Marchex Inc (MCHX) 2015 Q4 法說會逐字稿

Good afternoon, my name is Jennifer and I will be your conference operator today.

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

(Operator instructions)

Thank you and I would like to turn the conference over to Ethan Caldwell, General Counsel.

Sir, you may begin.

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

Joining us today are Peter Christothoulou, Michael Arends, and Gary Nafus.

Before we get started, I would 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 quarterly report on form 10-Q 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 website at www.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 fourth-quarter conference call.

2015 was a transformational year for Marchex.

We focused our entire Company towards one opportunity.

To provide global brands extraordinary insights into the mobile consumer journey through uniting the physical and digital worlds.

We removed several divergent priorities in the business, including selling the Archeo assets.

We worked aggressively to build new partnerships with leading global brands and agencies, strengthen our team, and launch groundbreaking products that solve many difficult problems enterprise marketers face in mobile advertising.

We are firmly establishing our position as a next generation advertising analytics company.

Mobile has forever changed the consumer journey.

We are spending more time than ever on our smartphones.

It is second nature to research our mobile devices and interact with the business either over the phone or in a store.

Understanding this behavior and connecting every data point of this new online to offline consumer journey is the next frontier in marketing analytics.

While this theme will develop over the next decade, the winners are being chosen now.

Marketers are struggling to understand how to improve the mobile consumer experience.

They lack visibility into which mobile adds drive consumers to make purchases over the phone or in their stores.

Mobile measurement is vastly more complicated than measuring desktop e-commerce, which was the first phase of analytics.

Marketers now recognize that using the same methodologies to measure mobile simply does not work.

The second phase of marketing analytics, measuring online to offline actions, is a significant opportunity.

In fact, we believe this opportunity is 10 times the size of desktop e-commerce.

It has been a hard problem to crack and the right technology has not existed to solve it until now.

This is the problem we are solving.

We are building the most powerful set of analytics tools to deeply understand the online to offline path to purchase.

These tools empower marketers to maximize advertising returns and greatly improve consumer experiences.

In a few years we expect to have the capability to measure and analyze any digital advertising format across any type of media, and connect any offline purchase outcome, while delivering this data in real-time directly into marketer workflows.

In 2015 we focus on solving acute client pain points and accelerating our product innovation.

We integrated Real-Time Call DNA across our products, bringing insight to the customer journey for the first time for media source through the conversion funnel.

We also introduced search analytics and display analytics.

The only products on the market that can automatically track the mobile consumer journey from any search keyword or display impression, all the way through the call conversion.

We made further improvements on our products by leveraging call intelligence from a growing first-party mobile data set.

A data set that becomes bigger and more valuable every day and we believe is unmatched in our industry.

To capitalize on this product momentum, we formed strategic partnerships crucial to expanding enterprise client relationships, including partnering with the two largest agency holding companies in the world.

GroupM Xaxis and Omnicom media group.

Further validating that global leaders trust Marchex to support their needs.

Other partnerships included marketing technology providers such as DoubleClick and deeper integrations with companies like Kenshoo, which have directly integrated our data into their systems and workflows.

Based on client demand from companies including Bridgestone and CBK Global, we expanded internationally and now have availability in 10 markets including geographies in Europe, Canada, Australia and New Zealand with leading global brands.

We deepened our existing enterprise client relationships, accelerated multi-million dollar commitments with category leaders such as T-Mobile in communications, Bridgestone/Firestone in auto, and Time Warner in cable and satellite.

We added many new relationships with market leaders across our core categories.

Such as AT&T, in-home services with our digital life products, Carnival Cruises in travel, Verizon wireless in communications, and Wyndham Hotels in resorts and hospitality.

Internally we brought in experienced senior leadership across our sales, marketing, and client services organizations to increase demand generation and create category specialization.

We are now working with some of the largest, most sophisticated global brands in high spending advertising categories.

