MARCHEX INC

Previous wording

Marchex harnesses the power of AI and omnichannel conversational intelligence to provide actionable insights aligned with prescriptive vertical market data analytics, driving operational excellence and revenue acceleration. We enable executive, sales and marketing teams to optimize customer journey experiences across communications channels and align 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 many leading B2B2C vertical markets, including several of the world’s most innovative and successful brands.

Current wording

Marchex, Inc. 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.

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

In certain cases, we record revenue based on available and reported preliminary information from third parties. Collection on the related receivables may vary from reported information based upon third party refinement of the estimated and reported amounts owed that occurs subsequent to period ends.

Current wording

Collection on the related receivables may vary from reported information based upon third party refinement of the estimated and reported amounts owed that occurs subsequent to period ends.

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; bandwidth and software license fees; network operations; and payroll and related expenses of personnel, including stock based compensation.

Current wording

Our cost of revenue represents 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; bandwidth and software license fees; network operations; and payroll and related expenses of personnel, including stock based compensation.

Previous wording

Our research and development expenses include payroll and related expenses for personnel; costs of computer hardware and software; costs incurred in developing features and functionality of the services we offer; and stock-based compensation of related personnel.

Current wording

Product development costs consist primarily of expenses incurred in the research and development, and creation and enhancement, of our products and services. These costs primarily consist of payroll and related expenses for personnel; costs of computer hardware and software; costs incurred in developing features and functionality of the services we offer; and stock-based compensation of related personnel.

Previous wording

For the periods presented, substantially all of our product development expenses are research and development. Product development costs are expensed as incurred or capitalized into property and equipment in accordance U.S. GAAP.

Current wording

For the periods presented, substantially all of our product development expenses are research and development. Product development costs are expensed as incurred or capitalized into property and equipment in accordance with U.S. generally accepted accounting principles ("GAAP").

Previous wording

Amortization of intangible assets excluding goodwill relates to intangible assets identified in connection with our acquisitions. The intangible assets have been identified as customer relationships; acquired technology; non-competition agreements; trade names. These assets are amortized over useful lives ranging from 12 to 60 months.

Current wording

Amortization of intangible assets excluding goodwill relates to intangible assets identified in connection with our acquisitions. The intangible assets have been identified as customer relationships; acquired technology; non-competition agreements; trade names. These assets are fully amortized as of December 31, 2024.

Previous wording

The following table presents revenue and certain of our operating results as a percentage of revenue:

Current wording

The following table presents revenue and certain operating results as a percentage of revenue:

Previous wording

See Note 6: Stockholders' Equity (b). Stock Option Plan of the Notes to Consolidated Financial Statements, as well as our Critical Accounting Policies for additional information about stock-based compensation.

Current wording

See Note 6: Stockholders' Equity of the Notes to Consolidated Financial Statements, as well as our Critical Accounting Policies for additional information about stock-based compensation.

Previous wording

Revenue decreased $2.3 million, or 5%, from $52.2 million for the year ended December 31, 2022 to $49.9 million for the year ended December 31, 2023. This decrease was impacted primarily by lower conversational volumes in 2023 as compared to 2022.

Current wording

Revenue decreased $1.8 million, or 4%, to $48.1 million for the year ended December 31, 2024 from $49.9 million for the year ended December 31, 2023. This decrease was impacted primarily by lower conversational volumes in 2024 as compared to 2023, 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.

Previous wording

Sales and Marketing. Sales and marketing expenses decreased $2.1 million, or 18%, from $13.5 million for the year ended December 31, 2022 to $11.4 million for the year ended December 31, 2023. As a percentage of revenue, sales and marketing expenses were 26% and 23% for the year ended December 31, 2022 and 2023, respectively. The change from the prior year was primarily attributable to lower personnel costs of $1.9 million as we realigned and focused our go-to-market initiatives.

Current wording

Sales and Marketing. Sales and marketing expenses increased $0.7 million, or 6%, to $12.1 million for the year ended December 31, 2024 from $11.4 million for the year ended December 31, 2023. As a percentage of revenue, sales and marketing expenses were 25% and 23% for the years ended December 31, 2024 and 2023, respectively. The change from the prior year was primarily attributable to $1.0 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. This was partially offset by lower stock-based compensation costs of $0.3 million.

