Marchex, Inc.
Q2 2006 Earnings Call Transcript

Published: 9 Aug 2006

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Marchex, Inc.-sponsored second quarter earnings conference call. (Operator Instructions) It is now my pleasure to turn the floor over to Ethan Caldwell, General Counsel and Chief Administrative Officer. Sir, the floor is yours.

[Ethan Caldwell:]

Thank you. Good afternoon, everyone, and welcome to Marchex’ second 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, Peter Christothoulou, Chief Strategy Officer, and Cameron Ferroni, Chief Technology 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 fact, including 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 a forward-looking statement. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. There are a number of important factors that could cause Marchex’ actual results to differ materially from those indicated by such forward-looking statements as are described in the risk factor section of our most recent periodic report and registration statement filed with the Securities and Exchange Commission. All 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 OIBDA, adjusted OIBDA, adjusted EBITDA and adjusted non GAAP EPS. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is contained in today’s earnings press release, which is available on the Investor Relations section of our website, and definitions of these measures as used by us and the reasons why we believe these measures provide 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 primarily discuss our progress during the second quarter and our focus going into the back half of 2006, and also review our quarter financial results. Prior to discussing these topics, however, I’d like to spend a few moments commenting on Marchex’ overall development. Marchex was founded on the premise that there was an opportunity to create an integrated, vertically focused search and media company that leveraged technology to develop and monetize its assets. Additionally, we believed that Marchex’ success would primarily be driven by our ability to have direct control over two assets

[John Keister:]

Thanks, Russ. Now we will turn to our search, marketing and local business areas. Over the last few months, our advertisers have increased their exposure to our proprietary network due to the relatively high conversion rates we believe they experience. This belief is grounded in the conversion data we have received from advertisers, which suggests that traffic from our proprietary network of web sites is delivering a relatively high return on investment. As the exposure to our proprietary network has increased for our advertisers, we have seen our average revenue per click rate increase 17% sequentially in the second quarter of 2006 over the first quarter of 2006. One year ago, we were not able to directly monetize our sites with our advertisers, and therefore not able to offer this source of traffic to our customers. Today, however, our advertiser listings cover an increasingly percentage of the available click-based advertising positions within our proprietary web site network. Over time, our goal is to monetize more of the available inventory with our own advertisers. Today we offer advertisers the ability to buy our inventory based on either categories or keywords, and we will continue to offer more flexibility to advertisers to buy in both of these ways. To that end, during the second quarter we launched our locally targeted advertising center on Open List, allowing advertisers to bid for placement based on specific categories and locations. With the integration of Marchex’ advertising center, advertisers now have the ability to sign up directly on Open List to place locally targeted ads on the Open List site via a self-serve account management system. This system enables advertisers to purchase advertising on the following pages

[Michael Arends:]