In fact, in three of our core enterprise categories, auto, communications, and home services, we grew by 50% on average and yet we have only penetrated a fraction of those verticals.

We live in a mobile on-demand economy.

Global smartphone growth is projected to nearly triple to more than 6 billion devices by 2020.

Consumers in the US alone are expected to make more than 160 billion calls to businesses from smartphones by 2019.

Nearly double today's volume.

Purchase behavior is increasingly influenced by our mobility and easy access to our mobile phones.

With US mobile phone, mobile ads spend projected to grow nearly 3 times to $62 billion by 2019, we believe these digitally influenced offline interactions will only grow.

Over the last nine months I have met with leaders from the largest advertising agency holding companies.

Many of the largest publishers in the world, as well as the largest global marketers across auto, communications, financial services, and travel categories.

What I can tell you is that they are realizing limitations of traditional analytics tools, the same tools they have imported from the desktop world, which cannot measure the online to offline consumer journey.

Several clear themes are emerging for them.

They want consumer journey mapping and visibility into the mobile blind spot to improve decision-making and return on ad spend.

They want to measure mobile consumer engagement at the most granular level possible, every media channel, by publisher, by impression, and by keyword.

And, they want real-time accurate data flowing into their our business intelligence and marketing automation tools.

We are exiting 2015 as one of the largest, most innovative analytics companies, trusted by the world's largest brands to bring visibility to the mobile consumer journey through measuring and connecting digital media to offline sales.

In 2015 we focused the business on our core opportunity.

In 2016 we will accelerate our opportunity through client growth and innovation.

Here are the four things you can expect from us this year.

One, enterprise client growth.

We have annualized revenues of more than $100 million from what we refer to as our enterprise client base, and we believe we are less than 10% penetrated in our core categories.

While the online to offline theme will evolve over the next decade, the winners are being chosen now.

Given the size of the opportunity and the importance of first mover position, we are taking advantage of our momentum and lead and plan to layer in an additional $6 million for our sales, marketing, and related initiatives to accelerate long-term growth.

We need to be in a position to capitalize on the initiative that did not exist in our business 12 months ago.

We now have customers in 6 markets and can support more than 10 international markets overall.

We expect our global client footprint will expand in 2016.

Two, accelerated product innovation.

Our product leadership is evident today as many of the largest global brands and agencies are choosing to work with Marchex.

And we expect to add other new relationships and deepen our existing customer base, given the types of problems we are working to solve for our customers.

With first priority mobile consumer and ten data for more than 300 million calls and 100 million unique consumer IDs, we have one of the largest, highest-quality mobile data sets in the industry.

As data sets become bigger and more valuable every day they can be used to create additional client value and innovation.

And with each client expansion or new client win, it grows and creates a larger, more valuable asset for Marchex.

In 2015 we used that data to enhance several important features such as Real-Time Call DNA, and two major renovations between search and display analytics.

Two products that are far ahead of any competition.

These innovations field customer expansion, brought Marchex into new conversations, deepening our footprint and value within client organizations.

And in 2016 we plan to at least double the major feature releases to four and further strengthen our client value.

Three, expanded global strategic partnerships.

Last year we entered into a global exclusive relationship with GroupM Xaxis and Omnicom media group, with access to hundreds of client opportunities that fit Marchex's strategic client profile.

We will take some time as we work to build our agency team and perfect the selling process with each partner, but this remains a long term growth driver as we work to support global agency customers.

In 2016 we expect to sign new agency partners.

Additionally we will look to structure strategic relationships with technology providers who can bundle Marchex's products within their ecosystem.

And four, continued commitment to service.

We made incredible progress in 2015, focusing on serving our clients and people exceptionally well.

Ensuring the success of these constituents is not just our obligation, it is the difference.

We are building a unique culture that none of our competitors can match.

And continuing to serve them well is a strategic priority that will drive our success.

We are committing our company to becoming the online to offline platform of record for the largest global brands.

