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Marchex Reports Second Quarter 2012 Financial Results

Aug 2, 2012
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Company sees Sequential Growth in Call–Driven Revenue Driven by Mobile and Call Advertising Products
Company Announces an Increase to its Regular Quarterly Dividend for Common Stock

SEATTLE--(BUSINESS WIRE)--Aug. 2, 2012-- Marchex, Inc. (NASDAQ:MCHX) today reported its results for the quarter ended June 30, 2012.

Second Quarter 2012 Consolidated Financial Results:

  • Revenue was $34.0 million for the second quarter of 2012, compared to $38.8 million for the same period of 2011.
  • GAAP net income applicable to common stockholders was $330,000 for the second quarter of 2012 or $0.01 per diluted share. This compares to GAAP net income applicable to common stockholders of $80,000 or $0.00 per diluted share for the same period of 2011. The second quarter 2012 results included non-cash stock-based compensation expense of $4.8 million, compared to non-cash stock-based compensation expense of $3.9 million for the same period in 2011.
  • We provide a reconciliation of GAAP diluted EPS to Adjusted Non-GAAP EPS in the financial tables attached to this press release and we encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures. Adjusted non-GAAP EPS for second quarter 2012 was $0.06, compared to $0.08 for the same period in 2011.
  • Adjusted operating income before amortization was $3.7 million for the second quarter of 2012, compared to $5.0 million for the same period of 2011. A reconciliation of non-GAAP adjusted operating income before amortization to GAAP operating income is included in the financial tables attached to this release.
  • Adjusted EBITDA was $4.6 million in the second quarter of 2012, compared to $6.0 million for the same period of 2011. A reconciliation of adjusted EBITDA to GAAP net cash provided by operating activities is included in the financial tables attached to this release.

"During the second quarter, Marchex continued to make strides with our mobile and call advertising products," said Russell C. Horowitz, Marchex Chairman and CEO. "We are adding new advertisers and increasingly penetrating existing relationships as advertisers initially adopt mobile and call advertising. Marchex is well positioned to capitalize on the shift of dollars to mobile as this market evolves."

Recent Highlights:

    1.   Call-Driven Revenues: For the second quarter of 2012, revenue from call advertising products was $27.3 million.
 
2. Non-Call Advertising Product Revenues: For the second quarter, revenue from non-call advertising products was $6.7 million, which was down $2.3 million from the prior quarter. Non-Call Advertising products include Marchex's directory and domain assets, pay-per-click and reputation management products. As Marchex continues its process of exploring strategic options to realize additional value from these assets, it will be increasingly operating these product areas separately. This initiative is designed to help unlock further opportunities with these products and assets, as well as enable the resourcing decisions that can help achieve these goals.
 
3. During the second quarter, Marchex sold a small number of domains that yielded $3.3 million, which represented the largest quarter of domain sales in the company's history.
 
4. During the second quarter, Marchex announced that its Board of Directors had authorized a 1 million share increase to the company's ongoing share repurchase program. This increase is in addition to the approximately 1 million share authorization that was remaining under the program as of May 11, 2012. The share repurchase program authorizes the purchase of the company's Class B common stock through open market and privately negotiated transactions, at times and in such amounts as the company deems appropriate. Separately, Marchex also purchased 149,000 shares of its outstanding Class B common stock during the second quarter for a total price of $581,000. This brings Marchex's total shares repurchased under its stock repurchase program to 11.1 million shares, or 30% of its outstanding common stock.
 
5. As previously announced, Russell C. Horowitz, Chairman and CEO, Michael Arends, Chief Financial Officer, John Keister, Executive Vice Chairman and Ethan Caldwell, General Counsel and Chief Administrative Officer, are purchasing shares of the Company's Class B common stock in open market transactions over the balance of the year. Mr. Horowitz is purchasing up to an aggregate total of $1 million worth of the company's Class B common stock and the other executive officers have or intend to purchase shares in varying amounts.
 
6. Marchex also announced today that it is increasing its quarterly cash dividend from $0.02 to $0.035 per share of Class A common stock and Class B common stock. The indicated annual cash dividend, subject to capital availability, is $0.14 per common share or $5.3 million, up from $0.08 per common share or $3.0 million. For the third quarter, Marchex will pay the incremental $0.015 per share dividend on August 31, 2012 to the holders of record as of the close of business on August 16, 2012. Marchex believes the continued cash generating characteristics of its business, domain sales, and other potential asset sales or divestitures can adequately fund the dividend and ongoing capital needs of the company.

Marchex Guidance:

The following forward-looking statements reflect Marchex's expectations as of August 2, 2012.

Financial guidance for the fiscal year ending December 31, 2012:
Revenue:   $137 million to $141 million
Adjusted Operating Income Before Amortization: More than $14.5 million
Adjusted EBITDA: Estimated add-backs of approximately $4.5 million in additional depreciation and amortization to adjusted operating income before amortization, implying an adjusted EBITDA of more than $19 million
Long Term Adjusted EBITDA Margin Target: 20% or more

2012 GAAP income (loss) from operations is expected to be ($2.2) million or better, assuming stock-based compensation between $15.5 million and $16 million and amortization of intangible assets from acquisitions between $4.7 million and $5.5 million. This estimate excludes any prospective gain or loss on sales and disposals of intangible assets.

Financial guidance for the Third Quarter ending September 30, 2012:
Revenue:   $33.5 million to $34.5 million
Adjusted Operating Income Before Amortization: $3 million to $4 million
Adjusted EBITDA: Estimated add-backs of approximately $1 million in additional depreciation and amortization to adjusted operating income before amortization, implying an adjusted EBITDA of $4 million to $5 million
Long Term Adjusted EBITDA Margin Target: 20% or more

Third quarter GAAP income (loss) from operations is expected to be ($2.7) million or better, assuming stock-based compensation between $3.5 million and $4 million and amortization of intangible assets from acquisitions between $1.2 million and $1.7 million. This estimate excludes any prospective gain or loss on sales and disposals of intangible assets.

"In the second quarter, we saw sequential growth from call-driven revenues as we continued to make progress with our mobile and call advertising products. We expect momentum to continue into the back half of 2012 with sequentially increasing call-driven revenues for the third and fourth quarters. Meanwhile, the decline in non-call driven revenue is impacting overall near term growth. We remain highly focused on replicating the successful advertiser and publisher relationships that we have as well as continuing to add experienced people to support the growth. As we move forward, we are managing our investments in the mobile and call advertising opportunity such that as we grow, a portion of the incremental contribution will be allocated to support our growth initiatives, including investments in our products, people and customers. The rest will flow through to contribute to expanding contribution margins," said Michael Arends, Chief Financial Officer.

Conference Call and Webcast Information

Management will hold a conference call, starting at 5:00 p.m. ET on Thursday August 2, 2012 to discuss its second quarter ended June 30, 2012 financial results, and other company updates. Access to the live webcast of the conference call will be available online from the Investors section of the Marchex's website at www.marchex.com. An archived version of the webcast will also be available at the same location, beginning two hours after completion of the call.

About Marchex

Marchex, Inc. is a leading mobile and call advertising company that drives millions of consumers to connect with businesses over the phone, delivers the most quality phone calls in the industry, and provides in-depth analysis of those phone calls.

Marchex supports its customers through a unique technology platform that has three primary components: (1) Call Analytics, which powers all of Marchex's advertising solutions, and allows partners to leverage data and insights that accurately measure the performance of mobile, online and offline call advertising; (2) Digital Call Marketplace, which annually connects hundreds of millions of consumer calls to advertisers from a range of mobile and online sources on a Pay For Call basis; and (3) Local Leads, a white-labeled, full service digital advertising solution for small business resellers that drives quality phone calls and other leads to their small business advertisers.

Marchex is based in Seattle. To learn more, please visit www.marchex.com/products.

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, 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 2, 2012 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.

OIBA represents income (loss) from operations plus (1) stock-based compensation expense and (2) amortization of intangible assets from acquisitions. 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 any gain/loss on sales and disposals of intangible assets for each asset and acquisition related costs as these items are not indicative of Marchex's recurring core operating results. 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 expenses or gain/loss such as stock-based compensation, amortization of intangible assets from acquisitions, acquisition related costs and gain/loss on sales and disposals of intangible assets. Adjusted EBITDA represents income (loss) before interest, income taxes, depreciation, amortization, stock compensation expense, acquisition related costs and gain/loss on sales and disposals 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 non-GAAP Net Income applicable to common stockholders divided by GAAP diluted shares outstanding. Adjusted non-GAAP Net Income applicable to common stockholders generally captures those items on the statement of operations that have been, or ultimately will be, settled in cash exclusive of certain items that are not indicative of Marchex's recurring core operating results and represents net income (loss) applicable to common stockholders plus the net of tax effects of: (1) stock-based compensation expense, (2) amortization of intangible assets from acquisitions, (3) gain/loss on sales and disposals of intangible assets, (4) acquisition related costs, (5) interest and other income (expense), and (6) dividends paid to participating securities. 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. Marchex's non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar titled terms used by other companies, and accordingly, care should be exercised in understanding how Marchex defines its non-GAAP financial measures in this release. 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
(in thousands, except per share data)
(unaudited)
     
Three Months Ended
June 30,
2011   2012
Revenue $ 38,761   $ 34,013  
 
Expenses:
Service costs (1) 21,700 19,240
Sales and marketing (1) 3,934 4,606
Product development (1) 5,937 5,775
General and administrative (1) 6,139 5,480
Amortization of intangible assets from acquisitions 1,620 1,082
Acquisition related costs   1,049     -  
Total operating expenses 40,379 36,183
 
Gain on sales and disposals of intangible assets, net   2,713     3,258  
 
Income from operations 1,095 1,088
 
Interest expense and other, net   (175 )   (115 )
 
Income before provision for income taxes 920 973
 
Income tax expense   779     577  
 
Net income 141 396
 
Dividends paid to participating securities   (61 )   (66 )
 
Net income applicable to common stockholders $ 80   $ 330  
 
Basic and diluted net income per share applicable to Class A and Class B common stockholders $ 0.00 $ 0.01
Dividends paid per share $ 0.02 $ 0.02
Shares used to calculate basic net income per share applicable to common stockholders
Class A 10,000 9,570
Class B 23,523 24,341
Shares used to calculate diluted net income per share applicable to common stockholders
Class A 10,000 9,570
Class B 35,045 35,208

(1)  Includes stock-based compensation allocated as follows:

Service costs $ 314 $ 374
Sales and marketing 420 1,697
Product development 390 303
General and administrative   2,821     2,442  
Total $ 3,945   $ 4,816  

MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
     
Six Months Ended
June 30,
2011   2012
Revenue $ 67,841   $ 69,495  
 
Expenses:
Service costs (1) 38,373 39,177
Sales and marketing (1) 6,628 8,519
Product development (1) 10,826 11,768
General and administrative (1) 11,294 11,775
Amortization of intangible assets from acquisitions 2,084 2,619
Acquisition related costs   1,451     (132 )
Total operating expenses 70,656 73,726
 
Gain on sales and disposals of intangible assets, net   4,625     4,721  
 
Income from operations 1,810 490
 
Interest expense and other, net   (72 )   (312 )
 
Income before provision for income taxes 1,738 178
 
Income tax expense   1,020     497  
 
Net income (loss) 718 (319 )
 
Dividends paid to participating securities   (125 )   (139 )
 
Net income (loss) applicable to common stockholders $ 593   $ (458 )
 
