Q1 2021 Marchex Inc Earnings Call
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Good afternoon. My name is Sylvia and I will be your conference operator today at this time I would like to welcome everyone to the March ex first quarter 2021 earnings conference call all.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time I think the press star followed by the number one on your telephone keypad. If he would like to withdraw your question press. The pound key. Thank you Mr. Trevor Caldwell Senior Vice President of Investor Relations you May begin your conference.
Thank you good.
Good afternoon, everyone welcome to March exit the business update for the first quarter 2021 conference call.
Joining us today are Michael Arends, and Russell Horowitz of course.
In light of the Gursky our CFO.
Before we get started I would like to take this opportunity to remind you that our remarks today.
The forward looking statements the references to our financial and operational performance.
Actual results may differ materially from those contemplated by these forward looking statements.
The risks and uncertainties that could cause these results to differ materially set forth in todays earnings press release and in our most recent annual and quarterly report filed with the SEC.
Any forward looking statements that we make on this call are based on assumptions as of today.
No obligations.
Update these statements for subsequent events. During this call we will present, both GAAP and non-GAAP financial measures.
Filiation of GAAP to non-GAAP measures is included in today's earnings Press release earnings Press release is available on the Investor Relations section of our website at.
At this time I'd like to turn the call over to Michael Roth.
Thank you Trevor.
Good afternoon, and thank you everyone for joining us today.
In the first quarter, we saw the early benefits of greater organizational clarity and singular focus on the conversational analytics and sales engagement opportunity.
We began to see initial signs of the pandemic recovery in our sales pipeline and conversation volumes, all while innovating on our future product roadmap.
Let me first address total conversation volumes, which increased noticeably near the end of the first quarter of.
So January was largely consistent with December volume started to pick up in February and then March we saw increased volumes that approached 2019 levels.
Of this corresponded with several of our customers experiencing increased consumer activity. While also gradually reopening locations in multiple regions. For instance, we noted measurable improvements in conversation volumes at the end of the quarter in verticals such as auto services.
Total home services and auto manufacturing in geographic regions that we're reopening.
As an example in home services and healthcare conversion volumes increased nearly 20% in March over the prior year again those numbers are almost in line with 2019 levels in.
And importantly, we see that some of these trends have continued into the current quarter.
Meanwhile, verticals such as travel have remained significantly disrupted in the first quarter relative to historical patterns. However, we hope to see a favorable shift in the coming months as the outlook for the pandemic improves.
We also saw new sales and existing customer interest accelerate in the first quarter. In fact, we signed more new customers and upsells than at any point in the last 12 months.
These new customer spend multiple product lines across a variety of sectors, including auto home services and advertising agencies among others.
Right now businesses increasingly want to understand how to engage customers over text.
Brands, especially those that have suffered temporary store closures.
Far more open and eager to communicating with their customers through tax channels in light of the pandemic given it is of consumer friendly way to establish a connection and start the relationship building process.
Given this renewed and increased interest we have moved aggressively to accelerate our product and sales efforts in the first quarter.
We expanded teams in key areas, such as texting and we launched new AI driven products that solve an expanding set of industry specific use cases and verticals such as auto.
In addition.
The company continued to focus on our integration efforts in order to accelerate our timeline to deliver additional advanced analytics and sales engagement solutions in 2021 day.
Each of these initiatives.
It's the stage four expanding our opportunity footprint this year and beyond.
From the millions of conversational data points, we aggregate and analyze it is clear that call and text based customer conversations through mobile channels have taken on heightened importance in the purchasing process.
The pandemic has created significant consumer behavioral changes to day consumers perform research online before the initially call or text of the business.
And by the time they take the step they are typically typically armed with robust information and closer to of purchasing decision.
As a result that initial call or text has emerged as a critical interaction for brands to handle successfully.
A recent study we conducted on the new.
The new pandemic shape habits of auto shoppers illustrates this.
Trust and transparency are Paramount.
