Company Quick10K Filing
Marchex
Price1.00 EPS3,628,000
Shares-0 P/E0
MCap-0 P/FCF-0
Net Debt-52 EBIT-4
TEV-52 TEV/EBIT14
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-19
10-K 2019-12-31 Filed 2020-03-13
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-18
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-14
10-Q 2017-09-30 Filed 2017-11-06
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-09
10-K 2016-12-31 Filed 2017-03-08
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-03-07
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-10
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-03
10-Q 2013-09-30 Filed 2013-11-12
10-Q 2013-06-30 Filed 2013-08-08
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-03-12
10-Q 2012-09-30 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-08
10-Q 2012-03-31 Filed 2012-05-08
10-K 2011-12-31 Filed 2012-03-12
10-Q 2011-09-30 Filed 2011-11-04
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-14
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-10
8-K 2020-05-11
8-K 2020-05-11
8-K 2020-05-11
8-K 2020-05-08
8-K 2020-05-04
8-K 2020-03-24
8-K 2020-03-02
8-K 2020-02-26
8-K 2020-02-12
8-K 2019-12-20
8-K 2019-12-13
8-K 2019-12-12
8-K 2019-11-06
8-K 2019-09-26
8-K 2019-08-28
8-K 2019-08-20
8-K 2019-08-07
8-K 2019-05-22
8-K 2019-05-02
8-K 2019-04-17
8-K 2019-04-09
8-K 2019-02-13
8-K 2018-12-20
8-K 2018-11-20
8-K 2018-11-05
8-K 2018-11-05
8-K 2018-10-01
8-K 2018-09-27
8-K 2018-08-21
8-K 2018-08-01
8-K 2018-06-27
8-K 2018-05-31
8-K 2018-05-29
8-K 2018-05-03
8-K 2018-02-15
8-K 2018-02-01

MCHX 10Q Quarterly Report

Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4. Mine Safety Disclosures
Item 6. Exhibits
EX-31 mchx-ex31_6.htm
EX-32 mchx-ex32_7.htm

Marchex Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
210168126844202012201420172020
Assets, Equity
55305-20-45-702012201420172020
Rev, G Profit, Net Income
352311-1-13-252012201420172020
Ops, Inv, Fin

10-Q 1 mchx-10q_20200331.htm 10-Q mchx-10q_20200331.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

 

Commission File Number 000-50658

 

Marchex, Inc.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

35-2194038

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

520 Pike Street, Suite 2000

 

Seattle, WA

(Address of Principal Executive Offices)

98101

(Zip Code)

Registrant’s telephone number, including area code: (206) 331-3300

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class B Common Stock

 

MCHX

 

The Nasdaq Global Select Market

As of May 14, 2020, the registrant had 4,660,927 shares of Class A common stock, $.01 par value per share, and 39,868,120 shares Class B common stock, $.01 par value per share, outstanding, respectively.

 

 

 

 


 

Marchex, Inc.

Form 10-Q

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

46

Item 4.

Controls and Procedures

46

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

Item 4.

Mine Safety Disclosures

69

Item 6.

Exhibits

70

Signature

71

 

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

 

 

December 31,

 

 

March 31,

 

 

 

2019

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

42,526

 

 

$

40,312

 

Accounts receivable, net

 

 

17,809

 

 

 

16,762

 

Prepaid expenses and other current assets

 

 

2,084

 

 

 

2,097

 

Total current assets

 

 

62,419

 

 

 

59,171

 

Property and equipment, net

 

 

3,028

 

 

 

3,264

 

Right-of-use lease asset

 

 

5,801

 

 

 

5,578

 

Other assets, net

 

 

335

 

 

 

1,096

 

Goodwill

 

 

33,433

 

 

 

19,132

 

Intangible assets from acquisitions, net

 

 

19,485

 

 

 

11,820

 

Total assets

 

$

124,501

 

 

$

100,061

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,082

 

 

$

7,476

 

Accrued expenses and other current liabilities

 

 

6,679

 

 

 

7,223

 

Current portion of acquisition-related liabilities

 

 

1,111

 

 

 

642

 

Deferred revenue and deposits

 

 

1,173

 

 

 

1,380

 

Lease liability current

 

 

1,500

 

 

 

