Hello, everyone. Thank you for joining Marchex's Second Quarter 2024 Earnings Call. My name is Sierra, and I will be your moderator today. All lines will be muted during the presentation, and there will be a chance for questions and answers at the end. I will now turn the call over to our host, Trevor Caldwell, Senior Vice President of Strategic Initiatives and Investor Relations. Please proceed.

Thanks, Sierra. Good afternoon, everyone, and welcome to Marchex’s business update and second quarter 2024 conference call. Joining us today are Edwin Miller, our CEO; and Holly Aglio, our Chief Financial Officer. Before we get started, I’d 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 and 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 will undertake no obligation to update these statements for subsequent events. During this call, we will present both GAAP and non-GAAP financial measures. Reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release. Earnings press release is available in the Investor Relations section of our website. At this time, I’d like to turn the call over to Edwin.

Thank you, Trevor, and good afternoon, everyone, and thank you for joining us today. Today, I will provide you an update on our progress in the second quarter, and on the initiatives that are forming the foundation for the future of Marchex. Marchex is transforming into a market-leading prescriptive analytics SaaS company, that harnesses the power of generative AI. We are focused on enabling our customers to achieve operational excellence by using our AI-powered products, to analyze and make business decisions leveraging their direct first-party conversational data. We aid multiple functions within a business, navigate risk and uncertainty, understand the performance of their distributed retail networks, and demonstrate how to drive revenue. We are able to solve these complex problems for businesses by leveraging the vast amount of data we analyze on their behalf every day. This is achieved by our emerging SaaS data analytics platform. We have deep relationships with some of the largest Fortune 500 companies in our current vertical markets. These companies rely on Marchex to deliver critical, rich data analytic insights to drive positive business outcomes for their respective retail outlets. We believe the best is still to come as we accelerate product innovation, continue deepening our relationships, and expand market opportunity. This includes continued expansion of our sales pipeline and positive execution of our gross margin and profitability goals. Our strategic vision is clear. We aim to be at the forefront of prescriptive analytics to drive operational excellence for Fortune 500 businesses as a SaaS platform. This is why we have been transforming the company’s technical foundation. One of the key pillars of our strategy is uniting our product platform and AI signals into OneStack. OneStack is fundamental to our innovation, and is a key step in allowing us to bring all of our conversational data into the cloud and one centralized platform. This accelerates our leveraging generative AI to unlock powerful insights and develop new growth opportunities from our expanding data sets. We are on track with OneStack goals we laid out for 2024. I would like to take a minute to highlight our exceptional team. Their commitment to customer excellence and innovation recently earned us the AI Breakthrough Award for Best Text Generative AI Solution for our Call Summaries and Sentiment Suite. This award is a testament to our team’s dedication to developing AI-powered solutions. I would also like to lift up our go-to-market teams, both for new business and the team supporting our current clients. We have tremendous leadership in these areas. Thank you to one Marchex for constantly improving our talent, as this has a direct impact on our client success, which then benefits our shareholders. As you can hopefully see, we are clearly in both strategic evolution and execution modes, and this is being reflected in our expanding sales pipeline. We continue to make progress adding new OEM and auto service customers during the quarter. In addition, the home services vertical is a bright spot for Marchex and is another area where we’re expanding key relationships. There is significant untapped potential in our vertical markets and within our existing customer base. Additionally, we are winning more new customers. The combination of these factors is accelerating our business and growth opportunity. With that, I’ll hand the call to Holly.

Thank you, Edwin. For the second quarter of 2024, revenue was $12.1 million versus $12.5 million for the same quarter last year, and up from first quarter 2024 revenue of $11.6 million. Revenue in the second quarter was up from the first quarter, in part, due to slightly improved conversation volumes and in part, from a developing pipeline of opportunities. We are seeing traction in the auto, auto services, and home services verticals so far this year. On a year-over-year basis, we saw continued headwinds from certain customer segments like our small business resellers, though that seems a bit improved on a sequential basis. Turning to the P&L for the second quarter. Excluding stock-based compensation, amortization of intangible assets, and acquisition and disposition-related costs, total operating costs for the second quarter of 2024 were $12.2 million compared to $14 million for the second quarter of 2023. Service costs were $4.2 million for the second quarter. We’ve seen significant progress on our service costs as a percentage of revenue so far this year. As we continue to make progress on our infrastructure initiatives and see increased sales of our conversational intelligence products and features, we believe we are well-positioned for the second half of 2024 and beyond. Sales and marketing costs were approximately $2.7 million for the second quarter. This was up slightly from the second quarter of 2023. Product development costs were $3.2 million for the second quarter, as we continue to invest in leveraging AI to expand our product suite with new conversational intelligence capabilities. Moving to profitability measures. Adjusted EBITDA was approximately $300,000 for the second quarter of 2024, which is a significant improvement over the adjusted EBITDA loss of $1 million for the second quarter of 2023. GAAP net loss was $800,000 for the second quarter of 2024 or $0.02 per diluted share. This compares to a loss of $2.7 million or $0.06 per diluted share for the second quarter of 2023. Adjusted non-GAAP loss was $0.01 per share for the second quarter of 2024 compared to a loss of $0.03 per share for the second quarter of 2023. Additionally, we ended the second quarter with approximately $12 million in cash on hand. Now turning to our outlook for the third quarter of 2024. First, let’s discuss revenue. We anticipate third quarter 2024 revenue will increase to be in the range of $12.6 million or more. For adjusted EBITDA, in the third quarter, we anticipate adjusted EBITDA will be in the range of – or better than, our second quarter 2024 results. Two fundamental factors are driving our expectations for sequential growth. First, there is some improvement in overall conversation volume trends. Our verticals remain in a relatively steady state, and that is reflected in a more normalized seasonal pattern for verticals like home services. Second, we are pleased to see a developing pipeline of opportunities. As we onboard some of our recent new wins, we expect that to contribute to sequential growth, although most of the growth from those wins will happen in future months, as those customers ramp up. This progress, along with our progress on our infrastructure initiatives, I believe puts us in a strong position to meet or exceed our original target for gross margin improvement and our profitability profile for 2024.