Basic and diluted net income (loss) per share applicable to Class A and Class B common stockholders $ 0.02 $ (0.01 )
Dividends paid per share $ 0.04 $ 0.04
Shares used to calculate basic net income (loss) applicable to common stockholders
Class A 10,117 9,578
Class B 22,850 24,190
Shares used to calculate diluted net income (loss) applicable to common stockholders
Class A 10,117 9,578
Class B 34,675 33,768

(1)  Includes stock-based compensation allocated as follows:

Service costs $ 599 $ 758
Sales and marketing 639 2,075
Product development 704 603
General and administrative   5,514     5,288  
Total $ 7,456   $ 8,724  
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
   
December 31, June 30,
Assets 2011 2012
 
Current assets:
Cash and cash equivalents $ 37,443 $ 33,573
Accounts receivable, net 30,635 26,089
Prepaid expenses and other current assets 3,614 3,974
Refundable taxes 193 323
Deferred tax assets   2,753     2,900  
Total current assets 74,638 66,859
 
Property and equipment, net 6,187 6,260
Deferred tax assets 46,310 45,123
Intangibles and other assets, net 2,191 1,185
Goodwill 82,644 82,572
Intangible assets from acquisitions, net   8,088     5,469  
 
Total assets $ 220,058   $ 207,468  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 12,896 $ 12,720
Accrued expenses and other current liabilities 8,430 8,307
Deferred acquisition payments 35,214 17,880
Deferred revenue   1,930     1,965  
Total current liabilities 58,470 40,872
 
Other non-current liabilities   2,580     2,441  
Total liabilities 61,050 43,313
 
Stockholders' equity:
Class A common stock 99 98
Class B common stock 281 284
Treasury stock (1,067 ) (582 )
Additional paid-in capital 297,465 302,443
Accumulated deficit   (137,770 )   (138,088 )
Total stockholders' equity   159,008     164,155  
 
Total liabilities and stockholders' equity $ 220,058   $ 207,468  

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP Income from Operations to Operating Income Before Amortization (OIBA) and
Adjusted Operating Income Before Amortization (Adjusted OIBA)
(in thousands)
(unaudited)
     
 
Three Months Ended
June 30,
2011   2012
 
Income from operations $ 1,095 $ 1,088
 
Stock-based compensation 3,945 4,816
Amortization of intangible assets from acquisitions 1,620     1,082  
 
Operating income before amortization (OIBA) 6,660 6,986
 
Acquisition related costs 1,049 -
Gain on sales and disposals of intangible assets, net (2,713 )   (3,258 )
 
Adjusted operating income before amortization (Adjusted OIBA) $ 4,996   $ 3,728  
 
 
 
Six Months Ended
June 30,
2011 2012
 
Income from operations $ 1,810 $ 490
 
Stock-based compensation 7,456 8,724
Amortization of intangible assets from acquisitions 2,084     2,619  
 
Operating income before amortization (OIBA) 11,350 11,833
 
Acquisition related costs 1,451 (132 )
Gain on sales and disposals of intangible assets, net (4,625 )   (4,721 )
 
Adjusted operating income before amortization (Adjusted OIBA) $ 8,176   $ 6,980  

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation from Net Cash provided by Operating Activities to Adjusted EBITDA
(in thousands)
(unaudited)
   
 
Three Months Ended
June 30,
2011 2012
 
Net cash provided by operating activities $ 5,705 $ 7,980
 
Changes in asset and liabilities, net of acquisitions (1,541 ) (3,997 )
Income tax expense (benefit) 779 577
Acquisition related costs 1,049 -
Interest expense and other, net 14 21
Excess tax benefits related to stock compensation   -     23  
Adjusted EBITDA $ 6,006   $ 4,604  
   
Net cash provided by (used in) investing activities $ (14,120 ) $ 2,032  
   
Net cash used in financing activities $ (3,301 ) $ (17,734 )
 
 
 
