Marchex Inc (MCHX) 2018 Q2 法說會逐字稿

Good afternoon.

My name is Ian, I'll be your conference operator today.

At this time, I'd like to welcome everyone to the Marchex Second Quarter Conference Call.

(Operator Instructions) Thank you.

I would now like to turn the call over to Ethan Caldwell, Chief Administrative Officer.

Sir, you may begin.

Thank you.

Good afternoon, everyone, and welcome to Marchex's Business Update and First Quarter 2018 Conference Call.

Joining us today are Michael Arends and Russell Horowitz.

Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements, including references 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 or quarterly report filed with the Securities and Exchange Commission.

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, marchex.com.

At this time, I'd like to turn the call over to our Chief Financial Officer, Mike Arends.

Thank you, Ethan.

Good afternoon, and thank you, everyone, for joining us today.

During the second quarter, we continued to see momentum build in key areas, particularly with our speech technology products.

The breadth and scale of our analytics platform is helping us grow meaningful customer relationships and expand our pipeline of opportunities.

During the second quarter, we experienced record call volume and reached a key milestone in June, when we hit 1 million calls in one day and did more than 20 million calls, a record month.

We see even more opportunity to grow our call volume this year and beyond, as many of our Speech and Call Analytics customers ramp from trials and early-stage adoption into long-term broadly integrated relationships.

In fact, during the second quarter, we added more than 8 new enterprise customers across multiple verticals, including auto, health and home services.

We believe our focus on innovation in areas like speech technology and AI-driven insights gives us a unique advantage in solving problems for our customers and that is translating into an expanding pipeline of opportunity.

Today, we have one of the largest business-to-consumer conversational datasets in the United States market.

Just over a year ago, we launched our speech technology product, a landmark technology innovation born out of significant complex engineering, involving natural language processing, machine learning and artificial intelligence.

Now our emerging AI innovation and machine learning capabilities position us to become a market leader in this space, one that can solve complex ongoing problems for enterprise brands with understanding consumer conversations.

Our platform processes enterprise-scale speech data across millions of calls to give our customers insights into how they operate their business at a granular level.

For example, we can pinpoint specifically how they're missing out on transactions and resulting revenue opportunities made over the phone.

And we can tell them why and what to do about it.

Let's take the auto industry.

Using our proprietary speech technology, we recently analyzed 1.8 million calls from customers to auto service providers across the country and uncovered an eye-opening truth.

The industry was losing out on $110 million a year just by saying no to customers over the phone.

In other words, when store representatives said a part was out of stock or no appointments were available, we identified the pain points that were causing more than $100 million in missed revenue opportunities.

Furthermore, our latest research on the hotel and cruise industry found that millions of would-be customers slipped through the sales funnel simply because agents failed to answer the phone.

Whether it is a complex phone interaction or incorrectly staffed or trained phoned interaction, Marchex can surface important pain points and missed opportunities to book reservations and grow business.

Without our analytics platform, these huge financial impacts would remain invisible.

Our technology shows our customers what they can't see with existing technologies and helps them to evolve and take action to close more business.

As we look to the future, we are excited about the expanding possibilities to solve even more complex challenges for brands across a wider array of solutions.

Customer conversations with enterprises have never posed more challenges.

Marchex is uniquely positioned to provide scalable solutions designed to help enterprises not only gain critical insights from massive amounts of data, but also enable them to take impactful actions.

Furthermore, our capabilities are only increasing.

We're energized by the strides we've made, and in the coming months we anticipate winning more customers, growing our strategic partner footprint and onboarding more brands.

And with that said, I'd like to hand the call to Russ.

Thanks, Mike.

I'd like to briefly discuss our ongoing strategic review.

As part of our continued focus on listening to our customers and understanding their needs, we remain committed to developing industry-leading technology, while considering various opportunities that help us accelerate Marchex's overall opportunity and growth.

We have a strong balance sheet that allows us the flexibility to support a variety of initiatives.

For example, in the second quarter, we repurchased more than $5 million in shares.