1,495

 

Total current liabilities

 

 

17,545

 

 

 

18,216

 

Deferred tax liabilities

 

 

981

 

 

 

181

 

Lease liability non-current

 

 

5,664

 

 

 

5,410

 

Non-current portion of acquisition-related liabilities

 

 

473

 

 

 

226

 

Total liabilities

 

 

24,663

 

 

 

24,033

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Class A: 12,500 shares authorized; 4,661 shares issued and

   outstanding at December 31, 2019 and March 31, 2020

 

 

49

 

 

 

49

 

Class B: 125,000 shares authorized; 39,610 shares issued and

   outstanding at December 31, 2019, including 1,030 shares of

   restricted stock; and 39,768 shares issued and

   outstanding at March 31, 2020, including 1,145

   shares of restricted stock

 

 

396

 

 

 

398

 

Additional paid-in capital

 

 

359,633

 

 

 

360,696

 

Accumulated deficit

 

 

(260,240

)

 

 

(285,115

)

Total stockholders’ equity

 

 

99,838

 

 

 

76,028

 

Total liabilities and stockholders’ equity

 

$

124,501

 

 

$

100,061

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

1

 


 

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2020

 

Revenue

 

$

26,406

 

 

$

24,785

 

Expenses:

 

 

 

 

 

 

 

 

Service costs (1)

 

 

14,258

 

 

 

14,498

 

Sales and marketing (1)

 

 

4,113

 

 

 

4,991

 

Product development (1)

 

 

4,568

 

 

 

6,043

 

General and administrative (1)

 

 

3,320

 

 

 

3,737

 

Amortization of intangible assets from acquisitions (2)

 

 

1,568

 

 

 

1,763

 

Acquisition-related costs (benefit)

 

 

182

 

 

 

(635

)

Total operating expenses

 

 

28,009

 

 

 

30,397

 

Impairment of goodwill

 

 

 

 

 

(14,213

)

Impairment of intangible assets from acquisitions

 

 

 

 

 

(5,903

)

Loss from operations

 

 

(1,603

)

 

 

(25,728

)

Interest income and other, net

 

 

185

 

 

 

110

 

Loss before provision for income taxes

 

 

(1,418

)

 

 

(25,618

)

Income tax benefit

 

 

(119

)

 

 

(743

)

Net loss applicable to common stockholders

 

$

(1,299

)

 

$

(24,875

)

Basic and diluted net loss per Class A and Class B share applicable

   to common stockholders

 

$

(0.03

)

 

$

(0.53

)

Shares used to calculate basic net loss per share applicable to

   common stockholders:

 

 

 

 

 

 

 

 

Class A

 

 

5,056

 

 

 

4,661

 

Class B

 

 

39,827

 

 

 

42,179

 

Shares used to calculate diluted net loss per share applicable

   to common stockholders:

 

 

 

 

 

 

 

 

Class A

 

 

5,056

 

 

 

4,661

 

Class B

 

 

44,883

 

 

 

46,840

 

(1) Excludes amortization of intangibles from acquisitions

 

 

 

 

 

 

 

 

(2) Components of amortization of intangibles from acquisitions:

 

 

 

 

 

 

 

 

Service costs

 

$

574

 

 

$

756

 

Sales and marketing

 

 

618

 

 

 

742

 

General and administrative

 

 

376

 

 

 

265

 

Total

 

$

1,568

 

 

$

1,763

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 


2

 


 

MARCHEX, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

 

Class A

 

 

Class B

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

common stock

 

 

common stock

 

 

Treasury stock

 

 

paid-in

 

 

Accumulated

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity

 

Balances at December 31, 2018

 

 

5,056

 

 

$

53

 

 

 

36,965

 

 

$

370

 

 

 

 

 

 

 

 

$

350,801

 

 

$

(256,198

)

 

$

95,026

 

Issuance of common stock upon

   exercise of options, issuance

   and vesting of restricted stock

   and under employee stock purchase

   plan, net

 

 

 

 

 

 

 

 

129

 

 

 

1

 

 

 

(90

)

 

 

(1

)

 

 

194

 

 

 

 

 

 

194

 

Stock compensation from options and

   restricted stock, net of

   forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

545

 

 

 

 

 

