Marchex Reports Second Quarter 2008 Financial Results

SEATTLE--(Business Wire)--
Marchex, Inc. (NASDAQ:MCHX) (NASDAQ:MCHXP), a local search and
advertising company, today reported its results for the second quarter
ended June 30, 2008.

Second Quarter 2008 Consolidated Financial Results

-- Revenue was $37.4 million for the second quarter of 2008,
compared to $34.7 million for the same period of 2007.

-- GAAP net income applicable to common stockholders was $509,000
for the second quarter of 2008 or $0.01 per diluted share.
This compares to GAAP net income applicable to common
stockholders of $354,000 or $0.01 per diluted share for the
same period of 2007. The second quarter 2008 results included
non-cash stock-based compensation expense recorded under the
fair value method of $2.7 million, compared to non-cash
stock-based compensation expense of $2.3 million for the same
period in 2007.

-- We provide a reconciliation of GAAP diluted EPS to Adjusted
Non-GAAP EPS in the financial tables attached to this press
release and encourage investors to examine the reconciling
adjustments between the GAAP and non-GAAP measures. Adjusted
non-GAAP EPS for the second quarter of 2008 was $0.09,
compared to $0.10 for the same period of 2007. Some Wall
Street analysts use non-GAAP measures to analyze our operating
results, which may include adjusted non-GAAP EPS, adjusted
operating income before amortization and adjusted EBITDA. We
present GAAP measures with equal or greater prominence than
non-GAAP measures and such non-GAAP measures should not be
considered a substitute for, or superior to, GAAP results.

-- Adjusted operating income before amortization was $5.4 million
for the second quarter of 2008, compared to $6.4 million for
the same period of 2007. A reconciliation of non-GAAP adjusted
operating income before amortization to GAAP operating income
and GAAP net income is included in the financial tables
attached to this release.

-- Adjusted EBITDA was $8.0 million in the second quarter of
2008, compared to $8.6 million for the same period of 2007. A
reconciliation of operating income before taxes, depreciation,
amortization and gain/loss on sales and disposals of
intangible assets to GAAP net cash provided by operating
activities is included in the financial tables attached to
this release.

"Marchex's execution on our local mission continues to drive
growth in our business, which led to our positive financial results in
the second quarter," said Russell C. Horowitz, Marchex Chairman and
CEO. "We remain laser-focused on making Marchex the most relevant
integration point for connecting local advertisers - large and small -
to consumers with local intent. Continued execution on our
operational, strategic and financial goals will drive our growth for
the balance of 2008 and beyond, and further position Marchex as a
leader in the online local advertising market."

Operating Highlights

Local Advertising Services: For the second quarter of 2008,
revenue from Local Advertising Services was $20.8 million. In the
second quarter, Marchex added more than 10,000 new advertisers through
its local aggregator partnerships and direct sales channel. Marchex
now has more than 75,000 advertisers using its products and services
and, based on current growth rates, is ahead of pace to reach its
previously stated goal of 100,000 advertisers using Marchex products
and services by the end of 2009.

Local Search Network (proprietary traffic sources): For the second
quarter of 2008, revenue from Marchex's Local Search Network was $16.6
million. Additionally, Marchex attracted more than 32 million unique
visitors for the month of June 2008 and delivered more than 125
million revenue-generating events and referrals in the second quarter.
Unique visitor statistics are based on internal traffic logs, which
calculate unique IP (Internet protocol) addresses on an unduplicated
basis during a given month.

Non-Operating Highlights

Marchex today announced that it is increasing its stock repurchase
program by 1 million shares. This allows Marchex to purchase up to a
total of 6 million shares, which is up from the 5 million shares
previously authorized, less shares repurchased to date.

During the second quarter of 2008, Marchex purchased 845,000
shares of its outstanding Class B common stock for a total price of
$10.0 million, bringing its total shares repurchased under its stock
repurchase program to 3.8 million shares, or 10% of its outstanding
common stock.

