Marchex, Inc. (NASDAQ:MCHX) Q1 2020 Earnings Conference Call May 11, 2020 5:00 PM ET Company Participants Trevor Caldwell - VP, IR and Strategic Initiatives Michael Arends - Co-CEO and CFO Russell Horowitz - Executive Chairman Conference Call Participants Dillon Heslin - Roth Capital Partners Operator Ladies and gentlemen, thank you for standing by, and welcome to Marchex First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, th ...

Revenue and Growth - Marchex's revenue primarily comes from performance-based advertising services, which account for over 80% of total revenues [227]. - Revenue increased by 24% from $85.3 million in 2018 to $106.1 million in 2019, primarily driven by call analytics services from acquisitions [254]. - Future revenue growth will depend on attracting new advertisers and effectively competing in the market [240]. - The company expects lower revenues in the near term due to decreases in large advertiser budgets and reduced demand for calls from pay-for-call service customers [255]. - The company anticipates difficulties in projecting phone call usage and advertiser spending due to economic conditions [237]. - Revenue concentrations exist with large customers, including reseller partners and advertising agencies, which may impact future operating results if spending decreases or customers are lost [259]. - The company plans to invest $2.5 million in a strategic technology business initiative during 2020 [293]. Acquisitions - The company generated approximately $10.1 million in cash for the acquisition of Telmetrics, with an additional potential $3.0 million based on financial growth targets [221]. - Marchex acquired Callcap for approximately $35.0 million, consisting of $25.0 million in cash and $10.0 million in stock [222]. - The acquisition of Sonar Technologies, Inc. was completed for approximately $8.5 million in cash and 1.0 million shares of Class B common stock [223]. - The company expects to increase expenditures for product development initiatives and personnel in the near term due to the acquisition of Sonar [290]. Market Trends - The speech analytics market is projected to grow from $941 million in 2017 to $2.2 billion by 2022, indicating significant market potential for Marchex's offerings [217]. - According to a 2019 eMarketer report, US advertisers are expected to spend nearly $68 billion on display advertising [220]. - Mobile calls represented 60% of inbound calls to businesses in 2016, with projections to grow to 169 billion calls by 2020 [218]. - The local leads platform agreement with Thryv, Inc. accounted for 23% and 26% of Marchex's total revenues for the years ended December 31, 2018, and 2019, respectively [220]. Financial Performance - The net loss for 2019 was $4.0 million, an increase from a net loss of $2.7 million in 2018, primarily due to higher amortization of intangible assets from acquisitions [280]. - As of December 31, 2019, cash and cash equivalents were $42.5 million, down from $45.2 million at the end of 2018 [281]. - Cash provided by operating activities for 2019 was approximately $5.1 million, consisting of a net loss of $4.0 million adjusted for non-cash items of $8.9 million [283]. - Cash used in investing activities for 2019 was $9.7 million, primarily for the acquisition of Sonar, which cost approximately $13.3 million [289]. - Cash provided by financing activities for 2019 was approximately $1.9 million, primarily from stock option exercises and restricted stock issuance [291]. Expenses and Costs - Service costs increased by 18% from $47.8 million in 2018 to $56.5 million in 2019, with service costs as a percentage of revenue decreasing from 56% to 53% [264]. - Sales and marketing expenses rose by 21% from $13.8 million in 2018 to $16.7 million in 2019, remaining relatively flat as a percentage of revenue at 16% and 15% [266]. - Product development expenses increased by 30% from $15.4 million in 2018 to $20.1 million in 2019, with expenses as a percentage of revenue remaining stable at 18% and 19% [268]. - General and administrative expenses grew by 24% from $10.9 million in 2018 to $13.5 million in 2019, maintaining a consistent percentage of revenue at 13% [270]. - The company expects user acquisition costs and revenue shares to distribution partners to increase due to competitive pressures, potentially raising service costs as a percentage of revenue [265]. Tax and Valuation - The effective tax benefit for 2019 was $1.7 million, influenced by the release of valuation allowance related to the acquisition of Sonar and other tax adjustments [277]. - The company recorded a 100% valuation allowance against deferred tax assets as of December 31, 2018 and 2019, indicating uncertainty in realizing these assets [321]. - The company has federal NOL carryforwards of approximately $92.0 million and federal research and development credit carryforwards of $5.4 million [322]. Operational Challenges - The company faces challenges in securing sufficient phone numbers for services, which could materially affect revenue and operations [235]. - Seasonal fluctuations in mobile and online usage are expected to impact quarterly results, particularly during spring and summer months [238]. - The ongoing COVID-19 pandemic is likely to result in material adverse impacts on business, including payment delays and reduced revenues [239]. - The company anticipates needing additional equity and debt financing to support its acquisition strategy and long-term obligations [297]. Accounting Policies - The company adopted FASB ASC Topic 842 for leases on January 1, 2019, without adjusting prior financial information [325]. - The company recognizes operating leases in right of use assets (ROU) and lease liabilities on its consolidated balance sheets [328]. - The company elected the short-term lease recognition exemption for all qualifying leases, meaning no ROU assets or lease liabilities are recognized for these leases [329].

