Marchex Reports Third Quarter 2009 Financial Results

Marchex, Inc. (NASDAQ:MCHX), a leading performance advertising company, today reported its results for the third quarter of 2009 ended September 30, 2009.

Third Quarter 2009 Consolidated Financial Results

• Revenue was $22.2 million for the third quarter of 2009, compared to $37.2 million for the same period of 2008.
• GAAP net income applicable to common stockholders was $743,000 for the third quarter of 2009 or $0.02 per diluted share. This compares to GAAP net income applicable to common stockholders of $1.3 million or $0.04 per diluted share for the same period of 2008. The third quarter 2009 results included non-cash stock-based compensation expense recorded under the fair value method of $2.3 million, compared to non-cash stock-based compensation expense of $3.2 million for the same period in 2008.
• We provide a reconciliation of GAAP diluted EPS to Adjusted non-GAAP EPS in the 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 third quarter of 2009 was $0.03, compared to $0.11 for the same period of 2008. 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 measures.
• Adjusted operating income before amortization was $1.9 million for the third quarter of 2009, compared to $6.6 million for the same period of 2008. A reconciliation of non-GAAP adjusted operating income before amortization to GAAP operating income and GAAP net income is included in the financial tables attached to this release.
• Adjusted EBITDA was $3.4 million in the third quarter of 2009, compared to $8.9 million for the same period of 2008. A reconciliation of adjusted EBITDA to GAAP net cash provided by operating activities is included in the financial tables attached to this release.

“During the quarter we saw strong internal execution on our core strategic themes: (1) continue to innovate across our product platform, (2) win more customer relationships and grow existing ones, (3) invest in our people and expand our talent base, and (4) continue to find operational efficiencies and maintain discipline around costs. These themes translated to sequential growth in all of our performance advertising products, including Marchex Connect and our call- and click-based products,” said Russell C. Horowitz, Marchex Chairman and Chief Executive Officer. “Our commitment to customers and focus on strong products and operations is laying a solid foundation for growth and puts Marchex in a position to fully realize the benefits of the continued shift in local advertising to performance-based models as the economy and advertiser budgets recover.”

Operating Highlights

Local Advertising Services: For the third quarter of 2009, revenue from Local Advertising Services was $15.9 million. Marchex ended the third quarter with more than 70,000 advertisers using its products and services. Based on ongoing progress, Marchex expects to add to its advertiser total in 2009.

Publishing (proprietary traffic sources): For the third quarter of 2009, revenue from Publishing was $6.3 million.

Non-Operating Highlights

During the quarter, Marchex sold a small number of non-strategic domains that yielded more than $1 million. There is still significant demand for high quality domains and Marchex believes that will remain the case for the foreseeable future.

In addition, during the third quarter of 2009, Marchex purchased 210,000 shares of its outstanding Class B common stock for a total price of $930,000, bringing its total shares repurchased under its stock repurchase program to 8.1 million shares, or 22% of its outstanding common stock.

Marchex Financial Guidance

“While there are some signs of stabilization and growth in core products, we continue to experience an advertising environment with shorter-term visibility as compared to prior years. As a result, we believe it prudent to not issue guidance at this time,” said Horowitz. “Despite these factors, Marchex continues to generate cash every quarter and has no debt.”

Conference Call and Webcast Information

Management will hold a conference call, starting at 5:00 p.m. ET on Thurs., November 5, 2009 to discuss its third quarter ended September 30, 2009 financial 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/investors/events.html). 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. ( www.marchex.com) provides call- and click-based performance advertising products. Marchex’s products support tens of thousands of advertisers, ranging from local businesses to the Fortune 500.

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 and other financial guidance, 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 November 5, 2009 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.

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 and disposals of intangible assets as these are 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 and disposals of intangible assets, (4) other income (expense), and less (5) 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
					September 30,
					2008			2009
Revenue					$	37,157,530		$	22,171,794
Expenses:
	Service costs (1)					15,443,871			12,048,245
	Sales and marketing (1)					8,462,898			3,213,946
	Product development (1)					4,750,136			3,369,290
	General and administrative (1)					5,156,542			3,997,361
	Amortization of intangible assets from acquisitions					3,165,566			1,211,328
	Total operating expenses					36,979,013			23,840,170
	Gain on sales and disposals of intangible assets, net					1,611,341			1,048,113
Income (loss) from operations						1,789,858			(620,263	)
Interest income (expense) and other, net						999,218			(13,643	)
Income (loss) before provision for income taxes						2,789,076			(633,906	)
Income tax expense (benefit)						1,431,120			(1,376,830	)
Net income						1,357,956			742,924
Convertible preferred stock dividends						11,928			-
Net income applicable to common stockholders					$	1,346,028		$	742,924
Basic net income per share applicable to Class A and Class B common stockholders					$	0.04		$	0.02
Diluted net income per share applicable to Class A and Class B common stock holders					$	0.04		$	0.02
Shares used to calculate basic net income per share applicable to common stockholders
	Class A					10,959,216			10,869,216
	Class B					25,207,357			22,724,209
Shares used to calculate diluted net income per share applicable to common stockholders
	Class A					10,959,216			10,869,216
	Class B					36,852,998			33,930,390
(1)	Includes stock-based compensation allocated as follows:
	Service costs				$	188,564		$	120,505
	Sales and marketing					587,014			239,528
	Product development					553,013			180,493
	General and administrative					1,919,405			1,785,936
	Total				$	3,247,996		$	2,326,462

MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
					Nine Months Ended
					September 30,
					2008				2009
Revenue					$	111,563,744			$	69,823,816
Expenses:
	Service costs (1)					51,745,487				34,934,455
	Sales and marketing (1)					23,330,681				14,485,213
	Product development (1)					13,189,709				10,969,807
	General and administrative (1)					15,190,526				12,055,096
	Amortization of intangible assets from acquisitions					10,879,203				4,680,879
	Total operating expenses					114,335,606				77,125,450
	Gain on sales and disposals of intangible assets, net					3,766,608				2,832,968
Income (loss) from operations						994,746				(4,468,666	)
Interest income (expense) and other, net						1,416,624				(17,425	)
Income (loss) before provision for income taxes						2,411,370				(4,486,091	)
Income tax expense (benefit)						1,824,396				(2,387,821	)
Net income (loss)						586,974				(2,098,270	)
Convertible preferred stock dividends and discount on preferred stock redemption, net						(32,657	)			-
Net income (loss) applicable to common stockholders					$	619,631			$	(2,098,270	)
Basic net income (loss) per share applicable to Class A and Class B common stockholders					$	0.01			$	(0.07	)
Diluted net income (loss) per share applicable to Class A and Class B common stockholders					$	0.01			$	(0.07	)
Shares used to calculate basic net income (loss) applicable to common stockholders
	Class A					10,965,238				10,889,326
	Class B					25,860,205				22,971,777
Shares used to calculate diluted net income (loss) applicable to common stockholders
	Class A					10,965,238				10,889,326
	Class B					37,484,212				33,861,103
(1)	Includes stock-based compensation allocated as follows:
	Service costs				$	414,222			$	317,561
	Sales and marketing					1,443,728				1,222,037
	Product development					1,360,011				478,925
	General and administrative					5,766,743				5,298,047
		Total			$	8,984,704			$	7,316,570

MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
			December 31,				September 30,
		Assets	2008				2009
Current assets:
	Cash and cash equivalents		$	27,418,396			$	33,022,528
	Trade accounts receivable, net			21,734,291				13,109,558
	Prepaid expenses and other current assets			2,642,607				2,044,173
	Refundable taxes			3,042,288				5,316,130
	Deferred tax assets			1,088,872				827,784
		Total current assets		55,926,454				54,320,173
	Property and equipment, net			5,615,396				4,121,338
	Deferred tax assets			56,784,228				53,465,846
	Intangibles and other assets, net			6,665,562				4,864,186
	Goodwill			35,475,782				35,447,024
	Intangible assets from acquisitions, net			9,802,365				5,121,449
		Total assets	$	170,269,787			$	157,340,016
		Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	12,351,123			$	7,518,901
	Accrued expenses and other current liabilities			6,331,709				4,737,757
	Deferred revenue			2,255,906				2,077,872
		Total current liabilities		20,938,738				14,334,530
	Other non-current liabilities			23,297				3,427
		Total liabilities		20,962,035				14,337,957
Stockholders' equity:
	Class A common stock			112,217				111,317
	Class B common stock			286,736				256,022
	Treasury stock			(15,392,921	)			(1,933,733	)
	Additional paid-in capital			299,925,762				282,290,765
	Accumulated deficit			(135,624,042	)			(137,722,312	)
		Total stockholders' equity		149,307,752				143,002,059
		Total liabilities and stockholders' equity	$	170,269,787			$	157,340,016

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP Net Income to Operating Income Before Amortization (OIBA) and
Adjusted Operating Income Before Amortization (Adjusted OIBA)
(unaudited)
				Three Months Ended
				September 30,
				2008				2009
Net income applicable to common stockholders				$	1,346,028			$	742,924
	Convertible preferred stock dividends and discount on preferred stock redemption, net				11,928				-
Net income					1,357,956				742,924
	Income tax expense (benefit)				1,431,120				(1,376,830	)
Income (loss) before provision for income taxes					2,789,076				(633,906	)
	Interest income and other, net				(999,218	)			13,643
Income (loss) from operations					1,789,858				(620,263	)
	Stock-based compensation				3,247,996				2,326,462
	Amortization of intangible assets from acquisitions				3,165,566				1,211,328
Operating income before amortization (OIBA)					8,203,420				2,917,527
	Gain on sales and disposals of intangible assets, net				(1,611,341	)			(1,048,113	)
Adjusted operating income before amortization (Adjusted OIBA)				$	6,592,079			$	1,869,414