Marchex Financial Guidance

The following forward-looking statements reflect Marchex's
expectations as of August 5, 2008.

Marchex is reiterating its guidance for fiscal year 2008 (Year
ending December 31, 2008):

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Revenue estimate: $152 million or more
Adjusted operating income before amortization $22 million or more
estimate:
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Adjusted EBITDA: For adjusted EBITDA, Marchex anticipates
add-backs of $9 million or more in additional depreciation and
amortization to its adjusted operating income before amortization
range, implying an adjusted EBITDA of $31 million or more for 2008.

Guidance for third quarter 2008:

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Revenue estimate: $37.5 million to
$38.5 million
Adjusted operating income before amortization Approximately $5.5
estimate: million
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Adjusted EBITDA: For adjusted EBITDA, Marchex anticipates
add-backs of approximately $2.5 million in additional depreciation and
amortization to its adjusted operating income before amortization
range, implying an adjusted EBITDA of approximately $8.0 million for
the third quarter 2008.

For the third quarter of 2008, Marchex anticipates revenue from
proprietary traffic sources will be in a similar range to or slightly
better than the second quarter of 2008.

Conference Call and Webcast Information

Management will hold a conference call, starting at 5:00 p.m. EDT
on Tuesday, August 5, 2008 to discuss its second quarter 2008
financial results and other company updates. To access the call by
live Webcast, please log onto the Investor Relations section of the
Marchex Web site (www.marchex.com/investors/earningsreleases.html). An
archived version of the Webcast will also be available, beginning two
hours after completion of the call, at the same location.

About Marchex, Inc.

Marchex (www.marchex.com) is a local search and advertising
company. Marchex's innovative advertising platform delivers search-
and call-based marketing products and services for local and national
advertisers. Marchex's local search network, one of the largest
online, helps consumers make better, more informed local decisions
through its content-rich Web sites that reach tens of millions of
unique visitors each month.

Forward Looking Statements

This press release contains forward-looking statements that
involve substantial risks and uncertainties. All statements, other
than statements of historical facts, included in this press release
regarding our strategy, future operations, future financial position,
future revenues and other financial guidance, acquisitions, projected
costs, prospects, plans and objectives of management are
forward-looking statements. We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking statements
and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the
plans, intentions and expectations disclosed in the forward-looking
statements we make. There are a number of important factors that could
cause Marchex's actual results to differ materially from those
indicated by such forward-looking statements which are described in
the "Risk Factors" section of our most recent periodic report and
registration statement filed with the SEC. All of the information
provided in this release is as of August 5, 2008 and Marchex
undertakes no duty to update the information provided herein.

Non-GAAP Financial Information

To supplement Marchex's consolidated financial statements
presented in accordance with GAAP and to provide clarity internally
and externally, Marchex uses certain non-GAAP measures of financial
performance and liquidity, including OIBA, Adjusted OIBA, Adjusted
EBITDA and Adjusted non-GAAP EPS. Marchex also provides Pro Forma
Revenue information for the three and six months ended June 30, 2007
and 2008 as if the VoiceStar acquisition in September 2007 occurred as
of January 1, 2007.

OIBA represents income (loss) from operations plus (1) stock-based
compensation expense and (2) amortization of acquired intangible
assets. This measure, among other things, is one of the primary
metrics by which Marchex evaluates the performance of its business.
Additionally, Marchex's management uses Adjusted OIBA which excludes
(1) any gain/loss on sales and disposals of intangible assets and (2)
facility relocation as these are viewed as non-recurring in nature.
Adjusted OIBA is the basis on which Marchex's internal budgets are
based and by which Marchex's management is currently evaluated.
Marchex believes these measures are useful to investors because they
represent Marchex's consolidated operating results, taking into
account depreciation and other intangible amortization, which Marchex
believes is an ongoing cost of doing business, but excluding the
effects of certain other non-cash and non-recurring expenses. Adjusted
EBITDA represents income before interest, income taxes, depreciation,
amortization, stock compensation expense, and gain/loss on sales of
intangible assets. Marchex believes that Adjusted EBITDA is another
alternative measure of liquidity to GAAP net cash provided by
operating activities that provides meaningful supplemental information
regarding liquidity and is used by Marchex's management to measure its
ability to fund operations and its financing obligations.

