Q3 2021 Marchex Inc Earnings Call
Hello, and welcome to the <unk> Conference Cool My name is Charlie and I will be coordinating yokel today, if you'd like to ask a question. During the presentation. You May register to do so by pressing stopped fully by one on your telephone keypad I will now how did you have at your house.
Trebek Caldwell Senior Vice President strategic initiative, and Investor Relations to begin Trevor. Please go ahead.
Charlie.
Good afternoon, everyone welcomed the mole jerked his business update third quarter of 2021 calls at school.
Joining us today or Michael Runge muscle haulage or cause he knows.
<unk> <unk> before.
Before we get started I'd like to take this opportunity to remind you that Ah remarks. Today will include forward looking statements include references to our financial and operational performance.
Actual results may differ materially and those contemplated by these forward looking statements.
Risks and uncertainties that can cause these results to differ materially are set forth in today's earnings press release, and then our most recent annual and quarterly report filed with the S. C C.
And forward looking statements that we make on this call today are based on assumptions as of today.
Under no obligation to update the statements for subsequent events.
During this call we will present, both gap and non financial measures reconciliation of GAAP to non-GAAP measures is included in today's earnings press release earnings press releases available in industrial relations section of our website at this time I'd like to turn the call over to Mike.
Thank you Trevor.
And thanks, everyone for joining the call.
During the third quarter, the resurgence of a pandemic from the Delta very unimpacted customers and some of our key protocols, but as we navigated through those challenges remain focused on key initiatives to drive our customer and go for growth opportunities and I'm pleased to report that we saw significant progress from those efforts.
Let's first discuss conversation volumes.
Primarily during the latter half of the third quarter, we saw a decrease in two volumes of certain verticals, such as home services and auto which May also been impacted to some degree by supply chain disruptions.
These categories are typically strong in the third quarter and we're attributing these lowered volumes to the resurgence of the pandemic.
That being said, we continued to see a return to a more normal purchasing cycle for most enterprise customers.
We also see building interest in our sales engagement suite of products a tech solution, which is reflected there are growing pipeline and continued confidence in our larger opportunity for 2022 that'd be awesome.
Against that backdrop, we've made significant progress in our core strategic initiatives for the year, particularly over these last few months.
First week finalize we finalized a longterm renewal of one of our largest OEM customers with a framework that enables us to extend through 2025 based on our continued execution. We also expanded relationships with two additional OEM partners each with significant.
Room for growth in 2022 and beyond based on traction with some of our newest products.
Trends like E retailing are driving Oems to accelerate the adoption of new sales practices and solutions.
The data that we provide to our products is critical in shaping their strategies to tackle this shift in fact, many of our oleum opportunities are based on March exes, expanding role in helping the auto industry take on this challenge.
And second.
We've made significant advancements in our technology infrastructure and cloud initiatives in 2021 is a strategically more focused company, we have been able to move rapidly and building out our platform, which has helped contribute to the company achieving profitability ahead of schedule.
Well, there's more work to be done moving our technology infrastructure to the cloud is enabling <unk> to innovate faster. It means we can scale innovate within a common architecture and expand the breadth of capabilities, we can provide to our customers.
We can develop new AI signals more quickly and deliver them in easily consumable ways via integrations with new channel partners.
Furthermore, we can onboard new customers faster than ever on a new platform and this is having a positive impact on our prospect and <unk> conversations.
Third our product launches are also accelerating.
Just yesterday, we announced marczak anywhere Ah new hop that expands access for a conversational intelligence products to see past you cast and see cast platforms.
<unk> anywhere opens up a channel strategy from our checks to deliver our entire suite of current and future products into platforms that have access to tens of thousands of businesses.
This innovation brings our market, leading conversational intelligence services to an expanding universe of businesses looking to enhance their existing sales customer engagement marketing and communication platforms with the power of actionable insights from customer conversations.
March X anywhere also offers two types of integrations.
Communication platform integrations and zero code integrations.
This significantly express expands the number of companies that can employ mark checks conversational intelligence to enhance their sales customer engagements and marketing efforts.
And our solutions continue to receive industry validation.
We were recently named the overall SaaS winter and the analytics and business intelligence category of the 2021.
<unk> awards based on our leading conversational intelligence platform in sales engaged with products Sweet and this underscores mart checks with momentum and achieving leadership recognition.
And it's the eighth award we have received this year, which is a record for our company.
His new products are introduced and begin to sell through.
We expect to see additional operating profile as a direct result of <unk>.
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There's no doubt there's still more work to be done this year or next but we're confident in our long term strategy and we look forward to sharing more on our operations and outlook.
