Company Quick10K Filing
Quick10K
Marchex
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-11-06 Earnings, Exhibits
8-K 2019-09-26 Enter Agreement, Officers
8-K 2019-08-28 Enter Agreement, Officers
8-K 2019-08-20 Regulation FD
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-05-22 Enter Agreement, Officers
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-04-17 Enter Agreement, Officers
8-K 2019-04-09 Enter Agreement, Officers, Exhibits
8-K 2019-02-13 Earnings, Exhibits
8-K 2018-12-20 Enter Agreement, Officers
8-K 2018-11-20 Enter Agreement, M&A, Sale of Shares, Regulation FD, Exhibits
8-K 2018-11-05 Earnings, Exhibits
8-K 2018-11-05 Enter Agreement, M&A, Regulation FD, Exhibits
8-K 2018-10-01 Enter Agreement
8-K 2018-09-27 Enter Agreement, Shareholder Vote
8-K 2018-08-21 Enter Agreement, Officers
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-06-27
8-K 2018-05-31 Enter Agreement, Exhibits
8-K 2018-05-29 Regulation FD, Exhibits
8-K 2018-05-03 Earnings, Exhibits
8-K 2018-02-15 Earnings, Exhibits
8-K 2018-02-01 Enter Agreement, Officers
MMS Maximus 4,872
EGOV NIC 1,382
EVOP EVO Payments 752
TKKS TKK Symphony Acquisition 316
WRLS Pensare Acquisition 315
TIBR Tiberius Acquisition 222
BSQR Bsquare 16
TZACU Tenzing Acquisition 0
TMCX Trinity Merger 0
ARYA ARYA Sciences Acquisition 0
MCHX 2019-06-30
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_8.htm
EX-32 mchx-ex32_7.htm

Marchex Earnings 2019-06-30

MCHX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 mchx-10q_20190630.htm 10-Q mchx-10q_20190630.htm

 

f

 

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 June 30, 2019

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 August 6, 2019, the registrant had 4,660,927 shares of Class A common stock, $.01 par value per share, and 38,352,228 shares Class B common stock, $.01 par value per share, outstanding, respectively.

 

 

 

 


 

Marchex, Inc.

Form 10-Q

Table of Contents

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

 

 

December 31,

 

 

June 30,

 

 

 

2018

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,230

 

 

$

51,016

 

Accounts receivable, net

 

 

16,198

 

 

 

16,527

 

Prepaid expenses and other current assets

 

 

2,657

 

 

 

3,173

 

Total current assets

 

 

64,085

 

 

 

70,716

 

Property and equipment, net

 

 

2,921

 

 

 

3,325

 

Right-of-use lease asset

 

 

 

 

 

6,494

 

Other assets, net

 

 

917

 

 

 

236

 

Goodwill

 

 

24,442

 

 

 

24,442

 

Intangible assets from acquisitions, net

 

 

20,697

 

 

 

17,561

 

Total assets

 

$

113,062

 

 

$

122,774

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,968

 

 

$

6,434

 

Accrued expenses and other current liabilities

 

 

5,807

 

 

 

6,425

 

Current portion of acquisition-related liabilities

 

 

1,215

 

 

 

1,277

 

Deferred revenue and deposits

 

 

1,782

 

 

 

3,541

 

Lease liability current

 

 

 

 

 

1,511

 

Total current liabilities

 

 

14,772

 

 

 

19,188

 

Other non-current liabilities

 

 

1,287

 

 

 

61

 

Deferred tax liabilities

 

 

1,531

 

 

 

1,433

 

Lease liability non-current

 

 

 

 

 

6,407

 

Non-current portion of acquisition-related liabilities

 

 

446

 

 

 

 

Total liabilities

 

 

18,036

 

 

 

27,089

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Class A: 12,500 shares authorized; 5,056 shares issued and

   outstanding at December 31, 2018; and 4,661 shares

   issued and outstanding at June 30, 2019

 

 

53

 

 

 

49

 

Class B: 125,000 shares authorized; 36,965 shares issued and

   outstanding at December 31, 2018, including 574 shares

   of restricted stock; and 38,327 shares issued and outstanding at

   June 30, 2019, including 764 shares of restricted stock

 

 

370

 

 

 

383

 

Treasury stock

 

 

 

 

 

 

Additional paid-in capital

 

 

350,801

 

 

 

353,864

 

Accumulated deficit

 

 

(256,198

)

 

 

(258,611

)

Total stockholders’ equity

 

 

95,026

 

 

 

95,685

 

Total liabilities and stockholders’ equity

 

$

113,062

 

 

$

122,774

 

 

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)

 

 

 

Six Months Ended

June 30,

 

 

Three Months Ended

June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Revenue

 

$

42,114

 

 

$

52,747

 

 

$

20,218

 

 

$

26,341

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service costs(1)

 

 

24,207

 

 

 

28,181

 

 

 

11,384

 

 

 

13,923

 

Sales and marketing(1)

 

 

6,945

 

 

 

8,201

 

 

 

3,335

 

 

 

4,088

 

Product development(1)

 

 

7,521

 

 

 

