MARCHEX INC
For the period ended Sep 30, 2024. Filed Nov 1, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 1, 2024
MCHX$1.32+3.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-13.
0000950170-24-096238
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-01.
0000950170-24-120081
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 34 previous paragraphs and 68 current paragraphs.
20 unchanged; 4 reworded; 44 added; 9 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 0 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (44)
Current report
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Current report
Results of Operations
Current report
The following tables present revenue and certain of our operating results as a percentage of revenue:
Current report
Stock-based compensation expense was included in the operating expense categories as follows:
Current report
See Note 6. Stockholders' Equity of the Notes to the Condensed Consolidated Financial Statements, as well as our Critical Accounting Policies for additional information about stock-based compensation.
Current report
Revenue
Current report
Revenue decreased $0.2 million, or 2%, to $12.6 million for the three months ended September 30, 2024 from $12.8 million for the three months ended September 30, 2023. Revenue decreased $1.3 million, or 3%, to $36.2 million for the nine months ended September 30, 2024 from $37.5 million for the nine months ended September 30, 2023. The three and nine month comparative periods were impacted from lower call volumes in the 2024 period as compared to the 2023 period, and certain non-recurring non-core analytics revenue in 2023. The lower volumes primarily came from several of our small business listing and solution providers that mostly sell marketing services to local businesses.
Current report
Expenses
Current report
Service Costs. Service costs decreased $0.9 million, or 18%, to $4.2 million for the three months ended September 30, 2024 from $5.1 million for the three months ended September 30, 2023. As a percentage of revenue, service costs were 33% and 40% for the three months ended September 30, 2024 and 2023, respectively. The change from the prior year was primarily attributable to $0.7 million lower conversational data processing and telecommunication costs due to a combination of lower conversational volumes, benefits from leveraging AI technology, and efficient vendor cost management. In addition, personnel costs were $0.6 million lower as we reorganized and realigned our technology teams. These cost savings were offset by a $0.5 million increase in costs from cloud service providers as the Company continues to migrate its call stack environment to the cloud as part of its OneStack initiative, which is the Company's framework for referring to its delivered and planned future advancements in production technology infrastructure and associated cloud initiatives that support the Company's product innovation and go to market approach.
Current report
Service costs decreased $3.1 million, or 19%, to $12.8 million for the nine months ended September 30, 2024 from $15.9 million for the nine months ended September 30, 2023. As a percentage of revenue, service costs were 35% and 42% for the nine months ended September 30, 2024 and 2023, respectively. The change from the prior year was primarily due to $1.6 million lower conversational data processing and telecommunication costs due to a combination of lower conversational volumes, benefits from leveraging AI technology, and efficient vendor cost management. In addition, personnel costs were $1.5 million lower as we reorganized and realigned our technology teams.
Current report
We expect in the near term that service costs in absolute dollars will be similar to or modestly higher in relation to the most recent quarter. In the intermediate to longer term, we believe that the OneStack initiative and acceleration of our vertical market growth strategy may provide an opportunity for potential gross margin improvement. Further, there may be a positive impact on service costs as a percentage of revenue in the event we generate contribution from new launches of analytics products and sales engagement solutions.
Current report
Sales and Marketing. Sales and marketing expenses increased $0.9 million, or 39%, to $3.2 million for the three months ended September 30, 2024 from $2.3 million for the three months ended September 30, 2023. As a percentage of revenue, sales and marketing expenses were 25% and 18% for the three months ended September 30, 2024 and 2023, respectively. The change from the prior year is primarily attributable to $0.6 million in higher personnel costs, primarily due to investments made in the sales and marketing function to increase the sales workforce and prioritize go-to-market initiatives.