Marchex, Inc. (NASDAQ:MCHX) Q4 2019 Earnings Conference Call February 12, 2020 5:00 PM ET Company Participants Trevor Caldwell - VP, IR & Strategic Initiatives Michael Arends - CFO Russell Horowitz - Executive Chairman Conference Call Participants Darren Aftahi - Roth Capital Partners Michael Latimore - Northland Capital Markets Operator Ladies and gentlemen, thank you for standing by, and welcome to Marchex Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]. I would now like to hand the ...

Financial Data and Key Metrics Changes - For Q3 2019, the company reported revenues of $24.8 million, showing year-over-year growth from both analytics and marketplace products [25] - Core analytics revenue was $13.5 million, representing significant year-over-year growth and comprising more than 50% of total revenue [26] - Adjusted operating income before amortization for Q3 was $611,000, and adjusted EBITDA was $1.1 million [35] - The net loss applicable to common stockholders was $1.2 million, or $0.03 per diluted share, compared to a net loss of $457,000, or $0.01 per diluted share, for the same period in 2018 [35][36] - The company ended Q3 with approximately $52 million in cash on hand [36] Business Line Data and Key Metrics Changes - The analytics segment saw meaningful year-over-year growth, particularly in the automotive vertical, which is expected to continue benefiting from trials and early integrations [27][48] - The marketplace revenue grew year-over-year, driven by budget increases from large customers and contributions from new customers [29] - The Sales Rescue product, part of the new Sales Edge suite, received favorable early interest and is expected to enhance the product pipeline [28][14] Market Data and Key Metrics Changes - The automotive vertical showed sequential growth and year-over-year growth, with opportunities identified at both the OEM and dealer levels [48] - Other verticals such as home services and hospitality also saw progress in the pipeline during the quarter [49] Company Strategy and Development Direction - The company is evolving from a call analytics provider to a leader in conversational analytics and solutions, focusing on AI-driven technologies to meet customer needs [7][21] - The launch of the Sales Edge product suite aims to provide tools and automation for businesses to act on high-value opportunities [11][56] - The company plans to continue investing in AI-driven solutions to enhance customer experiences and drive sales [16][40] Management's Comments on Operating Environment and Future Outlook - Management noted that customers are beginning to understand the value of AI-driven capabilities, which can improve sales processes and outcomes [21] - The company anticipates continued growth in analytics revenue for Q4, despite seasonal declines in call volumes [37][38] - The outlook for Q4 includes a forecast of $26 million or more in revenue, with expectations for year-over-year growth in the marketplace product [37][41] Other Important Information - The company has made significant progress in launching new products and infrastructure, positioning itself for long-term growth [34][43] - The Clean Call technology is a core part of the analytics offering and is expected to drive innovation and performance [53] Q&A Session Summary Question: How has the growth from the auto vertical been, especially on a sequential basis? - The auto vertical saw both sequential and year-over-year growth, with fruitful opportunities identified for future growth [48] Question: How have the acquisitions performed? - Acquisitions have shown mixed results, with one experiencing a revenue decline and another a modest uptick [51] Question: What revenue contribution is expected from the Clean Call solution this fiscal year? - Clean Call is a core part of the analytics offering but specific revenue contributions are not broken out [53] Question: What is the product pipeline for the rest of the year and next year? - The focus is on launching the Sales Edge suite, with Sales Rescue being the first product, which is expected to expand the addressable market [56] Question: What is the current headcount and hiring plan for the next six months? - The company has around 300 total FTEs and plans to grow the sales and account management teams as revenue streams progress [59]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number 000-50658 Marchex, Inc. (Exact name of Registrant as specified in its charter) Delaware 35-2194038 (State or other jurisdictio ...