Thank you, John. Our second quarter represented continued financial progress as we drove strong revenue growth while increasing the cash generation capabilities of our business on a year-over-year basis. Furthermore, as Russ highlighted, our continued product progress is evidence that we are staring to realize the benefits of those product investment decisions we have made over the past 12 months. While some of these investments are ongoing and long-term in nature, we believe we are in a strong and unique position to recognize long-term differential growth. Looking at the second quarter as an indication that we continue to make strong progress on a year-over-year basis, revenue for the second quarter was $31.7 million, which represents a 50% increase over our year-ago results of $21.2 million. Total operating costs, excluding stock-based compensation, amortization of intangible assets for the second quarter of 2006, were $23.4 million. In the year-ago period, total operating costs, excluding the previously mentioned items, were $15 million. In looking at the mix in operating costs for the second quarter, our service costs, 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 on a year-over-year basis were largely due to increased personnel costs, the integration of [industry] [inaudible] and marketing of proprietary websites. Other operating costs included additional investment in 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 second quarter was $8.3 million, which represented a 36% increase over the $6.1 million in the year ago period. Adjusted earnings before interest, income taxes, depreciation, amortization, stock-based compensation expense and gains and losses on sales of intangible assets, or adjusted EBITDA for the second quarter was $9.7 million, which represented a 35% increase over $7.2 million in the comparable period last year. Adjusted operating income before amortization and adjusted EBITDA are two of the principal metrics we use to measure the progress of our business, liquidity and our ability to generate cash. Adjusted operating income before amortization includes 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 second quarter was $3.4 million compared to $497,000 in the same period in 2005. GAAP net loss applicable to common stockholders for the quarter was $612,000, or $0.02 per share compared to net income of $107,000, or $0.00 per share in the second quarter of 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 dividend and increased public company costs which will also impact our adjusted operating income before amortization and adjusted EBITDA results. Adjusted non-GAAP earnings per share, an estimate some Wall Street investors utilize as a supplemental measure of our operating progress, was $0.12 for the second quarter. Adjust 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, such stock-based compensation expense, amortization of acquired intangible assets, gain or loss on the sale of intangible assets, and other income or expense. Turning to the balance sheet, we had approximately $61 million cash on hand as of June 30, 2006. During the second quarter, we continued to generate significant cash flow from our operations. Going forward, we anticipate that we will use our cash principally to continue investing in long-term growth initiatives including internal product developments and sales initiatives, and selected acquisition opportunities. I would now like to discuss our outlook for 2006. As Russ mentioned, we continue to focus on broadening the reach and depth of our unique base of proprietary and third-party traffic sources, as well as increasing our direct monetization capabilities. Today we are raising the top end of our guidance range from the previously announced range on May 30, and are now anticipating revenue for the year in the range of $130 to $136 million as compared to a range of $130 million to $134 million. Likewise, we are raising the top end of our adjusted operating income before amortization guidance to a range of $33 to $38 million from our previously stated range of $33 to $37 million. Thus far in 2006 we have made and continue to make investments in product development initiatives as well as in strategy initiatives which we believe give Marchex and increasingly unique and defensible footprint of locally and vertically focused traffic. I would note that we are highly focused on recouping the investment we are making in our business over time, and are therefore reiterating our long-term adjusted operating income before amortization margin guidance of 30% or more, which is a level few companies online have been able to attain. I would now like to hand the call back over Russ.

[Russell Horowitz:]

Thanks, Mike. Marchex’ opportunity is greater now than it’s ever been. We believe our unique assets, our focus on vertical and local leadership and our approach to leveraging technology provide us with the opportunity to build leadership in the most highly commercial areas within search. Our investments in product development and strategy initiatives are designed to add components of defensibility to Marchex’ model and to help ensure that we’re in a position to outgrow our peers over the next several years while continuing to deliver adjusted EBITDA margins in excess of 30%. The internet search and media business is as competitive as it’s ever been. There are new ideas and new companies coming into this space very day. In this type of environment, you have to be very decisive and hold fast to your long-term goals. Marchex has done a very good job in focusing and executing on its core strategy in the past 12 months. First, we’ve continued to build out a proprietary network by investing in the technology and people that will fuel future growth and second, we have continued to integrate and simplify our advertiser [facing] business as we share advertisers between our business areas and deliver better tools to our customers. By continuing to focus on our core strategy, we believe Marchex will be in a position to continue to deliver strong differential growth and substantial profitability for years to come. At this time, Operator, we’d like to give the call back to you to take questions from the audience.

[Operator:]

(Operator Instructions) We’ll take the first question from Christa Quarles. Ma’am, your line is live.

[Christa Quarles:]

Hi. A couple of questions. First, I guess, I was pretty positively surprised by the revenue per click increase sequentially and I was just wondering if you could highlight the specific categories of ads that you guys are serving, what percentage of Marchex’ proprietary network is served versus using Yahoo, and then whether you guys will consider CPA or CPL type ads, and then I have a follow up. Thanks.

[Russell Horowitz:]

Sure. John Keister’s going to take a first pass at your question.

[John Keister:]

I guess I would just start by saying that we, from a proprietary advertisers perspective, we’re covering all the major commercially relevant categories so we’re not specifically focused on just finance or just entertainment advertisers, for example. We’re across the board and we’ve got under our own proprietary advertiser base, we’re well [over] 10,000 advertisers on a direct basis.