Current report
Sales and marketing expenses decreased $0.1 million, or 1%, to $8.8 million for the nine months ended September 30, 2024 from $8.9 million for the nine months ended September 30, 2023. As a percentage of revenue, sales and marketing expenses were 24% and 24% for the nine months ended September 30, 2024 and 2023, respectively. The change from the prior year was primarily attributable to an increase in amortization costs of contract assets of $0.3 million offset by lower costs for personnel and contractors engaged in marketing and sales functions of $0.1 million and lower stock-based compensation costs of $0.3 million.
Current report
We expect some volatility in sales and marketing expenses based on the timing of marketing and customer engagement initiatives, but in the near term, we expect these costs in absolute dollars to be modestly higher than the most recent quarter as we increase marketing activities and personnel supporting our sales and marketing and related growth initiatives. As we increase our marketing activities, this could correspondingly also cause an increase in sales and marketing expenses as a percentage of revenue. In the intermediate to longer term, we expect sales and marketing expenses to increase modestly as revenues increase.
Current report
Product Development. Product development expenses decreased $0.8 million, or 21%, to $3.1 million for the three months ended September 30, 2024 from $3.9 million for the three months ended September 30, 2023. As a percentage of revenue, product development expenses were 25% and 31% for the three months ended September 30, 2024 and 2023, respectively. The change from the prior year was primarily attributable to $0.7 million in lower personnel and contractor costs, as we reorganized and realigned our research and development teams.
Current report
Product development expenses decreased $2.6 million, or 21%, to $9.6 million for the nine months ended September 30, 2024 from $12.2 million for the nine months ended September 30, 2023. As a percentage of revenue, product development expenses were 27% and 33% for the nine months ended September 30, 2024 and 2023, respectively. The change from the prior year was primarily attributable to $2.6 million in lower personnel and contractor costs, as we reorganized and realigned our research and development teams.
Current report
In the near term, we expect that product development expenses, in absolute dollars and as a percentage of revenue, will be similar to the most recent quarter, as we continue to invest in our products and in building AI to expand our conversational intelligence capabilities. In the longer term, we expect to increase investment in AI technology to enhance our service offerings.
Current report
General and Administrative. General and administrative expenses increased $0.5 million, or 23%, to $2.7 million for the three months ended September 30, 2024 from $2.2 million for the three months ended September 30, 2023. As a percentage of revenue, general and administrative expenses were 21% and 18% for the three months ended September 30, 2024 and 2023, respectively. The increase in costs largely pertains to investments made in technology of $0.1 million and increased personnel costs of $0.3 million.
Current report
General and administrative expenses increased $0.1 million, or 1%, to $7.5 million for the nine months ended September 30, 2024 from $7.4 million for the nine months ended September 30, 2023. As a percentage of revenue, general and administrative expenses were 21% and 20% for the nine months ended September 30, 2024 and 2023, respectively. The change from the prior year was primarily attributable to investments in technology of $0.1 million and increased personnel costs of $0.4 million, offset by a $0.3 million non-recurring payment made to terminate a software agreement in the first quarter of 2023.
Current report
We expect some volatility in general and administrative expenses, primarily related to professional fees and insurance, based on the timing of regulatory updates in connection with our being a public company. We also expect fluctuations in our general and administrative expenses related to stock-based compensation, as the recognition of stock-based compensation expense is impacted by market conditions relating to our stock price.
Current report
In the near term, we expect our general and administrative expenses to be similar to or modestly lower than the most recent quarter, as we continue to focus on cost management and enhancing overall operational efficiency. In the intermediate to longer term, to the extent that we undertake internal technology improvement initiatives or expand our operations and issue additional stock-based compensation, general and administrative expenses, in absolute dollars and as a percentage of revenue, could increase.
Current report
Amortization of Intangible Assets from Acquisitions. Intangible amortization expense was $0.2 million and $0.5 million for the three months ended September 30, 2024 and 2023, respectively. Intangible amortization expense was $0.5 million and $1.6 million for the nine months ended September 30, 2024 and 2023, respectively. This expense was associated with amortization of intangible assets acquired from business acquisitions made in 2018 and 2019, and is further categorized as service costs or sales and marketing expense in the Company's Condensed Consolidated Statements of Operations based on the nature of the underlying intangible asset. The intangible asset amortization is expected to remain consistent through the fourth quarter of 2024, at which point all intangible assets will reach the end of their useful lives and be fully amortized.
Current report
Income Tax. Income tax expense was $25.0 thousand and $9.0 thousand for the three months ended September 30, 2024 and 2023, respectively. Income tax expense was $87.0 thousand and $53.0 thousand for the nine months ended September 30, 2024 and 2023, respectively. The income tax expense consists primarily of U.S. state income tax expense for all comparative periods. The effective tax rate differed from the expected tax rate of 21% in both years primarily due to a full valuation allowance and, to a lesser extent, state income taxes, foreign branch income and rate differential, non-deductible stock-based compensation related to incentive stock options recorded under the fair-value method, and other non-deductible amounts.
Current report
At September 30, 2024, based on all the available evidence, both positive and negative, we determined that it is more likely than not that our deferred tax assets will not be realized and accordingly, we have recorded a full valuation allowance of $53.4 million against our net deferred tax assets ($53.6 million of deferred tax assets that are partially offset by $0.3 million in reversing deferred tax liabilities). This compares to a full valuation allowance of $54.1 million at December 31, 2023 ($54.3 million of deferred tax assets that are partially offset by $0.4 million in reversing deferred tax liabilities). In assessing the realizability of deferred tax assets, based on all the available evidence, both positive and negative, we considered whether it is more likely than not that some or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. We considered the future reversal of deferred tax liabilities, carryback potential, projected taxable income, and tax planning strategies as well as the Company’s history of taxable income or losses in the relevant jurisdictions in making this assessment.
Current report
Net Loss. Net loss was $3.0 million for the nine months ended September 30, 2024, as compared to a net loss of $8.8 million for the nine months ended September 30, 2023. The decrease in net loss was primarily attributable to the $7.0 million decrease in total operating expenses, which was driven by the $3.1 million decrease in service costs, the $2.6 million decrease in product development expenses, and $1.1 million decrease in amortization of intangible assets from acquisitions discussed above, partially offset by the $1.3 million decrease in revenue also discussed above.
Current report
Liquidity and Capital Resources
Current report
As of September 30, 2024 and December 31, 2023, we had cash and cash equivalents of $12.1 million and $14.6 million, respectively. As of September 30, 2024, we had current and non-current contractual obligations of $14.4 million, of which $2.0 million is for payments due under our facilities and financed equipment leases.
Current report
Cash used in operating activities was $2.0 million during the nine months ended September 30, 2024. The cash used in operating activities was primarily a result of a net loss of $3.0 million, adjusted for an increase in cash due to non-cash items of $3.0 million, which primarily included depreciation and amortization and stock-based compensation, offset by a decrease in cash due to changes in working capital of $2.0 million. The change in working capital was driven primarily by a decrease in accounts payable, accrued expenses and other current liabilities and deferred revenue and deposits and an increase in accounts receivable, net. Cash used in operating activities was $6.1 million for the nine months ended September 30, 2023. The cash used in operating activities was primarily a result of a net loss of $8.8 million adjusted for an increase in cash due to non-cash items of $5.4 million, which primarily included depreciation and amortization and stock-based compensation, and a decrease in cash due to changes in working capital of $2.8 million, which primarily included a decrease in accounts payable, accrued expenses and other current liabilities, and deferred revenue and deposits, and an increase in prepaid expenses, other current assets and other assets.
Current report
Cash used in operating activities for the nine months ended September 30, 2024, included costs related to certain reorganization activities and our OneStack initiative. We believe that those initiatives should benefit us through lower operating expenses in the intermediate to longer term. To the extent we are unable to effectively execute these operational initiatives or our revenue growth initiatives, our revenues could be lower, and our costs could be consistent with or higher, than current levels, which would have an adverse impact on our future operating cash flows, liquidity, and profitability.
