UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to .
Commission File Number
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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The (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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
MARCHEX, INC.
Form 10-Q
Table of Contents
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Page |
PART I. |
1 |
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Item 1. |
1 |
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1 |
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2 |
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Condensed Consolidated Statements of Stockholders’ Equity (unaudited) |
3 |
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4 |
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5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
Item 3. |
23 |
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Item 4. |
23 |
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PART II. |
24 |
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Item 1. |
24 |
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Item 1A. |
24 |
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Item 2. |
38 |
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Item 4. |
38 |
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Item 5. |
38 |
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Item 6. |
39 |
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40 |
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
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(unaudited) |
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September 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Other assets, net |
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Right-of-use lease assets |
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Goodwill |
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Intangible assets from acquisitions, net |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued benefits and payroll |
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Other accrued expenses and current liabilities |
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Deferred revenue and deposits |
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Operating lease liability, current |
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Total current liabilities |
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Deferred tax liabilities |
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Finance lease liability, non-current |
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Operating lease liability, non-current |
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Total liabilities |
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$ |
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$ |
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Stockholders’ equity: |
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Common stock, $ |
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Class A: |
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Class B: |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Expenses: |
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(1) |
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Sales and marketing (1) |
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Product development |
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General and administrative |
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Amortization of intangible assets from acquisitions |
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Acquisition and disposition related costs |
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— |
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— |
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— |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Interest income (expense) and other, net |
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( |
) |
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( |
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( |
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Loss before provision for income taxes |
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( |
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( |
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( |
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( |
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Income tax expense |
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Net loss applicable to common stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Basic and diluted net loss per Class A and B share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Shares used to calculate basic net loss per share |
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Class A |
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Class B |
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Shares used to calculate diluted net loss per share |
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Class A |
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Class B |
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(1) Excludes amortization of intangibles from acquisitions |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
2
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
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Class A |
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Class B |
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Additional |
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Total |
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common stock |
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common stock |
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Treasury stock |
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paid-in |
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Accumulated |
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stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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deficit |
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equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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— |
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— |
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$ |
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$ |
( |
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$ |
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Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net |
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— |
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— |
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— |
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— |
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— |
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Retirements of treasury stock |
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— |
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— |
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( |
) |
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( |
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— |
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— |
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— |
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— |
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( |
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Stock-based compensation from options and restricted stock, net of forfeitures |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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— |
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— |
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$ |
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$ |
( |
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$ |
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Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation from options and restricted stock, net of forfeitures |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2023 |
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$ |
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$ |
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— |
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— |
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$ |
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$ |
( |
) |
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$ |
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Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net |
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— |
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— |
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— |
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— |
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— |
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Retirements of treasury stock |
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— |
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— |
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( |
) |
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( |
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— |
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— |
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— |
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— |
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( |
) |
Stock-based compensation from options and restricted stock, net of forfeitures |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2023 |
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$ |
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$ |
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— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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Class A |
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Class B |
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Additional |
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Total |
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common stock |
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common stock |
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Treasury stock |
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paid-in |
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Accumulated |
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stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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deficit |
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equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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— |
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— |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation from options and restricted stock, net of forfeitures |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of Class B common stock in connection with prior deferred issuance from acquisition |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2024 |
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$ |
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$ |
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— |
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— |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation from options and restricted stock, net of forfeitures |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock upon vesting of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2024 |
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$ |
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$ |
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— |
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— |
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$ |
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$ |
( |
) |
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$ |
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||||||
Stock-based compensation from options and restricted stock, net of forfeitures |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of Class B common stock in connection with prior deferred issuance from acquisition |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2024 |
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$ |
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$ |
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— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
|
See accompanying Notes to the Condensed Consolidated Financial Statements.
3
MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
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Nine Months Ended September 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss applicable to common stockholders |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Amortization and depreciation |
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Allowance for credit losses |
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( |
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Deferred income taxes |
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— |
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Loss on the disposal of capital assets |
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— |
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Stock-based compensation |
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Change in certain assets and liabilities: |
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Accounts receivable, net |
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( |
) |
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Prepaid expenses, other current assets, and other assets |
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( |
) |
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Accounts payable |
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( |
) |
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( |
) |
Accrued compensation, other accrued, and other liabilities |
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( |
) |
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( |
) |
Deferred revenue and deposits |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
) |
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( |
) |
Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
) |
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( |
) |
Proceeds from sales of property and equipment |
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— |
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Net cash used in investing activities |
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( |
) |
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|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from exercises of stock options, issuance and vesting of restricted stock and employee stock purchase plan, net |
|
|
— |
|
|
|
|
|
Repayments under finance lease liabilities and related obligations |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Cash paid for income taxes |
|
$ |
|
|
$ |
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Non-cash purchases of property and equipment |
|
$ |
|
|
$ |
— |
|
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 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:
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 |
|
$ |
|
|
$ |
|
||
Unbilled |
|
|
|
|
|
|
||
Allowance for expected credit losses |
|
|
( |
) |
|
|
( |
) |
Accounts receivable, net |
|
$ |
|
|
$ |
|
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 |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Revenue recognized in the period from contract liability at beginning of period |
|
$ |
|
|
|
|
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
|
|
September 30, |
|
|
December 31, |
|
||
(In Thousands) |
|
2024 |
|
|
2023 |
|
||
Contract assets: |
|
|
|
|
|
|
||
Gross balance |
|
$ |
|
|
$ |
|
||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Contract assets, net |
|
$ |
|
|
$ |
|
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 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 |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Canada and other countries |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Total |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
Note 4: Concentrations
The Company maintains substantially all of its cash and cash equivalents with
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 |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
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
|
|
September 30, |
|
|
December 31, |
|
||
(In Percentages) |
|
2024 |
|
|
2023 |
|
||
Concentration type: |
|
|
|
|
|
|
||
Customer A |
|
|
% |
|
|
% |
||
Independent dealer network A |
|
|
% |
|
|
% |
Note
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 |
|
$ |
|
|
$ |
|
||
Money market funds |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
$ |
|
|
$ |
|
7
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
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 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product development |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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
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) |
|
|
|
|
||||
Risk-free interest rate |
|
|
|
|
||||
Expected volatility |
|
|
|
|
8
Stock option activity during the nine months ended September 30, 2024 is summarized as follows:
|
Options |
|
|
Weighted |
|
|
Weighted average |
|
|||
Balance at December 31, 2023 |
|
|
|
$ |
|
|
|
|
|||
Options granted |
|
|
|
|