Marchex Inc (MCHX) 2015 Q2 法說會逐字稿

Good afternoon, my name is [Patsy] and I will be your conference operator today.

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

(Operator Instructions.) Thank you and I would now like to turn the call over to Mr. Ethan Caldwell, General Counsel.

Sir, you may begin your conference.

Thank you.

Good afternoon everyone and welcome to Marchex's business update and second 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 these 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 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 Web site 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 for our second quarter conference call.

Let me begin by reiterating two important trends that I believe will define Marchex's future.

First, mobile performance advertising is the next big market.

Large enterprises and their agencies are increasingly looking to move spending from desktop to mobile but in order to do so they need to understand the consumer path to purchase the same way that they do in the online ecommerce world.

Second, as a result of our focus in investments and analytics Marchex provides unparalleled real time insight into the mobile customer journey.

As a result, global leaders are choosing Marchex for their mobile performance solutions which is accelerating our opportunity.

Now, turning to the market.

We are seeing the largest global advertisers and their agencies increasingly embrace mobile and seize on the opportunity to measure their ad dollars against real customer outcomes.

Enterprise marketers are making decisions today that will shape the future of mobile advertising and right now these marketers acutely understand they need real performance in order to survive and thrive in mobile.

Wanting to understand the mobile customer journey is a large-scale shift that will hit critical mass over several years but it's fueling a growing demand for mobile advertising analytics today.

For years agencies that controlled billions in global media spend have largely sat on the sidelines unsure of the performance of their mobile ad campaigns.

The mobile landscape was simply too new and that is changing in a big way.

Now, CMO's have the urgency to make mobile accountable, they want to improve the consumer experience, harness as much data as possible to inform their marketing strategies and drive meaningful business growth through this medium.

We saw the cycle play out more than a decade ago.

As ad dollars move from traditional media to the desktop, enterprise marketers needed greater transparency around consumer actions so they integrated analytics products that optimize ecommerce transactions which became the engine of the online economy.

As analytics improved marketers gained valuable insights to the customer journey which allowed them to optimize their tactics and improve the customer experience.

Ultimately, these analytics products grow significant, online, ecommerce growth.

With mobile ad spending expected to more than double by 2019 in the U.S. alone, the need for mobile analytics products that measure mobile customer outcomes is greater than ever.

We believe analytics will drive and accelerate click-to-call commerce which will be the engine of the mobile economy but there's a real challenge marketers face.

In mobile, the majority of consumer purchases occur offline through either a phone call or a store visit.

What makes this even more frustrating for marketers is that today's marketing analytics infrastructure is not built to capture data for consumer calls or track other offline outcomes.

Because the flow of data stops as soon as the call transfers to the call center or connects directly to a business, marketers are left in the dark and have no way of knowing what transpired.

This is a crippling disadvantage for those who want to expand their mobile customer acquisition initiatives and it's a problem that will only increase over time with the growth of mobile driven calls to businesses.

70% of consumers now click-to-call for mobile search.

Click-to-call is also embedding further into social media, mapping, apps and other mobile publisher endpoints.

The trend toward mobile driven calls is real and pervasive.

The advisor firm, BIA/Kelsey estimates that American's alone will make 162 billion consumer-to-business phone calls from smartphones by 2019 up from 93 billion this year.

This is where Marchex has a distinct advantage.

We believed that click-to-call would be a dominant mobile performance ad model and in the last few years we've been able to build one of the world's leading mobile analytics platforms for enterprise marketers bringing real visibility to the mobile customer journey is the centerpiece of our mission and our opportunity.

Our dedicated focus allowed us to make significant progress over the last few months against the initiatives that will support our long-term growth.

For example, in June we announced our expansion into Europe, Canada, Australia and New Zealand to support enterprise marketers that tie in mobile advertising spend to sales at scale and globally.

We now have clients utilizing our products across multiple geographies including CDK Global, Hearst, Intuit and [Yell].

We anticipate our international growth to continue as we expand our geographic coverage over the coming quarters.

We also continue to innovate and develop products that help bring visibility to the mobile customer journey.

Marchex currently has more than 30 patents in mobile analytics, click-to-call, advertising attribution, audio signal processing and consumer privacy developed by our 180-person product and engineering team.

