Q2 2024 Marchex Inc Earnings Call
Ciara: My name is Ciara, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, press star 1 on your telephone keypad. I'd now like to pass the conference over to our host, Trevor Caldwell, Senior Vice President of Strategic Initiatives and Investor Relations. Please proceed.
Sierra: Hello everyone. Thank you for attending today's March X second quarter 2020 for our earnings call. My name is Sierra and I'll be your moderator for today.
Trevor Caldwell: Good afternoon, everyone, and welcome to Marchex's business update and second quarter 2024 conference call. Joining us today are our Edwin Miller, our CEO, and Holly Aglio, our Chief Financial Officer. Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements, including 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 or are set forth in today's earnings press release and in our most recent annual and quarterly report filed with the SEC.
Speaker Change: Joining us today are Ed Miller, our CEO and Holly Aiguille, our Chief Financial Officer.
Speaker Change: Where we get started I'd like to take this opportunity to remind you that our remarks today will include forward looking statements.
References to our financial and operational performance and actual results may differ materially from those contemplated by these forward looking statements.
Speaker Change: Risks and uncertainties that could cause these results to differ materially are set forth in todays earnings press release and in our most annual most recent annual and quarterly report filed with the SEC.
Trevor Caldwell: Any forward-looking statements that we make on this call are based on assumptions as of today, and we will undertake no obligation to update these statements for subsequent events. During this call, we will present both gaps and non-gap financial measures. Reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which is available in the investor relations section of our website. At this time, I'd like to turn the call over to Edwin.
Speaker Change: Any forward looking statements that we make on this call are based on assumptions as of today and we will undertake no obligation to update these statements for subsequent events.
Speaker Change: This call, we will present, both GAAP and non-GAAP financial measures.
Speaker Change: A reconciliation of GAAP to non-GAAP measures is included in today's earnings Press release earnings Press release is available in the Investor Relations section of our website at this time I'd like to turn the call over to Edmund.
Edmund: Thank you Trevor.
Edwin Miller: and Good afternoon everyone, and thank you for joining us today. Today...
Edmund: And good afternoon, everyone.
Edmund: Thank you for joining us today.
Speaker Change: The day.
Edwin Miller: I will provide you an update on our progress in the second quarter and on the initiatives that are forming the foundation for the future of March. Marxex is transforming into a market-leading prescriptive analytics task company that harnesses the power of gender to the eye. We are focused on enabling our customers to achieve operational excellence by using our AI-powered products to analyze and make business decisions leveraging direct first-party conversation data.
Edmund: I will provide you an update on our progress in the second quarter.
Edmund: And on the initiatives that are forming the foundation for the future of March right.
Mark: Mark <unk> is transforming into a market, leading prescriptive analytics SaaS company.
Edmund: Harnesses the power of generative AI.
Edmund: We are focused on enabling our customers to achieve operational excellence.
Edmund: By using our AI powered products to analyze and make business decisions leveraging the direct first party conversational data.
Edwin Miller: We aid multiple functions within a business, navigate risk and uncertainty, understand the performance of their distributed retail networks, and demonstrate how to drive revenue. We are able to solve these complex problems for businesses by leveraging the vast amount of data we analyze on their behalf every day. This is achieved through our emerging SAS data analytics platform.
Edmund: We ate multiple functions within our business navigate risk and uncertainty.
Edmund: I understand the performance of their district distributed retail networks and demonstrate how to drive revenue.
Edmund: We are able to solve these complex problems for businesses by leveraging the vast amount of data we analyze on their behalf everyday.
Edmund: This is achieved by our emerging SaaS data analytics platform.
Edwin Miller: We have deep relationships with some of the largest Fortune 500 companies in our current vertical market. These companies rely on Marchex to deliver critical, rich data analytic insights to drive positive business outcomes for their respective retail outlets. We believe the best is still to come.
Edmund: We have deep relationships with some of the largest fortune 500 companies and our current vertical markets.
Edmund: These companies rely on <unk> to deliver critical rich.
Edmund: Rich data analytic insights to drive positive business outcomes for their respective retail outlets.
Edmund: We believe the best is still to come as we accelerate product innovation.
Edwin Miller: As we celebrate product innovation, continue deepening our relationships, and expand market opportunity, this includes continued expansion of Results Pipelines and positive execution of our gross margin and profitability goals. Our strategic vision is clear.
Edmund: Continued deepening our relationships and expand market opportunity.
Edmund: This includes continued expansion of our sales pipeline.
Edmund: And positive execution of our gross margin and profitability goals.
Edmund: Our strategic vision is clear.
Edwin Miller: We aim to be at the forefront of prescriptive analytics to drive operational excellence for Fortune 500 businesses as a SaaS platform. This is why we have been transforming the company's technical foundation. One of the key pillars of our strategy is uniting our product platform, and they add signals into one specification. OneStack is fundamental to our innovation and is a key step in allowing us to bring all of our conversational data into the cloud and one centralized platform.
Edmund: We aim to be at the forefront of prescriptive analytics to drive operational excellence for Fortune 500 businesses as they are SaaS platform.
Edmund: This is why we have been transforming the company's technical foundation.
Edmund: One of the key pillars of our strategy is uniting our product platform and AI signals into one stack.
Edmund: One stack is fundamental to our innovation and is a key step in allowing us to bring all of our conversational data in the cloud and one centralized platform.
Edwin Miller: This accelerates our leveraging generative AI to unlock powerful insights and develop new growth opportunities from our expanding data set. We are on track with the one-stat goals we laid out for 2024. I would like to take a minute to highlight our exceptional team, their commitment to customer excellence and innovation, recently earned us the AI Breakthrough Award for Best Text-Generative AI Solution. This award is a testament to our team's dedication to developing AI power solutions.
Edwin Miller: This accelerates our leveraging generative AI to unlock powerful insights and develop new growth opportunities from our expanding datasets.
Edmund: We are on track with once that goals, we laid out for 2024.
Edwin Miller: I would like to take a minute to highlight our exceptional team.
Edwin Miller: Their commitment to customer excellence and innovation recently earned us the AI breakthrough award for best text generative AI solution for a call summaries and sentiment suite.
Edwin Miller: This award is a testament to our team's dedication.
Edwin Miller: With developing AI powered solutions.
Edwin Miller: I would also like to lift our good-a-market. Both for new business and the team supporting our current clients. We have tremendous leadership in these areas. Thank you to one Marchex for constantly improving our talent, as this has a direct impact on our client success, which send benefits are shared with, as you can hopefully see. We are clearly specialized in strategic evolution and execution modes, and this is being reflected in our expanding self-pipeline.
Edwin Miller: I would also like to lift up our go to market teams.
Edwin Miller: Both for new business and the team supporting our current clients.
Edwin Miller: We have tremendous leadership in these areas.
<unk>: Thank you <unk> for constantly improving.
Edwin Miller: Our talent as this has a direct impact on our client success.
Edwin Miller: Which then benefits our shareholders.
Edwin Miller: As you can hopefully see.
Edwin Miller: We are clearly both strict in strategic evolution and execution modes, and this is being reflected in our expanding sales pipeline.
Edwin Miller: We continue to make progress at new OEM and autumn service customers during the quarter. In addition, the Home Services Vertical is a bright spot for Marchex, and it's another area where we're expanding key relationships. There is significant untapped potential in our vertical markets and within our existing customer base. Additionally, we are winning more and new cuts. The combination of these factors is accelerating our business and growth opportunities.
Edwin Miller: We continue to make progress, adding new OEM and auto service customers during the quarter.
Speaker Change: In addition to her.
Edwin Miller: Home services vertical was a bright spot from our checks and is another area, where we're expanding key relationships.
Edwin Miller: There is significant untapped potential in our vertical markets and within our existing customer base.
Edwin Miller: Additionally, we are winning more new customers.
Edwin Miller: Combination of these factors is accelerating our business and growth opportunity.
Holly Aglio: With that, I'll hand it to call the holl.
Speaker Change: With that I'll hand, the call it a hub.
Speaker Change: Thank you Edwin.
Holly Aglio: For the second quarter of 2024, revenue was $12.1 million versus $12.5 million for the same quarter last year and up from first quarter 2024 revenue of $11.6 million. Revenue in the second quarter was up from the first quarter in part due to slightly improved conversation volumes and in part from a developing pipeline of opportunity. We are seeing traction in the auto, auto services, and home services verticals so far this year.
Speaker Change: For the second quarter of 2024 revenue was $12 $1 million versus $12 $5 million for the same quarter last year.
Holly Aglio: And up from first quarter 2020 for revenue of $11 $6 million.
Holly Aglio: Revenue in the second quarter was up from the first quarter in part due to slightly improved conversation volumes and in part from a developing pipeline of opportunities.
Holly Aglio: We're seeing traction in the auto and auto services and home services verticals. So far this year.
Holly Aglio: On a year-over-year basis, we saw continued headwinds from certain customer segments, like our small business resellers, though that seems a bit improved on a sequential basis. Turning to the P&L for the second quarter. Excluding stock-based compensation, amortization of intangible assets, and acquisition and disposition costs, total operating costs for the second quarter of 2024 were $12.2 million, compared to $14 million for the second quarter of 2023. Service costs were $4.2 million for the second quarter.
Holly Aglio: On a year over year basis, we saw continued headwinds from certain customer segments like our small business resellers.
Holly Aglio: That seems a bit improved on a sequential basis.
Holly Aglio: Turning to the P&L for the second quarter.
Holly Aglio: Excluding stock based compensation amortization of intangible assets and acquisition and disposition related costs.
Holly Aglio: Total operating costs for the second quarter of 2024 were $12 2 million compared to $14 million for the second quarter of 2023.
Holly Aglio: Service costs were $4 $2 million for the second quarter we.
Holly Aglio: We've seen significant progress on our service costs as a percentage of revenue so far this year. As we continue to make progress on our infrastructure initiatives and see increased sales of our conversational intelligence products in the future, we believe we are well positioned for the second half of 2024 and beyond.
Holly Aglio: We've seen significant progress on our service costs as a percentage of revenue so far this year.
Holly Aglio: As we continue to make progress on our infrastructure initiatives and see increased sales of our conversational intelligence products and features we believe we are well positioned for the second half of 2024 and beyond.
Holly Aglio: Sales and marketing costs were approximately $2.7 million for the second quarter. This was up slightly from the second quarter of 2023. Product Development Costs, worth $3.2 million for the second quarter, as we continue to invest in and leverage AI to expand our product suite with new, conversational intelligence capabilities. Moving the Profitability Measures, Adjusted EBITDAF was approximately $300,000 for the second quarter of 2024, which is a significant improvement over the adjusted EBITDA loss of $1 million for the second quarter of 2023.
Holly Aglio: Sales and marketing costs were approximately $2 $7 million for the second quarter.
Holly Aglio: It was up slightly from the second quarter at 2023.
Holly Aglio: Product development costs were $3 $2 million for the second quarter as we continue to invest and leveraging AI to expand our product suite with new conversational intelligence capabilities.
Holly Aglio: Moving to profitability measures.
Holly Aglio: Adjusted EBITDA was approximately $300000 for the second quarter of 2024.
Holly Aglio: Which is a significant improvement over the adjusted EBITDA loss of $1 million for the second quarter of 2023.
Holly Aglio: GapNetLaw's revenue was $800,000 for the second quarter of 2024, or two cents per diluted share. This compares to a loss of $2.7 million, or $0.06 per share, per diluted share, for the second quarter of 2023. Adjusted non-gap revenue was one cent per share for the second quarter of 2024.
Holly Aglio: GAAP net loss was $800000 for the second quarter of 2024 or <unk> <unk> per diluted share.
Holly Aglio: This compares to a loss of $2 $7 million or <unk> <unk> per share per diluted share for the second quarter of 2023.
Holly Aglio: Adjusted non-GAAP loss with one per share for the second quarter of 2024.
Edwin Miller: Compared to a loss of three cents per share for the second quarter of 2020. Additionally, we ended the second quarter with approximately $12 million in cash. Now, turning to our outlook for the third quarter of 2024. First, let's discuss revenue. We anticipate third quarter 2024 revenue will increase to be in the range of $12.6 million or more for Adjusted Ebeda. In the third quarter, we anticipate Adjusted Ebeda will be in the range of or better than our second quarter 2024 results.
Holly Aglio: Compared to a loss of <unk> <unk> per share for the second quarter of 2023.
Edwin Miller: Additionally, we ended the second quarter with approximately $12 million in cash on hand.
Edwin Miller: Now turning to our outlook for the third quarter of 2024.
Edwin Miller: First let's discuss revenue.
Edwin Miller: We anticipate third quarter 2020 for revenue will increase and be in the range of $12 $6 million or more.
Edwin Miller: For adjusted EBITDA in the third quarter, we anticipate adjusted EBITDA will be in the range of or better than our second quarter 2020 for our results.
Edwin Miller: Two fundamental factors are driving our expectations for sequential growth. First, there is some improvement in overall conversation volume trends. Our verticals remain in a relatively steady state, and that is reflected in a more normalized seasonal pattern for verticals like home service. Second, we are pleased to see a developing pipeline of opportunities. As we onboard some of our recent new wins, we expect that to contribute to sequential growth, although most of the growth from those wins will happen in future months as those customers ramp up.
Edwin Miller: Two fundamental factors are driving our expectations for sequential growth.
Edwin Miller: There is some improvement in overall conversation volume trends.
Edwin Miller: Our verticals remain in a relatively steady state and that is reflected in a more normalized seasonal pattern for verticals like home services.
Edwin Miller: Second we are pleased to see a developing pipeline of opportunities.
Edwin Miller: As we onboard some of our recent new wins, we expect that to contribute to sequential growth.
Edwin Miller: So most of the growth from those wins will happen in future months as those customers ramp up.
Edwin Miller: This progress, along with our progress on our infrastructure initiatives, I believe, puts us in a strong position to meet or exceed our original target for growth margin improvement and our profitability profile for 2024. With that, I'll hand the call back to Edwin.
Edwin Miller: This progress along with our progress on our infrastructure initiatives I believe puts us in a strong position to meet or exceed our original target for gross margin improvement in our profitability profile for 2024.
Speaker Change: With that I'll hand, the call back to Edmond.
Edwin Miller: Thank you Holly.
Edwin Miller: We are making meaningful progress in the business. To summarize and wrap things up,
Edwin Miller: We are making meaningful progress in the business.
Edwin Miller: To summarize and wrap things up we.
Edwin Miller: We are exceeding many of this year's goals. We are on track with one stack and progressing with technique on one of these. We are seeing growth with existing and new customers, and validation of our vertical market strategy. We continue to see sequential revenue growth with acceleration. We are delivering meaningful gross margin expansion. Adjusted Evita continues to train pauses
Edwin Miller: We are achieving many of this year's goals.
Edwin Miller: We are on track with one stack and progress with technical innovation.
Edwin Miller: We are seeing growth with existing and new customers and validation of our vertical market strategy.
Edwin Miller: We continue to see sequential revenue growth with acceleration.
Edwin Miller: We are delivering meaningful gross margin expansion.
Edwin Miller: Adjusted EBITDA continues to trend positively.
Edwin Miller: The commitment and talent level of our team continues to grow. I want to thank our employees for their continued dedication and also our clients for their engagement and partnership in Marchex. We look forward to updating you again in the coming month. Operator, we are ready for questions.
Edwin Miller: The commitment and talent level of our team continues to grow.
Edwin Miller: I want to thank our employees for their continued dedication.
Edwin Miller: And also our clients for their engagement and partnership with <unk>, We look forward to updating you again in the coming months.
Edwin Miller: Operator, we are ready for questions.
Operator: We will now begin the Q&A session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to remove a question, press star followed by 2. And if you are using a speakerphone, please pick up your handset before asking your question. Our first question today comes from Darren Assett. TD, sorry, with Roth Capital Partners. Your line is now open.
Speaker Change: We will now begin the Q&A session.
Operator: If you would like to ask a question. Please press star followed by one on your telephone keypad.
Operator: If you'd like to remove that question press star followed by two.
Operator: And if you are using a speakerphone. Please pick up your handset before asking your question.
Speaker Change: Our first question today comes from Darren effect.
Speaker Change: F T D sorry, with Roth Capital Partners. Your line is now open.
Dylan: Hey, this is Dylan for Darren. Thanks for taking my questions. Um, if I could start with one stack, um, like if when you roll that out, like are there any adjustments you need to make as you look across different customers, and then how do you sort of modulate that into some of the Jason verticals you're talking about expanding to beyond some of the core three-year-old ones?
Dylan: Hey, this is Dylan on for Darren Thanks for taking my questions if I could start with one stack.
Dylan: Like when you when you roll that out like is there any adjustments you need to make as you look across different customers and then how do you sort of modulate that into some of the adjacent verticals youre talking about expanding to beyond some of the core three years now.
Edwin Miller: Okay, so I'll make some adjustments first. Dylan, thanks for the question. I know we've met in person, but it's good to hear your voice. I think the adjustments we have to make, obviously, would be removing clients into a single cloud instance that's much more scalable with all of our signals, and a single sign on and a single interface, et cetera, which is going to be awesome, and in that progress, the clients are excited about it. They get to consume more of their data; they get to see things in a single place.
Speaker Change: Okay. So I'll do adjustments first.
Edwin Miller: Alan Thanks for the question.
Edwin Miller: I know we've met in person, but it's good to hear your voice.
Edwin Miller: I think the adjustments we have to make obviously would be we're moving clients into.
Edwin Miller: A single Cloud instance.
Edwin Miller: Much more scalable with all of our signals.
Edwin Miller: And single sign on in a single interface et cetera, which is going to be.
Edwin Miller: Awesome.
Edwin Miller: And that progress the clients are excited about it and they get to consume more of their data prescriptive analytics.
Edwin Miller: They get to see things.
Edwin Miller: In a single place.
Edwin Miller: So we've had nothing but really good conversations with clients. Now, is there change management that has to happen in terms of that with clients that need to move from different stacks? Yeah, but we're partnering well with them. We've got a great customer success team that's lined up with our clients. Again, I don't know how many times I've been with our top 25 clients. A lot.
Edwin Miller: So we've had nothing but really good conversations with clients. Now is is there a change management that has to happen in terms of that with clients that need to move from different facts, yeah, but we're partnering well with them, we've got a great customer success team.
Edwin Miller: Thats lined up with our clients.
Edwin Miller: Again, I'd, probably I don't know, how many times I've been with our top 25 clients a lot.
Edwin Miller: And so I think we're going to sit there. Your second part of the question was, "Will it help us in our new verticals?" That's kind of how I took that question, Dylan. The answer is yes. It would be simpler for us to go into verticals. The signals and the business problems and the operational problems are the same in a few other verticals, and we've got a few of those targets.
Edwin Miller: And so I think we're going to sit there.
Edwin Miller: Your second part of the question was will it help us enter new verticals.
Edwin Miller: It's just that question Dylan.
Edwin Miller: Answer is yes, it would be.
Edwin Miller: Be simpler for us to go into verticals, the signals and the business problems and the operational problems are the same and a few other verticals and we've got a few of those targeted.
Edwin Miller: Got it. Thank you. Could you sort of comment at all on any feedback you're getting from customers sort of on a macro trend basis as to sort of what they're seeing in terms of call volume, maybe why there's still a bit of a headwind in certain industries compared to others?
Dylan: Got it thank you.
Dylan: Could you sort of comment at all on any feedback you're getting from customers sort of on a macro trend basis as to what they're seeing in terms of.
Speaker Change: Call volumes maybe.
Edwin Miller: Maybe why there's still a bit of a headwind in certain industries compared to others.
