Marchex, Inc. (NASDAQ: MCHX)(NASDAQ: MCHXP) today reported its
results for the first quarter ended March 31, 2007. Consolidated
Financial Results: Revenue was $34.2 million for the first quarter
of 2007, a 10% increase compared to $31.1 million for the same
period of 2006. GAAP net income applicable to common stockholders
was $548,000 for the first quarter of 2007 or $0.01 per share. This
compares to GAAP net loss applicable to common stockholders of $1.2
million or $0.03 per share for the same period of 2006. The first
quarter 2007 results included non-cash stock-based compensation
expense recorded under the fair value method of $2.9 million,
compared to non-cash stock-based compensation expense of $3.5
million for the same period in 2006. We provide a reconciliation of
GAAP EPS to Adjusted Non-GAAP EPS in the last financial tables
attached to this press release and encourage investors to examine
the reconciling adjustments between the GAAP and non-GAAP measures.
Adjusted non-GAAP EPS for the first quarter of 2007 was $0.11,
compared to $0.09 for the same period of 2006. Some Wall Street
analysts use non-GAAP measures to analyze our operating results,
which may include adjusted non-GAAP EPS, adjusted operating income
before amortization and adjusted EBITDA. We present GAAP measures
with equal or greater prominence than non-GAAP measures and such
non-GAAP measures should not be considered a substitute for, or
superior to, GAAP results. Adjusted operating income before
amortization was $7.6 million for the first quarter of 2007, which
is a decrease of 8% compared to $8.3 million for the same period of
2006. A reconciliation of non-GAAP adjusted operating income before
amortization to GAAP operating income and GAAP net income is
attached to the financial tables included in this release. Adjusted
EBITDA was $9.5 million in the first quarter of 2007 and $9.6
million for the same period of 2006. A reconciliation of operating
income before taxes, depreciation, amortization and gain/loss on
sales of intangible assets to GAAP net cash provided by operating
activities is attached to the financial tables included in this
release. �We have started the year with good momentum, and we
believe there are several unique catalysts to our business that
will lead to accelerating growth throughout the year,� said Russell
C. Horowitz, Marchex Chairman and CEO. �Our goals for this year are
to continue focusing on the elements we can control to grow our
business, expand margins, and feed the Marchex ecosystem by
building our proprietary traffic and advertiser base.� Updated
Statistics and Recent Highlights: Proprietary Traffic: Marchex
today announced that its proprietary network of vertical and local
Web sites attracted approximately 31 million unique visitors for
the month of March 2007. Unique visitor statistics are based on
internal traffic logs, which calculate unique IP (Internet
protocol) addresses on an unduplicated basis during a given month.
For the first quarter of 2007, revenue attributable to proprietary
traffic sources was $15.1 million. Third Party Syndication
Partners: Since January 1, 2007, Marchex has added more than a
dozen new contextual and pay-per-click partners. These partners
include Computer Shopper, Engineering.com, InvestorVillage.com,
Wall Street Reporter, CIO Index.com, WorldGolf.com and many others.
