Marchex, Inc.
Q1 2006 Earnings Call Transcript

Published: 9 May 2006

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Marchex First Quarter Earnings Conference Call. Operator Instructions. It is now my pleasure to turn the floor over to your host, Ethan Caldwell, Chief Administrative Officer. Sir, the floor is yours.

[Ethan Caldwell:]

Thank you. Good afternoon, everyone, and welcome to Marchex's first quarter 2006 conference call. Joining us today are Russell Horowitz, Chairman and Chief Executive Officer; John Keister, President and Chief Operating Officer; Michael Arends, Chief Financial Officer; and Peter Christothoulou, Chief Strategy Officer. During the course of this conference call, we will make forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts included on this call regarding our strategy, future operations, future financial position, future revenues, acquisitions, projected costs, prospects, plans and objectives of management are forward-looking statements. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. There are number of important factors that could cause Marchex's actual results to differ materially from those indicated by such forward-looking statements, as are described in the risk factors section of our most recent periodic report and registration statement filed with the Securities and Exchange Commission. All of the information provided on this conference call is as of today's date, and we undertake no duty to update the information provided herein. During the course of this conference call, we will also reference certain non-GAAP measures of financial performance and liquidity, including OIBA, adjusted OIBA, adjusted EBITDA, and adjusted non-GAAP EPS. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in today's earnings press release, which is available on the Investor Relations section of our web site. And definitions of these measures as used by us and the reasons why we believe these measures provide useful information to investors will be referenced during this conference call and are also contained in today's earnings press release. At this time I would like to turn the call over to Russell Horowitz, our Chairman and Chief Executive Officer.

[Russell Horowitz:]

Thank you, Ethan, and thank you everyone, for joining us for today's conference call. On today's call we will discuss three primary topics

[John Keister:]

Thanks, Russ. In looking at our progress within the local sector, we continue to build a leadership position in enabling super-aggregators and merchants to sell search-marketing packages to their customers. For example, yellow page advertisers and the newspaper classified advertisers. In the first quarter, we announced a new customer win with The Berry Company, a leader and innovator in the yellow pages industry, responsible for advertising sales into more than 800 directory titles nationwide and serving more than 1 million advertisers. Our local platform continues to provide a unique product offering for super-aggregators looking to sell search marketing campaigns to their base of local merchant partners. While we are still investing heavily in our local platform and in resources supporting this platform, we believe that our super-aggregator partners are gaining traction in pushing the adoption of search marketing packages for local merchants. As mentioned previously, the growth of the local market is validated by third-party projections and is evidenced by increasing focus at industry conferences and by the increased investment from the largest companies in our industry. Marchex's position to benefit from this growth, as we believe we are one of the very few companies that has built the tools and processes necessary to deliver high-value high-quality local advertising campaigns at scale on a consistent basis. We have found that most companies working on creating and fulfilling local advertiser campaigns have struggled with consistent quality and fulfillment at scale. Other providers have also struggled with their interactions and processes in shipping campaigns to large search engines, which we believe is due to a heavily reliance on manual processes. Marchex's local platform benefits from the experience we have in supporting large sophisticated advertisers who have hundreds of thousands of product SKUs and complex search marketing needs. By virtue of this experience, Marchex has invested and will continue to invest in a sophisticated automated system that while more expensive to build, positions us much better for long-term growth and customer satisfaction. Over the course of the year, we will continue to update you on our progress as momentum continues to build in our local business. Now, I will turn to our search marketing businesses where we continue to win new valuable vertical distribution relationships, which augment our third-party network or partner traffic sources, as well as maintain and deepen our relationships with existing vertical partners. For example, we recently had several announcements, including the previously noted contextual distribution partnership with ECT, a renewal of our exclusive distribution relationship with The Motley Fool, and an extension and deeper contextual integration of our partnership with USATODAY. These wins, combined, with the large base of vertical publishers, which we have added over the past two years, provide our merchant advertisers with traffic from a broad and diverse network, which we believe produces a compelling value proposition for advertisers looking for value in an increasingly competitive online marketplace. We continue to focus in the short-term and medium-term on building Marchex's third-party network of traffic, by adding new, valuable, vertical market distribution partners and integrating each partner, so that overtime, all of the advertisers in our system can have access to any appropriate partners. Building this capability is part of our product road map, and is also a source of some of our most significant investments. Once complete, Marchex will incrementally offer merchants the ability to purchase multiple distribution sources on a self-serve basis, including vertically or locally-targeted distribution, our own network of vertical and local web sites, site or page-specific distribution on particular publishers or a broad network, such as search engines or shopping engines. At this time, I'd like to hand the call over to our Chief Financial Officer, Mike Arends, to discuss our third topic for the call today, our quarterly financial results and a summary of our 2006 financial guidance.