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP Net Income (Loss) to Operating Income Before Amortization (OIBA) and
and Adjusted Operating Income Before Amortization (Adjusted OIBA)
(unaudited)
				Nine Months Ended
				September 30,
				2008				2009
Net income (loss) applicable to common stockholders				$	619,631			$	(2,098,270	)
	Convertible preferred stock dividends and discount on preferred stock redemption, net				(32,657	)			-
Net income (loss)					586,974				(2,098,270	)
	Income tax expense (benefit)				1,824,396				(2,387,821	)
Income (loss) before provision for income taxes					2,411,370				(4,486,091	)
	Interest income and other, net				(1,416,624	)			17,425
Income (loss) from operations					994,746				(4,468,666	)
	Stock-based compensation				8,984,704				7,316,570
	Amortization of intangible assets from acquisitions				10,879,203				4,680,879
Operating income before amortization (OIBA)					20,858,653				7,528,783
	Gain on sales and disposals of intangible assets, net				(3,766,608	)			(2,832,968	)
Adjusted operating income before amortization (Adjusted OIBA)				$	17,092,045			$	4,695,815

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation from Net Cash provided by Operating Activities to Adjusted EBITDA
(unaudited)
		Three Months Ended
		September 30,
		2008				2009
Net cash provided by operating activities		$	8,150,565			$	5,241,565
	Changes in asset and liabilities, net of effects of acquisitions		338,003				(533,169	)
	Income tax provision (benefit)		1,431,120				(1,376,830	)
	Other item - facility relocation		54				-
	Interest income (expense) and other, net		(998,199	)			13,693
	Income and excess tax benefits related to stock options		6,722				19,350
Adjusted EBITDA		$	8,928,265			$	3,364,609
Net cash provided by investing activities		$	1,026,715			$	632,225
Net cash used in financing activities		$	(9,067,710	)		$	(1,582,523	)
		Nine Months Ended
		September 30,
		2008				2009
Net cash provided by operating activities		$	19,360,092			$	13,572,609
	Changes in asset and liabilities, net of effects of acquisitions		4,816,715				(1,874,810	)
	Income tax provision (benefit)		1,824,396				(2,387,821	)
	Other item - facility relocation		(2,918	)			-
	Interest income (expense) and other, net		(1,413,750	)			18,040
	Income and excess tax benefits related to stock options		60,263				68,827
Adjusted EBITDA		$	24,644,798			$	9,396,845
Net cash provided by investing activities		$	943,672			$	1,553,333
Net cash used in financing activities		$	(27,671,543	)		$	(9,521,810	)

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS
(unaudited)
				Three Months Ended
				September 30,
				2008				2009
Adjusted Non-GAAP EPS				$	0.11			$	0.03
Net income per Class B share applicable to common stockholders - diluted (GAAP EPS)				$	0.04			$	0.02
Shares used to calculate diluted net income per Class B share applicable to common stockholders					36,852,998				33,930,390
Net income applicable to common stockholders				$	1,346,028			$	742,924
	Stock-based compensation				3,247,996				2,326,462
	Amortization of intangible assets from acquisitions				3,165,566				1,211,328
	Gain on sales and disposals of intangible assets, net				(1,611,341	)			(1,048,113	)
	Interest income (expense) and other, net				(999,218	)			13,643
	Estimated impact of income taxes				(942,399	)			(2,030,400	)
Adjusted Non-GAAP net income applicable to common stockholders				$	4,206,632			$	1,215,844
Adjusted Non-GAAP EPS				$	0.11			$	0.03
Shares used to calculate diluted net income per Class B share applicable to common stockholders					36,852,998				33,930,390
	Weighted average stock options and warrants and common shares subject to repurchase or cancellation (if applicable)				2,548,206				2,252,300
Shares used to calculate Adjusted Non-GAAP EPS					39,401,204				36,182,690
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 using the treasury stock method.

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS
(unaudited)
				Nine Months Ended
				September 30,
				2008				2009
Adjusted Non-GAAP EPS				$	0.27			$	0.08
Net income (loss) per Class B share applicable to common stockholders - diluted (GAAP EPS)				$	0.01			$	(0.07	)
Shares used to calculate diluted net income (loss) per Class B share applicable to common stockholders					37,484,212				33,861,103
Net income (loss) applicable to common stockholders				$	619,631			$	(2,098,270	)
	Discount on preferred stock redemption				(72,990	)			-
	Stock-based compensation				8,984,704				7,316,570
	Amortization of intangible assets from acquisitions				10,879,203				4,680,879
	Gain on sales and disposals of intangible assets, net				(3,766,608	)			(2,832,968	)
	Interest income (expense) and other, net				(1,416,624	)			17,425
	Estimated impact of income taxes				(4,329,702	)			(4,030,518	)
Adjusted Non-GAAP net income applicable to common stockholders				$	10,897,614			$	3,053,118
Adjusted Non-GAAP EPS				$	0.27			$	0.08
Shares used to calculate diluted net income (loss) per Class B share applicable to common stockholders					37,484,212				33,861,103
	Weighted average common share equivalents for redeemed preferred shares				(8,411	)			-
	Weighted average stock options and warrants and common shares subject to repurchase or cancellation (if applicable)				2,841,487				2,596,053
Shares used to calculate Adjusted Non-GAAP EPS					40,317,288				36,457,156
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 using the treasury stock method.