Marchex Reports Second Quarter 2007 Financial Results

  
    
  
  
    
      Marchex, Inc. (NASDAQ:MCHX)(NASDAQ:MCHXP) today reported its results for 
      the second quarter ended June 30, 2007.
    
    
      Consolidated Financial Results:
    
    
      
        Revenue was $34.7 million for the second quarter of 2007, a 9% 
        increase compared to $31.7 million for the same period of 2006.
      
      
        GAAP net income applicable to common stockholders was $354,000 for the 
        second quarter of 2007 or $0.01 per share. This compares to GAAP net 
        loss applicable to common stockholders of $612,000 or $0.02 per share 
        for the same period of 2006. The second quarter 2007 results included 
        non-cash stock-based compensation expense recorded under the fair 
        value method of $2.3 million, compared to non-cash stock-based 
        compensation expense of $3.4 million for the same period in 2006.
      
      
        We provide a reconciliation of GAAP EPS to Adjusted Non-GAAP EPS in 
        the last financial tables attached to this press release and encourage 
        investors to examine the reconciling adjustments between the GAAP and 
        non-GAAP measures. Adjusted non-GAAP EPS for the second quarter of 
        2007 was $0.10, compared to $0.12 for the same period of 2006. Some 
        Wall Street analysts use non-GAAP measures to analyze our operating 
        results, which may include adjusted non-GAAP EPS, adjusted operating 
        income before amortization and adjusted EBITDA. We present GAAP 
        measures with equal or greater prominence than non-GAAP measures and 
        such non-GAAP measures should not be considered a substitute for, or 
        superior to, GAAP results.
      
      
        Adjusted operating income before amortization was $6.4 million for the 
        second quarter of 2007, which is a decrease of 23% compared to $8.3 
        million for the same period of 2006. A reconciliation of non-GAAP 
        adjusted operating income before amortization to GAAP operating income 
        and GAAP net income is attached to the financial tables included in 
        this release.
      
      
        Adjusted EBITDA was $8.6 million in the second quarter of 2007, 
        compared to $9.7 million for the same period of 2006. A reconciliation 
        of operating income before taxes, depreciation, amortization and 
        gain/loss on sales of intangible assets to GAAP net cash provided by 
        operating activities is attached to the financial tables included in 
        this release.
      
    
    
      Marchex’s second quarter results were impacted 
      by the following:
    
        -Adjusted operating income before amortization and adjusted
    EBITDA were impacted by Marchex's decision to accelerate the
    investment in its advertising services platform for local
    advertisers by $600,000 to support its largest aggregator
    partners. Marchex believes this incremental investment will help
    accelerate the rate at which it is adding advertisers as well as
    adding competitive product features and further scalability to its
    local advertising platform. Adjusted operating income before
    amortization was also impacted by the increase of approximately
    $300,000 of amortization costs associated with the Spanish
    language Web site acquisitions, which was referenced by the
    company at the time of their acquisition. This item did not affect
    adjusted EBITDA; and

    -Datacenter outages, which resulted in a decrease of $500,000 to
    revenue and adjusted operating income before amortization to
    Marchex's proprietary traffic sources. These outages were not
    anticipated and Marchex views them as non-recurring.
    
      “Aside from the reconciling items we have 
      noted today, the second quarter’s financial 
      results were largely in the range of our expectations,” 
      said Russell C. Horowitz, Marchex Chairman and Chief Executive Officer. “Operationally, 
      we are excited that we achieved significant product milestones during 
      the second quarter and that Marchex’s various 
      initiatives over the last three years are now converging around a 
      tremendous opportunity in the local space. With the launch of 100,000 
      locally targeted sites, Marchex has one of the largest online local 
      consumer networks, where we help millions of users make locally focused 
      purchasing decisions. In addition, Marchex has what we believe is the 
      industry’s most sophisticated local 
      advertising platform, offering local advertisers the ability to create, 
      manage, fulfill and report on both search- and call-based advertiser 
      programs at scale. In total, we are going to continue investing in the 
      local opportunity, our greatest area of strength, which means an 
      incremental investment of $13 million this year. This will help Marchex 
      capitalize on the momentum we are seeing in both our local advertising 
      and consumer-facing initiatives. We believe this investment will support 
      Marchex’s position as a local leader while 
      also reducing risks and dependencies. We are committed to delivering the 
      best solutions anywhere for local advertisers and consumers and believe 
      by doing this, we will create the most value for our shareholders.”
    
    
      Marchex Focus and Commitment to the 
      Online Local Marketplace:
    
    
      Over the last three years, Marchex has achieved strength in the local 
      marketplace through building initial critical mass on both the local 
      advertiser side, and the local consumer side. On the local advertiser 
      side, Marchex now has more than 30,000 advertisers, exclusive of 
      VoiceStar, who are using Marchex’s 
      advertising technology and services platform to create, manage, fulfill 
      and report against search marketing campaigns. Additionally, based on 
      (i) the combination of new services Marchex will offer, (ii) the number 
      of large local advertiser aggregators leveraging Marchex and VoiceStar 
      technologies, such as AT&T, The Cobalt Group, and Yellowbook USA, and 
      (iii) the momentum Marchex is currently seeing in new local advertiser 
      sign-ups, Marchex expects that its local advertiser coverage will more 
      than double by the end of 2009. On the local consumer side, Marchex has 
      more than 200,000 Web sites that contain more than one billion pages of 
      targeted local content to help local consumers make better decisions. 
      These Web sites generate tens of millions of visitors for our network 
      and delivered more than 40 million revenue-generating look-ups and 
      referrals in the second quarter.
    
    
      The industry forecasts for online local advertising growth are very 
      powerful. Today, there are more than 15 million businesses in the U.S. 
      spending more than $100 billion annually in offline, locally-targeted 
      marketing. Piper Jaffray estimates that over the next ten years, local 
      online advertising spending will grow from $5 billion to $25 billion. In 
      addition, Borrell Associates estimates annual growth rates over the next 
      four years as high as 42.8% for local paid search and 12.3% for the 
      entire local Internet ad market. As a result, as these sources indicate, 
      local paid search will drive the paid search and overall online 
      advertising space for years to come.
    