Current report
Cash used in investing activities for the nine months ended September 30, 2024 and 2023, was $0.3 million and $0.5 million, respectively, and was primarily attributable to cash paid for purchases of property and equipment for our technology infrastructure platform as well as capitalized software development costs in both years.
Current report
In the near term, we expect property and equipment purchases and capitalized software development costs to be similar to or modestly higher compared to our most recent period, as we invest in equipment for our personnel and other systems enhancements. In the intermediate to longer term, we expect our capitalized expenditures to increase, as we accelerate product innovation with more AI-powered features and capabilities. Further, in the longer term, we expect any increase in our operations to have a corresponding increase in capital expenditures required to support our systems and personnel.
Current report
Cash used in financing activities for the nine months ended September 30, 2024 and 2023 was $0.3 million and $0.2 million, respectively, and was primarily attributable to payments made related to equipment financing lease obligations in both periods.
Current report
Based on our operating plans we believe that our resources will be sufficient to fund our operations, including any investments in strategic initiatives, for at least twelve months, however macroeconomic factors could influence our operating plans and resources significantly. Additional equity and debt financing may be needed to support our acquisition strategy, our long-term obligations, and our Company’s needs. There can be no assurance that, if we needed additional funds, financing arrangements would be available in amounts or on terms acceptable to us, if at all. Failure to generate sufficient revenue or raise additional capital could have a material adverse effect on our ability to continue as a going concern and to achieve our intended business objectives.
Current report
Critical Accounting Policies
Current report
Our Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources.
Current report
There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2024, as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023, as amended, filed with the SEC on April 1, 2024.
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Recent Accounting Pronouncements Not Yet Effective
Current report
For discussion regarding recent accounting pronouncements not yet effective, see Note 1. Description of Business and Basis of Presentationof the Notes to our Condensed Consolidated Financial Statements.
Current report
Web site
Current report
Our web site, www.marchex.com, provides access, without charge, to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such materials are electronically filed with the Securities and Exchange Commission. To view these filings, please go to our web site and click on “Investor Relations” and then click on “SEC Filings.” Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings, and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about us, our services, and other matters, and for complying with our disclosure obligations under Regulation FD:
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Previous report
Recent Developments
Previous report
New Customer Traction and Existing Customer Expansion
Previous report
During the quarter, Marchex made progress in adding relationships in the Auto and Auto Services verticals, as well as in expanding existing relationships in the Home Services vertical. The Company continues to make progress expanding its pipeline of opportunities across multiple verticals.
Previous report
Product Innovation
Previous report
Marchex recently announced that it has won two industry awards: The AI Breakthrough Award for "Best Text Generative AI Solution" and the APPEALIE SaaS Customer Success award. The Company continues to be recognized for its innovation with its Call Summaries and Sentiment Suite offering and its commitment to customer success.
Previous report
Business Update
Previous report
Our revenue decreased $1.1 million, or 4%, from $24.7 million for the six months ended June 30, 2023 to $23.6 million for the six months ended June 30, 2024. Revenue decreased $0.4 million, or 3%, from $12.5 million for the three months ended June 30, 2023 to $12.1 million for the three months ended June 30, 2024. The decreases are attributable primarily to certain non-recurring non-core analytics revenue in 2023, as well as lower conversational volumes in the 2024 periods compared to the 2023 periods, primarily with 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 to start 2024, we continue to make progress and grow our dealer channel, signing new Auto OEM customers to multi-year agreements and also expanding various key Home Services relationships. This trend, along with expansion of our vertical go-to-market initiatives which is expected to result in new customer relationships across our verticals, continued innovation in our AI capabilities and product offerings, and completion of the necessary infrastructure to accelerate product cross selling to existing and new customers, may provide an opportunity for potential revenue growth.