In addition, we continue to explore a variety of initiatives, including potential acquisitions that can strategically support our product and customer momentum.

We see significant opportunity in our business and remain committed to taking a disciplined approach as we look to enhance our operating profile and capitalize on areas where we're building momentum, all while remaining with our focus on returning Marchex to growth.

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

Thanks, Russ.

For the second quarter, revenues were $20.2 million.

We know some of you have previously tracked our revenue without DexYP, so to help models with this framework in mind, revenue in the second quarter, excluding DexYP, was $15.8 million.

Second quarter revenues without DexYP were primarily influenced from trends with a limited number of media Call Marketplace customers.

While we've made progress rebuilding the pipeline in our Call Marketplace, the new customers are not yet at a scale to drive nearer-term offsets to the larger revenue from a small number of customer-specific shifts.

Despite these near-term budget reductions, we believe we are gaining mindshare with our largest Call Marketplace customers as a result of some of the investments in this product we've made in the last year.

In addition, during the second quarter, we started to see some of the flow-through from components of the new Dex relationships that included revenue from pilots.

Meanwhile, with our analytics products, particularly some of the new products we launched last year, including our speech technology platform, we continue to see favorable trends in building interest and adoption from large brands.

In addition, we made progress growing some of our existing early relationships and adding new customers to the pipeline.

To this end, we saw total call volume for our analytics platform in June reach its highest level to date.

We believe given the early stage of many of our new relationships, we will be in a position to see meaningful growth next year.

And as a reminder, many of these trials and integrations are initially small, and it takes time to determine the scope of the fully ramped relationships.

We continue to believe our expanding pipeline will favorably impact our long-term growth, particularly with our analytics products.

And we're excited by the new opportunities being created by our new relationships.

Looking further down the P&L for the second quarter, excluding stock-based compensation, total operating costs for the second quarter were $20.5 million compared to $22.3 million in the second quarter of 2017.

Service costs were $11.3 million, down from $12 million in the second quarter of 2017.

Sales and marketing and product development costs were $3.3 million and $3.8 million, respectively, which were both down year-over-year.

Moving to profitability measures.

Adjusted operating income before amortization for the second quarter was a loss of $235,000, and adjusted EBITDA was $174,000.

Net loss applicable to common stockholders was $658,000 for the second quarter of 2018 or $0.02 per diluted share compared to a net loss of $1.3 million or $0.03 per diluted share for the same period of 2017.

Adjusted non-GAAP income per share was $0.00 per share compared to a loss of $0.01 for the second quarter in 2017.

We ended the second quarter with approximately $77 million in cash on hand.

And during the quarter, Marchex purchased approximately 2.3 million shares or 6% of our outstanding Class B common stock for a total price of $5.7 million.

Now turning to our outlook for the third quarter.

For the third quarter, we are forecasting a revenue range between $19.5 million to $21 million.

The third quarter guidance takes into account a slightly lower budget forecast for the second half with respect to a limited number of larger media Call Marketplace customers offset against continued progress in a building pipeline of new analytics customers and trials, which are early and being fully ramped.

As discussed earlier in the call, we're encouraged by the early interest in new products like Speech Analytics, and we expect we will continue to win new trials and integrations this year.

Next, looking at adjusted OIBA and EBITDA.

For the third quarter, we are forecasting adjusted OIBA to be in a -- to be a range of a loss of $1 million or better.

For adjusted EBITDA, we are forecasting breakeven or better for the third quarter.

We're continuing to invest in key product areas like our Call Analytics and speech technology and the solutions that incorporate these capabilities, which is helping us win new customers and build a robust customer pipeline.

In addition, these investments are helping us build a pipeline in the Call Marketplace, again, even if many of these relationships are in their early adoption phase.

To maintain our technology and product leadership in key areas, it may require some continued investment, but consistent with our prior comments, we plan on maintaining our overall goal of financial discipline and matching our investments towards revenue goal -- revenue levels and business progress.

Ultimately, the investments we're making and the business we're winning is a result of our commitment to delivering industry-leading insights and solutions for our customers.