 

 

545

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,299

)

 

 

(1,299

)

Balances at March 31, 2019

 

 

5,056

 

 

$

53

 

 

 

37,094

 

 

$

371

 

 

 

(90

)

 

 

(1

)

 

$

351,540

 

 

$

(257,497

)

 

 

94,466

 

 

 

 

 

Class A

 

 

Class B

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

common stock

 

 

common stock

 

 

Treasury stock

 

 

paid-in

 

 

Accumulated

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity

 

Balances at December 31, 2019

 

 

4,661

 

 

$

49

 

 

 

39,610

 

 

$

396

 

 

 

 

 

 

 

 

$

359,633

 

 

$

(260,240

)

 

 

99,838

 

Issuance of common stock upon

   exercise of options, issuance

   and vesting of restricted stock

   and under employee stock purchase

   plan, net

 

 

 

 

 

 

 

 

158

 

 

 

2

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

8

 

Stock compensation from options and

   restricted stock, net of

   forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,057

 

 

 

 

 

 

1,057

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,875

)

 

 

(24,875

)

Balances at March 31, 2020

 

 

4,661

 

 

$

49

 

 

 

39,768

 

 

$

398

 

 

 

 

 

 

 

 

$

360,696

 

 

$

(285,115

)

 

 

76,028

 

 

 

 


3

 


 

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2019

 

 

2020

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,299

)

 

$

(24,875

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization and depreciation

 

 

2,034

 

 

 

2,278

 

Impairment of goodwill

 

 

 

 

 

14,213

 

Impairment of intangibles assets from acquisitions

 

 

 

 

 

5,903

 

Allowance for doubtful accounts and advertiser credits

 

 

(157

)

 

 

1,351

 

Deferred income taxes

 

 

(141

)

 

 

(800

)

Stock-based compensation

 

 

545

 

 

 

1,057

 

Acquisition-related costs (benefit)

 

 

117

 

 

 

(728

)

Change in certain assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

1,638

 

 

 

(304

)

Prepaid expenses, other current assets and other assets

 

 

(394

)

 

 

(854

)

Accounts payable

 

 

743

 

 

 

318

 

Accrued expenses and other current liabilities

 

 

416

 

 

 

521

 

Deferred revenue and deposits

 

 

2,174

 

 

 

206

 

Other non-current liabilities

 

 

(52

)

 

 

 

Net cash provided by (used in) operating activities

 

 

5,624

 

 

 

(1,714

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(237

)

 

 

(596

)

Cash received in connection with acquisitions

 

 

95

 

 

 

88

 

Purchases of intangible assets and changes in other non-current assets

 

 

(1

)

 

 

(1

)

Net cash used in investing activities

 

 

(143

)

 

 

(509

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from exercises of stock options, issuance and vesting of restricted

   stock and employee stock purchase plan, net

 

 

195

 

 

 

9

 

Net cash provided by financing activities

 

 

195

 

 

 

9

 

Net increase (decrease) in cash and cash equivalents

 

 

5,676

 

 

 

(2,214

)

Cash and cash equivalents at beginning of period

 

 

45,230

 

 

 

42,526

 

Cash and cash equivalents at end of period

 

$

50,906

 

 

$

40,312

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for operating leases

 

$

418

 

 

$

301

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

4

 


 

MARCHEX, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

(1) Description of Business and Basis of Presentation

 

(a) Description of Business and Basis of Presentation

Marchex, Inc. (the “Company”) was incorporated in the state of Delaware on January 17, 2003. The Company is a call analytics company that helps businesses connect, drive, measure, and convert callers into customers. The Company provides products and services for businesses of all sizes that depend on consumer phone calls or texts to drive sales. The Company’s analytics technology can facilitate call quality and texting, analyze calls and measure the outcomes of calls. The Company also delivers performance-based, pay-for-call advertising across numerous mobile and online publishers to connect consumers with businesses over the phone.

The accompanying unaudited Condensed Consolidated Financial Statements of Marchex, Inc. and its wholly-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or for any other period. The balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2019, as amended, and filed with the SEC.

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the consolidated financial statements in the prior periods to conform to the current period presentation.