Thank you, Holly. We are making meaningful progress in the business. To summarize and wrap things up, we are achieving many of this year’s goals. We are on track with OneStack and progress with technical innovation. We are seeing growth with existing and new customers and validation of our vertical market strategy. We continue to see sequential revenue growth with acceleration. We are delivering meaningful gross margin expansion. Adjusted EBITDA continues to trend positively. The commitment and talent level of our team continues to grow. I want to thank our employees for their continued dedication, and also our clients for their engagement and partnership with Marchex. We look forward to updating you again in the coming months. Operator, we are ready for questions.

We will now begin the Q&A session. Our first question today comes from Darren Aftahi with Roth Capital Partners. Your line is now open.

Hey, this is Dillon for Darren. Thanks for taking my questions. If I could start with OneStack. Like when you roll that out, is there any adjustments you need to make, as you look across different customers? And then how do you sort of modulate that into some of the adjacent verticals you’re talking about expanding to, beyond some of the core three years in now?

Okay. So I’ll do adjustments first. Dillon, thanks for the question. I know we’ve met in person, but good to hear your voice. I think the adjustments we have to make, obviously, would be, we’re moving clients into a single cloud instance, that’s much more scalable with all of our signals, and a single sign-on and a single interface, et cetera, which is going to be awesome. And in that progress, the clients are excited about it. They get to consume more of their data, prescriptive analytics. They get to see things in a single place. So we’ve had nothing but really good conversations with clients. Now is there a change management that has to happen in terms of that with clients that need to move from different stacks? Yes. But we’re partnering well with them. We’ve got a great customer success team that’s lined up with our clients. Again, I probably – I don’t know how many times I’ve been with our top 25 clients, a lot. And so I think we’re a good fit there. Your second part of the question was, will it help us enter new verticals? The answer is, yes. It would be simpler for us to go into verticals. The signals and the business problems and the operational problems are the same in a few other verticals, and we’ve got a few of those targeted.

Got it. Thank you. Could you sort of comment at all on the feedback you’re getting from customers sort of on a macro trend basis, as to what they’re seeing in terms of call volumes and maybe why there’s still a bit of a headwind in certain industries compared to others?

The large clients, I’ve got great feedback from. They’re positive. Their companies are growing. We’re exposing data that – out of our platform in a new way, they hadn’t seen before, which is fantastic. They’re excited about that. And that’s where I spent the bulk of my time is on those top 25. So I don’t see any headwinds from them. And I will say, it’s about enabling the conversation, it’s not just about the call. It could be data off the web. It could be data from an email. It could be data from a text on a number. Everyone that I’m talking to is trying to bring that omni-channel approach, that conversational data together. So I’m enjoying being with their clients.

Got it. If I could ask one more, just you’re seeing the positive trends in adjusted EBITDA with sort of the rollout of OneStack? Is there anything in particular you need to invest in, or you think you have sort of the right mix of sales and R&D at the rate to go after those markets?

Well, we talked about gross margin lift. So as we move to OneStack, there will be more opportunity for more investment in innovation and sales and marketing without having to use our cash, which is exciting for me, to kind of turn that corner. I’m going to go back and say, one of the things you asked and the last one is, because we get OneStack, we get to add more signals, we get deeper and deeper and deeper with our clients, which is awesome. So we are a prescriptive data analytics SaaS platform. They are seeing us that way. It’s not just about the number, which is awesome. Because that’s really sticky and it’s powerful to control that conversation and deliver value on top of that. But what they can see in their data is going to make the difference for them and their business outcomes, which will make the difference for my shareholders.

Perfect. I’ll pass it on. Thank you.

Thank you for your questions. There are no longer questions in queue. So I would like to turn the call back to the management team for any further or closing remarks.

Okay. Thank you, everyone, for dialing in. We’re excited about the future of the company, and we look forward to the next check-in. Thank you.

That will conclude today’s conference call. Thank you all for your participation. You may now disconnect your line.