10-Q 1 mchx-20240930.htm 10-Q 10-Q
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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 September 30, 2024

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.)

 

1200 5th Ave, Suite 1300

 

Seattle, WA

(Address of Principal Executive Offices)

98101

(Zip Code)

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

 

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, $0.01 par value per share

 

MCHX

 

The NASDAQ STOCK MARKET LLC

(NASDAQ Global Select Market)

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

 

As of October 25, 2024, the registrant had 4,660,927 shares of Class A common stock outstanding. The number of shares of Registrant’s Class B common stock outstanding as of October 25, 2024 was 39,021,418.

 

 


MARCHEX, INC.

 

Form 10-Q

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Condensed Consolidated Financial Statements (unaudited)

1

Condensed Consolidated Balance Sheets (unaudited)

1

 

Condensed Consolidated Statements of Operations (unaudited)

2

 

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

3

Condensed Consolidated Statements of Cash Flows (unaudited)

4

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

23

 

 

 

PART II.

OTHER INFORMATION

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

 

Signature

40

 

 


PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

 

 

 

(unaudited)

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,078

 

 

$

14,607

 

Accounts receivable, net

 

 

7,760

 

 

 

7,394

 

Prepaid expenses and other current assets

 

 

1,971

 

 

 

1,805

 

Total current assets

 

 

21,809

 

 

 

23,806

 

Property and equipment, net

 

 

2,067

 

 

 

2,398

 

Other assets, net

 

 

1,213

 

 

 

1,482

 

Right-of-use lease assets

 

 

1,277

 

 

 

1,631

 

Goodwill

 

 

17,558

 

 

 

17,558

 

Intangible assets from acquisitions, net

 

 

151

 

 

 

602

 

Total assets

 

$

44,075

 

 

$

47,477

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,200

 

 

$

1,533

 

Accrued benefits and payroll

 

 

2,641

 

 

 

3,294

 

Other accrued expenses and current liabilities

 

 

3,465

 

 

 

3,217

 

Deferred revenue and deposits

 

 

859

 

 

 

1,214

 

Operating lease liability, current

 

 

499

 

 

 

462

 

Total current liabilities

 

 

8,664

 

 

 

9,720

 

Deferred tax liabilities

 

 

289

 

 

 

249

 

Finance lease liability, non-current

 

 

170

 

 

 

421

 

Operating lease liability, non-current

 

 

837

 

 

 

1,217

 

Total liabilities

 

$

9,960

 

 

$

11,607

 

Commitments and contingencies - See Note 10

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value; Authorized 137,500 shares

 

 

 

 

 

 

Class A: 12,500 shares authorized; 4,661 shares issued and
   outstanding at September 30, 2024 and December 31, 2023

 

 

49

 

 

 

49

 

Class B: 125,000 shares authorized; 39,021 shares issued and
   outstanding at September 30, 2024, including
365 shares
   of restricted stock; and
38,661 shares issued and outstanding
   at December 31, 2023, including
720 shares of restricted stock

 

 

390

 

 

 

386

 

Additional paid-in capital

 

 

357,944

 

 

 

356,666

 

Accumulated deficit

 

 

(324,268

)

 

 

(321,231

)

Total stockholders’ equity

 

 

34,115

 

 

 

35,870

 

Total liabilities and stockholders’ equity

 

$

44,075

 

 

$

47,477

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

1


MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenue

 

$

12,553

 

 

$

12,778

 

 

$

36,200

 

 

$

37,516

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Service costs (1)

 

 

4,224

 

 

 

5,057

 

 

 

12,790

 

 

 

15,899

 

Sales and marketing (1)

 

 

3,224

 

 

 

2,319

 

 

 

8,753

 

 

 

8,920

 

Product development

 

 

3,106

 

 

 

3,942

 

 

 

9,573

 

 

 

12,202

 

General and administrative

 

 

2,673

 

 

 

2,249

 

 

 

7,492

 

 

 

7,412

 

