec **15, 2026**) on its financial statement disclosures[26](index=26&type=chunk)[27](index=27&type=chunk) [Note 2: Revenue Recognition](index=9&type=section&id=Note%202:%20Revenue%20Recognition) Marchex generates revenue from its AI-powered conversational analytics platform by charging fees for call/text data elements or tracked phone numbers, recognized over time - Revenue is generated from fees for call/text related data elements or per phone number tracked, based on pre-negotiated rates, and recognized over time as services are provided[28](index=28&type=chunk) Accounts Receivable, Net (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Billed | $5,937 | $5,420 | | Unbilled | $1,657 | $1,736 | | Allowance for expected credit losses | $(33) | $(84) | | **Accounts receivable, net** | **$7,561** | **$7,072** | Deferred Revenue (in Thousands) | Metric | Amount | | :-------------------------- | :----- | | Balance at December 31, 2024 | $1,093 | | Deferral of revenue | $438 | | Revenue earned from deferred revenue | $(725) | | **Balance at June 30, 2025** | **$806** | [Note 3: Segment Reporting and Geographic Information](index=10&type=section&id=Note%203:%20Segment%20Reporting%20and%20Geographic%20Information) Marchex operates as a single segment focused on conversational analytics and related solutions. The vast majority of its revenue (98-99%) and long-lived assets are derived from and located in the United States - The Company operates in a single segment comprised of its conversational analytics and related solutions[30](index=30&type=chunk) Revenues by Geographic Region (Percentages) | Region | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :-------------------- | :------------------------------- | :----------------------------- | | United States | 98% | 99% | | Canada and other countries | 2% | 1% | | Total | 100% | 100% | [Note 4: Concentrations](index=10&type=section&id=Note%204:%20Concentrations) Marchex has significant customer concentration, with one customer (Customer A) accounting for **11%** of consolidated revenue for both the three and six months ended June 30, 2025, and **21%** of consolidated accounts receivable Customer A Revenue Concentration (Percentages) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | 11% | 10% | | Six Months Ended June 30 | 11% | 11% | Accounts Receivable Concentration (Percentages) as of June 30, 2025 | Concentration Type | Percentage | | :------------------------ | :--------- | | Customer A | 21% | | Independent dealer network A | 14% | [Note 5: Fair Value of Financial Instruments](index=11&type=section&id=Note%205:%20Fair%20Value%20of%20Financial%20Instruments) The carrying values of Marchex's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate their fair values due to their liquidity and short-term nature Cash and Cash Equivalents (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash | $5,308 | $7,615 | | Money market funds | $5,183 | $5,152 | | **Total** | **$10,491** | **$12,767** | [Note 6: Stockholders' Equity](index=11&type=section&id=Note%206:%20Stockholders'%20Equity) Marchex authorized a new share repurchase program in May 2025 for up to **3.0 million** Class B common shares, though no repurchases have been made - A new share repurchase program was authorized in May **2025** for up to **3,000,000** shares of Class B common stock; no repurchases have been made under this or prior programs as of June **30, 2025**[34](index=34&type=chunk)[173](index=173&type=chunk) Total Stock-based Compensation Expense (in Thousands) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $556 | $437 | | Six Months Ended June 30 | $1,011 | $870 | - As of June **30, 2025**, unrecognized compensation costs related to stock options were **$2.3 million** (expected to be recognized over **2.28 years**) and for restricted stock were **$0.7 million** (expected over **0.78 years**)[38](index=38&type=chunk) [Note 7: Net Income (Loss) Per Share](index=12&type=section&id=Note%207:%20Net%20Income%20(Loss)%20Per%20Share) Marchex computes net income (loss) per share using the two-class method, allocating undistributed income/losses proportionately between Class A and Class B common shares, which have identical dividend rights Basic Net Income (Loss) Per Share (Three Months Ended June 30) | Class | 2025 EPS | 2024 EPS | | :---- | :------- | :------- | | Class A | $0.00 | $(0.02) | | Class B | $0.00 | $(0.02) | Diluted Net Income (Loss) Per Share (Three Months Ended June 30) | Class | 2025 EPS | 2024 EPS | | :---- | :------- | :------- | | Class A | $0.00 | $(0.02) | | Class B | $0.00 | $(0.02) | Basic Net Loss Per Share (Six Months Ended June 30) | Class | 2025 EPS | 2024 EPS | | :---- | :------- | :------- | | Class A | $(0.04) | $(0.05) | | Class B | $(0.04) | $(0.05) | [Note 8: Property and Equipment](index=14&type=section&id=Note%208:%20Property%20and%20Equipment) Net property and equipment decreased slightly to **$1.7 million** at June 30, 2025, with **$0.7 million** in depreciation for the six months Property and Equipment, Net (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Computer and other related equipment | $1,229 | $1,198 | | Purchased software | $3,276 | $3,276 | | Furniture and fixtures | $262 | $262 | | Software development costs | $144 | — | | Software development costs - in progress | $510 | $72 | | Less: accumulated depreciation and amortization | $(3,685) | $(2,997) | | **Property and equipment, net** | **$1,736** | **$1,811** | Depreciation and Amortization Expense (in Thousands) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $335 | $309 | | Six Months Ended June 30 | $713 | $618 | [Note 9: Leases](index=15&type=section&id=Note%209:%20Leases) Marchex maintains an operating lease for its corporate office and terminated an office lease in Wichita, Kansas, during Q2 2025 - The company terminated an operating lease for office space in Wichita, Kansas, during the second quarter of **2025**[46](index=46&type=chunk) Total Lease Cost (in Thousands) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $144 | $161 | | Six Months Ended June 30 | $308 | $337 | Future Lease Payments as of June 30, 2025 (in Thousands) | Year | Operating Leases | Finance Leases | | :--- | :--------------- | :------------- | | 2025 | $190 | $191 | | 2026 | $397 | — | | 2027 and thereafter | $380 | — | | **Gross future lease payments** | **$967** | **$191** | [Note 10: Commitments and Contingencies](index=16&type=section&id=Note%2010:%20Commitments%20and%20Contingencies) Marchex has contractual obligations totaling **$8.5 million**, primarily for outside service providers, and is involved in ongoing litigation Future Minimum Payments on Other Contractual Obligations (in Thousands) | Year | Amount | | :---------------- | :----- | | 2025 | $2,069 | | 2026 | $4,798 | | 2027 | $1,668 | | 2028 | $13 | | 2029 and thereafter | — | | **Total minimum payments** | **$8,548** | - The company is a defendant in litigation filed October **21, 2022**, by Telmetrics, Inc. shareholders, asserting claims for an earnout of up to **$3.0 million** and **$1.0 million** from an escrow agreement related to a **2018** acquisition[53](index=53&type=chunk) [Note 11: Taxes](index=17&type=section&id=Note%2011:%20Taxes) Marchex maintains a **100% valuation allowance** against most deferred tax assets due to historical losses and is evaluating new tax legislation - A **100%** valuation allowance is recorded against gross deferred tax assets as of June **30, 2025**, and December **31, 2024**, due to historical taxable losses and uncertainty of future taxable income[55](index=55&type=chunk)[86](index=86&type=chunk) Income Tax Expense (in Thousands) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $5 | $3 | | Six Months Ended June 30 | $114 | $62 | - The 'One Big Beautiful Bill Act,' signed July **4, 2025**, includes changes allowing more favorable deductibility of R&D expenditures, **100%** bonus depreciation, and favorable business interest expense rules starting in **2025**[57](index=57&type=chunk) [Note 12: Domain Asset Sale](index=17&type=section&id=Note%2012:%20Domain%20Asset%20Sale) In April 2025, Marchex sold a domain asset for **$0.8 million**, recognizing a **$0.6 million gain** in Q2 2025 - In April **2025**, a domain asset was sold for **$0.8 million**, yielding approximately **$0.7 million** in net cash proceeds after a **15%** commission fee[58](index=58&type=chunk) - Approximately **$0.6 million** was recognized as a gain in Q2 **2025**, and **$48.2K** will be recognized as interest income over the **four-year** payment period due to the financing component[58](index=58&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Marchex's financial performance, liquidity, and capital resources, detailing revenue and expense trends [Overview](index=18&type=section&id=Overview) Marchex leverages AI and data analytics to provide actionable insights, optimize customer journeys, and accelerate revenue for B2B2C brands - Marchex harnesses AI and conversational