We continue to on-board new customers for our Call Analytics for search product which is the first enterprise level solution to bring 100% key word attribution to mobile search and we plan on expanding our platform further with product launches and enhancements this year.

Finally, our strategic integrations and deep client relationships highlight the market need and reinforce our enterprise growth opportunity.

We are excited about our new and exclusive partnership with Light Reaction and Xaxis, the mobile performance business of the world's largest advertising agency group, GroupM.

GroupM is the parent company to WPP's media agencies including MediaCom, Mindshare, MEC and Maxus which buy more than $104 billion in media worldwide.

Light Reaction and Xaxis will now sell two of Marchex's mobile performance products through the GroupM agencies.

The first is M-Call, a new click-to-call mobile performance product powered by Marchex that enables advertisers to generate high-quality phone leads directly from mobile Web sites and in-app ads across hundreds of top publishers and apps.

The second product is Marchex Call Analytics, our real-time mobile advertising analytics platform that measures sales and consumer intent from mobile click-to-call campaigns.

This is an important announcement for Marchex and a first-time that click-to-call mobile performance and analytics products have been launched by a major global agency holding company.

We can deliver exactly what enterprise marketers need to grow their mobile advertising budgets.

At the moment mobile is becoming an indispensible part of their overall budgets.

Everything we do from the people we hire, the products we develop, the clients we focus on serving to the capital decisions that we make, it's focused on establishing Marchex as the world's leading mobile advertising analytics company and accelerating our enterprise growth opportunity.

We are all excited about the momentum we are creating and look forward to updating you in the coming periods.

With that I'll hand the call to Mike.

Thanks Pete.

For the second quarter, call driven and other related revenues were $34.5 million while total revenue from continuing operations was $35.3 million.

Today's commentary will largely focus on financial results from continuing operations unless otherwise noted due to our sale of the bulk of our domain portfolio which included a sale to GoDaddy for $28.1 million and domain sales of approximately $400,000 during the second quarter.

These sales were part of our efforts to focus our business on our core enterprise mobile advertising analytics opportunity.

For call driven and related revenue the second quarter was characterized by continued progress in building a healthy sales and client expansion pipeline to support future growth.

From signing new customers and new channel partners to continuing to build our pipeline of customers trialing our Call Analytics for search product, we feel good about the progress we're making in our business.

In addition, during the quarter we got the benefit of added visibility by extending our relationship with YP through the end of 2016.

We know some investors track our growth without YP and Allstate so to help their models with this framework in mind call driven and related revenue in the second quarter grew 24% compared to the same period in 2014, was sequentially up in comparison to the first quarter of 2015 and we expect that growth to continue.

Regarding our recently signed exclusive global partnership with Light Reaction, we believe our agency channel will be an increasing contributor to growth going forward particularly as the relationship gets fully launched globally over future quarters.

For the second quarter, Archeo revenue from continuing operations was $888,000.

Excluding stock-based compensation, total operating costs were $34 million for the second quarter of 2015.

Moving to adjusted operating income before amortization and EBITDA, call driven adjusted OIBA and EBITDA were $1.4 million and $2.4 million respectively.

Excluding domain sales and discontinued operations, total adjusted OIBA for the second quarter of 2015 was $1.3 million and adjusted EBITDA was $2.3 million.

GAAP net income including discontinued operations was $20.9 million for the second quarter of 2014 or $0.50 per diluted share, this compares to a GAAP net income of $1 million for the same period of 2014 or $0.02 per diluted share.

GAAP net loss from continuing operations was $1.3 million for the second quarter of 2015 or $0.03 per diluted share.

This compares to a GAAP net loss from continuing operations of $102,000 for the same period of 2014 or $0.00 per diluted share.

Adjusted non-GAAP income per share, an estimate some Wall Street investors utilize as a supplemental measure of our operating progress including discontinued operations was $0.37 per share and $0.07 per share for the same period in 2014.

Excluding discontinued operations, adjusted non-GAAP income per share was $0.02 per share and $0.05 per share for the same period in 2014.

We ended the second quarter with more than $104 million of cash on hand as of June 30, 2015.

In addition, during the quarter Marchex purchased approximately 79,000 of its outstanding Class B common stock for a total price of $353,000 under our share repurchase program established in November 2014.

