MCHX - NASDAQ

Good afternoon, and thank you for joining today's First Quarter 2025 Marchex Earnings Conference Call. [Operator Instructions] I'll now hand the call over to Trevor Caldwell, Senior Vice President of Investor Relations and Strategic Initiatives. You may proceed.

Thank you, Joel. Good afternoon, everyone, and welcome to Marchex's business update and first quarter 2025 conference call. Joining us today are Edwin Miller, our CEO; Russ Horowitz, our Chairman of the Board; and Brian Nagle, our SVP, Corporate Controller. 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 and quarterly report 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 this time, I'd like to turn the call over to Edwin.

Thank you, Trevor. Good afternoon, everyone, and thank you for joining us today. We are excited to mark the successful culmination of key milestones in Marchex's two year strategic, financial and operational transformation. Over this period, Marchex has evolved into a SaaS-based prescriptive analytics provider powered by AI and proprietary first-party conversational data. This evolution has redefined who we are from our core technology platform to our product suite and how we serve our customers. Let's begin with our new technology foundation. With our OneStack platform unification initiative, we have consolidated the company's technology stack and data architecture into a single cloud-based architecture. This foundational project centralizes Marchex's large repository of first-party conversational data and powers the application of generative AI across the platform. This architecture now serves as the backbone for all future innovation and is already delivering impact across our business and for our customers. Because of this transformation, we have strengthened our financial profile meaningfully. We are already seeing benefits. Our gross margin has increased by approximately 8% compared to the first quarter of 2023. OneStack allows us to operate with a more efficient cost structure, giving us the ability as we go forward to drop significant additional leverage to the bottom line as our product and customer momentum increases. We feel Marchex is incredibly well positioned to expand and drive incremental profitability as we introduce new AI products and features and drive more revenue. We believe that we are now at a strategic inflection point in our business. With a new, more scalable and profitable technology foundation, we are transitioning our focus to acceleration across our business. This will involve capitalizing on current momentum through launching innovative AI solutions, expanding sales channels and deepening our presence in high-value verticals. We are strategically very well positioned in our four core verticals, which are Auto, Auto Services, Home Services and Healthcare as well as other select industries. Additionally, we have now expanded our product capabilities to support all four business functions for our existing and new customers, including sales, marketing, service and operations. In terms of progress, I want to highlight just a few examples. First, we announced an expanded relationship with one of the largest Fortune 500 auto OEMs to include access to their base of more than 3,000 franchised auto dealerships to sell our flagship Engage for Sales product and our new Engage for Service product. This represents a new multimillion-dollar opportunity for Marchex. We announced our new Engage for service product just over a month ago, which enables Marchex to deliver AI-driven insights on service costs, which helps auto service departments recover missed opportunities, boost revenue and increase lifetime customer value. This new AI-powered conversational intelligence solution is designed to help service centers better understand their customer engagement, elevate customer satisfaction, recover lost opportunities and increase revenue. Auto service centers are the backbone of dealerships, handling approximately 50% of all inbound calls. Marchex now has a preferred or exclusive access to approximately 9,000 auto franchise dealerships with our current relationships. With our Engage offering now including both sales and service, we are opening incremental opportunity for Marchex to meaningfully expand our footprint and potential sell-through to a very large vertical market over time. Second, I'm excited to talk about the launch of our new user interface. This month, we launched our first-ever comprehensive unified interface for customers across our products, which is an integrated element of the OneStack cloud technology platform. This initiative will lead to a unified customer experience and create more seamless upsell opportunities with new click-to-buy functionality. With the new UI, we can deliver broadly applicable new AI features such as industry and customized benchmarking to our customers. Third, I'm excited to share that we have launched our first product into the Microsoft Marketplace, marking an important step in expanding our go-to-market strategy from one-to-one to one-to-many. As previously announced, Marchex entered into a strategic collaboration with Microsoft through the Microsoft Cloud AI Partner program. This partnership makes Marchex's AI-powered conversational analytics solution globally accessible via Azure, providing a powerful channel to reach a broader enterprise audience. By leveraging the combination of direct enterprise sales, OEM relationships, technology integrators and platforms like Azure, Marchex is scaling our solutions more efficiently and solidifying our position as a trusted provider of conversational intelligence for large organizations. In the coming months, we expect to introduce additional products across other leading marketplaces as well as with key integration and channel partners. Over time, we expect the combination of new AI-powered vertical signals and channel partnerships will be an important driver for growth. These initiatives are the first of many executed so far in 2025. There is much more to come as highlighted in today's release. Our business' ability to execute innovation across our product platform, expand and add new customer relationships and open new markets is just beginning. With that, I will hand the call to Brian to briefly overview some of our financial results and our guidance for 2025.

Thank you, Edwin. Revenue for the first quarter of 2025 was $11.4 million. As communicated in today's press release, first quarter revenue was affected by some seasonal call traffic factors and the timing of when we began to benefit from certain new sales, which we believe on a run rate basis, will still accrue to the benefit of our overall 2025 financial plan. For operating expenditures, we continue to see efficiencies throughout the business as we benefited from the realignment of the organization following the completion of OneStack. We anticipate that our gross profit margins, in particular, should improve as we are carrying an overall lower cost structure going forward, which could enable significant future operating leverage for the business as new product and features sell through. On the balance sheet, we expect the second quarter to see cash balances stable to up relative to the first quarter amounts. Moving to annualized guidance. Our 2025 financial plan reflects the belief that during 2025, we can grow to achieve more than $12.5 million in quarterly revenue or an annualized revenue run rate of $50 million or better by the end of 2025. With our progress with a more efficient cost structure at these revenue levels, we believe we can achieve more than $1.5 million in quarterly adjusted EBITDA or an annualized run rate of $6 million or more in adjusted EBITDA. We do want to acknowledge there is currently some uncertainty due to the macroeconomic climate and lack of visibility. There are scenarios that could cause potential customers impacts and increase the variability of actual financial performance. However, with the current momentum in the business, we believe that we are in a strong position to sell more through our expanding product platform and expanding customer relationships. As this progress materializes, we believe that we are in a position to realize greater overall profitability through our efficiency initiatives in the business as we move forward. I also want to note Marchex's adoption of a new share repurchase program and the sale of an unused domain as reported in today's release. If you can please see our press release for those details. With that, I will hand the call back to Edwin.

Thank you, Brian. We believe that Marchex has reached a key strategic inflection point. We are actively executing on a long-term vision to scale Marchex into a $100 million annual revenue business in the years ahead. Reaching this milestone will require building on our current momentum by launching innovative AI-driven solutions, broadening our sales channels and strengthening our position in high-value verticals and expanded business functions, all while continuing to leverage our significant base of first-party conversational data to drive innovative solutions for Fortune 500 businesses and more. We are highly focused on making 2025 a year of acceleration. With a strong foundation and a clear strategic vision in place, we are confident in our ability to drive sustainable growth, maintain financial discipline and deliver meaningful value to both our customers and shareholders. I want to personally thank our team for their hard work and dedication to helping this business reach this important inflection point. I look forward to updating you in the coming periods. With that, I will hand the call back to the operator.

Thank you, everyone, for attending the call. We look forward to future dialogue with our shareholders.

Thank you, everyone.