    
      Recent Highlights and Updated 
      Statistics:
    
    
      VoiceStar Acquisition: Marchex today announced that it has 
      entered into an agreement to acquire VoiceStar (www.VoiceStar.com), 
      a leader in providing call-based advertising services for local 
      advertisers, such as: as pay-per-phone-call, call-tracking, and other 
      services. VoiceStar is one of the largest providers of call-based 
      advertising services with more than 100 local advertiser aggregators 
      leveraging VoiceStar’s products, such as: 
      Comcast, The Cobalt Group, and YellowBook USA. With VoiceStar, 
      Marchex can offer advertisers and aggregator partners a complete text- 
      and call-based advertising platform along with distribution for their 
      advertisements in search engines, vertical Web sites, and on our local 
      Web sites. Marchex plans to make significant investments in 
      pay-per-phone-call going forward to support VoiceStar’s 
      expansion as part of Marchex. In order to succeed in serving the local 
      advertising channel, in addition to providing search marketing 
      solutions, Marchex believes that supporting call-based services is a 
      prerequisite and provides the ability to assist those advertisers that 
      already have a Web presence, as well as those who don’t.
    
    
      Bill Day Hired as Chief Media Officer: Marchex today announced 
      that it has strengthened its executive team with the addition of Bill 
      Day, who will serve as Marchex’s Chief Media 
      Officer and oversee Marchex’s media strategy, 
      including the online content, consumer experience and related 
      advertising opportunities. Day is a world-class operator and pioneer in 
      providing vertically focused original content destinations, and in 
      growing media properties at scale, given his experience at About.com, 
      where he co-founded the company and served as President and then CEO. 
      Day grew About.com to a top 20 online global media network that covered 
      more than 700 topics and 50,000 subjects. About.com was, and still is 
      today, used by tens of millions of monthly users to find highly 
      targeted, useful information. In order to build a major consumer-facing 
      network, Marchex believed it was important to bring in someone with deep 
      consumer experience who had run a first tier online media company at 
      scale.
    
    
      Yahoo! Renewal: Marchex today announced an agreement with Yahoo! 
      to extend its existing Web site monetization relationship through June 
      2009. There were other potential providers who were highly interested in 
      working with Marchex, and who the company also considered during its 
      process. However, based on a number of factors, including Marchex’s 
      need for product flexibility, economics, reporting, and other terms, 
      Marchex believed Yahoo! represented the best strategic fit and it looks 
      forward to working closely with Yahoo! on this and other strategic 
      opportunities. Marchex is focused on complementing the Yahoo! 
      relationship with its own advertising initiatives so it may be in a 
      position to be the primary driver of revenue on its Web sites by the end 
      of 2009. Marchex expects this growth will be driven by its expectations 
      of advertiser growth and product innovation, including the roll out of 
      new relevant proprietary ad formats, such as pay-per-phone-call ads.
    
    
      Unique Visitors and Revenue Attributable to Proprietary Traffic 
      Sources: Marchex today announced that its proprietary network of 
      vertical and local Web sites attracted approximately 31 million unique 
      visitors for the month of June 2007. Unique visitor statistics are based 
      on internal traffic logs, which calculate unique IP (Internet protocol) 
      addresses on an unduplicated basis during a given month. For the second 
      quarter of 2007, revenue attributable to proprietary traffic sources was 
      $13.5 million.
    
    
      Local Consumer Network: Marchex’s 
      consumer network of Web sites delivered more than 40 million look-ups 
      and referrals in the second quarter, which are defined as 
      revenue-generating business searches on primary proprietary sites such 
      as Yellow.com and Openlist.com and referral clicks on advertisement 
      listings on our proprietary Web sites such as www.bostonmortgage.com. 
      Marchex believes that metrics like this will significantly expand over 
      the next 24 months based on increased traffic and usage levels at its 
      Web sites, including the upcoming re-launch of Openlist.com in September.
    
    
      Local Consumer Products: In late June, Marchex launched more than 
      100,000 of its local and vertical Web sites leveraging its Open List 
      technology to publish more than one billion Web pages of 
      locally-targeted content, features and functionality for consumers 
      looking for local services and information online, along with highly 
      targeted local advertising inventory. These Open List-powered Web sites 
      have received very positive feedback from users and the early metrics 
      point toward positive revenue and page view growth. The newly launched 
      sites feature more than 15 million business listings across all major 
      yellow pages categories, a deep refinement system, 
      user-generated reviews and ratings, and third-party expert reviews. The 
      Web sites include tens of thousands of vertical, local and 
      local-vertical Web sites, such as www.cuisine.com, 
      www.locksmiths.com and www.remodeling.com; 
      www.bayareahotels.com, www.newyorkdoctors.com, 
      and www.denverautorepair.com; 
      and Marchex’s ZIP Code Web sites, which cover 
      96% of all ZIP Code areas nationwide, such as www.90210.com.
    
    
      Spanish-Language Web site Development Alliance with Fox: During 
      the quarter Marchex and Fox’s Latin American 
      Channels division, a wholly owned subsidiary of News Corporation, 
      announced a partnership to jointly develop a set of Spanish-language Web 
      sites owned by Marchex, including cocina.com (English translation is “Kitchen” 
      or “Cook”), 
      fotos.com (Photos), futbol.com (Soccer), deportes.com (Sports), 
      mascotas.com (Pets), mujer.com (Woman), peliculas.com (Movies), 
      salud.com (Health), and tarjetas.com (Greeting Cards). Fox will provide 
      localized content and community features to the Web sites including: 
      videos, forums, blogs, personal home pages, and photo albums.
    
    
      New Search Marketing Product Relationship: During the quarter, 
      Marchex announced a new relationship with Yahoo! in which Marchex is 
      sending its direct pay-per-click advertisers into Yahoo! Sponsored 
      Search distribution.
    
    
      Stock Buy-Back:
    
    
      Marchex purchased approximately 44,000 of shares of common stock for 
      approximately $600,000 in August under the terms of its previously 
      announced stock repurchase program. The company is reviewing the scope 
      of this repurchase program in light of its stock price and prevailing 
      market conditions and anticipates expanding or modifying this program as 
      a result of this review.
    
    
      Marchex Financial Guidance:
    
    
      The following forward-looking statements reflect Marchex’s 
      expectations as of August 9, 2007.
    
        Revenue: Marchex anticipates 2007 Revenue of $136 million to $142
    million. Adjustments from our prior guidance of $144 million to
    $150 million are based on:

    -   a loss of $500,000 in revenue during the second quarter
        resulting from the datacenter outages;

    -   a $500,000 anticipated revenue increase from the VoiceStar
        acquisition;

    -   a $4 million decrease resulting from an anticipated reduction
        in Web site marketing;

    -   a $4 million decrease in revenue based on our increased direct
        monetization of our proprietary Web sites and impact from
        Yahoo!'s quality-based pricing initiatives.