[Russell Horowitz:]

So when you look at kind of our opportunities to integrate and take more of the inventory, we’ve got good breadth and depth across the board, and then there are verticals where we’re stronger. Finance is an area we’re particularly strong. Technology we’re particularly strong. Travel and health are also areas that we see a lot of strength and momentum in pricing. What we found is, you know, the more [inaudible] of our proprietary inventory we’re able to get to the advertisers, they tend to vote with their bid rates in their budget and we think it’s a very encouraging sign. You know, we’re clearly focused on the longer-term opportunity of being kind of the predominant monetizer of our own traffic base and so we have very positive third-party relationships to supplement that strategy, but each of these metrics just gives us affirmation that the approach we’re taking is the right one and will deliver us the best balance of growth and defensibility.

[Christa Quarles:]

I guess, you know, if you’re not willing to state sort of which percentage of Marchex’ network is served from [phone] ad network versus other partners, I guess, could you give some indication as to the growth rate, anyway, of what you guys are serving?

[Russell Horowitz:]

To give you a ballpark estimate, I’d say going back a quarter, plus or minus, we had about 20% of the ads in inventory on our proprietary sites and now it’s up to about 30%.

[Christa Quarles:]

That’s very helpful. Then just, the other question that I had was just seeing the revenue up 175 on the beta sites, I was wondering, were those 100% paid content sites before because I’m surprised given that usually when you shift to an editorial page mix, I would expect revenues at least near-term to go down so I was just wondering if you could characterize that and then sort of what you expect to see over the sort of medium to longer-term.

[Russell Horowitz:]

Well look, we clearly believe in our strategy, but we were surprised too. So the tradeoff and a lot of folks understand is that when you go from a page that is 100% paid listings and change the mix to some content that’s unpaid and some content that is paid, you know, you could potentially see usage increased and monetization decreased. The thing that we found, both for those sites that were indexed by search engines and those that weren’t, is the users found it [a valuable] proposition to just want to use them more and interact with them more and that meant more pages and more paid clicks. So we were very encouraged with the initial results that came back and we think some of the underlying data gives us greater focus in terms of the roadmap on how to really scale this now. So from a formulaic basis, it is encouraging and while the data set was small, you know, these weren’t minor increases. They were meaningful and that’s why we’re pretty excited about what the impact can be as we scale this strategy and extend our search publishing system to more and more verticals.

[Christa Quarles:]

Gotcha. That’s helpful. Thanks.

[Russell Horowitz:]

Thank you.

[Operator:]

All right. You will take the next question from Clay Moran. Sir, your line is live.

[Clayton Moran:]

Thank you. Can you talk about how far you in the process of enhancing the different travel-related sites and then also possibly what the next categories will be for integrating Open List into your web sites?

[Russell Horowitz:]

Sure. What we’ve been looking at is, we had this initial launch of about 30 sites that we did at the end of May and we reported on some of that data. Today we’ve also announced that we’re extending that to more than 100 sites and yesterday announced that we launched upgraded implementations on more than 75,000 zip code sites. So our ability to scale this to support a whole lot of sites is pretty evident, and so now the next step is going to be sequencing, you know, which sites with which profiles, you know, get the next [inaudible] as we roll through and add categories to our search publishing system. Right now, this latest launch is going to 100 and will accomplish a couple of things for us in defining those next steps. One, it’ll give us more data which we think will help us refine our focus as we roll it out further and two, as the makeup of all 100 sites, we’ve really launched even more variety of the types of templates that are supported so we can look for themes in terms of increased usage and monetization across a broader profile of web sites and so that’s an important component. Once we have that data, I think the zip codes are very illustrative, if there’s a template that supports a certain type of web site, you know, whether you launch one of them or 70,000 of them is a similar process for us given the way our technology works. So it’s more about sites with different profiles and how best to deliver utility monetization versus the numbers game of how many sites we can support and how many millions of pages we can serve underlying them. In terms of next steps on categories, we have not disclosed which ones we’re building currently, although it’s not a secret that we’re big believers that more locally targetable inventory and more vertical inventory and what are the most monetizable verticals are areas that we’re trying to attain and build leadership. So if you follow the dollars of where we think the growth is and best monetization opportunities, you’ll be able to figure out where the verticals are that we’re building.

[Clayton Moran:]

Okay. On a different subject, can you just adds the – what was essentially a flat quarter on the proprietary sites. Was that essentially seasonal or is there something else impacting those results? Thanks.

