Marchex (MM) (NASDAQ:MCHXP)
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Marchex, Inc. (NASDAQ:MCHX) (NASDAQ:MCHXP), a local search and
advertising company, today reported its results for the second quarter
ended June 30, 2008.
Second Quarter 2008 Consolidated Financial Results
Revenue was $37.4 million for the second quarter of 2008, compared to
$34.7 million for the same period of 2007.
GAAP net income applicable to common stockholders was $509,000 for the
second quarter of 2008 or $0.01 per diluted share. This compares to
GAAP net income applicable to common stockholders of $354,000 or $0.01
per diluted share for the same period of 2007. The second quarter 2008
results included non-cash stock-based compensation expense recorded
under the fair value method of $2.7 million, compared to non-cash
stock-based compensation expense of $2.3 million for the same period
in 2007.
We provide a reconciliation of GAAP diluted EPS to Adjusted Non-GAAP
EPS in the 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 2008 was $0.09, compared to $0.10 for the same period of
2007. 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 $5.4 million for the
second quarter of 2008, compared to $6.4 million for the same period
of 2007. A reconciliation of non-GAAP adjusted operating income before
amortization to GAAP operating income and GAAP net income is included
in the financial tables attached to this release.
Adjusted EBITDA was $8.0 million in the second quarter of 2008,
compared to $8.6 million for the same period of 2007. A reconciliation
of operating income before taxes, depreciation, amortization and
gain/loss on sales and disposals of intangible assets to GAAP net cash
provided by operating activities is included in the financial tables
attached to this release.
“Marchex’s execution
on our local mission continues to drive growth in our business, which
led to our positive financial results in the second quarter,”
said Russell C. Horowitz, Marchex Chairman and CEO. “We
remain laser-focused on making Marchex the most relevant integration
point for connecting local advertisers - large and small - to consumers
with local intent. Continued execution on our operational, strategic and
financial goals will drive our growth for the balance of 2008 and
beyond, and further position Marchex as a leader in the online local
advertising market.”
Operating Highlights
Local Advertising Services: For the second quarter of 2008, revenue from
Local Advertising Services was $20.8 million. In the second quarter,
Marchex added more than 10,000 new advertisers through its local
aggregator partnerships and direct sales channel. Marchex now has more
than 75,000 advertisers using its products and services and, based on
current growth rates, is ahead of pace to reach its previously stated
goal of 100,000 advertisers using Marchex products and services by the
end of 2009.
Local Search Network (proprietary traffic sources): For the second
quarter of 2008, revenue from Marchex's Local Search Network was $16.6
million. Additionally, Marchex attracted more than 32 million unique
visitors for the month of June 2008 and delivered more than 125 million
revenue-generating events and referrals in the second quarter. Unique
visitor statistics are based on internal traffic logs, which calculate
unique IP (Internet protocol) addresses on an unduplicated basis during
a given month.
Non-Operating Highlights
Marchex today announced that it is increasing its stock repurchase
program by 1 million shares. This allows Marchex to purchase up to a
total of 6 million shares, which is up from the 5 million shares
previously authorized, less shares repurchased to date.
During the second quarter of 2008, Marchex purchased 845,000 shares of
its outstanding Class B common stock for a total price of $10.0 million,
bringing its total shares repurchased under its stock repurchase program
to 3.8 million shares, or 10% of its outstanding common stock.
Marchex Financial Guidance
The following forward-looking statements reflect Marchex's expectations
as of August 5, 2008.
Marchex is reiterating its guidance for fiscal year 2008 (Year ending
December 31, 2008):
Revenue estimate:
$152 million or more
Adjusted operating income before amortization estimate:
$22 million or more
Adjusted EBITDA: For adjusted EBITDA, Marchex anticipates
add-backs of $9 million or more in additional depreciation and
amortization to its adjusted operating income before amortization range,
implying an adjusted EBITDA of $31 million or more for 2008.
Guidance for third quarter 2008:
Revenue estimate:
$37.5 million to $38.5 million
Adjusted operating income before amortization estimate:
Approximately $5.5 million
Adjusted EBITDA: For adjusted EBITDA, Marchex anticipates
add-backs of approximately $2.5 million in additional depreciation and
amortization to its adjusted operating income before amortization range,
implying an adjusted EBITDA of approximately $8.0 million for the third
quarter 2008.
For the third quarter of 2008, Marchex anticipates revenue from
proprietary traffic sources will be in a similar range to or slightly
better than the second quarter of 2008.
Conference Call and Webcast Information
Management will hold a conference call, starting at 5:00 p.m. EDT on
Tuesday, August 5, 2008 to discuss its second quarter 2008 financial
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/investors/earningsreleases.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 search and advertising company. Marchex's innovative advertising
platform delivers search- and call-based marketing products and services
for local and national advertisers. Marchex's local search network, one
of the largest online, helps consumers make better, more informed local
decisions through its 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 and other financial guidance, 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. All of the
information provided in this release is as of August 5, 2008 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, 2007 and 2008 as if the
VoiceStar acquisition in September 2007 occurred as of January 1, 2007.
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 and disposals 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 and disposals of intangible assets, (4) other
income (expense), (5) facility relocation and less (6) 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,
2007
2008
Revenue
$
34,665,637
$
37,363,887
Expenses:
Service costs (1)
16,764,588
17,414,301
Sales and marketing (1)
7,112,929
7,896,035
Product development (1)
2,662,779
4,252,469
General and administrative (1)
4,057,643
5,074,875
Amortization of intangible assets from acquisitions
4,074,254
3,661,275
Facility relocation
121,124
-
Total operating expenses
34,793,317
38,298,955
Gain on sales and disposals of intangible assets, net
123,246
2,010,576
Income (loss) from operations
(4,434
)
1,075,508
Interest income and other, net
748,314
133,080
Income before provision for income taxes
743,880
1,208,588
Income tax expense
412,978
733,229
Net income
330,902
475,359
Convertible preferred stock dividends and discount on preferred
stock redemption, net
(23,482
)
(33,697
)
Net income applicable to common stockholders
$
354,384
$
509,056
Basic and diluted net income applicable to common stockholders
$
0.01
$
0.01
Shares used to calculate basic net income per share applicable to
common stockholders
39,597,600
36,580,610
Shares used to calculate diluted net income per share applicable to
common stockholders
40,534,319
37,504,686
(1) Includes stock-based compensation allocated as follows:
Service costs
$
31,741
$
86,087
Sales and marketing
89,800
326,004
Product development
450,692
396,289
General and administrative
1,770,488
1,860,856
Total
$
2,342,721
$
2,669,236
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Six Months Ended
June 30,
2007
2008
Revenue
$
68,889,038
$
74,406,214
Expenses:
Service costs (1)
32,005,816
36,301,616
Sales and marketing (1)
14,622,850
14,867,783
Product development (1)
5,260,435
8,439,573
General and administrative (1)
8,238,418
10,033,984
Amortization of intangible assets from acquisitions
8,597,388
7,713,637
Facility relocation
121,124
-
Total operating expenses
68,846,031
77,356,593
Gain on sales and disposals of intangible assets, net
155,510
2,155,267
Income (loss) from operations
198,517
(795,112
)
Interest income and other, net
1,460,301
417,406
Income (loss) before provision for income taxes
1,658,818
(377,706
)
Income tax expense
886,766
393,276
Net income (loss)
772,052
(770,982
)
Convertible preferred stock dividends and discount on preferred