[Michael Arends:]

Thank you, John. Our first quarter represented continued progress despite the fact that we are investing heavily to capitalize on several of the opportunities that exist in our business. During the first quarter, Marchex recorded revenue of $31.1 million, a 69% increase over our year-ago results of $18.4 million. Total operating costs, excluding stock-based compensation, amortization of intangible assets for the first quarter of 2006, were $22.8 million. In the year-ago period, total operating costs, excluding the previously mentioned items, were 14.2 million. In looking at the mix in operating cost for the first quarter, our service cost, excluding stock-based compensation, decreased as a percentage of revenue on a year-over-year basis, largely due to an increase in revenue coming from proprietary traffic sources. The increase in sales and marketing costs for the quarter were largely due to increased personnel costs; the integration of IndustryBrains as compared to the previous year; and marketing of proprietary web sites, such as Yellow.com, as we test and implement a variety of strategies to market a limited number of properties within our network. Other operating costs included additional investment in sales personnel, product development, as well as increased technology infrastructure costs and certain costs related to being a public company compared to last year. Adjusted operating income before amortization for the first quarter was $8.3 million, or a margin of 27%, which represented a 98% increase over the $4.2 million, or a 23% margin in the year-ago period. Adjusted earnings before interest, income taxes, depreciation, amortization, stock-based compensation expense, and gains or losses on the sales of intangible assets, or adjusted EBITDA, for the first quarter was $9.6 million, which represented a 102% increase over $4.7 million in the comparable period last year. Adjusted operating income before amortization and adjusted EBITDA are two of the principle metrics we use to measure the progress of our business, liquidity, and our ability to generate cash. Adjusted operating income before amortization includes a reduction for depreciation charges, and excludes amortization costs and costs related to our acquisitions, as well as other non-recurring charges. One item of note. Beginning in the first quarter of 2006, due to recent accounting rule changes, we like all other public companies began to recognize increased stock compensation charges as a non-cash expense that will impact our GAAP results. Stock-based compensation expense for the first quarter was $3.5 million. The first quarter 2006 results also included an after-tax gain of $151,000, as a cumulative effect of change in accounting principle associated with Marchex's adoption of the new rules regarding option expensing. In addition, during the quarter we recorded a one-time charge of approximately $970,000 recorded as convertible preferred stock dividends and conversion payments associated with the conversion of approximately 81,000 shares of the company's preferred stock into approximately 825,000 shares of Class B common stock. GAAP net loss applicable to common stockholders for the quarter was $1.2 million, or $0.03 per share, compared to net income of $388,000, or $0.01 per share in the first quarter in 2005. Going forward, our GAAP results may be impacted by a number of factors, including stock-based compensation charges, increased amortization costs associated with our acquisitions, other potential future acquisitions, our preferred stock dividends, and increased public company costs, which will also impact our adjusted operating income before amortization and adjusted EBITDA result. Adjusted non-GAAP earnings per share, an estimate some Wall Street investors utilize as a supplemental measure of our operating progress was $0.09 per share for the first quarter. Adjusted non-GAAP EPS represents adjusted net income divided by weighted average fully diluted shares outstanding for adjusted non-GAAP EPS purposes. Adjusted net income generally captures those items on the statement of operations that have been or ultimately will be settled in cash, exclusive of certain non-recurring items, and represents net income available to common shareholders, plus stock-based compensation expense, amortization of acquired intangible assets, cumulative effect of changes in accounting principles, gain or loss on the sale of intangible assets, and other income or expense. Turning to the balance sheet, we had approximately $72.5 million cash on hand as of March 31st, 2006. During the first quarter, we continued to generate significant cash flow from our operations, despite the fact that we used our cash to invest in certain initiatives we believe will strengthen our position within direct navigation and local search marketing, as well as to convert a portion of our preferred equity instrument. It's important to note that we do expect timing differences on working capital to impact our cash balance in perspective quarters. For example, tax installments will impact us more significantly compared to the first quarter as part of our regular tax payment schedule. In addition, going forward, we anticipate that we will use our cash to continue investing in long-term growth initiatives, including internal product development and sales initiatives, and selected acquisition opportunities, including our recent AreaConnect asset acquisition. I would now like to discuss our outlook for 2006. We continue to invest significant resources in product development initiatives and integrations as well as and strategic initiatives like AreaConnect that are designed to continue building momentum across our business and, specifically, in the local channel. Given our product progress to date, we believe some of these investments will begin to pay off this year, and, in particular, in the second half of the year. As such, we are raising our guidance for 2006. For the year, we are now anticipating revenue in the range of $130 million to $134 million. For adjusted operating income before amortization, we are now anticipating a range of $34 million to $38 million, as we will invest in integrating and building the newly acquired AreaConnect properties, and in other initiatives designed to continue our product progress across all areas of our business. We believe some of our recent strategic investment of adding costs by growing our employee base in the product development and sales areas will factor into our short-term cost structure, although this is already factored into the increased financial guidance we are providing as of today for higher revenue levels and also higher operating income before amortization levels for 2006 as a whole. I would note, however, that we believe these investments will be recouped overtime, and we are therefore, maintaining our long-term target for adjusted operating income before amortization margins of 30% or more. To summarize our progress, our results in the first quarter were driven by investment decisions we made in 2004 and 2005. Today, our 2006 guidance highlights our commitment to further investment against our opportunities to position Marchex for long-term growth. We remain focused on our goals and will continue to invest against the people and technology that will position us to succeed in our various business areas. I would now like to hand the call back over to Russ.

