Marchex, Inc. Class B 2026 Q2 Earnings Call

Francis, please go ahead. Good afternoon, everyone, and welcome to Marchex's business update and second quarter 2026 conference call.

Joining us today are Russ Horowitz, our Chairman of the Board, and Brian Nagle, 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. Risks and 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, and we 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 Marchex's acquisition of Archenia 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 Marchex's conversational intelligence and analytics capabilities with Archenia'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 scaling 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 and 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 leverage Marchex's data and AI signals and Archenia's AI tool set and user interface, are first, AI-verified outcomes, which drive increased revenue on a pay-per-event basis, and second, Conversational AI Agents, which increase customer bookings and appointment rate. We believe that our ability to sell these and other combined solutions to our installed customer base is our most immediate opportunity that 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, approximately 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 one 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 Marchex.

This customer subsequently adopted our AI-verified outcomes offering, increasing its total annualized revenue contribution to more than $1 million. 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 designed 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 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 launched a paid pilot using a Marchex 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, Russ. 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 Archenia. 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.

We ended 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 Archenia transaction closed on July 1, our second quarter results do not include Archenia. Our third quarter outlook includes a full quarter of Archenia's expected financial results. For the third quarter of 2026, Marchex currently expects revenue of $16 million-$16.5 million and adjusted EBITDA of $2.3 million-$2.5 million. The expected sequential increase in revenue primarily reflects a full quarter of Archenia's operations, together with continued growth in Marchex'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. Marchex's acquisition of Archenia creates a vertically-focused, AI-driven customer acquisition and outcome optimization platform. Marchex brings a deep foundation of first-party data derived from years of analyzing customer conversations for many industry-leading companies, with Archenia 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.