    Adjusted operating income before amortization: Marchex anticipates
    2007 adjusted operating income before amortization of $21 million
    to $25 million. Adjustments from our prior guidance of $34 million
    to $38 million are based on:

    -   a $1.1 million decrease in adjusted operating income before
        amortization from our second quarter results due to the
        increased investment in our advertising services platform for
        local advertisers plus datacenter outage impacts;

    -   the $4 million increased investment in the accelerated build
        out of our advertising services platform for local advertisers
        we provide to partners like AT&T and other aggregator
        partners, as well as supporting potential new relationships;

    -   a $3 million investment in accelerating the product and
        infrastructure build out for VoiceStar, as well as the initial
        integration with Marchex's advertising services platform;

    -   a $1 million decrease resulting from an anticipated reduction
        in Web site marketing;

    -   a $4 million decrease based on direct monetization of our
        proprietary Web sites and impact from Yahoo's quality-based
        pricing initiatives.
    
      Adjusted EBITDA: For adjusted EBITDA, Marchex anticipates 
      add-backs of approximately $8 million in additional depreciation and 
      amortization to its adjusted operating income before amortization range, 
      implying an adjusted EBITDA range of $29 million to $33 million. Our 
      prior guidance on add-backs to adjusted operating income before 
      amortization was approximately $7 million in additional depreciation and 
      amortization.
    
    
      Third Quarter 2007: For color on Marchex’s 
      quarterly revenue expectations, given the various new strategic 
      initiatives and impacts, the company currently anticipates that Q3 
      revenue will be more than $32.5 million. Regarding quarterly adjusted 
      operating income before amortization, given that Marchex has 
      significantly ramped up our investment in building local marketplace 
      leadership and valuable intellectual property, Marchex currently 
      anticipates that Q3 will be more than $4 million. Marchex expects 
      adjusted EBITDA to be $2 million higher than operating income before 
      amortization, given additional depreciation and amortization add-backs, 
      implying more than $6 million in adjusted EBITDA.
    
    
      Conference Call and Webcast Information:
    
    
      Management will hold a conference call, starting at 5:00 p.m. EDT on 
      Thursday, August 9, 2007 to discuss its second quarter 2007 results and 
      other company updates. To access the call by live Webcast, please log 
      onto the Investor Relations section of the Marchex Web site (www.marchex.com/ir.html). 
      An archived version of the Webcast will also be available, beginning two 
      hours after completion of the call, at the same location.
    
    
      About Marchex, Inc.
    
    
      Marchex (www.marchex.com) is a 
      local online advertising company and leading publisher of local content. 
      Marchex's innovative advertising platform delivers search marketing 
      products and services for local and national advertisers. Marchex's 
      local content network, one of the largest online, helps consumers make 
      better, more informed local decisions though its network of content-rich 
      Web sites that reach tens of millions of unique visitors each month.
    
    
      Forward looking statements:
    
    
      This press release contains forward-looking statements that involve 
      substantial risks and uncertainties. All statements, other than 
      statements of historical facts, included in this press release regarding 
      our strategy, future operations, future financial position, future 
      revenues, acquisitions, projected costs, prospects, plans and objectives 
      of management are forward-looking statements. We may not actually 
      achieve the plans, intentions or expectations disclosed in our 
      forward-looking statements and you should not place undue reliance on 
      our forward-looking statements. Actual results or events could differ 
      materially from the plans, intentions and expectations disclosed in the 
      forward-looking statements we make. There are a number of important 
      factors that could cause Marchex's actual results to differ materially 
      from those indicated by such forward-looking statements which are 
      described in the "Risk Factors" section of our most recent periodic 
      report and registration statement filed with the SEC. In addition, 
      Marchex's acquisition of VoiceStar remains subject to customary closing 
      conditions. All of the information provided in this release is as of 
      August 9, 2007 and Marchex undertakes no duty to update the information 
      provided herein.
    
    
      Non-GAAP Financial Information:
    
    
      To supplement Marchex's consolidated financial statements presented in 
      accordance with GAAP and to provide clarity internally and externally, 
      Marchex uses certain non-GAAP measures of financial performance and 
      liquidity, including OIBA, Adjusted OIBA, Adjusted EBITDA and Adjusted 
      non-GAAP EPS. Marchex also provides Pro Forma Revenue information for 
      the three and six months ended June 30, 2006 and 2007 as if the 
      AreaConnect and Open List asset acquisitions in 2006 occurred as of 
      January 1, 2006.
    
    
      OIBA represents income (loss) from operations plus (1) stock-based 
      compensation expense and (2) amortization of acquired intangible assets. 
      This measure, among other things, is one of the primary metrics by which 
      Marchex evaluates the performance of its business. Additionally, 
      Marchex's management uses Adjusted OIBA which excludes (1) any gain/loss 
      on sales of intangible assets and (2) facility relocation as these are 
      viewed as non-recurring in nature. Adjusted OIBA is the basis on which 
      Marchex's internal budgets are based and by which Marchex's management 
      is currently evaluated. Marchex believes these measures are useful to 
      investors because they represent Marchex's consolidated operating 
      results, taking into account depreciation and other intangible 
      amortization, which Marchex believes is an ongoing cost of doing 
      business, but excluding the effects of certain other non-cash and 
      non-recurring expenses. Adjusted EBITDA represents income before 
      interest, income taxes, depreciation, amortization, stock compensation 
      expense, and gain/loss on sales of intangible assets. Marchex believes 
      that Adjusted EBITDA is another alternative measure of liquidity to GAAP 
      net cash provided by operating activities that provides meaningful 
      supplemental information regarding liquidity and is used by Marchex's 
      management to measure its ability to fund operations and its financing 
      obligations.
    
