Q4 2020 Marchex Inc Earnings Call
Ladies and gentlemen, and thank you for standing by and welcome to the March ex fourth quarter 'twenty 'twenty earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one and your telephone. Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Mr. Trevor Caldwell Senior Vice President of strategic initiatives and Investor Relations. Thank you. Please go ahead Sir.
Thank you Tamara.
Good afternoon, everyone and welcome to merger and business update and fourth quarter 2020 conference call joining.
Joining us today are Michael Arends, and Russell Horowitz.
Before we get started I'd like to take this opportunity to remind you that our remarks today will include forward looking statements Glenn.
Any references to our financial and operational performance and actual results may differ materially from those contemplated by these forward looking statements.
Risks and uncertainties that could cause these results to differ materially are set forth and today's earnings press release, and and our most recent annual and quarterly report filed with the SEC.
Any forward looking statements that we make on this call and based on assumptions as of today and we take no obligation to update these statements for subsequent events. During this call. We will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings press release is available on the Investor Relations section of our website.
At this time I'd like to turn the call over to Michael <unk>, Our co CEO and Chief Financial Officer.
Thank you and treasurer.
Good afternoon, and thank you everyone for joining us today.
In November on the backend of our strategic evolution and following the separation of our media assets, we moved to realign our operations in order to take advantage of the significant opportunity and conversational analytics and sales engagement solutions.
This included moving aggressively to accelerate our robust product development cycle since the organization was able to focus exclusively on this core opportunity.
We expect these efforts will be a key driver of progress this year.
And we reflect on the last few months, we recognize the ongoing impact of the pandemic and the massive disruption on many of our customers over the past year as well as its resulting impacts on us.
However, because we made the early strategic bet to focus on conversational intelligence built upon aggregating and Anonymised data of hundreds of millions of sales conversations between global brands and their customers, including both voice and text.
We now find ourselves at a unique advantage as we approach an inflection point and our opportunity.
We can help our customers understand what is happening during these conversations at a deeper level than ever before.
With our growing capabilities, our customer see us more and more as a critical partner to help them engage more prospects grow their customer base and close more business.
These early investments have created a significant market opportunity that is transformational from our checks and has given us room to both grow with our existing base of customers and expand that base meaningfully.
Pieces are coming together and multiple ways for example, and in the fourth quarter. We've launched the first of our planned product Rollouts March ex marketing edge.
This solution enables brand marketers and agencies to Thai revenue generating conversations back to the specific marketing campaigns that generated them.
March ex marketing and edge captures captures conversational data across multiple communication channels, including calls text and chat as well as web form completions. Then uses AI powered conversation intelligence to identify and classify the conversations that are driving sales.
By tying these high value conversations back to their marketing sources, we empower businesses to make smarter and media buys that deliver more high value conversations to their sales teams.
So the sales conversation and feel the convert our customers need not worry the product integration with March ex sales edge rescue means they can immediately receive and alert to reengage, the prospect and rescue the sales opportunity before they call the competitor.
March ex marketing edge was recently awarded the Gold Stevie Award for the marketing solutions category.
The Stevie awards for sales and customer service are among the world's top honors for customer service contact center business development and sales professionals.
The award noted that March ex marketing edge is an innovative solution that enables marketers to make better data driven decisions, while increasing customer reach.
This is another point of meaningful validation as we prepare for a post COVID-19 world.
Many businesses are still adapting to the new normal and navigating the changing environment created by the pandemic one of the ways. We are helping our customers is by integrating texting solutions into our conversation platform.
And the text conversations has been a significant task, but there was urgency for our customers to broaden their real time insight.
High priority consumer communications paths as they look to improve the customer experience, while engaging consumers in the ways, they wants and and their communications channels of choice.
We have added numerous customers towards <unk> solutions across core vertical since the start of the carrier and expect we will continue to make progress, adding more customers as we integrate our texting solutions throughout our new product pipeline.
To help our customers emerge stronger from this period, we dove into the data and wanted to understand at a deep level just how much the pandemic has impacted consumer behavior.
This led us to release, our most ambitious consumer study yet.
And we chose to focus on the auto industry first given our continuing penetration and significant growth opportunity in this vertical.