Amortization of intangible assets from acquisitions

 

 

151

 

 

 

531

 

 

 

452

 

 

 

1,593

 

Acquisition and disposition related costs

 

 

 

 

 

 

 

 

 

 

 

12

 

Total operating expenses

 

 

13,378

 

 

 

14,098

 

 

 

39,060

 

 

 

46,038

 

Loss from operations

 

 

(825

)

 

 

(1,320

)

 

 

(2,860

)

 

 

(8,522

)

Interest income (expense) and other, net

 

 

19

 

 

 

(218

)

 

 

(90

)

 

 

(192

)

Loss before provision for income taxes

 

 

(806

)

 

 

(1,538

)

 

 

(2,950

)

 

 

(8,714

)

Income tax expense

 

 

25

 

 

 

9

 

 

 

87

 

 

 

53

 

Net loss applicable to common stockholders

 

$

(831

)

 

$

(1,547

)

 

$

(3,037

)

 

$

(8,767

)

Basic and diluted net loss per Class A and B share
   applicable to common stockholders

 

$

(0.02

)

 

$

(0.04

)

 

$

(0.07

)

 

$

(0.21

)

Shares used to calculate basic net loss per share
   applicable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

4,661

 

 

 

4,661

 

 

 

4,661

 

 

 

4,661

 

Class B

 

 

38,539

 

 

 

38,103

 

 

 

38,445

 

 

 

37,927

 

Shares used to calculate diluted net loss per share
   applicable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

4,661

 

 

 

4,661

 

 

 

4,661

 

 

 

4,661

 

Class B

 

 

43,200

 

 

 

42,764

 

 

 

43,106

 

 

 

42,588

 

(1) Excludes amortization of intangibles from acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

2


MARCHEX, INC. AND SUBSIDIARIES

Condensed 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

 

Balance at December 31, 2022

 

4,661

 

 

$

49

 

 

 

38,497

 

 

$

385

 

 

 

 

 

 

 

 

$

354,999

 

 

$

(311,321

)

 

$

44,112

 

Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net

 

 

 

 

 

 

 

282

 

 

 

3

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

12

 

Retirements of treasury stock

 

 

 

 

 

 

 

(105

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

Stock-based compensation from options and restricted stock, net of forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

799

 

 

 

 

 

 

799

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,476

)

 

 

(4,476

)

Balance at March 31, 2023

 

4,661

 

 

$

49

 

 

 

38,674

 

 

$

387

 

 

 

 

 

 

 

 

$

355,807

 

 

$

(315,797

)

 

$

40,446

 

Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net

 

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Stock-based compensation from options and restricted stock, net of forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

701

 

 

 

 

 

 

701

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,744

)

 

 

(2,744

)

Balance at June 30, 2023

 

4,661

 

 

$

49

 

 

 

38,696

 

 

$

387

 

 

 

 

 

 

 

 

$

356,515

 

 

$

(318,541

)

 

$

38,410

 

Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net

 

 

 

 

 

 

 

88

 

 

 

1

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

5

 

Retirements of treasury stock

 

 

 

 

 

 

 

(129

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

Stock-based compensation from options and restricted stock, net of forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

407

 

 

 

 

 

 

407

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,547

)

 

 

(1,547

)

Balance at September 30, 2023

 

4,661

 

 

$

49

 

 

 

38,655

 

 

$

387

 

 

 

 

 

$

 

 

$

356,926

 

 

$

(320,088

)

 

$

37,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Balance at December 31, 2023

 

4,661

 

 

$

49

 

 

 

38,661

 

 

$

386

 

 

 

 

 

 

 

 

$

356,666

 

 

$

(321,231

)

 

$

35,870

 

Stock-based compensation from options and restricted stock, net of forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

433

 

 

 

 

 

 

433

 

Issuance of Class B common stock in connection with prior deferred issuance from acquisition

 

 

 

 

 

 

 

356

 

 

 

3

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,450

)

 

 

(1,450

)

Balance at March 31, 2024

 