Adjusted non-GAAP EPS represents Adjusted Net Income divided by
weighted average fully diluted shares outstanding for Adjusted
non-GAAP EPS purposes. Adjusted Net Income generally captures those
items on the statement of operations that have been, or ultimately
will be, settled in cash exclusive of certain non-recurring items and
represents net income (loss) available to common stockholders plus:
(1) stock based compensation expense, (2) amortization of acquired
intangible assets, (3) gain/loss on sales and disposals of intangible
assets, (4) other income (expense), (5) facility relocation and less
(6) discount on preferred stock redemption. Adjusted non-GAAP EPS
includes dilution from options and warrants per the treasury stock
method, includes the weighted average number of all potential common
shares relating to convertible preferred stock and restricted stock
and excludes the weighted average common share equivalents for
redeemed preferred shares. Shares outstanding for Adjusted non-GAAP
EPS purposes are therefore higher than shares outstanding for GAAP EPS
purposes. Financial analysts and investors may use Adjusted non-GAAP
EPS to analyze Marchex's financial performance since these groups have
historically used EPS related measures, along with other measures, to
estimate the value of a company, to make informed investment decisions
and to evaluate a company's operating performance compared to that of
other companies in its industry.

Marchex's management believes that investors should have access
to, and Marchex is obligated to provide, the same set of tools that
management uses in analyzing the company's results. These non-GAAP
measures should be considered in addition to results prepared in
accordance with GAAP, and should not be considered in isolation, as a
substitute for, or superior to, GAAP results. These non-GAAP terms, as
defined by Marchex, may not be comparable to similarly titled measures
used by other companies. Marchex endeavors to compensate for the
limitations of the non-GAAP measures presented by providing the
comparable GAAP measure with equal or greater prominence, GAAP
financial statements and detailed descriptions of the reconciling
items and adjustments, including quantifying such items, to derive the
non-GAAP measure.

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MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)

Three Months Ended
June 30,
-------------------------
2007 2008
------------ ------------

Revenue $34,665,637 $37,363,887
------------ ------------

Expenses:
Service costs (1) 16,764,588 17,414,301
Sales and marketing (1) 7,112,929 7,896,035
Product development (1) 2,662,779 4,252,469
General and administrative (1) 4,057,643 5,074,875
Amortization of intangible assets from
acquisitions 4,074,254 3,661,275
Facility relocation 121,124 -
------------ ------------
Total operating expenses 34,793,317 38,298,955
------------ ------------

Gain on sales and disposals of
intangible assets, net 123,246 2,010,576
------------ ------------

Income (loss) from operations (4,434) 1,075,508

Interest income and other, net 748,314 133,080
------------ ------------

Income before provision for income taxes 743,880 1,208,588

Income tax expense 412,978 733,229
------------ ------------

Net income 330,902 475,359

Convertible preferred stock dividends and
discount on preferred stock redemption,
net (23,482) (33,697)
------------ ------------

Net income applicable to common
stockholders $ 354,384 $ 509,056
============ ============

Basic and diluted net income applicable to
common stockholders $ 0.01 $ 0.01

Shares used to calculate basic net income
per share applicable to common
stockholders 39,597,600 36,580,610
Shares used to calculate diluted net
income per share applicable to common
stockholders 40,534,319 37,504,686

(1) Includes stock-based compensation
allocated as follows:
Service costs $ 31,741 $ 86,087
Sales and marketing 89,800 326,004
Product development 450,692 396,289
General and administrative 1,770,488 1,860,856
------------ ------------
Total $ 2,342,721 $ 2,669,236
============ ============

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MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)