    
      Adjusted non-GAAP EPS represents Adjusted Net Income divided by weighted 
      average fully diluted shares outstanding for Adjusted non-GAAP EPS 
      purposes. Adjusted Net Income generally captures those items on the 
      statement of operations that have been, or ultimately will be, settled 
      in cash exclusive of certain non-recurring items and represents net 
      income (loss) available to common stockholders plus: (1) stock based 
      compensation expense, (2) amortization of acquired intangible assets, 
      (3) gain/loss on sales of intangible assets, (4) other income (expense), 
      (5) the cumulative effect of changes in accounting principles, (6) 
      facility relocation and less (7) discount on preferred stock redemption. 
      Adjusted non-GAAP EPS includes dilution from options and warrants per 
      the treasury stock method, includes the weighted average number of all 
      potential common shares relating to convertible preferred stock and 
      restricted stock and excludes the weighted average common share 
      equivalents for redeemed preferred shares. Shares outstanding for 
      Adjusted non-GAAP EPS purposes are therefore higher than shares 
      outstanding for GAAP EPS purposes. Financial analysts and investors may 
      use Adjusted non-GAAP EPS to analyze Marchex's financial performance 
      since these groups have historically used EPS related measures, along 
      with other measures, to estimate the value of a company, to make 
      informed investment decisions and to evaluate a company's operating 
      performance compared to that of other companies in its industry.
    
    
      Marchex's management believes that investors should have access to, and 
      Marchex is obligated to provide, the same set of tools that management 
      uses in analyzing the company's results. These non-GAAP measures should 
      be considered in addition to results prepared in accordance with GAAP, 
      and should not be considered in isolation, as a substitute for, or 
      superior to, GAAP results. These non-GAAP terms, as defined by Marchex, 
      may not be comparable to similarly titled measures used by other 
      companies. Marchex endeavors to compensate for the limitations of the 
      non-GAAP measures presented by providing the comparable GAAP measure 
      with equal or greater prominence, GAAP financial statements and detailed 
      descriptions of the reconciling items and adjustments, including 
      quantifying such items, to derive the non-GAAP measure.
    
    
      
        
          MARCHEX, INC. AND SUBSIDIARIES
        
      
      
        
          Condensed Consolidated Statements of Operations
        
      
      
        
          (unaudited)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Three Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
      
      
        
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          Revenue
        
        
        
        
          $
        
        
          31,714,720
        
        
           
        
        
        
        
          $
        
        
          34,665,637
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Expenses:
        
        
        
        
        
        
        
        
        
      
      
        
          Service costs (1)
        
        
        
        
        
        
          15,020,319
        
        
        
        
        
        
        
        
          16,764,588
        
        
        
      
      
        
          Sales and marketing (1)
        
        
        
        
        
        
          5,407,200
        
        
        
        
        
        
        
        
          7,112,929
        
        
        
      
      
        
          Product development (1)
        
        
        
        
        
        
          2,553,395
        
        
        
        
        
        
        
        
          2,662,779
        
        
        
      
      
        
          General and administrative (1)
        
        
        
        
        
        
          3,846,212
        
        
        
        
        
        
        
        
          4,057,643
        
        
        
      
      
        
          Amortization of intangible assets from acquisitions
        
        
        
        
        
        
          5,164,191
        
        
        
        
        
        
        
        
          4,074,254
        
        
        
      
      
        
          Facility relocation
        
        
        
        
           
        
        
          -
        
        
           
        
        
        
        
           
        
        
          121,124
        
        
           
        
      
      
        
          Total operating expenses
        
        
        
        
           
        
        
          31,991,317
        
        
           
        
        
        
        
           
        
        
          34,793,317
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Gain on sales and disposals of intangible assets, net
        
        
        
        
           
        
        
          174,071
        
        
           
        
        
        
        
           
        
        
          123,246
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loss from operations
        
        
        
        
        
        
          (102,526
        
        
          )
        
        
        
        
        
        
          (4,434
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Interest income and other, net
        
        
        
        
           
        
        
          751,826
        
        
           
        
        
        
        
           
        
        
          748,314
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income before provision for income taxes
        
        
        
        
        
        
          649,300
        
        
        
        
        
        
        
        
          743,880
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income tax expense
        
        
        
        
           
        
        
          838,804
        
        
           
        
        
        
        
           
        
        
          412,978
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income (loss)
        
        
        
        
        
        
          (189,504
        
        
          )
        
        
        
        
        
        
          330,902
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Convertible preferred stock dividends and discount on preferred 
            stock redemption, net
          
        
        
        
        
        
        
          422,147
        
        
        
        
        
        
        
        
          (23,482
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income (loss) applicable to common stockholders
        
        
        
        
          $
        
        
          (611,651
        
        
          )
        
        
        
        
          $
        
        
          354,384
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Basic net income (loss) applicable to common stockholders
        
        
        
        
          $
        
        
          (0.02
        
        
          )
        
        
        
        
          $
        
        
          0.01
        
        
        
      
      
        
          Diluted net income (loss) applicable to common stock holders
        
        
        
        
          $
        
        
          (0.02
        
        
          )
        
        
        
        
          $
        
        
          0.01
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Shares used to calculate basic net income (loss) per share 
          applicable to common stockholders
        
        
        
        
        
        
          38,311,448
        
        
        
        
        
        
        
        
          39,597,600
        
        
        
      
      
        
          Shares used to calculate diluted net income (loss) per share 
          applicable to common stockholders
        
        
        
        
        
        
          38,311,448
        
        
        
        
        
        
        
        
          40,534,319
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (1) Includes stock-based compensation allocated as follows:
          
        
      
      
        
           
        
      
      
        
          Service costs
        
        
        
        
          $
        
        
          255,742
        
        
        
        
        
        
          $
        
        
          31,741
        
        
        
      
      
        
          Sales and marketing
        
        
        
        
        
        
          943,978
        
        
        
        
        
        
        
        
          89,800
        
        
        
      
      
        
          Product development
        
        
        
        
        
        
          827,187
        
        
        
        
        
        
        
        
          450,692
        
        
        
      
      
        
          General and administrative
        
        
        
        
           
        
        
          1,401,001
        
        
           
        
        
        
        
           
        
        
          1,770,488
        
        
           
        
      
      
        
          
            Total
          
        
        
        
        
          $
        
        
          3,427,908
        
        
           
        
        
        
        
          $
        
        
          2,342,721
        
        
           
        
      
    
    
      
        
          MARCHEX, INC. AND SUBSIDIARIES
        
      
      
        
          Condensed Consolidated Statements of Operations
        
      
      
        
          (unaudited)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Six Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
      
      
        
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          Revenue
        
        
        
        
          $
        
        
          62,827,045
        
        
           
        
        
        
        
          $
        
        
          68,889,038
        
        
           
        
      
      
        
          Expenses:
        
        
        
        
        
        
        