[Russell Horowitz:]

There were really three factors that came into play. One, seasonality. You know, Q2 is the slowest quarter of the year. Second, we did see an increase in monetization from our proprietary advertisers, which was a positive. Third, we saw a net decrease in monetization from third-party advertisers during the quarter. And on a net basis, that translated to flat contribution in a quarter that is the seasonally slowest and, as we said in the call, we feel very good about where that business is, expect growth to accelerate in that business area and for contributions from proprietary traffic to be increasing through the balance of the year.

[Clayton Moran:]

So the traffic was essentially flat, but the margins and the click rates are lower because it’s a proprietary ad network, but the margins are better?

[Russell Horowitz:]

It’s a tradeoff. As we add on advertisers and we’re seeing those increased rates which we think is the right thing to do in the long term, yeah, we do [inaudible] third-party placements, but at the same time, you know, given those third parties, the monetization was a little bit lower. We think seasonally they’ll get stronger, and we already see the trends in our proprietary advertiser listings, where we saw rate increases during the season’s slowest time. So we think we’re in a pretty good place when we look at catalysts for growth in that area in Q3 and Q4.

[Clayton Moran:]

Thank you.

[Operator:]

Thank you. We’ll take the next question from Safa Rashtchy. Sir, your line is live.

[Safa Rashtchy:]

Thank you. A couple of questions. One, could you give us a sense of the percentage of your provider web sites that are more locally oriented and what progress have you made in making those that are not more locally oriented, and I have a follow up.

[Russell Horowitz:]

Sure. About 50% of our sites, just based on their main characteristics, have a local orientation. The other part is, even where you have a local site, we know we can verticalize it, you know, kind of – where you can look at taking something like a Beijing.com and verticalize it with hotels.Beijing.com or restaurants.Beijing.com. With the local sites we can verticalize those and we gave the example before of French restaurants being categorizable with Seattle.FrenchRestaurants.com or SanFrancisco.FrenchRestaurants.com. So we have the ability to theoretically create as much inventory as we want. But at top level, which is how we’re drawing users, about 50% are local in nature and we think that it gives us a great foundation of undeveloped real estate to leverage at this stage.

[Safa Rashtchy:]

Great. A second question is regarding Google’s quality score. Have you seen any impact on that – from that initiative that Google has – on your web sites and how you get listed in your organic results as well as maybe paid results and what are your expectations based on that?

[Russell Horowitz:]

Well, Google clearly has an ongoing initiative to evolve their algorithms, both in their algorithmic and paid areas, and that’s something we need to understand based on the breadth and depth of our proprietary network and based on the fact that we support thousands and thousands of third-party advertisers who use us to handle their search marketing through sources that include Google. So for us, as they continue to evolve, it’s largely businesses as usual. But when we look our web site launches and even the data we provided today, about half of those 29 sites were indexed by the algorithmic search engines, and I think that Google’s the largest of those, where we saw very good uptake rates and so, when we look at the utility of the sites we’re building both in the context of user interaction and we look at how relevant [we’re being] by search engines including Google, so we think it bodes very well in the context of our ability to grow traffic and increase our relevance in the overall kind of online ecosystem. So, even as Google evolves, to the extent we build useful sites, the job of a search engine is to find relevant useful sites in response to user queries and if we’re doing a good job of that, we’ll continue to be benefactors and the data to date has proven we are doing a good job of that.

[Operator:]

Thank you, very much, ladies and gentlemen. (Operator Instructions) We’ll take the next one from [Melinda] Davis. Ma’am, your line is live.

[Melinda Davis:]

Hi. Thanks. I have a question regarding the long-term impact of Yahoo’s Project Panama and what impact do you think their changes could have on your business? Do you think there could be an impact on your monetization rates, either short term when they turn on the switch there, or longer term?

[Russell Horowitz:]

We’re no different from anyone else. If we can get, you know, more money without having to do anything, we’d love to see that and clearly one of the big focuses of the Panama initiative that Yahoo has been to increase relevance and monetization in how their ad system works. When we’ve been asked this question in the past and Yahoo is a strategy partner, the answer we’ve given in the same one which is, it’s not something we counted on, it’s not something we built into core accounts in our business. We hope Yahoo’s able to do it, both for their own sake and for ours, and if and when that happens we’ll happily take it. So we’re optimistic, but it’s not something we’re building into our forecast, both either internally or externally, and if we’re pleasantly surprised, we’ll happily take it.