intelligence to provide actionable insights, driving operational excellence and revenue acceleration for B2B2C vertical markets[60](index=60&type=chunk) - The company's mission is to create intelligence around all types of business conversations and be a leader in vertical market conversational intelligence leveraging generative AI and data analytics[61](index=61&type=chunk) [Components of the Results of our Operations](index=19&type=section&id=Components%20of%20the%20Results%20of%20our%20Operations) This section outlines the primary drivers of Marchex's financial results, including revenue, cost of revenue, and various operating expenses [Revenue](index=19&type=section&id=Revenue) Marchex generates most revenue from its AI-powered conversational analytics platform, charging fees for call/text data elements or tracked phone numbers - The majority of revenue is generated from AI-powered conversational intelligence product offerings[63](index=63&type=chunk) - Revenue is recognized when customers pay a fee for call/text related data elements or for each phone number tracked, based on a pre-negotiated rate, and is recognized over time as services are performed[63](index=63&type=chunk) [Cost of Revenue](index=19&type=section&id=Cost%20of%20Revenue) Cost of revenue primarily consists of telecommunication costs, bandwidth, software license fees, network operations, and personnel expenses - Cost of revenue includes telecommunication costs, bandwidth and software license fees, network operations, and payroll and related expenses of personnel, including stock-based compensation[65](index=65&type=chunk) [Sales and Marketing](index=19&type=section&id=Sales%20and%20Marketing) Sales and marketing expenses mainly comprise payroll, advertising, promotional expenditures, customer systems costs, and stock-based compensation - Sales and marketing expenses consist primarily of payroll and related expenses for personnel, advertising and promotional expenditures, costs of systems, and stock-based compensation[66](index=66&type=chunk) [Product Development](index=19&type=section&id=Product%20Development) Product development costs include expenses for research, development, and enhancement of products and services, with eligible costs capitalized - Product development costs primarily consist of payroll and related expenses for personnel, costs of computer hardware and software, and stock-based compensation[67](index=67&type=chunk) - Product development costs are expensed as incurred or capitalized into property and equipment in accordance with U.S. GAAP[68](index=68&type=chunk) [General and Administrative](index=19&type=section&id=General%20and%20Administrative) General and administrative expenses cover payroll for executive/administrative personnel, professional services, bad debt provisions, and facilities costs - General and administrative expenses consist primarily of payroll and related expenses for executive and administrative personnel, professional services, bad debt provisions, facilities costs, and stock-based compensation[69](index=69&type=chunk) [Stock-Based Compensation](index=19&type=section&id=Stock-Based%20Compensation) Stock-based compensation cost is measured at grant date fair value and recognized as expense over the vesting or service period using the straight-line method - Stock-based compensation cost is measured at grant date fair value and recognized as expense over the vesting or service period using the straight-line method[70](index=70&type=chunk) - Forfeitures are accounted for as they occur, and the expense is included in the same lines as compensation paid to the same employees in the Consolidated Statements of Operations[70](index=70&type=chunk) [Amortization of Intangibles from Acquisitions](index=19&type=section&id=Amortization%20of%20Intangibles%20from%20Acquisitions) Amortization of intangible assets from acquisitions ceased in 2025 as these assets were fully amortized by December 31, 2024 - Intangible assets from acquisitions (customer relationships, acquired technology, non-competition agreements, trade names) were fully amortized by December **31, 2024**[71](index=71&type=chunk) - Consequently, there was no amortization expense for these assets in **2025**[71](index=71&type=chunk)[84](index=84&type=chunk) [Provision for Income Taxes](index=20&type=section&id=Provision%20for%20Income%20Taxes) Marchex uses the asset and liability method for income taxes, with the effective tax rate differing from **21%** due to valuation allowance