Acquisitions

In November 2018, the Company acquired Telmetrics Inc. (“Telmetrics”), an enterprise call and text tracking and analytics company, and SITA Laboratories, Inc. (d/b/a Callcap) (“Callcap”), a call monitoring and analytics solutions company. In December 2019, the Company acquired Sonar Technologies, Inc. (“Sonar”), an enterprise text messaging sales engagement and analytics company. See Note 11. Acquisitions of the Notes to the Condensed Consolidated Financial Statements for further discussion.

5

 


 

(b) The Impact of COVID-19 on our Results of Operations

In late 2019, an outbreak of COVID-19 emerged and by March 11, 2020 was declared a global pandemic by the World Health Organization. Across the United States and the world, governments and municipalities instituted measures in an effort to control the spread of COVID-19, including quarantines, shelter-in-place orders, school closings, travel restrictions and the closure of non-essential businesses. By the end of March, the macroeconomic impacts became significant, exhibited by, among other things, a rise in unemployment and market volatility.

For most of the quarter ended March 31, 2020, the Company’s results reflect historical trends and seasonality. However, in March 2020, the Company experienced a decline in revenues due to the impact of COVID-19 and the related reductions in global economic activity and reduced spending by its customers in response to the macroeconomic impact. The Company also assessed the realized and potential credit deterioration of its customers due to changes in the macroeconomic environment, which has been reflected in an increase in its allowance for credit losses for accounts receivable. Additionally, the Company determined that indicators of impairment had occurred during the first quarter of 2020, which resulted in the Company performing an interim impairment analysis during the first quarter of 2020. As a result of this interim impairment test, the Company recognized an impairment of its intangible long-lived assets and goodwill during the first quarter of 2020. See the Notes to the Condensed Consolidated Financial Statements for additional information.

For additional information for the effects of the COVID-19 pandemic and resulting global disruptions on the Company’s business and operations, refer to Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1.A of Part II, “Risk Factors”.

(c) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of money market funds.

(d) Fair Value of Financial Instruments

The Company had the following financial instruments as of December 31, 2019 and March 31, 2020: cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities. The carrying value of these financial instruments approximates their fair value based on the liquidity of these financial instruments and their short-term nature. Further, these financial instruments are considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets. The following table provides information about the fair value of our cash and cash equivalents balance as of December 31, 2019 and March 31, 2020 (in thousands):

 

 

At December 31,

 

 

At March 31,

 

 

2019

 

 

2020

 

Level 1 Assets:

 

 

 

 

 

 

 

Cash

$

15,258

 

 

$

12,961

 

Money market funds

 

27,268

 

 

 

27,351

 

Total cash and cash equivalents

$

42,526

 

 

$

40,312

 

 

In addition, the Company has acquisition-related liabilities which are recorded at fair value. The fair value was estimated by applying the income approach, which is based on significant inputs that are not observable in the market (Level 3 inputs), such as the discount rate and the probability of meeting targeted financial goals. See Note 11. Acquisitions of the Notes to the Condensed Consolidated Financial Statements for further discussion.  

Assets, liabilities and operations of foreign subsidiaries are recorded based on the functional currency of the entity. For a majority of our foreign operations, the functional currency is the U.S. dollar. Assets and liabilities denominated in other than the functional currency are remeasured each month with the remeasurement gain or loss recorded in other income and expense in the Condensed Consolidated Statements of Operations.

 

 

(2) Significant Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure

6

 


 

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These judgments are difficult as matters that are inherently uncertain directly impact their valuation and accounting. Actual results may vary from management’s estimates and assumptions.

Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in these Condensed Consolidated Financial Statements.

As of March 31, 2020, the impact of the outbreak of COVID-19 continues to unfold. As a result, many of the Company’s estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.

