Business Context and Reporting Period
Company: Marchex, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: Marchex is a local search and performance advertising company providing search- and call-based marketing solutions. Its services include a Local Search Network, private-label search marketing platforms, pay-per-click advertising, and call-based advertising services.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 |
Three Months Ended June 30, 2009 |
|---|---|---|
| Revenue | $47,652,022 | $21,081,073 |
| Net Loss | $(2,841,194) | $(1,168,157) |
| Net Loss Applicable to Common Stockholders | $(2,841,194) | $(1,168,157) |
| Net Cash Provided by Operating Activities | $8,331,044 | Not explicitly stated for 3 months |
| Cash and Cash Equivalents (Ending) | $28,731,261 | $28,731,261 |
| Total Assets | $155,814,585 | $155,814,585 |
| Total Liabilities | $13,363,520 | $13,363,520 |
| Stockholders' Equity | $142,451,065 | $142,451,065 |
| Accumulated Deficit | $(138,465,236) | $(138,465,236) |
Debt and Liquidity: The company has a $30 million senior secured revolving credit facility with no outstanding borrowings as of June 30, 2009. Total contractual obligations are approximately $14.9 million, primarily consisting of operating leases ($12.8 million).
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 36% to $47.7 million for the six months ended June 30, 2009, compared to $74.4 million in the same period in 2008. The three-month revenue dropped 44% to $21.1 million.
- Drivers: Decreases were driven by lower advertiser spend budgets, a reduction in the number of advertisers on the partner network, and a significant drop in revenue from Yahoo! (proprietary traffic) and resellers like Idearc Media Corp. and R.H. Donnelley Corporation.
- Unrecognized Revenue: Approximately $1.6 million in revenue was not recognized due to collectibility concerns regarding Idearc and R.H. Donnelley, both of which filed for Chapter 11 bankruptcy reorganization in 2009.
- Expense Reduction: Total operating expenses decreased to $53.3 million (six months 2009) from $77.4 million (six months 2008).
- Service Costs: Decreased 37% primarily due to lower distribution partner payments.
- Sales & Marketing: Decreased 24% due to reduced online marketing activities.
- Amortization: Amortization of intangible assets decreased 55% as certain assets were fully amortized.
- Net Loss Increase: Net loss applicable to common stockholders increased from $726,000 (six months 2008) to $2.8 million (six months 2009), primarily due to the significant revenue decline.
- Stock Repurchases: The company repurchased 1.8 million shares of Class B common stock for approximately $6.6 million during the six months ended June 30, 2009.
Guidance, Outlook, and Risks
- Outlook: Management expects advertisers and resellers to continue reducing advertising budgets due to deteriorating economic conditions. The company anticipates continued seasonality with lower usage in spring and summer months.
- Dividends: A quarterly dividend of $0.02 per share was declared in July 2009, payable in August 2009. The company expects to pay approximately $2.9 million annually in dividends, subject to capital availability.
- Goodwill Impairment Risk: The company noted that its stock price approached or dropped below book value per share during the period. If this trend continues or economic conditions worsen, the company may be required to recognize an impairment charge on goodwill or intangible assets.
- Customer Concentration: The five largest customers accounted for 54% of revenue for the six months ended June 30, 2009. The loss of major distribution partners (e.g., Yahoo!) or resellers (e.g., Idearc, R.H. Donnelley) poses a material risk.
- Liquidity: Management believes existing cash, credit availability, and operating cash flows are sufficient to fund operations for at least the next twelve months.
Key Facts for Investor Verification
- Bankruptcy Exposure: Verify the status of receivables from Idearc Media Corp. and R.H. Donnelley Corporation, which filed for Chapter 11 reorganization. $1.6 million in revenue was deferred due to collectibility uncertainty.
- Yahoo! Dependency: Assess the impact of the Yahoo! partnership on proprietary traffic revenue, which saw a significant decline ($5.8 million decrease in the first six months of 2009).
- Goodwill Valuation: Monitor stock price relative to book value per share, as a sustained decline could trigger a material goodwill impairment charge.
- Dividend Sustainability: Confirm the company's ability to maintain the $0.02 quarterly dividend given the accumulated deficit of $138.5 million and current net losses.
- Customer Concentration: Review the stability of the top five customers, who represent over half of total revenue.