[Russell Horowitz:]

Thanks, Mike. These are exciting times. The industry is expanding rapidly, and we see dozens, if not hundreds, of new players coming to the search category each year. The Interactive Advertising Bureau tells us that paid search grew from 1% of online advertiser budgets in 2000 to 40% of advertiser budgets in the first half of 2005. As advertisers move major portions of their budget from display ads or other forms of advertising into paid search, this sector becomes more and more competitive. At Marchex, we have a group of people that enjoy the challenge of growing and driving more value for our customers each and every year. Marchex will continue to work aggressively and methodically to build our company into a leader with growth rates and profitability margins that are at the upper end of the industry, while also supporting our increased investment in existing in future opportunities. Since our inception three short years ago, we believe we have made a series of product and strategic decisions that have positioned Marchex for long-term expansion. We believe Marchex is in a stronger position as ever to extend our industry position. We remain intend on delivering strong financial performance every year, while continuing to make the right investment decisions to ensure Marchex's next three years are as successful as our first three. 2006 is promising to be our busiest year yet, and we are excited to continue sharing our progress with you as we build momentum throughout this year. I'd like to take a moment to thank our employees for the incredibly hard work they've exhibited in our first three years and we all look forward to working diligently and collaboratively against our plan of expansion in the quarters and years ahead. At this time, Operator, we'd like to give the call back to you to take questions from the audience.

[Operator:]

Thank you. Operator Instructions Our first question is coming from Christa Quarles. Please announce your affiliation then pose your question.

[Christa Quarles:]

Sure. It's Thomas Weisel Partners. The first question I have for you guys is, there's a couple of other competitors that are sort of starting to emerge in the space, and there are InternetRead or Yesteract (phonetic). I was just wondering -- and they kind of have a little bit of different take on the business in that they maintain a business in domain name trading. I was just wondering if you could expound upon, sort of where you think the difficulties of this business are, i.e., as it relates to the distribution of content across all of the sites? And, then the second question I have is just on the marketing and proprietary web sites. You indicated you were continuing to do that with Yellow.com. And I was just wondering if you could give us some order of magnitude as to how much that was in the quarter? Thanks guys.

