UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): November 1, 2012

 

 

Marchex, Inc.

(Exact name of Registrant as Specified in its Charter)

 

 

 

Delaware		000-50658		35-2194038
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

520 Pike Street

Suite 2000

Seattle, Washington 98101

(Address of Principal Executive Offices)

(206) 331-3300

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02 Results of Operations and Financial Condition.

On November 1, 2012, Marchex, Inc. (“Marchex” or the “Registrant”) is issuing a press release and holding a conference call regarding its financial results for the quarter ended September 30, 2012 (the “Earnings Release”). The full text of the Earnings Release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

To the extent that any information contained in the press release is being furnished under Item 7.01 (including Exhibit 99.2) to this Current Report on Form 8-K may be deemed to update any information regarding Marchex’s financial results for any quarterly or annual fiscal period it shall be incorporated herein by reference.

The information in this Item 2.02 (including Exhibit 99.1) is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. Such information shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Marchex is referencing non-GAAP financial information in both the Earnings Release and on the conference call. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the attached Earnings Release. Disclosures regarding definitions of these financial measures used by Marchex and why Marchex’s management believes these financial measures provide useful information to investors is also included in the Earnings Release.

Item 7.01 Regulation FD Disclosure.

On November 1, 2012, Marchex is issuing a press release and holding a conference call to announce that it intends to pursue the separation of its business into two public companies. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.2 to this Current Report on Form 8-K (the “Press Release”).

Attached to this Current Report on Form 8-K as Exhibits 99.3, 99.4 and 99.5 are investor presentations with respect to the Press Release which are all also available on Marchex’s website at www.marchex.com.

The information in this Item 7.01 (including Exhibits 99.2, 99.3, 99.4 and 99.5) is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that Section. Such information shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Marchex is referencing non-GAAP financial information in both the Press Release and on the conference call. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the attached Press Release. Disclosures regarding definitions of these financial measures used by Marchex and why Marchex’s management believes these financial measures provide useful information to investors is also included in the Press Release.

Item 8.01 Other Events.

On November 1, 2012, Marchex announced that it intends to pursue the separation of its business into two public companies. Upon completion of the proposed tax-free spin-off transaction, Marchex’s existing shareholders would hold interests in: (1) Marchex, a pure play mobile advertising company focused on calls, and (2) Archeo, Inc. (“Archeo”), a premium domain and advertising marketplace.

It is anticipated that the spin-off transaction would be structured as a tax-free pro rata distribution to all shareholders of Marchex with the holders of Marchex Class A common stock receiving Class A common stock in Archeo and the holders of Marchex Class B common stock receiving Class B common stock in Archeo. The spin-off is expected to be completed in 2013.

The completion of the spin-off is subject to a number of conditions, including final approval of the transaction by Marchex’s board of directors, receipt of regulatory approvals, favorable tax rulings and or opinions regarding the tax-free nature of the transaction to Marchex and to its shareholders, further due diligence as appropriate, and the filing and effectiveness of appropriate filings with the Securities and Exchange Commission. Marchex will provide interim updates as appropriate. There can be no assurances given that the separation of Marchex’s business as described in this announcement will occur.

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Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.		Description
99.1		Earnings Release of Marchex, dated November 1, 2012.
99.2		Press Release of Marchex, dated November 1, 2012.
99.3		Marchex Summary Presentation, dated November 2012.
99.4		Spin-off Transaction & Archeo Opportunity, dated November 2012.
99.5		Marchex Historical Top 500 Domain Sales, dated November 2012.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: November 1, 2012		MARCHEX, INC.
		By:		/s/ Russell C. Horowitz
		Name:		Russell C. Horowitz
		Title:		Chairman and Chief Executive Officer

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Earnings Release of Marchex, dated November 1, 2012.
99.2		Press Release of Marchex, dated November 1, 2012.
99.3		Marchex Summary Presentation, dated November 2012.
99.4		Spin-off Transaction & Archeo Opportunity, dated November 2012.
99.5		Marchex Historical Top 500 Domain Sales, dated November 2012.

Exhibit 99.1

Marchex Reports Third Quarter 2012 Financial Results

Record Revenue in Mobile Advertising focused on Calls; Accelerated Sequential Growth Driven

by Existing Customers and New Customer Relationships

SEATTLE – November 1, 2012 Marchex, Inc. (NASDAQ: MCHX) today reported its results for the quarter ended September 30, 2012.

Third Quarter 2012 Consolidated Financial Results:

 

•

Revenue was $34.8 million for the third quarter of 2012, compared to $39.9 million for the same period of 2011.