        
        
      
      
        
          Service costs (1)
        
        
        
        
        
        
          29,872,268
        
        
        
        
        
        
        
        
          32,005,816
        
        
        
      
      
        
          Sales and marketing (1)
        
        
        
        
        
        
          11,273,884
        
        
        
        
        
        
        
        
          14,622,850
        
        
        
      
      
        
          Product development (1)
        
        
        
        
        
        
          4,780,419
        
        
        
        
        
        
        
        
          5,260,435
        
        
        
      
      
        
          General and administrative (1)
        
        
        
        
        
        
          7,255,720
        
        
        
        
        
        
        
        
          8,238,418
        
        
        
      
      
        
          Amortization of intangible assets from acquisitions
        
        
        
        
        
        
          10,034,864
        
        
        
        
        
        
        
        
          8,597,388
        
        
        
      
      
        
          Facility relocation
        
        
        
        
           
        
        
          -
        
        
           
        
        
        
        
           
        
        
          121,124
        
        
           
        
      
      
        
          Total operating expenses
        
        
        
        
           
        
        
          63,217,155
        
        
           
        
        
        
        
           
        
        
          68,846,031
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Gain on sales and disposals of intangible assets, net
        
        
        
        
           
        
        
          353,279
        
        
           
        
        
        
        
           
        
        
          155,510
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income (loss) from operations
        
        
        
        
        
        
          (36,831
        
        
          )
        
        
        
        
        
        
          198,517
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Interest income and other, net
        
        
        
        
           
        
        
          1,486,108
        
        
           
        
        
        
        
           
        
        
          1,460,301
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income before provision for income taxes
        
        
        
        
        
        
          1,449,277
        
        
        
        
        
        
        
        
          1,658,818
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income tax expense
        
        
        
        
           
        
        
          1,492,452
        
        
           
        
        
        
        
           
        
        
          886,766
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income (loss) before cumulative effect of a change in accounting 
          principle
        
        
        
        
        
        
          (43,175
        
        
          )
        
        
        
        
        
        
          772,052
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Cumulative effect of a change in accounting principle, net of tax (2)
        
        
        
        
           
        
        
          151,341
        
        
           
        
        
        
        
           
        
        
          -
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income
        
        
        
        
        
        
          108,166
        
        
        
        
        
        
        
        
          772,052
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Convertible preferred stock dividends, conversion payment and 
            discount on preferred stock redemption, net
          
        
        
        
        
        
        
          1,916,082
        
        
        
        
        
        
        
        
          (130,030
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income (loss) applicable to common stockholders
        
        
        
        
          $
        
        
          (1,807,916
        
        
          )
        
        
        
        
          $
        
        
          902,082
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Basic net income (loss) per share applicable to common stockholders
        
        
        
        
          $
        
        
          (0.05
        
        
          )
        
        
        
        
          $
        
        
          0.02
        
        
        
      
      
        
          Diluted net income (loss) per share applicable to common stockholders
        
        
        
        
          $
        
        
          (0.05
        
        
          )
        
        
        
        
          $
        
        
          0.02
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Basic net income (loss) applicable to common stockholders
        
        
        
        
        
        
          37,693,506
        
        
        
        
        
        
        
        
          39,382,979
        
        
        
      
      
        
          Diluted net income (loss) applicable to common stock holders
        
        
        
        
        
        
          37,693,506
        
        
        
        
        
        
        
        
          40,371,282
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (1) Includes stock-based compensation allocated as follows:
          
        
      
      
        
           
        
      
      
        
          Service costs
        
        
        
        
          $
        
        
          491,953
        
        
        
        
        
        
          $
        
        
          150,276
        
        
        
      
      
        
          Sales and marketing
        
        
        
        
        
        
          1,991,249
        
        
        
        
        
        
        
        
          462,158
        
        
        
      
      
        
          Product development
        
        
        
        
        
        
          1,562,374
        
        
        
        
        
        
        
        
          939,944
        
        
        
      
      
        
          General and administrative
        
        
        
        
           
        
        
          2,903,075
        
        
           
        
        
        
        
           
        
        
          3,677,557
        
        
           
        
      
      
        
          Total
        
        
        
        
          $
        
        
          6,948,651
        
        
           
        
        
        
        
          $
        
        
          5,229,935
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (2) As a result of the adoption of SFAS 123R, Marchex recorded an 
            amount from the cumulative impact of the accounting change.
          
        
      
    
    
      
        
          MARCHEX, INC. AND SUBSIDIARIES
        
      
      
        
          Condensed Consolidated Balance Sheets
        
      
      
        
          (unaudited)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          December 31,
        
        
        
        
          June 30,
        
      
      
        
          Assets
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          Current assets:
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and cash equivalents
        
        
        
        
          $
        
        
          46,105,827
        
        
        
        
        
        
          $
        
        
          53,892,263
        
        
        
      
      
        
          Trade accounts receivable, net
        
        
        
        
        
        
          22,035,343
        
        
        
        
        
        
        
        
          20,204,440
        
        
        
      
      
        
          Prepaid expenses and other current assets
        
        
        
        
        
        
          2,221,550
        
        
        
        
        
        
        
        
          2,301,477
        
        
        
      
      
        
          Refundable taxes
        
        
        
        
        
        
          1,837,166
        
        
        
        
        
        
        
        
          4,500,841
        
        
        
      
      
        
          Deferred tax assets
        
        
        
        
           
        
        
          670,624
        
        
           
        
        
        
        
           
        
        
          547,084
        
        
           
        
      
      
        
          Total current assets
        
        
        
        
        
        
          72,870,510
        
        
        
        
        
        
        
        
          81,446,105
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Property and equipment, net
        
        
        
        
        
        
          7,280,075
        
        
        
        
        
        
        
        
          8,318,727
        
        
        
      
      
        
          Deferred tax assets
        
        
        
        
        
        
          2,444,782
        
        
        
        
        
        
        
        
          4,462,965
        
        
        
      
      
        
          Intangibles and other assets, net
        
        
        
        
        
        
          13,318,801
        
        
        
        
        
        
        
        
          20,297,528
        
        
        
      
      
        
          Goodwill
        
        
        
        
        
        
          200,738,098
        
        
        
        
        
        
        
        
          195,699,928
        
        
        
      
      
        
          Intangible assets from acquisitions, net
        
        
        
        
           
        
        
          36,735,570
        
        
           
        
        
        
        
           
        