Recent Accounting Pronouncement(s) Not Yet Effective

In January 2017, the FASB issued Accounting Standards Update No 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. ASU 2017-04 is effective for public companies’ annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (ASU 2016-13), an ASU amending the impairment model for most financial assets and certain other instruments. The ASU is effective for reporting periods beginning after December 15, 2019, with early adoption permitted after December 15, 2018. The ASU must be adopted using a modified-retrospective approach. In November 2018, the FASB issued Accounting Standards Update No. 2018-19, Codification Improvements (Topic 326), Financial Instruments - Credit Losses (ASU 2018-19), an ASU intended to improve the Codification or correct its unintended application. The ASU is effective upon the adoption of the amendments in Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is effective for reporting periods beginning after December 15, 2019, with early adoption permitted after December 15, 2018. The Company does not expect adoption of ASU 2018-19 and ASU 2016-13 to have a material impact on its consolidated financial statements. In addition, in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments — Credit Losses (Topic 326), Targeted Transition Relief, (ASU 2019-05)), an ASU which provides ASU 2016-13 transition relief by providing entities with an alternative to irrevocably elect the fair value option for eligible financial assets measured at amortized cost upon adoption of the credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. The ASU is effective upon the adoption of the amendments in ASU 2016-13. The Company does not expect adoption of ASU 2019-05, ASU 2018-19 and ASU 2016-13 to have a material impact on its consolidated financial statements.

In November 2019, the FASB issued Accounting Standards Update No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) - Effective Dates (ASU-2019-10), an ASU modifying the effective dates of various previous pronouncements. As the Company qualifies as a Smaller Reporting Company with the SEC, this ASU revised the effective date of ASU 2016-13 and ASU 2017-04 to fiscal years beginning after December 15, 2022. The Company does not expect adoption of ASU 2019-10 to have a material impact on our consolidated financial statements.

In February 2020, the FASB issued Accounting Standards Update No. 2020-02, Financial Instruments — Credit Losses (Topic 326) and Leases (Topic 842). This ASU adds an SEC paragraph pursuant to the issuance of SEC Staff Accounting Bulletin No. 119, which adds Topic 6M on Accounting for Loan Losses by Registrants Engaged in Lending Activities Subject to FASB ASC Topic 326. It also adds a note in paragraph 842-10-S65-1 regarding the updated effective date for Leases pursuant to the issuance of ASU 2019-10. Additionally, in March 2020 Accounting Standards Update No. 2020-03, Codification Improvements to Financial Instruments (ASU 2020-03), an ASU which represent changes to clarify or improve the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The amendments and are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The Company does not expect adoption of ASU 2020-02 and of ASU 2020-03 to have a material impact on our consolidated financial statements.

In November 2019, the FASB issued Accounting Standards Update No. 2019-11, Codification Improvement to Topic 326, Financial Instruments — Credit Losses, an ASU which makes several amendments to the new credit losses standard, including an amendment requiring entities to include certain expected recoveries of the amortized cost basis previously written off, or expected to be written off, in the allowance for credit losses for purchased credit deteriorated assets. The amendments also provide transition relief

7

 


 

related to troubled debt restructurings, allow entities to exclude accrued interest amounts from certain required disclosures and clarify the requirements for applying the collateral maintenance practical expedient. For entities that have not yet adopted the new credit losses standard, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted the new credit losses standard, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period, as long as the entity has adopted the new credit losses standard. The ASU must be adopted using a modified-retrospective approach. The Company does not expect adoption of ASU 2019-11 to have a material impact on its consolidated financial statements.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, an ASU which eliminates certain exceptions to the guidance in Accounting Standards Codification (ASC or Codification) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance also clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. The ASU is effective for reporting periods beginning after December 15, 2020, with early adoption permitted. The transition method related to the ASU amendments depend upon the nature of the guidance and vary depending upon the specific amendment being implemented.  The Company does not expect adoption of ASU 2019-12 to have a material impact on its consolidated financial statements.

 

 

 


8

 


 

(3) Revenue Recognition

The Company generates the majority of its revenues from advertisers for its performance based advertising services, which include the use of its call analytics technology and pay-for-call advertising products and services. The Company’s revenue also consists of payments from its reseller partners for use of its local leads platform and marketing services, which they offer to their small business customers.  Customers typically receive the benefit of the Company’s services as they are performed and substantially all the Company’s revenue is recognized over time as the services are performed.

The Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers, (ASC 606) on January 1, 2018 using the modified retrospective approach for all contracts not completed as of the date of initial application, referred to as open contracts. Therefore, the comparative information has not been adjusted and continues to be reported under ASC 605. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company measures revenue based on the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service or product to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.