 

•

GAAP net loss applicable to common stockholders was $666,000 for the third quarter of 2012 or $0.02 per diluted share. This compares to GAAP net income applicable to common stockholders of $1.2 million or $0.03 per diluted share for the same period of 2011. The third quarter 2012 results included non-cash stock-based compensation expense of $3.7 million, compared to non-cash stock-based compensation expense of $4.0 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 third quarter 2012 was $0.06, compared to $0.09 for the same period in 2011.

 

•

Adjusted operating income before amortization was $3.9 million for the third quarter of 2012, compared to $5.4 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 $4.8 million in the third quarter of 2012, compared to $6.4 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 third quarter, we made significant customer and product progress,” said Russell C. Horowitz, Marchex Chairman and CEO. “Based on momentum in our business, we believe mobile will be an incredibly large market. We also believe mobile can be a transformational advertising medium where ultimate performance is driven through phone calls. We are adding new national and local customers, and our ability to drive high performance for them is leading to increased budget allocations for our mobile and call advertising products.”

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General Highlights:

 

1.

Call-Driven Revenues: For the third quarter of 2012, revenue was $29.1 million, which was up $1.8 million, or 7%, from the prior quarter.

 

2.

Non-Call-Driven Revenues: For the third quarter, revenue was $5.7 million, which was down $1.0 million from the prior quarter. Non-Call-Driven products include Marchex’s domain and directory assets, pay-per-click and reputation management products.

 

3.

During the third quarter, Marchex sold a small number of domains that yielded $713,000. Year to date domain sales totaled $5.4 million.

 

4.

During the third quarter, Marchex purchased 80,000 shares of its outstanding Class B common stock for a total price of $301,000. This brings Marchex’s total shares repurchased under its stock repurchase program to 11.2 million shares, or 30% of its outstanding common stock.

 

5.

Marchex announced earlier today that its board of directors has authorized management to pursue the separation of its business into two distinct, publicly traded entities. Upon closing of the proposed tax-free spin-off transaction, Marchex’s existing shareholders would hold interests in: (1) Marchex, a pure-play mobile advertising company focused on calls; and (2) Archeo, Inc. (“Archeo”), a premium domain and advertising marketplace. This process is expected to be completed within nine months. For more information on this proposed transaction, please see the press release from earlier today.

Marchex Guidance:

The following forward-looking statements reflect Marchex's expectations as of November 1, 2012.

 

Financial guidance for the fiscal year ending December 31, 2012:
Revenue:		more than $137 million
Adjusted Operating Income Before Amortization:		more than $13.5 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 $18 million

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2012 GAAP income (loss) from operations is expected to be ($3.3) million or better, assuming stock-based compensation between $16 million and $16.5 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.

Marchex has been impacted by reduced call volume and telecommunication systems disruption as a result of the damage caused by Hurricane Sandy. Our proprietary systems and infrastructure, as well as our telecommunications facilities, have not experienced any direct damage. Marchex is, however, seeing an impact from the significant cellular and telecommunications outages in the impacted areas. We believe the communications infrastructure damage that is impacting cellular and telecommunications usage will create non-recurring impacts to our operating forecasts in the fourth quarter and we have attempted to reflect those in our guidance. Marchex will continue to monitor events as they unfold. Beyond the short-term impact to infrastructure and customers, we do not believe this impacts the underlying trends in our business and our view on meaningful growth in 2013.

 

Financial guidance for the Fourth Quarter ending December 31, 2012:
Revenue:		$33 million to $35 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

Fourth quarter GAAP income (loss) from operations is expected to be ($2.8) million or better, assuming stock-based compensation between $3.5 million and $4 million and amortization of intangible assets from acquisitions between $1.0 million and $1.8 million. This estimate excludes any prospective gain or loss on sales and disposals of intangible assets. In the short-term, the above estimates for our measures of profitability may be impacted further by the timing of investments and costs related to the separation of Archeo.

“In the third quarter, we saw sequential growth accelerate from call-driven revenues, as we continued to make progress with our mobile and call advertising products. While we anticipate that we will see growth in demand for our call-driven products as we move forward, it is worth noting that we have historically seen decreased call volumes in the latter part of the fourth quarter as we move into the U.S. holiday season. In addition, many of our advertisers are service-based businesses that typically dial back their marketing efforts in the fourth quarter. As a result of this and the hurricane impact on short term operating results, we anticipate call-driven revenue will be in the range to modestly lower as compared to the third quarter. That being said, the underlying trends in our business indicate we are well positioned for meaningful growth in 2013,” said Michael Arends, Chief Financial Officer.