Marchex, Inc. (NASDAQ:MCHX) Q2 2019 Results Earnings Conference Call August 7, 2019 5:00 PM ET Company Participants Trevor Caldwell - VP of IR Michael Arends - CFO Russell Horowitz - Executive Chairman Conference Call Participants Dillon Heslin - ROTH Capital Partners Operator Good afternoon. My name is Jason, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Marchex Second Quarter Conference Call. [Operator Instructions] I would now like to turn the call over to ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 35-2194038 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 520 Pike Street, Suite 2000 Seattle, WA (Address of Principal Executiv ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents unaudited condensed consolidated financial statements, management's discussion, market risk, and internal controls [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, revenue recognition, stock-based compensation, per-share data, concentrations, segment reporting, property and equipment, leases, commitments, acquisitions, intangible assets, goodwill, common stock, and subsequent events [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (in thousands) | Metric | Dec 31, 2018 | Mar 31, 2019 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $45,230 | $50,906 | | Total current assets | $64,085 | $68,541 | | Right-of-use lease asset | — | $7,065 | | Total assets | $113,062 | $122,799 | | Total current liabilities | $14,772 | $19,563 | | Lease liability current | — | $1,517 | | Lease liability non-current | — | $6,787 | | Total liabilities | $18,036 | $28,333 | | Total stockholders' equity | $95,026 | $94,466 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, detailing revenue, expenses, and net loss Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended Mar 31, 2018 | Three Months Ended Mar 31, 2019 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $21,896 | $26,406 | | Total operating expenses | $23,051 | $28,009 | | Loss from operations | $(1,155) | $(1,603) | | Net loss applicable to common stockholders | $(926) | $(1,299) | | Basic and diluted net loss per share | $(0.02) | $(0.03) | | Amortization of intangible assets from acquisitions | $0 | $1,568 | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section details changes in the company's equity accounts, including accumulated deficit and additional paid-in capital Total Stockholders' Equity (in thousands) | Metric | Dec 31, 2018 | Mar 31, 2019 | | :--------------------------- | :----------- | :----------- | | Total stockholders' equity | $95,026 | $94,466 | | Accumulated deficit | $(256,198) | $(257,497) | | Additional paid-in capital | $350,801 | $351,540 | - Issuance of common stock upon exercise of options, vesting of restricted stock, and employee stock purchase plan, net, contributed **$194,000** to additional paid-in capital and total stockholders' equity for the three months ended March 31, 2019[15](index=15&type=chunk) - Stock compensation from options and restricted stock, net of forfeitures, added **$545,000** to additional paid-in capital and total stockholders' equity for the three months ended March 31, 2019[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Three Months Ended Mar 31, 2018 | Three Months Ended Mar 31, 2019 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $3,021 | $5,624 | | Net cash used in investing activities | $(769) | $(143) | | Net cash provided by (used in) financing activities | $(21,880) | $195 | | Net increase (decrease) in cash and cash equivalents | $(19,628) | $5,676 | | Cash and cash equivalents at end of period | $84,562 | $50,906 | - The significant decrease in cash and cash equivalents at the end of the period from 2018 to 2019 is primarily due to a large common stock cash dividend paid in Q1 2018 (**$21.9 million**)[17](index=17&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the financial statements, covering accounting policies and key transactions [(1) Description of Business and Basis of Presentation](index=7&type=section&id=(1)%20Description%20of%20Business%20and%20Basis%20of%20Presentation) This note describes Marchex's core business as a call analytics company and the basis for its financial statement presentation - Marchex is a call analytics company that helps businesses connect, drive, measure, and convert callers into customers, offering products and services for businesses relying on consumer phone calls or texts[20](index=20&type=chunk) - The company acquired Telmetrics Inc. and SITA Laboratories, Inc. (d/b/a Callcap) in November 2018, both specializing in call and text tracking/analytics[23](index=23&type=chunk) [(2) Significant Accounting Policies](index=7&type=section&id=(2)%20Significant%20Accounting%20Policies) This note outlines key accounting principles and methods applied in financial statements, including new lease accounting standards - The company adopted FASB ASC Topic 842, Leases, on **January 1, 2019**, using a modified retrospective approach[26](index=26&type=chunk) - Upon adoption of ASC 842, the company recognized approximately **$8.7 million** in additional operating lease liabilities and **$7.4 million** in right-of-use (ROU) assets[27](index=27&type=chunk) - The company elected the 'package of practical expedients' for transition and the short-term lease recognition exemption and the practical expedient to not separate lease and non-lease components for ongoing accounting[26](index=26&type=chunk)[28](index=28&type=chunk) [(3) Revenue Recognition](index=9&type=section&id=(3)%20Revenue%20Recognition) This note details the company's policies for recognizing revenue from performance-based advertising and local leads services - The majority of revenue is generated from performance-based advertising services, including