91 per cent of the shoppers, we surveyed said establishing trust true transparency includes disclosing prices beforehand.
The old method of enticing a customer to come down to a showroom test drive of car and negotiated in person does not work for todays highly informed and educated shoppers.
This is mostly been replaced by online research and call and text based interactions with the dealer.
Through our current product innovation cycle, we are enabling our customers to take advantage of these trends and consumer engagement.
Our products give customers the power to gather the critical actionable insights across voice and text communication channels and the ability to deliver the right customer experience at each point of the selling process.
The combination of these value added applications drives greater measurable impact to increase sales through improved conversations.
We know what consumers want today, a seamless end to end sales experience.
Multi channel cohesion across voice and text is imperative.
Many brands struggled with this given the disparate technology stacks where data lives.
Early on we saw the power of artificial intelligence and invested in centering our technology platform around it.
AI can help organize and examine data at a rapid fire right to help businesses understand in real time, which sales and marketing campaigns are working and which are not.
And also empower them to take the appropriate action to enrich customer engagement and increase sales productivity.
In fact, our return to revenue growth is being driven by our AI powered product initiatives that bring together multichannel solutions in voice and text with vertical specific applications that drive increased sales.
Our recent launch of March ex engaged for automotive is an example of using an AI powered solution to solve unique sales challenges directly at the dealership level in.
In the initial trial of this product, we saw significant and demonstrable impact on car sales for the dealerships and are eager to bring the solution more broadly to the entire industry throughout this year and going forward.
We are moving aggressively to complete the work to integrate our technology platforms, which we should complete this year.
Our new integrated product platform will serve as the foundation for future innovation and will enable the company to simplify product integrations and upsell opportunities.
And then in addition, we continue to anticipate achieving more than $2 million in annualized cost savings on a run rate basis by the end of 2000 of 21 through these technology infrastructure initiatives.
We are moving to expand our product and sales effort in key areas like texting and launching new products that solve complex problems problems in multibillion dollar markets like auto.
And we're excited by the developments in the first quarter and when we look forward to updating you more in the coming months.
And with that I'll hand, the call to Russ.
Thanks, Mike.
We're really encouraged to see the initial signs of momentum building in our business.
At the start of the year.
Over the last 12 months, we've made the decision the more deeply concentrated on the transformational opportunity.
Conversational analytics.
Sales of engagement solutions.
We're now seeing early evidence of contraction in our business and strategy.
We're creating a unified suite of sales engagement solutions across voice and text channels, which will empower our customers to capitalize on those actionable insights in real time.
We're opening new markets and expanding our addressable market.
With our auto dealer product, we will have the opportunity to some of the thousands of franchise dealers over the next several years.
Through our investments in unifying our infrastructure, we can now take advantage of Martech suite of leading conversational data the inner.
The <unk> into the future and create new opportunities to cross sell and upsell with easier integrate teams for our customers and new channel partnership possibilities.
Plans for 2021 are appropriately ambitious and we intend to execute on all of them in.
In the first quarter, we saw the first signs of acceleration in our business, which demonstrates the strategy. While it is early stages, it's starting to pay off.
As a result of this progress we anticipate growth can sequentially accelerate and be on track to achieve our targets for this year as well the set the stage for a strong long term operating profile.
As we look at our strategic priorities for 2021, we are focused on making substantial progress in introducing new AI at the old products.
Driving the increased momentum in auto tech and other core verticals.
Furthermore, and importantly, we have simplified our business and created organizational clarity.
This sets us up to execute well, while establishing a leadership role and a very important transformative market.
And with that I will handle the call on the call up the library.
Thank you Ross.
I'm excited to be here today and share my thoughts on non business.
So far the here.
On the high level all of the overall environment continues to be characterized by the impact of the COVID-19 has had on our lives and those of our customers.
<unk> seen some sort of encouraging signs during the first quarter.
Most notably as Mike mentioned, you thought the conversation volumes increased over the course of the quarter and positive developments in our sales pipeline.
