MARCHEX INC

Notes to Consolid ated Financial Statements

Note 1: Description of Business and Basis of Presentation

Description of Business

Marchex, Inc. ("Marchex" or the “Company”) was incorporated in the state of Delaware on January 17, 2003. Marchex and Archenia, Inc. ("Archenia") together harness proprietary artificial intelligence ("AI")-powered conversational intelligence and advanced customer acquisition technologies to transform consumer intent into actionable, outcome-driven business results. The combination of Marchex's prescriptive analytics and omnichannel intelligence with Archenia's AI-verified qualification, natural-language analytics, and automated decisioning capabilities creates a highly differentiated customer acquisition and optimization technology platform. Leveraging real-time AI signals, machine-learning models, and deep vertical market expertise, the company identifies consumer intent, improves qualification accuracy, and delivers verified outcomes such as high-intent conversations, appointments, and sales. Serving market leading companies across major verticals including automotive, insurance, home services, healthcare, and advertising/media, Marchex empowers organizations to optimize customer engagement and drive revenue growth through AI-driven insights, actions, and outcomes.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual Consolidated Financial Statements have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

The preparation of our Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company has used estimates related to several financial statement amounts, including revenues, the fair value of stock option awards, and the impairment of goodwill. Actual results could differ from those estimates.

The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 26, 2026.

Significant Accounting Policies

During the three and six months ended June 30, 2026, there were no significant changes to the Company's summary of significant accounting policies contained in the Company's Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 26, 2026.

Recent Accounting Pronouncements Not Yet Effective

In January 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2025-01, which updates the effective date of the November 2024 issued ASU 2024-03, Disaggregation of Income Statement Expenses, that requires public entities to improve disclosures about their expenses and provide more detailed information about the types of expenses in commonly presented expense captions. ASU 2024-03 is now effective for annual periods beginning after December 15, 2026 and interim periods within annual periods beginning after December 15, 2027, with early adoption permitted. The Company is currently assessing the impact of this ASU on its Consolidated Financial Statement disclosures.

In September 2025, the FASB issued ASU 2025-06, Accounting for Internal-Use Software, which makes improvements to internal-use software accounting guidance to better align with contemporary software development practices, rather than traditional, stage-based models. Under the revised guidance, a Company may begin capitalizing internal-use software costs only when management has authorized and committed to funding the project and it's probable that the project will be completed and used for its intended function. ASU 2025-06 is effective for annual periods beginning after December 15, 2027, with early adoption permitted. The Company is currently assessing the impact of this ASU on its Consolidated Financial Statements and related disclosures.

Note 2: Revenue Recognition

The Company’s AI-powered conversational analytics technology platform provides data and insights into the conversations our clients are having with their customers across phone, text, and other communication channels. Our tools enable brands to personalize customer interactions in order to accelerate sales and capture more opportunities to grow their business. The Company generates revenue from the Company's conversational analytics technology platform when customers pay the Company a fee for call, text, or other communication related data elements they receive from calls or texts or for each phone number tracked based on a pre-negotiated rate. Revenue is recognized as services are provided over time, which is generally measured by the delivery of each call/text or call/text related data element or each phone number tracked.

The majority of the Company’s customers are invoiced on a monthly basis following the month of the delivery of services and are required to make payments under standard credit terms. Net accounts receivable was $7.1 million, including unbilled accounts receivable of $1.7 million, at January 1, 2025. Net accounts receivable, including unbilled accounts receivable, consists of the following as of the periods below:

Customer payments received in advance of revenue recognition or the Company's unconditional right to invoice are considered contract liabilities and are recorded as deferred revenue. The beginning and ending deferred revenue balances and activity during the period consists of the following:

The Company’s incremental direct costs of obtaining a contract, which consist primarily of sales incentive compensation including commissions, are generally deferred and amortized to sales and marketing expense over the estimated life of the relevant customer relationship. The Company’s net contract acquisition costs shown below consist of$0.6 million and$1.0 million in Other current assetson the June 30, 2026 and December 31, 2025 Consolidated Balance Sheets, respectively, and$0.1 million and$0.2 million in Other assets, net on the June 30, 2026 and December 31, 2025 Consolidated Balance Sheets, respectively. The gross and net amounts consist of the following:

Note 3: Segment Reporting and Geographic Information

Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally for the Company’s management. For the three and six months ended June 30, 2026 and 2025, the Company operated in asingle segment comprised of its conversational analytics and related solutions. In accordance with Accounting Standards Codification ("ASC") 280, Segment Reporting, this single segment presentation is the basis upon which the Company's chief operating decision maker relies for performance evaluation and benchmarking.

Long-lived assets by geographical region are based on the location of the legal entity that owns the assets. As of June 30, 2026 and December 31, 2025, no significant long-lived assets were held by entities outside of the U.S.

Revenues from customers by geographical areas are tracked on the basis of the location of the customer. The majority of the Company’s revenue and accounts receivable are derived from sales to domestic customers.

Revenues by geographic region are as follows:

Note 4: Concentrations

The Company maintains substantially all of its cash and cash equivalents withtwo financial institutions. The Company has one customer that generally represents more than 10% of consolidated revenue. The table below sets forth the percentage of the Company's consolidated revenue that was attributed to this customer for the periods presented below:

The Company has one customer that represents more than 10% of consolidated accounts receivable. The Company also has a significant concentration of credit risk arising from receivables due from a network of independent dealers that is above the 10% threshold. These dealers, while independently operated, sell the same brands and collectively represent a substantial portion of the Company's receivables. The table below sets forth the percentage of the Company's outstanding receivable balance that was attributed to this customer, and attributed to the aggregated balance due from the independent dealer network, as of the periods presented below:

Note 5: Fair Value of Financial Instruments

The Company had the following financial instruments as of June 30, 2026 and December 31, 2025: cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities. The carrying value of these financial instruments approximates their fair value based on the liquidity of these financial instruments and their short-term nature. Further, these financial instruments are considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

The Company maintains an institutional banking line of credit for $0.1 million and in connection with the line of credit, the Company was required to pledge $0.1 millionof its cash and cash equivalents as collateral. The pledged amount is included in Cash and cash equivalents on the Company's Consolidated Balance Sheet as of June 30, 2026, as the restriction does not significantly limit the Company's use of such funds.

The following table provides information about the fair value of our cash and cash equivalents balance:

Note 6: Stockholders' Equity

Common Stock

In May 2025, the Company’s board of directors authorized a new share repurchase program, which supersedes and replaces all prior repurchase programs. Under the 2025 Repurchase Program, the Company is authorized to repurchase up to 3,000,000 shares of the Company’s Class B common stock in the aggregate through open market and privately negotiated transactions, at such times and in such amounts as the Company deems appropriate. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability, and other market conditions. The 2025 Repurchase Program does not have an expiration date and may be expanded, limited, or terminated at any time without prior notice. The Company has madeno repurchases under the 2025 Repurchase Program and additionallyno repurchases were made under the superseded 2014 Repurchase Program for the three andsix months ended June 30, 2026. Shares repurchased but not yet retired by the Company will be classified as treasury stock on the Consolidated Balance Sheets before retirement. Retirement of treasury stock results in reductions to common stock and additional paid-in capital.

Stock-based Compensation Plans

The Company grants stock-based awards, including stock options, restricted stock awards ("RSAs"), and restricted stock units ("RSUs"). The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense over the vesting or service period, as applicable, of the stock-based award using the straight-line method. The Company accounts for forfeitures as they occur. Stock-based compensation expense has been included in the same lines as compensation paid to the same employees in the Consolidated Statements of Operations.

Stock-based compensation expense was included in the following operating expense categories:

The Company uses the Black-Scholes option pricing model to estimate the per share fair value of stock option grants with time-based vesting. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. There wereno stock option grants during the three and six months ended June 30, 2026. For the three and six months ended June 30, 2026 and 2025, the expected life of each award granted was determined based on historical experience with similar awards, giving consideration to contractual terms, anticipated exercise patterns, and vesting schedules. Expected volatility is based on historical volatility levels of the Company’s Class B common stock. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option. The Company uses an expected annual dividend yield in consideration of the Company’s common stock dividend payments, which we consider to bezero.

The following assumptions were used in determining the fair value of time-vested stock option grants for the periods indicated (there were no stock option grants during the three and six months ended June 30, 2026):

As of June 30, 2026, there were$1.8 million of unrecognized compensation costs related to stock options. These costs are expected to be recognized over the weighted average periods of 2.02 years. Stock option activity during the period was as follows:

As of June 30, 2026, there was$1.4 million of unrecognized compensation costs related to restricted stock. These costs are expected to be recognized over the weighted average period of 1.60 years. RSA and RSU activity during the period was as follows:

Note 7: Net Income (Loss) Per Share

The Company computes net income (loss) per share of Class A and Class B common stock using the two class method. Under the provisions of the two class method, basic net income (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of the diluted net income (loss) per share of Class B common stock assumes the conversion of Class A to Class B common stock, while the diluted net income (loss) per share of Class A common stock does not assume the conversion of those shares.

In accordance with the two class method, the undistributed income (loss) for each period is allocated based on the contractual participation rights of the Class A and Class B common shares and the restricted shares as if the income (loss) for the periods had been distributed. Considering the terms of the Company’s charter which provides that, if and when dividends are declared on its common stock in accordance with Delaware General Corporation Law ("DGCL"), equivalent dividends shall be paid with respect to the shares of Class A and Class B common stock and that both classes of common stock have identical dividend rights and would share equally in the Company’s net assets in the event of liquidation, the Company has allocated undistributed income (loss) on a proportionate basis.

Instruments granted in unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities prior to vesting. As such, the Company’s RSAs are considered participating securities for purposes of calculating income (loss) per share. Under the two class method, dividends paid on unvested restricted stock are allocated to these participating securities and therefore impact the calculation of amounts allocated to common stock.

The following tables present the computation of basic net income (loss) per share applicable to common stockholders for the periods ended:

The following tables present the computation of diluted net income (loss) per share applicable to common stockholders for the periods ended:

Note 8: Property and Equipment

Property and equipment consisted of the following:

Depreciation and amortization expense related to property and equipment was as follows:

Note 9: Leases

The Company has an operating lease for its former corporate office headquarters in Seattle, WA. In April 2026, the Company entered into a sublease agreement for the full premises of this operating lease. The sublease commenced on May 1, 2026 and will run through the end of the Company's existing lease term in September 2027.

Under ASC 842, Leases, and ASC 360, Property, Plant, and Equipment, subleasing the entire premises of the head lease qualifies as a triggering event to assess for impairment. Under the ASC 360 two-step recoverability test, the Company assessed there to be an impairment loss of approximately $0.2 million from the terms of the sublease agreement. The Company notes that under ASC 855, Subsequent Events, this impairment loss qualified as a recognized subsequent event during the three months ended March 31, 2026, as the sublease contract had been approved and committed to by management in March 2026. The $0.2 million impairment loss was recognized in the three months ended March 31, 2026, and is included within Interest income (expense) and other, net on the Consolidated Statement of Operations for the six months ended June 30, 2026.

The Company recognizes its operating lease agreements in accordance with ASC 842, Leases, and recognizes rent expense on a straight-line basis over the lease term with any lease incentives amortized as a reduction of rent expense over the lease term. Only assets under an operating lease with a term over 12 months were included in Right-of-use lease assets, and the related remaining liabilities are included in Operating lease liability, current and Operating lease liability, non-current on the Consolidated Balance Sheets.

Lease cost, other than the impairment loss amount, recognized in the Consolidated Statements of Operations and other lease information is summarized as follows:

As of June 30, 2026, the Company’s undiscounted future payments under operating lease liabilities were as follows:

In accordance with ASC 842, Leases, as the sublease is comprised of the entire remaining head lease term and transfers substantially all remaining economic benefits of the right-of-use ("ROU") asset, the sublease is characterized as a finance lease where the Company must derecognize the portion of the ROU asset transferred (entire leased asset transferred in this case), continue recognizing the original head lease liabilities, and recognize the imputed sublease interest income. Accordingly, the remaining ROU lease asset's remaining balance of approximately $0.3 million was derecognized and sublease receivables were established on the Consolidated Balance Sheet at June 30, 2026, comprised of a remaining balance of approximately$0.2 million in Other current assets and approximately$0.1 million in Other assets, net.

As of June 30, 2026, the Company’s undiscounted future receipts under the sublease are as follows:

Note 10: Commitments and Contingencies

Commitments

The Company has commitments for future payments related to its office facility, as well as other contractual obligations primarily related to minimum payments due to outside service providers. For information regarding the Company's lease commitments, see Note 9: Leases above.

Future minimum payments on the Company's other contractual obligations are approximately as follows:

Contingencies

The Company from time to time is a party to disputes and legal and administrative proceedings arising from the ordinary course of business. We could become in the future subject to legal proceedings, governmental investigations, and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks, and other intellectual property rights. Such claims, even if not meritorious, could force us to expend significant financial and managerial resources and could be material.

In certain agreements, the Company has agreed to indemnification provisions of varying scope and terms with customers, vendors and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of agreements or representations and warranties made by the Company, services to be provided by the Company and intellectual property infringement claims made by third-parties. As a result of these provisions, the Company may from time to time provide certain levels of financial support to contract parties to seek to minimize the impact of any associated litigation in which they may be involved. To date, there have been no known events or circumstances that have resulted in any material costs related to these indemnification provisions and no liabilities therefore have been recorded in the accompanying Consolidated Financial Statements. However, the maximum potential amount of the future payments the Company could be required to make under these indemnification provisions could be material.

On October 21, 2022, the Shareholder Representatives for the former shareholders of Telmetrics, Inc. (an entity acquired by the Company in 2018) filed litigation against the Company in the U.S. District Court for the District of Delaware. The plaintiffs asserted claims under a share purchase agreement and escrow agreement regarding entitlement to an earnout of up to $3.0 million and $1.0 million that was placed in escrow to secure indemnification obligations.

During the fourth quarter of 2025, the Company and the plaintiffs made significant progress in negotiating a settlement and based on the status of those discussions and an evaluation of the relevant facts and circumstances, the Company determined that a loss was probable and reasonably estimable. Accordingly, the Company recorded an additional $1.4 million as Acquisition expense in the Consolidated Statement of Operations to make up a total accrual of $2.1 million, the expected settlement amount related to this matter, on the December 31, 2025 Consolidated Balance Sheet.

On April 14, 2026, the Company entered into a settlement agreement with respect to this civil action for such expected settlement amount, which resolves all claims related to this matter. Pursuant to the agreement, the Company paid $750.0 thousand and released $250.0 thousand held in escrow on May 14, 2026, and will pay $500.0 thousand on each of November 16, 2026 and May 17, 2027. On the June 30, 2026 Consolidated Balance Sheet, there is a remaining accrual of $1.0 million recorded in Other accrued expenses and current liabilities related to the future litigation payments.

While any litigation contains an element of uncertainty, the Company is not aware of any other legal proceedings or claims which are pending that the Company believes, based on current knowledge, will have, individually or taken together, a material adverse effect on the Company’s financial condition, results of operations, or liquidity.

