Q2 2021 Marchex Inc Earnings Call

All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end I would now like to pass the conference over to your host Trevor Caldwell Senior Vice President of Investor Relations and strategic initiatives was March ex. Thank you you May proceed Mr. Caldwell.

Thank you Amy.

Good afternoon, everyone and welcome to <unk> business update on second quarter 2021 conference call.

Joining us today are Michael Arends, and Russell Horowitz, our co Ceos.

<unk> our CFO.

Before we get started I'd like to take this opportunity to remind you that our remarks today will include forward looking statements Inc.

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 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 and we undertake 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 Mike Arends.

Trevor.

And disjointed path from beginning to end on the path to purchase because today businesses have different systems to engage them, depending on which communication channel the customer first engages with from.

From our techs this presents a major opportunity.

By aggregating multiple touch points in the consumer buying journey <unk> captures more data, which enhances our ability to build and improve our world class AI driven products.

We put powerful conversation on intelligence and the hands of businesses and help them close the loop between marketing and sales in order to help them deliver better and more cohesive buying experiences to their customers, we enable our customers to sell more and achieve positive value impacts.

We've concentrated our resources on the conversation on intelligence on sales engagement markets. These are bigger more transformative markets than the ones more checks has traditionally focused on we saw what we felt could be a transformative opportunity and accelerated our efforts to capitalize on our unique <unk>.

Position.

The favorable effects of that strategic decision are starting to materialize on our growth coming.

Coming out of the pandemic more new customers are adopting our new products and existing customers are continuing to renew and extend their relationship with us.

Conversation volumes are up from a year ago with several key categories approaching 2019 levels.

The reopening of the economy is of course, a factor in our growth as well people are increasingly contacting businesses again to spend on everything from cars to dental work to address the needs they had to put off during shutdowns.

And we are encouraged by what we've seen so far this year and are optimistic about the future.

While delivering a better buying experience.

<unk> helps auto dealers getting unique insights into the consumer path to purchase and the tools to better engage the customer and their preferred communication channel, we're already seeing the results and impacts when dealers better understand the customer experience day in turn improve sales team performance.

1 invariably affects the other.

The <unk> solutions integration is the first of many integrations that our new technology platform will leverage as we develop new capabilities through the advancement of our channel partner strategy.

Our new platform will help us not only build our integration partnerships.

But also improve our on boarding and sales process and innovate faster as we move forward.

Our advancements and innovations are getting industrywide acknowledgement in June <unk> when its fifth product awards. So far in 2021, when AI breakthrough awards recognized us as the winner of the best AI solution for sales based on the <unk> sales engagement product suite.

This award follows others, including the recent artificial intelligence Excellence award for the sales engagement product suite and the 2021 Gold Stevie Award from <unk> marketing edge solution.

And just today, we were named and highlighted as the market leader in conversational intelligence from Opus Research, an independent research firm, which focuses on the customer engagement market and its conversational intelligence and <unk> report.

We will continue to expand our offerings with AI driven products and features that build on our core value proposition strengthening our position as a leader in helping businesses leverage conversation on intelligence delivering the selling experience that today's consumers demand and in turn drive more sales and growth.

And with that I will hand, the call to us.

Thanks, Mike.

As we've discussed consumers engaged with.

Multiple communications channel.

With a powerful and expanding platform of value added applications across voice and text.

Martin can now unify and provide a 360 degree view of customer and prospect interaction.

The primary mobile communications channel.

This is the first time that holistic view has been available on many of our customers sales and marketing teams.

Through our conversational intelligence platform businesses can turn that strategic insights, we provide it's been more of their both value sales outcome.

History, leading companies are turning to March on it.

To solve mission critical problems in their sales process and we are increasingly being recognized by industry, leading research firm, where our unique and emerging position in these markets.

The recognition is helping us build increased momentum as we continue focusing on accelerating innovation and delivering measurable progress on what we believe is a transformational path and with that I will hand, the call to <unk>.

Thank you Rod.

At a high level the second quarter I think inflection that we are taking steps to recovering with past the COVID-19 crisis.

Many of our customers continue to reopen for business and are prioritizing the development.

Sales software again.

As Mike mentioned, we saw compensation volumes increase over the year ago period with several categories approaching 2019 levels.

We also saw positive developments in our sales pipeline enhanced by our new product advances on.

There continues to be a regional element to the reopening in the U S and.