A goal that will require extreme focus and our full dedication.

We expect this year will be as busy as ever and we look forward to sharing our progress with you throughout the year.

With that, I would like to hand the call to Mike.

Thanks, Pete.

For the fourth quarter, call-driven and another related revenues were $34.3 million, while total revenue from continuing operations was $34.9 million.

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 fourth quarter grew 32% compared to the same period in 2014.

In the fourth quarter and throughout 2015 we made progress focusing our business around the key initiatives that will drive our long-term growth, including focusing the business on our core opportunity and key customer segment.

This focus led to expanding existing customers, new enterprise customer relationships, new strategic partnerships like our new partnership with Omnicom and developing new products like search analytics and display analytics.

We expect we will make further progress on all of these initiatives in 2016.

Let me quickly cover the fourth quarter.

Archeo revenue from continuing operations was approximately $600,000 for the fourth quarter.

In December we sold the remaining Archeo assets for a gain of approximately $1.5 million.

In 2015 we moved to methodically focus the business on the enterprise advertising analytics opportunity.

In the future, that will be the focus of our investment and sales initiatives.

Excluding stock-based compensation, total operating cost for the fourth quarter were $33 million.

Service costs were down in absolute dollars and up as a percentage of call-driven revenue on a quarter over quarter basis, largely due to a decline in YP revenue.

Sales and marketing was $4.1 million which was up modestly as a percentage of revenue, but largely consistent on an absolute basis quarter over quarter.

As Pete mentioned, this is an area where we expect to increase investment in 2016 as we expand our sales and channel footprint to accommodate new growth initiatives and support our growing product portfolio.

Product development was $6.9 million, down modestly quarter over quarter.

Longer-term this will continue to be an area of focus for Marchex as we invest to support our market leadership position in mobile advertising and offline analytics.

Moving to adjusted operating income before amortization and EBITDA, call-driven adjusted OIBA and EBITDA were $1.6 million and $2.5 million, respectively.

From continuing operations, total adjusted OIBA for the fourth quarter of 2015 was $2 million and adjusted EBITDA was $2.9 million.

GAAP net income from continuing operations was $1.2 million for the fourth quarter of 2015.

This compares to a GAAP net loss of $146,000 for the same period of 2014.

Adjusted non-GAAP income per share, an estimate some Wall Street investors utilize as a supplemental measure of our operating progress, was $0.03 per share compared to $0.04 per share for the same period in 2014.

Operating cash flow was $730,000 for the quarter.

We ended the fourth quarter with more than $109 million in cash on hand.

In addition, during the quarter Marchex purchased approximately 143,000 shares of its outstanding class B common stock for a total price of $600,000 under our share repurchase program, bringing total shares acquired under the current plan to 1.6 million shares.

Now turning to our initial outlook for 2016 and the first quarter.

First let's discuss revenue.

For 2016 we're forecasting our call-driven revenues, excluding contribution from YP, to grow 18% or more year over year to $117 million or more in revenue.

For the first quarter we are forecasting $35 million or more for total call-driven revenue, including YP.

This year we expect to continue to make progress across a number of initiatives that will further support momentum with our enterprise customers.

As we expect to launch display analytics later this year and introduce other new channel specific products, we are accelerating our product momentum and adding to our future product pipeline.

Additionally, we are building our sales organization to support this pipeline and our channel initiatives like international and agency.

This will take some time, but we believe this is a key step to taking advantage of our early lead as we look to broaden our advertiser footprint, support some of our largest channel partners and grow our base of large international enterprise customers.

We expect these efforts to pay off increasingly as we move throughout the year.

Next, looking at call-driven adjusted OIBA and EBITDA.

For the first quarter, we are forecasting call-driven adjusted OIBA and range of a loss of $500,000 to a loss of $2.5 million.

For call-driven adjusted EBITDA we are forecasting a range of $500,000 to a loss of $1.5 million.

