Marchex (MCHX) 3 Nov 222022 Q3 Earnings call transcript

Good afternoon, everyone, and welcome to the Marchex’s Third Quarter Conference Call. My name is Emily and I will be your conference call operator today. [Operator Instructions] I will now turn the call over to our host, Trevor Caldwell, Senior Vice President of Strategic Initiatives and Investor Relations. Please go ahead, Trevor.

Thank you, Emily. welcome call. business and quarter and everyone conference XXXX afternoon, to update Marchex’s third Good

today Michael us Joining are Co-CEOs. Horowitz, our Arends and Russell

are to opportunity cause actual statements, these in and annual to and including quarterly started, to to contemplated subsequent our for SEC. our Before by would forth materially operational are references these in differ today assumptions of to our performance we report uncertainties the based events. materially release differ earnings press and this those call as that and today remarks forward-looking get set Risks that may remind today’s with on that forward-looking these include statements most we and Any will obligation results and update statements. financial could statements this on you no make we results I recent take forward-looking like filed from undertake

A non-GAAP we During earnings will call, Relations measures. release in The included measures press website. this GAAP is GAAP release. today’s the our earnings present and to section for Investor is press non-GAAP financial reconciliation available both of of

over At to like time, the Mike turn this Arends. call I’d to

Thank everyone. for Thank and good you, Trevor, afternoon, joining today. us you

retail Marchex. customers conversational for customers of businesses many as and quarter business demand was a is challenges third inflation largest certain distributed for time, impact ongoing rising software other continued same our and segments. The well to mixed large growing The for our basis chain supply the with on conversation year-over-year intelligence volumes as among footprints. At

basis, in growth There we indicator verticals. our but as That, fluid with certain has in factors consumer basis. year-over-year still look vertical-by-vertical when it shortages, comparison present impacted conversation for pipeline, the along at especially a into healthy retail the our a present seeing a are corresponding story had prices That is a year. effect in still a have We positive on which which pullback inventory macroeconomic certain factor, level. on to degree, looking such are next spending development on as a overall at volumes is it is

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customer experience We engaged critical customers, us types these Fortune of solve with expand intelligence effectively. want growth. deliver like and a because retail more loop opportunities relationship fundamentally best-in-class our some of conversational we of are and the as they change our see to insights sell want this with operate into our they XXX largest software their and We how businesses. businesses, to solutions will operations understand how a to who the drive They to believe suite customer means big their problems to can interactions, more the and capture close of for to

every year sales For manufacturers of of found change dealers capitalize dealers both and and never that between the operating. and consumers XX,XXX communication way are released dollars ingrained analysis data gap manufacturers outdated have and an significant being these auto And an because millions Marchex opportunity of U.S. urgent. consumer-to-dealer conversations dealers. situation have and on recently in-depth global dealers transformed of lost in more consumers big and lost vehicles. between bridging buy to how industry, a chain by the supply to The has hundreds has sales been manufacturers time

of the works, in manufacturers and industry how insights from consistently of We changes over being surfaced to defined the auto electronic phone, questions vital the dealerships showing process to is particularly by vehicle that the order struggle vehicle answering its one midst directly communication rise the sales. the and in build and about is car shift websites This their detailed largest in as the of history. availability and ordering manufacturer

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Our is do. at of the customers’ success we what heart

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of large businesses. an to innovations move retail to The cloud increasing our to underlies and level, and conversational changing investments present particularly with and scope for intelligence software array challenges whether to need home our at of more healthcare, serve customers we prospects or auto pain world reach the it growing. for The is are is it’s the and the industry, changing points our customer these services experience solve customers, the ongoing and

hand to And with the will that, I over Russ. call

auto very conversational What toward Marchex. a opportunity shows Mike. is about just Thanks industry for the how Mike the intelligence described meaningful trend

their experience and transform to of businesses. customer critical of Our strategically at their to products the for sit revealing invest the insights help plan business and juncture future growth actionable companies

innovations intelligence a creating be a are to companies achieve defining are retail sales. that better XXX solution us customer enabling to the role can Marchex’s ongoing driving and costs experiences large software while optimize for pivotal footprints. increase Fortune with distributed investments Conversational