We surveyed 7500 and market auto buying customers and analyzed 250000 and sales calls for conversational intelligence technology.
The data was aggregated over the course of 2020 and revealed significant and surprising insights for dealers.
<unk> for instance.
And five potential buyers reached out to a dealer and everybody to close quickly and approaches.
And in fact, our data found that 75% of the shoppers who contact a dealer a ready to buy a car within three weeks, but only if they feel a high level of trust with the dealership.
Additionally, 83% of consumers are researching and qualifying dealers more so than before.
71% reported visiting fewer showrooms than before the pandemic and FERC.
Transaction at home.
The study also revealed nearly 40% of consumers use their phone to call or text the day to make initial contact making the phone.
Leading channel for consumer outreach.
Far outpacing any other form of contract including and.
Email or fax.
Is there just some other refining steel and other windstream needs to understand and sell more cars and this new normal.
March ex has witnessed many of these changes and the last year and utilizing or competition from analytics technology and half of our customers as the pandemic has altered the consumer path to purchase across several verticals.
And now through our various operations.
Providing paths for many key industries to adapt and thrive and the future.
With that Nicole.
Russ.
Thanks, Mike.
While we are still navigating and uncertain environment for many of our customers. We are focused on making significant progress across our organization on everything from our products the underlying technology and the realignment of our organization and to take advantage of our opportunities.
Today through these efforts March ex as a leaner and more focused and innovative company with world class customers, asking us to do more than ever before and.
Our early bets are paying off positioning March ex for the post pandemic world, what we're capable of solving a wide array of mission critical problems for our customers and prospects with highly innovative market leading products.
Over the last several years, we have invested in our core technology.
And our core technology platforms, and and strategic initiatives to add valuable conversational data across new verticals, such as home services and health, while going deeper and rich verticals like auto and auto related services.
These decisions are set up where with an effective and successful execution on our planned product releases and sales opportunities. We believe we will see acceleration of growth sequential progress with adoption from both existing and new customers and increased overall momentum, while establishing and extending leadership.
We even and the pandemic aside we feel we are well positioned to make progress on advancing the business and continuing to both expand and harvest our large opportunity.
With that I'll turn the call back to Mike.
Thank you Ross.
For today's commentary I will largely focus on our financial results from continuing operations.
On that basis revenue in the fourth quarter was $12 $7 million.
Core analytics and solutions revenue, excluding the contribution of the disrupted auto customer who was previously referenced on our second quarter 2020 earnings call would be $12 $3 million.
The fourth quarter continued to be characterized by the events of the COVID-19 pandemic we.
We saw the typical seasonal flow of call volumes for some customers declining around the holidays, but we also saw greater suppression and volumes in December and into January likely based on government directives, including Lockdowns.
We're seeing this letter trend begin unwinding and the latter part of February with volumes more recently increase.
And see the stifled new business environment witnessed earlier in 2020 begin to open up and the fourth quarter as we have had a recent uptick and new customer additions.
This was partly due to the launch of our merch ex marketing edge product, but also because some prospects and customers began to reinitiate onboarding and pilot programs.
It remains a parent and prospects and customers continue to weight on deployments of new technology applications.
Although our most recent conversations suggest growing interest for launches as we move through 2021.
As we have mentioned on prior earnings calls during the fourth quarter, we continued to see the financial impact flow through from a series of initiatives to support our customers during the pandemic.
<unk> discounts payment timing and and other relief and in certain cases waived minimum package commitments.
We also had some customers closed their doors or curtailed curtailed their operations due to the pandemic.
While we expect COVID-19, uncertainties may continue to be with us for some time, we and our customers are adjusting to the extent possible.
Over the course of 2020 and through the first quarter of 2021 to date, we focused on making progress with our analytics products and sales engagement solutions and believe this will benefit from our checks and the intermediate and long term.
We are also encouraged by the pickup and the sales pipeline, we have seen so far this year.
Now and looking at the P&L for the fourth quarter.
Excluding stock based compensation and amortization of intangible assets and acquisition disposition related costs total operating costs from continuing operations for the fourth quarter were $16 4 million.
Compared to $15 $4 million and the fourth quarter and 2019.
