Marchex Inc. Q1 2023 Earnings Call
Okay.
This is what will open the door to their future growth.
Right now we have a real opportunity to build out a significantly larger business.
<unk>, we will provide in time will help scale each of our customers' businesses from closing the loop between marketing dollars the salesperson conversation to developing real time customer sentiment.
Analytics across retail networks and communication channels.
March ex understands how to help large enterprise customers solve complex business ecosystem and sell and service in order to grow that is our bread and butter and is deeply needed in today's rapidly evolving technology landscape.
Our customers have entrusted us with their futures and we are growing existing relationships with some of the biggest brands and multibillion dollar vertical.
Additionally, we are winning new relationships with Oems and brands that represent significant new opportunities for our business.
In the last few months alone we have seen numerous multi year extensions with existing large customers. In addition to winning new relationships.
Our expanding product suite is central to this progress, we recently announced the release of spotlight for the auto vertical.
Which will be vital to increasing revenue for our customers spotlight is the next step in innovation for enterprises with distributed retail footprint.
We'll help them easily identify sell business to consumer conversations and instruct and specifically on how to course correct and.
Telegent on how retail locations can solve complex business problems and the sales and marketing funnel in corporate requirements are now achievable with our products.
Future, we will be built on that intelligence to help businesses increased sales and marketing outcomes.
We recently signed a multiyear extension with a major automotive brand customer as well as a multi year engagement with a new brand.
Furthermore, our newest product spotlight now includes access to eight automotive brands and more than 8500 dealers representing more than 50% of the franchise dealerships in the United States.
Our automotive vertical is setting up well for accelerating growth.
We're excited by this progress and in the coming months will be focused on optimizing specific areas of our business to accelerate our growth in auto and other verticals as well as extend leadership into our core verticals. We will also be moving aggressively to evaluate.
Every cost in the company. So we can deliver a path to increase the efficiency growth and profitability as soon as possible.
In order to achieve those goals. We're also augmenting our executive team to help accelerated business, we recently hired needs.
Row, Chief revenue Officer, Troy, Heartless, who has world class experience and aligning revenue organizations to win I am excited about what Troy can contribute and expect to share more on this in the coming periods.
Looking forward, we are committed to accelerating growth in key verticals and building a much bigger business than the conversational intelligence market.
Our customers are signing up for a record commitments and we have a lot of potential to unlock thank you for joining the call today and I look forward to updating you on our progress in the quarters ahead with that I'll turn it over to Mike.
Yeah.
Thank you Edwin.
Okay.
For the first quarter revenue was $12 2 million.
$13 2 million for the same quarter last year.
The quarter was characterized by continued pressure on conversation volumes due to the macroeconomic environment impacting certain customer types.
There was continued pressure with our small business listing and solution providers that mostly sell marketing services to local businesses.
They face greater customer churn compared to 2022.
This trend manifested over the latter part of 2022 and has continued into 2023.
On the new business front and as Edwin noted, we recently won a new multi year automotive brand relationships that we expect will onboard in the summer timeframe and.
And we also extended another automotive brand relationship and a competitive process into a multi year framework.
We also won a multiyear extension with one of our small business services customers.
And as we look forward into this year.
We see several customer expansion opportunities and believe we will continue to build momentum as the year unfolds.
We expect this will set us up well for future years.
I'll dive into this in more detail in a moment when I discuss further guidance for 2023.
Turning to the P&L for the first quarter.
Excluding stock based compensation amortization of intangible assets and acquisition or disposition related costs.
Total operating costs for the first quarter were $15 4 million compared to $13 $5 million for the first quarter of 2022.
And during the quarter, we incurred certain costs associated with reorganizing and modifying operating activities.
Totaling approximately $800000. These.
These were primarily in sales and marketing related to personnel facility and systems expenditures.
We expect to incur additional restructuring expenses in the second quarter.
Service costs were $5 4 million for the first quarter, which decreased from the fourth quarter of 2022.