call analytics technology and pay-for-call advertising products[34](index=34&type=chunk) - Revenue from performance-based advertising services increased from **$19.9 million** in Q1 2018 to **$25.2 million** in Q1 2019, while local leads services revenue decreased from **$2.0 million** to **$1.2 million** in the same periods[40](index=40&type=chunk) - Incremental direct costs of obtaining a contract (sales commissions) are generally deferred and amortized to sales and marketing expense over an estimated **24-month** customer relationship life[45](index=45&type=chunk) [(4) Stock-based Compensation Plans](index=10&type=section&id=(4)%20Stock-based%20Compensation%20Plans) This note describes the company's stock-based compensation plans and the methods used to calculate related expenses Stock-based Compensation Expense by Category (in thousands) | Expense Category | Three Months Ended Mar 31, 2018 | Three Months Ended Mar 31, 2019 | | :----------------------- | :------------------------------ | :------------------------------ | | Service costs | $128 | $59 | | Sales and marketing | $214 | $177 | | Product development | $91 | $76 | | General and administrative | $518 | $233 | | **Total stock-based compensation** | **$951** | **$545** | - The Black-Scholes option pricing model is used for time-vested stock option grants, with key assumptions including expected life (**4.0 years**), risk-free interest rate (**2.54%** in 2018, **2.22%** in 2019), and expected volatility (**53%** in 2018, **40%** in 2019)[48](index=48&type=chunk)[49](index=49&type=chunk) [(5) Net Income (Loss) Per Share](index=11&type=section&id=(5)%20Net%20Income%20(Loss)%20Per%20Share) This note explains the calculation of basic and diluted net income (loss) per share, including anti-dilutive securities Basic and Diluted Net Loss Per Share | Metric | Three Months Ended Mar 31, 2018 | Three Months Ended Mar 31, 2019 | | :---------------------------------------------------------------- | :------------------------------ | :------------------------------ | | Basic net loss per Class A and Class B share | $(0.02) | $(0.03) | | Diluted net loss per Class A and Class B share | $(0.02) | $(0.03) | - The computation of diluted net loss per share excludes outstanding options (**5,486k** in 2018, **5,283k** in 2019), unvested restricted shares (**710k** in 2018, **524k** in 2019), and restricted stock units (**921k** in 2018, **732k** in 2019) because their effect would be anti-dilutive[54](index=54&type=chunk)[55](index=55&type=chunk) [(6) Concentrations](index=13&type=section&id=(6)%20Concentrations) This note discloses significant concentrations of revenue and accounts receivable from major advertisers and agencies Advertiser Concentrations (Percentages) | Advertiser | Revenue (Q1 2018) | Revenue (Q1 2019) | Accounts Receivable (Dec 31, 2018) | Accounts Receivable (Mar 31, 2019) | | :----------- | :------------------ | :------------------ | :--------------------------------- | :--------------------------------- | | Advertiser A | 18% | 27% | 15% | <10% | | Advertiser B | 27% | 15% | 31% | 35% | - One advertising agency represented **20%** of revenue in Q1 2018 and **14%** in Q1 2019, and **23%** of accounts receivable at Dec 31, 2018, and **29%** at Mar 31, 2019[58](index=58&type=chunk) [(7) Segment Reporting and Geographic Information](index=13&type=section&id=(7)%20Segment%20Reporting%20and%20Geographic%20Information) This note provides information on the company's operating segments and the geographic distribution of its revenues - The company operates as a single segment, encompassing its performance-based advertising business focused on phone calls and its local leads platform[60](index=60&type=chunk) Revenues by Geographic Region (Percentages) | Geographic Region | Revenue (Q1 2018) | Revenue (Q1 2019) | | :---------------- | :------------------ | :------------------ | | United States | 99% | 99% | | Canada | 1% | 1% | | Other countries | <1% | <1% | [(8) Property and Equipment](index=14&type=section&id=(8)%20Property%20and%20Equipment) This note details the company's property and equipment, net of accumulated depreciation and amortization Property and Equipment, Net (in thousands) | Asset Category | Dec 31, 2018 | Mar 31, 2019 | | :----------------------------- | :----------- | :----------- | | Computer and other related equipment | $18,839 | $18,857 | | Purchased and internally developed software | $6,878 | $6,896 | | Furniture and fixtures | $1,023 | $1,023 | | Leasehold improvements | $1,275 | $1,285 | | Less: Accumulated depreciation and amortization | $(25,094) | $(25,287) | | **Property and equipment, net** | **$2,921** | **$2,774** | - Depreciation and amortization expense related to property and equipment was approximately **$455,000** for Q1 2018 and **$357,000** for Q1 2019[63](index=63&type=chunk) [(9) Leases](index=14&type=section&id=(9)%20Leases) This note provides information on the company's lease arrangements, including lease costs, terms, and liabilities - The company leases office space in Seattle, WA (expires **March 31, 2025**), Mississauga, Canada (expires **November 30, 2021**), and Wichita, Kansas (month-to-month, classified as short-term)[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) Lease Information (as of March 31, 2019, in thousands) | Lease Metric | Value | | :------------------------------------ | :---------- | | Operating lease cost | $434 | | Short-term operating lease cost | $30 | | Total operating lease cost | $464 | | Weighted-average remaining lease term | 5.9 years | | Weighted-average discount rate | 5.0% | | Present value of total operating lease liabilities | $8,304 | [(10) Commitments, Contingencies, and Taxes](index=15&type=section&id=(10)%20Commitments%2C%20Contingencies%2C%20and%20Taxes) This