[Russell Horowitz:]

This is Russ. On the first question, we look at the category and we see how it's changed over the last year plus since we came into these markets and helped people start to understand the magnitude of the opportunity in the direct navigation space, and when we look at a few other competitors, and we knew kind of our success in highlighting the opportunity inevitably would bring additional committed capital and other folks who try and emulate some of the things that we did. But, that's always the nature of all markets; one company's success is a road map for others. And there are couple of things that I think are actually pretty interesting. One, we've been at this for well over a year now in terms of creating infrastructure to support a real product road map in the context of adding utility across our vertically and locally focused areas. And it's a non-trivial effort and it requires a large investment, and in the context of a public setting, we really have the greatest scale. And so, those guys are just getting started with it, and time will tell, but we like our position and we like where we are in the context of our product road map for the rest of '06. The other part is they're also in the business of selling domains, and that's part of their P&L and their revenue stream. And for us, that's not part of our profile. We do periodically sell domains that aren't strategic, but we don't recognize that as revenue, because we just don't think that that's a suitable thing based on our product strategy and our long-term focus on recurring revenue streams. So, we do think it’s apples and oranges. And as a public company, we're trying to provide as much insight into that process as possible as young private companies, we wish them well in tackling these markets, but we're pleased with where we are, and the last year plus we've been able to build infrastructure to support this. And seeing them just get started with that, we think they'll have some interesting challenges and opportunities ahead. On the second front, as we've noted from our entry into this business more than a year ago, we see the opportunity to take the technologies and services we provide to third parties and apply those to our own properties as the means to extend those and selectively grow the user bases and incrementally add profitable revenue. And that's something we'll continue to do on a selected basis where we think the properties make sense and are suitable for that type of application. And then we also use selective marketing to test enhanced templates or enhance interfaces so we can validate the utility and validate user behavior based on those changes. With where we are, we think that the levels we're spending in this area are kind of at the levels that we need and we don't necessarily see that expanding from here at this point.

[Christa Quarles:]

And just a quick follow-up on that. Did you guys say how much IndustryBrains was in terms of driving revenue on your own properties, or, alternatively, I guess, if you say what percentage Yahoo was of the total?

[Russell Horowitz:]

Yes, we've not broken that out as part of today in terms of inter-company contributions. And we're just getting started with IndustryBrains listing in recent periods. And so, it has increased but it's not a separate number that we've provided so far.

[Christa Quarles:]

Okay, thanks.

[Russell Horowitz:]

Thank you.

[Operator:]

Next question is coming from Jordan Rohan. Please announce your affiliation, then pose your question.

[Jordan Rohan:]

Sure, it's Jordan Rohan from RBC Capital Markets. Russell, you told some people, including myself that you'd be adding some disclosure to your P&L on EBITDA margins by segment. I don't notice any of that today in today's release. A few questions about that. Why no improvement in disclosure? Second, should we assume that the margins on the revenue attributable to the proprietary traffic sources continue to go down as you invest? Third, will the acquisition that you just announced a few days ago lead to further contraction in those margins? I guess, a separate final question is, can you talk about Yahoo's improvement in search monetization, the plans that they've announced have been widely reported today. And could that potentially be a help to margins in the future? Thank you.

[Russell Horowitz:]

Hopefully I digested all those questions in a proper order. Yes, first off, we have not been specific regarding which additional metrics we would provide, but we have said, as I've said to you and others that we do look forward to providing more metrics as we go forward and we believe the metrics that we can live with for the long-term. And so that's something we're committed to doing as we have the opportunities to. And we'd like to see some progress in additional metrics this year. We just don't want to be schizophrenic with metrics, so we want to be comfortable that when we provide them, we're prepared to live with them. Second, when we look at the increased investment we're making in our business areas, there are couple of things. A lot of folks who are close to the industry, and you're probably as close as anyone, Jordan, see an emerging arms race as companies like Google are spending 1.5 billion on CapEx and hiring 1,000 employees per quarter. Now, clearly, we're not making that kind of investment. But we're focused on leadership positions and what are $1 billion plus markets. And we do think it's the right time to incrementally be investing in these areas because we see momentum building in our business, and we see opportunities to capture more of it. And so if we can scale our business on the top line, and incrementally take some of that and invest it back-in to hopefully see accelerating growth rates in go forward periods, we do think that make sense. And so when you look at incremental margins across our business, we are factoring in taking some of that growth and reinvesting it in the business. And that's reflected in the guidance updates we gave today. And the last question in terms of the Yahoo press release is, we have not factored in a list from Yahoo monetization technologies into our guidance. And overtime, we have seen product enhancements, some of which, some folks might have thought would increase monetization. And sometimes they have and sometimes they haven't. And so we're taking a wait-and-see attitude. And to the extent that they can increase monetization, no one will be happier to see that than us.

