Marchex (MCHX) Q3 2025 earnings call transcript

Good afternoon. Thank you for attending today's Q3 2025. March X earnings conference call. My name is Jayla and I'll be a moderator for today. All lines will be muted during the presentation portion of the call. What an opportunity for questions and answers at the end as they sign up to pass the conference over to our hosts. Frank Cini COO, please proceed.

Thank you. Good afternoon everyone and welcome to March X's business update and third quarter 2025 conference call. Joining us today is Russ Horowitz, our chairman of the board, Troy Hartless, our president, and Brian Nagel, 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 for those contemplated by these forward-looking statements.

Risks and uncertainties that could cause these results who differ materially are set forth in today's earnings press release. And then our most recent annual or quarterly report filed 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 will turn the call over to us.

Thanks, Frank. I'm going to start with a few introductory remarks and then hand the call over to Troy, Brian, and then Frank. The main item I'd like to share is that we feel the company is at a very positive inflection point, both strategically and operationally. There's always more to accomplish, but we've come a long way with expanding our customer and opportunity footprint, evolving our product capabilities, is starting to create real sales momentum.

With this progress in deeper strategic understanding, which is against the backdrop of the very real and very massive AI revolution, we've gained proprietary insight into what we believe may be a much bigger market opportunity, one where we evolve beyond mainly providing strategic analytics, the vertical market leading companies, to one where we accelerate delivering more comprehensive solutions that address higher value impact needs across the entire customer acquisition and optimization journey.

At the end of the day, our customers fundamentally rely on our AI driven strategic insights to more efficiently drive growth oriented customer acquisition. We believe there's a significant opportunity for us to rapidly expand into highly measurable AI powered bundled solutions, which provide the strategic insights our customers need, the automated actions those insights inform, and the outcomes those actions achieve.

We believe that there are significant untapped opportunities with our customers and solutions within each of our current verticals. We believe selling such bundled solutions across the entire customer value chain can accelerate our business and make us much more valuable, sticky, and scalable. And with that, I'll hand the call to Troy to briefly discuss the third quarter.

Thank you, Russ. The third quarter represented continued progress with launching new products and accelerating salesbooking to our highest levels this year. While we did see some additional revenue migration solution as we near completion of our technology platform migration at this year's end, we still saw meaningfully improved sequential adjusted even showing the magnitude of our operating leverage. Based on this overall progress with accelerating salesbookings, which we anticipate can continue and compound, we believe we are gaining visibility on increased, sustainable sales growth moving into 2026.

We have a core focus on select very large vertical markets for the combination of our unique capabilities combined with first-party data, create unique solutions for world-class market leading companies. To that end, we deliver industry-specific AI solutions for automotive, auto services, home services, health care, and advertising and media, as well as other industries to subvertipals. Overall, our AI-driven products revolve around the mission of understanding and capitalizing on customer conversation and leveraging first-party data for our customer strategic and financial benefit.

Our AI-driven conversational intelligence platform integrates universal and industry AI models with extensive API integrations and industry-specific applications. The engaged platform is driven by a genetic AI and enables any client to easily understand their insight to action paths, allowing business leaders across multiple business functions to make complex decisions, leveraging prescriptive analytics across the full customer journey. All the new products and features we have launched or anticipate launching in the course of 2025 are key components of our go-forward growth strategy.

With that, I'll turn the call over to Brian to provide an overview of the third quarter of financial results.

Thank you, Troy. Revenue for the third quarter of 2025 was 11.5 million, which is down from 11.7 million for the second quarter of 2025. We saw favorable impact of new sales and existing customer upsells benefit the company in the period. We also saw some offsets to that growth due to migration activities from our legacy platforms onto our new March 9th Engage platform.

For operating expenditures, we saw efficiencies throughout the business as we had a full quarter of benefit from the realignment of the organization that took place in the first half of 2025, following the completion of certain technology platform initiatives. We anticipate that our gross profit 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 sell through.

On the balance sheet, cash decreased to 10.3 million from 10.5 million at the end of the second quarter of 2025. The decrease in cash was primarily due to the timing of customer payments at the end of the quarter.

Moving to guidance, as previously communicated in the second quarter of 2025 earnings announcement, based on typical seasonality and the revenue migration dilution associated with the migrating more than 1,000 customers onto the new technology platform, we currently anticipate that both revenue and adjusted EVDA will be sequentially lower in the fourth quarter of 2025 as compared to the third quarter of 2025. That being said, as Troy previously noted, in the third quarter of 2025, we saw meaningful increases in salesbookings. With this and the ongoing launch of our various new products, we believe we can continue to see sales levels increase going forward, which will in turn drive increase for revenue growth. So with the sales expansion currently underway and the primary platform migration completion by years end, we currently believe that in the course of 2026, we can see revenue growth on a run rate basis in the 10% range from year end levels.

We also believe that in the course of 2026, the combination of increasing revenue growth combined with lower overall operating expenses can lead to adjusted EVDA margins of 10% or more.

With that, I will hand the call to Frank.

Thank you, Brian. I would like to take a moment to walk through today's announced agreement in principle to acquire Arcanium. While the details regarding the potential transaction are included in today's earnings press release, as well as certain Arcania estimated financial metrics, at a high level, March X has entered into an agreement of principle to acquire Arcania for consideration, consistent to $10 million convertible promissory note, and the turnout in the two years following closing of up to $4 million shares to the extent Arcania's revenue, and adjusted EVDA exceeds thresholds to be agreed to in the definitive agreement for the transaction. A special committee of March X has supported directors, consisting solely of independent directors, has approved March X entering into the agreement of principle, because certain of the sellers are related parties.