In terms of relative strength.

Based on volume perspective, we believe overall trends are hanging in the right direction.

That said, we are watching recent trends closely to see if any resurgent factor impacts future planning initiatives.

Combined with our ongoing initiatives to launch new products economic recovery should provide a favorable tailwind from our cash going forward.

For today's commentary I will focus on our financial results from continuing operations.

On that basis revenue per the second quarter was $14 million.

$12.7 million for the same quarter last year.

Conversation on volumes maintained the momentum from March with many categories seeing double digit increases on a year over year basis.

The Covid environment continues can pack categories, such as hospitality and dental compared to a normalized environment, but other categories such as auto services on a meaningful increase that led to the year ago period.

In addition, Inc.

Economic environment combined with the launch of new products and continued feature enhancement is low.

Leading to an increase in new customer wins, and net sales compared to the year ago period.

Now, let's shift to the P&L for the second quarter.

Excluding stock based compensation amortization of intangible assets and acquisition or disposition related costs.

Total operating costs with continuing operations for the second quarter with $14.8 million compared to $17.1 million from the second quarter of 2020.

<unk> costs were $5.5 million from the second quarter.

This cost decrease as a percentage of revenue compared to the first quarter of 2021, largely due to a higher revenue level as well as realizing value from some of our infrastructure initiatives, which include cloud migration initiatives second platform integrations and other technology initiatives.

We anticipate as we complete these infrastructure projects and derived revenue from the launch of our new conversational intelligence products and sales engagement solutions we.

Day of our internal momentum will add to our future growth prospects.

For the third quarter of 2021, we believe we will make continued financial progress on both revenue and profitability metrics relative to the second quarter.

We also believe that our sales pipeline and product initiatives should enable us to grow on both a year over year and sequential basis in the third quarter.

This progression manifest in growth on a year over year basis throughout the remainder of 2021, which can help us achieve our goal of reaching breakeven or better for adjusted EBITDA on a monthly run rate basis. During the course of 2021.

There's progress will be driven by continued execution increase sales along with a cloud based infrastructure and other technology initiatives, which we expect to lead to some additional ongoing savings before the end of 2021.

We believe the opportunity and conversational until Virginia and fails engagement markets are significant we are committed to investing appropriately to ensure our existing sales and product momentum will continue into the next year.

We believe marczak is uniquely positioned as a trusted partner for market, leading companies that need an driven conversational intelligence and sales engagement solution.

We saw a an increasing array of mission critical problems to help businesses deliver a great selling experience in an increasingly complex ecosystem of customer communication.

Marczak Who's award winning voice in Tech solutions are a testament to our employees and their dedication to our customers need.

If we continue to focus on accelerating our technology and product initiative.

Leave we can create and deliver longterm growth profile.

And drive significant intermediate and long term operating leverage.

Over the coming months, we expect to have more news to share regarding new products, new relationships and are expanding AI capabilities.

So all of our employees we thank you.

His leadership team was very appreciative of your hard work and dedication.

With that operator will have to call back to Ya.

Certainly we will now begin the question and answer session.

At least within the texting arena have allowed us to sign up more new customers in this last quarter vs representative of.

Signing in on boarding several new customers in a significant difference obviously than what it was a year ago period, but getting back to those levels that existed in the pre Covid era, and we think with some of the product progress. There's some momentum from a new product perspective, as well as extending the really.

Nation ships with some of our existing customers and potentially having some of these existing customers on board and sign on with some of these new feature sets. Those I think are the keys to some of the progress that we see prospectively for the rest of 2021 at the same time not just for the rest of 2021.

2022, there are several new product and feature sets.

Including some engagement outside of just the auto area that we expect to bring to the table and bring to bear for customers as well as new potential customers and we think that's an important driver as we look ahead not just for 2021, but beyond.

And this has got it I'll just add on.

When you take.

It on and synthesize into a few Q keeping.

1 we feel we have a lot of headroom with our customer base.

That new product progress that we're making.

It is also really illuminating the opportunity to add new customers. So we have room to grow with.

The new products or catalog win new customers and then importantly to hit specifically on your question around the Big solutions integration.

1 of the things we've been focused on it we feel we have strong validation of the value impact of our product until 1 of the things moving mindful too.

What are the ways, we can make it easier to adopt an operational on those.

Existing operational workflow.

<unk> on a core part of that and an integrated strategy as well.

