Marchex Reports Fourth Quarter and Full Year 2012 Financial Results

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Marchex Reports Fourth Quarter and Full Year 2012 Financial Results

Mobile, Call-Driven Business Poised for Increased Growth in 2013

SEATTLE--(BUSINESS WIRE)-- Marchex, Inc. (NAS: MCHX) today reported its results for the quarter and the full year ended December 31, 2012.


Fourth Quarter 2012 Consolidated Financial Results:

  • Revenue was $34.0 million for the fourth quarter of 2012, compared to $39.0 million for the same period of 2011.
  • GAAP net loss applicable to common stockholders was $34.7 million for the fourth quarter of 2012 or $1.02 per diluted share, which includes the effect of an estimated pre-tax $16.7 million non-cash impairment charge based on the preliminary results of the company's goodwill impairment tests and a non-cash charge to income tax expense of $16.4 million to establish a valuation allowance on certain deferred tax assets. Marchex began segmenting its Archeo financial results this quarter and the goodwill amounts allocated to Archeo initiated the non-cash goodwill charge. This compares to GAAP net income applicable to common stockholders of $920,000 or $0.03 per diluted share for the same period of 2011. The fourth quarter 2012 results included non-cash stock-based compensation expense of $3.3 million, compared to non-cash stock-based compensation expense of $3.7 million for the same period in 2011.
  • We provide a reconciliation of GAAP diluted EPS to Adjusted Non-GAAP EPS in the financial tables attached to this press release and we encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures. Adjusted non-GAAP EPS for the fourth quarter 2012 was $0.05, compared to $0.08 for the same period in 2011.
  • Adjusted operating income before amortization was $2.6 million for the fourth quarter of 2012, compared to $5.5 million for the same period of 2011. A reconciliation of non-GAAP adjusted operating income before amortization to GAAP operating income (loss) is included in the financial tables attached to this release.
  • Adjusted EBITDA was $3.5 million in the fourth quarter of 2012, compared to $6.5 million for the same period of 2011. A reconciliation of adjusted EBITDA to GAAP net cash provided by operating activities is included in the financial tables attached to this release.

Full Year 2012 Consolidated Financial Results

  • Revenue for the year ended December 31, 2012 was $138.3 million, compared to $146.7 million in 2011.
  • GAAP net loss applicable to common stockholders was $35.9 million or $1.05 per diluted share for 2012. As discussed in the summary of the fourth quarter 2012 consolidated financial results, this includes the effect of the $16.7 million non-cash pre-tax goodwill impairment and the $16.4 non-cash tax expense. This compares to GAAP net income applicable to common stockholders of $2.7 million or $0.08 per diluted share in 2011.
  • A reconciliation is provided of GAAP diluted EPS to Adjusted Non-GAAP EPS in the financial tables attached to this press release and we encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures. Adjusted non-GAAP EPS for 2012 was $0.25, compared to $0.30 in 2011.
  • Adjusted operating income before amortization was $13.4 million for 2012, compared to $19.1 million in 2011. A reconciliation of non-GAAP adjusted operating income before amortization to GAAP operating income (loss) is included in the financial tables attached to this release.
  • Adjusted EBITDA was $17.2 million for 2012, compared to $23.1 million in 2011. A reconciliation of adjusted EBITDA to GAAP net cash provided by operating activities is included in the financial tables attached to this release.

"We feel good about our progress in the fourth quarter, especially as it relates to building momentum for 2013 and beyond," said Russell C. Horowitz, Marchex Chairman and CEO. "We are seeing several trends emerge that we believe benefit Marchex, including more businesses embracing mobile advertising for the first time, and businesses who have tested mobile advertising now focusing on driving performance in their ad campaigns."

General Highlights:

1. Call-Driven and other related Revenues: For the fourth quarter of 2012, revenue was $28.5 million, which was impacted during the fourth quarter due to damage from Hurricane Sandy and the resulting reduced call volume and telecommunication systems disruption.

2. Archeo Non-Call-Driven Revenues: For the fourth quarter, revenue was $5.5 million, which was stable with the prior quarter. Archeo non-Call-Driven products include Marchex's domain and directory assets, pay-per-click and reputation management products.

3. During the fourth quarter, Marchex sold a small number of domains that yielded $863,000, bringing the total for the full year 2012 to $6.3 million.

4. During the fourth quarter, Marchex purchased 22,000 shares of its outstanding Class B common stock for a total price of $87,000. This brings Marchex's total shares repurchased under its stock repurchase program to 11.3 million shares, or 30% of its outstanding common stock.