9,573

 

 

 

3,873

 

 

 

5,005

 

General and administrative(1)

 

 

5,513

 

 

 

6,809

 

 

 

2,543

 

 

 

3,489

 

Amortization of intangible assets from acquisitions(2)

 

 

 

 

 

3,136

 

 

 

 

 

 

1,568

 

Acquisition-related costs (benefit)

 

 

 

 

 

(278

)

 

 

 

 

 

(460

)

Total operating expenses

 

 

44,186

 

 

 

55,622

 

 

 

21,135

 

 

 

27,613

 

Loss from operations

 

 

(2,072

)

 

 

(2,875

)

 

 

(917

)

 

 

(1,272

)

Interest income and other, net

 

 

509

 

 

 

403

 

 

 

269

 

 

 

218

 

Loss before provision for income taxes

 

 

(1,563

)

 

 

(2,472

)

 

 

(648

)

 

 

(1,054

)

Income tax expense (benefit)

 

 

21

 

 

 

(59

)

 

 

10

 

 

 

60

 

Net loss applicable to common stockholders

 

$

(1,584

)

 

$

(2,413

)

 

$

(658

)

 

$

(1,114

)

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

   to common stockholders

 

$

(0.04

)

 

$

(0.05

)

 

$

(0.02

)

 

$

(0.02

)

Shares used to calculate basic net loss per share applicable to

   common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

5,056

 

 

 

4,927

 

 

 

5,056

 

 

 

4,800

 

Class B

 

 

37,811

 

 

 

40,193

 

 

 

37,584

 

 

 

40,554

 

Shares used to calculate diluted net loss per share applicable

   to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

5,056

 

 

 

4,927

 

 

 

5,056

 

 

 

4,800

 

Class B

 

 

42,867

 

 

 

45,120

 

 

 

42,640

 

 

 

45,354

 

(1) Excludes amortization of intangibles from acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Components of amortization of intangibles from acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Service costs

 

$

 

 

$

1,148

 

 

$

 

 

$

574

 

       Sales and marketing

 

 

 

 

 

1,237

 

 

 

 

 

 

618

 

       General and administrative

 

 

 

 

 

751

 

 

 

 

 

 

376

 

         Total

 

$

 

 

$

3,136

 

 

$

 

 

$

1,568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2017

 

 

5,056

 

 

$

53

 

 

 

38,736

 

 

$

387

 

 

 

 

 

 

 

 

$

343,268

 

 

$

(253,709

)

 

$

89,999

 

Issuance of common stock upon exercise

   of options, issuance and vesting of

   restricted stock and under employee

   stock purchase plan, net

 

 

 

 

 

 

 

 

36

 

 

 

1

 

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

27

 

Stock compensation from options and

   restricted stock, net of forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

951

 

 

 

 

 

 

951

 

Cumulative effect of a change in

   accounting principle related to

   revenue recognition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

189

 

 

 

189

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(926

)

 

 

(926

)

Balances at March 31, 2018

 

 

5,056

 

 

$

53

 

 

 

38,772

 

 

$

388

 

 

 

 

 

 

 

 

$

344,245

 

 

$

(254,446

)

 

 

90,240

 

Issuance of common stock upon exercise

   of options, issuance and vesting of

   restricted stock and under employee

   stock purchase plan, net

 

 

 

 

 

 

 

 

287

 

 

 

3

 

 

 

 

 

 

 

 

 

719

 

 

 

 

 

 

722

 

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,334

)

 

 

(23

)

 

 

 

 

 

 

 

 

(23

)

Retirement of treasury stock

 

 

 

 

 

 

 

 

(2,334

)

 

 

(23

)

 

 

2,334

 

 

 

23

 

 

 

(5,650

)

 

 

 

 

 

(5,650

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(658

)

 

 

(658

)

Balances at June 30, 2018

 

 

5,056

 

 

$

53

 

 

 

36,725

 

 

$

368

 

 

 

 

 

$

 

 

$

339,314

 

 

$

(255,104

)

 

$

84,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Issuance of common stock upon exercise

   of options, issuance and vesting of

   restricted stock and under employee

   stock purchase plan, net

 

 

 

 

 

 

 

 

928

 

 

 

9

 

 

 

 

 

 

 

 

 

1,542

 

 

 

 

 

 

1,551

 

Conversion of Class A common stock

   to Class B common stock

 

 

(395

)

 

 

(4

)

 

 

395

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation from options and

   restricted stock, net of forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

782

 

 

 

 

 

 

782

 

Retirement of treasury stock

 

 

 

 

 

 

 

 

(90

)

 

 

(1

)

 

 

90

 

 

 

1

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,114

)

 

 

(1,114

)

Balances at June 30, 2019

 

 

4,661

 

 

$

49

 

 

 

38,327

 

 

$

383

 

 

 

 

 

$

 

 

$

353,864

 

 

$

(258,611

)

 

$

95,685

 

 

3

 


 

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2019

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,584

)

 

$

(2,413

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Amortization and depreciation

 

 

934

 

 

 

4,079

 

Allowance for doubtful accounts and advertiser credits

 

 