Marchex has added new partners every quarter for more than a year
and believes that this trend will continue for the balance of the
year. Marchex has also added thousands of individual Web sites to
its distribution system over the course of the past few months,
delivering content and advertising to these partners. New Web Site
Product Introductions: During the quarter, Marchex announced the
launch of Open View, a proprietary technology that dynamically
consolidates available information and user reviews on any type of
business entity, such as hotels or restaurants, into a set of
distinct, relevant, and meaningful summaries. Open View, a new
feature of the Open List content aggregation platform, represents
Marchex's technology driven approach to generating useful and
unique content on thousands of Web pages. In addition to generating
content related to more than 65,000 hotels, Open View has added
approximately 400,000 new, unique pieces of dynamically generated
editorial content that map to individual restaurants in the Open
List database. As Marchex integrates Open List content onto tens of
thousands of additional Web sites in 2007, the Open View technology
will be included. New Search Marketing Product Introductions:
During the quarter, Marchex announced that it has added conversion
tracking, as well as updated reporting tools and user interface
improvements to its pay-per-click advertising networks, enabling
advertisers to more effectively track their return on investment
(ROI), access key campaign performance data and make modifications
to optimize their campaigns. Marchex�s new conversion tracking
feature allows advertisers to easily designate and track five
different types of conversions. It also enables advertisers to
better track performance by keywords and make modifications to
their campaigns to improve their conversion rate and ROI. Marchex
Financial Guidance: The following forward-looking statements
reflect Marchex�s expectations as of May 8, 2007. Guidance for
fiscal year 2007 (Year ending December 31, 2007): Revenue: For the
year, we are reiterating that we anticipate revenue in the range of
$144 million to $150 million. For detail on our quarterly revenue
expectations, we currently anticipate that our annual revenue
growth rate will modestly accelerate from 10% in the first quarter
of 2007, to 10% to 12% in the second quarter of 2007. We continue
to anticipate that our revenues for the fourth quarter of 2007 will
reflect a growth rate of 20% or more over the fourth quarter of
2006. Adjusted operating income before amortization. For the year,
we are reiterating that we anticipate adjusted operating income
before amortization in the range of $35 million to $39 million. For
the second quarter of 2007, given the mix in anticipated revenue
contribution and continued product investments that are
disproportionately weighted toward the first half of the year, we
are anticipating adjusted operating income before amortization to
be similar to the first quarter of 2007 and that we will see
improved margins in the second half of 2007 as our revenue growth
continues to accelerate at a faster rate than costs. For adjusted
EBITDA, we expect to add back approximately $6 million in
additional depreciation and amortization to this range of $35
million to $39 million of adjusted operating income before
amortization. Conference Call and Webcast Information: Management
will hold a conference call, starting at 5:00 p.m. EDT on Tuesday,
May 8, 2007 to discuss its first quarter 2007 results and other
company updates. To access the call by live Webcast, please log
onto the Investor Relations section of the Marchex Web site
(www.marchex.com/ir.html). An archived version of the Webcast will
also be available, beginning two hours after completion of the
call, at the same location. About Marchex, Inc. Marchex
(www.marchex.com) is a technology driven search and media company
focused on vertical and local online traffic. Specifically, the
company is focused on search marketing, local search, and direct
navigation. Marchex's platform of integrated performance-based
advertising and search marketing services enables merchants to
efficiently market and sell their products and services across
multiple online distribution channels, including search engines,
product shopping engines, directories and selected Web sites.
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,
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 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 May 8, 2007 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 and Adjusted
non-GAAP EPS. Marchex also provides Pro Forma Revenue information
for the three months ended March 31, 2006 and 2007 as if the
AreaConnect and Open List asset acquisitions in 2006 occurred as of
January 1, 2006. OIBA represents income (loss) from operations plus
(1) stock-based compensation expense and (2) amortization of
acquired intangible assets. 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 of
intangible assets as this is viewed as non-recurring in nature.
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 non-cash and non-recurring
expenses. Adjusted EBITDA represents income before interest, income
taxes, depreciation, amortization, stock compensation expense, and
gain/loss on sales 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. 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
(loss) available to common stockholders plus: (1) stock based
compensation expense, (2) amortization of acquired intangible
assets, (3) gain/loss on sales of intangible assets, (4) other
income (expense), (5) the cumulative effect of changes in
accounting principles and less (6) discount on preferred stock
redemption. Adjusted non-GAAP EPS includes dilution from options
and warrants per the treasury stock method, includes the weighted
average number of all potential common shares relating to
convertible preferred stock and restricted stock and excludes the
weighted average common share equivalents for redeemed preferred
shares. Shares outstanding for Adjusted non-GAAP EPS purposes are
therefore higher than shares outstanding for GAAP EPS purposes.