        
          27,910,324
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Total assets
          
        
        
        
        
          $
        
        
          333,387,836
        
        
           
        
        
        
        
          $
        
        
          338,135,577
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Liabilities and Stockholders' Equity
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Current liabilities:
        
        
        
        
        
        
        
        
        
      
      
        
          Accounts payable
        
        
        
        
          $
        
        
          10,739,231
        
        
        
        
        
        
          $
        
        
          10,828,757
        
        
        
      
      
        
          Accrued expenses and other current liabilities
        
        
        
        
        
        
          2,913,152
        
        
        
        
        
        
        
        
          2,025,432
        
        
        
      
      
        
          Deferred revenue
        
        
        
        
           
        
        
          2,430,644
        
        
           
        
        
        
        
           
        
        
          2,572,077
        
        
           
        
      
      
        
          Total current liabilities
        
        
        
        
        
        
          16,083,027
        
        
        
        
        
        
        
        
          15,426,266
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Other non-current liabilities
        
        
        
        
           
        
        
          91,907
        
        
           
        
        
        
        
           
        
        
          80,360
        
        
           
        
      
      
        
          
            Total liabilities
          
        
        
        
        
        
        
          16,174,934
        
        
        
        
        
        
        
        
          15,506,626
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Stockholders' equity:
        
        
        
        
        
        
        
        
        
      
      
        
          Convertible preferred stock
        
        
        
        
        
        
          2,342,884
        
        
        
        
        
        
        
        
          1,446,649
        
        
        
      
      
        
          Class A common stock
        
        
        
        
        
        
          119,217
        
        
        
        
        
        
        
        
          118,217
        
        
        
      
      
        
          Class B common stock
        
        
        
        
        
        
          276,361
        
        
        
        
        
        
        
        
          306,886
        
        
        
      
      
        
          Additional paid-in capital
        
        
        
        
        
        
          320,607,113
        
        
        
        
        
        
        
        
          326,156,302
        
        
        
      
      
        
          Accumulated deficit
        
        
        
        
           
        
        
          (6,132,673
        
        
          )
        
        
        
        
           
        
        
          (5,399,103
        
        
          )
        
      
      
        
          Total stockholders' equity
        
        
        
        
           
        
        
          317,212,902
        
        
           
        
        
        
        
           
        
        
          322,628,951
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Total liabilities and stockholders' equity
        
        
        
        
          $
        
        
          333,387,836
        
        
           
        
        
        
        
          $
        
        
          338,135,577
        
        
           
        
      
    
    
      
        
          MARCHEX, INC. AND SUBSIDIARIES
        
      
      
        
          Reconciliation of Revenue to Pro Forma Revenue
        
      
      
        
          (unaudited)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Three Months Ended
        
        
        
        
          Six Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
        
        
        
          June 30,
        
      
      
        
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
      
      
        
          Revenue, as reported
        
        
        
        
          $
        
        
          31,714,720
        
        
        
        
        
        
          $
        
        
          34,665,637
        
        
        
        
          $
        
        
          62,827,045
        
        
        
        
        
        
          $
        
        
          68,889,038
        
      
      
        
          AreaConnect pro forma revenue
        
        
        
        
        
        
          152,362
        
        
        
        
        
        
        
        
          -
        
        
        
        
        
        
          649,675
        
        
        
        
        
        
        
        
          -
        
      
      
        
          Open List pro forma revenue
        
        
        
        
        
        
          55,670
        
        
        
        
        
        
        
        
          -
        
        
        
        
        
        
          156,511
        
        
        
        
        
        
        
        
          -
        
      
      
        
          Pro forma eliminations
        
        
        
        
           
        
        
          (5,008
        
        
          )
        
        
        
        
           
        
        
          -
        
        
        
        
           
        
        
          (22,259
        
        
          )
        
        
        
        
           
        
        
          -
        
      
      
        
          Pro forma Revenue
        
        
        
        
          $
        
        
          31,917,744
        
        
           
        
        
        
        
          $
        
        
          34,665,637
        
        
        
        
          $
        
        
          63,610,972
        
        
           
        
        
        
        
          $
        
        
          68,889,038
        
      
    
    
      
        
          MARCHEX, INC. AND SUBSIDIARIES
        
      
      
        
          
            Reconciliation of GAAP Net Income (Loss) to Operating Income 
            Before Amortization (OIBA) and Adjusted Operating Income Before 
            Amortization (Adjusted OIBA)
          
        
      
      
        
          (unaudited)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Three Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
      
      
        
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          Net income (loss) applicable to common stockholders
        
        
        
        
          $
        
        
          (611,651
        
        
          )
        
        
        
        
          $
        
        
          354,384
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Convertible preferred stock dividends and discount on preferred 
            stock redemption, net
          
        
        
        
        
           
        
        
          422,147
        
        
           
        
        
        
        
           
        
        
          (23,482
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income (loss)
        
        
        
        
        
        
          (189,504
        
        
          )
        
        
          
             
          
        
        
        
        
          330,902
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income tax expense
        
        
        
        
           
        
        
          838,804
        
        
           
        
        
        
        
           
        
        
          412,978
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income before provision for income taxes
        
        
        
        
        
        
          649,300
        
        
        
        
        
        
        
        
          743,880
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Interest income and other, net
        
        
        
        
           
        
        
          (751,826
        
        
          )
        
        
        
        
           
        
        
          (748,314
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loss from operations
        
        
        
        
        
        
          (102,526
        
        
          )
        
        
        
        
        
        
          (4,434
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Stock-based compensation
        
        
        
        
        
        
          3,427,908
        
        
        
        
        
        
        
        
          2,342,721
        
        
        
      
      
        
          Amortization of intangible assets from acquisitions
        
        
        
        
           
        
        
          5,164,191
        
        
           
        
        
        
        
           
        
        
          4,074,254
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating income before amortization (OIBA)
        
        
        
        
        
        
          8,489,573
        
        
        
        
        
        
        
        
          6,412,541
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Facility relocation
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          121,124
        
        
        
      
      
        
          Gain on sales and disposals of intangible assets, net
        
        
        
        
           
        
        
          (174,071
        
        
          )
        
        
        
        
           
        
        
          (123,246
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Adjusted operating income before amortization (Adjusted OIBA)
        
        
        
        
          $
        
        
          8,315,502
        
        
           
        
        
        
        
          $
        
        
          6,410,419
        
        
           
        
      
    
    