As Pete mentioned, we are in a robust period of development with our product platform and are now investing in our sales force to meet that progress.

Our guidance takes into consideration an additional $6 million in sales, marketing, and related investment to support our growth initiatives for the year.

We expect this investment to have a disproportionate impact early in the investment cycle in the first half of the year.

As we gain customer traction from sales and marketing initiatives and grow our enterprise base, we believe we will see flow-through to contribution that results in financial leverage.

Looking forward past the first quarter, we are cognizant of our investment and fiscal approach and expect to make progress on the bottom line over the course of the year.

We believe now is the time to invest.

Over the coming years we feel mobile advertising growth will increasingly be driven by enterprise customers embracing mobile performance advertising through the utilization of analytics.

Given our early mover advantage with both our products and our customers we believe we are in a unique position to capitalize as this market accelerates.

We are excited about the progress we are making in our business and want to thank all of our employees for their hard work.

I would 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.

(Operator Instructions)

Our first question comes from the line of Ross Sandler with Deutsche Bank

Thanks, this is Deepak on behalf of Ross.

Two questions.

The full-year guidance of $117 million, ex YP.

Do we have any visibility on how wide it is going to be beyond 1Q?

What can we expect from that?

And then was there any EBITDA from YP 2015?

We're trying to figure out how we should think about the incremental $6 million investment and what could be the profile of EBITDA for the full year considering the different moving parts here.

Deepak this is Mike, thanks for the question.

Let me address the first part, which is the visibility with YP.

We don't have full visibility with YP.

We do have some contact and view of the first quarter and that's implicit within the framework of what we put out there.

We think there will be a modest decline in the first quarter relative to what we had sequentially in the fourth quarter.

YP, we have been working with them for nearly a decade.

We have been good partners with them and we expect that to continue.

We also think there are some initiatives we are discussing with them right now that could lead to more of a stabilization of revenue from our part on a go forward basis.

We will see how that plays out.

In terms of the $6 million, in terms of the additional sales, marketing and related initiatives and the investment, we do think that applies or impacts disproportionally more to the first of the of the year versus the second half.

With the guidance with the enterprise revenues that we put forth in the forecast today, we do believe that, that is implying an acceleration and growth in the movement of the revenues from the enterprise customers as we move throughout the course of the year.

And I would also comment that in terms of the EBITDA, some of the comments we made in the prepared comments, we did note that the sales and marketing initiatives, I think they will ramp and play out where they will give us incremental potential upside as we move into the latter half of the year, based on just the ramp profile.

Got it, that's helpful.

And I think one of the confidence of the $6 million is your efforts to build around other agencies.

Can you elaborate a little bit on that, are you looking to sign up more partners like what you did with Xaxis, or perhaps can you maybe provide a little bit of color on that?

Sure, this is Pete.

We are really excited with about agency progress.

Obviously you highlighted our relationship with GroupM Xaxis.

You may have caught, we highlighted another agency relationship with Omnicom Media Group, the second largest global holding company in the world.

And yes we think that there will be more agency alignment this year with incremental global agency partners.

The reality is the global agencies are facing the same problem that these enterprise marketers are facing, which is measuring the online, top line journey.

And really what they're doing is looking for solutions that are scalable, that can map to the needs of these very large, very sophisticated enterprise partners.

But just as important, they need a partner that has a road map that can go out well into the future.

It is really not about who you're working with today and what problem can you solve today, but how do you think about solving problems for these marketers over the course of the next decade as it relates to mobile's influence on offline transactions.

And we're seeing what I call very good opportunities within the agency partners as a whole.

As we've talked about before, our strategy is to continue supporting them.

We are on our way with them and have growing relationships within each of those agency partners today.

Got it.

Okay.

And with respect to the recently announced DoubleClick search partnership, do we have any visibility on how that's tracking maybe for some of the new clients that you onboarded recently?

I know it's still early, what are your expectations for your guidance on that?

