Marchex, Inc. (NASDAQ:MCHX) Q3 2024 Earnings Call Transcript

Marchex, Inc. (NASDAQ:MCHX) Q3 2024 Earnings Call Transcript May 12, 2024

Marchex, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello all and welcome to the Marchex First Quarter 2024 Earnings Call. My name is Lydia [ph] and I’ll be your operator today. [Operator Instructions] I’ll now hand you over to Trevor Caldwell, Senior Vice President of Investor Relations and Strategic Initiatives, to begin.

Trevor Caldwell: Great. Thank you, Lydia [ph]. Good afternoon, everyone and welcome to Marchex’ business update and first quarter 2024 conference call. Joining us today are Edwin Miller, our CEO; and Holly Aglio, our Chief Financial Officer. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements, including references to our financial and operational performance and actual results may differ materially from those contemplated by these forward-looking statements. Risks and uncertainties that could cause these results to differ materially are set forth in today’s earnings press release and in our most recent annual and quarterly report filed with the SEC.

Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements for subsequent events. During this call, we will present both GAAP and non-GAAP financial measures. Reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release and the earnings press release is available in the Investor Relations section of our website. At this time, I want to turn the call over to Edwin.

Edwin Miller: Thank you, Trevor and good afternoon, everyone and thank you for joining us today. It’s been a highly active start to the year for Marchex. From continued engagement with our customers to our focus on innovation and key infrastructure initiatives, we’re making substantial progress. With renewed momentum, we’re laying a strong foundation for growth and future profitability. You will hear more about that from Holly in a minute. What I will share with you now is that on the revenue side, our near-term outlook is largely influenced by conversational volumes while the intermediate and longer term is shaped by our customer engagement, go-to-market initiatives, innovation and supporting infrastructure progress. While the start of the year did have some headwinds in traffic volumes, conversational volumes started to improve in the latter part of Q1 which we believe should help the overall outlook for 2024.

In addition, we are seeing strong traction in our pipeline and we are winning new business which will help drive our growth sequentially and beyond. Moving next to our infrastructure initiatives which are a foundational component of our future growth strategy. We have ambitious goals to achieve key milestones throughout the year that we believe will support our growth initiatives. These are the ones that will also help us increase both our gross margins and the long-term profitability of the business. A critical milestone with this has been our progress with OneStack. OneStack is a significant effort that will unite our products. This will also establish our sizable footprint of direct first-party vertical market data and a one cloud architecture.

See also 13 Penny Stocks with Insider Buying in 2024 and Jim Cramer Talks About 10 Consumer Stocks As Americans Push Back on High Prices.

Q&A Session

We are currently on target to complete our primary OneStack initiatives in the third quarter. Once completed, this will enable Marchex to concentrate our resources on accelerating innovation and focus on developing API integrations with vertical market partners. This will allow our customers to access and leverage all Marchex data and capabilities more easily. In conjunction with OneStack, we are also focusing on accelerating our unified user interface and single sign-on initiatives. We believe that these initiatives will be key drivers of our go-to-market plan to increase upsells by giving customers the ability to access all of our products in one interface and with one integration. OneStack is an ambitious project and we are on track to meet our goals regarding it.

There is still work to be done but I am proud of the team and their deep commitment to accomplishing OneStack and our other key projects. Initiatives like OneStack are foundational elements to uniting our data and helping Marchex strategically evolve into a market-leading prescriptive analytics company. The recent launch of our AI Sentiment Suite, following its successful trial period, is just one example of the types of features we can deliver using generative AI to accelerate product development. Sentiment Suite which utilizes generative AI to capture the emotional sentiment of consumers as they engage with businesses, is just one of the expanding group of applications we are offering Fortune 500 brands and other customers over the next year.

I’d also like to highlight our momentum in building our sales pipeline. One recent example of progress is a recent win with one of the largest U.S. auto OEM channel partners. This is a multiyear agreement that expands our footprint into a vast ecosystem of OEM channel partners. The auto vertical is a massive opportunity for Marchex and along with this recent customer addition, we anticipate more coming wins as we expand our auto and overall vertical leadership. In addition, we are growing our sales pipeline in other verticals such as home services and health care. In home services, we recently signed a new multiyear expansion with one of our largest home services customers. We are also expanding relationships with some of our largest existing home service customers who have robust interest in our current and new AI features that form prescriptive analytics for our clients.

While there is still more to accomplish in building out our other vertical market teams to the comparable depth that we have in the auto vertical, we are being deliberate and sensible in the steps that we’re taking to invest in our business while being mindful of our profitability goals. That said, we expect to continue to build out our sales team and product portfolio to further penetrate each of our 4 core verticals this year. As mentioned on our last call, everything we are doing is focused on accelerating the business and enhancing Marchex’ overall growth and profitability. As we move through our infrastructure milestones, we will expand our investment in these key go-to-market strategies. We are positioning our customers to easily adopt and operationalize our prescriptive analytics, so we can continue to upsell at a faster rate.

At the same time, we anticipate that our operating and technology efficiencies should meaningfully expand our gross margins and increase free cash flow over time. With that, I’ll hand over the call to Holly to walk you through the financials.

Holly Aglio: Thank you, Edwin. For the first quarter of 2024, revenue was $11.6 million versus $12.2 million for the same quarter last year and down from fourth quarter 2023 revenue of $12.4 million. As expected, revenue in the first quarter was down somewhat as we saw continued pressure on some customer conversation volumes from the fourth quarter, such as our small business listings and solutions to resellers who face customer churn and consumer-related macroeconomic factors. Despite the headwinds in certain customer segments and with volume levels earlier in the first quarter, we continue to make progress and grow our dealer channel, signing new auto OEM customers to multiyear agreements and also expanding various key home services relationships.

This is a trend that we believe should benefit the back half of the year and beyond. Turning to the P&L for the first quarter. Excluding stock-based compensation, amortization of intangible assets and acquisition and disposition-related costs, total operating costs for the first quarter of 2024 were $12.3 million compared to $15.4 million for the first quarter of 2023. Service costs were $4.4 million for the first quarter. Over the course of this year, we expect our service costs as a percentage of revenue to decrease as a result of our current technology infrastructure initiatives. That should enable significant leverage with our gross margins as we see increased sales of our conversational intelligence product portfolio in 2024 and beyond.

Sales and marketing costs were approximately $2.8 million for the first quarter. This was down from the first quarter of 2023, in large part as a result of our realignment initiatives. Product development costs were $3.2 million for the first quarter as we continue to invest in our products and in leveraging AI to expand our conversational intelligence capabilities. Moving to profitability measures. Adjusted EBITDA was a loss of approximately $400,000 for the first quarter. GAAP net loss was $1.5 million for the first quarter or a loss of $0.03 per diluted share. This compares to a loss of $4.5 million or $0.11 per diluted share for the first quarter of 2023. Adjusted non-GAAP loss was $0.02 per share for the first quarter compared to a loss of $0.08 per share for the first quarter of 2023.

Additionally, we ended the first quarter with approximately $12 million in cash on hand. Now turning to our outlook for the second quarter of 2024. First, let’s discuss revenue. We anticipate Q2 revenue will increase to approximately $12 million or more. For adjusted EBITDA, in Q2, we anticipate adjusted EBITDA will improve and be better than first quarter 2024 results. Despite the noted lower volumes in certain areas to start the year, we believe that those factors should be more than offset by our new customer wins, such as the large new customer wins and expansions discussed by Edwin, as well as previously won relationships ramping over the course of the year. Our new customer pipeline looks attractive. In addition, we have seen strong initial interest in our AI product pilots and are working to convert those to full adoption.