Allows us to do so on on on a kind of more friction with a person so.

By virtue of integrating within solutions, an auto that's a catalyst for us to be able to sell more increase the velocity of adoption increase the velocity of U as well with value impact, which we think it becomes a catalyst for growth tho those themes apply more broadly so auto the catalyst texting as a catalyst which runs across.

The horizontal spectrum of all of our vertical we see catalyst select other verticals that we look at.

Of expansion going forward, as well and and as Mike mentioned, obviously with Covid. There there's always questions on on what might happen, but directionally. We think that we've got a net tailwind in terms of volume on backs all the time.

Thank you.

Got it and.

And kind of a follow along on that.

The CRM systems.

Generally certain industry certain vehicles will share similar CRM systems, I'm curious, if you're kind of targeting.

Focusing on 1 vertical at a time as opposed to casting a wide net and targeting multiple <unk>.

Articles at the same time.

Just pragmatically, if that makes more sense to kind of focus on 1 other time.

Yeah.

Our approach to this has been to create capabilities on our products that are applicable to multiple vertical and then what we wanted to do it take those and apply it to a specific vertical 1 where we felt we had a really strong strategic position and so you're from unique strategic advantages invalidate that which is what we've been doing it on the auto state within solution.

There's more integration calm that we think are accelerant as we do that and see that success to start to expand our efforts in parallel into other core vertical where we can have vertical specific applications and vertical specific integrations as well so prove it out with auto and then in parallel starts to filled out vertical specific application.

And our other core vertical given the kind.

Kind of learning and acceleration, we did by virtue of our success on auto.

Cause that address your question.

It does yeah I appreciate that and just 1 last quick 1 for me.

With the economy, reopening, which certainly seems like a tailwind for many of the vertical that you participate in.

How much risk you see with the business given the.

Proliferation of the new Delta Maryanne.

So this is Mike I think if you look at what's happened with any consumer activity.

Any resurgence cash.

Can create consumer impact, where there's lessening of just the consumer activity.

Whatever we may be seen here in the very recent period of time.

What we do believe is that the opportunity is there regardless. So it's a question of are we gonna have blips in the equation consumer activity continues to focus on.

Voice that continues to focus on testing.

That continues to be engagement from businesses needing some of the insights.

Information flow in sales engagement technologies that we have those things are going to existence permeate.

Regardless of some of the Covid impacts even if we see some lessening of consumer activity in the in the very short term because of any kind of resurgence. We think it's just a question of the intermediate and long term planning out to the advantage of us with some of the new product introductions and adoptions by businesses of these technologies.

Got it well thanks I appreciate your time.

And you mentioned on.

Your next comes from the from my bottom vanilla.

Katherine capital market you May proceed.

Hi.

And comes on behalf of my Internet anymore. Thanks for taking my question.

Could you give me on a day.

On large industrial revenue is using sneezed losses and non stops connection.

Yeah, I would say on.

The majority of our revenue is usage paint on at this point.

Driving more and more by subscription.

Inquired on a a double digit.

Growth this year.

You expect them.

To be sustainable day after.

It's a very good question I think clearly we've seen some of the impact not just from a volume perspective on consumer activity returning but also from some of the new product introductions as we've mentioned before we have a slate of features new products or.

Thus talked.

Extensively about some of the vertical applications in CRM integrations that we think we're going to be bringing to the table. In addition to the Vince solution CRM program that we've.

Recently.

Put out to market.

As those things come to there, we see opportunity and we're looking for revenue not only to grow we think there's the possibility, especially on the intermediate term as we get back to normalize levels of consumer activity for potential acceleration.

Right and 1 wasn't it on the on customers on now.

About the Covid Neville.

This is Mike I think when you look at the different categories. We certainly have a significant amount of resurgence back to volume levels similar to 2019, and a category like auto services, even car sales and some of the work that we do on the auto sector is.

Return to significant levels that were pre COVID-19 ask and there's a few other areas that have similarly move forward home services as a key example, but there's other categories that we mentioned are simply not at the level that they were in.

Hospitality travel it would be 1 of them I think.

If you look at some of the healthcare networks, even in the dental category, it's progressed and it's significantly improved from what it was a year ago, but it's not at the levels that it was back in 2019, but many of the areas have come back with strength.

Certainly as we've seen here in the recent periods of time.

Alright.

Thank you.