[Melinda Davis:]

Just one quick question on the local sites that you’ve had up. Where are those sponsored links coming from? At first glance it looks like they’re all coming from Yahoo, but it sounded on your call like you were talking about them coming from your proprietary network.

[Russell Horowitz:]

You go to, you know, using an example like, Open List and doing a local query, all those ads are coming from Marchex advertisers.

[Melinda Davis:]

Okay. Thank you.

[Operator:]

Thank you. We’ll take the next question from Stewart Barry. Sir, your line is live.

[Stewart Barry:]

Thank you. Just a few questions. First, can you update us on IndustryBrains and the initiatives you’ve got going on that front and then secondly, Russ, how do you see Marchex’ position in mobile local search? It’s a market that hasn’t yet been really developed but an important one down the road.

[Russell Horowitz:]

Sure. IndustryBrains, you brought up the contextual infrastructure and we’ve continued to leverage that as we integrate more and more into a common ad center, that is, [more] paid listings across search and vertical web sites both proprietary and partnered. So bringing us high quality third-party relationships and infrastructure to support contextual has been a key part of what IndustryBrains has done. In addition, we leverage that as part of our product initiative to be able to support an option system for graphic inventory and so it continues to be a positive part of Marchex’ overall development of both adding third-party distribution partners and at the same time extending our infrastructure in terms of ad serving. So it’s been a very positive contributor. We’ve had very good people out there, you know, leading this as part of our integration process when we look at the opportunities with our proprietary network. So those are important components. When we look at, again, mobile search, our primary focus has been in looking at added utility to our locally focused web sites and we think we’d make tremendous progress and have set the stage for even more progress going forward. We all know mobile’s a big market and that mobile local search will be important, so we think it’s still relatively early. But the good news is when you look at the infrastructure for content publishing and monetization, we have it and to the extent that it becomes something that we feel is going to be more tangible, we think we’re in a good position to be able to leverage it given you already would have created the content and advertiser relationships that are naturally expansible. In the short term – in the intermediate term, we continue to focus on leadership in local and vertical traffic and monetization and when mobile as a distribution technique becomes more relevant to us, we feel well positioned to extend our infrastructure in that direction. But that’s not something that I would say is at the top of our 06 priority list.

[Operator:]

Thank you very much. We’ll take the next question from [Ross Sadler]. Sir, your line is live.

[Jordan Rohan:]

Yeah, it’s actually Jordan Rohan for [Ross Sadler]. Several questions. The first is, there have been several questions on this call surrounding the flattish sequential performance out of the owned and operated proprietary sites, whatever you want to call them. One way to think about this is that you have a very small percentage of your traffic still coming from those or, and specifically you’ve put a lot of effort in the zip code site and certainly those sites are much improved, but those are still a very small percentage of your total uniques. Do I get this right? Are zip codes still less than a couple of million uniques a month out of that 28 million that you have in total? Thank you.

[Russell Horowitz:]

We don’t – we haven’t segmented out the traffic. But the zip codes at this stage are a minority of the traffic, so I think you’re in the right place. When you look at the combination of what we think is the existing local traffic today, we believe Marchex is amongst the largest owners of local traffic online. But it’s overall still a minority of the aggregate traffic we have, although it is a rapidly growing minority within our overall network and one that clearly we have a lot of focus around. But I think your analysis is sound.

[Jordan Rohan:]

All right. Can you comment on a trend basis whether you spent less on driving traffic through paid search this quarter than you did last quarter?

[Russell Horowitz:]

Yeah. We do a variety of testing which includes marketing on proprietary domains. It can vary from quarter to quarter. In the second quarter it was a little bit lower and I think you can see that in our search and marketing line.

[Operator:]

Thank you very much. We’ll take the next question from Sameet Sinha. Your line is live.