Now, turning to our initial outlook for the third quarter 2015.

I'd like to start out by mentioning we are making solid progress in our business across a number of fronts including adding new enterprise customer relationships, expanding existing customers, adding new partnerships and developing new products all of which will continue to support our long-term growth profile and continuing momentum in the enterprise channel.

For the third quarter we are forecasting $34.5 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 continued 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 as well as the early customer conversations we are having through our new channel partners.

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 and performance to their mobile advertising spend, we are building a pipeline for future long-term growth.

Next, looking at call driven adjusted OIBA and EBITDA margins; for the third 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 and marketing and product and engineering and in international markets to support growth of our customers, channel partners and product initiatives.

We are seeking to capitalize on our early mover advantage in mobile advertising analytics for the enterprise and we are continuing to invest to support our growth opportunity.

We believe the market is significant and continue to believe Marchex is uniquely positioned as the market accelerates.

We're excited by the progress we're making with our customers, our channel partners and our products and look forward to updating you throughout the rest of the year.

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

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

Thank you.

(Operator instructions.) Our first question comes from Darren Aftahi with Northland Security, Darren.

Hey guys, thanks for taking my questions.

Just two if I may, first on the Light Reaction deal, can you talk about kind of time to market and when you expect that to start kind of impacting your P&L?

And then second one, on your call driven business just core XYP, I mean, where are you guys seeing sort of abnormal strength and what particular verticals [do] you call out?

And then in terms of an existing domestic opportunities, are there opportunities to cross-pollinate that internationally?

Thanks.

Sure, thanks Darren, this is Pete.

On the first thing with Light Reaction and WPP and GroupM we're really excited about the partnership, it highlights that enterprise marketers and agencies have a real need to drive mobile performance and we're excited to partner with them and go-to market domestically and internationally.

Right now we're in training and integration mode and we expect that to be the case for the remainder of the year.

We're excited about what our opportunity is with them particularly as we look into next year.

Regarding abnormal strength and verticals, we're seeing very strong traction in financial services; we continue to see strong traction there.

We highlighted a customer addition this quarter of Intuit.

We're also seeing strong traction in the travel category.

We added Carnival and other clients and so those are two categories we're seeing good growth and the third is telecom.

Regarding cross-pollination, I think your question is really our clients are utilizing our products domestically able to extend with us internationally?

The answer is yes and that's been core to our international strategy which is invest with our partners and make sure that we can provide them global solutions seamlessly.

We've done that with CDK who started with us in the U.S. and now we've extended to Canada, Australia, New Zealand and others as well so that's definitely part of what we're doing.

Thanks.

Our next question will be from Rohit Kulkarni with RBC.

Rohit?

Great, thank you.

I guess on this [increased] global scale, can you just draw that out a little bit more as to what is the level of investment that you're doing?

It seems like a mouthful in terms of the geographies that you're expanding into but is that, does that, imply feet on the street or is that salespeople calling on local businesses or are you leveraging any partnerships in there and then I have a couple of follow-ups.

Sure Rohit, thank you.

Yeah, going back to the prior answer, as we look to expand internationally the first wave of that is really expanding with our clients, existing clients which we have many that operate internationally.

We're able to support those clients with many of the resources that we have today as we have existing integrations.

As we start to expand into new international territories with them, of course, we'll selectively look to support those clients international territories directly but even if you look back to our agency agreement with GroupM and WPP we are really selling our products into their agencies and training their teams to promote our products to their clients and so by virtue of that we end up with a distributed sales force globally.

Mike, did you want to add to that?

One thing I would add Rohit is when we think about the investment if you look at our current forecast and guidance, that includes some of the investments related to rolling out in select countries today.

There is going to be more activity on a go-forward basis and I think it will incrementally create the opportunity and grow as we move forward in particular with the agency channel relationships.

This is a big opportunity, it is a global integration, it is something that will unfold over time and in the coming periods and we think there's going to be much more than just the domestic market that we're rolling out to in 2016 and we'll be going on a country-by-country basis as it makes sense with them.

With feet on the street [through], as Pete talked about those relationships, the investment is relatively built-in already with some of the revenue forecast that can come to bear.

