Q4 2021 Marchex Inc Earnings Call
In this press release is available on Investor Relations section of our website at this time I'd like to turn the call over to Mike Arends.
Thank you Trevor.
Thanks, everyone for joining the call.
The fourth quarter was characterized by continued progress including dynamics that we believe will favorably impact our going forward opportunity as.
As well as the sequential and long term growth of the business.
While recent months have continued to see suppressed conversation volumes due to the pandemic and the ongoing impacts our customers face from labor shortages as well as supply chain disruptions something I'll discuss more in a moment.
Now despite these headwinds our business has continued to make strides with our product innovation, which is opening more opportunities with existing customers and new ones as well.
The demand for conversational intelligence and sales engagement products is both real and growing.
While the pandemic has had lingering effects on our growth over recent periods.
We are seeing active engagement with our products by many of our largest customers and we have also won various new large enterprise customers. We believe that this will define our opportunity and growth well into the future.
Another reason, we're optimistic is that the data from the fourth quarter of 2021 and into February illustrates that we are seeing a return to a more normal purchasing cycle for many enterprise customers.
As these businesses look to the future they see how much excess sales engagement products and tech solutions can elevate their sales and marketing strategies, what they want and need is to close the loop on every dollar of our media spend and our technology allows them to do.
Do that.
From a marketing dollar spent to drive prospect to the performance of individual locations or stores and selling to those prospects Mark checks has the solution set available to help businesses understand performance in ways that have not been previously possible.
This is a significant development in the sales conversations we are having with businesses as closing this loop empowers brands to create better buying experiences for their customers and increase sales.
And on the customer front I am excited to show them in the last few months, we have had sales discussions with one of our fastest growing auto vertical OEM partners with respect to a multi year relationship expansion framework.
And this is on the heels of our recently, adding a market leading national home services brands to our customer base.
<unk> continues to have particular success in our sweet spot.
Which is brands with distributed locations or franchises.
Now over the last two quarters, we have seen continued traction with large fortune 500 companies leaning into their relationships with <unk>, because they see the strategic need to improve customer experience and salt persistent problems and gaps in the path to purchase.
Our emphasis on product innovation continues to be a key driver here.
For example, we recently completed our second auto vertical specific CRM integration.
In Q1 of the largest automotive solutions providers.
Last month, we announced that Mark Jeff's engaged for automotive is aimed to graded into Woodford tell us Commerce exchange platform.
This empowers automotive dealers to easily deploy <unk> conversational conversation intelligence and provide better customer experiences by automatically delivering up to date conversations.
Vince and outcomes within CDK E lead CRM, one of the auto industry's largest customer relationship management systems.
Enables dealers to increase sales efficiency by taking the best options to make the most of every opportunity and sell more vehicles.
This integration dovetails with our efforts to make our products easily accessible as part of existing customer workflows within the largest vertical CRM.
And there is much more to come on this front.
Innovation is at the heart of everything we do we just announced conversation DNA, which is the next step in our new cloud based conversational intelligence architecture.
This core technology enables voice and text conversation do coding, scoring categorization and AI signal delivery across every March ex conversation intelligence product.
When customers call or text, a business conversation DNA identifies consumer intense context urgency.
And service Suntrust appointment scheduling and payment preferences.
This is a breakthrough innovation because understanding consumer intent at this level of granularity helps businesses optimize marketing campaigns. It improves customer experiences and helps closed sales at previously unattainable levels.
It is also the underlying technology that helps develop the AI signals that now are available to virtually any business via March ex anywhere our recently launched cloud based integration hub.
This innovation first approach is one of our strategic priorities and we believe will be a significant growth driver for our company.
With <unk> anywhere, we have been able to integrate into market, leading partners such as ring Central Twilio.
Mix and $5 nine.
There is much more to come on this front as we are working on expanding and broadening these partnerships.
We've been winning new customers growing with existing customers and expanding our suite of product innovations. We are confident we are well positioned to capture more share of the fast growing conversation intelligence market.
The progress that I've outlined we believe puts us on a path for substantial long term growth and I look forward to updating you on our future progress and with that I'll hand, the conversation for us.
Thanks, Mike.
In the fourth quarter of 2021 through today.
<unk> continues to put together the key ingredients to capitalize on the opportunity and conversational intelligence.
Through expanding our opportunities with market, leading customers and developing industry leading products <unk>.
<unk> is putting the pieces in place to drive meaningful sequential progress and significant long term growth.
This year, we will continue to invest in leveraging the growing base of billions of minutes of conversational data that floor.
So through our platform to solve an increasing array of mission critical problems for our customers.
This has enabled <unk> to create an expanding base of first ever AI driven sales engagement signals, which are available in our products and also available for businesses to purchase on a standalone basis via our channel partners through our cloud based integrations hub.