Service costs increased year over year in part due to increased data and labor labor costs associated with customer migrations onto new product platforms and increased staging investments and our AI technology initiatives as we prepare for new product launches scheduled this year.
Several of these investments are of a fixed nature and therefore over time, we believe we will see a positive impact on service costs as a percentage of revenue as we sell through our new conversational intelligence products and advance our new channel initiatives.
Sales and marketing costs were approximately $3 7 million for the first quarter and excluding certain reorganizing cost totaled $3 2 million and this was largely in line with the comparative periods.
Product development costs were $4 1 million for the first quarter and were up as a percentage of revenue compared with the first quarter of 2022 as we've continued to invest in our future product pipeline and to support customer pilots that are in process of being initiated as well as others.
Our staging.
Similar to the fourth quarter of 2022, we've continued investing to leverage our unique dataset to build out our AI driven conversational intelligence capabilities.
Now moving to profitability measures.
Adjusted operating loss before amortization for the first quarter was $3 $2 million.
Chorus corresponding adjusted EBITDA was a loss of $2 8 million reflective of the increased stage investments.
These amounts include approximately $800000 for certain costs associated with reorganizing and modifying operating activities.
Excluding those amounts.
Adjusted EBITDA was a loss of $2 million.
GAAP net loss was $4 5 million in the first quarter or <unk> 11 per diluted share.
This compares to a loss of $1 $6 million or <unk> <unk> per diluted share for the first quarter of 2022.
Adjusted non-GAAP loss was <unk> <unk> per share for the first quarter.
Compared to a loss of <unk> for the first quarter of 2022.
Additionally, we ended the first quarter with approximately $16 million in cash on hand.
Now turning to our outlook.
Consistent with the fourth quarter of 2020 to certain customer segments continued to face conversation volume pressure in the first quarter of 2023.
And that continues today.
This to a degree offset our progress with new customer relationships.
Especially in the near term therefore, we believe revenue in the second quarter should modestly increase relative to the first quarter of 2023.
However, looking at the recent customer wins and ramping of existing customer relationships planned for the year, we anticipate that growth should continue throughout the remainder of 2023.
And consistent with our commentary a few months ago.
We continue to believe that our traction within the automotive vertical can lead to accelerating double digit growth on an annualized run rate year over year basis by the end of 2023 within that vertical.
Additionally, with these factors in mind, we believe our results should meaningfully improve on an adjusted EBITDA basis for the second quarter of 2023 compared to the first quarter.
And we believe that we should continue making progress in property liability measures in the second half of the year.
Furthermore, with our business progress to start the year, we believe that our ability to achieve at or near breakeven on an adjusted EBITDA basis.
Should likely be achieved earlier than previously anticipated in the second half of the year.
As we move beyond these factors, we believe that our growth should enable greater leverage and consequently, we should see significant improvement in profit profitability measures in the future.
We expect to make further progress with several large customer expansion opportunities throughout the year as highlighted by our recent announcement regarding winning a new automotive brand customer relationship while also extending the separate existing brand partnership.
We believe these relationships should contribute to growth this year with the potential to grow further over time.
These relationships should also support inroads with our auto dealer sales channel over time.
And these are just two examples of our pipeline of opportunity within our existing base of customers.
And we see several other opportunities we expect more progress throughout the year.
Now while we are in an uncertain economic climate, we continue to believe March X based on the current momentum in verticals like auto is well positioned to emerge as a leader in conversational intelligence.
We are in a unique position where many of our largest customers are asking for more of our products and signing long term commitments to gain access to a conversational intelligence software and our pipeline of new products.
We're continuing to invest in our innovation engine at a critical time, when many industries need to understand how to leverage data science and AI to deliver a better customer experience and to sell more.
We are moving quickly to leverage our new cloud based platform of services that we believe should drive growth for our company and potentially add significant operating leverage over time.
I again want to thank all of our employees for their dedication and their continued efforts.
With that operator, we.
We will hand, the call back to you.
Thank you.
Now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you'd like to remove that question. Please press star followed by two again to ask a question press Star one.
We'll pause here briefly ask questions are registered.