[Jordan Rohan:]

Thank you very much.

[Russell Horowitz:]

Thank you.

[Operator:]

Your next question is coming from Clay Moran. Please announce your affiliation and pose your question.

[Clayton Moran:]

Yes, thanks. Stanford Group. A few questions. Can you talk a little bit about same-site traffic growth year-over-year across the direct navigation sites if possible? Also, can you talk a little bit about the year-over-year monetization rates and have you made gains in that regard and what the trends are, I guess, for both of those metrics? Secondly, I understand AreaConnect as -- and the synergies there in terms of distributing ads. Are there any synergies there in driving traffic to the other local sites like the zip code sites? And could you possibly at some point be creating or turning that site into a destination site whereby you'll drive traffic there and then out to the other sites you've developed? Lastly, on the guidance, you've raised the guidance based on expectations of a little bit more strength in the second half. Is there any data that you've seen that supports that? I mean, what has caused you to increase the revenues a little bit? Is there some data from the initial release of the zip code sites that's causing that? Or what is driving that? Thanks.

[Russell Horowitz:]

Thanks. If I miss any of these, let me know, but, first off, the same-store sales metrics is not one we've provided yet. What I will tell you is I do think it's a good question and one to note, and one that we think will be important, kind of, on a go-forward basis. So, while we're not offering specific numbers, I can tell you same-store sales were favorable. At the same time in the context of monetization, again, we do a lot of testing with 200,000 plus sites. You can see some variance but overall also favorable. When you look at your specific questions on AreaConnect and are there opportunities to leverage it as part of our zip codes and other locally focused web sites, the answer is absolutely. When you asked the question about possibly creating a destination in the local space, it's a good question. The answer is, we are focused on that. And we think the local search opportunity overall, of course, is a significant one. When you potentially look at growth rates for that sub sector search, that being four times the rate of overall paid search generally. And when you look at the mix of our assets, clearly we're committing capital and incremental investment to being leaders in local search, both in terms of the out sourced platform and having one of the largest networks of specific, locally targeted traffic online. So, having a destination or having destinations on that area are on our product road map. And then, when you look at our guidance for the back half of the year, again, we have a little more visibility in terms of where our opportunities are and the run rates of our business. And based on what's in the pipeline, and things impacting our business, it made us comfortable taking the numbers up. And we know the landscape has been kind of a mixed bag for a lot of folks, but right now we feel pretty positive about it.

[Clayton Moran:]

Okay. I think you got them all, Russ, thanks.

[Russell Horowitz:]

Thanks.

[Operator:]

The next question is coming from Safa Rashtchy. Please announce your affiliation, then pose your question.

[Nat Schindler:]

Yes, hi. This is Nat Schindler calling in for Safa Rashtchy, Piper Jaffray. Two quick questions, one on AreaConnect. Can you go into little more in-depth into the financial impact of that deal, and how that's affecting the rest the of the year outlook? Additionally, if you could give us a little more color on the rollout of your area code web sites and how that is progressing?

[Russell Horowitz:]

Well, yeah, with AreaConnect, when we announced the asset acquisition last week, we said that in 2005 they did about 1.2 million -- 1.2 million or more in revenue and that for the stub period for the balance of '06, we expected a million or more of incremental revenue contribution from AreaConnect. And that we would look to take whatever operating income they had and largely reinvest it, given our priority focus on building out our local traffic network. And so, those are the metrics we provided around AreaConnect. In terms of our zip codes, we are focused on the next version of that, as most folks know. We had a beta version that we implemented some months back. Last quarter, we provided metrics about the traffic growth and monetization increases of those as part of our five-month test. Those have continued to perform well. And right now, we're focused on enhanced integrations that can allow us to hopefully grow that part of our direct navigation business even more.

[Nat Schindler:]

Great, thank you.

[Russell Horowitz:]

Thanks.

[Operator:]

Next question is from Stewart Barry. Please announce your affiliation then pose your question.