But we have been focused on this opportunity for some time in many ways. We are just beginning to see it really open up.
Through these initiatives, both now and going forward <unk> products will be available through additional direct and indirect sales channels and to a much broader base of businesses than ever before.
We look forward to seeing how each of these initiatives enhance our overall financial profile.
With that I'll hand, the call back to Mike.
Thank you Ross.
At a high level and as I previously mentioned, our fourth quarter of 2021 results continue to be influenced by the pandemic and typical seasonal flow of conversation volumes. These.
These factors were offset to a degree by wins with new customers in verticals, such as home services and expansion of existing relationships in verticals like automotive and automotive services, which we believe will benefit our long term growth outlook something I will cover in more detail in a moment.
Although the pandemic has continued to impact our business. We are seeing very recent signs of progress and are encouraged by the trends at present.
Now looking more closely at the fourth quarter October remained largely consistent with the suppressed conversation volumes of August and September .
As the quarter progressed typical seasonal patterns emerge as conversation volumes for our largest verticals were lower which was consistent with the impact we typically see around the holiday periods.
On the favorable side, we continued to see consistent sell through on new products with new and existing customers.
And overall, we feel very good about our long term customer and prospect pipeline and its ability to drive our growth profile.
For the quarter on a year over year adjusted basis, when excluding certain pandemic related revenue timing and pricing adjustments that were made during 2020 in order to support impacted customers revenue grew in the mid single digit percentages.
Conversation volumes make up a significant component of our growth profile in the last several months continues to be characterized by pandemic suppressed volumes.
Is that potentially unwind in the future. We expect it will have a beneficial impact to the business as it did in the second quarter of last year when volumes combined with new customer traction, helping <unk> achieve accelerating double digit growth for the first time since the onset of Covid.
We believe more significant growth is achievable just with our existing customer base as volumes normalize.
On the operating cost side, our continued progress on technology infrastructure initiatives enable us to achieve.
Positive adjusted EBITDA, which positions us well in the future for discretionary operational leverage as our growth accelerates.
For today's commentary.
I will focus on our financial results from continuing operations.
On that basis revenue for the fourth quarter was $12 8 million versus $12 3 million for the same quarter last year, when excluding certain pandemic related revenue timing and pricing adjustments that were made during 2020 in order to support impacted customers.
As noted earlier, we continue to see positive traction for expanded relationships within the auto vertical and specifically with another large OEM customer as well as the recently signed relationship with a new home services aggregator.
That will begin to ramp later this year.
Furthermore, we believe that the continued growth and breadth of our product pipeline, which will continue to expand this year should favorably impact our opportunities with current customers as well as open new channel opportunities.
Each of these to be additive to our long term growth outlook.
Now, let's shift to the P&L for the quarter.
Excluding stock based compensation amortization of intangible assets and acquisition or disposition related costs.
Total operating costs from continuing operations for the fourth quarter were $13 $1 million.
Compared to $16 4 million in the fourth quarter of 2020.
Service costs were $5 3 million for the fourth quarter.
Service costs showed some leverage year over year, largely due to our progress with our technology infrastructure initiatives.
We anticipate that as we continue to see successful sell through from the launch 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 were $3 1 million.
This amount was down from a year ago period.
Product development costs were $2 8 million and was down as a percentage of revenue compared with the fourth quarter of 2020.
Collective and part of efficiencies gained from our cloud based initiatives and our technology platform progress.
Now moving to profitability measures adjusted operating loss before amortization for the fourth quarter was $300000.
Corresponding adjusted EBITDA was a positive $60000.
Moving slightly from the third quarter of 2021, which was breakeven.
GAAP net loss from continuing operations was $2 million for the fourth quarter of 2021 or <unk> <unk> per diluted share.
This compares to a net loss of $5 $7 million or <unk> 12 per diluted share for the fourth quarter of 2020.
Adjusted non-GAAP loss from continuing operations was one per share for the quarter compared to an adjusted non-GAAP loss from continuing operations of nine per share for the fourth quarter of 2020.
Additionally, we ended the fourth quarter with approximately $27 million in cash on hand.
Now turning to our outlook.
We believe our product momentum and ongoing conversations with customers and prospects will add to our growth prospects. So.
So for the first quarter of 2022.
Set of Omnicom weighed on conversation volumes in a handful of verticals and in addition employee shortages appear to have impacted conversation volumes in January and February with some recent favorable easing.
As a result at this point, we anticipate modest growth in the first quarter and expect we will grow both a sequential and year over year quarterly basis.
We are currently having collaborative planning to deploy later this year foundational solutions with some of our large OEM partners in the auto and home services verticals. We believe we can see continued we can see continued growth tick up over the course of the year.
And Additionally, based on our current momentum.
We believe we will be at or near adjusted EBITDA breakeven for the first quarter.
