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(MCHX) - 2019 Q4 - Annual Report