[Stewart Barry:]

Hi. It's Stewart Barry with ThinkEquity. Could you talk a little bit about your bid management -- the local search bid management technology and, kind of the growth and breadth of advertisers, local advertisers using that product?

[Russell Horowitz:]

Sure. John Keister is going to step into give you guys -- to mix it up a little bit for you.

[Stewart Barry:]

Excellent.

[John Keister:]

So, in the local space, as many of you know, we got into this business a year and half ago and really used a lot of the background that we had in servicing some of our larger customers on the traffic leader side, such as Office Depot, REI, Nordstrom and where we are now is, we've been able to really focus on scalability because we're working with our large super-aggregators, they got access to millions of merchants and they're shipping us thousands and thousands of advertisers. And it's critical that for us, we can keep up with the growth and with the periodic sales force focus that they give on, perhaps a monthly or quarterly basis where they're really pushing the search product, we've got to be able to handle the growth as it comes from our local super-aggregators. The bid management product itself, I mean, as many of you know, there's a lot of bid management providers that are out there. But in terms of being able to handle thousands and eventually tens of thousands of merchants in the local space and manage campaigns that are sometime quite small, up to campaigns that are very large, it's a very difficult proposition to be able to manage keyword strings that are effective for lots of different local merchants and be able to fulfill those campaigns on a very consistent basis. So, that's really where, in our case we've been able to differentiate ourselves is, we've got a system that scales, we've got a good system of fulfillment and we also have the people behind it to make sure that the quality control is there month after month, so that our aggregators are pleased with the consistent fulfillment that we deliver.

[Russell Horowitz:]

And the one other point where our product is differentiated in the marketplace is, again, being one of the first to implement this just gave us a window of opportunity that we're investing against and are super excited about. But the other thing that Marchex can do that a variety of these other players, particularly bid management folks who are trying to expand that platform, perhaps into the local space is a lot of these super-aggregators want to fulfill these campaigns through Google, Yahoo, or Marchex's network, but ultimately, they also want to include their own web sites as distribution modules. Because Marchex has the ability to turn their site into its own destination or its own distribution module, it's just another differentiator for us. So, we're just continuing to listen to our customers, understand their needs, and invest against that opportunity, because we think it's an opportunity in its own right, and at the same time it offers tremendous ecosystem benefits for Marchex overall.

[Stewart Barry:]

Russ, to what degree do you think the domain names will kind of resemble, I guess, the ideals of Web 2.0 in terms of user generation -- user-generated content, community, video, and so on? I mean, is that sort of a goal in terms of the content of the domain names?

[Russell Horowitz:]

Yes, I'll share with you, kind of, something that we internally talk about here, which is, when we looked at the kind of what's called the domain market, and we clearly don't focus on these as domains, we focus them as vertical and locally-focused web sites. But coming into this, a lot of folks are familiar with that graphical image, the evolution of man, where you've got, kind of cave man hunched over and he evolved to upright and well groomed.

[Stewart Barry:]

Yes.

[Russell Horowitz:]

And we look at the domain space very similarly. And we're out there. It isn't going to take 200 million years. But again, we look at these and we see opportunities for deep, integrated, highly useful vertical and locally focused sites. And that's what we're investing again, and that's what we're excited about each day we come to work, is just making that product a reality. And each day, each week, each month, we're making progress against that vision. And for a lot of folks including yourself who have been believers in what we've been doing, we just want to continue to demonstrate as much progress against that as we possibly can.

[Stewart Barry:]

Great. Thanks a lot.

[Operator:]

Your next question is coming from William Morrison. Please announce your affiliation, then pose your question.

[William Morrison:]

Hi. It's Bill Morrison from JMP Securities. Russ, I was wondering if you could -- I'm not sure you can do this or not, but maybe you can give us some sense, if you look at the 28 million users in March, give us a sense of where they are coming from, are they coming from direct navigation typing the -- one of your couple of hundred thousand URLs into the URL box? What percent are coming from your algorithmic SEO activities? And then what percent are coming from SEM spend driving traffic to those domains? And then a second question, I was wondering if you could just give us a sense, and if I missed this, I'm sorry, I've gotten picked out of the call a couple of times on my cell phone but if you could let us know, what roughly the IndustryBrains contribution was in the quarter from revenue perspective, so we could get a sense of the size of your core marketing services business in the quarter? Thanks.