We believe that we have assembled the key ingredients to take advantage of the significant opportunity in the conversational intelligence and sales engagement markets.
While Covid has played a role in suppressing some of our near term growth dynamics over the last few quarters World class brands continue to lean into the relationships with more checks somewhat multiyear commitments and frameworks.
As a result, we have significant headroom for growth.
We are seeing industry recognition of our products and through initiatives like March. It's anywhere we are now able to leverage channel partner strategies to take advantage of our expanding array of conversational signals developed with our conversation DNA technology.
Our rich base of conversational data continues to give <unk>, a unique vantage point and advantage to develop first ever AI driven sales engagement tools, our market, but it's larger than anything <unk> previously tackled.
We continue to solve critical needs for some of the largest brands and significant verticals that are ripe with opportunity and believe our current product and customer momentum can put more checks and are positioned for meaningful growth.
In the event, we see widening of the pandemic, we believe that should convert into a tailwind in many of our verticals and enable us to achieve accelerating growth and potentially increasing double digit growth rates.
I want to thank all of our employees for their dedication and continued efforts there is much more to come.
With that operator, we will hand, the call back to you.
Thank you Michael we will now begin the Q&A session, if you'd like to ask a question press star one on your telephone keypad and if for any reason you'd like to remove that question simply press star two as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
We will now take our first question from the line of Darrin Afterheat.
Roth Capital Partners Darren Please proceed.
Hey, guys. Good afternoon can you hear me.
Yes, Hey, good afternoon, Greg Greg.
Yes, good afternoon. So.
A couple a couple of questions here. So first on the foretells integration just kind of confirm that there's been solutions can you just kind of talk about.
Kind of a general scale of that.
Partnership and then where we possibly could see impact from both of those relationships on the P&L and that's something that's going to happen in fiscal 'twenty two.
Question, a second one on the last call you guys mentioned sonar.
One of the fastest growing pieces of the business rather your customers I'm just kind of curious.
How that trends.
Was in the fourth quarter and what Youre seeing in Q1, thus far and then Mike you talked about your operating cost I recall down $3 million year over year.
If the pandemic.
Wine or softens, where things are kind of getting some more liquidity and then you see faster growth does that marginal growth.
All down to the bottom line most of it is kind of give us some general sense for what the marginal flow through RPC higher growth.
Prospects going forward. Thanks.
Thanks, Dan. This is Mike appreciate the question so let's start with the first one which is the <unk>.
<unk> integration there are.
A variety of CRM integrations within the auto industry and many of them are very specific to the auto industry. We are now working with several of the largest and most impactful ones within the auto industry. The <unk> integration is significant it has a meaningful market share across dealerships across the United States.
<unk> engaged already and have already released one of our prior integrations. So the coverage that we have for all auto dealership accessibility through the CRM integrations today.
Sits at the vast majority of the total population of auto dealerships and there's still more to come in terms of some of the integrations that we're working on but what that for Dallas for Telus integration does is it opens up a meaningful share because they have such a meaningful share of the auto dealership market. It opens up.
A lot more.
<unk> access where.
Dealership can engage with our technology and our solutions.
Simplistic way without having to move away from their existing CRM system. They can use that and see that within the the compelling dashboard. So it makes it a very simple add on use case, which opens up a much.
Much more viable way that we can have the dealership engage in a more voluminous fashion with our conversation activity.
Yes, and just to add to that this is Russ.
It's reflective of the B between these between the two integrations.
50% of the auto market.
The broader theme you've heard us talk about and what's coming to fruition as we've got really unique value added applications historically our products.
It required customers to really lean into the kind of co development around integrations, because telephony component was necessary to get the benefits now.
Now by bringing our products to the systems they already use whether its vertical specific integrations or through March anywhere, we're taking the obstacles and friction out of the process. So that they can easily adopt our value added applications get these signals around their conversations whether it's because of the tax or other communicate.
These channels they may want to integrate.
And do so again in a way, where it's comparatively simple straightforward and overtime will be quicker, which benefits them and obviously will benefit us.
Darren This is Mike let's go back to your second question, which was our technical solutions one of the key themes that we had when we looked at acquiring the technology with sonar was how do we take the texting solution and add it to our platform.
<unk> allow for conversations not just via the phone, but also from a text messaging standpoint, and create a view where the business could actually see consumer interactions across more than the one channel of the conversation call coming in and that's one of the big things that we've been working on from a technology perspective is.
Enabling our platform with the sonar technology.
To allow the business to be able to see those conversations and then deal with it.
Robust manner that continuation of technology integration occurred.
In the third quarter of last year in the fourth quarter.
We are still working on some of those integration components.
We think it is a robust.
The level of interest from our existing customers in terms of how they see.
