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Marchex Reports Second Quarter 2007 Financial Results
Thursday August 9, 4:20 pm ET
SEATTLE--(BUSINESS WIRE)--Marchex, Inc. (NASDAQ:MCHX - News; NASDAQ:MCHXP - News) today reported its results for the second quarter ended June 30, 2007.
Consolidated Financial Results:
* Revenue was $34.7 million for the second quarter of 2007, a 9% increase compared to $31.7 million for the same period of 2006.
* GAAP net income applicable to common stockholders was $354,000 for the second quarter of 2007 or $0.01 per share. This compares to GAAP net loss applicable to common stockholders of $612,000 or $0.02 per share for the same period of 2006. The second quarter 2007 results included non-cash stock-based compensation expense recorded under the fair value method of $2.3 million, compared to non-cash stock-based compensation expense of $3.4 million for the same period in 2006.
* We provide a reconciliation of GAAP EPS to Adjusted Non-GAAP EPS in the last financial tables attached to this press release and encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures. Adjusted non-GAAP EPS for the second quarter of 2007 was $0.10, compared to $0.12 for the same period of 2006. Some Wall Street analysts use non-GAAP measures to analyze our operating results, which may include adjusted non-GAAP EPS, adjusted operating income before amortization and adjusted EBITDA. We present GAAP measures with equal or greater prominence than non-GAAP measures and such non-GAAP measures should not be considered a substitute for, or superior to, GAAP results.
* Adjusted operating income before amortization was $6.4 million for the second quarter of 2007, which is a decrease of 23% compared to $8.3 million for the same period of 2006. A reconciliation of non-GAAP adjusted operating income before amortization to GAAP operating income and GAAP net income is attached to the financial tables included in this release.
* Adjusted EBITDA was $8.6 million in the second quarter of 2007, compared to $9.7 million for the same period of 2006. A reconciliation of operating income before taxes, depreciation, amortization and gain/loss on sales of intangible assets to GAAP net cash provided by operating activities is attached to the financial tables included in this release.
Marchex's second quarter results were impacted by the following:
-Adjusted operating income before amortization and adjusted
EBITDA were impacted by Marchex's decision to accelerate the
investment in its advertising services platform for local
advertisers by $600,000 to support its largest aggregator
partners. Marchex believes this incremental investment will help
accelerate the rate at which it is adding advertisers as well as
adding competitive product features and further scalability to its
local advertising platform. Adjusted operating income before
amortization was also impacted by the increase of approximately
$300,000 of amortization costs associated with the Spanish
language Web site acquisitions, which was referenced by the
company at the time of their acquisition. This item did not affect
adjusted EBITDA; and
-Datacenter outages, which resulted in a decrease of $500,000 to
revenue and adjusted operating income before amortization to
Marchex's proprietary traffic sources. These outages were not
anticipated and Marchex views them as non-recurring.
"Aside from the reconciling items we have noted today, the second quarter's financial results were largely in the range of our expectations," said Russell C. Horowitz, Marchex Chairman and Chief Executive Officer. "Operationally, we are excited that we achieved significant product milestones during the second quarter and that Marchex's various initiatives over the last three years are now converging around a tremendous opportunity in the local space. With the launch of 100,000 locally targeted sites, Marchex has one of the largest online local consumer networks, where we help millions of users make locally focused purchasing decisions. In addition, Marchex has what we believe is the industry's most sophisticated local advertising platform, offering local advertisers the ability to create, manage, fulfill and report on both search- and call-based advertiser programs at scale. In total, we are going to continue investing in the local opportunity, our greatest area of strength, which means an incremental investment of $13 million this year. This will help Marchex capitalize on the momentum we are seeing in both our local advertising and consumer-facing initiatives. We believe this investment will support Marchex's position as a local leader while also reducing risks and dependencies. We are committed to delivering the best solutions anywhere for local advertisers and consumers and believe by doing this, we will create the most value for our shareholders."
Marchex Focus and Commitment to the Online Local Marketplace:
Over the last three years, Marchex has achieved strength in the local marketplace through building initial critical mass on both the local advertiser side, and the local consumer side. On the local advertiser side, Marchex now has more than 30,000 advertisers, exclusive of VoiceStar, who are using Marchex's advertising technology and services platform to create, manage, fulfill and report against search marketing campaigns. Additionally, based on (i) the combination of new services Marchex will offer, (ii) the number of large local advertiser aggregators leveraging Marchex and VoiceStar technologies, such as AT&T, The Cobalt Group, and Yellowbook USA, and (iii) the momentum Marchex is currently seeing in new local advertiser sign-ups, Marchex expects that its local advertiser coverage will more than double by the end of 2009. On the local consumer side, Marchex has more than 200,000 Web sites that contain more than one billion pages of targeted local content to help local consumers make better decisions. These Web sites generate tens of millions of visitors for our network and delivered more than 40 million revenue-generating look-ups and referrals in the second quarter.