Strategically the reason we want to integrate our products into the market of workflows such as DoubleClick is, we want to make their lives easier.

We want to make sure the information is surfaced immediately into the dashboards that they use every day.

Over the course of 2015 we launched a core analytics product, search analytics, that highlights which keywords translate into offline conversions.

And the important part of that product is we're delivering that information real-time into the dashboards, marketers care about.

And obviously DoubleClick is gaining market share as a good management provider.

We've had a very successful relationship with DoubleClick in our integration and expect that will continue in 2016.

We're not giving out specifics beyond that today.

Great.

That's helpful.

Thanks guys.

Our next question comes from Darren Aftahi with Ross.

Thanks for taking my question.

This follows on the last question.

What kind of traction are you seeing specifically with search analytics?

I think you guys signed the WPP deal, call it seven or eight months ago, are you past data with clients at this point, is it impactful, what you need to put into place to get this to be a material contributor to revenue?

And then I have a couple of follow-ups.

Thanks Darren, this is Pete again.

One of the comments we made in the prepared remarks was around our growth with existing categories.

Last year in three of our core categories: auto, communications, and home services, we grew revenue by 50% on average.

A lot of that growth was from new relationships such as AT&T in the home services category.

Carnival in travel, Wyndham in hotels.

But also existing clients such as Bridgestone in auto.

The growth there is coming from the innovations that we developed last year, including search analytics.

So we're seeing what I believe is very good traction, and importantly that is a product as well as our display analytics product that is integrated into every prospective conversation we're having now.

Great.

(multiple speakers) Go ahead sorry.

On WPP, we recently -- we launched the relationship in July over the course of 2015.

We focused on working with them to understand the right go to market.

We've started on that go to market and as I highlighted, we have live clients today and expect to grow that relationship as the year progresses.

Great.

Any new wins in the fourth quarter you can call out?

I know you named a number, I think there were more 2015 in nature, but anything in the fourth quarter in any particular verticals where you're seeing strength?

Some of the new relationships I did highlight between Verizon and Carnival and Wyndham, those are all end of year wins.

There are others, but those are the ones that we're prepared to talk about today.

I think what you can see from us and expect from us as the year unfolds is a core focus on the five categories that really matter to us.

The ones that we think were very under-penetrated and which are auto, communication, home services, financial services and travel.

As we talked about earlier, we have $100 million-plus business from our enterprise clients and we think we are less than 10% penetrated in those categories.

Great.

And then on the $6 million, if you can get more granularity.

I know you said sales, marketing and other related services I think what Mike said in his remarks.

Beyond agency are you deploying people, feet on the street in international markets?

Just a little more granularity.

And then does that span the assumption, going to ramp up sales in the back half of the year?

How should we think about the leverage you're going to get from incremental investments?

On international, as we've talked about, our strategy there is to expand in international markets based on client demand.

So as we've moved internationally, the consistent theme is it's been with clients.

Clients pulling us into those markets.

We talked about our expansion into Australia and selected geographies.

APAC along with an office in Australia.

It's very small right now and we expect to grow that as we continue to win clients.

So I think strategically you'll see additions, headcount additions along with client growth.

Mike, was there anything you wanted to add there?

The only thing I would add to that, Darren, would be if you look at Western Europe that would probably be the market that in the course of 2016 we would add feet on the street incremental to where we have them today in Australia.

Great.

Thank you.

Our next question comes from the line of James Gene Munster with Piper Jaffray.

Good afternoon.

Just to kind of dig more into the investment piece which makes a ton of sense that now, I think Mike as you said, it's the time to invest.

Pete, you lined four different areas of focus there.

Is it safe to say that two-thirds of the investment are going to be more or less sales and marketing related, that $6 million you talked about?

And then maybe a third in the products, or is it entirely sales and marketing?

Some more of the investment will be focused in the sales and marketing, so the majority of it.