and non-deductible compensation - The company uses the asset and liability method of accounting for income taxes, recognizing deferred tax assets and liabilities[72](index=72&type=chunk) - The effective tax rate differed from the expected **21%** primarily due to the valuation allowance and non-deductible stock-based compensation[85](index=85&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) This section details Marchex's financial performance for the three and six months ended June 30, 2025, showing revenue declines but improved operating loss [Revenue](index=21&type=section&id=Revenue_Results) Revenue decreased by **3% to $11.7 million** for the three months and **2% to $23.1 million** for the six months ended June 30, 2025 Revenue (in Thousands) | Period | 2025 | 2024 | Change | | :-------------------------- | :----- | :----- | :----- | | Three Months Ended June 30 | $11,655 | $12,074 | -$419 (-3%) | | Six Months Ended June 30 | $23,058 | $23,646 | -$588 (-2%) | - Revenue decrease was impacted by lower call volumes, customer corporate development activities, customer migration revenue dilution, and the current uncertain macroeconomic environment (including new federal tariffs)[75](index=75&type=chunk) [Expenses](index=21&type=section&id=Expenses_Results) Overall operating expenses decreased for both periods, primarily due to reduced product development costs and cessation of acquisition-related amortization [Cost of Revenue](index=21&type=section&id=Cost%20of%20Revenue_Expenses) Cost of revenue decreased by **2% to $4.1 million** for the three months and **3% to $8.3 million** for the six months ended June 30, 2025 Cost of Revenue (in Thousands) | Period | 2025 | 2024 | % of Revenue 2025 | % of Revenue 2024 | Change | | :-------------------------- | :----- | :----- | :---------------- | :---------------- | :----- | | Three Months Ended June 30 | $4,058 | $4,152 | 35% | 34% | -$0.1M (-2%) | | Six Months Ended June 30 | $8,246 | $8,566 | 36% | 36% | -$0.3M (-3%) | - The decrease was primarily attributable to a decrease in costs from personnel and outside labor due to reorganization and realignment in **2025**[76](index=76&type=chunk)[77](index=77&type=chunk) [Sales and Marketing](index=21&type=section&id=Sales%20and%20Marketing_Expenses) Sales and marketing expenses increased by **19% to $3.2 million** for the three months and **16% to $6.4 million** for the six months ended June 30, 2025 Sales and Marketing Expenses (in Thousands) | Period | 2025 | 2024 | % of Revenue 2025 | % of Revenue 2024 | Change | | :-------------------------- | :----- | :----- | :---------------- | :---------------- | :----- | | Three Months Ended June 30 | $3,165 | $2,742 | 27% | 23% | +$0.5M (+19%) | | Six Months Ended June 30 | $6,431 | $5,529 | 28% | 23% | +$0.9M (+16%) | - The increase was primarily attributable to higher payroll and benefit related charges, contract asset amortization charges, and depreciation charges[78](index=78&type=chunk)[79](index=79&type=chunk) [Product Development](index=22&type=section&id=Product%20Development_Expenses) Product development expenses decreased significantly by **22% to $2.5 million** for the three months and **20% to $5.2 million** for the six months ended June 30, 2025 Product Development Expenses (in Thousands) | Period | 2025 | 2024 | % of Revenue 2025 | % of Revenue 2024 | Change | | :-------------------------- | :----- | :----- | :---------------- | :---------------- | :----- | | Three Months Ended June 30 | $2,501 | $3,223 | 21% | 26% | -$0.7M (-22%) | | Six Months Ended June 30 | $5,173 | $6,468 | 23% | 28% | -$1.3M (-20%) | - The change was primarily attributable to lower personnel and outside labor costs due to the capitalization of software development costs and personnel reorganization in **2025**[80](index=80&type=chunk)[81](index=81&type=chunk) [General and Administrative](index=22&type=section&id=General%20and%20Administrative_Expenses) General and administrative expenses remained flat at **$2.5 million** for Q2 2025 but increased by **17% to $5.6 million** for the six months General and Administrative Expenses (in Thousands) | Period | 2025 | 2024 | % of Revenue 2025 | % of Revenue 2024 | Change | | :-------------------------- | :----- | :----- | :---------------- | :---------------- | :----- | | Three Months Ended June 30 | $2,457 | $2,528 | 21% | 21% | Unchanged | | Six Months Ended June 30 | $5,604 | $4,817 | 24% | 20% | +$0.8M (+17%) | - The increase for the six months was primarily