4,661

 

 

$

49

 

 

 

39,017

 

 

$

389

 

 

 

 

 

 

 

 

$

357,096

 

 

$

(322,681

)

 

$

34,853

 

Stock-based compensation from options and restricted stock, net of forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

437

 

 

 

 

 

 

437

 

Issuance of common stock upon vesting of restricted stock

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(756

)

 

 

(756

)

Balance at June 30, 2024

 

4,661

 

 

$

49

 

 

 

39,021

 

 

$

389

 

 

 

 

 

 

 

 

$

357,533

 

 

$

(323,437

)

 

$

34,534

 

Stock-based compensation from options and restricted stock, net of forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

411

 

 

 

 

 

 

411

 

Issuance of Class B common stock in connection with prior deferred issuance from acquisition

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(831

)

 

 

(831

)

Balance at September 30, 2024

 

4,661

 

 

$

49

 

 

 

39,021

 

 

$

390

 

 

 

 

 

$

 

 

$

357,944

 

 

$

(324,268

)

 

$

34,115

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

3


MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss applicable to common stockholders

 

$

(3,037

)

 

$

(8,767

)

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

 

 

 

 

 

 

Amortization and depreciation

 

 

1,872

 

 

 

3,126

 

Allowance for credit losses

 

 

(135

)

 

 

209

 

Deferred income taxes

 

 

3

 

 

 

 

Loss on the disposal of capital assets

 

 

 

 

 

192

 

Stock-based compensation

 

 

1,281

 

 

 

1,907

 

Change in certain assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

(231

)

 

 

53

 

Prepaid expenses, other current assets, and other assets

 

 

102

 

 

 

(276

)

Accounts payable

 

 

(767

)

 

 

(860

)

Accrued compensation, other accrued, and other liabilities

 

 

(712

)

 

 

(1,563

)

Deferred revenue and deposits

 

 

(355

)

 

 

(170

)

Net cash used in operating activities

 

 

(1,979

)

 

 

(6,149

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(264

)

 

 

(524

)

Proceeds from sales of property and equipment

 

 

 

 

 

66

 

Net cash used in investing activities

 

 

(264

)

 

 

(458

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercises of stock options, issuance and vesting of restricted stock and employee stock purchase plan, net

 

 

 

 

 

22

 

Repayments under finance lease liabilities and related obligations

 

 

(286

)

 

 

(172

)

Net cash used in financing activities

 

 

(286

)

 

 

(150

)

Net decrease in cash and cash equivalents

 

 

(2,529

)

 

 

(6,757

)

Cash and cash equivalents at beginning of period

 

 

14,607

 

 

 

20,474

 

Cash and cash equivalents at end of period

 

$

12,078

 

 

$

13,717

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for income taxes

 

$

65

 

 

$

70

 

Cash paid for interest

 

$

96

 

 

$

90

 

Non-cash purchases of property and equipment

 

$

434

 

 

$

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

4


MARCHEX, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1: Description of Business and Basis of Presentation

Description of Business

Marchex, Inc. ("Marchex" or the “Company”) harnesses the power of artificial intelligence ("AI") and conversational intelligence to provide actionable insights aligned with prescriptive vertical market data analytics, driving operational excellence and revenue acceleration. Marchex enables executive, sales, and marketing teams to optimize customer journey experiences across communications channels. Through our prescriptive analytics solutions, we enable the alignment of enterprise strategy, empowering businesses to increase revenue through informed decision-making and strategic execution. Marchex provides conversational intelligence AI-powered solutions for market-leading companies in leading B2B2C vertical markets, including several of the world’s most innovative and successful brands.

Marchex was incorporated in the state of Delaware on January 17, 2003.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rule and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company has used estimates related to several financial statement amounts, including revenues, the allowance for credit losses, useful lives for property and equipment and intangible assets, valuation of intangible assets, the fair value of stock option awards, the impairment of goodwill, and the valuation allowance for deferred tax assets. Actual results could differ from those estimates.