And while we cannot predict when the economy will return to normal we believe our customers and our prospects of businesses will benefit congratulatory openings.
That combined with our ongoing product initiatives should provide a tailwind from my checks this year and going forward.
For today's commentary I will focus on financial results from continuing operations.
Of that basis revenue for the first quarter was $13 million.
Conversation volumes remain somewhat depressed during the January that's starting to recover in February.
Just the healthy volume to the approach 2019 levels.
Notably we saw from key customer categories like home services and health care experience of healthy growth in March the continued into April.
One of the COVID-19 environment continues to impact categories, like hospitality and dental versus the normalized environment. We did see some positive progression in March in those areas.
In addition, the gradual reopening of the economy has led to a rise of new customer wins and Upsells.
In fact, as Mike mentioned in the first quarter, New enterprise customer sales represented the high relative to the last 12 months.
As we introduce new products over the course of 2021, we expect that these products will contribute to further build our sales pipeline.
Now, let's shift to the P&L for the first quarter.
Excluding stock based compensation amortization of intangible assets and acquisition of disposition related costs.
Total operating costs will continue operations of the first quarter was $16 3 million compared to $16 $8 million from the first quarter of 2020.
Service cost of five $4 million up from $4 8 million in the first quarter of 2020.
Service costs increased as a percentage of revenue on a year over year basis.
The data our infrastructure initiatives, which include cloud migration of initiatives certain platform integrations and the other two.
Technology projects.
We anticipate as we complete these infrastructure projects and derive revenue from the launch of our new analytics products and sales engagement solutions.
C of positive impact on service costs as the percentage of revenue over time.
Some of the marketing costs the thing for me.
The amount with down from the first quarter of 2020.
Product development costs of $5 2 million and went down with the percentage of revenue compared with the first quarter of 2020 reflected by the increased revenue scale, that's compared to the year ago period.
Moving to profitability measures adjusted operating loss before amortization from continuing operations.
First of three $4 million.
Corresponding adjusted EBITDA with the loss of $3 million improving from the fourth quarter of 2000, Twenty's adjusted EBIT loss of $3.
$2 million.
GAAP net loss from continuing operations was $5 3 million for the first quarter of 2021 of 12 cents per diluted share.
This compares to a net loss of $25 $5 million of 54 cents per diluted share for the first quarter of 2020.
Adjusted non-GAAP loss from continuing operations was eight cents per share for the quarter compared to an adjusted non-GAAP loss from continuing operations of seven cents per share for the first quarter of 2020.
Additionally, we ended the first quarter with approximately $23 million from cash on hand net of current debt obligations.
Now turning to our outlook.
We are generally optimistic about the year and the ultimate recovery of the economy.
However, the current environment, where things haven't fluid in the near term.
For example, here in Washington State, we still have several counties Stephane. Thanks to do the right thing COVID-19 cases, this implies lower in peripheral capacity in many businesses.
We know that in certain regions, we are not out of the woods and accordingly kind of of our customer pilots and trials remain on hold.
That being said, we continue to have solid engagement with the prospects in our existing customers and the trend looks favorable relative to the year ago period.
For the second quarter of 2021 we believe we will make further financial progress on both revenue and profitability metrics relative to the first quarter.
I also believe that our growing sales pipeline and product initiatives should enable us to make progressive sequential financial progress throughout this year.
And we continue to believe with the unwinding of the business impacts from the pandemic the can be in a position to reach double digit growth on a run rate basis at some point this year.
Now turning to our profitability metrics and our balance sheet.
Over the course of this year, we continue to believe we will advance towards our goal of reaching breakeven or better adjusted EBITDA on a monthly run rate basis by the end of the year.
Also similar to the level of commentary, we believe that we will make sequential progress on our profitability measures throughout this year.
We believe our opportunity in the conversational analytics and sales and data the market is significant.
Here, we will take significant steps to position of our checks to emerge as the leader in this market.
We will launch new AI, driven conversational intelligence and sales engagement solutions and.
