Marchex Q1 2024 Earnings Report

Marchex EPS Results

• Actual EPS: -$0.03
• Consensus EPS: -$0.03
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Marchex Revenue Results

• Actual Revenue: $11.57 million
• Expected Revenue: $11.95 million
• Beat/Miss: Missed by -$380.00 thousand
• YoY Revenue Growth: N/A

Marchex Announcement Details

• Quarter: Q1 2024
• Date: 5/7/2024
• Time: N/A
• Conference Call Date: Tuesday, May 7, 2024
• Conference Call Time: 5:00PM ET

Marchex (NASDAQ:MCHX), a conversation intelligence company, provides conversational analytics and related solutions in the United States, Canada, and internationally. Its products include Marketing Edge that identifies which campaigns and channels are driving inbound conversations, evaluates what happens during those conversations, and closes the sales loop by connecting converted sales to marketing driven leads; Sonar Business Text Messaging, an artificial intelligence (AI) empowered intelligent workflow enabled mobile messaging solution that enables operations, sales, and marketing teams to communicate personally with field staff, prospects, and customers; Marchex Platform Services, a robust API-based conversation intelligence product that allows executives, sales, customer engagement, and marketing teams to apply Marchex AI to most any calls, regardless of communication platform, in order to identify actionable insights from conversations with their customers; Spotlight, an AI conversation analytics product for multi-location businesses; and Engage, a solution that provides locations with applications to enhance their overall performance. The company was incorporated in 2003 and is headquartered in Seattle, Washington.

Marchex Q1 2024 Earnings Call Transcript

[Operator]

Hello all, and welcome to the Marchex First Quarter 2024 Earnings Call. My name is Lydia, and I'll be your operator today. I'll now hand you over to Trevor Coldwell, Senior Vice President of Investor Relations and Strategic Initiatives to begin.

[Speaker 1]

Great. Thank you, Lydia. Good afternoon, everyone, and welcome to Marchex's business update and Q1 2024 conference call. Joining us today are Edwin Miller, our CEO and Holli 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.

[Speaker 1]

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.

[Speaker 2]

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.

[Speaker 2]

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.

[Speaker 2]

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. We are currently on target to complete our primary WinStack initiatives in the Q3.

[Speaker 2]

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 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. One Stack is an ambitious project and we are on track to meet our goals regarding it.

[Speaker 2]

There is still work to be done, but I am proud of the team and their deep commitment to accomplishing One Stack and our other key projects. Initiatives like One Stack 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.

[Speaker 2]

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.

[Speaker 2]

In addition, we are growing our sales pipeline in other verticals such as home services and healthcare. In home services, we recently signed a new multiyear expansion with 1 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, through 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.

[Speaker 2]

As mentioned on our last call, everything we are doing is focused on accelerating the business and enhancing Marchex's 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 up sell 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 it the hand over the call to Holli to walk you through the financials.

[Speaker 3]

Thank you, Edwin. For the Q1 of 2024, revenue was $11,600,000 versus $12,200,000 for the same quarter last year and down from Q4 2023 revenue of $12,400,000 As expected, revenue in the Q1 was down somewhat as we saw continued pressure on some customer conversation volumes from the Q4, such as our small business listing and solutions resellers who face customer churn and consumer related macroeconomic factors. Despite the headwinds in certain customer segments and with volume levels earlier in the Q1, 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 and L for the Q1.

[Speaker 3]

Excluding stock based compensation, amortization of intangible assets and acquisition and disposition related costs, total operating costs for the Q1 of 2024 were $12,300,000 compared to $15,400,000 for the Q1 of 2023. Service costs were $4,400,000 for the Q1. 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 $2,800,000 for the Q1.

[Speaker 3]

This was down from the Q1 of 2023 in large part as a result of our realignment initiatives. Product development costs were $3,200,000 for the Q1 as we continue to invest in our products and in leveraging conversational intelligence capabilities. Moving to profitability measures. Adjusted EBITDA was a loss of approximately $400,000

[Speaker 2]

for the Q1.

[Speaker 3]

GAAP net loss was $1,500,000 for the Q1 or a loss of $0.03 per diluted share. This compares to a loss of $4,500,000 or $0.11 per diluted share for the Q1 of 2023. Adjusted non GAAP loss was $0.02 per share for the Q1 compared to a loss of $0.08 per share for the Q1 of 2023. Additionally, we ended the Q1 with approximately $12,000,000 in cash on hand. Now turning to our outlook for the Q2 of 2024.

[Speaker 3]

First, let's discuss revenue. We anticipate Q2 revenue will increase to approximately $12,000,000 or more. For adjusted EBITDA, in Q2, we anticipate adjusted EBITDA will improve and be better than Q1 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.