note outlines the company's contractual obligations, potential liabilities, and income tax positions Future Minimum Payments (in thousands) | Year | Facilities Operating Leases | Other Contractual Obligations | Total Minimum Payments | | :--- | :-------------------------- | :---------------------------- | :--------------------- | | 2019 | $1,064 | $2,231 | $3,295 | | 2020 | $1,616 | $437 | $2,053 | | 2021 | $1,653 | $248 | $1,901 | | 2022 | $1,613 | $4 | $1,617 | | 2023 and after | $3,804 | — | $3,804 | | **Total** | **$9,750** | **$2,920** | **$12,670** | - The company has an earnout arrangement for the Telmetrics acquisition, requiring up to **$3.0 million** in cash based on financial goals, with an estimated fair value of **$1.6 million** as of March 31, 2019[72](index=72&type=chunk)[80](index=80&type=chunk) - The company committed **$2.5 million** in funding for a strategic technology initiative over the next **12 months** during Q1 2019[73](index=73&type=chunk) - A **100%** valuation allowance is recorded against deferred tax assets due to historical taxable losses and uncertainty of future taxable income[76](index=76&type=chunk) [(11) Acquisitions](index=17&type=section&id=(11)%20Acquisitions) This note details the acquisitions of Telmetrics Inc. and Callcap, including their financial impact and strategic rationale - In November 2018, Marchex acquired Telmetrics Inc. for **$10.1 million** cash at closing and up to **$3.0 million** in contingent earnout, enhancing call analytics and text communications[79](index=79&type=chunk)[80](index=80&type=chunk)[83](index=83&type=chunk) - In November 2018, Marchex acquired Callcap for approximately **$25.0 million** cash and **3.4 million** shares of Class B common stock (valued at **$10.0 million**), expanding its customer base and growth opportunities[85](index=85&type=chunk)[86](index=86&type=chunk)[88](index=88&type=chunk) Unaudited Pro Forma Financial Information (in thousands) | Metric | Three Months Ended Mar 31, 2018 | | :--------------------------------- | :------------------------------ | | Revenue | $26,680 | | Net loss applicable to common stockholders | $(1,308) | [(12) Identifiable Intangible Assets from Acquisitions](index=20&type=section&id=(12)%20Identifiable%20Intangible%20Assets%20from%20Acquisitions) This note provides a breakdown of identifiable intangible assets acquired, their carrying amounts, and amortization schedules Identifiable Intangible Assets from Acquisitions (as of March 31, 2019, in thousands) | Intangible Asset Category | Gross Carrying Amount | Accumulated Amortization | Net | Weighted Average Useful Life (from purchase date) | | :-------------------------- | :-------------------- | :----------------------- | :-- | :---------------------------------------------- | | Customer relationships | $12,368 | $913 | $11,455 | 5 years | | Technologies | $5,879 | $748 | $5,131 | 3 years | | Non-compete agreements | $2,559 | $560 | $1,999 | 1-2 years | | Tradenames | $672 | $128 | $544 | 2 years | | **Total** | **$21,478** | **$2,349** | **$19,129** | | - Aggregate amortization expense for identifiable intangible assets was approximately **$1.6 million** for the three months ended March 31, 2019[91](index=91&type=chunk) - Estimated remaining amortization expense for the next five years is **$4.6 million** in 2019, **$5.7 million** in 2020, **$4.2 million** in 2021, **$2.5 million** in 2022, and **$2.1 million** in 2023[91](index=91&type=chunk) [(13) Goodwill](index=20&type=section&id=(13)%20Goodwill) This note discusses the company's goodwill balance and its annual impairment testing - No change in goodwill for the three months ended March 31, 2019[92](index=92&type=chunk) - Annual goodwill impairment testing is performed on **November 30**, and no impairment has been identified in 2019[93](index=93&type=chunk) [(14) Common Stock](index=20&type=section&id=(14)%20Common%20Stock) This note provides information on the company's common stock, including share repurchase programs and dividend payments - The 2014 Share Repurchase Program authorizes repurchases of up to **3 million** shares of Class B common stock; **1,319,128** shares may yet be purchased[94](index=94&type=chunk)[313](index=313&type=chunk) - In Q1 2019, the company repurchased **90,000** shares of Class B common stock for approximately **$900** (employee restricted equity upon termination), not under the 2014 Repurchase Program[95](index=95&type=chunk)[313](index=313&type=chunk) - A special cash dividend of **$21.9 million** was paid in Q1 2018[96](index=96&type=chunk) - Approximately **3.4 million** shares of Class B common stock are to be issued over **four years** for the Callcap acquisition[97](index=97&type=chunk) [(15) Subsequent Event](index=21&type=section&id=(15)%20Subsequent%20Event) This note discloses a significant event that occurred after the balance sheet date but before financial statements were issued - In **May 2019**, a Class A common stockholder converted **395,209** shares into Class B common shares[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, product offerings, and strategic initiatives. It details the comparison of financial performance between Q1 2018 and Q1 2019, focusing on revenue, expenses, income taxes, and net loss. Additionally, it discusses liquidity, capital resources, and critical accounting policies, highlighting key factors influencing the company's financial health and future outlook [Overview](index=22&type=section&id=Overview) This section provides a high-level introduction to the company's business, product offerings, and strategic direction [Product Offerings](index=22&type=section&id=Product%20Offerings) This section details the company's core products and services, including