The industry forecasts for online local advertising growth are very powerful. Today, there are more than 15 million businesses in the U.S. spending more than $100 billion annually in offline, locally-targeted marketing. Piper Jaffray estimates that over the next ten years, local online advertising spending will grow from $5 billion to $25 billion. In addition, Borrell Associates estimates annual growth rates over the next four years as high as 42.8% for local paid search and 12.3% for the entire local Internet ad market. As a result, as these sources indicate, local paid search will drive the paid search and overall online advertising space for years to come.
Recent Highlights and Updated Statistics:
VoiceStar Acquisition: Marchex today announced that it has entered into an agreement to acquire VoiceStar (www.VoiceStar.com), a leader in providing call-based advertising services for local advertisers, such as: as pay-per-phone-call, call-tracking, and other services. VoiceStar is one of the largest providers of call-based advertising services with more than 100 local advertiser aggregators leveraging VoiceStar's products, such as: Comcast, The Cobalt Group, and YellowBook USA. With VoiceStar, Marchex can offer advertisers and aggregator partners a complete text- and call-based advertising platform along with distribution for their advertisements in search engines, vertical Web sites, and on our local Web sites. Marchex plans to make significant investments in pay-per-phone-call going forward to support VoiceStar's expansion as part of Marchex. In order to succeed in serving the local advertising channel, in addition to providing search marketing solutions, Marchex believes that supporting call-based services is a prerequisite and provides the ability to assist those advertisers that already have a Web presence, as well as those who don't.
Bill Day Hired as Chief Media Officer: Marchex today announced that it has strengthened its executive team with the addition of Bill Day, who will serve as Marchex's Chief Media Officer and oversee Marchex's media strategy, including the online content, consumer experience and related advertising opportunities. Day is a world-class operator and pioneer in providing vertically focused original content destinations, and in growing media properties at scale, given his experience at About.com, where he co-founded the company and served as President and then CEO. Day grew About.com to a top 20 online global media network that covered more than 700 topics and 50,000 subjects. About.com was, and still is today, used by tens of millions of monthly users to find highly targeted, useful information. In order to build a major consumer-facing network, Marchex believed it was important to bring in someone with deep consumer experience who had run a first tier online media company at scale.
Yahoo! Renewal: Marchex today announced an agreement with Yahoo! to extend its existing Web site monetization relationship through June 2009. There were other potential providers who were highly interested in working with Marchex, and who the company also considered during its process. However, based on a number of factors, including Marchex's need for product flexibility, economics, reporting, and other terms, Marchex believed Yahoo! represented the best strategic fit and it looks forward to working closely with Yahoo! on this and other strategic opportunities. Marchex is focused on complementing the Yahoo! relationship with its own advertising initiatives so it may be in a position to be the primary driver of revenue on its Web sites by the end of 2009. Marchex expects this growth will be driven by its expectations of advertiser growth and product innovation, including the roll out of new relevant proprietary ad formats, such as pay-per-phone-call ads.
Unique Visitors and Revenue Attributable to Proprietary Traffic Sources: Marchex today announced that its proprietary network of vertical and local Web sites attracted approximately 31 million unique visitors for the month of June 2007. Unique visitor statistics are based on internal traffic logs, which calculate unique IP (Internet protocol) addresses on an unduplicated basis during a given month. For the second quarter of 2007, revenue attributable to proprietary traffic sources was $13.5 million.
Local Consumer Network: Marchex's consumer network of Web sites delivered more than 40 million look-ups and referrals in the second quarter, which are defined as revenue-generating business searches on primary proprietary sites such as Yellow.com and Openlist.com and referral clicks on advertisement listings on our proprietary Web sites such as www.bostonmortgage.com. Marchex believes that metrics like this will significantly expand over the next 24 months based on increased traffic and usage levels at its Web sites, including the upcoming re-launch of Openlist.com in September.
