Marchex (MCHX) Q2 2026 earnings call transcript

I will now hand the conference call over to Francis Feeney, Chief Operating Officer. Francis, please go ahead. Good afternoon everyone, and welcome to March X's business update and 2nd quarter 2026 conference call. Joining us today are Russ Horowitz, our Chairman of the Board, and Brian Nagle, our Chief Financial Officer. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements, including references to our financial and operational performance. And actual results may differ materially from those contemplated by these forward-looking statements. Risted uncertainties that could cause these results to differ materially are set forth in today's earnings press release, and in our most recent annual or quarterly report file with the SEC.

Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements for subsequent events. During this call, we will present both GAP and non-GAP financial measures. Our reconciliation of GAP to non-GAP measures is included in today's earnings press release. The earnings press release is available in the investor relations section of our website. At this time, I want to turn the call over to Russ.

Thank you, Frank, and thank you to everyone for joining us today. In July 1st, completion of March X's acquisition of Arcadia, Mark's an important step in our strategy to expand our AI-powered conversational intelligence and analytics solutions beyond insights and interactions and outcomes. By combining March X's conversational intelligence and analytics capabilities with Arcadia's performance-based customer qualification and acquisition technology, we are creating a highly differentiated or comprehensive AI-powered solution that not only helps businesses better understand customer interactions, but also turns those interactions into measurable outcomes with demonstrable value impact.

While we operate in a rapidly evolving and dynamic industry within certainties and various risks, we believe that the combined company can achieve greater revenue-scaling growth, higher margins, expanded market reach, and enhance strategic flexibility. Further, in light of our emerging sales growth levels and additional cost efficiencies, we will now be looking to make selective investments in incremental sales and development resources to help our 2027 growth opportunities. As we discussed last quarter, if you zoom out and consider what our customers most fundamentally rely on, it's knowing how to leverage AI-driven strategic solutions to more efficiently drive growth-oriented customer acquisition and optimization. We believe that we are seeing continuing signs of validation that there is significant opportunity for us to rapidly expand into highly measurable AI-powered bundled solutions.

It's provided the strategic insights our customers need, the automated actions those insights inform, and the revenue-generating outcomes those actions achieve. We believe that there are significant untapped opportunities within our existing customer base within each of our current verticals. We believe selling bundled solutions across the entire customer value chain can accelerate our business and make us more valuable within our vertical markets as AI opens new product possibilities that can help businesses grow meaningfully while driving efficiencies. We have been jointly developing and selling the initial products that reflect the combined capabilities of the two companies. Product examples of this collaboration, which leverage market to the data and AI signals, and Arcadia's AI tool system user interface are first, AI-verified outcomes.

It's drive increased revenue on a paper event basis, and second, conversational AI agents, which increase customer bookings and employment rates. We believe that our ability to sell these and other combined solutions for installed customer base is our most immediate opportunity to be a meaningful sales catalyst in 2026 and beyond. As discussed last quarter, the top 100 customers represent approximately 90% of our revenue, and this customer base has been the initial focus for presenting the new products.

At that time, we've made presentations to nearly one third of these customers. Approximately half of them have already purchased one or more of these products on a recurring or paid pilot basis. Of those remaining, we stated that we believe that over time, the majority are also likely to purchase one or more of these products on a recurring or paid pilot basis.

Since this time, we have continued to see further progress and validation with these efforts. To this point, let me provide three examples of successful sales of new combined products to existing customers.

First, as an existing home services client, which generates approximately $500,000 in annualized analytics revenue from our checks. This customer subsequently adopted our AI verified outcomes offering, increasing its total annualized revenue contribution to more than $1 million. This example illustrates the potential that they can establish analytics relationship and expand it by connecting conversational insights directly to measurable customer outcomes.

Second, an auto services customer generating more than $300,000 in annualized analytics revenue began a paid pilot designed to improve sales, agent performance across 40 retail locations. That program has since expanded to more than 60 locations. This cuts, operates thousands of locations. If the program achieves its performance objectives and expands more broadly, we believe the relationships could represent at least $1 million in annualized revenue.

And third, an advertising and media customer generating approximately $400,000 in annualized analytics revenue, once they pay pilot using a March X conversational AI agent to improve call handling. If the pilot converts to a broader deployment, we believe it could contribute incremental revenue during 2026 and increase annualized revenue from this customer by 50% or more in 2027. These examples demonstrate how our model can progress from an existing analytics relationship to a much more significant strategically bundled and competitively differentiated solution.

I will now turn the call over to Brian to discuss our second quarter 2026 financial results and third quarter outlook.

Thank you, Ross. Revenue for the second quarter of 2026 was 11 million compared to 10.6 million for the first quarter of 2026. We saw a favorable impact of new sales and existing customer upsells benefit the company in the quarter. For operating expenditures, we saw efficiencies throughout the business as we benefited from the continued realignment of the organization and other expense efficiency initiatives that have taken place over the last several months. The benefits were offset by acquisition-related costs incurred during the quarter as we completed the acquisition of Arcadia. We anticipate that our overall margins can continue to improve over time as we are carrying an overall lower cost structure going forward, which could enable meaningful future operating and financial leverage for the business as new products and features felt through.

We ended the second quarter with 8.2 million in cash compared with 9 million at the end of the first quarter. The decreased primarily reflected cash payments for transaction expenses, organizational realignment activities, and other efficiency initiatives.

Now, turning to our outlook. Because the Arcadia transaction closed on July 1, our second quarter results do not include Arcadia. Our third quarter outlook includes a full quarter of Arcadia's expected financial results. For the third quarter of 2026, March 6 currently expects revenue of 16 million to 16.5 million and adjusted EBITDA of 2.3 million to 2.5 million. The expected sequential increase in revenue primarily reflects a full quarter of Arcadia's operations together with continued growth in March 6's existing business based on our evolved strategic approach with delivering bundled solutions including insights, actions, and outcomes.

We plan to provide our fourth quarter, 2026 financial outlook, an initial business outlook for 2027 when we report third quarter results which is currently anticipated in early November. With that, I will hand the call to Frank.

Thank you, Brian. March X's acquisition of Arcadia creates a vertically focused AI-driven customer acquisition and outcome optimization platform. March X brings a deep foundation of first-party data derived from years of analyzing customer conversations for many industry-leading companies. With Arcadia adding AI-powered lead qualification, conversational IVR, performance marketing infrastructure, and expertise in activating call intelligence at scale. Together, the companies provide a comprehensive platform that connects customer insights, automated actions, and measurable business outcomes.

Based on the increased opportunities of the combined company, moving forward, we are focused on scaling our financial performance to potentially achieve rule of 30 to rule of 40 trajectory.

For reference, the rule of 30 to 40 metric represents the combination of annual revenue growth rates plus adjusted EBITDA margins. If we're able to achieve anticipated revenue run rate growth and combine this with our improving adjusted EBITDA margins, the combined company could be positioned to potentially achieve these rule of 30 to 40 metrics over time, which we believe helps highlight the unique opportunity of the combined company.

With that, I will hand the call back to Russ for closing remarks.

Thank you, Brian. As we previously shared, we're highly focused on building a more than 100 million dollar business over time, and we believe that the combination of March X and Arcadia has better positioned us to achieve this goal. At the end of the second half of 2026 with a larger revenue-based and more comprehensive AI-powered platform and a broader opportunity to help customers turn conversations into measurable business outcomes. Our priorities are clear. We'll expand the adoption of our combined offerings across our existing customer base with an emphasis on converting successful pay pilots into broader recurring deployments. And we will also continue to manage expenses carefully while making selective investments that can support sustainable growth and operating leverage.

We believe March X now has a stronger foundation from which to grow. At the same time, we recognize that successful execution will depend on demonstrating measurable customer value, converting that value into recurring revenue, and delivering disciplined financial performance. I'm going to close out today's call by thinking all of our investors, partners, and other stakeholders for your ongoing support. I also want to thank our employees for their expertise, urgency, and commitment while we execute on the growth opportunities ahead.

With that, I will hand the call back to the operator for questions.

It's a really good question. It actually hits right on how we think about our pipeline and are looking at the growth path. We believe we have a double-digit number of customers where there's potential for seven figures or more of incremental revenue from today. Within that group, we believe many of them over time likely have the potential to incrementally deal with our multi-millions of dollars per year. So there's really plenty of opportunity at the million-dollar plus and multi-million-dollar scale. So we can make this happen. It'll be very meaningful and it will move the needle. This has been one of the big takeaways for us so far that we have this big potential revenue expansion on a per-customer basis and we believe our expanded TAM just on existing customers is very significant and it's why we're working with urgency to build a momentum.

Ross, what's driving the dramatic increase deal sizes and how is AI affecting the growth and the amount of value you can provide your customers today? Yeah, the deal size, that's really being driven by our ability to move beyond selling just the analytics and the resulting insights and now bundling it with the actions and revenue generating outcomes that the insights inform. When we've only sold insights, it very little influence or control on whether the customer actually follows through it takes action on these. And in the absence of action, it don't achieve the value impact that the insights inform. Don't get me wrong, I mean, many customers do take actions in various forms, but a lot of the low-hanging fruit and potential value never gets hard to sit fully because taking these actions involves their need to make operational changes, mobilize cross-departmental collaboration, and other logistical requirements in these are large complex organizations.

But with our solutions now connecting our insights to the AI-driven automated actions, they hit on the second part of your question where we effectively can take the action for them and with the outcomes being and tangibly achievable and measurable, it changes how much they're willing to pay us. And that's what really drives the increased revenue opportunity with so many of these customers. So our value impact at the bottom of the customer acquisition funnel where much larger existing budgets exist that significantly amplified. And the great part is our analytics are able to objectify the improved results by measuring the revenue dollars of the outcomes we generate. So our evolved solutions can and will not only inform the action that's needed, they can then take the action on the customer's behalf and achieve the transactional outcome most valued by the customer and then also measure and validate the results.