The Company’s call analytics technology platform provides data and insights that can measure the performance of mobile, online and offline advertising for advertisers and small business resellers. The Company generates revenue from the Company’s call analytics technology platform when advertisers pay the Company a fee for each call/text or call/text related data element they receive from calls or texts including call-based ads the Company distributes through its sources of call distribution or for each phone number tracked based on a pre-negotiated rate. Revenue is recognized as services are provided over time, which is generally measured by the delivery of each call/text or call/text related data element or each phone number tracked.  

The Company’s call marketplace offers advertisers and advertising service providers’ ad placements across the Company’s distribution network. Advertisers or advertising service providers are charged on a pay-per-call or cost-per-action basis. The Company generates revenue upon delivery of qualified and reported phone calls to advertisers or advertising service providers’ listings. These advertisers and advertising service providers pay the Company a designated transaction fee for each qualified phone call, which occurs when a user makes a phone call, clicks, or completes a specified action on any of their advertisement listings after it has been placed by the Company or by the Company’s distribution partners. The Company also generates revenue from cost-per-action services, which occurs when a user makes a phone call from the Company’s advertiser’s listing or is redirected from one of the Company’s web sites or a third-party web site in the Company’s distribution network to an advertiser web site and completes the specified action. Each qualified phone call or specified action on a listing represents a completed transaction. Revenue is recognized as services are provided upon the delivery of a qualified phone call or completed action. The Company’s distribution network is primarily comprised of third party mobile and online search engines and applications, mobile carriers, directories, destination sites, shopping engines, Internet domains or web sites, other targeted Web-based content, and offline sources. The Company enters into agreements with these third-party distribution partners to provide distribution for pay-for-call advertisement listings, which contain call tracking numbers and/or URL strings. The Company generally pays distribution partners based on a percentage of revenue or a fixed amount per phone call or other actions on these listings. The Company acts as the principal with the advertiser for revenue call transactions and is responsible for the fulfillment of services. The Company recognizes revenue for these fees under the gross revenue recognition method.

The Company’s local leads platform allows reseller partners to sell call advertising, search marketing, and other lead generation products through their existing sales channels to small business advertisers. The Company generates revenue from reseller partners utilizing the Company’s local leads platform and is paid account fees and/or agency fees for the Company’s products in the form of a percentage of the cost of every call or click delivered to advertisers. Revenue is recognized over time as services are provided. The reseller partners engage the advertisers and are the principal for the transaction, and the Company, in certain instances, is only financially liable to the publishers in the Company’s capacity as a collection agency for the amount collected from the advertisers. The Company recognizes revenue for these fees under the net revenue recognition method. In limited arrangements resellers pay the Company a fee for fulfilling an advertiser’s campaign in its distribution network and the Company acts as the principal and recognizes revenue for these fees under the gross revenue recognition method.

For the three months ended March 31, 2019, revenues disaggregated by service type were $25.2 million for performance based advertising services and $1.2 million for local leads services. For the three months ended March 31, 2020, revenues disaggregated by service type were $24.0 million for performance based advertising services and $826,000 for local leads services.

The majority of the Company’s customers are invoiced on a monthly basis following the month of the delivery of services and are required to make payments under standard credit terms. The Company establishes an allowance for advertiser credits, which is included in accrued expense and other current liabilities in the balance sheet as of March 31, 2020, using its best estimate of the amount of expected future reductions in advertisers’ payment obligations related to delivered services based on analysis of historical

9

 


 

credits. The balance associated with the allowance for advertiser credits in the Company’s consolidated balance sheet was $346,000 and $370,000 as of December 31, 2018 and 2019, respectively, and was $323,000 as of March 31, 2020. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. The deferred revenue balance in the Company’s consolidated balance sheet as of December 31, 2018 and 2019, was $1.8 million and $1.2 million, respectively, and was $1.4 million as of March 31, 2020. During the three months ended March 31, 2019 and 2020, revenue recognized that was included in the contract liabilities balance at the beginning of the period was $349,000 and $587,000, respectively.  

