Marchex, Inc. (MCHX) Earnings Call Transcript & Summary

Thank you. Hello everyone. Thank you for joining us and welcome to March X second quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference call over to Frances Feeney, Chief Operating Officer. Frances, please go ahead.

Good afternoon everyone and welcome to March X's Business Update and second quarter 2026 conference call. Joining us today are Russ Horowitz, our Chairman of the Board, and Brian Nagel, our Chief Financial Officer. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements, including references to our financial and operational performance, and actual results may differ materially from those contemplated by these forward-looking statements. Recent uncertainties that could cause these results to differ materially are set forth in today's earnings press release and in our most recent annual or quarterly report filed with the SEC. Any forward looking statements that we make on this call are based on assumptions as of today. undertake no obligation to update these statements for subsequent events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings press release is available in the investor relations section of our website. At this time, I want to turn the call over to Russ.

Thank you, Frank, and thank you to everyone for joining us today. The July 1st completion of Martex's acquisition of Arcania marks an important step in our strategy to expand our AI-powered conversational intelligence and analytics solutions beyond insights and into actions and outcomes. By combining Margex's conversational intelligence and analytics capabilities with Arcania's performance-based customer qualification and acquisition technology, we are creating a highly differentiated, more comprehensive, AI-powered solution that not only helps businesses better understand customer interactions, but also turns those interactions into measurable outcomes with demonstrable value impact. While we operate in a rapidly evolving and dynamic industry with uncertainties and various risks, we believe that the combined company can achieve greater revenue scale and growth, higher margins, expanded market reach, and enhanced strategic flexibility. Further, in light of our emerging sales growth levers and additional cost efficiencies, we will now be looking to make selective investments in incremental sales and development resources to help our 2027 growth opportunities. As we discussed last quarter, if you zoom out, you consider what our customers most fundamentally rely on. It's knowing how to leverage AI driven strategic solutions to more efficiently drive growth oriented customer acquisition and optimization. We believe that we are seeing continuing signs of validation, that there is significant opportunity for us to rapidly expand into highly measurable AI-powered bundled solutions, which provide the strategic insights our customers need, the automated actions those insights inform, and the revenue-generating outcomes those actions achieve. We believe that there are significant untapped opportunities within our existing customer base and within each of our current verticals. We believe selling bundled solutions across the entire customer value chain can accelerate our business and make us more valuable within our vertical markets as AI opens new product possibilities that can help businesses grow meaningfully while driving efficiencies. We have been jointly developing and selling the initial products that reflect the combined capabilities of the two companies. Product examples of this collaboration, which leveraged Martex's data and AI signals and Arcania's AI tool set and user interface, are first, AI verified outcomes, which drive increased revenue on a pay-per-event basis. basis and second conversational ai agents which increase customer bookings and appointment rates We believe that our ability to sell these and other combined solutions for installed customer base is our most immediate opportunity and will be a meaningful sales catalyst in 2026 and beyond. As discussed last quarter, our top 100 customers represent approximately 90% of our revenue, and this customer base has been the initial focus for presenting the new products. At that time, we had made presentations to nearly one-third of these customers, a product half of whom have already purchased one or more of these products on a recurring or paid pilot basis. Of those remaining, we stated that we believe that over time, the majority are also likely to purchase 1 or more of these products on a recurring or paid pilot basis. Since this time, we have continued to see further progress and validation with these efforts. To this point, let me provide three examples of successful sales of new combined products to existing customers. First is an existing home services client, which generates approximately $500,000 in annualized analytics revenue for March X. This customer subsequently adopted our AI verified outcomes offering, increasing its total annualized revenue contribution to more than $1 million. Next. This example illustrates the potential to take an established analytics relationship and expand it by connecting conversational insights directly to measurable customer outcomes. Second, an auto services customer generating more than $300,000 in annualized analytics revenue began a paid pilot design to improve sales agent performance across 40 retail locations. That program has since expanded to more than 60 locations. This customer operates thousands of locations. If the program achieves its performance objectives and it expands more broadly, we believe the relationship could represent at least $1 million in annualized revenue. And third, an advertising and media customer generating approximately $400,000 in annualized analytics revenue wants a paid pilot using a MarchX conversational AI agent to improve call handling. If the pilot converts to a broader deployment, we believe it could contribute incremental revenue during 2026 and increase. annualized revenue from this customer by 50% or more in 2027. These examples demonstrate how our model can progress from an existing analytics relationship to a much more significant, strategically bundled and competitively differentiated solution. I will now turn the call over to Brian to discuss our second quarter 2026 financial results and third quarter outlook.

Thank you, Ross. Revenue for the second quarter of 2026 was $11 million, compared to $10.6 million for the first quarter of 2026. We saw a favorable impact of new sales and existing customer upsells benefit the company in the quarter. For operating expenditures, we saw efficiencies throughout the business as we benefited from the continued realignment of the organization and other expense efficiency initiatives that have taken place over the last several months. The benefits were offset by acquisition-related costs incurred during the quarter as we completed the acquisition of Arcania. We anticipate that our overall margins can continue to improve over time as we are carrying an overall lower cost structure going forward. which could enable meaningful future operating and financial leverage for the business as new products and features sell through. of the second quarter with 8.2 million in cash compared with 9 million at the end of the first quarter the decrease primarily reflected cash payments for transaction expenses organizational realignment activities and other efficiency initiatives Now turning to our outlook. Because the Arcania transaction closed on July 1, our second quarter results do not include Arcania. Third quarter outlook includes a full quarter of our Kenya's expected financial results. For the third quarter of 2026, Marchex currently expects revenue of $16 million to $16.5 million and adjusted EBITDA of $2.3 million to $2.5 million. The expected sequential increase in revenue primarily reflects a full quarter of our Kenya's operations. together with continued growth in MarchX's existing business based on our evolved strategic approach with delivering bundled solutions, including insights, actions, and outcomes. We plan to provide our fourth quarter 2026 financial outlook and initial business outlook for 2027 when we report third quarter results, which is currently anticipated in early November. With that, I will hand the call to Frank. Thank you, Brian.