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Conference Call and Webcast Information

Management will hold a conference call, starting at 5:00 p.m. ET on Thursday, November 1, 2012 to discuss its third quarter ended September 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. delivers customer calls to businesses and analyzes those calls so companies can get the most out of their mobile advertising.

Marchex supports its customers through a unique technology platform that has three primary components: (1) Call Analytics, which powers all of our 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 millions of consumer calls to our 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. In addition, there are certain risks and uncertainties relating to our previously announced spin-off transaction which contemplates a separation of our mobile and call advertising business and our domain and advertising marketplace business, including, but not limited to, the impact and possible disruption to our operations, the timing and certainty of completing the transaction, the high costs in connection with the spin-off which we would not be able to recoup if the spin-off is not consummated, the

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expectation that the spin-off will be tax-free, revenue and growth expectations for the two independent companies following the spin-off, unanticipated developments that may delay or negatively impact the spin-off, and the ability of each business to operate as an independent entity upon completion of the spin-off. 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 November 1, 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, Revenue with Domain Sales, Adjusted OIBA and EBITDA with Domain Sales 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 and separation 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 and separation 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 and separation 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. In conjunction with the spin-off, Marchex has also presented Revenue with Domain Sales, Adjusted OIBA and EBITDA

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with Domain Sales. Revenue with Domain Sales represents revenue plus sales proceeds from the sale of intangible domain assets and Adjusted OIBA and EBITDA with Domain Sales includes the above descriptions of Adjusted OIBA and EBITDA plus the gain/loss on sales and disposals of intangible assets. It is anticipated upon completion of the spin-off, that Archeo will further it’s domain marketplace business initiative to buy and sell domains which differs from Marchex’s historical approach to intangible asset transactions. Accordingly, it is anticipated upon Archeo fully engaging in this business initiative, sales proceeds from intangible domain assets may be presented as revenue prospectively. Financial analysts and investors may use the non-GAAP historical Revenue with Domain Sales, Adjusted OIBA and EBITDA with Domain Sales to help with comparative financial evaluation to make informed investment decisions.

Adjusted non-GAAP EPS represents Adjusted non-GAAP Net Income (loss) applicable to common stockholders divided by GAAP diluted shares outstanding. Adjusted non-GAAP Net Income (loss) 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 and separation 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.

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For further information, contact:

Trevor Caldwell

Marchex Investor Relations

Telephone: 206.331.3600

Email: ir(at)marchex.com

Or

MEDIA INQUIRIES

Sonia Krishnan

Marchex Public Relations

Telephone: 206. 331.3434

Email: skrishnan(at)marchex.com

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MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended September 30,
		2011				2012
Revenue		$	39,862			$	34,822
Expenses:
Service costs (1)			21,848				20,636
Sales and marketing (1)			4,548				2,795
Product development (1)			6,131				5,528
General and administrative (1)			5,860				5,717
Amortization of intangible assets from acquisitions			1,672				1,055
Acquisition and separation related costs			62				296
Total operating expenses			40,121				36,027
Gain on sales and disposals of intangible assets, net			2,486				713
Income (loss) from operations			2,227				(492	)
Interest expense and other, net			(196	)			(118	)
Income (loss) before provision for income taxes			2,031				(610	)
Income tax expense (benefit)			778				(67	)
Net income (loss)			1,253				(543	)
Dividends paid to participating securities			(66	)			(123	)
Net income (loss) applicable to common stockholders		$	1,187			$	(666	)
Basic net income (loss) per share applicable to Class A and Class B common stockholders		$	0.04			$	(0.02	)
Diluted net income (loss) per share applicable to Class A and Class B common stockholders		$	0.03			$	(0.02	)
Dividends paid per share		$	0.02			$	0.04
Shares used to calculate basic net income (loss) per share applicable to common stockholders
Class A			9,851				9,570
Class B			23,673				24,536
Shares used to calculate diluted net income (loss) per share applicable to common stockholders
Class A			9,851				9,570
Class B			35,944				34,106
(1)      Includes stock-based compensation allocated as follows:
Service costs		$	325			$	419
Sales and marketing			461				278
Product development			470				176
General and administrative			2,696				2,842
Total		$	3,952			$	3,715

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MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