Congrats on prospects, which are already in trials into full customers.
In the meantime, we're moving aggressively to accelerate our infrastructure initiatives.
Opened new markets, new partnerships in support of future product innovation and rapidly expanding AI capabilities.
Taken together, we believe that these initiatives can drive the strong growth profile of this year and can drive significant intermediate.
Long term operating leverage.
Over the coming months, we expect to have more news to share regarding new products, new partnerships and our expanding AI capabilities.
So all of our employees we thank you.
The executive leadership is very appreciative of your hard work and dedication.
With that operator, we'll hand, the call back to you.
Thank you.
This time I would like to remind everyone in order to ask the question Press Star then the number one on your telephone keypad again that is star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
We have our first question coming from the line of Mike Latimore with <unk>. Your line is open.
Okay.
Hi, guys.
Hello, Mike.
A simple.
Go back through welcome Bob that's the.
And has the volume generally.
A key market value is monitoring sales effectiveness from a remote location.
Okay.
In terms of the volumes and whether we're helping.
Sales effectiveness from remote locations I think the primary focal point is how a consumer engages with the business and as long as the consumer is engaging with the business through the channel that's dedicated primarily to a mobile device, whether it's voice or text, we absolutely see those trends benefiting.
Our volume and we think over the course of 2021.
With some of the greater engagement activity between consumers and businesses that we expect will come with an unwinding of the pandemic there should be momentum there and volume increases.
Yes.
This is Russ one of the elements for us when we looked at the last year, there's a lot of our customers the service based businesses or national companies that had.
The distributed national footprint in terms of locations and they were the first to really faced the brunt of shutdowns whats happening now when you look at reopening in combination with renewed sales initiatives because once you set your locations trying to drive more customers to those locations, obviously, it doesn't make sense and so that was the disrupt.
So we all face, but where we believe we are on the other side of it now and as the.
Of those re openings continue to happen none of those initiatives to drive more customer leads and conversions continue to happen and the volume of moving parallel that becomes a tailwind that helps us in addition to our product progress in our sales momentum.
Alright.
How long of the call volume is tracking at the lend.
Moving from plus Florida.
Yes. This is violet.
Car volumes have been pretty steady quarter over quarter.
<unk>.
Pretty much the higher than the prior and tracking very consistently with the current year.
Bank.
And how is the back.
Of that Ken with the messaging services.
Yes. This is russ.
Yes, the texting is one of the catalysts for us we see that on the customer front.
Consumers are driving.
I'd say the steepening of the adoption curve because consumers want the ability not just the call, but the text. It ends up being just the much more efficient way to connect the either on the consumer inbound basis, one of the business outreach back to the consumer and so as businesses see the consumer traction.
And as we kind of touched on in the course of our of our of our formal presentation.
The increasing urgency just given some of the complexity of the existing business infrastructure to find the integrated solutions that support both voice and text and that lines up.
It's the right in line with what we believed would be the significant opportunity from our checks and so when we talk about our catalyst we hit on the auto vertical as an example, we hit on our Texas products in our text infused product specifically.
Because of the increased recognition of an urgency around adoption and the integration.
Yeah.
Alright, thank you.
Thank you.
Okay.
Again in order to ask the question simply press Star then the number one on your telephone keypad.
And there are no further questions at this time I will now turn the call over back to the speakers for additional comments.
Hi, This is Ross I appreciate everyone's participation today, just a few closing thoughts.
The last question on tax, Texas is really the first product that started to take off this year.
Touched on some of the other catalysts that we're seeing unfold.
But when we think about some of the key piece that we see it's really kind of our current view of this convergence of our three key positive elements with new product releases of increased sales momentum and it gives these macro trends that are leading to overall volume growth.
The combination of these three other elements are leading to this increasingly positive outlook of increased acceleration in our quarter to quarter growth as well as the bigger opportunity footprint. So again as things stand now we feel really good with the way 2021 is shaping up for us and we appreciate all your ongoing interest and involvement with March ex thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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