attributable to higher payroll costs, largely one-time reorganization charges, and the timing of professional services costs[83](index=83&type=chunk) [Amortization of Intangible Assets from Acquisitions](index=22&type=section&id=Amortization%20of%20Intangible%20Assets%20from%20Acquisitions_Expenses) Amortization expense for intangible assets from acquisitions was **$0** for both periods, as these assets were fully amortized by end of 2024 Amortization of Intangible Assets from Acquisitions (in Thousands) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $0 | $151 | | Six Months Ended June 30 | $0 | $301 | - Intangible assets acquired from acquisitions reached the end of their useful lives during **2024**, resulting in no amortization expense in **2025**[71](index=71&type=chunk)[84](index=84&type=chunk) [Income Tax](index=22&type=section&id=Income%20Tax_Expenses) Income tax expense was minimal for both periods, primarily deferred tax and U.S. state income taxes, with a full valuation allowance impacting the effective rate Income Tax Expense (in Thousands) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $5 | $3 | | Six Months Ended June 30 | $114 | $62 | - The effective tax rate differed from the expected **21%** primarily due to a full valuation allowance and non-deductible stock-based compensation[85](index=85&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased to **$10.5 million** at June 30, 2025, with **$1.8 million** used in operating activities Cash and Cash Equivalents (in Millions) | Date | Amount | | :---------------- | :----- | | June 30, 2025 | $10.5 | | December 31, 2024 | $12.8 | Cash Flow Activities (Six Months Ended June 30, in Millions) | Activity | 2025 | 2024 | | :-------------------- | :--- | :--- | | Operating Activities | $(1.8) | $(2.4) | | Investing Activities | $(0.5) | $(0.1) | | Financing Activities | $0.1 | $(0.2) | - Management believes current resources will be sufficient to fund operations for at least **twelve months**, but additional equity and debt financing may be needed to support acquisition strategy and long-term obligations[91](index=91&type=chunk) [Critical Accounting Policies](index=23&type=section&id=Critical%20Accounting%20Policies) Marchex's financial statements conform to U.S. GAAP, relying on estimates, with no significant changes in critical accounting policies during H1 2025 - Financial statements are prepared in conformity with U.S. GAAP, requiring management to make estimates and assumptions[92](index=92&type=chunk)[93](index=93&type=chunk) - No significant changes in critical accounting policies and estimates occurred during the three and six months ended June **30, 2025**[94](index=94&type=chunk) [Recent Accounting Pronouncements Not Yet Effective](index=23&type=section&id=Recent%20Accounting%20Pronouncements%20Not%20Yet%20Effective) This section refers to Note 1 for details on recent accounting pronouncements not yet effective, including ASUs on income tax and expense disclosures - Refer to Note **1**: Description of Business and Basis of Presentation for details on recent accounting pronouncements not yet effective[95](index=95&type=chunk) [Website](index=23&type=section&id=Website) Marchex's website provides access to SEC filings and investor relations, utilizing social media for material information disclosure - The company's website, www.marchex.com, provides access to annual, quarterly, and current reports filed with the SEC[96](index=96&type=chunk) - Marchex uses its investor relations website, press releases, SEC filings, public conference calls, webcasts, and social media channels (X, Company Blog, LinkedIn) to disclose material financial information[96](index=96&type=chunk)[97](index=97&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Marchex is not required to provide quantitative and qualitative disclosures about market risk as a smaller reporting company - Marchex is not required to provide quantitative and qualitative disclosures about market risk as a smaller reporting company[98](index=98&type=chunk) [Item 4. Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) Officers concluded Marchex's disclosure controls were effective as of June 30, 2025, with no material changes to internal controls [Evaluation of Disclosure Controls and Procedures](index=24&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Marchex's disclosure controls and procedures were concluded to be effective as of June 30, 2025, based on officer evaluation - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June **30, 2025**[99](index=99&type=chunk) [Changes in Internal Control over Financial Reporting](index=24&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes to internal controls over financial reporting occurred during the three and six months ended June 30, 2025 - No changes were made to internal controls over financial reporting during the three and six months ended June **30, 2025**, that materially affected or are reasonably likely to materially affect them[100](index=100&type=chunk) [Limitations on the Effectiveness of Controls](index=24&type=section&id=Limitations%20on%20the%20Effectiveness%20of%20Controls) Management acknowledges inherent limitations in controls, meaning they cannot provide absolute assurance or detect all misstatements - Management acknowledges that controls cannot provide absolute assurance and that internal controls over financial reporting may not prevent or detect all misstatements due to inherent limitations[101](index=101&type=chunk)[102](index=102&type=chunk) [PART II. OTHER INFORMATION](index=25&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section details Marchex's legal proceedings, comprehensive risk factors, equity transactions, and other required disclosures [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings, including ongoing litigation from a 2018 acquisition, is detailed in Note 10 - Information regarding legal proceedings is provided in Note **10**: Commitments and Contingencies of the Notes to Consolidated Financial Statements[105](index=105&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) This section outlines various financial, strategic, operational, legal, compliance, and general risks that could materially and adversely affect Marchex's business [FINANCIAL RISKS](index=25&type=section&id=FINANCIAL%20RISKS) Key financial risks include Marchex's history of net losses, significant customer concentration, and the need for additional funding - Marchex had an accumulated deficit of **$328.1 million** as of June **30, 2025**, and may incur net losses in the foreseeable future[107](index=107&type=chunk) - The five largest customers accounted for approximately **35%** of total revenues for both the three and six months ended June **30, 2025**, posing a risk if one or more are lost[110](index=110&type=chunk) - Quarterly results may fluctuate due to seasonality, with call volumes generally higher in spring/summer and lower in late Q4[115](index=115&type=chunk) [STRATEGIC RISKS](index=27&type=section&id=STRATEGIC%20RISKS) Strategic risks include intense competition, slower market development for conversational analytics, evolving business strategy, and acquisition risks - Marchex operates in a highly competitive and rapidly changing market, facing competition from companies like Twilio, Invoca, and Google, requiring continuous product enhancement[119](index=119&type=chunk)[120](index=120&type=chunk) - The market for conversational analytics solutions may develop more slowly than expected, which could harm the business[121](index=121&type=chunk) - Acquisitions involve risks such as diversion of management's attention, ownership dilution, decreased earnings, integration difficulties, and potential for unknown liabilities[123](index=123&type=chunk)[124](index=124&type=chunk) [OPERATIONAL RISKS](index=28&type=section&id=OPERATIONAL%20RISKS) Operational risks include challenges in securing phone numbers, system vulnerabilities, cybersecurity threats, and reliance on third-party providers - Dependence on securing sufficient phone numbers and associated telecommunication services, subject to FCC rules and carrier requirements, including new registration fees and screening technologies[127](index=127&type=chunk)[128](index=128&type=chunk) - Technical systems and operations are vulnerable to damage or interruption from various events (e.g., natural disasters, cyber-attacks), potentially causing service disruptions and data loss[129](index=129&type=chunk)[130](index=130&type=chunk) - Reliance on third-party cloud providers, hardware/software vendors, telecommunications carriers, and other service providers, where a failure or limitation could adversely affect business and reputation[132](index=132&type=chunk)[133](index=133&type=chunk) [LEGAL AND COMPLIANCE RISKS](index=30&type=section&id=LEGAL%20AND%20COMPLIANCE%20RISKS) Legal and compliance risks involve protecting IP, potential liabilities for customer activities, third-party IP claims, and evolving