		Nine Months Ended September 30,
		2011				2012
Revenue		$	107,703			$	104,316
Expenses:
Service costs (1)			60,221				59,814
Sales and marketing (1)			11,175				11,313
Product development (1)			16,958				17,295
General and administrative (1)			17,154				17,492
Amortization of intangible assets from acquisitions			3,756				3,674
Acquisition and separation related costs			1,513				164
Total operating expenses			110,777				109,752
Gain on sales and disposals of intangible assets, net			7,112				5,434
Income (loss) from operations			4,038				(2	)
Interest expense and other, net			(268	)			(430	)
Income (loss) before provision for income taxes			3,770				(432	)
Income tax expense			1,799				430
Net income (loss)			1,971				(862	)
Dividends paid to participating securities			(191	)			(262	)
Net income (loss) applicable to common stockholders		$	1,780			$	(1,124	)
Basic and diluted net income (loss) per share applicable to Class A and Class B common stockholders		$	0.05			$	(0.03	)
Dividends paid per share		$	0.06			$	0.08
Shares used to calculate basic net income (loss) applicable to common stockholders
Class A			10,027				9,576
Class B			23,136				24,303
Shares used to calculate diluted net income (loss) applicable to common stockholders
Class A			10,027				9,576
Class B			35,180				33,879
(1)      Includes stock-based compensation allocated as follows:
Service costs		$	924			$	1,178
Sales and marketing			1,100				2,353
Product development			1,174				779
General and administrative			8,210				8,129
Total		$	11,408			$	12,439

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MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

		December 31, 2011				September 30, 2012
Assets
Current assets:
Cash and cash equivalents		$	37,443			$	35,534
Accounts receivable, net			30,635				25,506
Prepaid expenses and other current assets			3,614				3,313
Refundable taxes			193				290
Deferred tax assets			2,753				3,019
Total current assets			74,638				67,662
Property and equipment, net			6,187				6,204
Deferred tax assets			46,310				45,125
Intangibles and other assets, net			2,191				807
Goodwill			82,644				82,563
Intangible assets from acquisitions, net			8,088				4,414
Total assets		$	220,058			$	206,775
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	12,896			$	10,626
Accrued expenses and other current liabilities			8,430				8,108
Deferred acquisition payments			35,214				17,971
Deferred revenue			1,930				2,023
Total current liabilities			58,470				38,728
Other non-current liabilities			2,580				2,384
Total liabilities			61,050				41,112
Stockholders’ equity:
Class A common stock			99				98
Class B common stock			281				281
Treasury stock			(1,067	)			(62	)
Additional paid-in capital			297,465				303,977
Accumulated deficit			(137,770	)			(138,631	)
Total stockholders’ equity			159,008				165,663
Total liabilities and stockholders’ equity		$	220,058			$	206,775

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MARCHEX, INC. AND SUBSIDIARIES

Reconciliation of GAAP Income (loss) from Operations to Operating Income Before Amortization (OIBA) and

Adjusted Operating Income Before Amortization (Adjusted OIBA)

(in thousands)

(unaudited)

 

		Three Months Ended September 30,
		2011				2012
Income (loss) from operations		$	2,227			$	(492	)
Stock-based compensation			3,952				3,715
Amortization of intangible assets from acquisitions			1,672				1,055
Operating income before amortization (OIBA)			7,851				4,278
Acquisition and separation related costs			62				296
Gain on sales and disposals of intangible assets, net			(2,486	)			(713	)
Adjusted operating income before amortization (Adjusted OIBA)		$	5,427			$	3,861
		Nine Months Ended September 30,
		2011				2012
Income (loss) from operations		$	4,038			$	(2	)
Stock-based compensation			11,408				12,439
Amortization of intangible assets from acquisitions			3,756				3,674
Operating income before amortization (OIBA)			19,202				16,111
Acquisition and separation related costs			1,513				164
Gain on sales and disposals of intangible assets, net			(7,112	)			(5,434	)
Adjusted operating income before amortization (Adjusted OIBA)		$	13,603			$	10,841

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MARCHEX, INC. AND SUBSIDIARIES

Reconciliation from Net Cash provided by Operating Activities to Adjusted EBITDA

(in thousands)

(unaudited)

 