      
        
          MARCHEX, INC. AND SUBSIDIARIES
        
      
      
        
          
            Reconciliation of GAAP Net Income (Loss) to Operating Income 
            Before Amortization (OIBA) and Adjusted Operating Income Before 
            Amortization (Adjusted OIBA)
          
        
      
      
        
          (unaudited)
        
      
      
        
           
        
      
      
        
        
        
        
        
          Six Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
      
      
        
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          Net income (loss) applicable to common stockholders
        
        
        
        
          $
        
        
          (1,807,916
        
        
          )
        
        
        
        
          $
        
        
          902,082
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Convertible preferred stock dividends, conversion payment and 
            discount on preferred stock redemption, net
          
        
        
        
        
           
        
        
          1,916,082
        
        
           
        
        
        
        
           
        
        
          (130,030
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income
        
        
        
        
        
        
          108,166
        
        
        
        
          
             
          
        
        
        
        
          772,052
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Cumulative effect of a change in accounting principle, net of tax (1)
        
        
        
        
           
        
        
          151,341
        
        
           
        
        
        
        
           
        
        
          -
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income (loss) before cumulative effect of a change in accounting 
          principle
        
        
        
        
        
        
          (43,175
        
        
          )
        
        
        
        
        
        
          772,052
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income tax expense
        
        
        
        
           
        
        
          1,492,452
        
        
           
        
        
        
        
           
        
        
          886,766
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income before provision for income taxes
        
        
        
        
        
        
          1,449,277
        
        
        
        
        
        
        
        
          1,658,818
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Interest income and other, net
        
        
        
        
           
        
        
          (1,486,108
        
        
          )
        
        
        
        
           
        
        
          (1,460,301
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income (loss) from operations
        
        
        
        
        
        
          (36,831
        
        
          )
        
        
        
        
        
        
          198,517
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Stock-based compensation
        
        
        
        
        
        
          6,948,651
        
        
        
        
        
        
        
        
          5,229,935
        
        
        
      
      
        
          Amortization of intangible assets from acquisitions
        
        
        
        
           
        
        
          10,034,864
        
        
           
        
        
        
        
           
        
        
          8,597,388
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating income before amortization (OIBA)
        
        
        
        
        
        
          16,946,684
        
        
        
        
        
        
        
        
          14,025,840
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Facility relocation
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          121,124
        
        
        
      
      
        
          Gain on sales and disposals of intangible assets, net
        
        
        
        
           
        
        
          (353,279
        
        
          )
        
        
        
        
           
        
        
          (155,510
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Adjusted operating income before amortization (Adjusted OIBA)
        
        
        
        
          $
        
        
          16,593,405
        
        
           
        
        
        
        
          $
        
        
          13,991,454
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (1) As a result of the adoption of SFAS 123R, Marchex recorded an 
            amount from the cumulative impact of the accounting change.
          
        
      
    
    
      
        
          MARCHEX, INC. AND SUBSIDIARIES
        
      
      
        
          Reconciliation from Net Cash provided by Operating Activities to 
          Adjusted EBITDA
        
      
      
        
          (unaudited)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Three Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
      
      
        
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          Net cash provided by operating activities
        
        
        
        
          $
        
        
          6,251,428
        
        
        
        
        
        
          $
        
        
          4,282,562
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Changes in asset and liabilities, net of effects of acquisitions
        
        
        
        
        
        
          2,997,470
        
        
        
        
        
        
        
        
          3,697,066
        
        
        
      
      
        
          Provision for income taxes
        
        
        
        
        
        
          838,804
        
        
        
        
        
        
        
        
          412,978
        
        
        
      
      
        
          Other item - facility relocation
        
        
        
        
        
        
          25,788
        
        
        
        
        
        
        
        
          17,106
        
        
        
      
      
        
          Interest income and other, net
        
        
        
        
        
        
          (751,826
        
        
          )
        
        
        
        
        
        
          (756,841
        
        
          )
        
      
      
        
          Income and excess tax benefits related to stock options
        
        
        
        
           
        
        
          354,735
        
        
           
        
        
        
        
           
        
        
          953,773
        
        
           
        
      
      
        
          Adjusted EBITDA
        
        
        
        
          $
        
        
          9,716,399
        
        
           
        
        
        
        
          $
        
        
          8,606,644
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Six Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
      
      
        
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          Net cash provided by operating activities
        
        
        
        
          $
        
        
          15,681,527
        
        
        
        
        
        
          $
        
        
          
            16,760,683
          
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Changes in asset and liabilities, net of effects of acquisitions
        
        
        
        
        
        
          1,730,391
        
        
        
        
        
        
        
        
          
            (559,074
          
        
        
          )
        
      
      
        
          Provision for income taxes
        
        
        
        
        
        
          1,492,452
        
        
        
        
        
        
        
        
          886,766
        
        
        
      
      
        
          Other item - facility relocation
        
        
        
        
        
        
          43,431
        
        
        
        
        
        
        
        
          17,106
        
        
        
      
      
        
          Interest income and other, net
        
        
        
        
        
        
          (1,487,971
        
        
          )
        
        
        
        
        
        
          (1,463,544
        
        
          )
        
      
      
        
          Income and excess tax benefits related to stock options
        
        
        
        
           
        
        
          1,832,700
        
        
           
        
        
        
        
           
        
        
          2,446,764
        
        
           
        
      
      
        
          Adjusted EBITDA
        
        
        
        
          $
        
        
          19,292,530
        
        
           
        
        
        
        
          $
        
        
          18,088,701
        
        
           
        
      
    
    
      
        
          MARCHEX, INC. AND SUBSIDIARIES
        
      
      
        
          Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS
        
      
      
        
          (unaudited)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Three Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
      
      
        
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          Adjusted Non-GAAP EPS
        
        
        
        
          $
        
        
          0.12
        
        
           
        
        
        
        
          $
        
        
          0.10
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income (loss) per share applicable to common stockholders - 
          diluted (GAAP EPS)
        
        
        
        
          $
        
        
          (0.02
        
        
          )
        
        
        
        
          $
        
        
          0.01
        
        
        
      
      
        
          
            Shares used to calculate diluted net income (loss) per share 
            applicable to common stockholders
          
        
        
        
        
        
        
          38,311,448
        
        
        
        
        
        
        
        
          40,534,319
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income (loss) applicable to common stockholders
        
        
        
        
          $
        
        
          (611,651
        
        
          )
        