stock redemption, net
(130,030
)
(44,585
)
Net income (loss) applicable to common stockholders
$
902,082
$
(726,397
)
Basic and diluted net income (loss) per share applicable to common
stockholders
$
0.02
$
(0.02
)
Shares used to calculate basic net income (loss) applicable to
common stockholders
39,382,979
37,121,849
Shares used to calculate diluted net income (loss) applicable to
common stock holders
40,371,282
37,130,260
(1) Includes stock-based compensation allocated as follows:
Service costs
$
150,276
$
225,658
Sales and marketing
462,158
856,714
Product development
939,944
806,998
General and administrative
3,677,557
3,847,338
Total
$
5,229,935
$
5,736,708
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
December 31,
June 30,
Assets
2007
2008
Current assets:
Cash and cash equivalents
$
36,456,307
$
28,978,958
Trade accounts receivable, net
18,307,386
22,407,461
Prepaid expenses and other current assets
2,118,390
3,553,256
Refundable taxes
1,693,695
1,538,255
Deferred tax assets
867,465
1,213,561
Total current assets
59,443,243
57,691,491
Property and equipment, net
7,357,903
6,727,401
Deferred tax assets
7,447,315
9,395,438
Intangibles and other assets, net
17,381,827
14,832,251
Goodwill
204,766,826
204,777,254
Intangible assets from acquisitions, net
23,797,231
16,071,848
Total assets
$
320,194,345
$
309,495,683
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
11,625,779
$
13,525,119
Accrued expenses and other current liabilities
3,668,342
4,887,395
Deferred revenue
2,906,379
2,616,993
Total current liabilities
18,200,500
21,029,507
Other non-current liabilities
105,370
68,213
Total liabilities
18,305,870
21,097,720
Stockholders' equity:
Convertible preferred stock
1,446,649
964,689
Class A common stock
113,717
112,217
Class B common stock
321,061
286,419
Treasury stock
(22,116,275
)
(134,460
)
Additional paid-in capital
329,835,529
295,683,672
Accumulated deficit
(7,712,206
)
(8,514,574
)
Total stockholders' equity
301,888,475
288,397,963
Total liabilities and stockholders' equity
$
320,194,345
$
309,495,683
MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of Revenue to Pro Forma Revenue
(unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2007
2008
2007
2008
Revenue, as reported
$
34,665,637
$
37,363,887
$
68,889,038
$
74,406,214
VoiceStar pro forma revenue
569,810
-
962,019
-
Pro forma Revenue
$
35,235,447
$
37,363,887
$
69,851,057
$
74,406,214
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,
2007
2008
Net income applicable to common stockholders
$
354,384
$
509,056
Convertible preferred stock dividends and discount on preferred
stock redemption, net
(23,482
)
(33,697
)
Net income
330,902
475,359
Income tax expense
412,978
733,229
Income before provision for income taxes
743,880
1,208,588
Interest income and other, net
(748,314
)
(133,080
)
Income (loss) from operations
(4,434
)
1,075,508
Stock-based compensation
2,342,721
2,669,236
Amortization of intangible assets from acquisitions
4,074,254
3,661,275
Operating income before amortization (OIBA)
6,412,541
7,406,019
Facility relocation
121,124
-
Gain on sales and disposals of intangible assets, net
(123,246
)
(2,010,576
)
Adjusted operating income before amortization (Adjusted OIBA)
$
6,410,419
$
5,395,443
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,
2007
2008
Net income (loss) applicable to common stockholders
$
902,082
$
(726,397
)
Convertible preferred stock dividends and discount on preferred
stock redemption, net
(130,030
)
(44,585
)
Net income (loss)
772,052
(770,982
)
Income tax expense
886,766
393,276
Income (loss) before provision for income taxes
1,658,818
(377,706
)
Interest income and other, net
(1,460,301
)
(417,406
)
Income (loss) from operations
198,517
(795,112
)
Stock-based compensation
5,229,935
5,736,708
Amortization of intangible assets from acquisitions
8,597,388
7,713,637
Operating income before amortization (OIBA)
14,025,840
12,655,233
Facility relocation
121,124
-
Gain on sales and disposals of intangible assets, net
(155,510
)
(2,155,267
)
Adjusted operating income before amortization (Adjusted OIBA)