Recent Accounting Pronouncements Not Yet Effective

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. In addition, the amendments clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment and contains other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, thus it will be effective for our annual reporting period ending December 31, 2024, and for quarterly periods thereafter, with early adoption permitted. The Company is currently assessing the impact of this ASU on its disclosures within the Condensed Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 may be applied on a prospective basis and is effective for annual periods beginning after December 15, 2024, thus it will be effective for our annual reporting period ending December 31, 2025, with early adoption permitted. While we are still evaluating the specific impacts of adoption, we anticipate this guidance may have an impact on our annual income tax disclosures but not on our annual Consolidated Financial Statements.

5


Note 2: Revenue Recognition

The Company’s AI-powered conversational analytics technology platform provides data and insights into the conversations our clients are having with their customers across phone, text and other communication channels. Our tools enable brands to personalize customer interactions in order to accelerate sales and capture more opportunities to grow their business. The Company generates revenue from its conversational analytics technology platform when customers pay the Company a fee for call, text, or other communication related data elements they receive from calls or texts 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 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. Net accounts receivable, including unbilled accounts receivable, consists of the following:

 

 

September 30,

 

 

December 31,

 

(In Thousands)

 

2024

 

 

2023

 

Accounts receivable:

 

 

 

 

 

 

Billed

 

$

6,221

 

 

$

6,102

 

Unbilled

 

 

1,636

 

 

 

1,523

 

Allowance for expected credit losses

 

 

(97

)

 

 

(231

)

Accounts receivable, net

 

$

7,760

 

 

$

7,394

 

Customer payments received in advance of revenue recognition are considered contract liabilities and are recorded as deferred revenue. The deferred revenue balance and revenue recognized that was included in these contract liabilities at the beginning of the period consists of the following:

 

 

September 30,

 

 

December 31,

 

(In Thousands)

 

2024

 

 

2023

 

Deferred revenue and deposits

 

$

859

 

 

$

1,214

 

 

 

 

 

 

 

 

Revenue recognized in the period from contract liability at beginning of period

 

$

1,127

 

 

 

 

The Company’s incremental direct costs of obtaining a contract, which consist primarily of sales incentive compensation including 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. The Company’s contract acquisition costs are included in Other assets, net in the Condensed Consolidated Balance Sheets and consist of the following:

 

 

September 30,

 

 

December 31,

 

(In Thousands)

 

2024

 

 

2023

 

Contract assets:

 

 

 

 

 

 

Gross balance

 

$

3,049

 

 

$

1,920

 

Accumulated amortization

 

 

(2,014

)

 

 

(1,634

)

Contract assets, net

 

$

1,035

 

 

$

286

 

 

Note 3: Segment Reporting and Geographic Information

Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally for the Company’s management. For the three and nine months ended September 30, 2024 and 2023, the Company operated in a single segment comprised of its conversational analytics and related solutions.

Long-lived assets by geographical region are based on the location of the legal entity that owns the assets. As of September 30, 2024 and December 31, 2023, no significant long-lived assets were held by entities outside of the United States.

6


Revenues from customers by geographical areas are tracked on the basis of the location of the customer. The majority of the Company’s revenue and accounts receivable are derived from domestic sales to customers.

Revenues by geographic region are as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In Percentages)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

United States

 

 

99

%

 

 

99

%

 

 

99

%

 

 

99

%

Canada and other countries

 

 

1

%

 

 

1

%

 

 

1

%

 

 

1

%

Total

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

Note 4: Concentrations

The Company maintains substantially all of its cash and cash equivalents with two financial institutions.