We believe these investments will put us in a position so that our future growth can drive greater operating leverage and profitability upon a return to overall growth.

We are highly focused on unlocking the door to long-term growth.

Many of our new customer relationships are just beginning to flow through (inaudible).

As we maintain our focus on delivering an expanding list of critical insights and solutions for enterprises leveraging our AI-driven speech technology platform, we believe Marchex is well positioned to capitalize on the emerging opportunities in our business, many of which we believe are in the very early phases.

Thank you to all of our employees for your hard work and for continuing to focus on our customers' needs.

And with that, I would like to hand the call back to the operator to take questions.

(Operator Instructions) Our first question is from the line of Darren Aftahi from Roth Capital.

This is Dillon on for Darren.

Related to some of the record call volume you mentioned that you saw this quarter, I was wondering if you could talk about some of the other traction that you might be seeing that's giving you a little bit of that confidence and visibility that you have to expand, like you mentioned, your footprint in order to win more customers.

Dillon, this is Mike.

Thank you for the question.

I think there are several things that are happening.

One, from just the market and the overall market understanding of the need to engage with their customers via the phone and get an understanding of what's happening with some of that engagement, there's more and more education that's happened over the last number of years, and so there's just more of a desire to want to have more insights, and ultimately be able to take actions from the information and optimize with the things that are happening in those engagements.

I think for us, specifically, what that's translating to is some of the work we've done in the last 18 to 24 months.

On the customer side, we're getting more yeses to some of the new trials and the pilots that we're working on.

And that's one thing, that we have a number of pieces that are still in the early stages we hope will ramp prospectively to greater levels than what they are today, but it's also helping our pipeline and giving us some visibility or comfort for where the future, especially on the analytics, and especially with some of the AI-driven technology with the speech technology.

And in addition to that, we've spent a lot of time in the last 18 months on the product side with capabilities that translate just measurement and attribution to actual insights and understanding, which can lead to actions to create new customers, more revenue as well as get more efficient and effective for our customers, and we see some resonation with that.

We also think there's more new products that we have on the road map or feature sets that are coming later this year and next year, which will continue to help that profile.

Great.

And as a follow-up, is that -- are those new products you kind of mentioned in the stronger pipeline what's driving getting those customers to go beyond trials and ramping next year?

We think so.

Ultimately, the customers are focused on whatever their critical success factor is that they're looking for.

It could be trying to generate more revenue, it could be trying to generate the same amount of revenue with the same -- or an improvement in the efficiency, meaning they would spend less to be able to drive the same dollars of revenue.

It could be they're trying to help give insights to take actions for either retargeting or to help their customer engagement team optimize and staff their levels of service in a better way to serve their customers.

Whatever those critical success factors are that they're looking at, it's translating into our product road map.

Some of the insights and things that we've been delivering on and the speech technology gives a lot of these insight capabilities back to our customers, and we think that's part of what's translating here.

And this is Russ.

To add one element.

We think those factors are being more amplified as time goes on.

So we see these trends.

The opportunity is looking [just] this kind of now versus a year ago, the opportunity seems more significant than we might have thought then.

And it also feels earlier in the trend, both of which we think are positive.

Great.

And then as a follow-up.

Sort of, like you mentioned on your guidance with slightly lower budgets in the marketplace.

Is there anything that has -- that could change in the second half of the year or going into 2019 that could give you a little bit stronger visibility into some of those clients' marketing spends, especially seasonally?

So on the marketplace, we've given our forecasts and our profile for what we're looking for right now in the third quarter.

And yes, there are some discussions that are going on as well as some of the early stages with our existing customers that could bring meaningful goodness, either later this year or into 2019.

I think one of the other things though to note is, the analytics pipeline that we see, we think there's more to come.

We think with the existing relationships, there is also opportunity for more steps with the analytics, not just imminently in the third quarter but also as we progress beyond that.

Great.

And then one more for me.

With you buying back the 2.3 million shares this quarter, could you talk about some of the other potential uses of cash that you might consider?

