MARCHEX INC

Previous wording

The following discussion should be read in conjunction with the audited Consolidated Financial Statements and the notes to those statements which appear elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements. Please see page 1 on this Annual Report on Form 10-K “Forward-Looking Statements” and Item 1A of this Annual Report on Form 10-K under the caption “Risk Factors” for a discussion of the risks, uncertainties and assumptions associated with these statements.

Current wording

The following discussion should be read in conjunction with the audited Consolidated Financial Statements and the notes to those statements which appear elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements. Please see page 1 on this Form 10-K “Forward-Looking Statements” and Item 1A of this Form 10-K under the caption “Risk Factors” for a discussion of the risks, uncertainties and assumptions associated with these statements.

Previous 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.

Current wording

Marchex harnesses the power of AI and conversation intelligence to provide actionable insights derived from prescriptive vertical market data analytics. Marchex enables organizations across business functions to optimize customer acquisitions and experiences, transforming conversations into meaningful business outcomes. Marchex provides AI-powered conversation intelligence solutions for market-leading companies in leading B2B2C vertical markets, including many of the world’s most innovative and successful brands.

Previous wording

We were incorporated in Delaware on January 17, 2003. We have offices in Seattle, Washington and Wichita, Kansas.

Current wording

We were incorporated in Delaware on January 17, 2003. We have office space in Seattle, WA.

Previous 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.

Current wording

Our cost of revenue represents the cost of providing our services to our customers. These costs primarily consist of cloud computing and hosting costs, 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

Sales and marketing expenses consist primarily of payroll and related expenses for personnel engaged in marketing and sales functions; advertising and promotional expenditures including online and outside marketing activities; cost of systems used to sell to and serve customers; and stock-based compensation of related personnel.

Current wording

Sales and marketing expenses consist primarily of payroll and related expenses for personnel engaged in marketing and sales functions; advertising and promotional expenditures including online and outside marketing activities; and stock-based compensation of related personnel.

Previous 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.

Current wording

Product development costs consist primarily of expenses incurred in the research and development ("R&D") of our products and services. These costs primarily consist of payroll and related expenses for personnel; costs of computer hardware and software; costs incurred for 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 with U.S. generally accepted accounting principles ("GAAP").

Current wording

For the periods presented, substantially all of our product development expenses are R&D and are expensed as incurred or capitalized into property and equipment in accordance with the U.S. generally accepted accounting principles ("GAAP") once requirements have been met. See Note 1: Description of Business and Summary of Significant Accounting Policies for more information on software development capitalization.

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 fully amortized as of December 31, 2024.

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; and trade names. These assets were fully amortized as of December 31, 2024.

Previous 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.

Current wording

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

Previous 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.

Current wording

Sales and Marketing. Sales and marketing expenses increased $0.4 million, or 3%, to $12.5 million for the year ended December 31, 2025 from $12.1 million for the year ended December 31, 2024. As a percentage of revenue, sales and marketing expenses were 28% and 25% for the years ended December 31, 2025 and 2024, respectively. The change from prior year was primarily attributable to an increase in contract asset amortization charges of $0.6 million.

Previous 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.

Current wording

Product Development. Product development expenses decreased $2.7 million, or 22%, to $9.7 million for the year ended December 31, 2025 from $12.4 million for the year ended December 31, 2024. As a percentage of revenue, product development expenses were 21% and 26% for the years ended December 31, 2025 and 2024, respectively. The change from the prior year was primarily attributable to $2.0 million in lower personnel and outside labor costs due to the reorganization and realignment of our personnel in 2025 and the capitalization of software development costs in 2025. Additionally, there were approximately $0.5 million less in cloud infrastructure costs in 2025 due to the completion of the certain development activities in 2024 which resulted in those costs being incorporated in cost of revenue upon completion of the development activities.

Previous 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.

Current wording

Income Tax. Income tax expense was $0.1 million and $0.4 million for the years ended December 31, 2025 and 2024, respectively, consisting primarily of deferred tax expense and U.S. state income taxes. We incurred federal taxable losses in both 2025 and 2024. The effective tax rate differed from the expected tax rate of 21% in both years primarily due to the valuation allowance, non-deductible stock-based compensation related to restricted stock units and incentive stock options recorded under the fair-value method, and other non-deductible amounts.

Previous 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.

Current wording

As of December 31, 2025 and 2024, we had cash and cash equivalents of $9.9 million and $12.8 million, respectively. As of December 31, 2025, we had current and non-current contractual obligations of $7.3 million, of which $0.8 million is for payments due under our facility lease.

Previous 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.

Current wording

Cash used in operating activities was $1.4 million during the year ended December 31, 2025. The cash used in operating activities was primarily the result of a net loss of $5.2 million, adjusted for non-cash items of $4.6 million, which primarily included depreciation, amortization, and stock-based compensation, and the rest was attributed to changes in working capital and the acquisition settlement of $2.1 million and $1.4 million, respectively. The change in working capital was driven primarily by a decrease in accrued expenses, other current, and other liabilities. 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, amortization, and stock-based compensation, and the rest was 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.

Previous 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.

Current wording

Cash used in investing activities for the year ended December 31, 2025 was $1.3 million and was primarily attributable to cash paid for capitalized software development projects, partially offset by proceeds collected from the domain asset sale in the current year. Cash used in investing activities for the year ended December 31, 2024 was $0.4 million and was primarily attributable to cash paid for purchases of property and equipment for our technology infrastructure platform.

Previous 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.

Current wording

Cash used in financing activities for the years ended December 31, 2025 and 2024, was $0.1 million and $0.3 million, respectively. Cash used in financing activities for the year ended December 31, 2025 was primarily attributable to payments made related to equipment financing lease obligations, partially offset by proceeds from exercises of stock options, and issuances and vesting of restricted stock. Cash used in financing activities for the year ended December 31, 2024 was primarily attributable to payments made related to equipment financing lease obligations.

Previous wording

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 wording

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, long-term obligations, and other 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.

Previous 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.

Current wording

Our Consolidated Financial Statements have been prepared in conformity 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 that require the most difficult, subjective, or complex judgments.

Previous wording

The policies below are critical to our business operations and the understanding of our results of operations. In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of our results. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Current wording

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of our results. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Previous 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.

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 awards ("RSAs"), and restricted stock units ("RSUs") 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, 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.

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 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 for additional information.