Six Months Ended
June 30,
-------------------------
2007 2008
------------ ------------

Revenue $68,889,038 $74,406,214
------------ ------------

Expenses:
Service costs (1) 32,005,816 36,301,616
Sales and marketing (1) 14,622,850 14,867,783
Product development (1) 5,260,435 8,439,573
General and administrative (1) 8,238,418 10,033,984
Amortization of intangible assets
from acquisitions 8,597,388 7,713,637
Facility relocation 121,124 -
------------ ------------
Total operating expenses 68,846,031 77,356,593
------------ ------------

Gain on sales and disposals of
intangible assets, net 155,510 2,155,267
------------ ------------

Income (loss) from operations 198,517 (795,112)

Interest income and other, net 1,460,301 417,406
------------ ------------

Income (loss) before provision for
income taxes 1,658,818 (377,706)

Income tax expense 886,766 393,276
------------ ------------

Net income (loss) 772,052 (770,982)

Convertible preferred stock dividends
and discount on preferred stock
redemption, net (130,030) (44,585)
------------ ------------

Net income (loss) applicable to common
stockholders $ 902,082 $ (726,397)
============ ============

Basic and diluted net income (loss)
per share applicable to common
stockholders $ 0.02 $ (0.02)

Shares used to calculate basic net
income (loss) applicable to common
stockholders 39,382,979 37,121,849
Shares used to calculate diluted net
income (loss) applicable to common
stock holders 40,371,282 37,130,260

(1) Includes stock-based compensation
allocated as follows:
Service costs $ 150,276 $ 225,658
Sales and marketing 462,158 856,714
Product development 939,944 806,998
General and administrative 3,677,557 3,847,338
------------ ------------
Total $ 5,229,935 $ 5,736,708
============ ============

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MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)

December 31, June 30,
Assets 2007 2008
------------- -------------

Current assets:
Cash and cash equivalents $ 36,456,307 $ 28,978,958
Trade accounts receivable,
net 18,307,386 22,407,461
Prepaid expenses and other
current assets 2,118,390 3,553,256
Refundable taxes 1,693,695 1,538,255
Deferred tax assets 867,465 1,213,561
------------- -------------
Total current assets 59,443,243 57,691,491

Property and equipment, net 7,357,903 6,727,401
Deferred tax assets 7,447,315 9,395,438
Intangibles and other assets,
net 17,381,827 14,832,251
Goodwill 204,766,826 204,777,254
Intangible assets from
acquisitions, net 23,797,231 16,071,848
------------- -------------

Total assets $320,194,345 $309,495,683
============= =============

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable $ 11,625,779 $ 13,525,119
Accrued expenses and other
current liabilities 3,668,342 4,887,395
Deferred revenue 2,906,379 2,616,993
------------- -------------
Total current liabilities 18,200,500 21,029,507

Other non-current
liabilities 105,370 68,213
------------- -------------
Total liabilities 18,305,870 21,097,720

Stockholders' equity:
Convertible preferred stock 1,446,649 964,689
Class A common stock 113,717 112,217
Class B common stock 321,061 286,419
Treasury stock (22,116,275) (134,460)
Additional paid-in capital 329,835,529 295,683,672
Accumulated deficit (7,712,206) (8,514,574)
------------- -------------
Total stockholders' equity 301,888,475 288,397,963
------------- -------------

Total liabilities and stockholders'
equity $320,194,345 $309,495,683
============= =============

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MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of Revenue to Pro Forma Revenue
(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2007 2008 2007 2008
----------- ----------- ----------- -----------

Revenue, as reported $34,665,637 $37,363,887 $68,889,038 $74,406,214

VoiceStar pro forma
revenue 569,810 - 962,019 -
----------- ----------- ----------- -----------

Pro forma Revenue $35,235,447 $37,363,887 $69,851,057 $74,406,214
=========== =========== =========== ===========

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MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP Net Income (Loss) to Operating Income Before
Amortization (OIBA) and
Adjusted Operating Income Before Amortization (Adjusted OIBA)
(unaudited)