258

 

 

 

56

 

Acquisition-related costs (benefit)

 

 

 

 

 

(385

)

Stock-based compensation

 

 

1,633

 

 

 

1,327

 

Deferred income taxes

 

 

 

 

 

(98

)

Change in certain assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(415

)

 

 

(399

)

Refundable taxes

 

 

 

 

 

291

 

Prepaid expenses, other current assets and other assets

 

 

(153

)

 

 

(155

)

Accounts payable

 

 

297

 

 

 

293

 

Accrued expenses and other current liabilities

 

 

(19

)

 

 

665

 

Deferred revenue and deposits

 

 

766

 

 

 

1,759

 

Other non-current liabilities

 

 

20

 

 

 

(60

)

Net cash provided by operating activities

 

 

1,737

 

 

 

4,960

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,033

)

 

 

(963

)

Cash received in connection with acquisitions

 

 

 

 

 

95

 

Purchases of intangible assets and other assets

 

 

(578

)

 

 

(2

)

Net cash used in investing activities

 

 

(1,611

)

 

 

(870

)

Financing Activities:

 

 

 

 

 

 

 

 

Repurchases of Class B common stock

 

 

(5,673

)

 

 

 

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

   stock and employee stock purchase plan, net

 

 

71

 

 

 

1,696

 

Common stock cash dividends paid

 

 

(21,911

)

 

 

 

Net cash provided by (used in) financing activities

 

 

(27,513

)

 

 

1,696

 

Net increase (decrease) in cash and cash equivalents

 

 

(27,387

)

 

 

5,786

 

Cash and cash equivalents at beginning of period

 

 

104,190

 

 

 

45,230

 

Cash and cash equivalents at end of period

 

$

76,803

 

 

$

51,016

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

     Cash paid for operating leases

 

$

649

 

 

$

843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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 six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, or for any other period. The balance sheet at December 31, 2018 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, 2018, 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, we 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. See Note 11. Acquisitions of the notes to the condensed consolidated financial statements for further discussion.  

 

 

(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 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.

The Financial Accounting Standards Board (“FASB”) ASC Topic 842, Leases, (ASC 842) is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The new standard was effective for the Company on January 1, 2019. The Company adopted the new standard on January 1, 2019 and used the effective date as its date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.

5

 


 

The primary impact upon adoption of the standard relates to the recognition of new right-of-use (ROU) assets and lease liabilities on the Company’s balance sheet for its office and operating leases and providing significant new disclosures about its leasing activities. On adoption, the Company recognized additional operating lease liabilities of approximately $8.7 million based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases and ROU assets of approximately $7.4 million.

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company did not recognize ROU assets or lease liabilities, and this included not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases.

Recent Accounting Pronouncement(s) Not Yet Effective

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15), an ASU which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to be capitalized. The ASU is effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect adoption of ASU 2018-15 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), an ASU which modifies the disclosure requirements on fair value measurements in ASC 820. The ASU is effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.

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. 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 Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. 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.

 

(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.  

6

 


 

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 we expect 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 primary impact upon adoption of the standard relates to the deferral (i.e. capitalization) of incremental contract acquisition costs which are recorded as other non-current assets in the balance sheet and the recognition (i.e. amortization) of them in sales and marketing expenses in the statements of operations over the term of the initial contract and anticipated renewal contracts to which the costs relate. The Company recognized a $189,000 decrease to accumulated deficit as of January 1, 2018 for the cumulative impact of adoption of the amended guidance associated with the incremental contract acquisition costs on open contracts that were capitalized. The impact of the adoption of ASC 606 on net loss applicable to common stockholders for the year ended December 31, 2018 and on the unaudited consolidated balance sheet at December 31, 2018 was not significant.

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 and six months ended June 30, 2018, revenues disaggregated by service type were $18.5 million and $38.4 million for performance based advertising services, respectively, and $1.7 million and $3.7 million for local leads services, respectively. For the three and six months ended June 30, 2019, revenues disaggregated by service type were $25.3 million and $50.4 million for performance based advertising services, respectively, and $1.1 million and $2.3 million for local leads services, respectively.

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 June 30, 2019, using its best estimate of the amount

7

 


 

of expected future reductions in advertisers’ payment obligations related to delivered services based on analysis of historical credits. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. During the three and six months ended June 30, 2019, revenue recognized that was included in the contract liabilities balance at the beginning of the period was $408,000 and $892,000.  

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 June 30, 2019, the Company had $210,000 of net deferred contract costs and the amortization associated with these costs was $99,000 and $207,000 for the three and six months ended June 30, 2019, 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):

 

 

 

Six Months Ended

June 30,

 

 

Three Months Ended

June 30,

 

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

Service costs

 

$

230

 

 

$

95

 

 

$

102

 

 

$

36

 

 

Sales and marketing

 

 

286

 

 

 

349

 

 

 

72

 

 

 

172

 

 

Product development

 

 

182

 

 

 

143

 

 

 

91

 

 

 

67

 

 

General and administrative

 

 

935

 

 

 

740

 

 

 

417

 

 

 

507

 

 

Total stock-based compensation