We macro customers as can our volumes are seeing normalizes. and that Marchex environment the solutions in drive ways higher differential be embrace our largest for

the ecosystem retail has we need economic more and stronger circumstances because operations cloudy, with While this seen before, solutions Marchex even manage near-term have emerge been we for right technologies. periods somewhat that businesses these from That’s of technology a complex to and we momentum. Marchex the streamline through believe that have and can

to so into the well offerings now continue they companies and unique help grow Our both customer improve their future. experience can

opportunity on for by Meanwhile, play on this the dynamics energized financial as these mindful our be We’re stay focused capitalizing invest we’ll and it to profile our and presents out. business. continue to opportunity

with that, will the back And I hand Mike. call to

the of the million was quarter versus for year. Thank you, for million Russ. $XX.X quarter XXXX Revenue $XX.X same last third

I the mixed. As was earlier, third mentioned quarter

macroeconomic the On under volume volumes the pressures one hand, periods. conversation sequential and customer to persistent heavily decrease compared events and came led certain and on year conversation as volumes weighed to ago pressure inflationary an overall

compared in the local of example, providers For the mostly that volumes to period. services tail businesses and year in listing to conversation solution in our marketing small business ago and business pressure sell faced pressure

our that mix. helping watching we are new the products closely, some sales are we While of trend overall with seeing traction

over with year, view, this new will onboarding multiyear long-term and the progress that in will of we are expansions verticals there our the go and intermediate make with of XXXX. also customers are through we we such several that several XXX dialogue at and remainder with our making several potential in We for progress largest as customers believe into Looking growth continue commitments. opportunities sales set stage home new progress as Fortune and and further healthcare, new momentum where with wins large the services customer to sequential for auto

products an a of over result, Our as has customer new it to businesses, to meaningful opportunity drive and and are with more pipeline, and growth we resonate we a cloud-based believe long-term time. to continues our adding prospect profile suite

to acceleration. positive our infrastructure EBITDA, On discretionary future cost positions with on enabled the well technology adjusted which us us for operational leverage achieve the side, growth in operating initiatives focus

let’s the Now third to the shift P&L quarter. for

assets the compared as third the to to from channel the will amortization on third and see quarter. million were year-over-year, believe million in launch due infrastructure cloud-based products of continue positive of XXXX. service compensation, showed for progress and percentage intangible intelligence conversational with revenue for impact $X.X of costs, a third $XX.X technology or initiatives. Service $XX.X our as initiatives. leverage disposition-related we stock-based quarter our our sell-through costs see new and successful time, to Over operating some total quarter the Service million acquisition were costs of costs Excluding costs largely a we we

due and product approximately pipeline of and million. the percentage ago quarter compared as Sales as year with to were marketing optimization of million intelligence development a were decreased $X.X Product sales in enhancing our capabilities. marketing costs third AI-driven to initiatives. future XXXX, we’ve continued revenue conversational and This continued and up costs invest $X.X of our the from were period

loss Now positive with loss before relatively moving was to $X.X third third million the was diluted for compares of $XX,XXX, third gain the XXXX with per diluted or loss amortization $XXX,XXX. profitability measures. was Adjusted quarter staying GAAP of non-GAAP million Adjusted of XXXX. net share consistent This quarter the for quarter, operating $X.X the the adjusted the was of XXXX. $X.XX for quarter per consistent which per a of quarter third $X.XX XXXX. share. to a or EBITDA for share Corresponding third quarter $X.XX was

little third a the ended more hand. we in quarter Additionally, than million on with $XX cash

Now to outlook. turning our

years, typically quarter sales seasonal to revenue our lower third past decline many compared as a in fourth quarter, XXXX, of this for the customers of as to the volumes call period during expect holidays. similar For the volumes decline represents we

lead to are period. as certain In parts that that sales quarter Despite this, addition, in will mentioned, anticipate the of ago levels our revenue in year conversation there are macroeconomic the factors traction we previously to business. similar compared fourth down as volumes weighing

at first of our near sequential progress believe traction in make revenue the adjusted loss the on fourth of we we for that EBITDA for an implies in XXXX. we infrastructure given basis onboarding and the of sales new will Additionally, adjusted timing be we initiatives, believe which technology to will customers, I EBITDA note breakeven and or quarter would both quarter. adjusted a EBITDA like XXXX, pipeline,

said, like that commentary broader our some to I’d on business. With share

climate leader uncertain are a we While we an well-positioned to emerge is believe economic as in intelligence. conversational Marchex in

in investment significant strong help conversational Our trend AI experience to At we of features businesses infrastructure enable moving complex last are also us serve of our Meanwhile, the the as the take to time, save to as will to buying advantage of sales flexibility can can as operating the years potentially same engagement products to utilizing that over this lead both the a and innovation. the will products basis Marchex seeing towards they consolidate our future and add ecosystem cloud customer costs sales. growth, improve look our businesses significant to increase and trend customer operations accelerate which grow leverage. This X technologies. and embrace gives the new

pipeline long-term healthy. remains Our sales

cloud-based through some have with optimistic growth move opportunities to market are we a continue potential also XXXX rest onboarding margins. And customers securing wins. over taking time, Marchex customers relationships coupled with lead about trends, expand our will we the products us considerable As future. of potential and Fortune products, new same fundamentally of to to the a time, why remain to our be relationships. of accelerate multiyear our we new new XXXX, including with and At regarding new believe to while XXX the our recent factors expanding our number meaningfully of we into suite customer has these These

with to for will call our their we to back And and you. all dedication want continued thank hand of the I operator, efforts. employees that,

Our ahead. Please today ROTH comes Instructions] question Partners. [Operator Darren first Capital Aftahi from go from

traction in Hi. Dillon customers the the the could out takes shake those smaller you mix taking puts This home in mentioned, certain Like where of my you of on still services, is pressure? start, expanding I and verticals saw like clients, that your mentioned for relationships under some where questions. you verticals If how were for the revenue under Darren. better Thanks does were and others healthcare pressure. auto the between ones versus

Mike. Thanks is for This question, the Dillon.

verticals sequential looking and are basis. was third basis. a Automotive two So, particular, in small has From it home we an third as business at years. relatively overall are mix. services in a the quarter the of or as actually in relatively equation number usually seasonal in stable year-over-year saw has listing pieces a does decrement the that uptick and perspective, it if you volume quarter. on as on It last some vertical The sizable have uptick Those look our strong for of a didn’t providers. the a

in more significant as space decreasing advertising well arrangers basis So, with some impact they a just digital that small conversational as year-over-year volumes. saw and from large businesses the the work cases, on

tail that – conversational to they a addition, there saw longer lower they smaller In on have were customer some volumes well. just as seemed have basis year-over-year bases or than

And was one equation being call in was probably small so we impacted. there. the the some business that decrement providers there overall the noteworthy But out most would listing as

right and visibility your Like or with said still out terms you do seeing Fortune to tested talk And rolled like XXX question, another the actually generate revenue the Got when are expansion of and get it. in some and new of monetizing rolling products, way, is products? about potentially now what companies throughout live have in they XXXX? building they out you and sort those there, are starting to another pipeline

So, well as piloting. paperwork we as in have terms secured some facet, in new of one customers

And it you give actually of will so out. I it’s a few And more matter cases. rolling a

with coming We have way. some there existing as significant customer ones in And that as customers. expanding auto services, got actually some The have potential new Home are some where got are wins. we healthcare, some customers. where area. is relationships services more existing have of well and today, able part relationships relationships in that because those the there had existing bottom Auto the some we some customers a another scheduled, into is expanding we acquisition are recent those solidification be and relationships, XXXX both sequential top line. some progress us gave actually it’s traction the of existing feel are of It’s see why visibility to the we like we making from in

part think that we With the and but the of to some secured for as play new out XXXX. going customers, and customers that that onboarding us these of new first with, the the won in only half is have of relationship we well piloting not the process we think

more in are is, the Dillon, piece, have They opportunities. not not we other secured. The are we that seeing are signed. got pipeline, They actually

some but actually ahead which base as We be But year do perspective haven’t them interest and pause us yet. of can the that XXXX the from the building, piloted gives we financial the from a like have opportunities feel more not customer perspective. for tracking for and customer just look product also are perspective, we progress, from the

where flexibility more, increase, Thanks. on mentioned what better the sort top of about marketing of or traction. operating or are or line are it of spend back shakes it And you good one to, say, of how leverage, sales or the first? breakeven like the able seeing sort When sort adjusted if to talk if we the the goal about to taper of EBITDA is think Is items some you I out you terms line sort should of you in may.

one gross So, sales that cost that and with just the operating lines. the place the We leverage is margin, cost think the there more we of the from revenues see economics is of standpoint. opportunity service, for added expansion number with

got scale, of a talked quite keeping for have fixed. in we also places at room just leverage with the a that have the think current past, we we As bit few

is And where scale relatively area we from be fixed fairly we that are. cost, so even with robust would G&A an think a significant

that. actually of and but grows, with that’s an more opportunity arena. see sales some more it and be revenue And may the revenue piece in we acquisition, commensurate with that traction be think marketing, growth with if area that would there a customer I is variable that

as is So, hopefully, some new In we on the expanding well some relationships. customers to the sure on near-term, focus top that especially indications. I and with relatively line gives traction as the see you trying there progress, of think our the make that

of to optimize profitability. would necessarily revenue than more focus the be so the near-term trying And for

Got on. it. pass it Thank you. I will

JMN Research. Vivek. Vivek ahead next comes with go Please from Our question Palani

am questions have from Good Hi. I Capital. me. with of afternoon. Mike Northland I few a Latimore Vivek on

percent text messaging? one what first The of is, now into sales

is Vivek, So, Mike. this

things question of about are that’s messaging. the minority equation, case, of If the but it’s asked it a or think you I text It’s in the that still remains and traction, the messaging path. integrated SMS the a piece. growing percentage of become of was piece to a want single-digit from a one the terms our this of a but we roadmap things one that’s basis. XXXX enable It across we not on products suite go-forward has It’s in more will all the products. a our today, integrated of that strategic across doing on and perspective component direct

to proposition not we the of and just our messaging acquiring our so a point part more or ones that text are focal accessing the see, simply And customers of of of messaging just of do relationship expect SMS as because that, value to that get become capabilities. the all

bookings Great. is, quarter? does My second question year-on-year in grew the

So, you I are that to referring presume bookings, pipeline. are when about talking you

across so coming and in there those, across some acquisition been And some in we secured the good home in not a not where in It’s And verticals. There healthcare. from is that just auto. It’s well of is dollar is growth. where news number signed, seeing pipeline It’s have volume. in are it’s a backlog variety with there There two auto just is across It’s that’s haven’t But the think terms coming so of what in and of arena, both growing services. I opportunities new services. activity. refreshing pipeline customer secured in And perspective, arrangements, in as got quarter arrangements. terms more last the activity as actually we is parts. that

question the do last main how margin The you And what trends? are there? the Okay. is, gross levers see

margin, the is incremental becomes stable So, that products, suite predominant going levels. with dollar look revenue the consistent that if we added, mix the contribution $X.XX to with that of of expensive. you line. new can even or dollar more products, we margin revenue on piece with at think the be suite than margin growth, revenue can near-term the revenue think significantly. drop What of of the the gross can that. there revenue growth relatively revenue line, I incremental when gross gross for be we the our for margin every move to additive is And think of We that see that’s is gross the it each in think of And new of then be comes especially the it could onboard plus more some

cost sale the of Given of part relatively service the actual nominal component. it’s a

That’s it. Thanks.

will further back no I now have We remarks. the to questions. for team concluding hand management

This you. Russ. is Thank

in our environment, closer been our obviously, despite customers, But as been to we and been macro our for Just growth participation the today clear helped strategic at to deeper we that, on with I getting The want that’s has have have opportunities, getting of our call referenced, our are inform play. opportunities we we good understanding the main of I and The there a priorities thing like differentiators. line wrap on in everyone lot increasingly with questions. catalysts. clear thank feel factors is, vertical and we up, think product clouding has sight and to various close and very really can

place it’s focused. in opportunities clear those a understanding are, executionally put clarity around and where just with being it’s so where And really us growth

the existing spirit the about so And with with are what well, expansion talked in as customers. catalysts Mike there of

our these more to will have of sequentially. those put which products that that of on behind We new we think just expansion, new contribute believe wins a channel lot all focus momentum we we had And continue initiatives. will validate

share very, so with we appreciate support you ongoing your And progress are much. involvement. eager Thank you and to and very

may joining now everyone and our for This disconnect you concludes your today. lines. Thank call you us