[Speaker 3]

In addition, we have seen strong initial interest in our AI product pilots and are working to convert those to full adoption. We anticipate more product announcements as we move through the year. Additionally, we expect to win more new automotive customers and add meaningfully to our dealer channel as well as win more new relationships in home services and other verticals. The combination of these factors also reinforces our belief that we can and will grow sequential revenue as we move forward in 2024 as well as see ongoing bottom line progress. Furthermore, as our One Stack initiatives continue to advance, combined with other technology cost savings initiatives, we believe we are well positioned to enable greater overall operating leverage in the business.

[Speaker 3]

As our growth initiatives launch and gain traction, we believe we are in a strong position to see improvements and profitability measures into the future. Thank you. And with that, I'd like to pass the call back to Edwin for closing remarks.

[Speaker 2]

Thank you, Holly. As we work to define the future of conversational AI in our vertical markets, this is an exciting time to be at Marchex. I and the team have met with many of our customers so far this year and we'll be spending more time with them in the coming months collaborating around their AI and data analytics roadmaps. We have industry leading direct, first party vertical market data that we're able to leverage in new and innovative ways to create unique value for our customers. I'm excited to see the demand for our product portfolio and innovative AI applications, and there will be more to come during the year.

[Speaker 2]

I continue to believe there is a significant opportunity to grow meaningful in the vertical markets with our existing base of Fortune 500 and other customers. We are focused on building our leadership position in the automotive and auto services vertical markets as well as scaling our other core verticals and ultimately translating all this into a 9 figure business. There's more to accomplish, but we are moving the ball forward every day. This year, you will see us complete significant infrastructure milestones and launch go to market initiatives that we anticipate will enhance our growth and accelerate our business in multiple ways. I'd like to thank our employees for their hard work and continued efforts to help us achieve our vision.

[Speaker 2]

With that said, operator, let's move to questions.

[Operator]

Thank We have a question from Darren Aftahi of Roth MKM.

[Speaker 2]

Can you hear me? Yes, we can Darren.

[Speaker 4]

Great. Good to speak with you again. 2 if I may. Just first, on the overall business, there's some puts and takes. You always have some headwinds from call volumes you've kind of called out near term.

[Speaker 4]

If you had to guess, when do you think some of these re ups and new wins that you've put on the tape start to kind of mask those tailwinds for good? Or is this a function of sort of one step forward, one step back until some of these new products are launched? That's question 1. And then on the commentary you guys made about your AI products and the pilots, I'm curious what steps need to occur in order for those pilots to become paying customers? Thanks.

[Speaker 2]

Thanks for the question. Let me start with like on the first question re ups new wins, the pipeline is growing, which is fun to see. The sales team has really aligned around the go to market motion. The product orientation and our ability to articulate the value of the data and analytics for our clients is really has a good uptake. So the funnel is growing.

[Speaker 2]

When it masks the kind of movement of some of the tailwinds or wind in our face. I think you'll see in the second half this year what we're saying is it will be sequential growth throughout the year. One stack will change a lot for us, Darren, in that one cloud. And I did read your report. And you're right.

[Speaker 2]

You're spot on. The the fact that having everything with a single sign on with a single interface with the ability for our clients to see what they're using and not using also should give us uptake from clients. That's an easier sales process, if that makes sense, because they're going to be able to see what it is they're not consuming from our platform, that's their data, which is really cool. I think that the steps to get there for us in being successful is we've got to complete one stack, which we're working toward. We're doing pretty well.

[Speaker 2]

I think we're probably approaching that inflection point as we move through 2024. And I think the wins will we'll see wins throughout the year will drive results. So I would my expectation is I think it's a multi tiered puzzle we're solving, which is fun and it's good and we're doing a great job, team's doing a great job is one stack go to market motion aligned with that alignment of product marketing and product management. You'll see some new stuff on the web coming from us and that single sign on is going to make it much simpler for people to consume, all of our signals and all of our products. And we're marching really well together toward that.

[Speaker 2]

Made good progress in the past month. So I'm happy about what the team is doing.

[Operator]

Thank you. We have no further questions. So I'll turn the call back over to the management team for any closing remarks.

[Speaker 2]

Okay. Well, Darren, thank you for the question. And I guess we'll catch up here shortly, but good to hear your voice. And thank you for all of our investors. And thank you again for all of our employees doing the lift and speak again soon.

[Speaker 2]

Thank you.

[Speaker 3]

Thank you, everyone.

[Operator]

This concludes today's call. Thank you for joining. You may now disconnect your line.