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. These non-GAAP
terms, as defined by Marchex, may not be comparable to similarly
titled measures used by other companies. 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
(unaudited) � Three Months Ended March 31, � 2006� � 2007� �
Revenue $ 31,112,325� $ 34,223,401� � Expenses: Service costs (1)
14,851,949� 15,241,228� Sales and marketing (1) 5,866,684�
7,509,921� Product development (1) 2,227,024� 2,597,656� General
and administrative (1) 3,409,508� 4,180,775� Amortization of
acquired intangible assets � 4,870,673� � 4,523,134� Total
operating expenses � 31,225,838� � 34,052,714� � Gain (loss) on
sales and disposals of intangible assets, net � 179,208� � 32,264�
� Income from operations 65,695� 202,951� � Interest income and
other, net � 734,282� � 711,987� � Income before provision for
income taxes 799,977� 914,938� � Income tax expense � 653,648� �
473,788� � Income before cumulative effect of a change in
accounting principle 146,329� 441,150� � Cumulative effect of a
change in accounting principle, net of tax (2) � 151,341� � -� �
Net income 297,670� 441,150� � Convertible preferred stock
dividends, conversion payment and discount on preferred stock
redemption � 1,493,935� � (106,548) � Net income (loss) applicable
to common stockholders $ (1,196,265) $ 547,698� � Basic and diluted
net income (loss) applicable to common stockholders $ (0.03) $
0.01� � Shares used to calculate basic net income (loss) per share
applicable to common stockholders 37,124,298� 39,165,916� Shares
used to calculate diluted net income (loss) per share applicable to
common stockholders 37,124,298� 40,417,741� � (1)Includes stock
compensation allocated as follows: Service costs $ 236,211� $
118,535� Sales and marketing 1,047,271� 372,358� Product
development 735,187� 489,252� General and administrative �
1,502,074� � 1,907,069� Total stock compensation expense $
3,520,743� $ 2,887,214� � � (2)As a result of the adoption of SFAS
123R on January 1, 2006, Marchex recorded an amount from the
cumulative impact of the accounting change. MARCHEX, INC. AND
SUBSIDIARIES Condensed Consolidated Balance Sheets (unaudited) �
December 31, March 31, Assets � 2006� � 2007� � Current assets:
Cash and cash equivalents $ 46,105,827� $ 59,066,957� Trade
accounts receivable, net 22,035,343� 18,904,030� Prepaid expenses
and other current assets 2,221,550� 1,768,818� Refundable taxes
1,837,166� 2,434,383� Deferred tax assets � 670,624� � 489,827�
Total current assets 72,870,510� 82,664,015� � Property and
equipment, net 7,280,075� 8,050,690� Deferred tax assets 2,444,782�
3,816,267� Intangibles and other assets, net 13,318,801�
11,575,234� Goodwill 200,738,098� 195,709,714� Intangible assets
from acquisitions, net � 36,735,570� � 31,986,245� � Total assets $
333,387,836� $ 333,802,165� � � Liabilities and Stockholders'
Equity � Current liabilities: Accounts payable $ 10,739,231� $
10,610,630� Accrued expenses and other current liabilities
2,913,152� 2,309,130� Deferred revenue � 2,430,644� � 2,464,308�
Total current liabilities 16,083,027� 15,384,068� � Other
non-current liabilities � 91,907� � 83,435� Total liabilities
16,174,934� 15,467,503� � Stockholders' equity: Convertible
preferred stock 2,342,884� 1,664,827� Class A common stock 119,217�
119,217� Class B common stock 276,361� 301,895� Additional paid-in
capital 320,607,113� 321,960,836� Accumulated deficit � (6,132,673)
� (5,712,113) Total stockholders' equity � 317,212,902� �
318,334,662� � Total liabilities and stockholders' equity $
333,387,836� $ 333,802,165� MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of Revenue to Pro Forma Revenue (unaudited) � Three
Months Ended March 31, � 2006� � 2007� � Revenue, as reported $
31,112,325� $ 34,223,401� � AreaConnect pro forma revenue 497,313�
-� � Open List pro forma revenue 100,841� -� � Pro forma
eliminations � (17,251) � -� � Pro forma Revenue $ 31,693,228� $