Service costs were $5 $5 million up from $4 $3 million and the fourth quarter of 2019.
Service cost increased as a percentage of revenue on a year over year basis, largely due to our infrastructure initiatives, which include cloud migration initiatives certain platform integrations and other initiatives. We continue to anticipate that as we complete some of these infrastructure initiatives and we launch our new analytics products and sales engagement.
Loosens and they begin to contribute we can see a positive impact on service costs as a percentage of revenue over time.
Sales and marketing costs were $3 $4 million. This amount was slightly down from the fourth quarter of 2019.
Product development and costs were $5 $1 million and were up as a percentage of revenue compared to the fourth quarter of 2019 reflective of our increased investment and our product infrastructure initiative.
Our acquisition.
Moving to profitability measures adjusted operating loss before amortization from continuing operations for the fourth quarter was $3 $7 million.
Corresponding adjusted EBITDA was a loss of $3 $2 million.
GAAP net loss, including discontinued operations was $5 $4 million for the fourth quarter of 2020 or <unk> 12 per diluted share.
This compares to a net loss of $414000 or <unk> <unk> per diluted share for the fourth quarter of 2019.
GAAP net loss from continuing operations was $5 $6 million for the fourth quarter of 2020 or <unk> 13 per diluted share does.
This compares to a net loss of $2 $8 million or <unk> <unk> per diluted share for the fourth quarter of 2019.
Adjusted non-GAAP loss from continuing operations was <unk> <unk> per share for the quarter compared to an adjusted non-GAAP loss from continuing operations of <unk> <unk> per share for the fourth quarter of 2019.
Additionally, we ended the fourth quarter with approximately $29 million and cash on hand net of current debt obligations and after completing the tender offer and October.
Now turning to our outlook.
The current environment remains highly fluid. That's noted there is uncertainty and the near term, but we are seeing quality engagement from customers and prospects that we believe will positively impact the intermediate term and beyond.
Looking at the first quarter of 2021.
While the fourth quarter saw a partial recovery and certain verticals for many of our customers sales conversation and volumes are still down on a year over year basis and in some cases meaningfully.
This fact continues to permeate our customers' thoughts as they approach. The early part of 2021 and many have expressed the continued need for flexibility and rolling out new technology and trials.
Still we are encouraged by the dialogue, we're having with customers and new prospects across several verticals about deploying our products this year.
We believe that these engagements along with the new product releases and other growth initiatives and sets the stage for financial progress as the year unfolds.
To that and excluding the contribution from the disruptive auto customer we discussed in prior calls we expect core analytics and solutions revenue can grow sequentially as we move through 2021.
While indicators reflect and invigorated sales pipeline there are still various pilots that remain on hold although we are getting more customer feedback that they will reinstate trials and the coming periods.
And there's still a challenge and the short term to forecast when these growth opportunities will meaningfully impact the business. Yet we believe we should make substantial progress toward our goal of moving towards double digit revenue growth run rates at some point this year.
In the meantime, we will continue to be mindful of our balance sheet and financial liquidity over.
Over the intermediate term and some of our new product sales sell through and favorably impact. The P&L. We believe we should make progress toward our goal of reaching breakeven or better on an adjusted EBITDA basis before the end of the year.
And this regard we also believe that each quarter over the next several quarters, we will make sequential improvement with our profitability measures.
We believe our opportunity and the conversational analytics and sales engagement market is significant.
And the last several months, we have taken significant steps to position Mark checks to best capitalize on this opportunity.
We are actively developing new conversational intelligence and sales engagement solutions, some of which we have already begun to deploy and certain channels and and trials with customers.
We expect to see the benefits of these initiatives to be and this year. And addition, we are continuing to invest and our infrastructure initiatives, which will help March ex extract key signals of consumer intent and support predictive analytics and the development of artificial intelligence driven use case specific.
<unk>.
We believe these investments and they.
And our infrastructure initiatives will provide a solid foundation to support our future product innovation and expanding AI capabilities.
We believe over time that these initiatives will support our strategic position and enhanced growth profile and a compelling financial position that has significant intermediate and long term operating leverage.
In the meantime, we have been active purchasers of our own shares based on and our view of our forward looking progress and our ability to drive growth and value and the future.
We are just beginning to see the benefits of leveraging our industry, leading conversational data to develop innovative conversational AI products.
Additionally, while the risks always must be acknowledged and the impacts and uncertainties of Covid continue we think our upside is meaningful.
And over the coming months, we expect to have more news to share regarding new products and progress with customers.
Okay.
And all of our employees we thank you.
Russ and I are very appreciative of their hard work and dedication.
And with that operator, I'd like to hand, the call back to you.
As a reminder to ask a question and you will need to press star one and your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
And your first question will come from Mike Latimore. Please proceed.
Great Yeah, Thanks, a lot and thanks for the.
All the info here in terms of the.
Call volume is admired Chegg has had in 2020.
Can you quantify that a little bit just maybe absolute number and then just did it decline and grow kind of in 2020 versus financing.
Thanks, Mike This is Mike so two.
Total coal volumes were down on a year over year basis, but.
There was a lot of progression and movement and in particular, if you look at the early part of the year in March and April volumes were down significantly.
Year over year basis, just for those months, there was trending declines that and some verticals where as much as near 40%.
And on a year over year basis, there was a progression from there and although there was still decreased call volume and May June and July there were increasing levels and progress from those points forward.
And if you look at starting in <unk>.
And of November.
Volume again started the downward track relative to what you would expect from a seasonal flow and a union and your comparative that continued into the early part of January and the first the very beginning of February.
And we believe that some of the pandemic influences as well as potentially the cold weather in certain parts of the country. They are in effect that what we have seen and the last few weeks is actually a resurgence and call volumes coming back and increasing.
<unk> two <unk>.
More expected and normalized levels here.
And so you got it.
And maybe just help me understand if you look at some of these day kind of call center companies like follow up requirements or Keith and other volumes are growing.
Growing pretty nicely and benefiting from Covid.
And this is Mark communications going on no I think their mark maybe customers and maybe the differences or customer service earmark sales buckets, but help me understand the difference there between the call volume do you see kind of and some other big call centers versus kind of what you guys are saying.
I think one of the best examples is just thinking about the customer base, So auto dealerships people stopped.
Purchasing cars and the auto dealerships the Oems actually stopped manufacturing for many months as part of and processes given what consumers were doing that was indicative and and a number of different.
Industry. So it's very much more a mix of what the customer bases and the protocols. There are pockets of customers and and I'll give you. Another great example of just very low volumes and travel and hospitality for us and our customer base in that arena was down.
Very significantly on a year over year basis, but there were pockets and example would be cable TV the area of cable and certain of home services customers HVAC furnace.
Types of providers were actually had some spikes in volume at different points in 2020 relative to what you would normally expect.
Okay got it and then.
You talked a little bit about you know maybe seeing sequential growth throughout the year I guess, what would be the top sort of verticals driving that.
Hey, Mike This is Russ as we think about how the year unfolds and where some of our growth levers are and we've talked about the vertical focus you've hit on that and.
Auto is one that we continue to look at.
As a meaningful opportunity and that's both with the OEM relationships and the dealer direct products and then also services as well it can be a catalyst overall the service economy has been more suppressed by Covid and other areas and.
And given our customer base and how thats exposed to the service economy. We think we may benefit from that as Covid doors and then beyond.
And that we also look at leverage from our texting products, where we see increased adoption as well as our other evolved products that include the combination of voice and text, So auto and auto services health and home services continue to be our levers for US and then also where we are.
Being at expanded application of our testing products and integration of our texting products with our voice products all of those we view as the levers for acceleration.
Acceleration and sequential growth.
Okay got it got it and then on gross margin.
The gross margin and the fourth quarter.
On the core business is kind of a good sort of barometer for next year as well.
It's a starting point for 2021 and some of our remarks prepared remarks that we made earlier, we did talk about the infrastructure initiatives.
Coming to more substantial completion at some point in 2021, and we expect that with additional scale there can be meaningfully meaningful operating leverage there.
Great.
Alright, Thanks, a lot and good luck this year.
Thank you very huge.
We wanted to thank everyone on the call today, and we look forward to.
And updates and the coming quarters of our progress as we move throughout the year. Thank you.
Thank you everybody.
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