Three Months Ended
June 30,
------------------------
2007 2008
----------- ------------

Net income applicable to common
stockholders $ 354,384 $ 509,056

Convertible preferred stock dividends and
discount on preferred stock redemption,
net (23,482) (33,697)
----------- ------------

Net income 330,902 475,359

Income tax expense 412,978 733,229
----------- ------------

Income before provision for income taxes 743,880 1,208,588

Interest income and other, net (748,314) (133,080)
----------- ------------

Income (loss) from operations (4,434) 1,075,508

Stock-based compensation 2,342,721 2,669,236
Amortization of intangible assets from
acquisitions 4,074,254 3,661,275
----------- ------------

Operating income before amortization (OIBA) 6,412,541 7,406,019

Facility relocation 121,124 -
Gain on sales and disposals of intangible
assets, net (123,246) (2,010,576)
----------- ------------

Adjusted operating income before
amortization (Adjusted OIBA) $6,410,419 $ 5,395,443
=========== ============

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MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP Net Income (Loss) to Operating Income Before
Amortization (OIBA) and
Adjusted Operating Income Before Amortization (Adjusted OIBA)
(unaudited)

Six Months Ended
June 30,
-------------------------
2007 2008
------------ ------------

Net income (loss) applicable to common
stockholders $ 902,082 $ (726,397)

Convertible preferred stock dividends and
discount on preferred stock redemption,
net (130,030) (44,585)
------------ ------------

Net income (loss) 772,052 (770,982)

Income tax expense 886,766 393,276
------------ ------------

Income (loss) before provision for income
taxes 1,658,818 (377,706)

Interest income and other, net (1,460,301) (417,406)
------------ ------------

Income (loss) from operations 198,517 (795,112)

Stock-based compensation 5,229,935 5,736,708
Amortization of intangible assets from
acquisitions 8,597,388 7,713,637
------------ ------------

Operating income before amortization (OIBA) 14,025,840 12,655,233

Facility relocation 121,124 -
Gain on sales and disposals of intangible
assets, net (155,510) (2,155,267)
------------ ------------

Adjusted operating income before
amortization (Adjusted OIBA) $13,991,454 $10,499,966
============ ============

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MARCHEX, INC. AND SUBSIDIARIES
Reconciliation from Net Cash provided by Operating Activities to
Adjusted EBITDA
(unaudited)

Three Months Ended
June 30,
---------------------------
2007 2008
------------- -------------

Net cash provided by operating activities $ 4,282,562 $ 4,552,353

Changes in asset and liabilities, net of
effects of acquisitions 3,697,066 2,825,234
Provision for income taxes 412,978 733,229
Other item - facility relocation 17,106 1,663
Interest income and expense (756,841) (131,726)
Income and excess tax benefits related
to stock options 953,773 20,380
------------- -------------
Adjusted EBITDA $ 8,606,644 $ 8,001,133
============= =============

Net cash (used in) provided by investing
activities $(10,844,476) $ 794,288
============= =============

Net cash provided by (used in) financing
activities $ 1,387,221 $(10,819,969)
============= =============

Six Months Ended
June 30,
---------------------------
2007 2008
------------- -------------

Net cash provided by operating activities $ 16,760,683 $ 11,209,527

Changes in asset and liabilities, net of
effects of acquisitions (559,074) 4,478,712
Provision for income taxes 886,766 393,276
Other item - facility relocation 17,106 (2,972)
Interest income and expense (1,463,544) (415,551)
Income and excess tax benefits related
to stock options 2,446,764 53,541
------------- -------------
Adjusted EBITDA $ 18,088,701 $ 15,716,533
============= =============

Net cash used in investing activities $(12,349,883) $ (83,043)
============= =============

Net cash provided by (used in) financing
activities $ 3,375,636 $(18,603,833)
============= =============

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MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS
(unaudited)

Three Months Ended
June 30,
-------------------------
2007 2008
------------ ------------