The Company has one customer that generally represents more than 10% of consolidated revenue. The table below sets forth the percentage of the Company's consolidated revenue that was attributed to this customer for the periods presented below:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In Percentages)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Customer A

 

 

9

%

 

 

12

%

 

 

10

%

 

 

11

%

 

The Company has one customer that represents more than 10% of consolidated accounts receivable. The Company also has a significant concentration of credit risk arising from receivables due from a network of independent dealers that is above the 10% threshold. These dealers, while independently operated, sell the same brands and collectively represent a substantial portion of the Company's receivables. The table below sets forth the percentage of the Company's outstanding receivable balance that was attributed to this customer, and attributed to the aggregated balance due from the independent dealer network, as of the periods presented below:

 

 

September 30,

 

 

December 31,

 

(In Percentages)

 

2024

 

 

2023

 

Concentration type:

 

 

 

 

 

 

    Customer A

 

 

19

%

 

 

21

%

    Independent dealer network A

 

 

13

%

 

 

16

%

 

Note 5: Fair Value of Financial Instruments

The Company had the following financial instruments as of September 30, 2024 and December 31, 2023: cash and cash equivalents, accounts receivable, 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:

 

 

September 30,

 

 

December 31,

 

(In Thousands)

 

2024

 

 

2023

 

Level 1 assets:

 

 

 

 

 

 

Cash

 

$

6,939

 

 

$

9,510

 

Money market funds

 

 

5,139

 

 

 

5,097

 

Total cash and cash equivalents

 

$

12,078

 

 

$

14,607

 

 

7


Note 6: Stockholders' Equity

Common Stock

In November 2014, the Company’s board of directors authorized a new share repurchase program (the “2014 Repurchase Program”), which supersedes and replaces any prior repurchase programs. Under the 2014 Repurchase Program, the Company is authorized to repurchase up to 3 million shares of the Company’s Class B common stock in the aggregate through open market and privately negotiated transactions, at such times and in such amounts as the Company deems appropriate. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability, and other market conditions. The 2014 Repurchase Program does not have an expiration date and may be expanded, limited or terminated at any time without prior notice. The Company made no repurchases under the 2014 Repurchase Program during the three and nine months ended September 30, 2024 and 2023. Shares repurchased but not yet retired by the Company are classified as Treasury stock on the Condensed Consolidated Balance Sheets before retirement.

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 has been included in the same lines as compensation paid to the same employees in the Condensed Consolidated Statements of Operations.

Stock-based compensation expense was included in the following operating expense categories for the periods presented below:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In Thousands)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Service costs

 

$

8

 

 

$

 

 

$

14

 

 

$

 

Sales and marketing

 

 

41

 

 

 

89

 

 

 

217

 

 

 

580

 

Product development

 

 

13

 

 

 

(39

)

 

 

35

 

 

 

94

 

General and administrative

 

 

349

 

 

 

357

 

 

 

1,015

 

 

 

1,233

 

Total stock-based compensation

 

$

411

 

 

$

407

 

 

$

1,281

 

 

$

1,907

 

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 and nine months ended September 30, 2024 and 2023, the expected life of each award granted was determined based on historical experience with similar awards, giving consideration to contractual terms, anticipated exercise patterns, and vesting schedules. Expected volatility is based on historical volatility levels of the Company’s Class B common stock. 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 Company uses an expected annual dividend yield in consideration of the Company’s common stock dividend payments, which we consider to be zero.

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 September 30,

 

Nine Months Ended September 30,

 

 

2024

 

2023

 

2024

 

2023

Expected life (in years)

 

4.00 - 6.25

 

4.00 - 6.25

 

4.00 - 6.25

 

4.00 - 6.25

Risk-free interest rate

 

3.93% - 4.08%

 

4.61% - 4.70%

 

3.93% - 4.43%

 

3.58% - 4.70%

Expected volatility

 

57% - 59%

 

56% - 64%

 

57% - 64%

 

53% - 64%

 

8


Stock option activity during the nine months ended September 30, 2024 is summarized as follows:

 

Options
(in thousands)

 

 

Weighted
average
exercise price
of options

 

 

Weighted average
remaining
contractual term
(in years)

 

Balance at December 31, 2023

 

5,395

 

 

$

2.21

 

 

 

7.39

 

Options granted

 

1,730