Previous wording

Product Development. Product development expenses increased $1.0 million, or 7%, from $14.4 million for the year ended December 31, 2022 to $15.4 million for the year ended December 31, 2023. As a percentage of revenue, product development expenses were 28% and 31% for the year ended December 31, 2022 and 2023, respectively. The net increase in dollars and as a percentage of revenue was primarily attributable to a decrease in support services fee recovery of $1.4 million, partially offset by lower personnel costs totaling $0.6 million.

Current wording

Product Development. Product development expenses decreased $3.0 million, or 19%, to $12.4 million for the year ended December 31, 2024 from $15.4 million for the year ended December 31, 2023. As a percentage of revenue, product development expenses were 26% and 31% for the years ended December 31, 2024 and 2023, respectively. The change from the prior year was primarily attributable to $2.9 million in lower personnel and contractor costs, as we reorganized and realigned our research and development teams.

Previous wording

General and Administrative. General and administrative expenses increased $0.4 million or 4%, from $9.8 million for the year ended December 31, 2022 to $10.2 million for the year ended December 31, 2023. As a percentage of revenue, general and administrative expenses were 19% and 20% for the year ended December 31, 2022 and 2023, respectively. The net increase in dollars was primarily attributable to a decrease in support services fee recovery of $0.8 million and an increase in our provision for bad debt of $0.3 million due to an increase in delinquent customer accounts in 2023, partially offset by lower personnel costs totaling $0.6 million.

Current wording

General and Administrative. General and administrative expenses was consistent at $10.2 million for both the years ended December 31, 2024 and 2023. As a percentage of revenue, general and administrative expenses were 21% and 20% for the years ended December 31, 2024 and 2023, respectively.

Previous wording

Amortization of Intangible Assets from Acquisitions. Intangible amortization expenses were $2.1 million and $2.0 million for the year ended December 31, 2022 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 Consolidated Statements of Operations based on the nature of the underlying intangible asset. We expect intangible asset amortization to decrease in the near term, as a result of certain assets reaching the end of their useful lives.

Current wording

Amortization of Intangible Assets from Acquisitions. Intangibles amortization expense was $0.6 million and $2.0 million for the years ended December 31, 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 cost of revenue or sales and marketing expense in the Company's Consolidated Statements of Operations based on the nature of the underlying intangible asset. The year over year decrease was driven by certain assets reaching the end of their useful life in the fourth quarter of the prior year. Intangible asset amortization from these acquisitions was completed in 2024 as a result of the remainder of these assets reaching the end of their useful lives.

Previous wording

Income Tax. Income tax expense for the years ended December 31, 2022 and 2023 was $184.0 thousand and $94.0 thousand, respectively, consisting primarily of state income taxes in 2023 and a combination of state and international tax expense and in 2022. 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, changes in tax rates applied to ending deferred asset and liability balances, non-deductible stock-based compensation related to incentive stock options recorded under the fair-value method, and other non-deductible amounts.

Current wording

Income Tax. Income tax expense was $0.4 million and $0.1 million for the years ended December 31, 2024 and 2023, respectively, consisting primarily of deferred tax expense and U.S. state income taxes. We incurred federal taxable losses in both 2024 and 2023. The effective tax rate differed from the expected tax rate of 21% in both years primarily due to a the 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.

Previous wording

At December 31, 2023, 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 $54.1 million against our net deferred tax assets ($54.3 million of deferred tax assets that are partially offset by $0.4 million in reversing deferred tax liabilities). This compares to a full valuation allowance of $51.8 million at December 31, 2022 ($52.9 million of deferred tax assets that are partially offset by $1.3 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. We have incurred federal taxable losses in 2022 and 2023.

Current wording

At both December 31, 2024 and 2023, 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 recorded a full valuation allowance.

Previous wording

Net Loss. Net loss increased $1.7 million, or 17%, from $8.2 million in 2022 compared to $9.9 million in 2023. The increase in net loss for the year ended December 31, 2023 was primarily attributable to the $2.3 million decrease in revenue discussed above, partially offset by a net decrease in total operating expenses of $0.8 million, which was driven by the decrease in sales and marketing expenses discussed above.

Current wording

Net Loss. Net loss decreased $5.0 million, or 51%, to $4.9 million for the year ended December 31, 2024 from $9.9 million for the year ended December 31, 2023. The decrease in net loss was primarily attributable to the $7.0 million decrease in operating expenses, driven by the decrease in cost of revenue and product development expenses discussed above, that was partially offset by the $1.8 million decrease in revenue also discussed above.

Previous wording

As of December 31, 2022 and 2023, we had cash and cash equivalents of $20.5 million and $14.6 million, respectively. As of December 31, 2023, we had current and non-current contractual obligations of $0.9 million, of which $0.2 million is for rent under our facility operating leases.