call analytics, speech analytics, and recent acquisitions - Marchex Call Analytics helps marketers optimize advertising expenditures by understanding which channels drive calls and provides data integration with third-party platforms like Salesforce and Facebook[105](index=105&type=chunk) - Marchex Speech Analytics, launched in **2017**, leverages proprietary speech recognition and AI to provide real-time insights into customer interactions, with the market expected to grow from **$941 million** in 2017 to **$2.2 billion** by 2022[105](index=105&type=chunk)[106](index=106&type=chunk) - Acquisitions of Callcap and Telmetrics in November 2018 expanded the company's Text Analytics and Communications and Call Monitoring capabilities[107](index=107&type=chunk) [Strategy](index=25&type=section&id=Strategy) This section outlines the company's key strategic initiatives, focusing on technology investment, market expansion, and acquisitions - Key strategic focus areas include expanding and investing in speech analytics, AI, data science, and machine learning capabilities to grow conversation analytics offerings[109](index=109&type=chunk) - The company plans to increase its advertiser base through direct sales, inside sales, and partnerships with large local advertiser resellers[110](index=110&type=chunk) - Marchex intends to pursue selective acquisition opportunities that enhance strategic position, strengthen financial profile, and increase shareholder value, citing Telmetrics and Callcap acquisitions in November 2018[111](index=111&type=chunk)[112](index=112&type=chunk) [Consolidated Statements of Operations](index=26&type=section&id=Consolidated%20Statements%20of%20Operations) This section provides a detailed analysis of the company's revenue, expenses, income taxes, and net loss [Revenue Discussion](index=26&type=section&id=Revenue) This section analyzes factors influencing the company's revenue performance, including growth drivers and key customer contributions - Revenue increased **21%** from **$21.9 million** in Q1 2018 to **$26.4 million** in Q1 2019[145](index=145&type=chunk) - The increase was primarily due to growth in call analytics services (including Telmetrics and Callcap contributions) and larger advertiser budget increases for pay-for-call services, partially offset by lower local leads platform revenues[145](index=145&type=chunk) - DexYP was the largest reseller partner, responsible for **18%** of total revenues in Q1 2018 and **27%** in Q1 2019[108](index=108&type=chunk)[147](index=147&type=chunk) - State Farm, through Resolution Media and OMD Digital, accounted for **27%** of total revenues in Q1 2018 and **15%** in Q1 2019, with expected modestly lower campaign spend levels in the near term[148](index=148&type=chunk) [Expenses Discussion](index=32&type=section&id=Expenses) This section discusses trends and changes in operating expenses, including service costs, sales and marketing, and product development Operating Expenses (in thousands and as % of revenue) | Expense Category | Q1 2018 | % of Revenue (Q1 2018) | Q1 2019 | % of Revenue (Q1 2019) | Change (YoY) | | :----------------------------------- | :------ | :----------------------- | :------ | :----------------------- | :----------- | | Service costs | $12,823 | 59% | $14,258 | 54% | +$1,435 | | Sales and marketing | $3,610 | 16% | $4,113 | 16% | +$503 | | Product development | $3,648 | 17% | $4,568 | 17% | +$920 | | General and administrative | $2,970 | 13% | $3,320 | 13% | +$350 | | Amortization of intangible assets from acquisitions | $0 | 0% | $1,568 | 6% | +$1,568 | | Acquisition-related costs | $0 | 0% | $182 | 0% | +$182 | | **Total operating expenses** | **$23,051** | **105%** | **$28,009** | **106%** | **+$4,958** | - The increase in service costs was primarily due to higher distribution partner payments and communication/network costs, partly from Telmetrics and Callcap acquisitions. The decrease as a percentage of revenue was due to a higher proportion of call analytics platform revenues[153](index=153&type=chunk) - Sales and marketing expenses increased due to personnel and outside service provider costs from acquisitions, while product development expenses rose due to increased personnel costs from acquisitions[155](index=155&type=chunk)[157](index=157&type=chunk) [Income Taxes Discussion](index=34&type=section&id=Income%20Taxes) This section explains the company's income tax expense or benefit and the factors affecting its effective tax rate - Income tax expense (benefit) was **$11,000** in Q1 2018 and (**$119,000**) in Q1 2019[165](index=165&type=chunk) - The effective tax rate differed from **21%** due to a full valuation allowance against deferred tax assets and other factors like state income taxes and non-deductible stock-based compensation[165](index=165&type=chunk) [Net Loss Discussion](index=34&type=section&id=Net%20Loss) This section analyzes the company's net loss, attributing changes to revenue, expense, and acquisition-related factors - Net loss increased from (**$926,000**) in Q1 2018 to (**$1.3 million**) in Q1 2019[166](index=166&type=chunk) - The increased loss was mainly due to higher amortization of intangible assets from acquisitions in 2019, partially offset by higher revenues and lower operating costs[166](index=166&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet financial obligations, including cash position and operating cash flows Liquidity Snapshot (as of March 31, 2019, in thousands) | Metric | Value | | :------------------------------------ | :------ | | Cash and cash equivalents | $50,906 | | Current and long term contractual obligations | $12,670 | - Net cash provided by operating activities was **$5.6 million** for Q1 2019, a significant increase from **$3.0 