telecommunications/data privacy regulations - Inability to protect intellectual property rights (patents, trademarks, copyrights, trade secrets) could adversely affect competitive position[135](index=135&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) - Potential liabilities for customer activities, such as improper sending of text messages or voice calls, under consumer protection laws like the TCPA[140](index=140&type=chunk) - Exposure to federal, state, and foreign telecommunications and data privacy regulations, including TCPA, STIR/SHAKEN, call recording consent laws, GDPR, CPRA, and potential new AI regulations, which could increase compliance costs and risks[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) [GENERAL RISKS](index=35&type=section&id=GENERAL%20RISKS) General risks include macroeconomic conditions, climate change, personnel retention, stock volatility, founder's voting control, and anti-takeover provisions - Operating results are susceptible to general economic conditions (e.g., labor shortages, inflation, tariffs), climate change, natural catastrophic events, and public health crises[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - The company is heavily dependent on its senior management and key personnel; loss or difficulty in attracting/retaining them could harm operations[159](index=159&type=chunk)[160](index=160&type=chunk) - The trading prices of Class B common stock have been and are likely to continue to be highly volatile[163](index=163&type=chunk)[164](index=164&type=chunk) - The founder beneficially owns **100%** of Class A common stock, representing **75%** of voting power, which could control corporate actions and adversely affect the price of Class B common stock[168](index=168&type=chunk)[169](index=169&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Marchex established a new share repurchase program for up to **3.0 million** Class B common shares, with no repurchases made in H1 2025 - The **2025** Repurchase Program authorizes the repurchase of up to **3,000,000** shares of Class B common stock[173](index=173&type=chunk) - No share repurchases were made under this program or any superseded program during the three and six months ended June **30, 2025**[173](index=173&type=chunk) [Item 4. Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Marchex, Inc - This item is not applicable to the Registrant[174](index=174&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in H1 2025 - No directors or officers adopted or terminated Rule **10b5-1** or non-Rule **10b5-1** trading arrangements during the three and six months ended June **30, 2025**[175](index=175&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL documents - Exhibits include certifications of the Principal Executive Officer (**31.1**) and Principal Financial Officer (**31.2**), a certification pursuant to **18** U.S.C. Section **1350** (**32**), and Inline XBRL documents (**101.INS, 101.SCH, 104**)[177](index=177&type=chunk) [Signature](index=40&type=section&id=Signature) The report was signed by Brian Nagle, Senior Vice President, Controller, on behalf of Marchex, Inc. on August 13, 2025 - The report was signed by Brian Nagle, Senior Vice President, Controller (Principal Financial Officer and Principal Accounting Officer) on August **13, 2025**[183](index=183&type=chunk)

Company Performance - Marchex reported quarterly earnings of $0.02 per share, surpassing the Zacks Consensus Estimate of a loss of $0.01 per share, representing an earnings surprise of +300.00% [1] - The company posted revenues of $11.66 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 6.31% and down from $12.07 million year-over-year [2] - Over the last four quarters, Marchex has only surpassed consensus EPS estimates once and has not beaten consensus revenue estimates [2] Stock Movement and Outlook - Marchex shares have increased approximately 12.6% since the beginning of the year, outperforming the S&P 500's gain of 8.4% [3] - The future performance of the stock will largely depend on management's commentary during the earnings call and the company's earnings outlook [3][4] - The current consensus EPS estimate for the upcoming quarter is -$0.01 on revenues of $12.93 million, and for the current fiscal year, it is -$0.06 on revenues of $49.88 million [7] Industry Context - The Internet - Services industry, to which Marchex belongs, is currently ranked in the top 40% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Marchex's stock performance [5][6]