[Sameet Sinha:]

Yes, thank you. In terms of the incremental additions that you are making on the product development and business development side, are you done with those headcount additions and have we seen a full quarter’s impact or do you think this line item will increase going into the third quarter. You know, just as you’re talking about additional investments that you could potentially make in your search technology as you continue to modify the Open List [investment]?

[Russell Horowitz:]

Sure. I’m going to go off on a few tangents and hopefully come back and answer your question directly. You know, we’re in an environment where we’ve got one of the highest growth segments in one of the highest growth industries, when you look at the search market. You’ve got folks like Google and Microsoft spending billions of dollars, literally billions of dollars, to try and defend and enhance their positions. So we’ve taken the position that as a young company that’s growing at organic growth rates of 30% plus, we feel as we look at out 2007 and beyond, we’ve got catalysts to see growth accelerate and in the meantime we’ve got EBITDA margins north of 30%, so we ought to be investing, too, given that a lot of the markets we focus on are very early and high growth, and leaders always get a premium. So we made the choice to invest some of that incremental margin as we grow our business in more people and systems and capital spending to support our initiatives so that, if anything, when we look out or look back a year from now on where we are and where we are in terms of our scale and industry position and opportunity, we didn’t make a mistake of under spending against that given that we know our business model works and that we have a growth profile and profitability profile that positions us in the very upper tiers of our industry. So we have continued to invest some of the incremental margin into people and systems and, while we [inaudible] for a bit of that, I don’t think it’s over. It is something that’s discretionary to us, but we are in a window where we think it makes sense to continue to add high quality people that can help us fulfill that opportunity and apply those EBITDA margins to a revenue line that’s hopefully seeing acceleration in its growth rate. So we’ll manage that balance as we grow of how much that incremental margin can show up on the bottom line versus reinvesting in the people and systems.

[Sameet Sinha:]

Okay. Next question, in terms of your zip code site now that you launched the Version 2.0, that’s obviously going to benefit your third quarter numbers, could you share the data, you know, you shared data with us on the 29 beta sites. Do you have similar data on the zip code sites as well which you could share so that we could see what sort of monetization and revenue potential you have in the first quarter?

[Russell Horowitz:]

There may be some data we can share subsequently. It’s a launch we just did in the last few days and announced yesterday and clearly our goal is to try and give investors as much information about Marchex as possible so they can make a determination whether or not we’re relevant to them as an investment. We’re excited about what we’re doing. We think we have opportunities to provide more data. It’s a good thing and we ought to do it. So, as we make progress with the zip code sites, if there’s some data we think is relevant to investors, we will share it.

[Operator:]

Thank you very much, ladies and gentlemen. The last question we have coming into queue is from Bill Morrison. Sir, your line is live.

[Bill Morrison:]

Yeah, hi, you said I think that you guys are now serving about 30% of ads from your proprietary network and that’s up 1000 basis points from last quarter. I was wondering if you could just set expectations for where we can expect that to go, let’s say a year from now. Then secondly, I wanted to just get your thoughts on another type of investment you could make with your stock [again] significantly as it is. Can you talk about how you’ve used stock buybacks? Thanks.

[Russell Horowitz:]

Sure. We have increased the percentage of inventory we’re monetizing with our direct advertiser relationships and I’ll say what I have in the past which is, over time, our goal is for Marchex to be the biggest monetizer of our own inventory and that continues to be the focus. We have not given a specific timeline on that, but that’s our goal. Clearly, if something like Microsoft is investing billions of dollars around trying to build systems that allow them to do that, then we feel we’re very well along in that process and every unique step we take just gives us affirmation that it’s the right strategic approach when we look at opportunity and defensibility. So those are key components. In the context of looking at share buybacks, as we generate more cash and we look at the opportunities to grow our company and invest in internal processes or our own stock, it’s clearly something we’ve got to look at consider and so that’s an area that I would say, it’s something that gets talked about and, to the extent we feel it makes sense, you know, may act against.

[Operator:]

Thank you very gentlemen. There appear to be no further questions in queue. Do you have any closing comments you’d like to finish with?

[Russell Horowitz:]

Appreciate everyone’s involvement in today’s call and the questions and we look forward to sharing our progress with you in the balance of the year.

[Operator:]

Thank you very much, ladies and gentlemen. This does conclude your conference. You may disconnect your lines and have a wonderful day.