[Russell Horowitz:]

So, yes, first off, I don't believe that we have broken out IndustryBrains as part of today's communication. In the context of traffic sources to our direct navigation network, we haven't provided specific breakdowns of, kind of referring links or referring traffic sources. That being said, what we've said in the past is pretty much the same today as it was then, which is the vast group of majority of our traffic are people type it in. And we have seen growth through search engine referrals and some selective marketing but the vast group of majority of it today comes by the same means it did a year ago. And as we've talked about in the past, when we look at direct navigation, we see opportunities for growth through macro growth in search, where historically grows at similar rates, and also through the product enhancements that we continue to make. And those continue to be the primary drivers. And that at least gives you a flavor for the mix.

[William Morrison:]

Great, thanks.

[Russell Horowitz:]

Thanks.

[Operator:]

Your next question is coming from Sameet Sinha. Please announce your affiliation, then pose your question.

[Sameet Sinha:]

Hi, yes, good evening. It's Sameet Sinha from Kaufman Brothers. Three questions for you. You've spoken about the direct advertiser relationships, can you talk about what percentage of your revenues comes from these direct relationships? And also if you can share some light on the trend there, how it's trended over the last couple of quarters? That's the first question. Secondly, can you talk about the progress at YellowPages.com and other such super-aggregator relationships? What's the order of magnitude? What are the margins in this business? I think it's been a few quarters, so maybe you have some initial thoughts on them. Next question is on your hiring. Obviously, you've done significant hiring in this quarter and plan to continue doing so. Can you give us a sense - in the sales and marketing side specifically, how long does it take for an average salesperson to ramp-up to, like an average volume and -- yes so, these three?

[Russell Horowitz:]

I'm sorry. Can you just repeat that last one really quickly?

[Sameet Sinha:]

The sales and marketing -- the hiring that you'll be doing in your sales and marketing.

[Russell Horowitz:]

Yes.

[Sameet Sinha:]

Can you talk about how long does it take for these sales and marketing professionals to ramp-up on their quotas and how quickly they reach some sort of an average productivity?

[Russell Horowitz:]

Sure. So, I'm starting with the last one. When we add folks, clearly, there is some ramp time and in the course of our guidance, we talked about adding a lot of folks and incrementally taking that expense in the short-term. Although, in the course of our year, we raised guidance and that factors in what we're looking at in terms of increased expense. But, yes, from a timing perspective, that is a factor. In terms of what that means, a lot of it comes down to the individual and their relationship, but you can see anywhere from 30 to 120 days is a typical ramp time amongst new folks coming on board. In looking at the direct advertiser relationships, direct advertisers represent a majority of Marchex's revenue, it's not a specific number we provided, but we can’t tell you that, a majority of the revenue does come from those direct relationships. And I believe there was one other question you had?

[Sameet Sinha:]

Yes, this was regarding your progress relation super-aggregator relationships, like YellowPages, what's the order of magnitude? And what's the margin characteristics of that business?

[Russell Horowitz:]

So, this is an area that we haven't provided specific numbers, but what I can tell you is, while I can't offer you specific data today; that is one of the areas when we've talked about having some expanded metrics that we would like to be able to do that. Clearly, we need to do that in a manner that our partners are comfortable in terms of providing some additional transparency into their businesses. But those are metrics we'd like to share and are working with them to be able to hopefully do that in the go-forward periods.

[Sameet Sinha:]

Okay, thank you.

[Russell Horowitz:]

Thank you.

[Russell Horowitz:]

Just in terms of a final comment in closing the call. The main thing is, is we're happy to see the business performing well, we're happy to see opportunities in areas where perhaps we could see some acceleration of growth. At the same time, we really feel we're investing in the right areas when we look at what we think are huge markets, and Marchex being in a unique position to be able to extend our position in some of these core markets. So, we're at a point where we think we have a unique and exciting opportunity, and the company is very focused and aligned in terms of our priority to execute and make that a reality. And we continue to thank you all for your support in helping us accomplish this mission. And thanks again.

[Operator:]

Thank you ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and enjoy the rest of your day. Thank you for your participation.