5. In November 2012, Marchex announced that its board of directors has authorized management to pursue the separation of its business into two distinct, publicly traded entities. Upon closing of the proposed tax-free spin-off transaction, Marchex's existing shareholders would hold interests in: (1) Marchex, a pure-play mobile advertising company focused on calls; and (2) Archeo, Inc. ("Archeo"), a premium domain and advertising marketplace. For more information on this proposed transaction, please see the press release available at www.marchex.com/archeo.

6. Marchex is in the process of completing its goodwill and intangible asset impairment test and deferred tax valuation allowance analysis. These preliminary non-cash charge estimates, and the related tax impact, may change. Accordingly, fourth quarter 2012 and full year 2012 GAAP operating results included in this press release are preliminary and subject to change. GAAP operating results will be included in the Marchex's annual report on Form 10-K. The tax valuation allowance reflects the company's assessment of whether the deferred tax assets will be more likely than not realizable in the future, but has no effect on the company's ability to utilize deferred tax assets, such as loss carryforwards and tax credits, to reduce future cash tax payments.

Marchex Guidance:

The following forward-looking statements reflect Marchex's expectations as of February 27, 2013. Marchex anticipates providing updates upon completion of the spin-off.

Financial guidance for the fiscal year ending December 31, 2013:
Revenue: $144 million to $148 million
Adjusted Operating Income Before Amortization:more than $10 million
Adjusted EBITDA:Estimated add-backs of approximately $4 million in additional depreciation and amortization to adjusted operating income before amortization, implying an adjusted EBITDA of more than $14 million

For Call Driven Revenue, the company is forecasting a range of $125 million to $128 million.

2013 GAAP income (loss) from operations is expected to be ($4.5) million or better, assuming stock-based compensation between $9 million and $11 million and amortization of intangible assets from acquisitions between $3 million and $3.5 million. This estimate excludes any prospective gain or loss on sales and disposals of intangible assets or costs related to the separation of Archeo.

Financial guidance for the First Quarter ending March 31, 2013:
Revenue: More than $35 million
Adjusted Operating Income Before Amortization:More than $1.1 million
Adjusted EBITDA:Estimated add-backs of approximately $900,000 in additional depreciation and amortization to adjusted operating income before amortization, implying an adjusted EBITDA of $2.0 million

For Call Driven Revenue, the company is forecasting more than $30 million.

First quarter GAAP income (loss) from operations is expected to be ($4.1) million or better, assuming stock-based compensation between $3 million and $4 million and amortization of intangible assets from acquisitions between $0.8 million and $1.2 million. This estimate excludes any prospective gain or loss on sales and disposals of intangible assets. In the short-term, the above estimates for our measures of profitability may be impacted further by the timing of investments and costs related to the separation of Archeo.

"In the fourth quarter, we saw modest impact from reduced call volume and telecommunication systems disruption from the damage caused by Hurricane Sandy," said Mike Arends, Chief Financial Officer. "Excluding the impact, we continued to make progress adding new advertisers and publishers and believe we have set a strong foundation for growth in our call business in 2013. We expect meaningful momentum from our call-driven products based on current opportunities and are continuing our ramp in people, products and customers to accommodate these planned increases. As we move forward, we anticipate call-driven revenues, Adjusted OIBA and EBITDA will see sequential increases as the year progresses. Over the long term, we continue to believe Marchex can deliver significant annual growth rates in revenue with EBITDA margins capturing additional efficiencies beyond current levels."

Conference Call and Webcast Information

Management will hold a conference call, starting at 5:00 p.m. ET on Wednesday, February 27, 2013 to discuss its fourth quarter and year ended December 31, 2012 financial results, and other company updates. Access to the live webcast of the conference call will be available online from the Investors section of the Marchex's website at www.marchex.com. An archived version of the webcast will also be available at the same location, beginning two hours after completion of the call.

About Marchex

Marchex, Inc. delivers customer calls to businesses and analyzes those calls so companies can get the most out of their mobile advertising.

Marchex supports its customers through a unique technology platform that has three primary components: (1) Call Analytics, which powers all of our advertising solutions, and allows partners to leverage data and insights that accurately measure the performance of mobile, online and offline call advertising; (2) Digital Call Marketplace, which annually connects millions of consumer calls to our advertisers from a range of mobile and online sources on a Pay For Call basis; and (3) Local Leads, a white-labeled, full service digital advertising solution for small business resellers that drives quality phone calls and other leads to their small business advertisers.