The majority of the Company’s total revenue is derived from contracts that include consideration that is variable in nature. The variable elements of these contracts primarily include the number of transactions (for example, the number qualified phone calls). For contracts with an effective term greater than one year, the Company applies the standard’s practical expedient that permits the exclusion of disclosure of the value of unsatisfied performance obligations for these contracts as the Company’s right to consideration corresponds directly to the value provided to the customer for services completed to date and all future variable consideration is allocated to wholly unsatisfied performance obligations. A term for purposes of these contracts has been estimated at 24 months. In addition, the Company applies the standard’s optional exemption to disclose information about performance obligations for contracts that have original expected terms of one year or less.

For arrangements that include multiple performance obligations, the transaction price from the arrangement is allocated to each respective performance obligation based on its relative standalone selling price and recognized when revenue recognition criteria for each performance obligation are met. The standalone selling price for each performance obligation is established based on the sales price at which the Company would sell a promised good or service separately to a customer or the estimated standalone selling price.

In certain cases, the Company records revenue based on available and reported preliminary information from third parties. Collection on the related receivables may vary from reported information based upon third-party refinement of the estimated and reported amounts owed that occurs subsequent to period ends.

The Company’s incremental direct costs of obtaining a contract, which consist primarily of sales commissions, are generally deferred and amortized to sales and marketing expense over the estimated life of the relevant customer relationship of approximately 24 months and are subject to being monitored every period to reflect any significant change in assumptions. In addition, the deferred contract cost asset is assessed for impairment on a periodic basis. The Company’s contract acquisition costs are included in other assets, net in the balance sheet. The Company is applying the standard’s practical expedient permitting expensing of costs to obtain a contract when the expected amortization period is one year or less, which typically results in expensing commissions paid to acquire certain contracts. As of December 31, 2019 and March 31, 2020, the Company had $287,000 and $289,000 of net deferred contract costs, respectively, and the amortization associated with these costs was $108,000 and $79,000 for the three months ended March 31,  2019 and 2020, respectively.

 

(4) Stock-based Compensation Plans

The Company grants stock-based awards, including stock options, restricted stock awards, and restricted stock units. The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense over the vesting or service period, as applicable, of the stock-based award using the straight-line method. The Company accounts for forfeitures as they occur.

 

Stock-based compensation expense was included in the following operating expense categories as follows (in thousands):

 

 

 

Three months ended

March 31,

 

 

 

2019

 

 

2020

 

Service costs

 

$

59

 

 

$

22

 

Sales and marketing

 

 

177

 

 

 

316

 

Product development

 

 

76

 

 

 

94

 

General and administrative

 

 

233

 

 

 

625

 

Total stock-based compensation

 

$

545

 

 

$

1,057

 

 

The Company uses the Black-Scholes option pricing model to estimate the per share fair value of stock option grants with time-based vesting. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. For the three months ended March 31, 2019 and 2020, the expected life of each award granted was determined based on historical experience with similar awards, giving consideration to contractual terms, anticipated exercise patterns, vesting schedules and expirations. Expected volatility is based on historical volatility levels of the Company’s Class B common stock and the expected volatility of companies in

10

 


 

similar industries that have similar vesting and contractual terms. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option.

The following weighted average assumptions were used in determining the fair value of time-vested stock option grants for the periods presented:

 

 

 

Three months ended

March 31,

 

 

2019

 

2020

Expected life (in years)

 

4.0

 

4.0 - 6.25

Risk-free interest rate

 

2.22%

 

1.13% - 1.22%

Expected volatility

 

40%

 

46% - 52%

 

Stock option activity during the three months ended March 31, 2020 is summarized as follows:

 

 

 

Shares

(in thousands)

 

 

Weighted average

exercise price

 

 

Weighted average

remaining

contractual term

(in years)

 

 

Balance at December 31, 2019

 

 

4,782

 

 

$

4.80

 

 

 

5.82

 

 

Options granted

 

 

239

 

 

 

3.02

 

 

 

 

 

 

Options forfeited

 

 

(49

)

 

 

3.08

 

 

 

 

 

 

Options expired

 

 

(94

)

 

 

5.11

 

 

 

 

 

 

Balance at March 31, 2020

 

 

4,878

 

 

$

4.72

 

 

 

5.81

 

 

 

Restricted stock awards and restricted stock units are generally measured at fair value on the date of grant based on the number of awards granted and the quoted price of the Company’s common stock. Restricted stock units entitle the holder to receive one share of the Company’s Class B common stock upon satisfaction of certain service conditions. 