Previous report
We believe our operating expenses have prospective opportunity for further efficiencies as we continue to make advancements in our technology infrastructure and cloud initiatives, to "OneStack". OneStack enables our technologies and clients to be more easily managed in a less costly operating environment. It provides a streamlined product innovation and go to market approach, allowing our vertical market clients to potentially consume all our signals, data analytics and applied AI and also provides speed and scale for client onboarding while streamlining support and account management.
Previous report
For additional information on the effects of our technology environment restructuring efforts on our business and operations, refer to “Results of Operations” within this discussion and analysis below.
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Previous wording
Marchex harnesses the power of AI and conversational intelligence to provide actionable insights aligned with prescriptive vertical market data analytics, driving operational excellence and revenue acceleration. Marchex enables executive, sales, and marketing teams to optimize customer journey experiences across communications channels. Through our prescriptive analytics solutions, we enable the alignment of enterprise strategy, empowering businesses to increase revenue through informed decision-making and strategic execution. Marchex provides conversational intelligence AI-powered solutions for market-leading companies in leading B2B2C vertical markets, including several of the world’s most innovative and successful brands.
Current wording
Marchex harnesses the power of artificial intelligence ("AI") and conversational intelligence to provide actionable insights aligned with prescriptive vertical market data analytics, driving operational excellence and revenue acceleration. Marchex enables executive, sales, and marketing teams to optimize customer journey experiences across communications channels. Through our prescriptive analytics solutions, we enable the alignment of enterprise strategy, empowering businesses to increase revenue through informed decision-making and strategic execution. Marchex provides conversational intelligence AI-powered solutions for market-leading companies in leading B2B2C vertical markets, including several of the world’s most innovative and successful brands.
Previous wording
Our mission is to create intelligence around all types of business conversations. We desire to be a leader in vertical market conversational intelligence leveraging generative artificial intelligence and data analytics. We seek to empower performance improvements for our customers by giving them actionable, real-time insights into the conversations they are having with their customers across phone, text and other communication channels. We have assembled a set of applications that incorporate artificial intelligence (“AI”) functionality for enterprises that depend on phone calls, texts and other communication channels to help convert prospects into customers, enabling compelling customer experiences during the sales process and helping maximize returns. Our proprietary data and conversational insights help enable brands to personalize customer interactions in order to accelerate sales and capture more opportunities to grow their business. We serve large enterprises with a distributed footprint that interact with their customers across multiple communication paths.
Current wording
Our mission is to create intelligence around all types of business conversations. We desire to be a leader in vertical market conversational intelligence leveraging generative AI and data analytics. We seek to empower performance improvements for our customers by giving them actionable, real-time insights into the conversations they are having with their customers across phone, text and other communication channels. We have assembled a set of applications that incorporate AI functionality for enterprises that depend on phone calls, texts and other communication channels to help convert prospects into customers, enabling compelling customer experiences during the sales process and helping maximize returns. Our proprietary data and conversational insights help enable brands to personalize customer interactions in order to accelerate sales and capture more opportunities to grow their business. We serve large enterprises with a distributed footprint that interact with their customers across multiple communication paths.
Previous wording
We have offices in Seattle, Washington; and Wichita, Kansas.
Current wording
We were incorporated in Delaware on January 17, 2003. We have offices in Seattle, Washington and Wichita, Kansas.
Previous wording
Our service costs represent the cost of providing our services to our customers. These costs primarily consist of telecommunication costs, including the use of phone numbers relating to our services; colocation service charges of our network equipment and related network operations costs; bandwidth and software license fees; conversational data processing costs; and payroll and related expenses of personnel, including stock-based compensation.
Current wording
Our service costs represent the cost of providing our services to our customers. These costs primarily consist of telecommunication costs, including the use of phone numbers relating to our services; colocation service charges of our network equipment and related network operations costs; cloud compute and storage costs related to our cloud-based production environments; bandwidth and software license fees; conversational data processing costs; and payroll and related expenses of personnel, including stock-based compensation.
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Previous report — wording carried elsewhere
We were incorporated in Delaware on January 17, 2003.