------------ ------------
Adjusted Non-GAAP EPS $ 0.10 $ 0.09
============ ============

Net income per share applicable to common
stockholders - diluted (GAAP EPS) $ 0.01 $ 0.01
Shares used to calculate diluted net income
per share applicable to common stockholders 40,534,319 37,504,686

Net income applicable to common stockholders $ 354,384 $ 509,056

Discount on preferred stock redemption (40,923) (46,884)
Stock-based compensation 2,342,721 2,669,236
Facility relocation 121,124 -
Amortization of intangible assets from
acquisitions 4,074,254 3,661,275
Gain on sales and disposals of intangible
assets, net (123,246) (2,010,576)
Interest income and other, net (748,314) (133,080)
Estimated impact of income taxes (1,895,669) (1,214,728)
------------ ------------

Adjusted Non-GAAP net income applicable to
common stockholders $ 4,084,331 $ 3,434,299
============ ============

------------ ------------
Adjusted Non-GAAP EPS $ 0.10 $ 0.09
============ ============

Shares used to calculate diluted net income
per share applicable to common stockholders 40,534,319 37,504,686
Weighted average common share equivalents
for redeemed preferred shares (3,266) (8,327)
Weighted average stock options and
warrants and common shares subject to
repurchase or cancellation (if
applicable) 2,328,137 2,583,167
------------ ------------
Shares used to calculate Adjusted Non-GAAP
EPS 42,859,190 40,079,526
============ ============

For Adjusted Non-GAAP EPS, the impact of restricted stock (common
shares subject to repurchase or cancellation) is based on the
weighted average of restricted stock outstanding as compared with
diluted shares for GAAP purposes, which included restricted stock on
a treasury stock method basis.

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MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of GAAP EPS to Adjusted Non-GAAP EPS
(unaudited)

Six Months Ended
June 30,
-------------------------
2007 2008
------------ ------------

------------ ------------
Adjusted Non-GAAP EPS $ 0.21 $ 0.16
============ ============

Net income (loss) per share applicable to
common stockholders - diluted (GAAP EPS) $ 0.02 $ (0.02)
Shares used to calculate diluted net income
(loss) per share applicable to common
stockholders 40,371,282 37,130,260

Net income (loss) applicable to common
stockholders $ 902,082 $ (726,397)

Discount on preferred stock redemption (163,867) (72,990)
Stock-based compensation 5,229,935 5,736,708
Facility relocation 121,124 -
Amortization of intangible assets from
acquisitions 8,597,388 7,713,637
Gain on sales and disposals of intangible
assets, net (155,510) (2,155,267)
Interest income and other, net (1,460,301) (417,406)
Estimated impact of income taxes (4,154,741) (3,397,604)
------------ ------------

Adjusted Non-GAAP net income applicable to
common stockholders $ 8,916,110 $ 6,680,681
============ ============

------------ ------------
Adjusted Non-GAAP EPS $ 0.21 $ 0.16
============ ============

Shares used to calculate diluted net
income (loss) per share applicable to
common stockholders 40,371,282 37,130,260
Weighted average common share equivalents
for redeemed preferred shares (7,058) (8,411)
Weighted average stock options and
warrants and common shares subject to
repurchase or cancellation (if
applicable) 2,425,488 3,623,698
------------ ------------
Shares used to calculate Adjusted Non-GAAP
EPS 42,789,712 40,745,547
============ ============

For Adjusted Non-GAAP EPS, the impact of restricted stock (common
shares subject to repurchase or cancellation) is based on the
weighted average of restricted stock outstanding as compared with
diluted shares for GAAP purposes, which included restricted stock on
a treasury stock method basis.

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Marchex Investor Relations
Trevor Caldwell
Telephone: 206-331-3600
Email: ir(at)marchex.com
or
Marchex Public Relations
P. Kevin Horn
Telephone: 206-331-3474
Email: khorn(at)marchex.com

Copyright Business Wire 2008