		Three Months Ended September 30,
		2011				2012
Net cash provided by operating activities		$	4,884			$	3,656
Changes in asset and liabilities, net of acquisitions			(128	)			811
Income tax expense (benefit)			778				(67	)
Acquisition and separation related costs			62				296
Interest expense and other, net			20				28
Excess tax benefits related to stock compensation			802				42
Adjusted EBITDA		$	6,418			$	4,766
Net cash provided by (used in) investing activities		$	1,859			$	(103	)
Net cash provided by (used in) financing activities		$	412			$	(1,592	)
		Nine Months Ended September 30,
		2011				2012
Net cash provided by operating activities		$	13,108			$	15,590
Changes in asset and liabilities, net of acquisitions			(507	)			(2,884	)
Income tax expense			1,799				430
Acquisition and separation related costs			1,513				296
Interest (income) expense and other, net			(71	)			68
Excess tax benefits related to stock compensation			802				162
Adjusted EBITDA		$	16,644			$	13,662
Net cash provided by (used in) investing activities		$	(11,330	)		$	3,123
Net cash used in financing activities		$	(3,618	)		$	(20,622	)

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MARCHEX, INC. AND SUBSIDIARIES

Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended September 30,
		2011				2012
Adjusted Non-GAAP EPS		$	0.09			$	0.06
Net income (loss) per Class B share applicable to common stockholders—diluted (GAAP EPS)		$	0.03			$	(0.02	)
Shares used to calculate diluted net income (loss) per Class B share applicable to common stockholders			35,944				34,106
Net income (loss) applicable to common stockholders		$	1,187			$	(666	)
Stock-based compensation			3,952				3,715
Acquisition and separation related costs			62				296
Amortization of intangible assets from acquisitions			1,672				1,055
Gain on sales and disposals of intangible assets, net			(2,486	)			(713	)
Interest expense and other, net			196				118
Dividends paid to participating securities			66				123
Estimated impact of income taxes			(1,177	)			(1,398	)
Adjusted Non-GAAP net income applicable to common stockholders		$	3,472			$	2,530
Adjusted Non-GAAP EPS		$	0.09			$	0.06
Shares used to calculate diluted net income (loss) per Class B share applicable to common stockholders			35,944				34,106
Weighted average stock options and common shares subject to repurchase or cancellation (if applicable)			—				1,361
Weighted average common shares related to deferred acquisition payments			4,402				4,907
Diluted shares used to calculate Adjusted Non-GAAP EPS (1)			40,346				40,374

 

(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.

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MARCHEX, INC. AND SUBSIDIARIES

Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS

(in thousands, except per share data)

(unaudited)

 

		Nine Months Ended September 30,
		2011				2012
Adjusted Non-GAAP EPS		$	0.23			$	0.18
Net income (loss) per Class B share applicable to common stockholders—diluted (GAAP EPS)		$	0.05			$	(0.03	)
Shares used to calculate diluted net income (loss) per Class B share applicable to common stockholders			35,180				33,879
Net income (loss) applicable to common stockholders		$	1,780			$	(1,124	)
Stock-based compensation			11,408				12,439
Acquisition and separation related costs			1,513				164
Amortization of intangible assets from acquisitions			3,756				3,674
Gain on sales and disposals of intangible assets, net			(7,112	)			(5,434	)
Interest expense and other, net			268				430
Dividends paid to participating securities			191				262
Estimated impact of income taxes			(3,053	)			(3,375	)
Adjusted Non-GAAP net income applicable to common stockholders		$	8,751			$	7,036
Adjusted Non-GAAP EPS		$	0.23			$	0.18
Shares used to calculate diluted net income (loss) per Class B share applicable to common stockholders			35,180				33,879
Weighted average stock options and common shares subject to repurchase or cancellation (if applicable)			—				1,340
Weighted average common shares related to deferred acquisition payments			2,838				4,907
Diluted shares used to calculate Adjusted Non-GAAP EPS (1)			38,018				40,126

 

(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.

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MARCHEX, INC. AND SUBSIDIARIES

(in thousands)

(unaudited)

Reconciliation of GAAP Income (Loss) from Operations to Operating Income before Amortization (OIBA)

and Adjusted Operating Income Before Amortization (Adjusted OIBA)

 

		Quarter Ended																				9 months ended
		9/30/2011				12/31/2011				3/31/2012				6/30/2012				9/30/2012				9/30/2011				9/30/2012
Income (loss) from operations		$	2,227			$	1,992			$	(598	)		$	1,088			$	(492	)		$	4,038			$	(2	)
Stock-based compensation			3,952				3,735				3,908				4,816				3,715				11,408				12,439
Amortization of intangible assets from acquisitions			1,672				1,699				1,537				1,082				1,055				3,756				3,674
Operating income before amortization (OIBA)			7,851				7,426				4,847				6,986				4,278				19,202				16,111
Acquisition and separation related costs			62				377				(132	)			—				296				1,513				164
Gain on sales and disposals of intangible assets, net			(2,486	)			(2,309	)			(1,463	)			(3,258	)			(713	)			(7,112	)			(5,434	)
Adjusted operating income before amortization (Adjusted OIBA)		$	5,427			$	5,494			$	3,252			$	3,728			$	3,861			$	13,603			$	10,841