There are some related initiatives and just to follow on the question, when we think about moving into an international market, that would be a related initiative.

It's primarily to put feet on the street with sales and customer focused initiatives.

There is account management and infrastructure that has to support that, so that would be included within that figure.

Got it.

Can you put that $6 million into context?

Is that a dramatic increase from what you are currently invested in those areas?

Is it a modest increase?

Does that get, increase the total headcount, sales headcount by 50% or 20%, any way to put some any person granularity around that?

So we do think it's very meaningful.

We would say that we are aggressively, we have been aggressively hiring.

We think there are more plans to continue to aggressively hire and bring on team members both domestically as well as internationally on the sales team.

I think there's other initiatives that would be infrastructure related.

Sales tools, sales -- marketing programs, client related initiatives.

All of those kinds of programs are included as part of the overall protocol.

Gene, this is Pete, I would just said as you know we are focused on building a business that's many multiples the size that we are today.

In order to do that, we're seeing the opportunity to extend very deeply into some of the core categories that we've mentioned.

As you think about the investments we're making in our sales and client engagement organizations, we're focused on bringing people, deep expertise in those categories.

I can tell you we're having a lot of success working with and recruiting people that have quite a bit of experience.

So while we are making that investment we think it is the right thing to do and we're starting to see some of it already pay off in early client conversations and wins.

My final question just in terms of on the product side, Pete mentioned in the prepared remarks that online, offline actions is one of your focuses, desktop.

If you think about your current product portfolio, is that the portfolio that obviously needs to be updates to it, you talked about some of those, but how much more investment needs to happen on that?

And I guess, really where my question is going it is, is there going to be a phase of investment with sales and do you think mid-year could there be a second investment in products?

I will let Mike handle the investment side of that.

I think strategically first, everything that we do is constructed on top of our analytics platform.

Today that's a platform that is processing and connecting more than 300 million consumers every year to businesses.

And collecting more than 100 million unique IDs.

So we have a lot of really interesting information and data that we have constructed because of that platform and we'll continue to leverage that going forward.

From a product strategy perspective, our approach has been to create channel specific analytics applications that solve really acute problems in those media channels.

So for example we launched search analytics last year.

Later in the year we launched display analytics.

As 2016 unfolds you will see us launch other channel specific applications.

All of those analytics currently today track calls.

Calls from media.

And a calls is an offline action.

We think there is an opportunity to go beyond calls and measure in-store transactions and those things that we are working on today.

But it is all constructed on top of the existing products that we have today.

And Gene, this is Mike, just to follow-up on the investment side of the equation.

The product team, the last 24 months has been very focused on features innovations in the new products.

Some of that work started in the last 18 months to 24 months and we've seen some of those features and products rollout to the market already.

But in 2016, as Pete mentioned, we have many more scheduled.

I actually think from the investment standpoint the way we were looking at it, we are looking at the sales force to be able to catch up and deploy, to take advantage of all those things that are being rolled out.

So that's how we think about the investment.

Okay that's good context thank you.

Thanks.

Our next question is from Rohit Kulkarni with RBC.

A few questions.

Can you talk about your underlying assumptions on this 18% year-on-year growth ex YP in 2016, if you could rank order the extra new, just qualitatively talk about what level of contribution do think.

There were four new things that happened over the last six or seven months: search, display, international and agencies.

So those are pretty lumpy or chunky things.

So I'm wondering why would growth slowdown to 18%?

What are the underlying assumptions?

And given that you are investing in the first half, how does the cadence of growth look like for the next 12 months?

This is Mike, thanks very much for the question.

So to help with some of the context here it is at the beginning of the year.

If you go back to some of our historical practices, we do hope that as we progress throughout the course of the year we will be in a position to give updates of our forecast and our guidance.

The other thing to note, if you look at the role of the forecast that we put out for the first quarter relative to the year for the enterprise, you can see that there is a build.

There is an acceleration from the first quarter as we progress through the year.