Local Consumer Products: In late June, Marchex launched more than 100,000 of its local and vertical Web sites leveraging its Open List technology to publish more than one billion Web pages of locally-targeted content, features and functionality for consumers looking for local services and information online, along with highly targeted local advertising inventory. These Open List-powered Web sites have received very positive feedback from users and the early metrics point toward positive revenue and page view growth. The newly launched sites feature more than 15 million business listings across all major yellow pages categories, a deep refinement system, user-generated reviews and ratings, and third-party expert reviews. The Web sites include tens of thousands of vertical, local and local-vertical Web sites, such as www.cuisine.com, www.locksmiths.com and www.remodeling.com; www.bayareahotels.com, www.newyorkdoctors.com, and www.denverautorepair.com; and Marchex's ZIP Code Web sites, which cover 96% of all ZIP Code areas nationwide, such as www.90210.com.
Spanish-Language Web site Development Alliance with Fox: During the quarter Marchex and Fox's Latin American Channels division, a wholly owned subsidiary of News Corporation, announced a partnership to jointly develop a set of Spanish-language Web sites owned by Marchex, including cocina.com (English translation is "Kitchen" or "Cook"), fotos.com (Photos), futbol.com (Soccer), deportes.com (Sports), mascotas.com (Pets), mujer.com (Woman), peliculas.com (Movies), salud.com (Health), and tarjetas.com (Greeting Cards). Fox will provide localized content and community features to the Web sites including: videos, forums, blogs, personal home pages, and photo albums.
New Search Marketing Product Relationship: During the quarter, Marchex announced a new relationship with Yahoo! in which Marchex is sending its direct pay-per-click advertisers into Yahoo! Sponsored Search distribution.
Stock Buy-Back:
Marchex purchased approximately 44,000 of shares of common stock for approximately $600,000 in August under the terms of its previously announced stock repurchase program. The company is reviewing the scope of this repurchase program in light of its stock price and prevailing market conditions and anticipates expanding or modifying this program as a result of this review.
Marchex Financial Guidance:
The following forward-looking statements reflect Marchex's expectations as of August 9, 2007.
Revenue: Marchex anticipates 2007 Revenue of $136 million to $142
million. Adjustments from our prior guidance of $144 million to
$150 million are based on:
- a loss of $500,000 in revenue during the second quarter
resulting from the datacenter outages;
- a $500,000 anticipated revenue increase from the VoiceStar
acquisition;
- a $4 million decrease resulting from an anticipated reduction
in Web site marketing;
- a $4 million decrease in revenue based on our increased direct
monetization of our proprietary Web sites and impact from
Yahoo!'s quality-based pricing initiatives.
Adjusted operating income before amortization: Marchex anticipates
2007 adjusted operating income before amortization of $21 million
to $25 million. Adjustments from our prior guidance of $34 million
to $38 million are based on:
- a $1.1 million decrease in adjusted operating income before
amortization from our second quarter results due to the
increased investment in our advertising services platform for
local advertisers plus datacenter outage impacts;
- the $4 million increased investment in the accelerated build
out of our advertising services platform for local advertisers
we provide to partners like AT&T and other aggregator
partners, as well as supporting potential new relationships;
- a $3 million investment in accelerating the product and
infrastructure build out for VoiceStar, as well as the initial
integration with Marchex's advertising services platform;
- a $1 million decrease resulting from an anticipated reduction
in Web site marketing;
- a $4 million decrease based on direct monetization of our
proprietary Web sites and impact from Yahoo's quality-based
pricing initiatives.
Adjusted EBITDA: For adjusted EBITDA, Marchex anticipates add-backs of approximately $8 million in additional depreciation and amortization to its adjusted operating income before amortization range, implying an adjusted EBITDA range of $29 million to $33 million. Our prior guidance on add-backs to adjusted operating income before amortization was approximately $7 million in additional depreciation and amortization.
Third Quarter 2007: For color on Marchex's quarterly revenue expectations, given the various new strategic initiatives and impacts, the company currently anticipates that Q3 revenue will be more than $32.5 million. Regarding quarterly adjusted operating income before amortization, given that Marchex has significantly ramped up our investment in building local marketplace leadership and valuable intellectual property, Marchex currently anticipates that Q3 will be more than $4 million. Marchex expects adjusted EBITDA to be $2 million higher than operating income before amortization, given additional depreciation and amortization add-backs, implying more than $6 million in adjusted EBITDA.
Conference Call and Webcast Information:
Management will hold a conference call, starting at 5:00 p.m. EDT on Thursday, August 9, 2007 to discuss its second quarter 2007 results and other company updates. To access the call by live Webcast, please log onto the Investor Relations section of the Marchex Web site (www.marchex.com/ir.html). An archived version of the Webcast will also be available, beginning two hours after completion of the call, at the same location. |