        
        
        
          $
        
        
          354,384
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Discount on preferred stock redemption
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          (40,923
        
        
          )
        
      
      
        
          Stock-based compensation
        
        
        
        
        
        
          3,427,908
        
        
        
        
        
        
        
        
          2,342,721
        
        
        
      
      
        
          Facility relocation
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          121,124
        
        
        
      
      
        
          Amortization of intangible assets from acquisitions
        
        
        
        
        
        
          5,164,191
        
        
        
        
        
        
        
        
          4,074,254
        
        
        
      
      
        
          Gain on sales and disposals of intangible assets, net
        
        
        
        
        
        
          (174,071
        
        
          )
        
        
        
        
        
        
          (123,246
        
        
          )
        
      
      
        
          Interest income and other, net
        
        
        
        
        
        
          (751,826
        
        
          )
        
        
        
        
        
        
          (748,314
        
        
          )
        
      
      
        
          Estimated impact of income taxes
        
        
        
        
           
        
        
          (2,158,103
        
        
          )
        
        
        
        
           
        
        
          (1,895,669
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Adjusted Non-GAAP net income applicable to common stockholders
        
        
        
        
          $
        
        
          4,896,448
        
        
           
        
        
        
        
          $
        
        
          4,084,331
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Adjusted Non-GAAP EPS
        
        
        
        
          $
        
        
          0.12
        
        
           
        
        
        
        
          $
        
        
          0.10
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Shares used to calculate diluted net income (loss) per share 
            applicable to common stockholders
          
        
        
        
        
        
        
          38,311,448
        
        
        
        
        
        
        
        
          40,534,319
        
        
        
      
      
        
          Weighted average common share equivalents for redeemed preferred 
          shares
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          (3,266
        
        
          )
        
      
      
        
          
            Weighted average stock options and warrants and common shares 
            subject to repurchase or cancellation (if applicable)
          
        
        
        
        
           
        
        
          2,206,249
        
        
           
        
        
        
        
           
        
        
          2,328,137
        
        
           
        
      
      
        
          Shares used to calculate Adjusted Non-GAAP EPS
        
        
        
        
           
        
        
          40,517,697
        
        
           
        
        
        
        
           
        
        
          42,859,190
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            For Adjusted Non-GAAP EPS, the impact of restricted stock (common 
            shares subject to repurchase or cancellation) is based on the 
            weighted average of restricted stock outstanding as compared with 
            diluted shares for GAAP purposes, which included restricted stock 
            on a treasury stock method basis.
          
        
      
    
    
      
        
          MARCHEX, INC. AND SUBSIDIARIES
        
      
      
        
          Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS
        
      
      
        
          (unaudited)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Six Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
      
      
        
        
        
        
        
           
        
        
          2006
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          Adjusted Non-GAAP EPS
        
        
        
        
          $
        
        
          0.22
        
        
           
        
        
        
        
          $
        
        
          0.21
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income (loss) per share applicable to common stockholders - 
          diluted (GAAP EPS)
        
        
        
        
          $
        
        
          (0.05
        
        
          )
        
        
        
        
          $
        
        
          0.02
        
        
        
      
      
        
          Shares used to calculate diluted net income (loss) per share 
          applicable
        
        
        
        
        
        
        
        
        
      
      
        
          to common stockholders
        
        
        
        
        
        
          37,693,506
        
        
        
        
        
        
        
        
          40,371,282
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income (loss) applicable to common stockholders
        
        
        
        
          $
        
        
          (1,807,916
        
        
          )
        
        
        
        
          $
        
        
          902,082
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Discount on preferred stock redemption
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          (163,867
        
        
          )
        
      
      
        
          Stock-based compensation
        
        
        
        
        
        
          6,948,651
        
        
        
        
        
        
        
        
          5,229,935
        
        
        
      
      
        
          Facility relocation
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          121,124
        
        
        
      
      
        
          Amortization of intangible assets from acquisitions
        
        
        
        
        
        
          10,034,864
        
        
        
        
        
        
        
        
          8,597,388
        
        
        
      
      
        
          Gain on sales and disposals of intangible assets, net
        
        
        
        
        
        
          (353,279
        
        
          )
        
        
        
        
        
        
          (155,510
        
        
          )
        
      
      
        
          Cumulative effect of a change in accounting principle, net of tax (1)
        
        
        
        
        
        
          (151,341
        
        
          )
        
        
        
        
        
        
          -
        
        
        
      
      
        
          Interest income and other, net
        
        
        
        
        
        
          (1,486,108
        
        
          )
        
        
        
        
        
        
          (1,460,301
        
        
          )
        
      
      
        
          Estimated impact of income taxes
        
        
        
        
           
        
        
          (4,512,701
        
        
          )
        
        
        
        
           
        
        
          (4,154,741
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Adjusted Non-GAAP net income applicable to common stockholders
        
        
        
        
          $
        
        
          8,672,170
        
        
           
        
        
        
        
          $
        
        
          8,916,110
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Adjusted Non-GAAP EPS
        
        
        
        
          $
        
        
          0.22
        
        
           
        
        
        
        
          $
        
        
          0.21
        
        
           
        
      
      
        
          
             
          
        
        
        
        
        
        
        
        
        
      
      
        
          
            Shares used to calculate diluted net income (loss) per share 
            applicable to common stockholders
          
        
        
        
        
        
        
          37,693,506
        
        
        
        
        
        
        
        
          40,371,282
        
        
        
      
      
        
          Weighted average common share equivalents for redeemed preferred 
          shares
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          (7,058
        
        
          )
        
      
      
        
          
            Weighted average stock options and warrants and common shares 
            subject to repurchase or cancellation (if applicable)
          
        
        
        
        
           
        
        
          2,492,164
        
        
           
        
        
        
        
           
        
        
          2,425,488
        
        
           
        
      
      
        
          Shares used to calculate Adjusted Non-GAAP EPS
        
        
        
        
           
        
        
          40,185,670
        
        
           
        
        
        
        
           
        
        
          42,789,712
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            For Adjusted Non-GAAP EPS, the impact of restricted stock (common 
            shares subject to repurchase or cancellation) is based on the 
            weighted average of restricted stock outstanding as compared with 
            diluted shares for GAAP purposes, which included restricted stock 
            on a treasury stock method basis.
          
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (1) As a result of the adoption of SFAS 123R, Marchex recorded an 
            amount from the cumulative impact of the accounting change.