The parties have agreed to promptly commence the negotiated definitive purchase agreement relating to the transaction. Conditions to entering into the definitive agreement, including receipt of audited financial statements of Arcania for such periods as required by SEC rules, and received of a customary fairness opinion by a financial advisor selected by the special committee. Conditions to closing the transaction shall include approval of the transaction by a majority of March X's disinterested stockholders, and the closing date, and the event they definitive agreement is entered into, and the transaction is approved by disinterested stockholders, is anticipated to occur in the first half of 2026.

For your reference, Arcania is a performance-based customer qualification and acquisition company, which transforms consumer intent into AI-verified outcome-based results.

Leveraging advanced AI signals, natural language analytics, and automated decisioning, are came to text consumer intent and advertiser value in real time, optimizing customer acquisition campaigns dynamically across channels, with machine learning models that continuously refine qualification accuracy in ROI. Arcania enables its customers to pay for verified AI-validated outcomes, such as appointments, sales, and high intent conversations.

We believe that March X's potential combination with Arcania is successfully consummated, and created a vertically focused AI-driven customer acquisition and outcome optimization platform, integrating deep insights, automated actions, and verifiable outcomes. Additionally, we believe that the expanded AI-driven product offerings across insights, actions, and outcomes could create more ways to win new business, and the bundling of solutions could create greater customer value, stickiness, and risk mitigation.

We believe that the potential turbine company could have the opportunity to achieve greater revenue scale and growth, higher margins, expanded market reach, and enhanced strategic flexibility, which could include, first, a potentially expanded addressable market with opportunity to cross-sell and bundle, March X believes the combined ability to sell insights, actions, and outcomes would mean for expand or addressable marketing to new large vertical markets.

Additionally, we believe we would have the ability to relatively quickly offer or bundle Arcania's outcome-based solutions to many of March X's insights-based enterprise customers.

Second, create a potential revenue scale and growth. March X believes that revenue run rates for the potential combined company are approximately 15 million quarterly, or approximately 60 million annualized, which could grow in the 15 to 20 percent range in the course of 2026.

Third, we see the potential for adjusted EBITDA expansion. March X believes that our adjusted EBITDA margins are anticipated to trend up to 10 percent more in 2026, and that Arcania could contribute additional positive adjusted EBITDA beyond these levels.

And finally, rule the 30 to rule the 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 are able to achieve the anticipated revenue run rate growth in the 15 to 20 percent range, and combine this with improving adjusted EBITDA margins in double digits, the combined company could be positioned to potentially achieve these rule 30 to 40 metrics over time, which we believe helps highlight the unique opportunity of the combined company if consummated.

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

Thank you, Frank. We've already covered a whole lot today, so I simply want to close out by thanking all of our investors, partners, and other stakeholders for all of your ongoing support. Additionally, I want to deeply thank our employees for their unique expertise, sense of urgency, and continued commitment while we execute on what we believe is an increasingly dynamic opportunity.

And with that, I will hand the call back to the operator.

Ross, first, can you discuss how you view the TAM for the combined solutions?

Yeah, we think the opportunity is a dressable market. When you look at the combined company's ability to sell insights, actions, and outcomes, is multiples of our existing one, where predominantly selling insights only. Our insights, we believe, are tied to meaningful nine-figure customer acquisition budgets, and we get used strategically to inform those. And our ability to continue to deliver more capabilities across that insight to actions, outcomes of value chain, translates to a significantly larger TAM, when we believe could be multiples of what we're operating against today.

Definitely. It's, obviously, it's a total focus. When we think about arbitrating, validating that the investment we've made or translating into growth, we're pleased that on the back end of the migration, we're at an inflection point on a standalone basis where we believe we're seeing that happen now, and we can build on that. But net, net, as we look at the acquisition and our ability to accelerate growth, potentially, to the extent it gets consummated, we're just focused on maximizing the revenue growth and maintaining some baseline positive objectives, but on margins in that 10% or more range.

We believe emphasizing customer penetration and really scaling up while prioritizing our growth rates is going to be the best approach for us for now.

Yeah, look, I think the best way to frame it, if you've heard us say historically, that we believe we have $100 million revenue opportunity over time. But on a combined basis, this deal closes, we really believe that $100 million in revenue is way more tangible and way more achievable, much sooner, even just with the existing or installed base.

You know, we look at the verticals we operate in, and we look at the market leading companies that we work in in those verticals, and we look at the opportunities, even within the sub-verticals, and you'll call it the virtuous cycle of the expertise that we're putting together combined with the unique first-party data that informs our expanding set of solutions.

And we think there's other customers we don't have that look like them, and we're going to be more relevant to with more capabilities that are easier to say yes to. But on a kind of a standalone basis with existing installed base, yeah, the combined company is well positioned in a more tangible way to get to 100 million rates much sooner.

Appreciate the questions, thank you. End of sport.

Look, I appreciate everybody's interest in March X. Obviously, we're excited about where we are and what our possible opportunity can look like as we move forward. We've got a lot of congruency and clarity around what that looks like, and we just appreciate all your ongoing support and look forward to keep me posted as we execute and hope we make that happen.