million** in Q1 2018[168](index=168&type=chunk)[169](index=169&type=chunk) - The company expects working capital requirements to increase if reseller partner and agency arrangements account for a greater percentage of operating activity due to longer payment cycles[172](index=172&type=chunk) - The company committed **$2.5 million** in funding for a strategic technology initiative over the next **12 months** during Q1 2019[178](index=178&type=chunk) [Critical Accounting Policies](index=36&type=section&id=Critical%20Accounting%20Policies) This section highlights accounting policies requiring significant judgment and estimates, such as revenue recognition and goodwill impairment - Revenue recognition involves estimates for performance-based advertising and local leads, with revenue recognized over time as services are performed[186](index=186&type=chunk) - Stock-based compensation is measured at fair value using the Black-Scholes model, requiring subjective assumptions about expected life, volatility, and exercise patterns[193](index=193&type=chunk)[194](index=194&type=chunk) - Goodwill and intangible assets are tested annually for impairment (**November 30**), requiring significant estimates about future performance and cash flows[200](index=200&type=chunk)[201](index=201&type=chunk) - A **100%** valuation allowance is recorded against deferred tax assets due to historical taxable losses and uncertainty of future taxable income[142](index=142&type=chunk)[203](index=203&type=chunk) [Web site](index=39&type=section&id=Web%20site) This section provides information on where to access the company's public filings and investor relations communications - The company's website (www.marchex.com) provides access to SEC filings (10-K, 10-Q, 8-K) and investor relations information[206](index=206&type=chunk) - Marchex uses social media channels (Twitter, blog, LinkedIn) to disclose information, which may be deemed material, and advises investors to monitor these channels[206](index=206&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company under SEC Regulations, Marchex is not required to provide quantitative and qualitative disclosures about market risk - Marchex is exempt from providing quantitative and qualitative disclosures about market risk as a smaller reporting company[207](index=207&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of March 31, 2019. No material changes to internal control over financial reporting occurred during the quarter, but management acknowledges inherent limitations in the effectiveness of controls [Evaluation of Disclosure Controls and Procedures](index=39&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures as assessed by management - Disclosure controls and procedures were evaluated and deemed effective as of **March 31, 2019**[208](index=208&type=chunk) [Changes in Internal Control over Financial Reporting](index=39&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section addresses any material changes in the company's internal control over financial reporting during the quarter - No material changes to internal control over financial reporting occurred during **Q1 2019**[209](index=209&type=chunk) [Limitations on the Effectiveness of Controls](index=39&type=section&id=Limitations%20on%20the%20Effectiveness%20of%20Controls) This section acknowledges the inherent limitations that prevent any control system from providing absolute assurance of effectiveness - Controls and procedures, regardless of design, cannot provide absolute assurance of achieving control objectives due to inherent limitations[210](index=210&type=chunk) [PART II. OTHER INFORMATION](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes disclosures on legal proceedings, risk factors, equity sales, mine safety, and a list of exhibits [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is not a party to any material legal proceedings but may be subject to ordinary course disputes, including intellectual property infringement claims. Management believes no pending claims will have a material adverse effect - Marchex is not a party to any material legal proceedings[213](index=213&type=chunk) - The company may face ordinary course legal proceedings and claims, including intellectual property infringement, but management does not expect a material adverse effect[213](index=213&type=chunk)[75](index=75&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section outlines various risks that could materially affect the company's business, financial condition, results of operations, and stock value. These risks are categorized into those relating to the company itself, its business and industry, and ownership of its Class B common stock [Risks Relating to Our Company](index=40&type=section&id=Risks%20Relating%20to%20Our%20Company) This section details specific risks inherent to the company's operations, financial health, and strategic initiatives - The company has an accumulated deficit of **$257.5 million** as of **March 31, 2019**, and may incur future net losses due to increased expenses for sales, marketing, personnel, public company costs, and acquisitions[216](index=216&type=chunk) - Dependence on a small number of distribution partners and large customers (e.g., DexYP, State Farm) poses a significant risk, as loss or reduced revenue from these relationships could materially affect the business[219](index=219&type=chunk)[221](index=221&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk) - Acquisitions (like Telmetrics and Callcap) involve risks such as diversion of management attention, ownership dilution, integration difficulties, and potential unknown liabilities[244](index=244&type=chunk)[245](index=245&type=chunk) - International operations (Canada, Ireland, UK) expose