Reconciliation from Net Cash provided by Operating Activities to Adjusted EBITDA

 

		Quarter Ended																				9 months ended
		9/30/2011				12/31/2011				3/31/2012				6/30/2012				9/30/2012				9/30/2011				9/30/2012
Net cash provided by operating activities		$	4,884			$	3,675			$	3,954			$	7,980			$	3,656			$	13,108			$	15,590
Changes in asset and liabilities, net of acquisitions			(128	)			1,727				302				(3,997	)			811				(507	)			(2,884	)
Income tax expense (benefit)			778				814				(80	)			577				(67	)			1,799				430
Acquisition and separation related costs			62				5				—				—				296				1,513				296
Interest expense and other, net			20				14				19				21				28				(71	)			68
Excess tax benefits related to stock compensation			802				229				97				23				42				802				162
Adjusted EBITDA		$	6,418			$	6,464			$	4,292			$	4,604			$	4,766			$	16,644			$	13,662
Net cash provided by (used in) investing activities		$	1,859			$	938			$	1,194			$	2,032			$	(103	)		$	(11,330	)		$	3,123
Net cash provided by (used in) financing activities		$	412			$	(2,658	)		$	(1,296	)		$	(17,734	)		$	(1,592	)		$	(3,618	)		$	(20,622	)

Exhibit 99.2

MARCHEX ANNOUNCES INTENT TO SEPARATE ITS BUSINESS INTO TWO

PUBLIC COMPANIES

Seattle – November 1, 2012 – Marchex, Inc. (NASDAQ: MCHX) announced today that its Board of Directors has authorized management to pursue the separation of its business into two distinct, publicly-traded entities. Upon closing of the proposed tax-free spin-off transaction, Marchex’s existing shareholders would hold interests in: (1) Marchex, a pure play mobile advertising company focused on calls, and (2) Archeo, Inc. (“Archeo”), a premium domain and advertising marketplace. This process is expected to be completed within nine months.

Upon completion of the spin-off transaction, Marchex would be focused purely on mobile and call advertising. Marchex’s products would include its Digital Call Marketplace, a mobile advertising network designed to drive calls to businesses on a pay for call basis; and Marchex Call Analytics, which accurately measures and analyzes results from advertising campaigns designed to drive phone calls.

Archeo intends to develop the industry’s most dynamic domain and advertising marketplace. The domain marketplace intends to pursue a build, buy, sell and partner strategy. The advertising marketplace will continue to place national and local pay-per-click advertisers on premium publishers, and will pursue new advertising types that drive incremental advertiser value. Upon completion of the spin-off transaction, Archeo would be comprised of Marchex’s portfolio of more than 200,000 highly unique and valuable web domains and its vertical pay-per-click network.

“We are excited about the strategic and operational clarity this separation provides,” said Russell C. Horowitz, Marchex’s Chairman and CEO. “Over the past few years, our products and assets have become increasingly divergent and represent two distinct opportunities. Through this separation, we believe that we can unlock shareholder value by giving each business their own focus and resources to grow and fulfill their potential.”

Marchex believes the separation of its business into distinct public companies would allow each company to:

 

•

Enhance its ability to support customers and deliver innovative products in a rapidly-evolving and competitive industry.

 

•

Focus on the priorities and operational opportunities that would maximize its long-term potential.

 

•

Benefit from greater financial and operational flexibility.

 

•

Customize its capital structure, and deploy resources in a manner consistent with the business goals that best enhance value for its respective shareholder group.

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Transaction Specifics

It is anticipated that the transaction would be structured as a tax-free pro rata distribution to all shareholders of Marchex with the holders of Marchex Class A common stock receiving Class A common stock in Archeo, and the holders of Marchex Class B common stock receiving Class B common stock in Archeo.

Given the anticipated cash-generation from Archeo, it is expected that the current $0.035 per share quarterly dividend will be transitioned from Marchex to Archeo, subject to future capital availability.

Upon closing of the transaction, Russell C. Horowitz would serve as Chairman of both companies and as CEO of Marchex. The Marchex executive team will remain in place. Over the next number of months, Archeo will assemble a separate management team and Board of Directors.

Executing the transaction requires further work on structure, management, governance, and other significant matters. Within the next number of months, Marchex’s management will develop detailed plans for the Board’s further consideration and final approval.