$
13,991,454
$
10,499,966
MARCHEX, INC. AND SUBSIDIARIES
Reconciliation from Net Cash provided by Operating Activities to
Adjusted EBITDA
(unaudited)
Three Months Ended
June 30,
2007
2008
Net cash provided by operating activities
$
4,282,562
$
4,552,353
Changes in asset and liabilities, net of effects of acquisitions
3,697,066
2,825,234
Provision for income taxes
412,978
733,229
Other item - facility relocation
17,106
1,663
Interest income and expense
(756,841
)
(131,726
)
Income and excess tax benefits related to stock options
953,773
20,380
Adjusted EBITDA
$
8,606,644
$
8,001,133
Net cash (used in) provided by investing activities
$
(10,844,476
)
$
794,288
Net cash provided by (used in) financing activities
$
1,387,221
$
(10,819,969
)
Six Months Ended
June 30,
2007
2008
Net cash provided by operating activities
$
16,760,683
$
11,209,527
Changes in asset and liabilities, net of effects of acquisitions
(559,074
)
4,478,712
Provision for income taxes
886,766
393,276
Other item - facility relocation
17,106
(2,972
)
Interest income and expense
(1,463,544
)
(415,551
)
Income and excess tax benefits related to stock options
2,446,764
53,541
Adjusted EBITDA
$
18,088,701
$
15,716,533
Net cash used in investing activities
$
(12,349,883
)
$
(83,043
)
Net cash provided by (used in) financing activities
$
3,375,636
$
(18,603,833
)
MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS
(unaudited)
Three Months Ended
June 30,
2007
2008
Adjusted Non-GAAP EPS
$
0.10
$
0.09
Net income per share applicable to common stockholders - diluted
(GAAP EPS)
$
0.01
$
0.01
Shares used to calculate diluted net income per share applicable to
common stockholders
40,534,319
37,504,686
Net income applicable to common stockholders
$
354,384
$
509,056
Discount on preferred stock redemption
(40,923
)
(46,884
)
Stock-based compensation
2,342,721
2,669,236
Facility relocation
121,124
-
Amortization of intangible assets from acquisitions
4,074,254
3,661,275
Gain on sales and disposals of intangible assets, net
(123,246
)
(2,010,576
)
Interest income and other, net
(748,314
)
(133,080
)
Estimated impact of income taxes
(1,895,669
)
(1,214,728
)
Adjusted Non-GAAP net income applicable to common stockholders
$
4,084,331
$
3,434,299
Adjusted Non-GAAP EPS
$
0.10
$
0.09
Shares used to calculate diluted net income per share applicable to
common stockholders
40,534,319
37,504,686
Weighted average common share equivalents for redeemed preferred
shares
(3,266
)
(8,327
)
Weighted average stock options and warrants and common shares
subject to repurchase or cancellation (if applicable)
2,328,137
2,583,167
Shares used to calculate Adjusted Non-GAAP EPS
42,859,190
40,079,526
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,
2007
2008
Adjusted Non-GAAP EPS
$
0.21
$
0.16
Net income (loss) per share applicable to common stockholders -
diluted (GAAP EPS)
$
0.02
$
(0.02
)
Shares used to calculate diluted net income (loss) per share
applicable to common stockholders
40,371,282
37,130,260
Net income (loss) applicable to common stockholders
$
902,082
$
(726,397
)
Discount on preferred stock redemption
(163,867
)
(72,990
)
Stock-based compensation
5,229,935
5,736,708
Facility relocation
121,124
-
Amortization of intangible assets from acquisitions
8,597,388
7,713,637
Gain on sales and disposals of intangible assets, net
(155,510
)
(2,155,267
)
Interest income and other, net
(1,460,301
)
(417,406
)
Estimated impact of income taxes
(4,154,741
)
(3,397,604
)
Adjusted Non-GAAP net income applicable to common stockholders
$
8,916,110
$
6,680,681
Adjusted Non-GAAP EPS
$
0.21
$
0.16
Shares used to calculate diluted net income (loss) per share
applicable to common stockholders
40,371,282
37,130,260
Weighted average common share equivalents for redeemed preferred
shares
(7,058
)
(8,411
)
Weighted average stock options and warrants and common shares
subject to repurchase or cancellation (if applicable)
2,425,488
3,623,698
Shares used to calculate Adjusted Non-GAAP EPS
42,789,712
40,745,547
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.