SEC Filing - Marchex

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mchx-10q_20220930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 000-50658

Marchex, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	35-2194038
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
520 Pike Street, Suite 2000
Seattle, WA (Address of Principal Executive Offices)	98101 (Zip Code)

Registrant’s telephone number, including area code: (206) 331-3300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Class B Common Stock

MCHX

The Nasdaq Global Select Market

As of October 31, 2022, the registrant had 4,660,927 shares of Class A common stock, $.01 par value per share, and 37,802,129 shares of Class B common stock, $.01 par value per share, outstanding, respectively.

Marchex, Inc.

Form 10-Q

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION	29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 4.	Mine Safety Disclosures	42
Item 6.	Exhibits	43
Signature		44

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

	December 31,			September 30,
	2021			2022
Assets
Current assets:
Cash and cash equivalents	$	27,086		$	23,329
Accounts receivable, net		8,021			8,437
Prepaid expenses and other current assets		2,407			2,554
Total current assets		37,514			34,320
Property and equipment, net		2,817			3,839
Right-of-use lease asset		2,238			1,119
Other assets, net		986			1,009
Goodwill		17,558			17,558
Intangible assets from acquisitions, net		4,714			3,121
Total assets	$	65,827		$	60,966
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,363		$	1,315
Accrued benefits and payroll		3,631			4,228
Other accrued expenses and current liabilities		3,869			3,480
Deferred revenue and deposits		2,016			878
Lease liability, current		1,794			1,520
Total current liabilities		12,673			11,421
Deferred tax liabilities		186			217
Lease liability non-current		1,466			433
Total liabilities		14,325			12,071
Commitments and contingencies - See Note 10
Stockholders’ equity:
Common stock, $0.01 par value, Authorized 137,500 shares
Class A: 12,500 shares authorized; 4,661 shares issued and outstanding at December 31, 2021 and September 30, 2022		49			49
Class B: 125,000 shares authorized; 37,391 shares issued and outstanding at December 31, 2021, including 965 shares of restricted stock; and 37,740 shares issued and outstanding at September 30, 2022, including 1,022 shares of restricted stock		374			378
Additional paid-in capital		354,155			356,215
Accumulated deficit		(303,076	)		(307,747	)
Total stockholders’ equity		51,502			48,895
Total liabilities and stockholders’ equity	$	65,827		$	60,966

See accompanying Notes to the Condensed Consolidated Financial Statements.

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2021			2022			2021			2022
Revenue	$	40,686		$	39,878		$	13,700		$	13,197
Expenses:
Service costs⁽¹⁾⁽³⁾		16,389			14,791			5,507			4,992
Sales and marketing⁽¹⁾⁽³⁾		10,245			10,172			3,906			3,388
Product development⁽¹⁾⁽³⁾		13,289			10,515			3,178			3,524
General and administrative⁽¹⁾⁽³⁾		6,960			7,397			1,875			2,351
Amortization of intangible assets from acquisitions⁽²⁾		3,708			1,593			1,149			531
Acquisition and disposition-related costs		103			37			(18	)		10
Total operating expenses		50,694			44,505			15,597			14,796
Loss from operations		(10,008	)		(4,627	)		(1,897	)		(1,599	)
Gain on loan extinguishment		5,185			—			5,185			—
Interest income and other, net		2,453			33			(21	)		37
Income (loss) before provision for income taxes		(2,370	)		(4,594	)		3,267			(1,562	)
Income tax expense (benefit)		(15	)		77			(43	)		(4	)
Net income (loss) applicable to common stockholders	$	(2,355	)	$	(4,671	)	$	3,310		$	(1,558	)
Basic and diluted net income (loss) per Class A and Class B share applicable to common stockholders	$	(0.05	)	$	(0.11	)	$	0.07		$	(0.04	)
Shares used to calculate basic net income (loss) per share applicable to common stockholders:
Class A		4,661			4,661			4,661			4,661
Class B		39,213			38,735			39,246			38,861
Shares used to calculate diluted net income (loss) per share applicable to common stockholders:
Class A		4,661			4,661			4,661			4,661
Class B		43,874			43,396			44,385			43,522
(1) Excludes amortization of intangibles from acquisitions
(2) Components of amortization of intangibles from acquisitions
Service costs	$	1,885			351		$	610			117
Sales and marketing		1,711			1,242			539			414
General and administrative		112			—			—			—
Total	$	3,708		$	1,593		$	1,149		$	531
(3) Components of related party support services fee recovery
Service costs	$	2,151		$	2,208		$	825			772
Sales and marketing		447			572			281			200
Product development		1,501			1,439			550			521
General and administrative		1,065			1,168			584			304
Total	$	5,164		$	5,387		$	2,240		$	1,797

See accompanying Notes to the Condensed Consolidated Financial Statements.

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

	Class A				Class B										Additional					Total
	common stock				common stock					Treasury stock					paid-in		Accumulated			stockholders’
	Shares		Amount		Shares			Amount		Shares			Amount		capital		deficit			equity
Balances at December 31, 2020		4,661	$	49		36,462		$	365		—		$	—	$	350,960	$	(298,686	)	$	52,688
Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net		—		—		223			2		—			—		30		—			32
Stock compensation from options and restricted stock, net of forfeitures		—		—		—			—		—			—		744		—			744
Net loss		—		—		—			—		—			—		—		(5,332	)		(5,332	)
Balances at March 31, 2021		4,661	$	49		36,685		$	367		—		$	—	$	351,734	$	(304,018	)	$	48,132
Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net		—		—		56			—		—			—		67		—			67
Stock compensation from options and restricted stock, net of forfeitures		—		—		—			—		—			—		655		—			655
Net loss		—		—		—			—		—			—		—		(333	)		(333	)
Balances at June 30, 2021		4,661	$	49		36,741		$	367		—			—	$	352,456	$	(304,351	)	$	48,521
Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net		—		—		63			1		—			—		153		—			154
Stock compensation from options and restricted stock, net of forfeitures		—		—		—			—		—			—		607		—			607
Net income		—		—		—			—		—			—		—		3,310			3,310
Balances at September 30, 2021		4,661	$	49		36,804		$	368		—			—	$	353,216	$	(301,041	)	$	52,592

	Class A				Class B										Additional					Total
	common stock				common stock					Treasury stock					paid-in		Accumulated			stockholders’
	Shares		Amount		Shares			Amount		Shares			Amount		capital		deficit			equity
Balances at December 31, 2021		4,661	$	49		37,391		$	374		(23	)	$	—	$	354,155	$	(303,076	)		51,502
Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net		—		—		285			3		—			—		13		—			16
Retirements of restricted stock		—		—		(23	)		—		23			—		—		—			—
Stock compensation from options and restricted stock, net of forfeitures		—		—		—			—		—			—		695		—			695
Net loss		—		—		—			—		—			—		—		(1,582	)		(1,582	)
Balances at March 31, 2022		4,661	$	49		37,653		$	377		—		$	-	$	354,863	$	(304,658	)		50,631
Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net		—		—		5			—		—			—		7		—			7
Stock compensation from options and restricted stock, net of forfeitures		—		—		—			—		—			—		714		—			714
Net loss		—		—		—			—		—			—		—		(1,531	)		(1,531	)
Balances at June 30, 2022