the company to complex foreign laws, currency exchange risks, and the need for localization, which could adversely affect business[248](index=248&type=chunk)[250](index=250&type=chunk) - Failure to protect intellectual property rights (**41 US patents**, **9 pending**; **1 Canadian patent**, **1 pending**; **16 US trademarks**, **3 pending**; **18 foreign trademarks**, **1 pending**) could allow competitors to use proprietary technology[281](index=281&type=chunk)[282](index=282&type=chunk)[285](index=285&type=chunk) [Risks Relating to Our Business and Our Industry](index=49&type=section&id=Risks%20Relating%20to%20Our%20Business%20and%20Our%20Industry) This section outlines risks stemming from the competitive landscape, technological vulnerabilities, and regulatory environment - The company operates in a highly competitive environment, competing with major search engines (Google, Microsoft, Verizon Media), digital advertising networks, and call analytics providers (Twilio, Invoca, DialogTech)[268](index=268&type=chunk)[269](index=269&type=chunk) - Technical systems are vulnerable to damage or interruption from various disasters, network failures, and cyber-attacks, which could disrupt services, lead to data loss, and harm reputation[275](index=275&type=chunk)[276](index=276&type=chunk) - Reliance on third-party technology, platforms, carriers, and server providers means a failure of service by these providers could adversely affect business and reputation[277](index=277&type=chunk)[278](index=278&type=chunk) - Evolving regulations in e-commerce, online tracking, data collection (e.g., COPPA, CAN-SPAM, GDPR), and telecommunications (e.g., Wiretap Act, TCPA) pose risks of increased costs, liabilities, and restrictions on business operations[293](index=293&type=chunk)[294](index=294&type=chunk)[296](index=296&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk)[304](index=304&type=chunk) - Quarterly results are subject to seasonality, with lower mobile and Internet usage during spring/summer and reduced call volume in late **Q4**, which could adversely affect growth and stock price[287](index=287&type=chunk)[288](index=288&type=chunk) [Risks Relating to Ownership of our Class B common stock](index=57&type=section&id=Risks%20Relating%20to%20Ownership%20of%20our%20Class%20B%20common%20stock) This section addresses risks associated with holding the company's Class B common stock, including price volatility and corporate governance - Class B common stock prices have been and are likely to remain highly volatile, influenced by operating results, competitive developments, acquisitions, and broader market conditions[303](index=303&type=chunk)[305](index=305&type=chunk) - The primary founder beneficially owned **100%** of Class A common stock, representing **76%** of total voting power as of **May 3, 2019**, allowing control over corporate actions and potentially affecting Class B stock price[309](index=309&type=chunk) - Anti-takeover provisions in the company's charter and Delaware law could limit the ability of another party to acquire the company, potentially causing the stock price to decline[311](index=311&type=chunk) - There is no assurance that the company will pay dividends in the future, as dividend payments depend on financial results, liquidity, and capital requirements[312](index=312&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has a 2014 share repurchase program authorizing up to 3 million Class B common shares, with 1,319,128 shares remaining. In Q1 2019, 90,000 restricted shares were repurchased from an employee upon termination, not under the program - The 2014 Repurchase Program authorizes repurchases of up to **3 million** Class B common shares, with **1,319,128** shares remaining[313](index=313&type=chunk) - In **Q1 2019**, **90,000** restricted Class B common shares were repurchased from an employee for **$0.01 per share** upon termination, outside of the 2014 Repurchase Program[313](index=313&type=chunk) [Item 4. Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to Marchex[314](index=314&type=chunk) [Item 6. Exhibits](index=60&type=section&id=Item%206.%20Exhibits) Lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and XBRL instance and taxonomy documents - Exhibits include certifications (**31.1**, **32**) from the Principal Executive Officer and Principal Financial Officer, and XBRL documents (**101.INS**, **101.SCH**, **101.CAL**, **101.DEF**, **101.LAB**, **101.PRE**)[316](index=316&type=chunk) [Signature](index=61&type=section&id=Signature) The report is signed by Michael A. Arends, Chief Financial Officer and member of the Office of the CEO, on May 10, 2019 - The report was signed by Michael A. Arends, Chief Financial Officer and member of the Office of the CEO, on **May 10, 2019**[322](index=322&type=chunk)

Marchex, Inc. (NASDAQ:MCHX) Q1 2019 Earnings Conference Call May 2, 2019 5:00 PM ET Company Participants Trevor Caldwell - Vice President of Investor Relations and Strategic Initiatives Michael Arends - Principal Executive Officer, Chief Financial Officer and Principal Accounting Officer Russell Horowitz - Executive Chairman Conference Call Participants Darren Aftahi - ROTH Capital Partners Michael Latimore - Northland Capital Markets Operator Good afternoon. My name is Erica, and I will be your conference ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Marchex, Inc. (Exact name of Registrant as specified in its Charter) Washington, D.C. 20549 Delaware 35-2194038 (State or Other Jurisdiction of Incorporation or Organization) 520 Pike Street, Suite 2000 Seattle, WA (Address of Principal Executive Offices) FORM 10-K (I.R.S Employer Identification No.) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR ☐ TRANSITION REPORT PURSUAN ...