Edwin Miller: The large clients... I've got great feedback from them. They're positive, their companies are growing, and we're exposing data from our platform in a new way they hadn't seen before, which is fantastic. They're excited about that. The, and that's where I spent the bulk of my time, are in those top 25, so I don't see any headwinds from them, and I will say, you know, it's about enabling the conversation. It's not just about the call; it could be data off the web, it could be data from an email, it could be data from a text message or a number, and everyone that I'm talking to is trying to bring that omni-channel approach, that conversational data, together, so I'm enjoying being with our clients.
Edwin Miller: Well the large clients.
Edwin Miller: I've got I've got great feedback from their positive their companies are growing.
Edwin Miller: We're exposing data that's out of our platform and are in a new way they haven't seen before which is fantastic they're excited about that.
Edwin Miller: <unk>.
Edwin Miller: And that's where the bulk of my time is on those top 25.
Edwin Miller: So I don't see any headwinds from them.
Edwin Miller: And I will say.
Edwin Miller: It's about enabling the conversation.
Edwin Miller: It's not just about the call it could be data off the web it could be <unk>.
Edwin Miller: Data from an email it could be data from a text on a number.
Edwin Miller: And everyone that I'm talking to is trying to bring that omnichannel approach that conversational data together.
Edwin Miller: So I.
Edwin Miller: I'm enjoying being with their clients.
Edwin Miller: Yeah.
Dylan: So if I could ask one more, just you're seeing the positive trends and just leave it off with sort of the rollout of one stack. Is there anything in particular you need to invest in, or do you think you have sort of the right mix of sales and R&D at the right time to go after those markets?
Speaker Change: Got it if I could ask one more just you're seeing the positive trends when adjusted EBITDA.
Speaker Change: With sort of the rollout of one stack is there anything in particular, you're you need to invest in or do you think you have sort of at the right mix of sales in R&D at the rate to go after those markets.
Edwin Miller: Well, we talked about gross margin lift. So as we move to one stack, there will be more opportunity for more investment innovation and sales and marketing without having to use our cash, which is exciting for me to kind of turn that corner. I'm going to go back and say, you know, one of the things you asked in the last one is that because we get one stack, we get to add more signals.
Speaker Change: Well, we talked about gross margin lift so.
Edwin Miller: As we move to one stack there'll be more opportunity for more and more investment innovation and sales and marketing without having to.
Edwin Miller: Use our cash.
Edwin Miller: Which is exciting for me to kind of turn that corner.
Edwin Miller: I'm going to go back and say one of the things you asked in the last one is because.
Edwin Miller: Because we get once we get to add more signals, we get deeper and deeper and deeper with our clients, which is awesome. So.
Edwin Miller: We get deeper and deeper and deeper with our clients, which is awesome. So we are a prescriptive data analytics SaaS platform. They see us that way. It's not just about the number, which is awesome, because that's really sticky, and it's powerful to control that conversation and deliver value on top of that. But what they can see in their data is going to make the difference for them and their business outcomes, which will make the difference for my shareholders.
Edwin Miller: We are a prescriptive data analytics SaaS platform.
Edwin Miller: They are seeing it that way.
Edwin Miller: Not just.
Edwin Miller: Just about the number which is awesome, because that's really sticky and is powerful to control that conversation and how and deliver value on top of that but what they can see and their data is going to make the difference for them and their business outcomes, which will make the difference for my shareholders.
Speaker Change: Perfect I'll pass it on thank you.
Operator: Thank you for your questions. There are no more questions in queue, so I would like to turn the call back to the management team for any further or closing remarks.
Edwin Miller: Thank you for your question.
Edwin Miller: Questions.
Operator: There are no longer questions in queue. So I'd like to turn the call back to the management team for any further or closing remarks.
Edwin Miller: Okay, thank you everyone for dialing in. We're excited about the future of the company, and we look forward to the next check-in.
Speaker Change: Okay. Thank you everyone for dialing in.
Edwin Miller: We're excited about the future of the company and we look forward to the next check in.
Speaker Change: Thank you.
Operator: That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line.
Speaker Change: That will conclude today's conference call.
Operator: Thank you all for your participation you may now disconnect your lines.
Dylan: Perfecto, pass it on, thank you.