And part of that is based on the premise that the sales force and the investments they're in are actually going to translate and pay off and increase the return.

Now at the same time when you look at some of those initiatives, we actually do not have meaningful contribution from any of those four initiatives built-in to the plan.

I would say each one of those, the search analytics, we do have some contribution from the existing customers that have already signed on and are engaged with that product well rolling through.

On the agencies and display and international as well, we don't have anything meaningful and I would say that as we move throughout the course of the year, we're going to look to provide updates.

Because we think there is upside there.

Okay.

Great.

Switching over to YP, as in the sequential decline was a little bit higher than what we were expecting or at least what we thought would come in.

Any additional color on that?

Would the step functions in decline be somewhat similar to what we saw in Q3 to Q4?

Again, thanks for the question.

It's a good question.

What we are looking at right now in our forecast, we think there will be a modest decrease sequentially in the first quarter, relative to what we had in the fourth quarter.

We don't have the exact amounts, it's potentially that will be a smaller stair-step relative to what the fourth quarter was, compared to the third quarter on a sequential basis, but we will see how that plays out.

The other thing I mentioned earlier that I would just like to reiterate again is, we are also having good discussions and continuing discussions with YP.

They have been a very good partner.

We are having some discussions about initiatives that could potentially stabilize the revenue stream relative to us, and we don't have clear visibility on that today.

And we will provide updates as we move through the course of the year.

And then switching over to the costs.

I think investments makes sense, and you gave good color on the breakdown on the investments.

If you look back over the last six months and at your run rate of cost, OpEx profile there seems to be a pretty big step up.

Any background information that you can give around what is reasonable to expect, not this year but in 2017, in terms of the investments you are doing over the next six months and what level of returns would you find in the reasonable realm of possibilities, in terms of be it revenue uplift or lower churn in customers or what have you?

Thanks.

This is Pete, I will hit the first part and Mike will jump in on the second.

As you know our business is one where we work with global brands and penetrate these global brands with many of these products.

The deployment can take many months.

Sometimes up to nine months.

The reason we are making the investments in our sales infrastructure today is because we think you'll propel growth in 2017 and 2018, fairly meaningfully.

Given the retention characteristics of our products, particularly our analytics products that we've talked about, we felt very strongly about that.

And as we see that we also believe that the business you will see good operating leverage in the business.

And just to add onto that, when we think about contribution and particularly the analytics-based products, when you're looking at a contribution margin of north of 50%, that's where some of the leverage would come in to play.

In addition, with the product road map and the rollout that we have, we have more data product coming on board in 2016.

And from a contribution margin perspective, data products generally have even higher contribution because there isn't a significant service or cost of sale.

So we think that as you look out into the intermediate and longer term you could actually see more financial leverage there.

Okay.

And will one last one for Pete.

Any more color on your earlier statement that you said there are several enterprise customers with multi-million dollar commitments, are those contractual commitments?

Are those from your visibility into the pipeline?

Any more color on that?

We have good visibility to many of our large clients.

We are obviously working to secure more relationships like that.

As you know what we focus on is performance.

Bringing accountability to mobile.

And our belief is that to the extent clients don't feel we're performing well, obviously they can do something else with those dollars.

But what history is telling us is that we are performing exceptionally well, delivering insights that they've never seen before.

In fact going deeper into these brands, large part for the reason why we accelerated our growth last year.

And to Mike's earlier points, why we believe 2016 we're in a very good position to continue to make progress.

Okay.

Great.

Thanks Pete thanks Mike.

Thank you.

Our next question comes from Brett Huff with Stephens.

Hey, this is James Rutherford in for Brett.

This for taking the question.

I just have a few here.

First on the competitive front, have you seen any change in behavior from Google or others in terms of developing more advanced call analytics?

And how does that sit right now?

No, we're not.

The reality is to me, having been in the space for a long time, this feels a lot like 2005.

