Marchex, Inc.
Q4 2020 Earnings Call Transcript

Published: 2 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Marchex Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Mr. Trevor Caldwell, Senior Vice President of Strategic Initiatives and Investor Relations. Thank you. Please go ahead sir.

[Trevor Caldwell:]

Thank you, Jamaria. Good afternoon, everyone. And welcome to Marchex's business update and fourth quarter 2020 conference call. Joining us today are Michael Arends and Russell Horowitz.

[Michael Arends:]

Thank you, Trevor. Good afternoon and thank you everyone for joining us today. In November on the back end of our strategic evolution and following the separation of our media assets, we moved to realign our operations in order to take advantage of the significant opportunity in conversational analytics and sales engagement solutions. This included moving aggressively to accelerate our robust product development cycle since the organization was able to focus exclusively on this core opportunity. We expect these efforts will be a key driver of progress this year. As we reflect on the last few months, we recognize the ongoing impact of the pandemic and a massive disruption on many of our customers over the past year as well as its resulting impacts on us. However, because we made the early strategic bet to focus on conversational intelligence built upon aggregating and anonymized data of hundreds of millions of sales conversations between global brands and their customers, including both voice and text, we now find ourselves at a unique advantage as we approach an inflection point in our opportunity. We can help our customers understand what is happening during these conversations at a deeper level than ever before. With our growing capabilities, our customers foresee us more and more as a critical partner to help them engage more prospects, grow their customer base and close more business. These early investments have created a significant market opportunity that is transformational for Marchex and has given us room to both grow with our existing base of customers and expand that base meaningfully.

[Russell Horowitz:]

Thanks, Mike. While we're still navigating an uncertain environment for many of our customers, we have focused on making significant progress across our organization on everything from our products the underlying technology and the realignment of our organization to take advantage of our opportunities. Today, through these efforts, Marchex is a leaner more focused and innovative company with world-class customers asking us to do more than ever before. And our early bets are paying off positioning Marchex for the post-pandemic world where we're capable of solving a wide array of mission-critical problems for our customers and prospects with highly innovative market leading products. Over the last several years, we have invested in our core technology platforms and its strategic initiatives to add valuable conversational data across new verticals such as home services and health, while going deeper in rich verticals like auto and auto-related services. These decisions have set up where with an effective and successful execution on our planned product releases and sales opportunities. We believe we will see acceleration of growth sequential progress with adoption from both existing and new customers and increased overall momentum, while establishing and extending leadership. Leaving the pandemic aside we feel we are well positioned to make progress on advancing the business and continuing to both expand and harvest our large opportunity.

[Michael Arends:]

Thank you, Russ. For today's commentary, I will largely focus on our financial results from continuing operations. On that basis, revenue in the fourth quarter was $12.7 million. Core analytics and solutions revenue, excluding the contribution of the disrupted auto customer, who was previously referenced on the second quarter 2020 earnings call, would be $12.3 million. The fourth quarter continued to be characterized by the events of the COVID-19 pandemic. We saw the typical seasonal flow of call volumes for some customers declining around the holidays, but we also saw greater suppression in volumes in December and in January, likely based on government directives including lockdowns. We're seeing this latter trend begin unwinding in the latter part of February with volumes more recently increasing. , we did see the stifled new business environment witnessed earlier in 2020 begin to open up in the fourth quarter, as we have had a recent uptick in new customer additions. This is partly due to the launch of our Marchex Marketing Edge product, but also because some prospects and customers began to reinitiate onboarding and pilot programs. It remains apparent that many prospects and customers continue to wait on deployments of new technology applications, although our most recent conversations suggest growing interest for launches as we move through 2021. As we have mentioned on prior earnings calls, during the fourth quarter, we continued to see the financial impact flow-through from a series of initiatives to support our customers during the pandemic, including discounts, payment timing and other relief and in certain cases waived minimum package commitments. We also had some customers close their doors or curtail their operations due to the pandemic. While we expect COVID-19 uncertainties may continue to be with us for some time, we and our customers are adjusting to the extent possible. Over the course of 2020 and through the first quarter of 2021 to-date, we focused on making progress with our analytics products and sales engagement solutions and believe this will benefit Marchex in the intermediate and long-term. We are also encouraged by the pickup in the sales pipeline we have seen so far this year. Now in looking at the P&L for the fourth quarter, excluding stock-based compensation amortization of intangible assets and acquisition disposition related costs, total operating costs from continuing operations for the fourth quarter were $16.4 million compared to $15.4 million in the fourth quarter in 2019.