The completion of the spin-off is subject to a number of conditions, including final approval of the transaction by Marchex’s Board, receipt of regulatory approvals, favorable tax rulings and or opinions regarding the tax-free nature of the transaction to Marchex and to its shareholders, further due diligence as appropriate, and the filing and effectiveness of appropriate filings with the Securities and Exchange Commission (“SEC”). Marchex will provide interim updates as appropriate. There can be no assurances given that the separation of Marchex’s business as described in this announcement will occur.

Additional financial information is attached.

Conference Call and Webcast Information

Management will hold a conference call, starting at 5:00 p.m. ET on Thursday, November 1, 2012, to discuss the proposed plan in conjunction with the discussion of Marchex’s third quarter ended September 30, 2012 financial results. Access to the live webcast will be available on the Investors section of the Marchex’s website (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. delivers customer calls to businesses and analyzes those calls so companies can get the most out of their mobile advertising.

Marchex supports its customers through a unique technology platform that has three primary components: (1) Call Analytics, which powers all of our advertising solutions,

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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 millions of consumer calls to our 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.

To learn more about this transaction, please visit www.marchex.com/archeo.

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. In addition, there are certain risks and uncertainties relating to our spin-off transaction, including, but not limited to, the impact and possible disruption to our operations, the timing and certainty of completing the transaction, the high costs in connection with the spin-off which we would not be able to recoup if the spin-off is not consummated, the expectation that the spin-off will be tax-free, revenue and growth expectations for the two independent companies following the spin-off, unanticipated developments that may delay or negatively impact the spin-off, and the ability of each business to operate as an independent entity upon completion of the spin-off. 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 November 1, 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, Revenue with Domain Sales, Adjusted OIBA and EBITDA with Domain Sales 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,

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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 and separation 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 and separation 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 and separation 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. In conjunction with the spin-off, Marchex has also presented Revenue with Domain Sales, Adjusted OIBA and EBITDA with Domain Sales. Revenue with Domain Sales represents revenue plus sales proceeds from the sale of intangible domain assets and Adjusted OIBA and EBITDA with Domain Sales includes the above descriptions of Adjusted OIBA and EBITDA plus the gain/loss on sales and disposals of intangible assets. It is anticipated upon completion of the spin-off, that Archeo will further it’s domain marketplace business initiative to buy and sell domains which differs from Marchex’s historical approach to intangible asset transactions. Accordingly, it is anticipated upon Archeo fully engaging in this business initiative, sales proceeds from intangible domain assets may be presented as revenue prospectively. Financial analysts and investors may use the non-GAAP historical Revenue with Domain Sales, Adjusted OIBA and EBITDA with Domain Sales to help with comparative financial evaluation to make informed investment decisions.

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 and separation 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.

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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.

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MARCHEX, INC. AND SUBSIDIARIES

Financial Summary

(in thousands)

(unaudited)

 

		Quarter Ended																				9 months ended
		9/30/2011				12/31/2011				3/31/2012				6/30/2012				9/30/2012				9/30/2011				9/30/2012
Marchex—Consolidated
Revenue		$	39,862			$	39,023			$	35,481			$	34,013			$	34,822			$	107,703			$	104,316
Revenue with Domain Sales		$	42,359			$	41,344			$	36,955			$	37,282			$	35,535			$	114,856			$	109,772
Adjusted OIBA		$	5,427			$	5,494			$	3,252			$	3,728			$	3,861			$	13,603			$	10,841
Adjusted EBITDA		$	6,418			$	6,464			$	4,292			$	4,604			$	4,766			$	16,644			$	13,662
Adjusted OIBA with Domain Sales		$	7,913			$	7,803			$	4,715			$	6,986			$	4,574			$	20,715			$	16,275
Adjusted EBITDA with Domain Sales		$	8,904			$	8,773			$	5,755			$	7,862			$	5,479			$	23,756			$	19,096
Call-Driven and Other (1)
Revenue		$	28,555			$	28,313			$	26,655			$	27,481			$	29,263			$	73,517			$	83,399
Adjusted OIBA		$	2,731			$	2,379			$	878			$	2,265			$	2,839			$	5,468			$	5,982
Adjusted EBITDA		$	3,359			$	2,998			$	1,578			$	2,968			$	3,604			$	7,322			$	8,150
Archeo (1)
Revenue		$	11,307			$	10,710			$	8,826			$	6,532			$	5,559			$	34,186			$	20,917
Revenue with Domain Sales		$	13,804			$	13,031			$	10,300			$	9,801			$	6,272			$	41,339			$	26,373
Adjusted OIBA		$	2,696			$	3,115			$	2,374			$	1,463			$	1,022			$	8,135			$	4,859
Adjusted EBITDA		$	3,059			$	3,466			$	2,714			$	1,636			$	1,162			$	9,322			$	5,512
Adjusted OIBA with Domain Sales		$	5,182			$	5,424			$	3,837			$	4,721			$	1,735			$	15,247			$	10,293
Adjusted EBITDA with Domain Sales		$	5,545			$	5,775			$	4,177			$	4,894			$	1,875			$	16,434			$	10,946