Restricted stock awards and restricted stock unit activity during the three months ended March 31, 2020 is summarized as follows:

 

 

 

Shares/

Units

(in thousands)

 

 

Weighted average

grant date

fair value

 

Unvested balance at December 31, 2019

 

 

1,786

 

 

$

3.70

 

Granted

 

 

175

 

 

 

2.92

 

Vested

 

 

(38

)

 

 

4.00

 

Forfeited

 

 

(11

)

 

 

2.65

 

Unvested balance at March 31, 2020

 

 

1,912

 

 

$

3.63

 

  

(5) Net Income (Loss) Per Share

The Company computes net income (loss) per share of Class A and Class B common stock using the two class method. Under the provisions of the two class method, basic net income (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of the diluted net income (loss) per share of Class B common stock assumes the conversion of Class A common stock to Class B common stock, while the diluted net income (loss) per share of Class A common stock does not assume the conversion of those shares.

In accordance with the two class method, the undistributed earnings (losses) for each year are allocated based on the contractual participation rights of the Class A and Class B common shares and the restricted shares as if the earnings for the year had been distributed. Considering the terms of the Company’s charter which provides that, if and when dividends are declared on the Company’s common stock in accordance with Delaware General Corporation Law, equivalent dividends shall be paid with respect to the shares of Class A common stock and Class B common stock and that both classes of common stock have identical dividend rights and would share equally in the Company’s net assets in the event of liquidation, the Company has allocated undistributed earnings (losses) on a proportionate basis.

11

 


 

Instruments granted in unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities prior to vesting. As such, the Company’s restricted stock awards are considered participating securities for purposes of calculating earnings per share.

The following table presents the computation of basic net loss per share applicable to common stockholders for the periods ended (in thousands, except per share amounts):

 

 

 

Three months ended March 31,

 

 

 

 

2019

 

 

2020

 

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

 

Basic net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss applicable to common stockholders

 

$

(146

)

 

$

(1,153

)

 

$

(2,475

)

 

$

(22,400

)

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding used to calculate

   basic net loss per share

 

 

5,056

 

 

 

39,827

 

 

 

4,661

 

 

 

42,179

 

 

Basic net loss per share applicable to common stockholders

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.53

)

 

$

(0.53

)

 

 

 

The following table presents the computation of diluted net loss per share applicable to common stockholders for the periods ended (in thousands, except per share amounts):

 

 

 

Three months ended March 31,

 

 

 

 

2019

 

 

2020

 

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

 

Diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss applicable to common stockholders

 

$

(146

)

 

$

(1,153

)

 

$

(2,475

)

 

$

(22,400

)

 

Reallocation of net loss for Class A shares as a result of conversion

   of Class A to Class B shares

 

 

 

 

 

(146

)

 

 

 

 

 

(2,475

)

 

Diluted net loss applicable to common stockholders

 

$

(146

)

 

$

(1,299

)

 

$

(2,475

)

 

$

(24,875

)

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding used to calculate

   basic net loss per share

 

 

5,056

 

 

 

39,827

 

 

 

4,661

 

 

 

42,179

 

 

Conversion of Class A to Class B common shares outstanding

 

 

 

 

 

5,056

 

 

 

 

 

 

4,661

 

 

Weighted average number of shares outstanding used to calculate

   diluted net loss per share

 

 

5,056

 

 

 

44,883

 

 

 

4,661

 

 

 

46,840

 

 

Diluted net loss per share applicable to common stockholders

 

$

(0.03

)

 

$

(0.03

)

 

$

(0.53

)

 

$

(0.53

)

 

 

The computation of diluted net loss per share excludes the following because their effect would be anti-dilutive (in thousands):

 

For the three months ended March 31, 2019 and 2020, outstanding options to acquire 5,283 and 4,878 shares, respectively of Class B common stock.

 

For the three months ended March 31, 2019 and 2020, 524 and 1,145 shares of unvested Class B restricted common shares, respectively.

 

For the three months ended March 31, 2019 and 2020, 732 and 767 restricted stock units, respectively.

 

 

(6) Concentrations

The Company maintains substantially all of its cash and cash equivalents with two financial institutions and are all considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets.