Marchex Inc (MCHX) 2015 Q1 法說會逐字稿

Good afternoon.

My name is Amy, and I will be your conference operator today.

At this time I would like to welcome everyone to the Marchex first quarter conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period.

(Operator instructions.)

Thank you.

Mr. Ethan Caldwell, General Counsel, you may begin your conference.

Thank you.

Good afternoon, everyone, and welcome to Marchex's business update and first quarter 2015 conference call.

Joining us today are Peter Christothoulou and Michael Arends.

Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements, including with respect to our financial and operational performance, and actual results may differ materially from those contemplated by those forward-looking statements.

Risks and uncertainties that could cause these results to differ materially are set forth in today's earnings press release and in our most recent annual report on Form 10-K filed with the SEC.

Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements for subsequent events.

During this call, we will also present both GAAP and non-GAAP financial measures.

A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release.

The earnings press release is available on the Investor Relations section of our website at Marchex.com.

At this time, I would like to turn the call over to Pete Christothoulou.

Thanks, Ethan, and thank you, everyone, for joining us on our first quarter conference call.

As I mentioned on our prior call in late February, my attention is focused on the two pillars that will drive our success and our growth, our clients and our people.

Since then, there have been several developments.

Our company's focus and strategy to lead in mobile advertising analytics has crystallized, leading to a heightened emphasis on enterprise clients and accelerated product development.

We have added more than 20 new enterprise clients to our call analytics platform, mainly due to our recent product launch of Call Analytics for Search.

We have hired approximately 30 new team members in areas critical to our long term success such as in product and engineering, marketing, and client engagement.

And we have divested the Archeo domain assets, allowing us to devote more time and energy to executing our analytics strategy and supporting our clients and people.

Philosophically, we believe that providing our clients a consistently superior experience must be the undercurrent of everything we do, from technology development to product innovation to client engagement.

Perfecting the customer experience is what builds trust, which is what forms the backbones of great companies.

And we are here to build something great.

After meeting many of our clients, partners, and prospects to better understand their pain points over the last several weeks, I feel even more confident about establishing Marchex as the world's leading mobile advertising analytics company.

The common theme I'm hearing from marketing and agency executives is that understanding mobile advertising outcomes and true return on investment is without a doubt their biggest challenge.

This problem developed out of a shift in consumer behavior that few saw coming.

The digital online platform in everyone's pocket is ironically driving offline actions.

As consumers, we are increasingly engaging with mobile brands on our mobile phones, and those interactions are driving offline sales, whether that's clicking to call the business or walking into a store.

And it's a trend that will continue to increase.

This dynamic forms a gigantic market gap for enterprise marketers.

Mobile is fragmented, and without cookies to rely on they have no crumbs to follow the customer journey.

In fact, today's entire marketing analytics ecosystem is incapable of measuring valuable offline outcomes, much less tying them back to specifics ad campaigns and tactics.

With rising mobile usage and expanding budgets, the need for marketers to tie ad spend to actual results in real time has never been greater.

Once enterprise marketers have real, actionable insights in to mobile, we believe that budgets will expand at even more aggressive rates.

This is the problem everyone is up against and exactly the problem Marchex is solving, connecting online behaviors to real world offline transactions in real time.

So far more than one billion phone calls have run through our analytics platform, which has given Marchex the intelligence to understand each and every touch point in the customer journey, from the moment the consumer hits a click to call button, through the duration of the conversation to when that call ends.

Opportunity has never been clearer.

We are going to become a company that can help provide a 360 degree view of mobile marketing efficiency.

We are already well down that path and now launching channel specific applications that integrate into existing marketer dashboards.

And we will launch more to accelerate our capabilities.

Call Analytics for Search was the first channel specific application we launched, allowing search marketers to see all calls from mobile search campaigns at the keyword level and understand which calls converted into a sale in real time.

This is the first time marketers have had access to these kind of insights.

Furthermore, we remove the pain marketers face as they embrace a new product by proactively integrating their data and insights into their existing dashboards.

This has created an easy adoption path by allowing clients to take action immediately, which has made Call Analytics for Search one of more successful product launches.

This year our clients will see continued product progress and additional channel specific applications brought to market.

Now I want to talk about our people.

We're both empowering the talent we have and investing in hiring new experienced people to accelerate our opportunity.

While we will take a measured approach, we're going hard here because it's necessary.

We need to both build and recruit the best talent in order to position ourselves to capture this market and serve our enterprise clients at the highest level.

At this moment, marketers are focused on exactly the problem we solve, and we will continue to focus Marchex and prioritize only the opportunities that are core to our mission.

Our sale of the Archeo assets is an example of this prioritization.

Clarity not only helps our people operate at a higher level, but it allows us as a company to attract the best talent to create pioneering, innovative technology and build the best place to work.

Everything we do, from the people we hire, the products we develop, the clients we focus on serving, to the capital decisions we make, is focused on establishing Marchex as the world's leading mobile advertising analytics company.

I'm very excited with the direction Marchex is headed.

And with that, I'll hand the call to Mike.

Thanks, Pete.

For the first quarter, call-driven and other related revenues were $35 million, while total revenue was $42.6 million.

The first quarter was characterized by continued progress in building a healthy sales pipeline to support future growth.

In addition, during the quarter approximately $450,000 was recognized in revenues related to a final performance clause under our prior Allstate contract.

For the first quarter, including domain sales, Archeo revenue was $7.5 million.

Domain sales were $6.4 million during the quarter.

In addition, in April we sold more than 200,000 domains for $28.1 million as part of our efforts to focus our business on our core mobile advertising analytics opportunity.

We are keeping a small number of sites and certain operating assets of Archeo going forward.

We'll update our financial information related to the discontinued domain name operations in the second quarter.

Excluding stock-based compensation, total operating costs were $35 million for the first quarter of 2015.

Sales and marketing costs, excluding stock-based compensation, were $3.4 million.

Over the coming periods, we expect our marketing expense may modestly increase from current levels in support of continued growth of our sales and customer support teams and additional marketing initiatives.

Moving to adjusted operating income before amortization and EBITDA, call-driven adjusted OIBA and EBITDA were $2.6 million and $3.5 million respectively.

Including domain name sales, total adjusted OIBA for the first quarter was $7.6 million, and adjusted EBITDA was $8.5 million.

GAAP net income was $4.6 million for the first quarter of 2015, or $0.11 per diluted share.

This compares to a GAAP net income from continuing operations of $846,000 for the same period of 2014, or $0.02 per diluted share.

Including domain name sales, adjusted non-GAAP income per share, an estimate some Wall Street investors utilize as a supplemental measure of our operating progress, was $0.12 per share and $0.08 per share for the same period in 2014.

During the first quarter, we generated $6.2 million in operating cash flow and had more than $83 million in cash on hand as of March 31st, 2015.

Including the $34.8 million in gross proceeds from the recent domain portfolio transactions, pro forma cash on hand is approximately $108 million.

In addition, during the quarter Marchex purchased 225,000 of its outstanding Class B common stock for a total price of $930,000 under our new share repurchase program established in November 2014.

Now turning to our initial outlook for the second quarter of 2015, I'd like to first start out by mentioning we are making solid progress in our business across a number of fronts, including adding new customer relationships, expanding existing ones, and developing new products and partnerships.

Looking first at our call-driven revenue guidance for the second quarter, for the second quarter we are forecasting $34 million or more for call-driven revenue.

While advertiser budgets can change and we can experience period to period variability based on a variety of factors, we continue to make progress in our business.

As Pete mentioned, we are excited by the number of new advertiser conversations we are having around our Call Analytics for Search product.

We are highly focused on growing our advertiser base and our product footprint.

As we broaden the footprint of advertisers we work with and increasingly penetrate our customer relationships with products that bring transparency to their mobile advertising spend, we are building a pipeline for future growth.

Next, looking at call-driven adjusted OIBA and EBITDA margins, for the second quarter we are projecting $1 million or more in call-driven adjusted OIBA and $2 million or more in call-driven adjusted EBITDA.

Our guidance takes into consideration additional hiring to support our growth initiatives such as in sales as marketing and in product and engineering, as well as adjustments including compensation, personnel related items, and certain professional fees that flow through disproportionately in the first half of the year versus the second half.

We believe we have an early mover advantage in mobile advertising analytics, and we are continuing to invest to support our growth opportunity.

We are excited by the progress we are making with our customers and our products, and look forward to updating you throughout the year.

I'd like to thank you for joining us today, and we look forward to reporting on our progress as we move ahead.

I will hand the call back to the operator to take questions.

(Operator instructions.) John Campbell, Stephens Inc.

Just on the Allstate business, if we look at the 1Q results and just basically trim out the Allstate business, did you guys -- was that about 21% or so year-over-year growth in just call-driven rev?

Yes.

So, yes, good growth there ex that.

And then, if I think about next quarter, I think you guys guided to $34 million or so.

So, looking at that, that's another pretty decent clip.

I think that implies about 14% or so year-over-year growth.

I know you guys didn't do the full year guide this go round.

But, assuming kind of all else equal and you guys are obviously going through contract negotiations every day, but if things remain roughly the same, is there any reason why we shouldn't see that similar type of growth path?

John, this is Mike.

Thanks for the question.

I think we're in a position right now where we're making some very good progress, especially with the Marchex Call Analytics for Search product.

And we definitely think that there's more and more new customers that are interested in mobile advertising and the analytics that are helping remove some of those blind spots that they have within mobile advertising.

And we're seeing it with the conversations we're having.

We're seeing it in the trials that we're working on right now with some of these new customers in the Marchex Call Analytics for Search product.

And I think there's more of that to come.

We've given the guidance for the time being with where we're at.

And we certainly look forward to and believe that the investments we're making are going to pay off and translate into more opportunity, more new customers, and more expansion of those customers.

And hopefully that will play out in the form of growth as we look ahead.

Got it.

Okay.

I think that's helpful.

And then, as you guys think about entering this new budget season this past quarter, without naming any names -- I wouldn't expect you guys to do that.

But, were there any particular clients of the larger variety that moved budgets higher this year?

Hey, John.

This is Pete.

I'll just echo what Mike said.

I think, without naming clients, we continue to see good traction in the categories that we've been focused on building leadership in between auto, financial services, both banks and the insurance category, cable and satellite and telecom.

More importantly, I think we're very excited about what our recent product launches have driven in terms of Call Analytics for Search, not just the adoption but, more importantly, the performance that we're driving for clients and the mobile visibility we're bringing.

And we think that's good.

That will be -- play out that way for the rest of the year.

Got it.

And then, I don't know if you guys can provide this now or if we can just wait on the quarterly filing.

But, what was the percent of rev for the top five?

I don't think we have it directly in front of us, but it's not inconsistent with how it's been in the last periods.

Okay, great.

That's helpful.

Thanks, guys.

Darren Aftahi, Northland Securities.

Hey, guys.

Thanks for taking my questions, just three.

First, any update on the YP contract negotiations?

Two, it sounds like your sort of disposition is very positive on the new Call Analytics for Search launch.

Do you contextually have any paying customers?

And if you can, get a little bit more granular in terms of why customers are so excited about this and kind of resonating and your optimism.

And then third, your cash balance as a percentage of your market cap is pretty robust.

It looks like you're buying some stock back.

But, can you maybe give us a better idea of what is a reasonable amount of cash you need to have on the balance sheet to run the business and then where there may be some areas where you could deploy that strategically?

Thanks.

Sure.

Thanks, Darren.

This is Pete.

I'll take the first two and Mike will take the third.

Regarding YP, as you know, we've been a partner with them for 10 years, and a good partner.

We're in active dialogue with them now and making good progress, and I expect that we'll finalize our agreement with them by the end of the quarter, if not sooner.

As relates to Call Analytics for Search and the launch, are clients paying right now, the answer is yes, they are paying.

And we're seeing traction there.

And really, the reason why clients -- existing and prospective clients are excited about this is because, without this product, they are blind to one of the biggest media categories in mobile, and that's mobile search.

This product brings 100% attribution to every keyword that results in a phone call, and not only what the result is, but does a sale occur or not in real time.