Our first question is from Darren <unk> with Roth <unk>. Your line is now open.
Hey, guys. Thanks for taking my questions.
Firstly I guess.
Edwin good to meet you again.
A few months under your belt.
Their CEO .
I'll highlight some of the biggest opportunities you see from our checks and maybe some of the more near term challenges.
Sure.
I, probably met 2000 clients now or so and im booked to travel almost every week through the end of July with other clients.
I think the biggest opportunity this market we believe is the.
The fact that yes.
<unk> got to close the loop of invested dollars.
And what that drives in terms of cells and markup and through marketing.
Not going to slowdown the pace is very high.
And the second thing I would say it's very.
And very exciting.
Is the <unk>.
Even as I jumped between vertical markets here the business problems are the same and the innovation needs for them are the same.
Great.
One if I may.
I know Q1, a little bit challenging economically and you guys talked about compensation volumes being down.
I'm kind of curious quarter to date through April .
How conversation trends, so it's kind of.
Better worse neutral.
Okay.
Hi, Darren this is Mike. Thanks for the question I think in our commentary our prepared remarks, we mentioned briefly that especially with some of our small customers are the smaller service business listing customers that focus on solutions for local businesses they've seen.
Churn in on a year over year basis relative to what they were in 2022. So they saw some declines, especially in the fourth quarter of 2022 relative to comparable year.
Year over year periods in the first quarter of 2023 and in the prepared remarks, we mentioned we've seen some of that continuing on now compensating and offsetting that I think we mentioned some of the extensions of our relationships. We highlighted one of the major relationships with a major OEM in the automotive area in the fourth quarter, we signed extended four.
The longest.
Term that we've had in our history.
We're in a fortunate position in the first quarter again with a major brand OEM customer, where we were able to extend another one and very importantly, we signed a new brand a new OEM relationship that we havent worked with in the past and we look into the summer months of 2023 and.
And look into the path of bringing those onboard and starting to ramp so that it'll provide the benefit in the second half of the year with those relationships. We now hold access with all of our auto OEM customer.
Customers to touch points, where we could reach over 8500 auto dealerships and we are still in the nascent stages of touching them, but we've made some great strides in the last nine to 12 months in terms of outreach in an onboarding direct dealer engagement related.
<unk> ships with her direct to dealer automotive products. Those trends are also moving in a positive direction and what I'll reiterate with that as.
We do see progression on both the profitability side, we see progression also on the revenue side, but those trends in the automotive in particular, we think by the end of 2023, we may be at a point, where we can see double digit year over year revenue growth at the end of the year of 2023 and clearly that.
<unk> set the stage.
For the future and they are and I'll reiterate this is all in recognition and cognition of it is a challenging economic environment out there for all companies, including us but.
But we're giving those insights with visibility as.
As we see it through 2023, so that should give some level of comfort as we do see that.
Those minimum commitment levels from certain customers.
Okay.
That's helpful. Mike if I could dovetail back to some comments you made about growth.
Growth throughout 2023, I, just wanted to kind of clarify.
Are you still expecting the same sort of cadence of a softer <unk> relative to historical trends and then as it pertains to growth throughout 2023 is.
Yeah.
I guess, what's over indexing is it.
Some of these newer deals you'd want like this auto OEM or renewals that are driving that and I guess in terms of your commentary like how much line of sight you have into that actual growth.
And this is where obviously economic environments.
And the impact there can help flow to moving things ahead, if the economy improves further but with what we see today and what commitments we have from the customers today, there's three primary points that we see.
Our framework for the our opportunity on a go forward basis, we have the seasonal element, where we do benefit generally in the summertime period relative to the fourth quarter. So, yes, seasonally that fourth quarter could be down, but offsetting that in part of the reason why we think there can be this progress not just in the second quarter, but as.
We progressed into the back half of the year and see growth in the back half of the year relative to the first half is because we've got existing customer relationships that are leaning in and need solutions to help deal with their customer experiences.
And AI perspective from an analysis perspective to help them with how to better themselves and also how to sell more those are the overriding thesis and that's not just across the automotive vertical Woods cross sell services, it's across home services. It's in healthcare, it's in some of the other areas that we're working today in.
<unk> to that we're seeing this trend, where we are with our pipeline able to consummate and had been consummating some new relationships some of them fairly significant in some of those are in process of either onboarding or we expect to see them onboard in the next number of months or the coming periods of time and then the <unk>.
Third which is a very interesting area for us that we haven't done a lot with except for the last couple of years is on the direct dealer basis or an individual retail location or dealer location, we've been able to sell products into that market and we're selling more today than we have in.
In the past and we think that cohort in that progress. There is something that can also help.
<unk> move us and make us progress and so when you bring all of those things together with the minimum commitment levels, especially that some of the multi year long term contracts have we do see a stage where things are going to progress Sharon we were hopeful.
<unk> that we.
We can see some acceleration to be determined.
Yeah, and I would say.
That darin.
A force component that.
We're working on where we've really haven't done channel distribution in the past or partnerships.
We've got some some good conversations I believe that we will.
Help us.
Possibly.
Get to market not just with our direct sales force, but through partners large partners and smaller partners.
That's helpful. Thank you.
Thank you Darrin. Our next question is from Vivek <unk> with JM investment Research. Your line is now open.
Okay.
Hi, make on behalf of Mike Latimore with Northland capital.
My first question is on down lots of news about <unk> and AI. So is this prompt, prompting any trials and honest.
Yes, Hey, thank you for the question.
<unk> actively number one I'm excited about what's happening.
Round, AI and say, it's going to allow us to bring.
Better solutions.
To our client and they look for us to do that.
So that's exciting I think the.
At the end of the day.
It's a very positive thing for us.
We are engaged.
And looking at open AI chat at GBT you pick it.
With licenses so we're on top of that and excited about working before a client.
So asset brought any Isps.
Pardon me.
Is it bumping any honest eastlake Nicholas proposals.
Yeah.
We're look what we're doing right now is.
I think people are trying to understand and play with it we got that in our lab were playing with it.
I haven't seen an RFP from any client around specifically that as of yet, but embedding and leveraging the technology to create innovative solutions for our clients is where we're focused.
Okay.
My second question is this auto still above 25% of revenue.
Yeah. This is Mike that's correct yes.
Okay.
And.
My last question is.
Have you had any sales Miami Youll get some CRM partners.
Yes.
So I think the question was have we had any sales via Ucas partners and.
This is Mike again, I believe the headwind was just speaking with.
He was talking about one of the opportunities for our future. We don't have a lot of depth today with.
<unk> sales, resulting from channel partnerships, but it is a key area of thought and progress and likely area that will facilitate with some of our product offerings and just the way we our products to be accessed for the future and there is multiple plays in there you cast is absolutely.
<unk> channel that could be one of the plays within that but I don't want us or you to be thinking that we're limited in terms of that being the only channel partnership and interestingly.
It has been an area that we for rate into with discussions we will see in 2023, whether those discussions translate into.
Fruitful and productive actual engagements with partnerships that can onboard and generate additional customer base for us, but it is certainly a path that we're looking into and believe can be a meaningful opportunity in the intermediate to long term.
Yeah.
Yeah, I'll just start on that one.
I really do believe that.
There is a very viable path for partners a great question.
We've got emotion going inside the business now to ascertain and understand how to develop that.
There had been to mikes point conversations in the past and I'll say that we have products.
One in particular that is very well suited for larger go to market and the last point on this is.
Heartless, who joined as our Chief revenue Officer.
Actually was head of sales and product for our CLEC. So he's got great experience in the call backs.
And so we're mining that as well.
Okay.
Then.
That's it from my side. Thank you.
Thank you.
Thank you Vivek.
No additional questions waiting so I'll pass the conference over to the management team for any closing remarks.
Yeah.
Okay, well. Thank you everyone for joining us we look forward to updating you in the coming months with data.
So thanks again.
That concludes the conference call. Thank you for your participation you may now disconnect your line.