There will potentially be some infrastructure but if you look at our total capital expenditures for the business, they aren't inordinate and to be able to set up shops on the European continent or in the Asian continent it's something that we feel we can do relatively cost effectively so we'll see how that rolls out but we see it very much as a positive opportunity.

Okay and then quick follow-up on YP revenue, it just seemed like sequentially it's sticking down a couple of hundred thousand dollars over the last four quarters or so and that's nice disclosure at least gives us better color as to how the core business is growing.

In terms of how you want us to think about this, I know some people model it separately or together, is that kind of the run rate agreement that you have signed around a couple of hundred thousand dollars sequential decline over the next few quarters and, yeah, and then I'll have one more follow-up actually.

So Rohit, when we think about the YP relationship one of the things that we've had is almost ten years now of a very healthy partnership and they're committed to good relationships and good partnering with us and we just recently, just a few weeks ago, were able to extend the partnership through the end of 2016 which I think helps give a lot more visibility for us and we look forward to partnering and supporting them and all the needs that they bring to bear.

In terms of how we think about our opportunity though, and this is one thing that we've focused on over the course of the last two years, the product suite and the advancements of the products that we're bringing to market are more focused and bringing to market more for the enterprise the large scale national type of a customer and that is one of the reasons why some of the folks have asked us to think about that more and why we've shared the growth factor rate of the 24% which we do think has the opportunity to continue to grow and that is where more of the resources and allocation as well as the product movement over the coming periods is going to be focused on.

Okay, and then do you have the comparable number for prior one or two quarters, the 24% year-on-year growth for the core ex-YP, ex-Allstate?

If you look at the first quarter it was also approximately 24% on a year-over-year basis.

Okay, great.

And last question I think Pete, in the past you've talked about strategically how you think about the business.

I guess more rather than creating a one-size-fits-all solutions you more kind of have greater bias towards more channel specific custom solutions.

Do you have any updated thoughts around those as to where, how, that fits into your next 12 to 18-month kind of product roadmap?

Yeah, I think our thoughts are largely consistent with what we've said.

Our goal is to drive the highest client performance we can in mobile and to do that specialization is required and the distinct media channels; search, display, social and others and our job here is to make sure that we're developing products that bring visibility into all of those channels to allow our clients to make decisions in real-time and that will be -- that's consistent with what we said and you'll see more developments from us here in the coming quarters.

Okay, thanks Pete, thanks Mike.

Thank you.

Our next question will be from Gene Munster with Piper Jaffray.

Gene?

Hi guys.

I think a few of my questions may have been asked here but maybe just one bigger picture question, longer-term, how are you thinking about, how should we think about, kind of size of the enterprise opportunity and maybe sort of the growth of that opportunity going forward and then second, and a follow-up to that is any particular customers that you think might be interesting to maybe highlight or call out on the enterprise side that are maybe in the pipeline or you think are good opportunities?

Thanks.

Sure, I think the first thing is you should know that everyone is working very hard here and we're making a lot of progress in a very short amount of time to ramp our enterprise efforts.

As we think about what the opportunity looks like, we think about we really dissect the opportunity into distinct verticals, categories, so which categories are appropriate for our products?

Which clients within those categories need real-time visibility into the marketing efforts to drive highest performance and as we talked about before there are, you know, probably 15 core categories that we think about all of which are nine-figure opportunities in our mind.

And from a growth perspective, you know, as Mike highlighted earlier, we believe that this last quarter in our enterprise focus highlighted growth, we believe that growth can maintain and accelerate and that's our focus.

Maybe one quick follow-up on that.

Pete you mentioned the potential for acceleration of growth, any thoughts on what it might take from a business standpoint to kind of get to that point of acceleration?

Thanks.

It's not going to take anything different than what we're doing today.

I think the example of relationship that we announced with GroupM and Light Reaction, you know, highlights our execution on taking our products to market with kind of leading enterprise marketers and that opportunity alone and the execution of that opportunity we think can be a catalyst and there are others similar to that.

Perfect.

Thank you.

(Operator instructions.) There are no further questions I would now like to turn the call back over to Ethan Caldwell for closing remarks.

Thank you, everybody.

We appreciate your support and look forward to updating you on the next quarter conference call.

Thank you.

That concludes today's conference call.

You may now disconnect.

Have a nice evening.