[Operator:]

. Your first question will come from Mike Latimore. Please proceed.

[Mike Latimore:]

Hi. Yes. Thanks a lot. Thanks for all the info here. In terms of the call volumes that Marchex had in 2020, can you quantify that a little bit, just maybe absolute number? And then just -- did it decline grow kind of in 2020 versus 2019?

[Michael Arends:]

Thanks Mike. This is Mike. So total call volumes were down on a year-over-year basis, but there was a lot of progression and movement. And in particular, if you look at the early part of the year in March and April, volumes were down significantly. On a year-over-year basis just for those months, there was trending declines that in some verticals whereas much as near 40% decline on a year-over-year basis.

[Mike Latimore:]

Okay.

[Michael Arends:]

There was a progression from there. And although there was still decreased call volume in May, June and July there were increasing levels and progress from those points forward. If you look at starting in end of November, call volumes again started a downward tick relative to what you would expect from a seasonal flow in a year-over-year comparative. That continued into the early part of January and the first the very beginning of February. And we believe that some of the pandemic influences as well as potentially the cold weather in certain parts of the country may have affected that. What we have seen in the last few weeks is actually a resurgence and call volumes coming back and increasing productively to more expected and normalized levels here.

[Mike Latimore:]

Yes. Got it. And maybe just help me understand if you look at some of these big kind of call center companies like Teleperformance or Qtel their volumes are growing pretty nicely and benefiting from COVID just more communications going on. I think there are more maybe customers -- maybe the difference is the customer service you're more sales focused. But help me understand the difference there between the call volumes you see kind of in some of the big call centers versus kind of what you guys are seeing?

[Michael Arends:]

I think one of the best examples is just thinking about the customer base. So auto dealerships people stopped purchasing cars. And the auto dealerships the OEMs actually stopped manufacturing for many months, as part of their processes given what consumers were doing. That was indicative in a number of different industries. So it's very much more a mix of what the customer base is and the protocols. There are pockets of customers. And I'll give you another great example of just very low volumes. Travel and hospitality for us, and our customer base in that arena was down very significantly on a year-over-year basis. But there were pockets an example would be, cable television, the area of cable. And certain of home services customers, HVAC, furnace type of providers were actually had some spikes in volume at different points in 2020, relative to what you would normally expect.

[Mike Latimore:]

Okay. Got it. And then, you talked a little bit about, maybe seeing sequential growth throughout the year. I guess, what would be the top sort of verticals driving that?

[Russell Horowitz:]

Hey, Mike, yeah, this is Russ. As we think about how the year unfolds, and where some of our growth levers are, we talked about the vertical focus. You've hit on that. And auto is one that we continue to look at as a meaningful opportunity. And that's both with the OEM relationships and the dealer direct products. And then, all those services as well, can be a catalyst. Overall, the service economy has been more suppressed by COVID than other areas. And given our customer base and how that's exposed to the service economy, we think we may benefit from that as COVID thaws. And then, beyond that, we also look at leverage from our texting products where we see increased adoption as well as our other evolve products that include the combination of voice and text. So auto and auto services health and home services continue to be levers for us. And then also where we're looking at expanded application of our texting products and integration of our texting products with our voice products, all of those we view as levers for acceleration and sequential growth.

[Mike Latimore:]

Okay. Got it. Got it. And then, on gross margin, is the gross margin in the fourth quarter on the core business is kind of a good sort of barometer for next year as well?

[Michael Arends:]

It's a starting point for 2021. In some of our remarks -- prepared remarks that we made earlier, we did talk about the infrastructure initiatives coming to more substantial completion at some point in 2021. And we expect that with additional scale, there can be many meaningful operating leverage there.

[Mike Latimore:]

Okay. Great. All right. Thanks a lot. Good luck for future.

[Michael Arends:]

You too.

[Russell Horowitz:]

Thank you.

[Michael Arends:]

We wanted to thank everyone on the call today. And we look forward to providing updates in the coming quarters of our progress as we move throughout the year. Thank you.

[Russell Horowitz:]

Thank you everybody.