We can complete and close the entire loop right down to the customer acquisition layer. And because of this, we can substantiate a much bigger piece of the pie. And that's all that's, you know, we've learned so far, it has processed, continues to support our belief that on a combined basis, as we noted in the body of our presentation, that we have a hundred million dollar plus revenue opportunity, and we're just approaching all of our efforts as a profitably focused sprint to that hundred million dollar revenue run rate beyond.

Yeah, things we think a lot about, we think we're at a positive and flexed point. Clearly, we're just getting into this evolved opportunity, but in terms of our increasing ability to generate more cash, it will assess best and highest use of that increasing cash as we go forward and achieve these milestones. It is worth noting, you know, we're a low capex business. We have meaningful tax shields. The Arcadia transaction actually helps us optimize our pre-cash flow generation and totality. So as we move forward, it just gives us more flexibility. I've also noted before, if you look at our history, we've had times where we've done stock buybacks, we've done self-tender offers, we've declared special dividends and other, I think, shareholder-centric, behaviors.

And just to remind everyone, we do have an existing three million share buyback program that's authorized at this time. And the other thing I point out is that we need the other insiders in the board. We own about a third of the company and we're super focused on getting the stock value recognized and also creating new incremental value. You know, to that end, on the investor relations current with where we are now in our opportunity and how we think about it going forward. We're planning to be much more active and out there with investors, communicating about what we're doing, you know, why it's exciting, different and defensible, and how big we think this can be.

So that investors can hopefully start to appreciate us more and what our potential might look like.

Super good question. You know, both companies kind of on their own have had and continue to have growth catalysts, but what's really driving is these collaborative products. You know, it's what really opens up the wallet chart, a customer level, when we can, you know, deliver these integrated bundled solutions. And it's really where we think our kind of competitive mode is because we've got the customer data. We know where the opportunities exist to do better. And, you know, kind of as we noted previously, you know, we had dependencies on that, looking at the insights and doing something about it independent of us, but now we can go to them and tell them not only can we eliminate where the big opportunities are to drive much better ROI and performance at the bottom of the funnel, but we can automate the actions using the bundled solutions.

And then we can also deliver and sell the outcomes and then it's noted validated so we get that closed loop. That's been a very appealing value proposition. It's obviously very early. We gave the three examples that reflect kind of three different products that have translated into meaningful customer expansion. So yet we really looked at this and are mindful of each of the opportunities on the standalone products that came from March 6th in Arcania. But what's really driving it and where we see the competitive differentiation and growth is with these combined solutions.

Yeah. There's kind of five products, you know, one or two of them are later stages of development, but we are in conversations with customers based on our expected timing of their availability. But it's why with the three examples, we chose three specific products that are new in leverage of the combined solutions. The AI verified outcomes, which we talked about more than bubbling the home services company opportunity. We talked about the specific integration focused on enhanced agent performance for big auto services company with thousands of locations where that has a very significant direct impact on bottom of the funnel performance. And then the third one is conversational AI agents to improve call handling with a third customer.

So three different product implementations, all of which leverage the combined capabilities and increase individual customer revenue by between 50 and over 100%. So for us, the models there has come down to, you know, how many more of these yeses can we get? How fast can we get, you know, and what does it look like to scale that? And that's what gives us the urgency and encouragement.

Right.

Yeah, there's aspects across the board that are all incorporated into the, into a solution. But yeah, it does, it does definitely integrate and utilize agentic AI capabilities. You know, when we look at some of the core components that Arcanius developed and validated with its customer bases that we're now leveraging across the combined company, one of them is our conversational lead qualification agents.

So, you know, we can take kind of inbound leads at the top of the funnel and on an automated basis to qualify those before they ever kind of connect with an advertiser. And then additionally, what we're able to do is real time conversational analysis to categorize and understand success and failure both on a transactional basis, which leads us to the ability to sell AI verified outcomes and whether it's different forms of consumer intent, like an appointment or an actual sale.

And then feed all of that real time analysis back into the system to optimize the other components. So, the ability to do all those things in relative real time and at scale, as well as take these, you know, highly detailed specific classifications and transparently in, you know, we talk about transparency and truth. Truthfully, transparently make those available to our customers in a way that, you know, gives them a lens on their business and their core success metrics that we haven't previously had is an important ingredient in what these combined solutions are leveraging.

We appreciate everyone's participation in our call today. We're, you know, pleased to keep you updated on, you know, both the closing of the transaction and, you know, where we are and what our primary focus is and, you know, what we think is an involved exciting opportunity that we're going to focus on success by executing and delivering real progress. Appreciate your support. We'll look forward to updating you as we move forward. Thank you. Thank you for attending. You may now disconnect.