Consumer conversations both from a phone call and a texting perspective, we don't think thats going to change on a go forward basis. We think that's there to stay we think texting solutions is something that is going to continue to grow in terms of volume and our business customers are going to continue to be more interested in it so from that perspective, we see it as a key.
<unk>.
<unk> strategic initiative of something that we want to have integrated and have put a lot of work on the technology front to be able to do so.
The last question I think you had was on the.
In terms of just additive revenue and volumes and what that means from an operating leverage standpoint, we do think from an operating.
They just took the cost of operating in our profile.
Naturally there are inflationary pressures that every company, especially in the.
North America has seen at this point right now and we're not immune to those inflationary pressures on the cost side, but at the same time.
Remove that from the equation.
What we do see as every dollar of revenue will provide a higher level of percentage contribution dropping to the bottom line.
Than what our current gross margin is and that's a good thing because we have some economies of scale that could benefit us from a leverage standpoint significantly with some of the choices then give us an opportunity to redeploy.
Those additive operating leverage dollars in the form of.
Sales and marketing for accelerating some of the growth opportunity or potentially additive to the products around the line for <unk>.
To some extent naturally that could drop to the bottom line and create a higher level of profitability margin so to be determined as we see progression there on the revenue front.
Thanks, guys.
Thank you Darren.
Our next question is from Sharon <unk> of Northland capital markets.
Your line is connected please proceed.
Hi, guys. This is Sharon on behalf of Mike Lattimore.
So you have announced several innovations over time, how would you rank conversation DNA among the 19 and then I have one.
Sure. This is Ross thanks for the question.
Good conversation Danny is foundational to how we think about our strategic growth opportunity and when we talk about the value added applications and all the different ways. We can deliver that March anywhere being one of those or marketing edge is our foundational product conversation DNA allows us to.
And just the conversations cortex et cetera.
Yes.
Continue to leverage the benefits, we have given our volume scale of existing conversations to create these outcomes or classifications.
In our press release gets into some of the ones that we're highlighting but our vertical specific data that are vertical specific relationships allow us to do this in a way that we believe is unique and haven't really seen any other company able to do and we've been able to validate it with our existing market leading customers. When we look at what those strategic insight.
The actions they take and the resulting sales impact that they have so.
It's highly impactful and it's one of the reasons why we're so optimistic about what growth could look like going forward as we continue to sequentially execute.
Okay.
And then now that <unk>.
<unk> business is opening up nicely as you come out of the court and Mac.
Thank you your volume and <unk>.
Politically incurring a slowing down.
Yeah.
So this is Mike. Thanks for the question. The good news is that we saw in the second quarter of 2000.
'twenty one.
Where we saw a conversation volumes increase anywhere from 5% to 12%.
In aggregate <unk>.
Pain very much as a result of more consumer activity of businesses and conversations occurring.
We think the levels in some of the different verticals would be significantly varied. So for instance in the hospitality sector with travel.
Sector, if there was real unwinding and it changed consumer behavior at the levels that we think it could that's an area that you could see exponential growth multiples of some of the volumes where it is today, but in aggregate. If you just look at supply chain disruption unwinding some of the.
Different areas like the automotive sector that can have a lift.
Activity, where conversations increase whether it's in health care, whether it's in communications automotive services.
<unk> home services those are some of the areas, we see a generic lift will occur.
It may be single digit percentages and.
Some areas will be higher than others, but we do see there's going to be an aggregator lift across the board.
There's more consumer activity and just conversations occurring, especially with the service based businesses that we're focused on.
As part of our engagement.
Okay. Thank you.
Thanks Sharon.
There are no additional questions waiting at this time. So the final reminder, it is star one on your telephone keypad, we will pause here very briefly for any additional questions.
Yes. This is Russ just wanted to thank everybody for their involvement in our call today.
Just a couple of closing thoughts.
We look at the macro issues and it's important to understand them, how that impacts volumes, whether it's COVID-19 or supply chain et cetera, but we're really focused on the items that we can most.
Influence or control.
And kind of through that lens. We believe we've got the catalysts continue to establish ourselves as the market leader and a significant growth company.
And those ingredients as we mentioned have been assembled.
Those elements are coming together.
We believe it will create a virtuous cycle based on our teams our products and innovation the ways. Our customers are leaning in and really validating those are emerging sales channel. We really do think these are all coming together in terms of building momentum demonstrable progress and what we believe will be validating growth.
We will be able to demonstrate with Sharon so.
While we're managing through some macro elements and that's beyond us.
We do think those can be met benefactors to us when we look at the potential kind of benefits versus risks we are focused more on the <unk>.
Controllable and <unk>.
And we have the elements in place to be able to continue to innovate and drive growth in and validate the opportunity. We've got we just want to thank you all for continuing to be involved as we execute and deliver that thank you.
That concludes the Q4 2021 March X earnings call. Thank you all for your participation you may now disconnect your lines.
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