And the ability for us to provide -- bring that visibility to marketers, ultimately make mobile accountable, is translating to a lot of very interesting conversations, good adoption.

And importantly, the results that we're driving, I think the case study that we recently released highlights brands seeing 30% or 40% increases to their ROI, or a 30% cost decrease is another way to think about that.

So, mobile visibility coupled with high ROI is what's driving the adoption of this product.

And as we said earlier, we'll have more channel specific applications that apply to other media types, not just search, during the year.

And to follow up on your question about the cash, yes, we have a very healthy flush cash position right now, and that provides a number of good things from the perspective of flexibility.

I think that's the biggest part of the equation that we look ahead with.

We have relatively limited needs for working capital as we look ahead and as the company scales and grows.

The working capital need isn't that robust so we don't need a lot of cash for those types of things, which leaves a lot of it available for additional capital to invest forward in the product and the technology, as well as just any initiatives that would drive growth further.

And one of the things that we're continuing to look at is the opportunity is global.

It is ubiquitous.

There are interested parties and customer bases that are not just national, but international and global customers that are interested in using the analytics and the technologies on a global basis.

So, we do think there are probably some things in store ahead where we'll look to expand and look for that global growth.

Rohit Kulkarni, RBC Capital Markets.

I guess a couple of questions.

And again, sorry if this was already asked.

But, can you provide any color on which verticals are doing better in terms of client adds?

Any new clients that you would want to highlight in case they are becoming a material portion of the net new revenues that you are adding?

And secondly, kind of a modeling question, kind of how should we think about kind of the ex-Archeo revenue and EBITDA contribution?

As well as you have broken out the domain sales separately, so how should we think about that?

And lastly, on kind of the capital allocation side of things, maybe this was asked already.

But, you have repurchased 900,000 shares.

You're kind of discontinuing the dividend.

So, how many shares do you have outstanding, and any -- in the authorization, and anything we should read into why you are discontinuing the dividend?

Rohit, thanks.

I'll take the first part of that.

To answer your question, we have more than 20 large enterprise brands that we've added most recently, again in the verticals that we've consistently been strong and growing our share in, including auto, financial services, cable, and telecom.

And we continue to see a robust pipeline in those verticals and others.

Rohit, this is Mike.

So, to go back to the model, if you think about Archeo and some of the tables we put out today, we showed some illustrative figures for the breakout of the revenues from the domain sales over the trailing five quarter basis.

I would point you there as a good place to take a look at, just to see the profile of the business with and without some of the domain sales that we transacted here in the last few weeks.

We have about 41.3 million shares in the diluted share count for the first quarter.

And in terms of the dividend, historically that dividend has been tied to some of the cash flow attributable directly to the Archeo operation.

So, that's a key part of the equation.

But also, in giving context to just where our opportunity is and where the focus of the company is, it is the mobile analytics advertising opportunity that is before us.

We think there's significant opportunity from a customer perspective, from a consumer adoption perspective.

Things are moving along that direction.

And so, from that perspective, this gives us a lot of flexibility to take advantage of the things that are ahead of us out there.

Okay, great.

Thank you.

(Operator instructions.) Gene Munster, Piper Jaffray.

Hey, guys.

I know we've talked a lot about cash here, but just one final question.

When you think about sort of the global opportunity, is that something that you plan to invest your cash in and organically grow, or could there be some kind of strategic acquisitions that might make sense to kind of accelerate some of that business?

Thanks.

Thanks for the question.

Many of our brands that we work with today are global.

Today we work with some of the largest global brands on the planet.

And our approach internationally is really to support them, as we've talked about before, and use the go to markets with our existing clients to form a beachhead internationally and expand from within.

So, I'd close by saying we think we have many global clients that we're already embedded with who ask us to move with them into various international markets, and that will be our primary move.

Beyond that, to the extent options open up for us that further accelerate our opportunity, we'll take advantage of that.

This concludes today's question and answer period.

I would now like to turn the call back over to the presenters for closing remarks.

Thank you, everyone, for joining the first quarter call.

We appreciate your support, and look forward to updating you soon.

This concludes today's conference call.

You may now disconnect.