Was that all handed over to Russ.
Thanks, Mike.
And the third quarter, we continued to make substantial business progress repositioning marches to capitalize on the long term opportunity to conversational intelligence and sales engagement solutions.
We are creating a market leading suite of products that can deliver end to end solutions from the first media dollar individual store or location performance.
It is a bold vision and one that is transformative to our customers and ourselves.
During the last several months, we've taken important steps in the form of new solutions and capabilities, we have brought to market and there was much more to come.
Security, New long term commitments with several of our leader on several of the leaders in our large corps verticals gives marks a significant headroom to grow simply based on the relationships we have in place today.
Combined with our products momentum and growing base of new customers will serve as the foundation for our long term increasing growth.
By continuing to invest in a cloud based technology initiatives. We are ensuring that we are moving toward a financial profile that can include significant growth and operating leverage as we execute.
I'm energized by our future and I look forward to a better you wanted to tell me months and with that I'll have to call over to Lila.
Thank you Ross.
At a high level I third quarter 2021, these alternext cause we hadn't pandemic headwinds and packing conversational volume.
However, this is offset by significant traction with new customers and vertical effect at home service with an automotive.
Benefit our long term revenue profile.
During August and September we have asked me a conversational volumes and key categories on a month or a month basis on.
On the other hand, we continue to see consistent South Carolina, new product Sunny over here.
Thanksgiving certain revenue timing pricing adjustments that were made during 2020.
I need to the pandemic in order to support customers, who in many cases were severely impacted.
Even though last year had it's challenges and the full impact of the suggestions carry for into this here.
Making significant progress.
I'm, a new sounds perfect as the third quarter, which is typically as well a quarter for enterprise tells me to send my business slowdown with consistent with the second quarter.
That's been cast that our new products are resonating and that our target customers are returning to have no more normalized purchasing behavior.
Sure. There are long term sales pipeline continues to develop favorably on.
On the operating cost side, we continue to see progress related to our technology infrastructure initiatives.
You want us to keep our profitability goes much more quickly than anticipated.
For today's commentary I will focus on our financial results from continuing operations.
On that basis revenue for the third quarter was 13.7 million versus $13.8 million for the same quarter last year.
As might discussed we extended our relationship with one of our largest L. A M customers to a multiyear framework. It has positions that could extend the term of this partnership into 2025.
We also recently expanded to additional Alam relationship, let's see significant opportunity for growth in the auto and other core vertical.
Furthermore, we believe that the continued growth and breath of our product pipeline, what they really impact our opportunities with current customers as well as open you channel opportunities.
Now, let's shift as a piano for the third quarter.
Excluding stock based compensation amortization of intangible assets and acquisition disposition related costs total operating costs will continue operations for the third quarter with $13.9 million compared to 17.4 million in the third quarter of 2020.
Service costs with $5.7 million for the third quarter.
Service consular largely flat on a year over year basis.
Experienced a slight increase in the second quarter of 2021 related to one time expenditures, which accelerated it's none of our technology integration platform work.
We anticipate please infrastructure projects and continue to see successful fell through lots of our new conversational intelligence products and channel initiatives.
We will continue to see a positive impact on service costs as a percentage of revenue over time.
Sales and marketing costs are $3.7 million.
And that was slapped in the year ago period, and reflected in more normalized sales and marketing expensive compared to the second quarter of 2021.
Product development costs for $3 million and went down as a percentage of revenue compared with the third quarter of 2020.
In the second quarter of 2021.
Elected in part of efficiencies gained from a technology platform progress.
Moving on to profitability measures adjusted operating loss before amortization for the third quarter with $300000.
Corresponding adjusted EBITDA with a positive $13000 improving from the second quarter of 2021, you are at a loss of 500000.
<unk> net income from continuing operations with $3.3 million for the third quarter of 2021 or seven cents per diluted share.
Compares to a net loss of $3.7 million or eight cents per diluted share for the third quarter of 2020.
Third quarter 2021, GAAP net income reflects the benefit of the federal cares at ground forgiveness of $5 million.
Just a non-GAAP loft containing operations with one cent per share for the quarter compared to adjust and not get possibly continuing operations of six cents per share for the third quarter of 2021.
Additionally, if we ended the third quarter with approximately $28 million of cash on hand.
Now turning to our outlook.
Continue to be optimistic a battery internal momentum and believe that this momentum will add to our future growth prospects.
For the fourth quarter 2021, similar to past years, we expect a seasonal decline in revenue compared to the third quarter.