On November 1, 2012, Marchex announced its intention to pursue separation of its business into two distinct, publicly-traded entities. Upon completion of the proposed tax-free spin-off transaction, Marchex's existing shareholders would hold interests in: (1) Marchex, a pure play mobile advertising company focused on calls, and (2) Archeo, Inc., a premium domain and advertising marketplace. The spin-off is expected to be completed in 2013.

Marchex is based in Seattle. To learn more, please visit www.marchex.com/products.

Forward-Looking Statements:

This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this press release regarding our strategy, future operations, future financial position, future revenues, other financial guidance, acquisitions, projected costs, prospects, plans and objectives of management are forward-looking statements. In addition, there are certain risks and uncertainties relating to our announced spin-off transaction which contemplates a separation of our mobile and call advertising business and our domain and advertising marketplace business, including, but not limited to, the impact and possible disruption to our operations, the timing and certainty of completing the transaction, the high costs in connection with the spin-off which we would not be able to recoup if the spin-off is not consummated, the expectation that the spin-off will be tax-free, revenue and growth expectations for the two independent companies following the spin-off, unanticipated developments that may delay or negatively impact the spin-off, and the ability of each business to operate as an independent entity upon completion of the spin-off. 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 a number of important factors that could cause Marchex's actual results to differ materially from those indicated by such forward-looking statements which are described in the "Risk Factors" section of our most recent periodic report and registration statement filed with the SEC. All of the information provided in this release is as of February 27, 2013 and Marchex undertakes no duty to update the information provided herein.

Non-GAAP Financial Information:

To supplement Marchex's consolidated financial statements presented in accordance with GAAP and to provide clarity internally and externally, Marchex uses certain non-GAAP measures of financial performance and liquidity, including OIBA, Adjusted OIBA, Adjusted EBITDA, Revenue with Domain Sales, Adjusted OIBA and EBITDA with Domain Sales and Adjusted non-GAAP EPS.

OIBA represents income (loss) from operations plus (1) stock-based compensation expense and (2) amortization of intangible assets from acquisitions. This measure, among other things, is one of the primary metrics by which Marchex evaluates the performance of its business. Additionally, Marchex's management uses Adjusted OIBA, which excludes any gain/loss on sales and disposals of intangible assets for each asset, acquisition and separation related costs and impairment of goodwill as these items are not indicative of Marchex's recurring core operating results. Adjusted OIBA is the basis on which Marchex's internal budgets are based and by which Marchex's management is currently evaluated. Marchex believes these measures are useful to investors because they represent Marchex's consolidated operating results, taking into account depreciation and other intangible amortization, which Marchex believes is an ongoing cost of doing business, but excluding the effects of certain other expenses or gain/loss such as stock-based compensation, amortization of intangible assets from acquisitions, acquisition and separation related costs, impairment of goodwill, and gain/loss on sales and disposals of intangible assets. Adjusted EBITDA represents income (loss) before interest, income taxes, depreciation, amortization, stock compensation expense, acquisition and separation related costs, impairment of goodwill, and gain/loss on sales and disposals of intangible assets. Marchex believes that Adjusted EBITDA is another alternative measure of liquidity to GAAP net cash provided by operating activities that provides meaningful supplemental information regarding liquidity and is used by Marchex's management to measure its ability to fund operations and its financing obligations. In conjunction with the anticipated spin-off, Marchex has also presented Revenue with Domain Sales, Adjusted OIBA and EBITDA with Domain Sales. Revenue with Domain Sales represents revenue plus sales proceeds from the sale of intangible domain assets and Adjusted OIBA and EBITDA with Domain Sales includes the above descriptions of Adjusted OIBA and EBITDA plus the gain/loss on sales and disposals of intangible assets. It is anticipated upon completion of the spin-off, that Archeo will further it's domain marketplace business initiative to buy and sell domains which differs from Marchex's historical approach to intangible asset transactions. Accordingly, it is anticipated upon Archeo fully engaging in this business initiative, sales proceeds from intangible domain assets may be presented as revenue prospectively. Financial analysts and investors may use the non-GAAP historical Revenue with Domain Sales, Adjusted OIBA and EBITDA with Domain Sales to help with comparative financial evaluation to make informed investment decisions.

Adjusted non-GAAP EPS represents Adjusted non-GAAP Net Income (loss) applicable to common stockholders divided by GAAP diluted shares outstanding. Adjusted non-GAAP Net Income (loss) applicable to common stockholders generally captures those items on the statement of operations that have been, or ultimately will be, settled in cash exclusive of certain items that are not indicative of Marchex's recurring core operating results and represents net income (loss) applicable to common stockholders plus the net of tax effects of: (1) stock-based compensation expense, (2) amortization of intangible assets from acquisitions, (3) gain/loss on sales and disposals of intangible assets, (4) acquisition and separation related costs, (5) impairment of goodwill, (6) interest and other income (expense), (7) dividends paid to participating securities, and also excludes the effect of the tax valuation allowance. Financial analysts and investors may use Adjusted non-GAAP EPS to analyze Marchex's financial performance since these groups have historically used EPS related measures, along with other measures, to estimate the value of a company, to make informed investment decisions, and to evaluate a company's operating performance compared to that of other companies in its industry.