Current wording

As of December 31, 2024 and 2023, we had cash and cash equivalents of $12.8 million and $14.6 million, respectively. As of December 31, 2024, we had current and non-current contractual obligations of $11.4 million, of which $1.8 million is for payments due under our facilities and financed equipment leases.

Previous wording

Cash used in operating activities was $4.4 million during the year ended December 31, 2023. The cash used in operating activities was primarily a result of a net loss of $9.9 million, adjusted for non-cash items of $7.1 million, which primarily included depreciation and amortization and stock-based compensation partially offset by changes in working capital of $1.6 million. The change in working capital was driven primarily by a decrease in accrued expenses and other current liabilities as well as a decrease in accounts payable and deferred revenue partially offset by an increase in accounts receivable. Cash used in operating activities was $2.3 million during the year ended December 31, 2022. The cash used in operating activities was primarily a result of a net loss of $8.2 million, adjusted for non-cash items of $7.6 million, which primarily included depreciation and amortization and stock-based compensation, offset by changes in working capital of $1.7 million. The change in working capital was driven primarily by an increase in accounts receivable as well as a decrease in deferred revenue and accrued expenses partially offset by an increase in accounts payable.

Current wording

Cash used in operating activities was $1.1 million during the year ended December 31, 2024. The cash used in operating activities was primarily the result of a net loss of $4.9 million, adjusted for non-cash items of $4.5 million, which primarily included depreciation and amortization and stock-based compensation, and the rest attributed to changes in working capital of $0.7 million. The change in working capital was driven primarily by a decrease in accrued expenses and other current liabilities as well as a decrease in accounts payable, partially offset by an increase in accounts receivable and prepaid expenses and other assets. Cash used in operating activities was $4.4 million during the year ended December 31, 2023. The cash used in operating activities was primarily the result of a net loss of $9.9 million, adjusted for non-cash items of $7.1 million, which primarily included depreciation and amortization and stock-based compensation, and the rest attributed to changes in working capital of $1.6 million. The change in working capital was driven primarily by a decrease in accrued expenses and other current liabilities as well as a decrease in accounts payable, partially offset by an increase in prepaid expenses and other assets and accounts receivable.

Previous wording

Cash used in investing activities for the years ended December 31, 2023 and December 31, 2022, was $1.3 million and $2.9 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. We procured $0.8 million of additional server and other equipment under new financing lease agreements during the year ended December 31, 2023 with current borrowing of $0.8 million.

Current wording

Cash used in investing activities for the years ended December 31, 2024 and 2023, was $0.4 million and $1.3 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.

Previous wording

Cash used in financing activities was $0.2 million during the year ended December 31, 2023, which was primarily attributable to payments made related to equipment financing lease obligations. Cash used in financing activities was $1.5 million during the year ended December 31, 2022, which was primarily attributable to the exchange of cash consideration for partial settlement of a contractual obligation partially offset by proceeds from stock options exercises and the employee stock purchase program.

Current wording

Cash used in financing activities for the years ended December 31, 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 for both years.

Previous wording

Our Consolidated Financial Statements have been prepared using accounting principles generally accepted in the United States (U.S. GAAP). Our critical accounting policies are those that we believe have the most significant impact to reported amounts of assets, liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities and that require the most difficult, subjective, or complex judgments.

Current wording

Our Consolidated Financial Statements have been prepared in accordance with U.S. GAAP. Our critical accounting policies are those that we believe have the most significant impact to reported amounts of assets, liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities and that require the most difficult, subjective, or complex judgments.

Previous wording

While our significant accounting policies are more fully described in Note 1: Description of Business and Summary of Significant Accounting Policies and Practices, we believe the following topics reflect our critical accounting policies and our more significant judgment and estimates used in the preparation of our Consolidated Financial Statements.

Current wording

While our significant accounting policies are more fully described in Note 1: Description of Business and Summary of Significant Accounting Policies, we believe the following topics reflect our critical accounting policies and our more significant judgment and estimates used in the preparation of our Consolidated Financial Statements.

Previous wording

In certain cases, we record revenue based on available and reported preliminary information from third parties. Collection on the related receivables may vary from reported information based upon third-party refinement of the estimated and reported amounts owed that occurs subsequent to period ends.

Current wording

Collection on the related receivables may vary from reported information based upon third-party refinement of the estimated and reported amounts owed that occurs subsequent to period ends.

Previous wording

FASB ASC Topic 718, Compensation – Stock Compensation (ASC 718) requires the measurement and recognition of compensation for all stock-based awards made to employees, non-employees and directors including stock options, restricted stock issuances, and restricted stock units be based on estimated fair values. We account for forfeitures as they occur. We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the vesting or service period, as applicable, of the stock-based award using the straight-line method.

Current wording

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 718, Compensation – Stock Compensation, requires the measurement and recognition of compensation for all stock-based awards made to employees, non-employees and directors including stock options, restricted stock issuances, and restricted stock units be based on estimated fair values. We account for forfeitures as they occur. We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the vesting or service period, as applicable, of the stock-based award using the straight-line method.

Previous wording

Although the fair value of stock-based awards is determined in accordance with ASC 718, Compensation – Stock Compensation the assumptions used in calculating fair value of stock-based awards and the use of the Black-Scholes option pricing model is highly subjective, and other reasonable assumptions could provide differing results. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. See Note 6: Stockholders' Equity(b). Stock Option Plan in the Notes to Consolidated Financial Statements for additional information.

Current wording

Although the fair value of stock-based awards is determined in accordance with ASC 718, the assumptions used in calculating fair value of stock-based awards and the use of the Black-Scholes option pricing model is highly subjective, and other reasonable assumptions could provide differing results. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. See Note 6: Stockholders' Equity in the Notes to Consolidated Financial Statements for additional information.

Previous wording

We apply the provisions of the FASB ASC Topic 350, “Intangibles - Goodwill and Other” (ASC 350) whereby assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead test for impairment at least annually. According to FASB ASC 360, “Property Plant and Equipment” (ASC 360), intangible assets with definite useful lives should be amortized over the respective estimated lives to their estimated residual values and reviewed for impairment. Intangible assets are "grouped" and evaluated for impairment at the lowest level of identifiable cash flows.

Current wording

Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed in business combinations accounted for under the purchase method. We apply the provisions of the FASB ASC 350, Intangibles - Goodwill and Other, whereby assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead test for impairment at least annually.

Previous wording

Goodwill is tested annually on November 30 for impairment. Goodwill and intangible assets are also tested more frequently if events and circumstances indicate that the assets might be impaired. The provisions of the accounting standard for goodwill and other intangible assets allow us to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Events and circumstances considered in determining whether the carrying value of goodwill and intangible assets may not be recoverable include but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; and significant changes in competition and market dynamics. These estimates are inherently uncertain and can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, a loss of a significant customer, changes in competition or changes in the share price of common stock and market capitalization. If our stock price were to trade below book value per share for an extended period of time and/or we experience adverse effects of a continued downward trend in the overall economic environment, changes in the business itself, including changes in projected earnings and cash flows, we may have to recognize an impairment of all or some portion of our goodwill and intangible assets. An impairment loss is recognized to the extent that the carrying amount exceeds the asset or asset group’s fair value. If the fair value is lower than the carrying value, a material impairment charge may be reported in our financial results. We exercise judgment in the assessment of the related useful lives of intangible assets, the fair values, and the recoverability. In certain instances, the fair value is determined in part based on cash flow forecasts and discount rate estimates. We cannot accurately predict the amount and timing of any impairment of goodwill or intangible assets. Should the value of goodwill or intangible assets become impaired, we would record the appropriate charge. Any future impairment charges could have a material adverse effect on our financial condition and results of operations.

Current wording

Goodwill is tested annually on November 30 for impairment or more frequently if events and circumstances indicate that it might be impaired. The provisions of the accounting standard for goodwill allow us to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Events and circumstances considered in determining whether the carrying value of goodwill may not be recoverable include but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; and significant changes in competition and market dynamics. These estimates are inherently uncertain and can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, a loss of a significant customer, changes in competition or changes in the share price of common stock and market capitalization. If our stock price were to trade below book value per share for an extended period of time and/or we experience adverse effects of a continued downward trend in the overall economic environment, changes in the business itself, including changes in projected earnings and cash flows, we may have to recognize an impairment of all or some portion of our goodwill assets. An impairment loss is recognized to the extent that the carrying amount exceeds the asset or asset group’s fair value. If the fair value is lower than the carrying value, a material impairment charge may be reported in our financial results. In certain instances, the fair value is determined in part based on cash flow forecasts and discount rate estimates. We cannot accurately predict the amount and timing of any impairment of goodwill. Should the value of goodwill assets become impaired, we would record the appropriate charge. Any future impairment charges could have a material adverse effect on our financial condition and results of operations.