Fifth period, typically represents lower sales volumes for many of our customers as columbines declined during the holiday.
However, even accounting for seasonality, we anticipate that I knew sales traction will lead to similar growth on a year over year basis for third quarter progress when it comes to the fourth quarter of 2021 suggested core analytics conclusions revenue $12.3 million.
Additionally, if he continues he fell through of our new product. We believe that we will be at ordinary just to be able to break even for the fourth quarter.
The conversational intelligence Assails engagement markets represent a large and very significant opportunity from our checks.
A validation of our investment with customer emails expansion and increased adoption.
There is also growing industry recognition of our leadership I'm product innovation.
Further supports are expanding pipeline and growth opportunity.
What does this progress. Please believe that we can see additional operating leverage expand gross margin and achieve a healthy profitably profile that will enable increased flexibility too fast and accelerating growth.
We look forward to building on our internal momentum and over the coming months, we'll expect to have more needs to share regarding a new products.
Relationships and are expanding a I capability.
I want to thank all our employees for their dedication and has continued efforts there is much more to come.
With that operator, I'll chemical back to Ya.
You would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind it should stop followed by K.
The first question comes from Austin, better make a rough kept two partners. Your line as I attended please go ahead.
Hi, Thank you for taking my question and I Hope you are doing well.
And congrats on a quarter first question I was curious if you could expand on.
Some of the types of customers that you're you're targeting with this new integration, whether it's large enterprise customers are more midmarket bogus.
You know it was integration such as Pulido five nine bring central for example, and then kind of along that note. If you could kind of go into depth on what the impact would look like from those moving forward.
<unk> thanks for the question.
<unk> city, where strategy and our increased.
Investment and integration, we look at it is really core.
On a broader theme that we'd see which is we've.
We've been able to really validates the value impact and unique capabilities of our products with a lotta market leading companies in some major vertical and one of the elements. We thought about is how do we expand our opportunity foot pretty channel strategy.
Remove the friction and can I increase the ease of adoption to get those benefits and and that's what's really like with the integration strategy bring the product crude capabilities to where the customer is already are into the system. They already use and so when we think about the profile of those customers.
Falls into.
Our core vertical you think about you know auto auto services home services real estate certain segments in health care.
Hospitality et cetera, but we think it can broaden from there.
Giving me Replicability.
Extend beyond those as well and this will be the most cost efficient and scalable way to do it you hit on some of the examples the ring central to $12 and others, where we know that we can expand our customer base salary.
Celebrate integration of grilled with us so five because we do that you have given the nature of software. We think we get inquiries scale and leverage on an operating basis, and then that can lead to some margin expansion as well.
Hopefully I was able to answer all of the elements that didn't miss anything.
Absolutely Yeah I appreciate that.
I do have another one with.
One of the C R and integration your bank in terms of prospects pipeline expansion and revenue in the near term as well as the.
Immediate term the next couple of quarters.
Great question the.
In the spirit of the same theme in terms of bringing the capabilities into the systems our customers already use.
It really accelerating the we'd be talking about kind of what the what the meaning to process it significantly increasing.
The active prospects in the conversations that we're having so we talked about auto.
I think for the folks who are invested in and more checks. They know that we've got.
Much most if not all of the major Ottawa Williams, and that's extended into significant dealer footprint and so.
By integrating directly into the sea around an easy integration adoption of benefits.
That's a real accelerant for us. So once again, we think we've got a ton of headroom. When we look at these these vertical opportunities. We think we're creating a replicable template of what we can do in other verticals like home services and beyond.
And again, it's accelerating our opportunity and we take a little maybe if we contribute to our growth.
Perfect I appreciate it and.
Oh, sorry go ahead.
No no no no you go ahead please.
Just a quick last one for me.
How should we think about.
P&L impacts.
Economic recovery versus.
Additional outreach new product offerings and integration set another way I wouldn't really getting added.
<unk> any additional covered headwinds moving into the to the next quarter or so in terms of like call volumes and so forth.
Hi, Austin This is Mike so when we think about the unraveling.
Covid that we started to see in the times.
Frame of this year, we saw uplift from could sort of business engagement and those conversation volume starting to increase in March April may and June and even in July and we definitely saw that in our business with our customers in the activity that they were saying that there was a resurgence we saw more of that in the August.
September timeframe, but it's still a residual as part of the operating activity today, we think as we progress there may be movements up or down but as the unwinding occurs the unraveling.
It will be expected with our customer base that we will get a lift and we think some of that will come in 2022, if not all of it but we do think that's gonna be a base point, we think the other things that are can be keenly manifesting themselves in terms of our opportunity today, we met.