Six Months Ended
June 30,
2011 2012
 
Net cash provided by operating activities $ 8,224 $ 11,934
 
Changes in asset and liabilities, net of acquisitions (379 ) (3,695 )
Income tax expense (benefit) 1,020 497
Acquisition related costs 1,451 -
Interest (income) expense and other, net (90 ) 41
Excess tax benefits related to stock compensation   -     120  
Adjusted EBITDA $ 10,226   $ 8,897  
   
Net cash provided by (used in) investing activities $ (13,189 ) $ 3,226  
   
Net cash used in financing activities $ (4,030 ) $ (19,030 )

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS
(in thousands, except per share data)
(unaudited)
       
Three Months Ended
June 30,
2011 2012
   
Adjusted Non-GAAP EPS $ 0.08   $ 0.06  
 
Net income per Class B share applicable to common stockholders - diluted (GAAP EPS) $ 0.00 $ 0.01

Shares used to calculate diluted net income per Class B share applicable to common stockholders

35,045 35,208
 
Net income applicable to common stockholders $ 80 $ 330
 
Stock-based compensation 3,945 4,816
Acquisition related costs 1,049 -
Amortization of intangible assets from acquisitions 1,620 1,082
Gain on sales and disposals of intangible assets, net (2,713 ) (3,258 )
Interest expense and other, net 175 115
Dividends paid to participating securities 61 66
Estimated impact of income taxes   (997 )   (734 )
Adjusted Non-GAAP net income applicable to common stockholders $ 3,220   $ 2,417  
     
Adjusted Non-GAAP EPS $ 0.08   $ 0.06  
 

Shares used to calculate diluted net income per Class B share applicable to common stockholders

35,045 35,208
Weighted average common shares related to deferred acquisition payments   3,890     5,236  
Diluted shares used to calculate Adjusted Non-GAAP EPS (1)   38,935     40,444  
 

(1) For the purpose of computing the number of diluted shares for non-GAAP EPS, Marchex uses the accounting guidance that would be applicable for computing the number of diluted shares for GAAP EPS.

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS
(in thousands, except per share data)
(unaudited)
         
Six Months Ended
June 30,
2011 2012
   
Adjusted Non-GAAP EPS $ 0.14   $ 0.11  
 
Net income (loss) per Class B share applicable to common stockholders - diluted (GAAP EPS) $ 0.02 $ (0.01 )

Shares used to calculate diluted net income (loss) per Class B share applicable to common stockholders

34,675 33,768
 
Net income (loss) applicable to common stockholders $ 593 $ (458 )
 
Stock-based compensation 7,456 8,724
Acquisition related costs 1,451 (132 )
Amortization of intangible assets from acquisitions 2,084 2,619
Gain on sales and disposals of intangible assets, net (4,625 ) (4,721 )
Interest expense and other, net 72 312
Dividends paid to participating securities 125 139
Estimated impact of income taxes   (1,877 )   (1,976 )
 
Adjusted Non-GAAP net income applicable to common stockholders $ 5,279   $ 4,507  
   
Adjusted Non-GAAP EPS $ 0.14   $ 0.11  
 

Shares used to calculate diluted net income (loss) per Class B share applicable to common stockholders

34,675 33,768

Weighted average stock options and common shares subject to repurchase or cancellation (if applicable)

- 1,313
Weighted average common shares related to deferred acquisition payments   1,955     5,236  
Diluted shares used to calculate Adjusted Non-GAAP EPS (1)   36,630     40,317  
 

(1) For the purpose of computing the number of diluted shares for non-GAAP EPS, Marchex uses the accounting guidance that would be applicable for computing the number of diluted shares for GAAP EPS.

Source: Marchex, Inc.

Marchex Investor Relations
Trevor Caldwell, 206-331-3600
Email: ir(at)marchex.com
Or
MEDIA INQUIRIES
Weber Shandwick
Katie Riese, 206-576-5507
kriese@webershandwick.com

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