MarchX's acquisition of Arcania creates a vertically focused, AI-driven customer acquisition and outcome optimization platform. MarchX brings a deep foundation of first-party data derived from years of analyzing customer conversations for many industry-leading companies, with Arcania adding AI-powered lead qualification, conversational IVR, performance marketing infrastructure, and expertise in activating call intelligence at scale. Together, the companies provide a comprehensive platform that connects customer insights, automated actions, and measurable business outcomes. Based on the increased opportunities of the combined company, moving forward, we are focused on scaling our financial performance to potentially achieve rule of 30 to rule of 40 trajectory. For reference, the rule of 30 to 40 metric represents the combination of annual revenue growth rates plus adjusted EBITDA margins. If we're able to achieve anticipated revenue run rate growth and combine this with our improving adjusted EBITDA margins, the combined company could be positioned to potentially achieve these rule of 30 to 40 metrics over time. which we believe helps highlight the unique opportunity of the combined company. With that, I will hand the call back to Russ for closing remarks.

Thank you, Frank. As we previously shared, we're highly focused on building a more than $100 million business over time and we We believe that the combination of March 6th and Arcania has better positioned us to achieve this goal. We entered the second half of 2026 with a larger revenue base, a more comprehensive AI-powered platform, and a broader opportunity to help customers turn conversations into measurable business outcomes. Our priorities are clear. We'll expand the adoption of our combined offerings across our existing customer base with an emphasis on converting successful paid pilots into broader recurring deployments. And we will also continue to manage expenses carefully while making selective investments that can support sustainable growth and operating leverage. believe March X now has a stronger foundation from which to grow. At the same time, we recognize that successful execution will depend on demonstrating measurable customer value, converting that value into recurring revenue, and delivering disciplined financial performance. I'm going to close out today's call by thanking all of our investors, partners, and other stakeholders for your ongoing support. I also want to thank our employees for their expertise, urgency, and commitment while we execute on the growth opportunities ahead.

With that, I will hand the call back to the operator for questions. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ross Collar with Collar Capital. Your line.

line is open, please go ahead. Hey, guys. Congrats on the early wins and momentum. Have a few questions today. First, the three examples of customer expansions are great and seem to validate the cross sell. Russ, can you provide some more color on the quality of the pipeline and particularly the amount of million dollar deals in there? And as a follow up, how big can deals get on an annual basis? And in particular, are there any multimillion dollar deals in there?.

Yes, it's a really good question. It actually hits right on how we think about about our pipeline and are looking at the growth path. We believe we have a double digit number of customers where there's potential for seven figures or more of incremental revenue from today. Within that group, we believe many of them over time likely have the potential to incrementally deliver multi-millions of dollars per year. So there's really plenty of opportunity. at the million-dollar-plus and multi-million-dollar scale. So if we can make this happen, it'll be very meaningful, and it will move the needle. This has been one of the big takeaways for us so far, that we have this big potential revenue expansion on a per customer basis. And we believe our expanded TAM just on existing customers is very significant. And it's why we're working with urgency to build the momentum.

Awesome. Thanks for that color. Russ, what's driving the dramatically increased deal sizes? How is AI affecting the growth and the amount of value you can provide your customers today?.

Yes, the deal size, that's really being driven by our ability to move beyond selling just the analytics and the resulting insights and now bundling it with the actions and revenue generating outcomes that the insights inform when we've only sold insights they have very little influence or control on whether the customer actually follows through and takes action on these and in the absence of action they don't achieve the value impact that the insights inform don't get me wrong i mean many customers do take actions in various forms but although a lot of the low-hanging fruit and potential value never gets harvested fully because taking these actions and involves their need to make operational changes, mobilize cross-departmental collaboration, and other logistical requirements in these large, complex organizations. Are solutions now connecting our insights to the AI driven automated actions to hit on the second part of your question where we effectively can take the action for them? And with the outcomes being tangibly achievable and measurable, it changes how much they're willing to pay us. And that's what really drives the increased revenue opportunity with so many of these customers. So our value impact at the bottom of the customer acquisition funnel, where much larger existing budgets exist, is significantly amplified. And the great part is our analytics are able to objectify the improved results by measuring the revenue dollars of the outcomes we generate. So our evolved solutions can and will not only inform the action that's needed, but they and then take the action on the customer's behalf and achieve the transactional outcome most valued by the customer, and then also measure and validate the results. complete and close the entire loop right down to the customer acquisition layer. And because of this, we can substantiate a much bigger piece of the pie. And that's all that we've learned so far in this process continues to support our belief that on a combined basis, as we noted in the body of our presentation, that we have $100 million plus revenue opportunity, and we're just approaching all of our efforts as a profitably focused sprint to that $100 million revenue run right and beyond.

Awesome. Thanks for that, Russ. And then with the enhanced profitability of the business and the nearly $10 million EBITDA run rate projected for this quarter, can you walk us through your thoughts on capital allocation and buybacks versus reinvestment back into growing the business?.