Shouldn't on this call are enterprise pipeline is still working they are having their teams engage with new solutions, which is different than what was happening in 2020. So the last number of months, we still have engagement even in August September and October from enterprise customers looking at new.
Solutions are enterprise or a pipeline for the enterprise customers is building, we think about the new products and the initiatives <unk> just talked extensively about more checks anywhere we believe that can be a catalyst for 2022 and beyond but we also mention of this call are very important facet, which was we've extended renewed.
And created expansion opportunities with some of our existing customers that are large and then the OEM side in particular.
We've got three relationships one significant one that we renewed but to others that are meaningful that we've created expansion opportunities and are growing now as we sit here in the fourth quarter, but more importantly are setting the stage for a greater level of possible growth in 2022, and we think that can be especially in.
Near an intermediate term a key driver of the overall opportunity.
Great. Thank you I appreciate that will that that's all for me. Thank you again for taking my questions and congrats again on the corner.
Thanks would you be well.
As a reminder, if you'd like to ask a question.
Stop for like by one on your telephone keypad now.
Our next question comes from sharing Okay that Oh, no Nolan capped to market. Your line is I've been please go ahead.
Hi, guys semi question for today is macik anyway, so what prompted them marching send your <unk> is it the customer requests the platform company asking for integration.
Excellent question.
It's it's really been a combination of both but but I would emphasize first and foremost.
This was customer driven when when we look at who our existing customers are soon as we.
We've introduced new products and as we've evolved from.
More traditionally being a conference call and then conversation analytics company into sales engagement.
What we had certain selective customers that we're seeing significant about measurable value impact.
Wanted to extend it beyond our limited volume of the inbound customer conversations they were receiving and kind of operationalizing that word collaboration around integration.
With one of their core providers and as we went through that process and we're able to validate the product's utility and they're being able to at that point, where expansively apply it it became clear to us that there was broader opportunity based on an integration strategy, which in turn has led to some strategic relationships with those underlying integration partners, which we.
Think we're just getting started with so that really kind of lays out the genesis of it. We think we're on the very front end of what this can mean for our business and again, we're creating a replicable template, but but we are close enough and we've been able to validate it with some early adopters. So we do think it's tangible and we'll start to see some impact from it.
Okay great.
So the next question is you have a specialist in sales engagement, but macik seems to bring your morning to customer service can you see it for the day.
We really looked at it would be applicable witty of our solutions fairly broadly, but we also try to sequence. This and one of the things that we've learned over time with our customers cause that insights alone had value but.
It was limited if we weren't providing the automation tools to act on those insights and harvest.
Potential value that.
And a lot of cases was being missed so a lot of our efforts have been into.
Certifying that uniqueness and impact of ourselves engagement solutions.
We do see opportunities more broadly with conversations across the spectrum.
But as I mentioned, we're trying to sequences.
I'm kind of looking at our heritage around coming in through the marketing department as well as building relationships across the sales organization and so we do view our opportunity as being much broader but in terms of accomplishing our goals around increased penetration with existing customers expansion of opportunity with new customer.
<unk>, bye and and and kind of be on that that we can accomplish our goals.
With our existing opportunity around sales engagement and insights and then similar to what we did with integrations with some of our early adopters extend those solutions more broadly.
And the conversations and searched another potential areas.
Okay got it after my last question is.
Most of the theaters now and jerked out wise and messaging and that's it.
This is this is Mike so in terms of Vaughn.
Voice and just the communications fee as of conversations that are coming through phone calls that is the substance of majority of our conversation volumes today.
As you know we ingesting required.
Technology that enables us in with a texting space a number of years back that is one of the opportunities that we actually see is propelling us to accelerate our opportunity in 2020 children, but it's still a small portion of our overall conversation volume.
But we do see that peasant accelerant and part of our opportunity for meaningful growth.
And just to add one thing thank you.
The combination of voice and text.
As the foundational capabilities would multichannel might get on is with these existing customers Andrew what's expanding that opportunity said when you look at it moving to broader conversations and broader applicable witty and.
Opening up new volumes crossed with a lot of these customers that translates with a growth opportunity. So the combination of voice and text. That's part of our multichannel sales engagement solutions cause a definite catalyst when we look at new products and adoption.
Okay got it thank you.
Thank you.
They're nice out of the questions on the Caliphate, nine so I'll have to call back cave to try that.
[noise], Okay. Thank you Charlie and thank you everyone for joining us as in his call. We look forward to in just a few months.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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