34,223,401� MARCHEX, INC. AND SUBSIDIARIES Reconciliation of GAAP
Net Income (Loss) to Operating Income Before Amortization (OIBA)
and Adjusted Operating Income Before Amortization (Adjusted OIBA)
(unaudited) � Three Months Ended March 31, � 2006� � 2007� � Net
income (loss) applicable to common stockholders $ (1,196,265) $
547,698� � Convertible preferred stock dividends, conversion
payment and discount on preferred stock redemption 1,493,935�
(106,548) � Net income 297,670� � 441,150� � Cumulative effect of a
change in accounting principle, net of tax (1) � 151,341� � -� �
Income before cumulative effect of a change in accounting principle
146,329� 441,150� � Income tax expense � 653,648� � 473,788� �
Income before provision for income taxes 799,977� 914,938� �
Interest income and other, net � (734,282) � (711,987) � Income
from operations 65,695� 202,951� � Stock-based compensation
3,520,743� 2,887,214� Amortization of acquired intangible assets �
4,870,673� � 4,523,134� � Operating income before amortization
(OIBA) 8,457,111� 7,613,299� � Gain/loss on sales and disposals of
intangible assets, net � (179,208) � (32,264) � Adjusted operating
income before amortization (Adjusted OIBA) $ 8,277,903� $
7,581,035� � � (1)As a result of the adoption of SFAS 123R on
January 1, 2006, Marchex recorded an amount from the cumulative
impact of the accounting change. MARCHEX, INC. AND SUBSIDIARIES
Reconciliation from Net Cash provided by Operating Activities to
Adjusted EBITDA (unaudited) � Three Months Ended March 31, � 2006�
� 2007� � Net cash provided by operating activities $ 9,430,099� $
12,478,122� � Changes in asset and liabilities, net of effects of
acquisitions (1,267,079) (4,256,141) Provision for income taxes
653,648� 473,788� Other item - facility relocation 17,643� -�
Interest income and other, net (736,145) (706,703) Income and
excess tax benefits related to stock options � 1,477,965� �
1,492,991� Adjusted EBITDA $ 9,576,131� $ 9,482,057� MARCHEX, INC.
AND SUBSIDIARIES Reconciliation of GAAP EPS to Adjusted Non-GAAP
EPS (unaudited) � Three Months Ended March 31, � 2006� � 2007� � �
Adjusted Non-GAAP EPS $ 0.09� $ 0.11� � � Net income (loss) per
share applicable to common stockholders - diluted (GAAP EPS) $
(0.03) $ 0.01� Shares used to calculate diluted net income (loss)
per share applicable to common stockholders 37,124,298� 40,417,741�
� Net income (loss) applicable to common stockholders $ (1,196,265)
$ 547,698� � Discount on preferred stock redemption -� (122,594)
Stock-based compensation 3,520,743� 2,887,214� Amortization of
acquired intangible assets 4,870,673� 4,523,134� Gain/loss on sales
and diposals of intangible assets, net (179,208) (32,264)
Cumulative effect of a change in accounting principle, net of tax
(1) (151,341) -� Interest income and other, net (734,282) (711,987)
Estimated impact of income taxes � (2,355,370) � (2,259,129) �
Adjusted Non-GAAP net income applicable to common stockholders $
3,774,950� $ 4,832,072� � � Adjusted Non-GAAP EPS $ 0.09� $ 0.11� �
Shares used to calculate diluted net income (loss) per share
applicable to common stockholders 37,124,298� 40,417,741� Weighted
average common share equivalents for redeemed preferred shares -�
(1,604) Weighted average stock options and warrants and common
shares subject to repurchase or cancellation (if applicable) �
2,765,734� � 2,480,483� Shares used to calculate Adjusted Non-GAAP
EPS � 39,890,032� � 42,896,620� � For Adjusted Non-GAAP EPS, the
impact of restricted stock (common shares subject to repurchase or
cancellation) is based on the weighted average of restricted stock
outstanding as compared with diluted shares for GAAP purposes,
which included restricted stock on a treasury stock method basis. �
(1)As a result of the adoption of SFAS 123R on January 1, 2006,
Marchex recorded an amount from the cumulative impact of the
accounting change.
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