I know you talked about you've looked at smaller acquisitions.

Just curious as to some of the other flexibility you have out there.

Yes, the themes are the same.

We've been going through our process.

We think we -- time has been working for us in understanding where we think we're uniquely qualified to pursue what is a very significant opportunity.

That's also given us greater clarity as we think about kind of our organic efforts and where we should augment that with potential acquisitions and strategic relationships.

So the themes are the same, and we'll continue to look at ways that our balance sheet can augment our progress and our focus on growth.

And our next question is from the line of Mike Latimore from Northland Capital.

On the Call Analytics business, I know you don't break that out, but can you give some color on -- just, I don't know, growth rates, either in terms of call volume growth rates you're seeing or your revenue growth rates, anything -- any sort of bracketing that would be helpful?

So what we haven't done today is put out publicly some of the breakout or the segment information on the specific analytics revenues, but what we did do is talk about the record month that we had in June.

We actually had a day in June where we exceeded 1 million calls on our analytics platform, and over 20 million calls were actually processed through our platform for the entire month of June.

And the other thing I think that's relevant to talk about there, those trends and just the growth that we've experienced to get to that record month, we see some progress not just this year.

So we are going to expect to see progress this year, but we see some of those trends flowing into 2019 as well where growth can continue in that regard.

And that relies not just on our existing profile, it involves some of the ramp of the existing relationships that we are expecting that we've onboarded or piloted here recently.

Incremental to that, I think there is more opportunity, which is the pipeline, and we do think the pipeline for the analytics products, and particularly the speech ones, are robust compared to where they were a year ago, and hopefully, that will translate into more new pilots, more onboarded customers in 2019 can see some continued inflection.

And then of the -- you said -- I think you said 8 new enterprise customers, how many of those were in the Call Analytics category?

The majority of them were in the Call Analytics category.

We did have a few of those come on board in Marketplace, but the majority were analytics customers.

How about just -- and I'm sure every customer use case is a little different, but what would be a rough kind of amount you would charge per call, let's say?

Sorry, can you share that again?

Yes.

What would be a rough kind of amount you would charge per call effectively, let's say, in Call Analytics?

So -- and this -- this is where we get into some competitive information sharing in terms of what customer averages are across the board.

But generically, if you think about a lead that's being generated through Marketplace, that can be a fairly, relatively high price point because the calls are very close to the end transaction funnel, meaning that they can come closer to where the consumer actually transacts.

Then, we have a high conversion rate of calls originating and then actually consummating in some sort of a conversion.

And so you can get into the 10s and even the hundreds of dollars of -- on a price on a per-call basis.

For the analytics, they're more -- generated more specifically to either an inbound or an outbound call in that regard, and they would have a lower price point.

And trying to get into specifics, I think, is preferable not for us, given the competitive environment.

Yes.

Have you -- I know it's still a relatively early initiative, but have you seen any notable churn on the Call Analytics business?

Not in the last several years anyway.

We actually think it's a very sticky product, and we've had some good experiences with the customer base and growing it.

And this is Russ.

Just to augment that.

Some of these enterprise relationships that we've won, we love the customers we've got.

We think we are a great fit to deliver solutions for some of their kind of opportunities and pain points, but I think I -- we would consider some of our recent wins bar-raisers relative to kind of the profile of our customers, and they're giving us confidence that we're focused on solving a lot of the right problems.

Got it.

And then just last.

Maybe a small line item, but your deferred revenue, I think it tripled or something like that year-over-year.

Just any color on that would be helpful.

I think the color on it is what it is.

It's just a sign that we've got some more folks who signed up for some commitments over periods of time, and we would view that as goodness.

And at this time, I'm showing there's no further questions.

Presenters, I turn it back to you.

I want to thank everyone for taking the time for the call today, and we look forward to providing further updates over the course of the next quarter or at the next time that we do our earnings call.

Thank you.

Ladies and gentlemen, this does conclude Marchex's second quarter conference call.

You may now disconnect.