 

1

The financial results for Call-Driven and Archeo are preliminary and have been derived from the unaudited consolidated financial statements of Marchex, Inc. for all periods presented. The unaudited Call-Driven and Archeo financial results include certain expenses of Marchex which were allocated for certain functions, including general corporate expenses related to finance, legal, information technology, human resources, compliance, shared services, insurance, and employee benefits and incentives. However, these allocations may not be indicative of the actual expenses that would have incurred as two separate stand-alone entities or of the costs expected to be incurred in the future. As such, the financial results included herein may not necessarily reflect the results of operations or cash flows in the future or what the results of operations or cash flows would have been had Archeo been an independent company during the periods presented.

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MARCHEX, INC. AND SUBSIDIARIES

Reconciliation to Reported Financial and Non-GAAP Information

(in thousands)

(unaudited)

 

		Quarter Ended																				9 months ended
		9/30/2011				12/31/2011				3/31/2012				6/30/2012				9/30/2012				9/30/2011				9/30/2012
Revenue
Consolidated—as reported		$	39,862			$	39,023			$	35,481			$	34,013			$	34,822			$	107,703			$	104,316
Add: Domain Sales			2,497				2,321				1,474				3,269				713				7,153				5,456
Consolidated with Domain Sales (1)			42,359				41,344				36,955				37,282				35,535				114,856				109,772
Less: Archeo with Domain Sales (3)			13,804				13,031				10,300				9,801				6,272				41,339				26,373
Other			—				—				182				158				165				—				505
Call-Driven (3)		$	28,555			$	28,313			$	26,473			$	27,323			$	29,098			$	73,517			$	82,894
Adjusted OIBA
Consolidated—as reported		$	5,427			$	5,494			$	3,252			$	3,728			$	3,861			$	13,603			$	10,841
Add: Gain on Domain Sales			2,486				2,309				1,463				3,258				713				7,112				5,434
Consolidated with Domain Sales (2)			7,913				7,803				4,715				6,986				4,574				20,715				16,275
Less: Archeo with Domain Sales (2)			5,182				5,424				3,837				4,721				1,735				15,247				10,293
Other			—				—				72				99				95				—				266
Call-Driven (3)		$	2,731			$	2,379			$	806			$	2,166			$	2,744			$	5,468			$	5,716
Adjusted EBITDA
Consolidated—as reported		$	6,418			$	6,464			$	4,292			$	4,604			$	4,766			$	16,644			$	13,662
Add: Gain on Domain Sales			2,486				2,309				1,463				3,258				713				7,112				5,434
Consolidated with Domain Sales (2)			8,904				8,773				5,755				7,862				5,479				23,756				19,096
Less: Archeo with Domain Sales (2)			5,545				5,775				4,177				4,894				1,875				16,434				10,946
Other			—				—				72				99				95				—				266
Call-Driven (3)		$	3,359			$	2,998			$	1,506			$	2,869			$	3,509			$	7,322			$	7,884

 

1	Consolidated revenue with Domain Sales is a non-GAAP measure of financial results and includes sales proceeds from sales of intangible domain assets.

2	Adjusted OIBA and EBITDA and each with Domain Sales, are non-GAAP measures of operating results and liquidity. Adjusted OIBA and EBITDA with Domain Sales include net gains from the sales of intangible assets.

3

The financial results for Call-Driven and Archeo are preliminary and have been derived from the unaudited consolidated financial statements of Marchex, Inc. for all periods presented. The unaudited Call-Driven and Archeo financial results include certain expenses of Marchex which were allocated for certain functions, including general corporate expenses related to finance, legal, information technology, human resources, compliance, shared services, insurance, and employee benefits and incentives. However, these allocations may not be indicative of the actual expenses that would have incurred as two separate stand-alone entities or of the costs expected to be incurred in the future. As such, the financial results included herein may not necessarily reflect the results of operations or cash flows in the future or what the results of operations or cash flows would have been had Archeo been an independent company during the periods presented.

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