When you think about the first phase of analytics, when companies were looking for e-commerce analytics solutions to measure the online consumer journey.

Back then there were 50 or so vendors vying for business -- including free options from Google.

Google bought Urchin and created Google analytics with it.

But one company really emerged from that time, Omniture.

And they emerged because they focused on the enterprise opportunity, delivering online analytics and e-commerce analytics to sophisticated marketers and they 10 ex'd their business in five years as a result.

Today we feel we're in a very similar position.

As Google continues to make advances to their products and obviously promote mobile as an important advertising medium, we think that benefits us.

We're seeing benefits from that.

And our close partnership with DoubleClick is evidence of how we're working with Google.

Great.

That's helpful.

Changing gears to gross margins.

They were down a little bit sequentially and year-over-year, I think you mentioned Yellow Pages had something to do with that.

Can you talk directionally about how we should think about gross margins as YP becomes a smaller piece of the business?

I'm not sure how much you can share there, but anything would be helpful for us.

Thanks for the question, James.

This is Mike.

From a margin perspective, YP has contribution obviously that matters from our business perspective.

Part of the unknown and just from a visibility perspective is how does our business evolve?

One of the things that I mentioned before, the more that we implant the analytics or some of the data products that are coming to bear on a go forward basis, those from a contribution margin perspective actually have a higher profile.

And so they can contribute on a percentage basis more to move that percentage.

Our goal is obviously to seed and increase market adoption, new customer acquisition.

And data and analytics products are a key part of that.

And we also believe that the more that we penetrate a customer, the longer and the lower churn that we're going to have especially with those data analytic products.

So those are key initiatives, the focal point I mentioned before, contribution margin on the analytics today are 50%.

Some of the data elements that we would be coming out with over the course of 2016 would have contributions higher than that.

The marketplace product that we operate a number of clients with, ranges between 20% and 30% overall contribution.

So part of it is just a mix of how we grow and move through the ebb and flow, if that gives you some context in the model to help.

Yes it does, that's helpful thank you.

The last question was just whether you expect to see any benefit from the political ad spend in 2016, just like many of the average ad tech companies do tend to see?

We do not.

Those aren't the categories of clients that we're focused on.

We highlighted the five or six that are important to us, ranging from auto all the way through travel.

To the extent those categories benefit from being part of that experience.

We may see something, but we're not factoring that in.

Okay, thank you.

Thank you.

And we have a follow-up question from Ross Sandler with Deutsche Bank.

Hey Pete, hey Mike, sorry I'm late to the call.

I wanted to follow up on the DoubleClick integration that was announced a couple of weeks ago.

Can you just talk about the nature of this agreement?

And to the degree that your analytic stack starts to be picked up more broadly by folks running search campaigns and seeing better efficacy, because they can now track it for click-to-call.

How does this directly impact Marchex revenue or how could this indirectly benefit from some of these down the road relationships and big customer wins that you guys are trying to establish?

That's it, thanks.

Thanks, Ross.

First thing is with our search analytics product, it's really the only product on the market that can deliver real-time insights across any keyword as it relates to the click-to-call conversion.

So as you think about the marketing automation landscape and bid management in particular, those companies are very interested in integrating that data real time.

It can enhance the benefits of their platform.

If you peel it back another layer, as you know you may of heard DoubleClick DS3 is gaining incredible market share.

We have several large global spenders on DS3 today.

So when you think about the context of large global brands on a leading platform utilizing our technology and repeating that in terms of case studies, we see a lot of opportunity for that partnership and we are looking forward to it and the extension of our search analytics products.

Again our goal is to get our products into the hands of marketers through the technology platforms they use.

And we are excited with the partnership and think that DoubleClick and Marchex can work really well together prospecting new clients.

And we have no further questions in queue at this time.

Thank you everybody.

We appreciate your support of Marchex and look forward to updating you throughout the year.

Thank you for your participation.

This does conclude today's conference call and you may now disconnect.