Marchex's management believes that investors should have access to, and Marchex is obligated to provide, the same set of tools that management uses in analyzing the company's results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, and should not be considered in isolation, as a substitute for, or superior to, GAAP results. Marchex's non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar titled terms used by other companies, and accordingly, care should be exercised in understanding how Marchex defines its non-GAAP financial measures in this release. Marchex endeavors to compensate for the limitations of the non-GAAP measures presented by providing the comparable GAAP measure with equal or greater prominence, GAAP financial statements, and detailed descriptions of the reconciling items and adjustments, including quantifying such items, to derive the non-GAAP measure.

 
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 Three Months Ended
December 31,
2011 2012
Revenue$39,023$33,989
 
Expenses:
Service costs (1)21,61420,388
Sales and marketing (1)4,2592,694
Product development (1)5,8366,009
General and administrative (1)5,5555,566
Amortization of intangible assets from acquisitions1,6991,054
Acquisition and separation related costs 377   589 
Total operating expenses39,34036,300
Impairment of goodwill-(16,739)
Gain on sales and disposals of intangible assets, net 2,309   862 
Income (loss) from operations1,992(18,188)
Interest expense and other, net (190)  (20)
Income (loss) before provision for income taxes1,802(18,208)
Income tax expense 814   16,127 
Net income (loss)988(34,335)
Dividends paid to participating securities (68)  (394)
Net income (loss) applicable to common stockholders$920  $(34,729)
 
Basic net income (loss) per share applicable to Class A and Class B common stockholders
Class A$0.03$(1.02)
Class B$0.03$(1.01)
Diluted net income (loss) per share applicable to Class A and Class B common stockholder$0.03$(1.02)
Dividends paid per share$0.02$0.18
Shares used to calculate basic net income (loss) per share applicable to common stockholders
Class A9,6329,570
Class B24,01724,642
Shares used to calculate diluted net income (loss) per share applicable to common stockholders
Class A9,6329,570
Class B35,74334,212
(1)Includes stock-based compensation allocated as follows:
Service costs$367$334
Sales and marketing40422
Product development242181
General and administrative 2,722   2,720 
Total$3,735  $3,257 
 
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Twelve Months Ended
December 31,
2011 2012
Revenue$146,726$138,305
 
Expenses:
Service costs (1),(2)81,83580,594
Sales and marketing (1),(2)15,43413,671
Product development (1),(2)22,79423,395
General and administrative (1),(2)22,70922,911
Amortization of intangible assets from acquisitions5,4554,728
Acquisition and separation related costs 1,890   753 
Total operating expenses150,117146,052
Impairment of goodwill-(16,739)
Gain on sales and disposals of intangible assets, net 9,421   6,296 
Income (loss) from operations6,030(17,190)
Interest expense and other, net (458)  (449)
Income (loss) before provision for income taxes5,572(18,639)
Income tax expense 2,613   16,557 
Net income (loss)2,959(35,196)
Dividends paid to participating securities (259)  (657)
Net income (loss) applicable to common stockholders$2,700  $(35,853)
 
Basic net income (loss) per share applicable to common stockholders
Class A$0.08$(1.06)
Class B$0.08$(1.05)
Diluted net income (loss) per share applicable to common stockholders
Class A$0.08$(1.06)
Class B$0.08$(1.05)
Dividends paid per share$0.08$0.25
Shares used to calculate basic net income (loss) applicable to common stockholders
Class A9,9289,574
Class B23,35824,412
Shares used to calculate diluted net income (loss) applicable to common stockholders
Class A9,9289,574
Class B35,31833,986
(1)Includes stock-based compensation allocated as follows:
Service costs$1,291$1,904
Sales and marketing1,5052,039
Product development1,4161,051
General and administrative 10,931   10,702 
Total$15,143  $15,696 
(2)Certain reclassifications have been made to full year 2012 to conform to 4th quarter 2012 presentation.
 
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
  
December 31,December 31,
Assets2011 2012
Current assets:
Cash and cash equivalents$37,443$15,930
Accounts receivable, net30,63525,988
Prepaid expenses and other current assets3,614 Read Full Story

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