Note 11: Taxes

The Company regularly reviews deferred tax assets to assess whether it is more likely than not that its deferred tax assets will be realized and, if necessary, establishes a valuation allowance for portions of such assets to reduce the carrying value. In assessing whether it is more likely than not that the Company’s deferred tax assets will be realized, factors considered included: historical taxable income, historical trends related to customer usage rates, projected revenues and expenses, macroeconomic conditions, issues facing the industry, existing contracts, the Company’s ability to project future results, and any appreciation of its other assets. 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. The Company considered the future reversal of deferred tax liabilities, carryback potential, projected taxable income, and tax planning strategies, as well as its history of taxable income or losses in the relevant jurisdictions in making this assessment. Based on the level of historical taxable losses and the uncertainty of projections for future taxable income over the periods for which the deferred tax assets are deductible, with the exception of certain insignificant foreign deferred tax assets, the Company concluded that it is not more likely than not that the gross deferred tax assets will be realized and, accordingly, recorded 100% valuation allowance against these deferred tax assets as of both June 30, 2026 and December 31, 2025.

From time to time, various state, federal and other jurisdictional tax authorities undertake audits of the Company and its filings. In evaluating the exposure associated with various tax filing positions, the Company on occasion accrues charges for uncertain positions. Resolution of uncertain tax positions will impact the Company’s effective tax rate when settled. The Company does not have any significant accruals for uncertain tax positions including interest or penalties. The provision for income taxes includes the impact of contingency provisions and changes to contingencies that are considered appropriate. The Company files U.S. federal, certain U.S. state, and certain foreign tax returns. The Company's federal and state returns for all years will remain open to examination by federal and state tax authorities for three and four years, respectively, from the date of utilization of any net operating loss carryforwards.

Note 12: Domain Asset Sale

In 2025, the Company sold one of its domain assets to a third-party buyer for a total sales price of $0.8 million, with payments to be made over a four-year period. Each payment that the Company receives from the buyer will be reduced by a 15% commission fee, resulting in total net cash proceeds of approximately $0.7 million. Approximately $0.6 million was recognized as a gain within Interest income (expense) and other, net on the Consolidated Statement of Operations in the previous year. The remaining amount of approximately $48.2 thousand will be recognized as interest income over the four-year payment period due to the financing component of the agreement. At June 30, 2026, there was$0.1 million of the receivable recorded within Other current assets and$0.2 million within Other assets, net on the Consolidated Balance Sheet.

Note 13: Acquisition Stock Purchase Agreement ("SPA") Information

On July 1, 2026, the Company consummated the previously-announced acquisition of 100% of the outstanding shares of capital stock of Archenia from its stockholders, pursuant to the SPA, dated May 8, 2026, by and among the Company and sellers. In acquiring 100% of the outstanding shares of capital stock of Archenia, the Company indirectly acquired all of the assets that support Archenia’s business. Archenia is a performance-based marketing technology company focused on customer qualification and acquisition. Archenia transforms consumer intent into AI-verified, outcome-based results by leveraging AI, natural-language analytics, and automated decisioning to identify and deliver high-intent consumer interactions to advertisers.

As consideration for the transaction and pursuant to the SPA, on the closing date the Company issued an aggregate of $10.0 million inconvertible promissory notes issued to the sellers. The notes bear interest at 6% and are payable in three equal tranches on the 12-, 18- and 24-month anniversaries of the closing date. Principal and interest under the notes are convertible in whole or in part into shares of Marchex’s Class B common stock at $1.80 per share. The notes also include customary events of default, including failure to pay amounts when due and certain bankruptcy or insolvency events. Upon an event of default, the outstanding principal and unpaid accrued interest may become immediately due and payable. As additional consideration for the transaction and pursuant to the SPA, for each of the first and second 12-month periods following the closing date, to the extent (1) Archenia’s revenue or Adjusted EBITDA exceed such amounts for the 12-month period prior to the closing date, and (2) Archenia achieves certain specified integration or customer retention targets, Marchex will issue to the sellers an aggregate of 2.0 million shares of its Class B common stock for each such period.

The following tables detail, with intercompany balances and transactions eliminated and not including any contingent considerations that may be paid, unaudited Pro Forma Combined information for the current and prior year periods presented: