UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)2)

(Mark One)

☒	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31, 2020~~June 30, 2023

☐	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐ 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,~~ 1200 5th Ave, Suite ~~2000~~1300
Seattle, WA (Address of Principal Executive Offices)	98101 (Zip Code)

Registrant’s telephone number, including area code: ~~(206)~~ (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 ~~May 14, 2020,~~August 1, 2023, the registrant had 4,660,927 shares of Class A common stock, $.01 par value per share, and ~~39,868,120~~38,703,648 shares of Class B common stock, $.01 par value per share, outstanding, respectively.

EXPLANATORY NOTE

~~The sole purpose of this~~This Amendment No. 12 on Form 10-Q/A ~~(the “Amendment~~”(this “Amendment”) toamends the Quarterly Report on Form 10-Q of Marchex, Inc. (the “~~Company~~”“Company”) for the quarter ended ~~March 31, 2020~~June 30, 2023, that was originally filed with the Securities and Exchange Commission on August 4, 2023 (the “~~SEC~~”“Original Filing”), as amended on ~~May 19, 2020~~January 16, 2024 (the “~~Form 10-Q~~”“First Amended Filing”). In the First Amended Filing, the Company corrected an inadvertent error in Exhibit 31.1 to the Original Filing, but the Company did not re-file Exhibits 31.2 or 32 (instead incorporating them by reference to the Original Filing), which did not include any inadvertent errors. The purpose of this Amendment is solely to ~~add~~include Exhibits 31.2 and 32, re-executed as of the date of this ~~Explanatory Note which was inadvertently omitted from the Form 10-Q. As previously disclosed~~Amendment, along with re-executed Exhibit 31.1 (as corrected in the ~~Company’s Current Report on Form 8-K~~First Amended Filing). There are no changes to Exhibit 31.1 as ~~filed with the SEC on May 11, 2020 and~~included in the ~~Company’s Current Report on Form 8-K/A~~First Amended Filing, Exhibit 31.2 as ~~filed with~~included in the ~~SEC on May 15, 2020,~~Original Filing, or Exhibit 32 as included in the ~~Company has relied on~~Original Filing, except for the ~~relief provided by Securities~~signatory and ~~Exchange Commission Order Under Section 36~~date. The remainder of the ~~Securities Exchange Act~~text of ~~1934 Modifying Exemptions from~~Original Filing is included in this Amendment without change. Except as summarized above and related changes to the ~~Reporting and Proxy Delivery Requirements for Public Companies, Release No. 34-88465, dated March 25, 2020 (the “Order”), for a brief delay~~Exhibit Index, as well as changes to the way the Exhibit Index identifies the iXBRL exhibits included in ~~filing~~ the ~~Form 10-Q. Specifically,~~Original Filing, this Amendment continues to speak as of the Company disclosed that it would be unable to file the Form 10-Q by its original due date as a result of disruptions and delays caused by COVID-19 and the need to perform additional analyses and procedures relating to COVID-19’s potential impact on the Company’s financial statements, including an impairment evaluation of goodwill and intangible asset balances, and that the Company expected to file the Form 10-Q no later than June 25, 2020 (45 days from the Form 10-Q’s original due date of ~~May 11, 2020). The Company filed~~ the ~~Form 10-Q on May 19, 2020, which was within the stated timeframe.~~

~~This Amendment~~Original Filing and does not reflect events occurring after the date of the Original Filing or modify or update the disclosures therein in any ~~way the disclosures contained in the~~ way.

Marchex, Inc.

Form 10-Q ~~other than to add this Explanatory Note.~~

~~Marchex, Inc.~~

~~Form 10-Q~~

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders’ Equity	31
	Condensed Consolidated Statements of Cash Flows	41
	Notes to Condensed Consolidated Financial Statements	52
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2513
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4626
Item 4.	Controls and Procedures	4626

PART II.	OTHER INFORMATION	27
Item 1.	Legal Proceedings	4827
Item 1A.	Risk Factors	4827
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6943
Item 4.	Mine Safety Disclosures	6943
Item 6.	Exhibits	7044
Signature		71
		45

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)


	December 31,			March 31,			December 31,			June 30,
	2019			2020			2022			2023
Assets
Current assets:
Cash and cash equivalents	$	42,526		$	40,312		$	20,474		$	14,122
Accounts receivable, net		17,809			16,762			8,396			7,724
Prepaid expenses and other current assets		2,084			2,097			2,015			2,200
Total current assets		62,419			59,171			30,885			24,046
Property and equipment, net		3,028			3,264			4,050			4,669
Right-of-use lease asset		5,801			5,578			738			1,858
Other assets, net		335			1,096			973			1,064
Goodwill		33,433			19,132			17,558			17,558
Intangible assets from acquisitions, net		19,485			11,820			2,590			1,528
Total assets	$	124,501		$	100,061		$	56,794		$	50,723
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,082		$	7,476		$	2,037		$	915
Accrued expenses and other current liabilities		6,679			7,223
Current portion of acquisition-related liabilities		1,111			642
Accrued benefits and payroll								3,566			2,903
Other accrued expenses and current liabilities								3,825			4,194
Deferred revenue and deposits		1,173			1,380			1,384			1,441
Lease liability current		1,500			1,495
Right of use liability, current								1,252			443
Finance lease, current								—			264
Total current liabilities		17,545			18,216			12,064			10,160
Deferred tax liabilities		981			181			233			257
Lease liability non-current		5,664			5,410
Non-current portion of acquisition-related liabilities		473			226
Finance lease, non-current								-			443
Right of use liability non-current								385			1,453
Total liabilities		24,663			24,033			12,682			12,313
Commitments and contingencies
Commitments and contingencies - See Note 10
Stockholders’ equity:
Class A: 12,500 shares authorized; 4,661 shares issued and outstanding at December 31, 2019 and March 31, 2020		49			49
Class B: 125,000 shares authorized; 39,610 shares issued and outstanding at December 31, 2019, including 1,030 shares of restricted stock; and 39,768 shares issued and outstanding at March 31, 2020, including 1,145 shares of restricted stock		396			398
Common stock, $0.01 par value, Authorized 137,500 shares
Class A: 12,500 shares authorized; 4,661 shares issued and outstanding at December 31, 2022 and June 30, 2023								49			49
Class B: 125,000 shares authorized; 38,497 shares issued and outstanding at December 31, 2022, including 1,105 shares of restricted stock; and 38,696 shares issued and outstanding at June 30, 2023, including 989 shares of restricted stock								385			387
Additional paid-in capital		359,633			360,696			354,999			356,515
Accumulated deficit		(260,240	)		(285,115	)		(311,321	)		(318,541	)
Total stockholders’ equity		99,838			76,028			44,112			38,410
Total liabilities and stockholders’ equity	$	124,501		$	100,061		$	56,794		$	50,723

See accompanying Notes to the Condensed Consolidated Financial Statements.

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended March 31,						Six Months Ended June 30,						Three Months Ended June 30,
	2019			2020			2022			2023			2022			2023
Revenue	$	26,406		$	24,785		$	26,681		$	24,738		$	13,510		$	12,522
Expenses:
Service costs ⁽¹⁾⁽³⁾		14,258			14,498			9,799			10,842			4,864			5,418
Sales and marketing⁽¹⁾⁽³⁾		4,113			4,991			6,784			6,601			3,619			2,631
Product development ⁽¹⁾⁽³⁾		4,568			6,043			6,991			8,260			3,531			4,096
General and administrative⁽¹⁾⁽³⁾		3,320			3,737			5,046			5,163			2,440			2,546
Amortization of intangible assets from acquisitions ⁽²⁾		1,568			1,763			1,062			1,062			531			531
Acquisition-related costs (benefit)		182			(635	)
Acquisition and disposition-related costs								27			12			22			(1	)
Total operating expenses		28,009			30,397			29,709			31,940			15,007			15,221
Impairment of goodwill		—			(14,213	)
Impairment of intangible assets from acquisitions		—			(5,903	)
Loss from operations		(1,603	)		(25,728	)		(3,028	)		(7,202	)		(1,497	)		(2,699	)
Interest income and other, net		185			110
Interest income (expense) and other, net								(4	)		26			17			(31	)
Loss before provision for income taxes		(1,418	)		(25,618	)		(3,032	)		(7,176	)		(1,480	)		(2,730	)
Income tax benefit		(119	)		(743	)
Income tax expense								81			44			51			14
Net loss applicable to common stockholders	$	(1,299	)	$	(24,875	)	$	(3,113	)	$	(7,220	)	$	(1,531	)	$	(2,744	)
Basic and diluted net loss per Class A and Class B share applicable to common stockholders	$	(0.03	)	$	(0.53	)	$	(0.07	)	$	(0.17	)	$	(0.03	)	$	(0.06	)
Shares used to calculate basic net loss per share applicable to common stockholders:
Class A		5,056			4,661			4,661			4,661			4,661			4,661
Class B		39,827			42,179			38,670			37,837			38,696			37,840
Shares used to calculate diluted net loss per share applicable to common stockholders:
Class A		5,056			4,661			4,661			4,661			4,661			4,661
Class B		44,883			46,840			43,331			42,498			43,357			42,501
(1) Excludes amortization of intangibles from acquisitions
(2) Components of amortization of intangibles from acquisitions:
(2) Components of amortization of intangibles from acquisitions
Service costs	$	574		$	756			234			234			117			117
Sales and marketing		618			742			828			828			414			414
Total							$	1,062		$	1,062		$	531		$	531
(3) Components of related party support services fee recovery
Service costs							$	1,436		$	739		$	655		$	359
Sales and marketing								372			87			141			37
Product development								918			125			401			58
General and administrative		376			265			864			100			361			46
Total	$	1,568		$	1,763		$	3,590		$	1,051		$	1,558		$	500

See accompanying Notes to the Condensed Consolidated Financial Statements.

MARCHEX, INC. AND SUBSIDIARIES

Condensed 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, 2021		4,661	$	49		37,391		$	374			(23	)	$	—	$	354,155	$	(303,076	)	$	51,502
Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net		—		—		285			3			—			—		13		—			16
Retirement of treasury stock		—		—		(23	)		—			23			—		—		—			—
Stock compensation from options and restricted stock, net of forfeitures		—		—		—			—			—			—		695		—			695
Net loss		—		—		—			—			—			—		—		(1,582	)		(1,582	)
Balances at March 31, 2022		4,661	$	49		37,653		$	377			—		$	—	$	354,863	$	(304,658	)	$	50,631
Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net		—		—		5			—			—			—		7		—			7
Stock compensation from options and restricted stock, net of forfeitures		—		—		—			—			—			—		714		—			714
Net loss		—		—		—			—			—			—		—		(1,531	)		(1,531	)
Balances at June 30, 2022		4,661	$	49		37,658		$	377			—		$	—	$	355,584	$	(306,189	)	$	49,821

	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, 2022		4,661	$	49		38,497		$	385			—		$	—	$	354,999	$	(311,321	)		44,112
Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net		—		—		282			3			—			—		9		—			12
Retirements of treasury stock		—		—		(105	)		(1	)		—			—		—		—			(1	)
Stock compensation from options and restricted stock, net of forfeitures		—		—		—			—			—			—		799		—			799
Net loss		—		—		—			—			—			—		—		(4,476	)		(4,476	)
Balances at March 31, 2023		4,661	$	49		38,674		$	387			—		$	-	$	355,807	$	(315,797	)		40,446
Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net		—		—		22			—			—			—		7		—			7
Stock compensation from options and restricted stock, net of forfeitures		—		—		—			—			—			—		701		—			701
Net loss		—		—		—			—			—			—		—		(2,744	)		(2,744	)
Balances at June 30, 2023		4,661	$	49		38,696		$	387			—		$	-	$	356,515	$	(318,541	)		38,410

See accompanying Notes to the Condensed Consolidated Financial Statements.

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

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, 2019

4,661

$
49

39,610

$
396

—

—

$
359,633

$
(260,240
)

99,838

Issuance of common stock upon
   exercise of options, issuance
   and vesting of restricted stock
   and under employee stock purchase
   plan, net

—

—

158

2

—

—

6

—

8

Stock compensation from options and
   restricted stock, net of
   forfeitures

—

—

—

—

—

—

1,057

—

1,057

Net loss

—

—

—

—

—

—

—

(24,875
)

(24,875
)
Balances at March 31, 2020

4,661

$
49

39,768

$
398

—

—

$
360,696

$
(285,115
)

76,028

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	For the Three Months Ended March 31,
	2019			2020			June 30,
Operating Activities:
Net loss	$	(1,299	)	$	(24,875	)
Adjustments to reconcile net loss to net cash used in operating activities:
							2022			2023
Cash flows from operating activities:
Net loss applicable to common shareholders							$	(3,113	)	$	(7,220	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and depreciation		2,034			2,278			1,920			1,842
Impairment of goodwill		—			14,213
Impairment of intangibles assets from acquisitions		—			5,903
Allowance for doubtful accounts and advertiser credits		(157	)		1,351			370			155
Stock-based compensation								1,409			1,500
Deferred income taxes		(141	)		(800	)		70			24
Stock-based compensation		545			1,057
Acquisition-related costs (benefit)		117			(728	)
Change in certain assets and liabilities:
Accounts receivable, net		1,638			(304	)		(684	)		516
Prepaid expenses, other current assets and other assets		(394	)		(854	)		(200	)		(364	)
Accounts payable		743			318			(21	)		(1,123	)
Accrued expenses and other current liabilities		416			521			(13	)		(1,159	)
Deferred revenue and deposits		2,174			206			(527	)		58
Other non-current liabilities		(52	)		—
Net cash provided by (used in) operating activities		5,624			(1,714	)
Net cash used in operating activities								(789	)		(5,771	)
Investing Activities:
Purchases of property and equipment		(237	)		(596	)		(1,501	)		(522	)
Cash received in connection with acquisitions		95			88
Purchases of intangible assets and changes in other non-current assets		(1	)		(1	)
Net cash used in investing activities		(143	)		(509	)		(1,501	)		(522	)
Financing Activities:
Financing lease payments								-			(76	)
Proceeds from exercises of stock options, issuance and vesting of restricted stock and employee stock purchase plan, net		195			9			22			17
Net cash provided by financing activities		195			9
Net increase (decrease) in cash and cash equivalents		5,676			(2,214	)
Net cash provided (used) by financing activities								22			(59	)
Net decrease in cash and cash equivalents								(2,268	)		(6,352	)
Cash and cash equivalents at beginning of period		45,230			42,526			27,086			20,474
Cash and cash equivalents at end of period	$	50,906		$	40,312		$	24,818		$	14,122
Supplemental disclosure of cash flow information:
Supplemental disclosure of cash flow and non-cash information:
Cash paid for operating leases	$	418		$	301		$	982		$	1,412
Cash paid for income taxes							$	38		$	61
Acquisition of property and equipment included in accounts payable and accrued liabilities							$	128		$	-
Financing lease							$	-		$	786

See accompanying Notes to the Condensed Consolidated Financial Statements.

MARCHEX, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~(1)~~(1) Description of Business and Basis of Presentation

~~(a)~~ 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~~conversational analytics and solutions company that helps businesses connect, drive, measure, and convert callers into ~~customers. The Company provides products~~customers, and ~~services for businesses~~connects the voice of ~~all sizes~~the customer to their business. We deliver data insights and incorporate artificial intelligence (AI)-powered functionality that ~~depend on consumer phone calls or texts~~drives insights and solutions to ~~drive sales. The Company’s analytics technology can facilitate call quality~~help companies find, engage and ~~texting, analyze calls~~support their customers across voice and ~~measure the outcomes~~text-based communication channels.

Basis 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.~~Presentation

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~~("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). ~~Accordingly, they do~~Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not ~~include all~~misleading.

The preparation of our unaudited Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the ~~information~~financial statements and ~~notes required by generally accepted~~the reported amounts of revenue and expenses during the reporting period. The Company has used estimates related to several financial statement amounts, including revenues, allowance for doubtful accounts, allowance for advertiser credits, useful lives for property and equipment and intangible assets, valuation of intangible assets, the fair value of stock option awards, the impairment of goodwill and the valuation allowance for deferred tax assets. The inputs into our judgments and estimates consider the economic implications of COVID-19 on our critical and significant 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. estimates. Actual results could differ from those estimates.

Operating results for the three and six months ended ~~March 31, 2020~~June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020,~~2023, or for any other period. The interim financial information is unaudited, and reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. The balance sheet at December 31, ~~2019~~2022 has been derived from the audited ~~consolidated financial statements~~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 notesdate. This report 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, 2019, as amended, and filed with the SEC.~~

~~The Condensed~~ Consolidated Financial Statements in our 2022 Form 10-K where we include additional information about our policies and the ~~accounts~~methods and assumptions used in our estimates.

Our Company consolidates all entities that we control by ownership of ~~the Company and its wholly-owned subsidiaries.~~a majority voting interest. All inter-company transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the ~~consolidated financial statements~~Condensed Consolidated Financial Statements in the prior periods to conform to the current period presentation.

~~Acquisitions~~

In November 2018, the Company 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. In December 2019, the Company acquired Sonar Technologies, Inc. (“Sonar”), an enterprise text messaging sales engagement and analytics company. See ~~Note 11. Acquisitions~~ ~~of the Notes to the Condensed Consolidated Financial Statements for further discussion.~~

~~(b) The Impact of COVID-19 on our Results of Operations~~

In late 2019, an outbreak of COVID-19 emerged and by March 11, 2020 was declared a global pandemic by the World Health Organization. Across the United States and the world, governments and municipalities instituted measures in an effort to control the spread of COVID-19, including quarantines, shelter-in-place orders, school closings, travel restrictions and the closure of non-essential businesses. By the end of March, the macroeconomic impacts became significant, exhibited by, among other things, a rise in unemployment and market volatility.

For most of the quarter ended March 31, 2020, the Company’s results reflect historical trends and seasonality. However, in March 2020, the Company experienced a decline in revenues due to the impact of COVID-19 and the related reductions in global economic activity and reduced spending by its customers in response to the macroeconomic impact. The Company also assessed the realized and potential credit deterioration of its customers due to changes in the macroeconomic environment, which has been reflected in an increase in its allowance for credit losses for accounts receivable. Additionally, the Company determined that indicators of impairment had occurred during the first quarter of 2020, which resulted in the Company performing an interim impairment analysis during the first quarter of 2020. As a result of this interim impairment test, the Company recognized an impairment of its intangible long-lived assets and goodwill during the first quarter of 2020. See the Notes to the Condensed Consolidated Financial Statements for additional information.

For additional information for the effects of the COVID-19 pandemic and resulting global disruptions on the Company’s business and operations, refer to Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1.A of Part II, “Risk Factors”.

~~(c) Cash and Cash Equivalents~~

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of money market funds.

~~(d) Fair Value of Financial Instruments~~

The Company had the following financial instruments as of December 31, 2019 and March 31, 2020: cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities. The carrying value of these financial instruments approximates their fair value based on the liquidity of these financial instruments and their short-term nature. Further, these financial instruments are considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets. The following table provides information about the fair value of our cash and cash equivalents balance as of December 31, 2019 and March 31, 2020 (in thousands):

At December 31,

At March 31,

2019

2020

Level 1 Assets:

Cash
$
15,258

$
12,961

Money market funds

27,268

27,351

Total cash and cash equivalents
$
42,526

$
40,312

In addition, the Company has acquisition-related liabilities which are recorded at fair value. The fair value was estimated by applying the income approach, which is based on significant inputs that are not observable in the market (Level 3 inputs), such as the discount rate and the probability of meeting targeted financial goals. See ~~Note 11. Acquisitions~~ ~~of the Notes to the Condensed Consolidated Financial Statements for further discussion.~~

Assets, liabilities and operations of foreign subsidiaries are recorded based on the functional currency of the entity. For a majority of our foreign operations, the functional currency is the U.S. dollar. Assets and liabilities denominated in other than the functional currency are remeasured each month with the remeasurement gain or loss recorded in other income and expense in the Condensed Consolidated Statements of Operations.

Recent Accounting Pronouncements Not Yet Effective

~~(2) Significant Accounting Policies~~

~~The preparation of financial statements in conformity with generally accepted~~To date, there have been no recent 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~~pronouncements not yet effective 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.~~

As of March 31, 2020, the impact of the outbreak of COVID-19 continues to unfold. As a result, many of the Company’s estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.

~~Recent Accounting Pronouncement(s) Not Yet Effective~~

~~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. The Company does not expect adoption of ASU 2018-19 and ASU 2016-13 to have a material impact on its consolidated financial statements. 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 ASU 2016-13. 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.

~~In November 2019, the FASB issued Accounting Standards Update No. 2019-10,~~ ~~Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) - Effective Dates (ASU-2019-10)~~, an ASU modifying the effective dates of various previous pronouncements. As the Company qualifies as a Smaller Reporting Company with the SEC, this ASU revised the effective date of ASU 2016-13 and ASU 2017-04 to fiscal years beginning after December 15, 2022. The Company does not expect adoption of ASU 2019-10expected to have a material impact on our ~~consolidated financial statements.~~Condensed Consolidated Financial Statements.

~~In February 2020, the FASB issued Accounting Standards Update No. 2020-02,~~ ~~Financial Instruments — Credit Losses (Topic 326) and Leases (Topic 842).~~ This ASU adds an SEC paragraph pursuant to the issuance of SEC Staff Accounting Bulletin No. 119, which adds Topic 6M on Accounting for Loan Losses by Registrants Engaged in Lending Activities Subject to FASB ASC Topic 326. It also adds a note in paragraph 842-10-S65-1 regarding the updated effective date for Leases pursuant to the issuance of ASU 2019-10. Additionally, in March 2020 Accounting Standards Update No. 2020-03, ~~Codification Improvements to Financial Instruments (ASU 2020-03)~~, an ASU which represent changes to clarify or improve the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The amendments and are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The Company does not expect adoption of ASU 2020-02 and of ASU 2020-03 to have a material impact on our consolidated financial statements.

~~In November 2019, the FASB issued Accounting Standards Update No. 2019-11,~~ ~~Codification Improvement to Topic 326, Financial Instruments — Credit Losses~~, an ASU which makes several amendments to the new credit losses standard, including an amendment requiring entities to include certain expected recoveries of the amortized cost basis previously written off, or expected to be written off, in the allowance for credit losses for purchased credit deteriorated assets. The amendments also provide transition relief

related to troubled debt restructurings, allow entities to exclude accrued interest amounts from certain required disclosures and clarify the requirements for applying the collateral maintenance practical expedient. For entities that have not yet adopted the new credit losses standard, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted the new credit losses standard, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period, as long as the entity has adopted the new credit losses standard. The ASU must be adopted using a modified-retrospective approach. The Company does not expect adoption of ASU 2019-11 to have a material impact on its consolidated financial statements.

~~In December 2019, the FASB issued Accounting Standards Update No. 2019-12,~~ ~~Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes~~, an ASU which eliminates certain exceptions to the guidance in Accounting Standards Codification (ASC or Codification) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance also clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. The ASU is effective for reporting periods beginning after December 15, 2020, with early adoption permitted. The transition method related to the ASU amendments depend upon the nature of the guidance and vary depending upon the specific amendment being implemented. The Company does not expect adoption of ASU 2019-12 to have a material impact on its consolidated financial statements.

~~(3)~~(2) Revenue Recognition

~~The Company generates~~

We generate the majority of ~~its~~our revenues from ~~advertisers for~~ ~~its performance based advertising services, which include the~~ ~~use of its call~~core analytics ~~technology~~ and ~~pay-for-call advertising products and~~solutions 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.

~~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 the Company expects 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 Company’s call analytics technology platform provides data and insights that can measure the performance of mobile, online and offline advertising for ~~advertisers~~customers 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 months ended March 31, 2019, revenues disaggregated by service type were $25.2 million for performance based advertising services and $1.2 million for local leads services.~~ ~~For the three months ended March 31, 2020, revenues disaggregated by service type were $24.0 million for performance based advertising services and $826,000 for local leads services.~~

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. 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 establishes an allowance for advertiser credits, which is included in Other accrued ~~expense~~expenses and ~~other~~ current liabilities in the balance sheet, ~~as of March 31, 2020,~~ using its best estimate of the amount of expected future reductions in advertisers’ payment obligations related to delivered services based on analysis of historical

credits. The balance associated with the allowance for advertiser credits in the Company’s ~~consolidated balance sheet~~Condensed Consolidated Balance Sheet was ~~$346,000~~$84,443 and ~~$370,000~~$219,000 as of December 31, ~~2018~~2022 and ~~2019, respectively, and was $323,000 as of March 31, 2020.~~June 30, 2023, respectively. Customer payments received in advance of revenue recognition are also contract liabilities and are recorded as deferred revenue. The deferred revenue balance in the Company’s ~~consolidated balance sheet~~Condensed Consolidated Balance Sheet as of December 31, ~~2018~~2022 and ~~2019, was $1.8 million and $1.2 million, respectively, and~~June 30, 2023 was $1.4 million ~~as of March 31, 2020.~~and $1.4 million, respectively. During the ~~three~~six months ended ~~March 31, 2019~~June 30, 2023 and ~~2020,~~2022, revenue recognized that was included in the contract liabilities ~~balance~~balances at the beginning of the period was ~~$349,000~~$673,000 and ~~$587,000,~~$643,000, respectively. During the three months ended June 30, 2023 and 2022, revenue recognized that was included in the contract liabilities balances at the beginning of the period was $132,000 and $219,000, respectively.

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 December 31, ~~2019~~2022 and ~~March 31, 2020,~~June 30, 2023, the Company had ~~$287,000~~$163,000 and ~~$289,000~~$193,000 of

net deferred contract costs, respectively, and the accumulated amortization associated with these costs was ~~$108,000~~$1.5 million and ~~$79,000~~$1.6 million for the periods ended December 31, 2022 and June 30, 2023, respectively.

(3) Segment Reporting and Geographic Information

Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally for the Company’s management. For the three and six months ended June 30, 2023 and 2022, the Company operated in a single segment comprised of its core analytics and solutions services.

Long-lived assets by geographical region are based on the location of the legal entity that owns the assets. As of December 31, 2022 and June 30, 2023, no significant long-lived assets were held by entities outside of the United States.

Revenues from customers by geographical areas are tracked on the basis of the location of the customer. The majority of the Company’s revenue and accounts receivable are derived from domestic sales to customers.

Revenues by geographic region are as follows (in percentages):


	Six Months Ended June 30,						Three Months Ended June 30,
	2022			2023			2022			2023
United States		98	%		99	%		98	%		99	%
Canada and other countries		2	%		1	%		2	%		1	%
Total		100	%		100	%		100	%		100	%

(4) Concentrations

The Company maintains substantially all of its cash and cash equivalents with one high credit quality financial institutions and are all considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

There was one customer that represented more than 10% of consolidated revenue for the three and six months ended ~~March~~June 30, 2023, which was 11% respectively.

The Company has one customer that represents more than 10% of consolidated accounts receivable. The outstanding receivable balance for this customer is as follows (in percentages):


	December 31,			June 30,
	2022			2023
Customer A		28	%		17	%

(5)Fair Value of Financial Instruments

The Company had the following financial instruments as of December 31, ~~2019~~2022 and ~~2020, respectively.~~June 30, 2023: cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities. The carrying value of these financial instruments approximates their fair value based on the liquidity of these financial instruments and their short-term nature. Further, these financial instruments are considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

The following table provides information about the fair value of our cash and cash equivalents balance as of December 31, 2022 and June 30, 2023 (in thousands):

~~(4)~~


	December 31,		June 30,
	2022		2023
Level 1 Assets:
Cash	$	9,020	$	9,044
Money market funds		11,454		5,078
Total cash and cash equivalents	$	20,474	$	14,122

(6) Stockholder’s Equity

Common Stock

In November 2014, the Company’s board of directors authorized a share repurchase program (the “2014 Repurchase Program”), which supersedes and replaces any prior repurchase programs. Under the 2014 Repurchase Program, the Company is authorized to repurchase up to 3 million shares of the Company’s Class B common stock in the aggregate through open market and privately negotiated transactions, at such times and in such amounts as the Company deems appropriate. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability, and other market conditions. The 2014 Repurchase Program does not have an expiration date and may be expanded, limited or terminated at any time without prior notice. During the three and six months ended June 30, 2023 and 2022, the Company did not repurchase any Class B common stock.

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):


	Three months ended March 31,				Six Months Ended June 30,				Three Months Ended June 30,
	2019		2020		2022		2023		2022		2023
Service costs	$	59	$	22	$	79	$	-	$	45	$	(45	)
Sales and marketing		177		316		391		491		200		228
Product development		76		94		158		133		76		47
General and administrative		233		625		781		876		393		471
Total stock-based compensation	$	545	$	1,057	$	1,409	$	1,500	$	714	$	701

The Company uses the Black-Scholes option pricing model to estimate the per share fair value of stock option grants with time-based vesting. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. For the ~~three~~six months ended ~~March 31, 2019~~June 30, 2022 and ~~2020,~~2023 the expected life of each award granted was determined based on historical experience with similar awards, giving consideration to contractual terms, anticipated exercise patterns, vesting schedules and expirations. Expected volatility is based on historical volatility levels of the Company’s Class B common stock and the expected volatility of companies in

similar industries that have similar vesting and contractual terms. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option.

The following weighted average assumptions were used in determining the fair value of time-vested stock option grants for the periods presented:


	Six Months Ended June 30,		Three Months Ended June 30,
	2022	2023	2022			2023
Expected life (in years)	4.0 - 6.25	4.0 - 6.25	4.0			4.0 - 6.25
Risk-free interest rate	2.41%-3.35%	3.58%-4.31%		3.35	%	4.05%-4.31%
Expected volatility	51%-61%	53%-64%		61	%	53%-64%

Three months ended
March 31,

2019

2020
Expected life (in years)

4.0

4.0 - 6.25
Risk-free interest rate

2.22%

1.13% - 1.22%
Expected volatility

40%

46% - 52%

Stock option activity during the ~~three~~six months ended ~~March 31, 2020~~June 30, 2023 is summarized as follows:

	Shares (in thousands)			Weighted average exercise price		Weighted average remaining contractual term (in years)
Balance at December 31, 2019		4,782		$	4.80		5.82
								Shares (in thousands)			Weighted average exercise price		Weighted average remaining contractual term (in years)
Balance at December 31, 2022									3,766		$	3.14		6.67
Options granted		239			3.02				1,350			2.00
Options forfeited		(49	)		3.08				(245	)		2.67
Options expired		(94	)		5.11				(368	)		4.42
Balance at March 31, 2020		4,878		$	4.72		5.81
Balance at June 30, 2023									4,503		$	2.73		6.38

Restricted stock awards and restricted stock units are generally measured at fair value on the date of grant based on the number of awards granted and the quoted price of the Company’s common stock. Restricted stock units entitle the holder to receive one share of the Company’s Class B common stock upon satisfaction of certain service conditions.

Restricted stock awards and restricted stock unit activity during the ~~three~~six months ended ~~March 31, 2020~~June 30, 2023 is summarized as follows:

	Shares/ Units (in thousands)			Weighted average grant date fair value
Unvested balance at December 31, 2019		1,786		$	3.70
						Shares/ Units (in thousands)			Weighted average grant date fair value
Unvested balance at December 31, 2022							1,640		$	2.53
Granted		175			2.92		259			1.97
Vested		(38	)		4.00		(412	)		2.44
Forfeited		(11	)		2.65		(219	)		2.74
Unvested balance at March 31, 2020		1,912		$	3.63
Unvested balance at June 30, 2023							1,268		$	2.42

~~(5)~~(7) Net ~~Income (Loss)~~Loss Per Share

The Company computes net ~~income (loss)~~loss per share of Class A and Class B common stock using the ~~two class~~two-class method. Under the provisions of the ~~two class~~two-class method, basic net ~~income (loss)~~loss per share is computed by dividing net ~~income (loss)~~loss applicable to common stockholders by the weighted average number of common shares outstanding during the year. Diluted net ~~income (loss)~~loss per share is computed by dividing net ~~income (loss)~~loss applicable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of the diluted net ~~income (loss)~~loss per share of Class B common stock assumes the conversion of Class A common stock to Class B common stock, while the diluted net ~~income (loss)~~loss per share of Class A common stock does not assume the conversion of those shares.

In accordance with the ~~two class~~two-class method, the undistributed earnings (losses) for each year are allocated based on the contractual participation rights of the Class A and Class B common shares and the restricted shares as if the earnings for the year had been distributed. Considering the terms of the Company’s charter which provides that, if and when dividends are declared on the Company’s common stock in accordance with Delaware General Corporation Law, equivalent dividends shall be paid with respect to the shares of Class A common stock and Class B common stock and that both classes of common stock have identical dividend rights and would share equally in the Company’s net assets in the event of liquidation, the Company has allocated undistributed earnings (losses) on a proportionate basis.

Instruments granted in unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities prior to vesting. As such, the Company’s restricted stock awards are considered participating securities for purposes of calculating earnings per share.

The following ~~table presents~~tables present the computation of basic net loss per share applicable to common stockholders for the periods ended (in thousands, except per share amounts):


	Three months ended March 31,												Six Months Ended June 30,
	2019						2020						2022						2023
	Class A			Class B			Class A			Class B			Class A			Class B			Class A			Class B
Basic net loss per share:
Numerator:
Net loss applicable to common stockholders	$	(146	)	$	(1,153	)	$	(2,475	)	$	(22,400	)	$	(335	)	$	(2,778	)	$	(792	)	$	(6,428	)
Denominator:
Weighted average number of shares outstanding used to calculate basic net loss per share		5,056			39,827			4,661			42,179			4,661			38,670			4,661			37,837
Basic net loss per share applicable to common stockholders	$	(0.03	)	$	(0.03	)	$	(0.53	)	$	(0.53	)	$	(0.07	)	$	(0.07	)	$	(0.17	)	$	(0.17	)


	Three Months Ended June 30,
	2022						2023
	Class A			Class B			Class A			Class B
Basic net loss per share:
Numerator:
Net loss applicable to common stockholders	$	(165	)	$	(1,366	)	$	(301	)	$	(2,443	)
Denominator:
Weighted average number of shares outstanding used to calculate basic net loss per share		4,661			38,696			4,661			37,840
Basic net loss per share applicable to common stockholders	$	(0.03	)	$	(0.03	)	$	(0.06	)	$	(0.06	)

The following ~~table presents~~tables present the computation of diluted net loss per share applicable to common stockholders for the periods ended (in thousands, except per share amounts):


	Six Months Ended June 30,
	2022						2023
	Class A			Class B			Class A			Class B
Diluted net loss per share:
Numerator:
Net loss applicable to common stockholders	$	(335	)	$	(2,778	)	$	(792	)	$	(6,428	)
Reallocation of discontinued operations for Class A shares as a result of conversion of Class A to Class B shares		—			(335	)		—			(792	)
Diluted net income from discontinued operations, net of tax	$	(335	)	$	(3,113	)	$	(792	)	$	(7,220	)
Denominator:
Weighted average number of shares outstanding used to calculate basic net loss per share		4,661			38,670			4,661			37,837
Conversion of Class A to Class B common shares outstanding		—			4,661			—			4,661
Weighted average number of shares outstanding used to calculate diluted net loss per share		4,661			43,331			4,661			42,498
Diluted net loss per share applicable to common stockholders	$	(0.07	)	$	(0.07	)	$	(0.17	)	$	(0.17	)

Three months ended March 31,

2019

2020

Class A

Class B

Class A

Class B

Diluted net loss per share:

Numerator:

Net loss applicable to common stockholders

$
(146
)

$
(1,153
)

$
(2,475
)

$
(22,400
)

Reallocation of net loss for Class A shares as a result of conversion
   of Class A to Class B shares

—

(146
)

—

(2,475
)

Diluted net loss applicable to common stockholders

$
(146
)

$
(1,299
)

$
(2,475
)

$
(24,875
)

Denominator:

Weighted average number of shares outstanding used to calculate
   basic net loss per share

5,056

39,827

4,661

42,179

Conversion of Class A to Class B common shares outstanding

—

5,056

—

4,661

Weighted average number of shares outstanding used to calculate
   diluted net loss per share

5,056

44,883

4,661

46,840

Diluted net loss per share applicable to common stockholders

$
(0.03
)

$
(0.03
)

$
(0.53
)

$
(0.53
)

~~The~~


	Three Months Ended June 30,
	2022						2023
	Class A			Class B			Class A			Class B
Diluted net loss per share
Numerator:
Net loss applicable to common stockholders	$	(165	)	$	(1,366	)	$	(301	)	$	(2,443	)
Reallocation of net loss for Class A shares as a result of conversion of Class A to Class B shares		—			(165	)		—			(301	)
Diluted net loss applicable to common stockholders	$	(165	)	$	(1,531	)	$	(301	)	$	(2,744	)
Denominator:
Weighted average number of shares outstanding used to calculate basic net loss per share		4,661			38,696			4,661			37,840
Conversion of Class A to Class B common shares outstanding		—			4,661			—			4,661
Weighted average number of shares outstanding used to calculate diluted net loss per share		4,661			43,357			4,661			42,501
Diluted net loss per share applicable to common stockholders	$	(0.03	)	$	(0.03	)	$	(0.06	)	$	(0.06	)

For the three and six months ended June 30, 2022 and 2023, the computation of diluted net loss per share excludes the following because their effect would be anti-dilutive (in thousands):

•

~~For the three months ended March 31, 2019~~As of June 30, 2022 and ~~2020,~~2023, outstanding options to acquire ~~5,283~~3,554 and ~~4,878~~4,503 shares, respectively of Class B common stock.

•

~~For the three months ended March 31, 2019~~As of June 30, 2022 and ~~2020, 524~~2023, 984 and ~~1,145~~989 shares of unvested Class B restricted common shares, respectively.

•

~~For the three months ended March 31, 2019~~As of June 30, 2022 and ~~2020, 732~~2023, 579 and ~~767~~279 restricted stock units, respectively.

(8) Supplemental Financial Statement Information

~~(6) Concentrations~~

The Company maintains substantially all of its cash and cash equivalents with two financial institutions and are all considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

~~The advertisers representing more than 10% of revenue are as follows (in percentages):~~

Three months ended
March 31,

2019

2020

Advertiser A

27
%

26
%
Advertiser B

15
%

17
%

~~Advertiser A is also a distribution partner.~~

~~The outstanding receivable balance for each advertiser representing more than 10% of accounts receivable is as follows (in percentages):~~

At December 31,
2019

At March 31,
2020

Advertiser A

10
%

12
%
Advertiser B

41
%

40
%

In certain cases, the Company may engage directly with one or more advertising agencies who act on an advertiser’s behalf. In addition, an advertising agency may represent more than one advertiser that utilizes the Company’s products and services. One advertising agency represented 14% and 15% of revenue for the three months ended March 31, 2019 and 2020, respectively. This same advertising agency represented 37% and 38% of accounts receivable as of December 31, 2019 and March 31, 2020, respectively.

A significant amount of the Company’s revenue earned from advertisers is generated through arrangements with distribution partners. The Company may not be successful in renewing any of these agreements, or, if they are renewed, they may not be on terms as favorable as current arrangements. The Company may not be successful in entering into agreements with new distribution partners or advertisers on commercially acceptable terms. In addition, several of these distribution partners or advertisers may be considered potential competitors. There were no distribution partners paid more than 10% of revenue for the three months ended March 31, 2019 and 2020.

~~(7) Segment Reporting and Geographic Information~~

Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally for the Company’s management. For the periods presented, the Company operated as a single segment comprised of its performance-based advertising business focused on phone calls and its local leads platform.

Revenues from advertisers by geographical areas are tracked on the basis of the location of the advertiser. The vast majority of the Company’s revenue and accounts receivable are derived from domestic sales to advertisers engaged in various mobile, online and other activities.

~~Revenues by geographic region are as follows (in percentages):~~

Three months ended
March 31,

2019

2020

United States

99
%

98
%
Canada

1
%

1
%
Other countries

*

1
%

100
%

100
%

*	~~Less than 1% of revenue.~~

~~(8)~~ Property and Equipment

Property and equipment consisted of the following (in thousands):


	December 31,			June 30,
	2022			2023
Computer and other related equipment	$	14,939		$	15,789
Purchased and internally developed software		3,090			4,721
Furniture and fixtures		1,273			276
Leasehold improvements		1,732			-
Construction in progress		1,400			25
	$	22,434		$	20,811
Less: Accumulated depreciation and amortization		(18,384	)		(16,142	)
Property and equipment, net	$	4,050		$	4,669

We capitalize certain software development costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed and it is probable that the software will be used as intended. Capitalized software costs include (i) external direct costs of materials and services utilized in developing computer software, (ii) compensation and related benefits for employees who are directly associated with the software projects. Capitalized software costs are amortized on a straight-line basis when placed into service over the estimated useful life of the software, generally averaging three years. We capitalized software development costs of $440,000 for the six months ended June 30, 2023.

At December 31,
2019

At March 31,
2020

Computer and other related equipment

$
19,386

$
19,610

Purchased and internally developed software

6,693

6,700

Furniture and fixtures

1,033

1,033

Leasehold improvements

1,737

2,060

$
28,849

$
29,403

Less: Accumulated depreciation and amortization

(25,821
)

(26,139
)
Property and equipment, net

$
3,028

$
3,264

Upon retirement or other disposal of property, plant and equipment, the costs and related amounts of accumulated depreciation or amortization are eliminated from the asset and accumulated depreciation accounts, respectively. The difference, if any, between the net asset value and the proceeds are recorded in earnings.

Depreciation and amortization expense related to property and equipment was approximately ~~$357,000~~$689,000 and ~~$436,000~~$679,000 for the six months ended June 30, 2023 and 2022, respectively. Depreciation and amortization expense related to property and equipment was approximately $351,000 and $361,000 for the three months ended ~~March 31, 2019~~June 30, 2023 and ~~2020,~~2022, respectively.

In fiscal year 2023, we entered into a financing lease agreement to borrow $786,000 for the procurement of server equipment.

(9) Leases

~~The Company adopted FASB ASC Topic 842,~~ ~~Leases~~ (ASC 842) on January 1, 2019 and used the effective date of January 1, 2019 as its date of initial application. 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 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.

The Company has an operating lease for office space for its corporate headquarters in Seattle, Washington. It also has operating leases for office space in ~~Mississauga, Canada and~~ Wichita, Kansas. The Company leases its office facilities under operating lease agreements in accordance with ASC 842 and recognizes rent expense on a straight-line basis over the lease term with any lease incentives amortized as a reduction of rent expense over the lease term.

The Company’s prior lease agreement with respect to office space in Seattle, Washington, as amended, ~~expires~~was terminated by the Company effective on March 31, 2025. The Company has the option to terminate the lease in March 2023, subject to satisfaction of certain conditions, including a payment of a termination fee of approximately $671,000. In addition, as part of the agreement, the lessor paid towards the cost of certain leasehold improvements (“landlord contribution”) of which the Company could use approximately $180,000 of unused landlord contribution as a credit against any payment obligation under the lease. In the second quarter of 2019, the Company requested the $180,000 landlord contribution from the lessor as a reimbursement towards certain leasehold improvements and received those funds in the third quarter of 2019.2023. In the first quarter of ~~2018, the lessor~~2023, we paid ~~$373,000 towards certain leasehold improvements which the Company accounted for~~approximately $671,000 as ~~a lease incentive and is amortizing as a reduction of rent expense over~~provided in the lease ~~term. Additionally, in April 2018,~~for the lessor refunded the previously provided security deposit and the Company provided a letter of credit to the lessor in the amount of $575,000, which will be reduced by $100,000 annually starting in April 2019.early termination. The letter of credit was collateralized by a $575,000 certificate of deposit, which was restricted in use and is included in other assets in the Company’s condensed consolidated balance sheet as of March 31, 2019. On April 2, 2019, the Company was no longer required to collateralize the letter of credit and the certificate of deposit matured.

~~The Company’s~~ lease agreement with respect to office space in ~~Mississauga, Canada~~Seattle, Washington commenced in ~~November 2016,~~April 2023, with a lease term of 6057 months, ~~expiring~~and expires on November 30, ~~2021. The Company has the option to terminate the lease upon nine months notice without any termination fees if such notice is provided.~~ 2027.

The Company’s lease agreement with respect to office space in Wichita, Kansas is on a month-to-month basis. The lease agreement stipulates a mutual 120-day non-cancelable period to cease rental payments and vacate the premises, and is classified as a short-term operating lease. Short-term leases are leases having a term of twelve months or less. In December 2019, the Company entered into a lease agreement for an office space in Wichita, Kansas, which commences upon the completion by the landlord of certain defined leasehold improvements and continues for a period of sixty (60) months with an option to extend the term for two (2)

additional periods of three (3) years each. The lease is expected to commence in the second quarter of 2020 when construction of the asset is completed. The Company has provided the lessor of its current lease agreement with notice of its intent to terminate.

Lease cost recognized in the Company’s ~~consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations and other information is summarized as follows (in thousands):


	Six Months Ended June 30,
	2022			2023
Lease expense:
Operating lease cost	$	962		$	644
Finance lease cost
Amortization of right-of-use assets		-			69
Interest on lease liabilities		-			18
Short-term operating lease cost		108			138
Total lease cost	$	1,070		$	869
Other information:
Weighted average remaining lease terms (years):
Operating leases		1.5			3.8
Finance leases		-			2.4
Weighted average discount rate:
Operating leases (1)		4.7	%		6.6	%
Finance leases		-			14.8	%

Three months ended March 31,

2019

2020

Operating lease cost

$
434

$
420

Short-term operating lease cost ⁽¹⁾

30

30

Total operating lease cost

$
464

$
450

Other information:

Weighted-average remaining lease term - operating leases

5.9 years

4.9 years

Weighted-average discount rate - operating leases ⁽²⁾

5.0%

5.0%

(1)

The discount rate used to compute the present value of total lease liabilities as of June 30, 2023 was based on the Company's estimated incremental borrowing rate of similar secured borrowings available to the Company as of the commencement date of lease.


	Three Months Ended June 30,
	2022		2023
Lease expense:
Operating lease cost	$	504	$	152
Finance lease cost
Amortization of right-of-use assets		-		56
Interest on lease liabilities		-		18
Short-term operating lease cost		68		44
Total operating lease cost	$	572	$	270

~~(1)~~

The Company elected the practical expedient permitted in ASC Topic 842. As such, its short-term operating lease in Wichita, Kansas is not recognized as a liability on the Company’s balance sheet as of March 31, 2020. The Company recognizes short-term operating lease costs on a straight-line basis.

~~(2)~~

The discount rate used to compute the present value of total lease liabilities as of March 31, 2019 and March 31, 2020 was based on the Company's estimated incremental borrowing rate of similar secured borrowings available to the Company as of the implementation date of ASC 842 on January 1, 2019.

Assets under finance leases, which primarily represent computer equipment, are included in property, plant and equipment, net, with the related liabilities included in finance lease liability, short-term and finance lease liability, long-term on the Condensed Consolidated Balance Sheets.

As of ~~March 31, 2020,~~June 30, 2023, the Company’s operating and finance lease liabilities were as follows (in thousands):

Total

Gross future operating lease payments ⁽¹⁾

$
8,289

Less: imputed interest

(1,384
)
Present value of total operating lease liabilities

6,905

Less: current portion of operating lease liabilities

(1,495
)
Total long-term operating lease liabilities

$
5,410


	Operating Leases			Finance Leases
Gross future lease payments	$	2,183		$	860
Less: imputed interest		(287	)		(153	)
Present value of total lease liabilities		1,896			707
Less: current portion of lease liabilities		(443	)		(264	)
Total long-term lease liabilities	$	1,453		$	443

~~(1)~~

Excludes future operating lease payments under the Wichita, Kansas office space lease agreement entered into in December 2019, which has not commenced. The gross future operating lease payments related to this agreement are $1.0 million. Gross future operating lease payments including this lease agreement are $9.3 million.

(10) Commitments, Contingencies, and Taxes

~~(a)~~ Commitments

The Company has commitments for future payments primarily related to office facilities leases and other contractual obligations. The Company leases its office facilities under operating lease agreements in accordance with ASC 842 and recognizes rent expense on a straight-line basis over the lease term with any lease incentive amortized as a reduction of rent expense over the lease term. Other contractual obligations primarily relate to minimum contractual payments due to outside service providers. Future minimum payments are approximately as follows (in thousands):

Facilities
operating
leases⁽¹⁾

Other
contractual
obligations

Total

2020

$
1,335

$
1,213

$
2,548

2021

1,850

690

2,540

2022

1,811

179

1,990

2023

1,865

27

1,892

2024 and after

2,438

—

2,438

Total minimum payments

$
9,299

$
2,109

$
11,408

~~(1)~~

Facilities and
other
leases (1)

Other
contractual
obligations

Total

2023

$
469

$
916

$
1,385

2024

945

255

1,200

2025

915

28

943

2026

397

—

397

2027 and after

310

—

310

Total minimum payments

$
3,036

$
1,199

$
4,235

(1) For additional information regarding ~~the Company’s facilities operating leases, see~~ ~~Note 9. Leases~~ ~~of the Notes to the Condensed Consolidated Financial Statements.~~

~~In connection with~~ the Telmetrics acquisition in 2018, the Company has an earnout arrangement that requires the Company to pay up to a maximum of $3.0 million in cash based upon the achievement of targeted financial goals over the two (2) twelve (12) month periods following the acquisition date.

In connection with the Sonar acquisition in 2019, the Company has an earnout arrangement that requires the Company to pay up to a maximum of 389,000 shares of Class B common stock based upon the achievement of certain financial target goals by Sonar in 2020. To the extent earned and payable, one half of such shares will be issued upon the first anniversaryCompany's operating leases, see Note 9, Leases of the ~~closing and one half will be issued upon~~Notes to the second anniversary of the closing, with the timing of issuance subject to certain conditions and with any shares not previously issued to be issued on the fifth anniversary of the acquisition date. The estimated fair value of the contingent consideration arrangements for both the Telmetrics and Sonar acquisitions are approximately $868,000 and is recorded on the balance sheet in acquisition-related liabilities.Condensed Financial Statements.

~~The Company committed $2.5 million in funding for a strategic technology business initiative. The Company expects to fulfill this commitment during 2020.~~Contingencies

~~(b) Contingencies~~

The Company from time to time is a party to disputes and legal and administrative proceedings arising from the ordinary course of business. We could become in the future subject to legal proceedings, governmental investigations, and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks, and other intellectual property rights. Such claims, even if not meritorious, could force us to expend significant financial and managerial resources and could be material.

In some agreements to which the Company is a party to, the Company has agreed to indemnification provisions of varying scope and terms with ~~advertisers,~~customers, vendors and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of agreements or representations and warranties made by the Company, services to be provided by the Company and intellectual property infringement claims made by third parties. As a result of these provisions, the Company may from time to time provide certain levels of financial support to its contract parties to seek to minimize the impact of any associated litigation in which they may be involved. To date, there have been no known events or circumstances that have resulted in any material costs related to these indemnification ~~provisions and no liabilities therefore have been recorded in the accompanying consolidated financial statements.~~provisions. However, the maximum potential amount of the future payments wethe Company could be required to make under these indemnification provisions could be material.

On October 21, 2022, the Shareholder Representatives for the former shareholders of Telmetrics, Inc. filed litigation against the Company in the U.S. District Court for the District of Delaware. The plaintiffs are asserting claims under a share purchase agreement and escrow agreement regarding entitlement to an earnout of up to $3 million and $1 million that was placed in escrow to secure indemnification obligations. On March 1, 2023, the Company filed a motion to compel arbitration and/or dismiss this litigation. On March 22, 2023, the plaintiffs filed

an amended complaint also seeking substantial punitive damages. On April 14, 2023, the Company filed a motion to compel arbitration and/or dismiss this amended complaint. On May 9, 2023, the plaintiffs filed a second amended complaint. On June 7, 2023, the Company filed a motion to compel arbitration and/or dismiss the second amended complaint. The plaintiffs filed a responsive brief on July 5, 2023, and the Company filed a reply brief on July 26, 2023. The motion is now pending before the Court. While we believe we have meritorious defenses to this lawsuit and are vigorously defending against it, litigation is inherently uncertain and we cannot currently predict the ultimate outcome of this matter.

While any litigation contains an element of uncertainty, the Company is not aware of any legal proceedings or claims which are pending that the Company believes, based on current knowledge, will have, individually or taken together, a material adverse effect on the Company’s financial condition, results of operations or liquidity.

~~(c)~~ Taxes

The Company determined that it is not more likely than not that its deferred tax assets will be realized and accordingly recorded 100% valuation allowance against these deferred tax assets as of December 31, ~~2019 (excluding certain insignificant Canadian deferred tax assets)~~2022 and ~~March 31, 2020.~~June 30, 2023. In assessing whether it is more likely than not that the Company’s deferred tax assets will be realized, factors considered included: historical taxable income, historical trends related to advertiser usage rates, projected revenues and expenses, macroeconomic conditions, issues facing the industry, existing contracts, the Company’s ability to project future results and any appreciation of its other assets. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considered the future reversal of deferred tax liabilities, carryback potential, projected taxable income, and tax planning strategies as well as its history of taxable income or losses in the relevant jurisdictions in making this assessment. Based on the level of historical taxable losses and the uncertainty of projections for future taxable income over the periods for which the deferred tax assets are deductible, the Company concluded that it is not more likely than not that the gross deferred tax assets will be realized.

From time to time, various state, federal and other jurisdictional tax authorities undertake audits of the Company and its filings. In evaluating the exposure associated with various tax filing positions, the Company on occasion accrues charges for uncertain positions. Resolution of uncertain tax positions will impact the Company’s effective tax rate when settled. The Company does not have any significant interest or penalty accruals. The provision for income taxes includes the impact of contingency provisions and changes to contingencies that are considered appropriate. The Company files U.S. federal, certain U.S. states, and certain foreign tax returns. Generally, U.S. federal, U.S. state, and foreign tax returns filed for years after 2012 are within the statute of limitations and are under examination or may be subject to examination.

(11) ~~Acquisitions~~

~~(a) Telmetrics Acquisition:~~

~~In November 2018, the Company acquired 100% of the outstanding stock of Telmetrics, an enterprise call~~

~~and text tracking and analytics company based in Canada for total consideration consisting of the following:~~

~~Approximately $10.1 million in cash, paid at closing; and~~

~~Up to $3.0 million in cash based upon the achievement of targeted financial goals over the two (2) twelve (12) month periods following the acquisition date.~~

~~The Company accounted for the Telmetrics acquisition as a business combination. As a result of the~~

~~acquisition, the Company captured additional scale with its call analytics business and enhanced text communications product initiatives.~~

~~A summary of the consideration for the acquisition is as follows (in thousands):~~

Cash ⁽¹⁾
$
10,161

Future consideration

1,600

Total
$
11,761

(1) Included working capital adjustments finalized subsequent to the acquisition in November 2018, resulting in total consideration of approximately $11.8 million and an adjustment to goodwill in the amount of $61,000 during the year ended December 31, 2019.

The future consideration includes an earnout arrangement that requires the Company to pay up to a maximum of $3.0 million in cash to the former shareholders of Telmetrics based upon the achievement of targeted financial goals over the two (2) twelve (12) month periods following the acquisition date. The potential undiscounted amount of all future payments that the Company could be required to make under the contingent earnout arrangement is between $0 and $3.0 million. Of the $3.0 million possible earnout, $450,000 may be paid to certain employees to the extent they remain employed by the Company on the first and second anniversaries following the acquisition date. Such amounts have been excluded from the purchase consideration and are treated as compensation expense. The fair value of the contingent consideration arrangement was estimated by applying the income approach, which is based on significant inputs that are not observable in the market (Level 3 inputs), such as the discount rate and the probability of meeting targeted financial goals. Changes in these assumptions could have an impact on the payout of contingent consideration with a maximum payout being $1.8 million as of March 31, 2020. The earnout liability is recorded on the balance sheet in acquisition-related liabilities.

~~In connection with the acquisition, a portion of the cash consideration was placed in escrow to secure indemnification obligations for a minimum period of 18 months from the closing date.~~ The escrow amounts are included as part of the purchase price consideration and if there is any excess escrow amount above identified indemnification obligations, the excess may be released. In the event any indemnification obligations are identified, the economic consideration may be reduced accordingly.

~~The following summarizes the estimated fair value of the assets acquired and the liabilities assumed at the acquisition date (in thousands):~~

Cash and cash equivalents
$
359

Accounts receivable

1,274

Prepaid expenses and other current assets
586

Property and equipment
281

Identifiable intangible assets

6,351

Liabilities assumed

(885
)
Deferred tax liabilities

(1,677
)
Net assets acquired

6,289

Goodwill ⁽¹⁾

5,472

Total ⁽¹⁾
$
11,761

(1) Included working capital adjustments finalized subsequent to the acquisition in November 2018, resulting in total consideration of approximately $11.8 million and an adjustment to goodwill in the amount of $61,000 during the year ended December 31, 2019.

The acquired identifiable intangible assets of approximately $6.4 million consist primarily of customer relationships, technology, tradenames, and non-compete agreements which will be amortized over 24 to 60 months (weighted average of 3.6 years) using the straight-line method. Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of Telmetrics. The goodwill is not anticipated to be deductible for Canadian tax purposes.

The Company performed an interim impairment test of its long-lived intangible assets and goodwill during the three months ended March 31, 2020. As a result of this testing, an impairment charge for both long-lived intangible assets and goodwill was recognized. See ~~Note 12.~~ Identifiable Intangible Assets from Acquisitions ~~and~~ ~~Note 13. Goodwill~~ ~~in the Notes to Condensed Consolidated Financial Statements for additional information.~~

~~(b) Callcap Acquisition:~~

~~In November 2018, the Company acquired 100% of the outstanding stock of Callcap, a call monitoring and~~

~~analytics solutions company based in Kansas for total consideration of $35.0 million, consisting of the following:~~

~~Approximately $25.0 million in cash, and~~

3.4 million shares of Class B common stock valued at approximately $10.0 million, to be issued over the four-year period following the acquisition date. The issuance of the Class B common stock is not contingent.

~~The Company accounted for the Callcap acquisition as a business combination. As a result of the~~

~~acquisition, the Company expanded its customer base, as well as enhanced its growth opportunities in verticals and new customer channels, such as the small business segment.~~

~~A summary of the consideration for the acquisition is as follows (in thousands):~~

Cash
$
24,993

Fair value of equity consideration

10,017

Total
$
35,010

The fair value of the 3.4 million shares of Class B common stock to be issued over the four-year period following the acquisition date, was calculated based on the closing price of Marchex’s Common Stock on Nasdaq on the acquisition date and is recorded on the Company’s balance sheet within additional paid-in capital.

In connection with the acquisition, a portion of the cash and equity consideration was (or will be on issuance) placed in escrow to secure indemnification obligations for a period of 18 months from the closing date. The escrow amounts are included as part of the purchase price consideration and will ultimately be released less any indemnification obligations finally determined.

~~The following summarizes the estimated fair value of the assets acquired and the liabilities assumed at the acquisition date (in thousands):~~

Cash and cash equivalents
$
490

Accounts receivable

246

Prepaid expenses and other current assets

504

Property and equipment

93

Identifiable intangible assets

15,128

Liabilities assumed

(482
)
Net assets acquired

15,979

Goodwill

19,031

Total
$
35,010

The acquired identifiable intangible assets of approximately $15.1 million consist primarily of customer relationships, tradenames, technologies, and non-compete agreements, which will be amortized over their preliminary estimated useful lives ranging from 24 to 60 months (weighted average of 4.1 years) using the straight-line method. Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of Callcap. The goodwill is deductible for federal tax purposes.

The Company performed an interim impairment test of its long-lived intangible assets and goodwill during the three months ended March 31, 2020. As a result of this testing, an impairment charge for both long-lived intangible assets and goodwill was recognized. See ~~Note 12. Identifiable Intangible Assets from Acquisitions~~ ~~and~~ ~~Note 13. Goodwill~~ ~~in the Notes to Condensed Consolidated Financial Statements for additional information.~~

~~(c) Sonar Acquisition:~~

In December 2019, the Company acquired 100% of the outstanding stock of Sonar, an enterprise text and messaging sales engagement and analytics company based in California for total consideration of the following:

~~Approximately $8.5 million in cash, paid at closing; and~~

•

1.0 million shares of Class B common stock, to be issued over the three-year period following the acquisition date, with the timing of issuance subject to certain conditions and with any shares not previously issued to be issued on the fifth anniversary of the acquisition date. The 1.0 million shares of Class B common stock were valued at approximately $3.8 million based on the closing price of Marchex’s Common Stock on Nasdaq on the acquisition date. The issuance of the Class B common stock is not contingent.

~~Up to 389,000 shares of Class B common stock based upon the achievement of certain financial target goals.~~

The Company accounted for the Sonar acquisition as a business combination. As a result of the acquisition, the Company expanded its customer base, as well as enhanced growth opportunities in verticals and new customer channels.

~~A summary of the preliminary consideration for the acquisition is as follows (in thousands):~~

Cash ⁽¹⁾
$
8,408

Fair value of equity consideration

3,803

Future consideration

1,016

Total
$
13,227

~~(1)~~

Included working capital adjustments finalized subsequent to the acquisition in December 2019, resulting in total consideration of approximately $13.2 million and an adjustment to goodwill in the amount of approximately $88,000 during the three months ended March 31, 2020.

The fair value of the 1.0 million shares of Class B common stock to be issued over the three-year period following the acquisition date, with the timing of issuance subject to certain conditions and with any shares not previously issued to be issued on the fifth anniversary of the acquisition date, was calculated based on the closing price of Marchex’s Common Stock on Nasdaq on the acquisition date and is recorded on the Company’s balance sheet within additional paid-in capital. The future consideration includes an earnout arrangement that requires the Company to pay up to a maximum of 389,000 shares of Class B common stock to the former shareholders of Sonar based upon the achievement of targeted financial goals by Sonar in 2020. The potential undiscounted amount of all future payments that the Company could be required to make under the contingent earnout arrangement is between 0 and 389,000 shares of Class B common stock. To the extent earned and payable, one half of such shares will be issued upon the first anniversary of the closing and one half will be issued upon the second anniversary of the closing, with the timing of issuance subject to certain conditions and with any shares not previously issued to be issued on the fifth anniversary of the acquisition date. The fair value of the consideration arrangements from the Telmetrics and Sonar acquisitions as of March 31, 2020 totaling approximately $868,000 was estimated by applying the income approach, which is based on significant inputs that are not observable in the market (Level 3 inputs), such as the discount rate and the probability of meeting targeted financial goals. The earnout is recorded on the balance sheet within acquisition-related liabilities.

In connection with the acquisition, a portion of the cash consideration was placed in escrow to secure indemnification obligations for a period of 12 months from the closing date. The escrow amounts are included as part of the purchase price consideration and will ultimately be released in the event no indemnification obligations are identified. In the event any indemnification obligations are identified, the economic consideration may be reduced accordingly.

~~The following summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed at the acquisition date (in thousands):~~

Cash and cash equivalents
$
480

Accounts receivable

141

Prepaid expenses and other current assets

42

Property and equipment

25

Identifiable intangible assets

5,052

Liabilities assumed

(171
)
Deferred tax liabilities

(1,184
)
Net assets acquired

4,385

Goodwill⁽¹⁾

8,842

Total⁽¹⁾
$
13,227

(1) Included working capital adjustments finalized subsequent to the acquisition in December 2019, resulting in total consideration of approximately $13.2 million and an adjustment to goodwill in the amount of approximately $88,000 during the three months ended March 31, 2020.

The acquired intangibles of approximately $5.1 million consist primarily of technology, non-compete agreements, customer relationships, and tradenames which will be amortized over 24 to 60 months (weighted average of 4.6 years) using the straight-line method. Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and potential future cash flows after the acquisition of Sonar. The goodwill is not deductible for federal tax purposes.

The Company performed an interim impairment test of its long-lived intangible assets and goodwill during the three months ended March 31, 2020. As a result of this testing, an impairment charge for both long-lived intangible assets and goodwill was recognized. See ~~Note 12. Identifiable Intangible Assets from Acquisitions~~ ~~and~~ ~~Note 13. Goodwill~~ ~~in the Notes to Condensed Consolidated Financial Statements for additional information.~~

~~(d) Fair value measurements - Acquisition-related liabilities:~~

~~The following summarizes the changes in the estimated fair value of acquisition-related liabilities (in thousands):~~

Acquisition-related liabilities (Level 3):

Balance at December 31, 2018:

$
—

Contingent consideration - Telmetrics acquisition

1,509

Contingent consideration - Sonar acquisition

1,016

Change in fair value ⁽¹⁾

(941
)
Balance at December 31, 2019 ⁽²⁾:

$
1,584

Change in fair value ⁽¹⁾

(716
)
Balance at March 31, 2020 ⁽²⁾:

$
868

(1) The Company recognized a net change in fair value of the contingent consideration of approximately $941,000 and $716,000 for the year ended December 31, 2019 and the three months ended March 31, 2020, respectively. The change is recorded on the income statement in acquisition-related costs (benefit). The net change in fair value was primarily due to a change in the assumptions used in the original estimate of the liability.

(2) There were no transfers between levels during the periods presented.

~~(e) Unaudited pro forma financial information (acquisitions):~~

The following unaudited pro forma financial information summarizes the combined results of operations of the Company and Sonar and is based on the historical results of operations of the Company and Sonar. The pro forma information reflects the results of operations of the Company as if the acquisition of Sonar had taken place on January 1, 2018. The unaudited pro forma financial information for the three months ended March 31, 2019 combine the historical results of operations for the Company for the three months ended March 31, 2019 and Sonar’s historical results of operations during the pre-acquisition period for the three months ended March 31, 2019. The pro forma information includes adjustments for amortization of intangible assets, accretion of interest expense related to the future consideration, and elimination of interest expense and income. The unaudited pro forma financial information is provided for informational purposes only and is not necessarily indicative of the combined results that would have occurred had the acquisition taken place on the dates indicated, nor is it necessarily indicative of results that may occur in the future.

(Unaudited)

(in thousands)

Three months ended
March 31,

2019

Revenue

$
26,873

Net loss applicable to common stockholders

(1,641
)

~~(12) Identifiable Intangible Assets from Acquisitions~~

For the three months ended March 31, 2020, our stock price was impacted by volatility in the U.S. financial markets as a result of the rapid spread of the coronavirus globally which has resulted in increased travel restrictions and disruption and shutdown of businesses, and traded below the then book value for an extended period of time. As a result, the Company performed an interim impairment test of our long-lived intangible assets using an undiscounted cash flow analysis pursuant to ASC 360, ~~Property, Plant, and Equipment~~ to determine if the cash flows expected to be generated by the asset groups over the estimated remaining useful life of the primary assets were sufficient to recover the carrying value of the asset groups, which were determined to be at the acquisition level (Telmetrics, Callcap and Sonar). Based on this analysis, which included evaluating various cash flow scenarios, the undiscounted cash flows were not sufficient to recover the carrying value of the groups. As a result, the Company was required to determine the fair value of each asset group. To estimate the fair value, the Company utilized both the cost recovery and income approach, which is based on a discounted cash flow (DCF) analysis and calculates the fair value by estimating the after-tax cash flows attributable to the asset group and then discounting the after-tax cash flows to present value using a risk-adjusted discount rate. Assumptions used in the DCF require significant judgment, including judgment about appropriate discount rates and terminal values, growth rates, and the amount and timing of expected future cash flows. The forecasted cash flows are based on the Company's most recent strategic plan and for periods beyond the strategic plan and the Company's estimates were based on assumed growth rates expected as of the measurement date. The Company believes its assumptions were consistent with the plans and estimates that a market participant would use to manage the business.

Based on the results of this testing, the Company recorded pre-tax non-cash impairment totaling $5.9 million in the first quarter of 2020 relating to customer relationships, technologies, non-compete agreements and tradenames. These charges are reflected in the Company’sCondensed Consolidated Statement of Operations for the period ending March 31, 2020.

~~There~~ is uncertainty regarding the revenue growth factors for these assets and a change in the long-term revenue growth rate or increase in the discount rate assumption could increase the likelihood of a future impairment. Following the recognition of the impairment losses, intangible assets had an aggregate net carrying value of $11.8 million as of March 31, 2020. The fair value was estimated by applying either the income approach, which is based on significant inputs that are not observable in the market (Level 3 inputs), such as the discount rate and the estimated future cash flows associated with the assets, or the cost approach, which is based on cost to recreate and adjusted for significant inputs that are not observable in the market (Level 3 inputs), such as physical, functional and economic obsolescence factors. During the three months ended March 31, 2020, the Company recorded an impairment to its intangible assets from acquisitions in the amount of $5.9 million which is recorded on the income statement within impairment of intangible assets from acquisitions.

Identifiable intangible assets from acquisitions consisted of the following (in thousands):


	As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization			Impairment			Net Carrying Amount
Customer relationships	$	13,018	$	(8,202	)	$	(3,430	)	$	1,386
Technologies		9,369		(7,372	)		(1,062	)		935
Non-compete agreements		3,409		(2,794	)		(346	)		269
Tradenames		734		(613	)		(121	)	-
Total identifiable intangible assets from acquisition	$	26,530	$	(18,981	)	$	(4,959	)	$	2,590

As of December 31, 2019

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Customer relationships

$
13,018

$
(2,784
)

$
10,234

Technologies

9,369

(2,252
)

7,117

Non-compete agreements

3,409

(1,628
)

1,781

Tradenames

734

(381
)

353

Total identifiable intangible assets from
acquisitions

$
26,530

$
(7,045
)

$
19,485

As of March 31, 2020

Gross Carrying
Amount

Accumulated
Amortization

Impairment

Net Carrying
Amount

Customer relationships

$
13,018

$
(3,484
)

$
(4,202
)

$
5,332

Technologies

9,369

(2,916
)

(1,062
)

5,391

Non-compete agreements

3,409

(1,934
)

(458
)

1,017

Tradenames

734

(473
)

(181
)

80

Total identifiable intangible assets from
acquisitions

$
26,530

$
(8,807
)

$
(5,903
)

$
11,820


	As of June 30, 2023
	Gross Carrying Amount		Accumulated Amortization			Impairment			Net Carrying Amount
Customer relationships	$	13,018	$	(8,963	)	$	(3,430	)	$	625
Technologies		9,369		(7,606	)		(1,062	)		701
Non-compete agreements		3,409		(2,861	)		(346	)	$	202
Tradenames		734		(613	)		(121	)	-
Total identifiable intangible assets from acquisition	$	26,530	$	(20,043	)	$	(4,959	)	$	1,528

Amortizable intangible assets are amortized on a straight-line basis over their useful lives. Customer relationships, acquired technologies, tradenames, and non-compete agreements have a weighted average useful life from date of purchase of 5 years, 33-5 years,

2 years, ~~1 - 2~~1-3 years, ~~respectively. Aggregate amortization expense incurred by the Company for the three months ended March 31, 2019 and 2020 was approximately $1.6 million and $1.8 million,~~ respectively. Based upon the current amount of acquired identifiable intangible assets subject to amortization, the estimated remaining amortization expense ~~as of March 31, 2020~~ for the next ~~five~~two years is as follows: ~~$3.6 million in 2020, $3.9 million in 2021, $1.9 million in 2022, $1.8~~$926,000 million in 2023 and ~~$600,000~~$602,000 in 2024.

(12) Support Service Fees

~~(13) Goodwill~~

~~Changes in~~In connection with our October 2020 divestiture, the Company entered into an administrative support services agreement with the ~~carrying amount of goodwill~~related party purchaser pursuant to which the Company will provide services to the related party purchaser for a support service fee. The Company recognized $1.1 million and $3.6 million for the six months ended June 30, 2023 and 2022, respectively, and $500,000 and $1.6 million for the three months ended ~~March 31, 2020~~June 30, 2023 and 2022, respectively. The support service fees are ~~as follows (in thousands):~~

Balance as of December 31, 2019

$
33,433

Adjustment to goodwill ⁽¹⁾

(88
)
Impairment of goodwill ⁽²⁾

(14,213
)
Balance as of March 31, 2020

$
19,132

(1) Included working capital adjustments finalized subsequent to the Sonar acquisition in December 2019, resulting in total consideration of approximately $13.2 million and an adjustment to goodwill in the amount of $88,000 during the three months ended March 31, 2020.

(2) The impairment is estimated and preliminary as of March 31, 2020 and is recorded on the income statement within impairment of goodwill.

~~The Company performs its annual impairment testing on November 30 and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.~~ When evaluating goodwill for impairment, the Company may first perform a qualitative assessment and determine if the fair value of the reporting unit is more likely than not greater than its carrying amount. For the three months ended March 31, 2020, the Company’s stock price was impacted by volatility in the U.S. financial markets as a result of the rapid spread of the coronavirus globally which has resulted in increased travel restrictions and disruption and shutdown of businesses, and traded below the then book value for an extended period of time. Accordingly, the Company tested its goodwill for impairment and concluded that the carrying value exceeded the estimated fair value of the Company’s single reporting unit and recognized an impairment loss during the first quarter of 2020 of $14.2 million. The estimated fair value of the Company’s single reporting unit was based on estimates of future operating results, discounted cash flows and other market-based factors, including the Company’s stock price. The goodwill impairment loss resulted primarily from a sustained declineincluded in the Company’s common stock share price and market capitalization as well as lower projected revenue growth rates and profitability levels compared to historical results. The lower projected operating results reflect changes in assumptions related to organic revenue growth rates, market trends, business mix, cost structure, and other expectations about the anticipated short-term and long-term operating results.

~~The testing~~Condensed Consolidated Statements of goodwill for impairment requires the Company to make significant estimates about its future performance and cash flows, as well as other assumptions. Events and circumstances considered in determining whether the carrying value of goodwill may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the useOperations, net of the ~~assets; significant changes in competition~~related expenses, within Service costs, Sales and ~~market dynamics; significant~~marketing, Product development, and ~~sustained declines~~General and administrative. As of June 30, 2023, the net amount due from the purchaser of $627,000 is included in the Company’s stock price and market capitalization; a significant decline in its expected future cash flows or a significant adverse change in the Company’s business climate. These estimates and circumstances are inherently uncertain and can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, a loss of a significant customer, changes in competition, volatility in financial markets, or changes in the share price of the Company’s common stock and market capitalization.

~~(14) Common Stock~~

In November 2014, the Company’s board of directors authorized a share repurchase program (the “2014 Repurchase Program”), which supersedes and replaces any prior repurchase programs. Under the 2014 Repurchase Program, the Company is authorized to repurchase up to 3 million shares of the Company’s Class B common stock in the aggregate through open market and privately negotiated transactions, at such times and in such amounts as the Company deems appropriate. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability,Condensed Consolidated Balance Sheet within Prepaid expenses and other ~~market conditions. The 2014 Repurchase Program does not have~~current assets.

an expiration date and may be expanded, limited or terminated at any time without prior notice. For the three months ended March 31, 2019 and 2020 the Company did not repurchase any Class B common stock.

In November 2018, the Company acquired 100% of the outstanding stock of Callcap for consideration of approximately $25 million in cash at closing and approximately 3.4 million shares of Class B common stock to be issued over the four-year period following the acquisition date. The issuance of the Class B common stock is not contingent.

In December 2019, the Company acquired 100% of the outstanding stock of Sonar for consideration of approximately $8.5 million in cash at closing and approximately 1.0 million shares of Class B common stock to be issued over the three-year period following the acquisition date, with the timing of issuance subject to certain conditions and with any shares not previously issued to be issued on the fifth anniversary of the acquisition date. Such issuance of the Class B common stock is not contingent. The Company also agreed to issue up to approximately 389,000 shares of Class B common stock based upon the achievement of certain financial target goals by Sonar in 2020. To the extent earned and payable, one half of such shares will be issued upon the first anniversary of the closing and one half will be issued upon the second anniversary of the closing, with the timing of issuance subject to certain conditions and with any shares not previously issued to be issued on the fifth anniversary of the acquisition date.

~~(14) Subsequent Event~~

During the second quarter of 2020, the Company secured a $4.0 million promissory note to a bank lender pursuant to a government loan program. The loan bears an interest rate of 1% per annum, has a two-year maturity, allows for early repayment and a deferment period of six months. Certain of the Company’s subsidiaries have recently secured similar loans in the aggregate principal amount of approximately $1.3 million. Amounts under the loans will be repayable to the lenders in monthly installments following the six-month deferment period. The loans or portions thereof may be eligible for forgiveness if certain requirements of the government program are met.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believes,” “intends,” “expects,” “anticipates,” “plans,” “may,” “will” and similar expressions to identify forward-looking statements. All forward-looking statements, including, but not limited to, statements regarding our future operating results, financial position, prospects, acquisitions, dispositions, and business strategy, expectations regarding our growth and the growth of the industry in which we operate, and plans and objectives of management for future operations, are inherently uncertain as they are based on our expectations and assumptions concerning future events. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements we make. There are a number of important factors that could cause the actual results of Marchex to differ materially from those indicated by such forward-looking statements. Any or all of our forward-looking statements in this report may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including but not limited to the risks, uncertainties and assumptions described in this report, in Part II, Item 1A. under the caption “Risk Factors” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2022, as amended, and those described from time to time in our future reports filed with the SEC. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur as contemplated and actual results could differ materially from those anticipated or implied by the forward-looking statements. In addition, the global economic climate and additional or unforeseen effects from the COVID-19 pandemic may amplify many of these risks. All forward-looking statements in this report are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operation and financial condition. You should read this analysis in conjunction with the attached condensed consolidated financial statements and related notes thereto, and with our audited consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, ~~2019, as amended.~~2022.

Overview

References herein to “we,” “us” or “our” refer to Marchex, Inc. (“Marchex” or the “Company”) and its wholly-owned subsidiaries unless the context specifically states or implies otherwise.

Marchex’s conversational intelligence platform, that incorporates artificial intelligence (“AI”) functionality to help with sales engagement and marketing solutions and allows businesses to turn strategic insights into the actions that can drive their most valued sales outcomes. Our multichannel voice and text capabilities help enable sales and marketing teams to deliver the buying experiences that improves their customer experiences. Marchex ~~is a~~provides its’ conversational ~~analytics and~~intelligence solutions ~~company that helps businesses connect, drive, measure, convert callers into customers, and connects the voice~~for market-leading companies in numerous industries, including several of the ~~customer~~world’s most innovative and successful brands.

Our mission is to ~~your business. We deliver data~~empower performance improvements for our customers by giving them real-time insights ~~and incorporate artificial intelligence (AI)-powered functionality that drives insights and solutions to help companies find, engage and support~~into the conversations they are having with their customers across ~~voice~~phone, text and ~~text-based~~other communication channels.

We ~~provide products and services~~have assembled a set of tools for ~~businesses of all sizes~~enterprises that depend on phone calls, texts and other communication channels to ~~drive sales.~~help convert prospects into customers, enabling compelling customer experiences during the sales process and helping maximize returns. Our ~~analytics products can provide actionable intelligence on the major media channels advertisers use~~proprietary data and conversational insights help enable brands to ~~acquire~~personalize customer interactions in order to accelerate sales and grow their business. We serve large enterprises with a distributed local footprint that interact with their customers ~~over the phone.~~across multiple communication paths.

Our primary conversational intelligence product offerings are:

•

~~Marchex Call Analytics.~~ Marchex Call Analytics is an analytics platform for enterprises that depend on inbound phone calls to drive sales, appointments and reservations. Marketers can use this platform to understand which marketing channels, advertisements, search keywords, or other digital marketing advertising formats are driving calls to their business, allowing them to optimize their advertising expenditures across media channels. Marchex Call Analytics also includes technology that can extract data and insights about what is happening during a call and measures the outcome of calls and return on investment. The platform also includes technology that can block robocalls, telemarketers and spam calls to help save businesses time and expense. Marchex Call Analytics data can integrate directly into third-party marketer workflows such as Salesforce, Eloqua, Adobe, Google Search, Kenshoo, Marin Software, Facebook and Instagram, in addition to other marketing dashboards and tools. Advertisers pay us a fee for each call/text or call/text related data element they receive from calls or texts, including call-based ads we distribute through our sources of call distribution or for each phone number tracked based on pre-negotiated rates.

•

~~Marchex Speech Analytics.~~ ~~Marchex Speech~~

•

Marchex Call Analytics. Marchex Call Analytics is an analytics platform for enterprises that utilize inbound phone calls to drive sales, appointments and reservations. Businesses use this platform to understand which marketing channels, advertisements, search keywords, or other digital marketing advertising formats are driving calls to their business, allowing them to optimize their advertising expenditures across media channels. Additionally, the platform extracts real-time data and insights to measure the outcome of the calls and assess the return on investment for companies. The platform also includes technology that can block robocalls, telemarketers and spam calls to help save businesses time and expense. Marchex Call Analytics data can integrate directly into third-party marketer workflows such as Salesforce, Eloqua, Adobe, Google, Kenshoo, Marin Software, Meta and Instagram, in addition to other marketing dashboards and tools. Customers pay us either a fee for each call/text, for each call/text-related data element they receive, or for each phone number tracked based on pre-negotiated rates.

•

Marchex Call Analytics, Conversation Edition. Marchex Call Analytics, Conversation Edition is a product that can enable actionable insights for enterprise, mid-sized and small businesses, helping them understand what is happening on inbound calls from consumers to their business. Marchex Speech Analytics leverages our proprietary and patent pending speech

~~recognition technology.~~ ~~Marchex Speech Analytics~~ ~~incorporates machine and deep learning~~ ~~algorithms~~ ~~and AI-powered conversation analysis functionality~~ ~~that~~ ~~can give customers strategic, real-time visibility into company performance in customer interactions. Marchex Speech Analytics includes customizable dashboards and visual analytics to make it easier for marketers, salespeople and call center teams to realize actionable insights~~ ~~across a growing amount of call data. According to a February 2018 MarketsandMarkets report, the speech analytics market is expected to grow from $941 million in 2017 to $2.2 billion by 2022.~~

~~Text Analytics and Communications.~~ With the acquisitions of Sonar Technologies, Inc. (“Sonar”) in December 2019 as well as SITA Laboratories, Inc. (d/b/a Callcap) (“Callcap”) and Telmetrics, Inc. (“Telmetrics”) in November 2018, Marchex enables businesses to send and receive text/SMS messages with customers. In addition, we can provide insights for ~~businesses on text~~enterprise, midsized and ~~messaging interactions~~small businesses. It incorporates machine- and ~~offer customized text engagement solutions~~deep-learning algorithms and AI-powered conversational analysis functionality that can give customers strategic, real-time visibility into representative company performance across customer interactions. The product includes customizable dashboards and visual analytics to ~~improve the customer experience~~make it easier for marketers, salespeople, and ~~accelerate the sales process.~~call center teams to realize actionable insights across a growing amount of call data. According to a ~~2018 study by Mobilesquared, there were 1.67 trillion applications to consumer SMS messages globally with~~January 2021 Markets and Markets report, the ~~number~~global conversational AI market is expected to ~~rise~~grow at a compounded annual growth rate of 22% from $6.8 billion in 2021 to ~~2.8 trillion~~$18.4 billion by ~~2022. According to a 2017 study from Listrak, 75% of consumers prefer offers from businesses delivered via text and business offers delivered via SMS text marketing had a 97% read-rate.~~

2026.

•

~~Call Monitoring.~~ Marchex provides businesses the ability to have an unbiased view into every inbound or outbound call, from providing a call recording, to offering services to create customized call performance scorecards, both of which can help businesses learn more about their customers and enhance service quality and customer satisfaction. Through these services, businesses can customize the insights they want in order to improve business practices and to grow faster.

•

Marchex Sales ~~Edge.~~ ~~Launched in 2019,~~Engagement. The Marchex Sales ~~Edge incorporates artificial intelligence-based~~Engagement suite of products incorporate AI-based functionality ~~within the~~into each product, ~~suite that can help enable~~enabling businesses to understand customer conversations in phone calls and via text – in real-time and at scale – and ~~can help enable businesses to~~helping them learn how to optimize the sales process in order to take the right actions to win more business. These sales engagement solutions can arm businesses with the data-driven intelligence they need to deliver on-demand and personalized customer experiences. Marchex Sonar Intelligent Messaging also provides a sales engagement solution for SMS text message-based conversations. Marchex Sales ~~Edge~~Enablement products include:

Marchex ~~Sales Edge Rescue~~. Engage. Marchex ~~Sales Rescue~~Engage combines Marchex ~~artificial intelligence~~AI and machine learning with conversational call monitoring and scoring ~~services and~~services. The product can alert businesses when potential buyers hang up without making an appointment or purchase, or also when certain calls ~~did~~do not meet the business’ sales or customer service standards. Marchex ~~Sales Rescue~~Engage, through Action Lists, can identify in real-time when potential high-value customer prospects engaged in conversations with sales representatives are mishandled in(in any number of ~~ways,~~ways) and can also give businesses the opportunity to re-engage immediately to capture these potentially lost opportunities, as well as avoid undesired customer experiences. ItIn addition, it can give businesses a more complete picture of the in-bound opportunities they are missing, while also measuring the effectiveness and impact of capturing those opportunities through outbound engagement.

Marchex ~~Sales Edge Enterprise.~~ Spotlight. Marchex ~~Sales Edge Enterprise~~Spotlight is a product for corporate and regional managers that can provide conversation performance insights and trends measured against corporate benchmarks across a brand or network of distributed business locations. The conversational data analyses can provide critical sales insights and proactive observations that can help enterprises boost outcomes across national and regional sales organizations.

Marchex ~~Sales Edge Local.~~ ~~Marchex Sales Edge Local is expected to be available in the latter part of 2020 and is a~~Engage for Automotive. This award-winning sales engagement product for ~~business location managers that analyze phone conversations. Marchex Sales Edge Local can provide performance insights~~automotive dealers unlocks the content of conversations with car buyers who have shown high purchase consideration and enables sellers to prioritize leads using intelligent lead scoring and integrating with existing workflows and tools companies use each day, like Salesforce Sales Cloud CRM. This product can help companies grow their business at each location by prioritizing their best leads, ~~while arming~~deliver a better buying experience for consumers and take the right actions to sell more vehicles. Integration with leading dealer customer relationship manager systems (“CRM”) enables sellers both make outbound calls via click-to-call from within the CRM and automatically updating the system with enriched leads as they complete each inbound or outbound conversation. Marchex Engage for Automotive was the 2021 recipient of the Product of the Year award by the BIG Awards for Business and the Sales and Marketing Technology Awards.

Marchex Platform Services. Marchex Platform Services is an API-based, easy to integrate solution that allows businesses to add Marchex conversational intelligence to their existing

workflows, enabling them to decode what happens in their conversations with ~~tools~~customers. It uses the company’s conversation classification technology to deliver mission-critical conversation data for sales, customer engagement and marketing teams so they can ~~use~~take decisive action in the course of the customer journey when it matters most. Marchex Platform Services enables businesses to ~~train~~obtain Marchex’s AI-based functionality in Marchex’s conversational intelligence platform directly within their ~~sales teams~~

existing communications platforms.

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Marchex ~~Omnichannel Analytics Cloud.~~ Marketing Edge.Marchex Omnichannel Analytics Cloud leverages the call analytics platform and can provide a single source to marketers to see which media channels are driving phone calls across search, display, video, site, and social media. Our Omnichannel Analytics Cloud products include:

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~~Marchex Search Analytics.~~ Marchex Search Analytics is a product for search marketers that can drive phone calls from search campaigns. Marchex Search Analytics can attribute inbound phone calls made from paid search ads and landing pages to a keyword. The platform can deliver this data as well as data about call outcomes directly into search management platforms like Google Search and Kenshoo. According to a June

2016 BIA Kelsey report, mobile calls represent 60% of inbound calls to businesses in 2016. This equals 85 billion global mobile calls annually, a figure that is projected to grow to 169 billion calls by 2020.

~~Marchex Display and Video Analytics.~~ ~~Marchex Display and Video Analytics~~Marketing Edge is a ~~product~~conversational analytics solution for marketers ~~that buy digital display advertising. Marchex Display~~in enterprise, mid-sized and Video Analytics can measure the influence that display advertising has on inbound phone calls so that marketers can better attribute their return on advertising spend for inbound phone calls and delivers this data to marketers in a reporting dashboard. According to a January 2019 eMarketer report, US advertisers are expected to spend nearly $68 billion in 2019 on display advertising.

~~Marchex Site Analytics.~~ Marchex Site Analytics is a product for marketers that can drive phone calls from websites. Marchex Site Analytics can identify which websites are driving calls and provides actionable insights to help marketers understand the customer’s journey to their website, what drove them to call, and can enable marketers to better optimize both online and offline.

~~Marchex Social Analytics.~~ Marchex Social Analytics is a product for marketers that buy social media advertising. Marchex Social Analytics can help measure the influence social media advertising has on inbound calls from platforms like Facebook or Instagram so marketers can see which posts are working. According to Statista, global social media is forecasted to grow from $76 billion in 2018 to $125 billion by 2023.

~~Marchex Audience Targeting~~. Marchex Audience Targeting leverages call data to automatically build unique audience segments for display and social media platforms. Marchex Audience Targeting can help marketers target high intent audiences with their display campaigns and fine-tune campaigns to specific audience segments that are most likely to convert to customers, or can find new segments and opportunities that have not been targeted before.

~~Marchex Call Marketplace.~~ ~~Marchex Call Marketplace is a mobile advertising network for~~small businesses that depend on inbound phone calls to drive ~~sales. We offer advertisers ad placements across numerous mobile~~sales, appointments and ~~online media sources~~reservations. The solution enables marketers to ~~deliver qualified~~make data-driven decisions that improve marketing performance. Marketers can use this solution to understand which marketing channels, advertisements, search keywords, or other digital marketing advertising formats are driving calls to their ~~businesses. It leverages analytics for~~business, enabling them to optimize their advertising expenditures across media channels. During 2021, Marchex Marketing Edge received the MarTech Best Marketing Attribution Solution award. In addition to call and text tracking, ~~reporting~~Marchex Marketing Edge also includes conversational intelligence technology that can automatically transcribe, redact and ~~optimization. Advertisers are charged on~~score calls. Marchex Marketing Edge seamlessly integrates with Marchex Engage so sales teams can be empowered to receive real-time text and/or email notifications when a ~~pay-per-call~~caller showing high purchase intent ends a conversation without making an appointment or ~~cost per action basis.~~

a purchase. Marchex Marketing Edge includes technology that can block robocalls, telemarketers and spam calls to help save businesses time and expense. Marchex Marketing Edge data can integrate directly into third-party systems such as Google Ads, Google Analytics, Search Ads 360, Google Campaign Manager, Microsoft Advertising, Adobe, Kenshoo, Acquisio, Salesforce and HubSpot in addition to other marketing and chat offerings.

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~~Local Leads.~~ ~~Our local leads platform~~Text Analytics and Communications. Marchex Sonar Intelligent Messaging is a ~~white-labeled, full service advertising~~ solution ~~for small business resellers, such as Yellow Pages providers and vertical marketing service providers, to sell call advertising, search~~that enables sales, marketing and ~~other~~operations teams in businesses to engage in personal, two-way communications with field staff, prospects and customers via text/SMS messages at scale. Leveraging these communications can lead ~~generation products through~~to significant increases in critical actions, customer engagement and sales conversions. Our solution is well positioned within a landscape of rising text-based communication between businesses and customers - according to a study done by Messagedesk, 76% of consumers already receive text messages from businesses and 39% of businesses are using text messaging to communicate with consumers.

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Call Monitoring. Marchex provides businesses the ability to gain an unbiased view into every inbound or outbound call, ranging, from providing a call recording to offering services to create customized call performance scorecards, both of which can help businesses learn more about their ~~existing sales channels~~customers and enhance service quality and customer satisfaction. Through these services, businesses can customize the insights they want in order to ~~their small~~improve business ~~advertisers. These calls~~practices and leads are then fulfilled by us across our distribution network, including mobile sources, and search engines. Reseller partners and publishers generally pay us account fees and agency fees for our products in the form of a percentage of the cost of every click or call delivered to their advertisers. Under one of our contracts with Thryv, Inc. (formerly known as Dex Media, Inc., successor in interest to Yellowpages.com LLC (“Thryv”), we generate revenues from our local leads platform. This local leads platform agreement, which expires on December 31, 2020, provides Thryv flexibility to migrate active accounts to itself or a third-party provider prior to the end of an advertiser contract and provides Thryv with certain termination rights upon four months notice.We also have separate pay-for-call services and distribution partner agreements with Thryv and separate reseller partner agreements with Thryv for additional pay-for-call and separate call analytics services. Thryv is our largest reseller partner and was responsible for 27% and 26% of our total revenues for the three months ended March 31, 2019 and 2020, respectively.

grow faster.

We operate primarily in domestic markets.

~~The Impact of COVID-19 on our Results of Operations~~

The rapid spread of coronavirus (COVID-19) globally has resulted in increased travel restrictions and disruption and shutdown of businesses. We have experienced adverse impacts from quarantines, market downturns and changes in customer behavior related to pandemic fears and impacts on our workforce due to COVID-19. In addition, many of our customers, distribution partners, reseller partners and agencies, service providers and suppliers have experienced financial distress, and may file for bankruptcy protection, go out of business, or suffer further disruptions in their business due to the coronavirus outbreak. The extent to which the coronavirus impacts our continuing results will depend on future developments, which are highly uncertain, but has resulted in a material adverse impact on our business, results of operations and financial condition at least for the near term. We believe that our future revenue growth will depend on, among other factors, our ability to attract new advertisers, compete effectively, maximize our sales efforts, demonstrate a positive return on investment for advertisers, successfully improve existing products and services, and develop successful new products and services. If we are unable to generate adequate revenue growth and to manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or maintain profitability.

For most of the quarter ended March 31, 2020, our results reflect historical trends and seasonality. However, in March 2020 we experienced a decline in revenues due to the impact of COVID-19 and the related reductions in global economic activity and reduced spending by our customers in response to the macroeconomic impact. We also assessed the realized and potential credit deterioration of our customers due to changes in the macroeconomic environment, which has been reflected in an increase in our allowance for credit losses for accounts receivable. Additionally, we determined that indicators of impairment had occurred during the first quarter of 2020, which resulted in us performing an interim impairment analysis during the first quarter of 2020. As a result of this interim impairment test, we recognized an impairment of our intangible long-lived assets and goodwill during the first quarter of 2020. See the Notes to Condensed Consolidated Financial Statements for additional information.

For additional information for the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations, refer to “Results of Operations” within this discussion and analysis and Item 1.A of Part II, “Risk Factors”.

Our Strategy

~~Key elements of our strategy include:~~

Innovating on Conversational ~~Analytics~~Intelligence Technology and Solutions. We plan to continue to expand and invest in our ~~speech analytics~~conversational intelligence technology and expand our AI, data science, and machine learning capabilities. Marchex’s large base of conversational data assets give it a unique advantage to continue to innovate with data science and AI to help our customers sell more and deliver a better customer experience across communication channels. We ~~also~~ plan to continue to expand our range of call, text, and other communication channels analytics and sales engagement product capabilities by growing our ~~conversation analytics and~~conversational intelligence solutions, ~~offerings,~~ including AI-driven speech technology solutions, call tracking, call monitoring, text communications, keyword-level tracking, display ad impression measurement and other products as part of our owned, end-to-end, call and ~~text based~~text-based advertising solutions. Our expanding capabilities are enabling us to develop new solutions, like sales ~~acceleration~~engagement, personalization solutions and ~~personalization solutions~~performance measurement that enable us to take advantage of our growing conversational data assets. ~~Our products and features that are at the center of our investments and innovation include: (1)~~ ~~Marchex Speech Analytics,~~ ~~which can help companies understand what is happening on inbound calls from consumers and can deliver actionable operational and advertising insights from those consumer interactions; (2)~~ ~~Text Analytics and Communications,~~ which enables businesses to send and receive text/SMS messages with customers and can provide insights for businesses on text and messaging interactions to improve the customer experience and accelerate the sales process; ~~(3)Sales Edge Suite~~, which incorporates artificial intelligence-based functionality within the product suite that can help enable businesses to understand customer conversations in phone calls and via text, in real-time and at scale, and can help enable businesses to learn how to optimize the sales process in order to take the right actions to win more business. These solutions can arm businesses with the data-driven intelligence they need to deliver on-demand and personalized customer experiences; (4) ~~Marchex Omnichannel Analytics Cloud,~~ ~~which can connect call data to media channels, including search, display and video, social and sites, to phone calls made to a business; and (5)~~ ~~Marchex Audience Targeting,~~ which leverages call data and can automatically build audience segments for display and social media platforms. Additional information regarding our product offerings is included in the Overview section on pages 1 through 3. We are also focused on growing our base of call distribution by bringing in new sources of the rapidly growing mobile advertising market as well as other online and offline sources of distribution.

Supporting and Growing the Number of Customers ~~and Advertisers~~ Using Our Products and Services. We plan to continue invest in technology initiatives like Marchex Anywhere which we believe will enable us to access a wider base of businesses by offering our products to a new array of channel partners. Through these initiatives Marchex can now integrate with businesses existing communication providers, telephony infrastructure providers, or customer relationship management software system to offer its products and services. Increasingly, Marchex customers will no longer have to access separate telephony infrastructure to engage with our conversational intelligence suite of products but, instead, will be able to choose to access our products from within their existing communications provider of choice. We also plan to continue to provide a consistently high level of service and support to our conversational ~~analytics and~~intelligence solutions customers ~~and our advertisers~~ and we will continue to ~~help~~focus on helping them achieve their return on investment goals. We are focused on increasing our ~~advertiser~~customer base through our direct sales and marketing efforts, including strategic sales, inside sales, and additional partnerships with ~~large local advertiser~~ resellers.

Pursuing Selective Acquisition Opportunities. We ~~intend to~~have historically and in the future may pursue select acquisition opportunities and will apply evaluation criteria to any acquisitions we may pursue in order to enhance our strategic position, strengthen our financial profile, augment our points of defensibility and increase shareholder value. We ~~will~~generally focus on acquisition opportunities that represent one or more of the following characteristics:

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revenue growth and expanding margins and operating profitability or the characteristics to achieve larger scale and profitability;

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opportunities for business model, product or service innovation, evolution or expansion;

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under-leveraged and under-commercialized assets in related or unrelated businesses;

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an opportunity to enhance efficiencies and provide incremental growth opportunities for our operating businesses; and

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business defensibility.

In November 2018, we acquired 100% of the outstanding stock of Telmetrics, an enterprise call and text tracking and analytics company, for consideration of $10.1 million in cash at closing and up to $3.0 million in cash based upon the achievement of certain financial growth targets over two corresponding 12 month periods following the closing.

In November 2018, we acquired 100% of the outstanding stock of Callcap, a call monitoring and analytics solutions company, for consideration of approximately $35.0 million, consisting of $25.0 million in cash at closing and approximately $10.0 million in value of shares of Marchex’s Class B common stock (“Common Stock”), calculated based on a 10 day trailing average of Marchex’s Common Stock daily closing price on Nasdaq prior to the closing with 25% of such shares of Common Stock to be issued on the first, second, third and fourth annual anniversary of the closing, respectively. The number of shares to be issued is fixed at the transaction date and their issuance is not contingent.

In December 2019, we acquired 100% of the outstanding stock of Sonar Technologies, Inc. (“Sonar”) for consideration of approximately $8.5 million in cash at closing and approximately 1.0 million shares of Class B common stock to be issued over the three-year period following the acquisition date, with the timing of issuance subject to certain conditions and with any shares not previously issued to be issued on the fifth anniversary of the acquisition date. We also agreed to issue up to approximately 389,000 shares of Class B common stock based upon the achievement of certain financial target goals by Sonar in 2020. To the extent earned and payable, one half of such shares will be issued upon the first anniversary of the closing and one half will be issued upon the second anniversary of the closing, with the timing of issuance subject to certain conditions and with any shares not previously issued to be issued on the fifth anniversary of the acquisition date.

~~We accounted for the Telmetrics, Callcap, and Sonar acquisitions as business combinations. See~~ ~~Note 11 Acquisitions~~ ~~of the Notes to Condensed Consolidated Financial Statements for further discussion.~~

Evolving Our Business Strategy.Our industry is undergoing significant change and our business strategy is continuing to evolve to meet these changes. In order to profitably grow our business, we may need to expand ~~into~~our current lines of business as well as explore new lines of business beyond our current focus of providing mobile advertising ~~analytics~~intelligence products and services, which may involve pursuing strategic transactions, including potential acquisitions of, or investments in, related or unrelated ~~businesses, including our recent investment in a newly established company which intends to offer regular car service primarily as an employee benefit.~~.businesses. In addition, we may seek divestitures of existing businesses or assets. For example, in October 2020, we sold certain assets related to our Call Marketplace, Local Leads Platform and ~~may pursue~~ other ~~strategic alternatives and opportunities.~~assets not related to core conversational analytics.

Developing New Markets. We intend to analyze opportunities and may seek to expand our technology-based products into new business areas where our services can be replicated on a cost-effective basis, or where the creation or development of a product or service may be appropriate. We have technology integration partnerships and referral agreements with Adobe, Google Search,, and Salesforce, Facebook, and other third-party marketers. We anticipate utilizing various strategies to enter new markets, ~~including:~~including developing strategic relationships; innovating with existing proprietary technologies; acquiring products that address a new category or opportunity; and creating joint venture relationships.

~~Building and Expanding Relationships with Advertising Agencies.~~ Advertising agencies are influential in determining how large national advertisers allocate their advertising budgets. We believe building deep relationships with leading global advertising agencies and creating awareness within these agencies about the benefits of our offerings is an important step in attracting new large advertising customers. We plan to continue building strong relationships with advertising agencies.

We were incorporated in Delaware on January 17, 2003. ~~Acquisition initiatives have played an important part in our corporate history to date.~~

We have offices in Seattle, ~~Washington, New York, New York,~~Washington; and Wichita, Kansas ~~and Mississauga, Canada.~~

~~Condensed Consolidated Statements of Operations~~Business Update

~~All significant inter-company transactions and balances within Marchex have been eliminated in consolidation. Certain reclassifications have been made~~

For the six months ended June 30, 2023, our revenue was $24.7 million, which decreased by $1.9 million, or 7%, compared to the ~~consolidated financial statements in the prior periods~~six months ended June 30, 2022. The decrease is attributable primarily to ~~conform~~lower conversational volumes as compared to the ~~current~~same period ~~presentation.~~a year ago. We believe our revenue growth continues to be impacted by the lingering issues related to the COVID-19 pandemic, supply chain disruptions, labor shortages, higher inflationary pressures, and increased lending rates. However, we are opening more opportunities with our existing and new customers through multiple product offerings and our continued product innovation.

~~Presentation~~

For the six months ended June 30, 2023, our operating expenses increased by $2.2 million, or 7%, compared to the six months ended June 30, 2022. The increase is attributable primarily to reorganization costs realized in 2023 to reduce our on-going operating costs in our sales and marketing, service costs, and product development areas.

Additionally, the impact of ~~Financial Reporting Periods~~migrating customers onto new product platforms and increased staging investment of building out of our AI technology contributed to the increase. We believe these efforts will enable us to reduce our core operational costs going forward while further expanding our capabilities and value delivered to our expanding customer base.

~~The comparative periods presented are~~

For additional information for the ~~three months ended March 31, 2019~~effects of the COVID-19 pandemic and ~~2020.~~resulting global disruptions on our business and operations, refer to “Results of Operations” within this discussion and analysis and Item 1.A of Part II, “Risk Factors”.

~~Revenue~~Components of the Results of our Operations

Revenue

We generate the majority of our revenues from ~~advertisers~~core analytics and solutions services. Our call analytics technology platform provides data and insights that can measure the performance of calls and texts for our ~~performance based advertising services, which include the use of~~customers. We generate revenue from our call analytics technology ~~and pay-for-call advertising products and services. Our revenue also consists of payments~~platform when customers pay us a fee for each call/text or call/text related data element they receive from ~~our reseller partners~~calls or texts or for ~~use of our local leads platform and marketing services, which they offer to their small business customers, as well as payments from advertisers for cost per action services.~~each phone number tracked based on a pre-negotiated rate. Customers typically receive the benefit of our services as they are performed and substantially all of our revenue is recognized over time as ~~the~~ services are performed.

~~Performance-Based Advertising and Other Services~~

Our performance-based advertising services, which includes our call analytics technology and call marketplace services, amounted to greater than 80% of revenues in all periods presented. In addition, we generate revenue through our local leads platform, which enables partner resellers to sell call advertising and/or search marketing products, and campaign management services. These secondary sources accounted for less than 20% of our revenues in all periods presented. We have no barter transactions.

Our 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. We generate revenue from our call analytics technology platform when advertisers pay us a fee for each call/text or call/text related data element they receive from calls or texts including call-based ads we distribute through our sources of call distribution or for each phone number tracked based on a pre-negotiated rate.

Our call marketplace offers advertisers and advertising service providers’ ad placements across our distribution network. Advertisers or advertising service providers are charged on a pay-per-call or cost-per-action basis. We generate revenue upon delivery of qualified and reported phone calls to advertisers or advertising service providers’ listings. These advertisers and advertising service providers pay us 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 us or by our distribution partners. We also generate revenue from cost-per-action, which occurs when a user makes a phone call from our advertiser’s listing or is redirected from one of our web sites or a third-party web site in our distribution network to an advertiser web site and completes the specified action. Each qualified phone call or specified action on an advertisement listing represents a completed transaction.

Our 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. We generate revenue from reseller partners utilizing our local leads platform and are paid account fees and/or agency fees for our products in the form of a percentage of the cost of every call or click delivered to advertisers. The reseller partners engage the advertisers and are the primary obligor, and we, in certain instances, are only financially liable to the publishers in our capacity as a collection agency for the amount collected from the advertisers. We recognize revenue for these fees under the net revenue recognition method. In limited arrangements resellers pay us a fee for fulfilling an advertiser’s campaign in our distribution network and we act as the primary obligor. We recognize revenue for these fees under the gross revenue recognition method.

In certain cases, we record 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.

~~Industry and Market Factors~~

We enter into agreements with various mobile, online and offline distribution partners to provide distribution for pay-for-call advertisement listings which contain call tracking numbers and/or URL strings of our advertisers. We generally pay distribution partners based on a percentage of revenue or a fixed amount for each phone call on these listings. The level of phone calls contributed by our distribution partners has varied, and we expect it will continue to vary, from quarter to quarter and year to year, sometimes significantly. If we do not add new distribution partners or renew our existing distribution partner agreements and on terms as favorable as current arrangements, replace traffic lost from terminated distribution agreements with other sources, or if our distribution partners’ businesses do not grow or are adversely affected, our revenue and results of operations may be materially and adversely affected. Our ability to grow will be impacted by our ability to increase our distribution, which impacts the number of mobile and Internet users who have access to our advertisers’ listings and the rate at which our advertisers are able to convert calls from these mobile and Internet users into completed transactions, such as a purchase or sign up. Our ability to grow also depends on our ability to continue to increase the number of advertisers who use our products and services, the amount these advertisers spend on our products and services, advertiser adoption of new products and services and the amount these advertisers are willing to pay for these new products and services.

We utilize phone numbers as part of our call analytics and pay-for-call services to advertisers, which enables advertisers and other users of our services to help measure the effectiveness of mobile, online, and offline advertising campaigns. If we are not able to secure or retain sufficient phone numbers needed for our services or we are limited in the number of available telecommunication carriers or vendors to provide such phone numbers to us in the event of any industry consolidation or if telecommunication carriers or vendors were to experience system disruptions, our revenue and results of operations may be materially and adversely affected.

We anticipate that these variables will fluctuate in the future, affecting our ability to grow and our financial results. In particular, it is difficult to project phone call usage, the number of phone calls or other actions performed by users of our products and services, which will be delivered to our advertisers, and how much advertisers will spend with us and the amount they are willing to pay for our products and services. It is even more difficult to anticipate the average revenue per phone call or other performance-based actions. It is also difficult to anticipate the impact of worldwide and domestic economic conditions on advertising budgets.

In addition, we believe we will experience seasonality. Our quarterly results have fluctuated in the past and may fluctuate in the future due to seasonal fluctuations in levels of mobile and online usage and seasonal purchasing cycles of many advertisers. Our experience has shown that during the spring and summer months, mobile and Internet usage is lower than during other times of the year and during the latter part of the fourth quarter of the calendar year we generally experience lower call volume and reduced demand for calls from our call advertising customers. The extent to which usage and call volume may decrease during these off-peak periods is difficult to predict. Prolonged or severe decreases in usage and call volume during these periods may adversely affect our growth rate and results and in turn the market price of our securities. Historically, we have seen this trend generally reversing in the first quarter of the calendar year with increased mobile and Internet usage and often new budgets at the beginning of the year for many of our customers with fiscal years ending December 31. However, there can be no assurances such seasonal trends will consistently repeat each year. The current business environment and our industry has generally both resulted in, and we may continue to see, many advertisers and reseller partners reducing advertising and marketing services budgets or adjusting such budgets throughout the year, changing marketing strategies or agency affiliations, or advertisers being acquired by parent companies with alternative media initiatives, which we expect will impact our quarterly results of operations in addition to the typical seasonality seen in our industry.

~~In addition,~~ ~~the rapid spread of coronavirus (COVID-19) globally has resulted in increased travel restrictions and disruption and shutdown of businesses.~~ We have experienced adverse impacts from quarantines, market downturns and changes in customer behavior related to pandemic fears and impacts on our workforce due to COVID-19. In addition, many of our customers, distribution partners, reseller partners and agencies, service providers and suppliers have experienced financial distress, and may file for bankruptcy protection, go out of business, or suffer further disruptions in their business due to the coronavirus outbreak. The extent to which the coronavirus impacts our continuing results will depend on future developments, which are highly uncertain, but has resulted in a material adverse impact on our business, results of operations and financial condition at least for the near term. We believe that our future revenue growth will depend on, among other factors, our ability to attract new advertisers, compete effectively, maximize our sales efforts, demonstrate a positive return on investment for advertisers, successfully improve existing products and services, and develop successful new products and services. If we are unable to generate adequate revenue growth and to manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or maintain profitability.

Service Costs

Our service costs represent the cost of providing our ~~performance-based advertising~~ services ~~and~~to our ~~search marketing services. The service~~customers. These costs ~~that we have incurred in the periods presented~~ primarily ~~include:~~

~~user acquisition costs;~~

consist of telecommunication costs, including the use of phone numbers relating to our ~~call products and~~ services;

colocation service charges of our network ~~website~~ equipment;

bandwidth and software license fees;

network operations;

~~serving our search results;~~

and payroll and related expenses of ~~related personnel;~~

~~fees paid to outside service providers;~~

~~depreciation of our websites, network equipment and software;~~

~~delivering customer service;~~

~~license and content fees;~~

~~amortization of intangible assets;~~

~~maintaining our websites;~~

~~domain name registration renewal fees;~~

~~domain name costs;~~

~~credit card processing fees; and~~

personnel, including stock-based ~~compensation of related personnel.~~

~~User Acquisition Costs~~compensation.

For the periods presented the largest component of our service costs consists of user acquisition costs that relate primarily to payments made to distribution partners for access to their mobile, online, offline, or other user traffic. We enter into agreements of varying durations with distribution partners that integrate our services into their web sites, indexes or other sources of user traffic. The primary economic structures of the distribution partner agreements are a variable payment based on a specified percentage of revenue and variable payments based on a specified metric, such as number of paid phone calls or other actions. These variable payments are often subject to minimum payment amounts per phone call or other action. Other payment structures that to a lesser degree exist include fixed payments, based on a guaranteed minimum amount of usage delivered; and a combination arrangement with both fixed and variable amounts that may be paid in advance.

We expense user acquisition costs based on whether the agreement provides for variable or fixed payments. Agreements with variable payments based on a percentage of revenue, number of paid phone calls, or other metrics are expensed as incurred based on the volume of the underlying activity or revenue multiplied by the agreed-upon price or rate. Agreements with fixed payments with minimum guaranteed amounts of usage are expensed at the greater of the pro-rata amount over the term of arrangement or the actual usage delivered to date based on the contractual revenue share.

Sales and Marketing

Sales and marketing expenses consist primarily ~~of:~~

of payroll and related expenses for personnel engaged in marketing and sales functions;

advertising and promotional expenditures including online and outside marketing activities;

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cost of systems used to sell to and serve customers; and ~~serve advertisers; and~~

stock-based compensation of related personnel.

Product Development

Product development costs consist primarily of expenses incurred in the research and development, creation and enhancement of our products and services.

Our research and development expenses ~~include:~~

include payroll and related expenses for personnel;

costs of computer hardware and software;

costs incurred in developing features and functionality of the services we offer; and

stock-based compensation of related personnel.

For the periods presented, substantially all of our product development expenses are research and development. Product development costs are expensed as incurred or capitalized into property and equipment in accordance ~~with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 350,~~ ~~Intangibles – Goodwill and Other~~. This statement requires that costs incurred in the preliminary project and post-implementation stages of an internal use software project be expensed as incurred and that certain costs incurred in the application development stage of a project be capitalized.U.S. GAAP.

General and Administrative

General and administrative expenses consist primarily ~~of:~~

of payroll and related expenses for executive and administrative personnel;

professional services, including accounting, legal and insurance;

bad debt provisions;

facilities costs;

other general corporate expenses; and

stock-based compensation of related personnel.

Stock-Based Compensation

We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the vesting or service period, as applicable, of the stock-based award using the straight-line method. We account for forfeitures as they occur. Stock-based compensation expense is included in the same lines as compensation paid to the same employees in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations.~~Operations.

Amortization of Intangibles from Acquisitions

Amortization of intangible assets excluding goodwill relates to intangible assets identified in connection with our acquisitions.

The intangible assets have been identified ~~as:~~

as customer relationships;

acquired technology;

non-competition agreements;

tradenames.

These assets are amortized over useful lives ranging from 12 to 60 months.

Provision for Income Taxes

We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in results of operations in the period that includes the enactment date.

Results of Operations

The following table presents revenue and results from operations and as a percentage of revenue (in thousands):


	Six Months Ended June 30, 2022			% of revenue			Six Months Ended June 30, 2023			% of revenue			Three Months Ended June 30, 2022			% of revenue			Three Months Ended June 30, 2023			% of revenue
Revenue	$	26,681			100	%	$	24,738			100	%	$	13,510			100	%	$	12,522			100	%
Expenses:
Service costs		9,799			37	%		10,842			44	%		4,864			36	%		5,418			43	%
Sales and marketing		6,784			25	%		6,601			27	%		3,619			27	%		2,631			21	%
Product development		6,991			26	%		8,260			33	%		3,531			26	%		4,096			33	%
General and administrative		5,046			19	%		5,163			18	%		2,440			18	%		2,546			20	%
Amortization of intangible assets from acquisitions		1,062			4	%		1,062			9	%		531			4	%		531			4	%
Acquisition and disposition-related costs		27			0	%		12			0	%		22			0	%		(1	)		0	%
Total operating expenses		29,709			111	%		31,940			129	%		15,007			111	%		15,221			122	%
Loss from operations		(3,028	)		-11	%		(7,202	)		-29	%		(1,497	)		-11	%		(2,699	)		-37	%

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,
	2020		2021		2022		2023
Service costs	$	79	$	-	$	45	$	(45	)
Sales and marketing		391		491		200		228
Product development		158		133		76		47
General and administrative		781		876		393		471
Total stock-based compensation	$	1,409	$	1,500	$	714	$	701

See Note 6. Stockholder’s Equity of the Notes to Condensed Consolidated Financial Statements as well as our Critical Accounting Policies for additional information about stock-based compensation.

Revenue

Revenue decreased $2.0 million, or 7%, from $26.7 million for the six months ended June 30, 2022 to $24.7 million for the six months ended June 30, 2023. Revenue decreased $1.0 million, or 7%, from $13.5 million for the three months ended June 30, 2022 to $12.5 million for the three months ended June 30, 2023. The three and six months ended June 30, 2023 was impacted from lower call volumes in 2023 as compared to 2022. The lower volumes primarily came from several of our small business listing and solution providers that mostly sell marketing services to local businesses.

In the short term, we expect our revenues to be similar to modestly higher compared to the most recent quarters as we typically experience higher conversational volumes in the late spring and summer months. In addition, we will continue to monitor the potential volume changes as the business disruption caused by macroeconomic conditions and further COVID-19 pandemic impacts. We expect our results to be volatile in the near-term as the pandemic and other macroeconomic impacts continues to be unpredictable.

In the longer term, we believe that our new product releases and growth initiatives may enable the Company to have an opportunity for potential revenue growth. A preliminary indicator of this potential growth is that several customers and prospective customers have indicated that they plan to initiate trials and are considering the adoption of new products, which would result in new revenue opportunities.

For additional discussion of trends and other factors in our business, refer to Industry and Market Factors in Item 2 of this Quarterly Report on Form 10-Q.

Expenses

Service Costs. Service costs increased $1.0 million, or 11%, from $9.8 million for the six months ended June 30, 2022 to $10.8 million for the six months ended June 30, 2023. As a percentage of revenue, service costs were 37% and 44% for the six months ended June 30, 2022 and 2023, respectively. The increase in dollars and as a percentage of revenue was primarily due to higher network costs due to our infrastructure initiatives of $709,000, which includes customer migration onto new product platforms and increased staging investment of AI technology initiatives. Additionally, lower support service fees recovery of $529,000 and higher personal costs to reorganize and reduce our on-going operating costs of $149,000 contributed to the increase. These increases were partially offset by lower rent expense of $135,000.

Service costs increased $554,000, or 11%, from $4.9 million for the three months ended June 30, 2022 to $5.4 million for the three months ended June 30, 2023. As a percentage of revenue, service costs were 36% and 43% for the three months ended June 30, 2022 and June 30, 2023, respectively. The increase in dollars and as a percentage of revenue was primarily due to higher network costs due to our infrastructure initiatives of $386,000. Additionally, lower support service fees recovery of $268,000 and higher personal costs to reorganize and reduce our on-going operating costs of $149,000 contributed to the increase. These increases were partially offset by lower rent expense of $99,000 and stock-based compensation expense of $90,000.

Excluding our reorganizational costs, we expect in the near and intermediate term that service costs in absolute dollars will be similar to modestly higher in relation to the most recent period as we delivery our AI technology initiatives. There may be a positive impact on service costs as a percentage of revenue and further

benefit in the event we generate contribution from new launches of analytics products and sales engagement solutions.

Sales and Marketing. Sales and marketing expenses decreased $183,000, or 3%, from $6.8 million for the six months ended June 30, 2022 to $6.6 million for the six months ended June 30, 2023. As a percentage of revenue, sales and marketing expenses were 25% and 27% for the six months ended June 30, 2022 and 2023, respectively. The net decrease in dollars was primarily attributable to $328,000 of lower personnel costs, consulting fees, and stock-based compensation as we realized costs savings from our reorganizational changes in the latter part of the six months ended June 30, 2023. Additionally, lower rent expense of $106,000 and $102,000 of lower marketing costs contributed to the net decrease. The net decrease was partially offset by $297,000 of lower shared service fees recovery.

Sales and marketing expenses decreased $1.0 million, or 27%, from $3.6 million for the three months ended June 30, 2022 to $2.6 million for the three months ended June 30, 2023. As a percentage of revenue, sales and marketing expenses were 27% and 21% for the three months ended June 30, 2022 and 2023, respectively. The net decrease in dollars and as a percentage of revenue was primarily attributable to lower personnel costs of $841,000 as we realized benefit from our first quarter 2023 operating activity modifications, marketing costs of $136,000, and rent expense of $106,000. The net decrease was partially offset by $113,000 of lower shared service fees recovery.

Excluding our reorganizational costs, we expect some volatility in sales and marketing expenses based on the timing of marketing initiatives but expect sales and marketing expenses in the near term to be similar to recent levels as we expect to continue to realize the benefit from the lower operating expense structure due to our first quarter 2023 operating activity modifications. To the extent revenues increase, we may also increase our selling and marketing initiatives and in the intermediate to long-term, we also expect to increase of personnel supporting our sales and marketing and related growth initiatives.

Product Development. Product development expenses increased $1.3 million, or 18%, from $7.0 million for the six months ended June 30, 2022 to $8.3 million for the six months ended June 30, 2023. As a percentage of revenue, product development expenses were 26% and 33% for the three months ended June 30, 2022 and 2023, respectively. The net increase in dollars and as a percentage of revenue was primarily attributable to $780,000 lower shared service fees recovery and $297,000 in higher outside service provider costs.

Product development expenses increased $565,000, or 16%, from $3.5 million for the three months ended June 30, 2022 to $4.1 million for the three months ended June 30, 2023. As a percentage of revenue, product development expenses were 26% and 33% for the three months ended June 30, 2022 and 2023, respectively. The net increase in dollars and as a percentage of revenue was primarily attributable to $347,000 lower shared service fees recovery and $133,000 in higher outside service provider costs.

We expect that product development expenses will be relatively stable in absolute dollars in the near term as we stage our investment of AI technology to enhance our service offerings.

General and Administrative. General and administrative expenses increased $117,000, or 2%, from $5.0 million for the six months ended June 30, 2022 to $5.2 million for the six months ended June 30, 2023. As a percentage of revenue, general and administrative expenses were 19% and 21% for the six months ended June 30, 2022 and 2023, respectively. We recognized $544,000 of lower shared service fees recovery and higher bad debt provisions of $162,000. The net increase was partially offset by lower personnel costs, consulting fees, and stock-based compensation expense of $490,000 and rent expense of $71,000.

General and administrative expenses increased $106,000, or 4%, from $2.4 million for the three months ended June 30, 2022 to $2.5 million for the three months ended June 30, 2023. As a percentage of revenue, general and administrative expenses were 18% and 20% for the three months ended June 30, 2022 and 2023, respectively. We recognized $198,000 of lower shared service fees recovery and higher bad debt provisions of $92,000 and stock-based compensation expense of $79,000. The net increase was partially offset by lower personnel costs of $228,000 and rent expense of $101,000.

We also expect our general and administrative expenses to increase to the extent that we expand our operations and incur additional costs in connection with being a public company and regulatory updates including expenses related to professional fees and insurance, as well as a result of stock-based compensation expense. We also expect fluctuations in our general and administrative expenses to the extent the recognition timing of stock compensation is impacted by market conditions relating to our stock price.

Amortization of Intangible Assets from Acquisitions. Intangible amortization expense was $1.1 million and $1.1 million for the six months ended June 30, 2022 and 2023, respectively. Intangible amortization expense was $531,000 and $531,000 for the three months ended June 30, 2022 and 2023, respectively. The amortization of intangibles related to service costs and sales and marketing.

Income Tax (Benefit). The income tax expense (benefit) for the six months ended June 30, 2022 and 2023 was $81,000 and $44,000, respectively. The income tax expense (benefit) for the three months ended June 30, 2022 and 2023 was $51,000 and $14,000, respectively. The income tax expense for the three and six months ended June 30, 2023 consisted primarily of U.S. state income tax expense. The effective tax rate differed from the expected tax rate of 21% due to a full valuation allowance, and to a lesser extent due to state income taxes, foreign rate differential, non-deductible stock-based compensation related to incentive stock options recorded under the fair-value method, federal research and development credits, and other non-deductible amounts.

At June 30, 2023, based on all the available evidence, both positive and negative, we determined that it is not more likely than not that our deferred tax assets (including Canadian deferred tax assets) will be realized and accordingly, we have recorded a 100% valuation allowance of $58.9 million against our net deferred tax assets ($60.6 million of deferred tax assets that are partially offset by $1.7 million in reversing deferred tax liabilities). This compares to a 100% valuation allowance of $51.8 million at December 31, 2022 ($52.9 million of deferred tax assets that are partially offset by $1.3 million in reversing deferred tax liabilities). In assessing the realizability of deferred tax assets, based on all the available evidence, both positive and negative, we considered whether it is more likely than not that some or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. We considered the future reversal of deferred tax liabilities, carryback potential, projected taxable income, and tax planning strategies as well as the Company’s history of taxable income or losses in the relevant jurisdictions in making this assessment.

Net Income (Loss). Net loss was $3.1 million for the six months ended June 30, 2022 as compared to a net loss of $7.2 million for the six months ended June 30, 2023. The increase in the net loss for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily attributable to $1.9 million lower revenue and higher operating expenses of $2.2 million in the product development and service cost functional areas.

Liquidity and Capital Resources

As of December 31, 2022, and June 30, 2023, we had cash and cash equivalents of $20.5 million and $14.1 million, respectively. As of June 30, 2023, we had long-term contractual obligations of $4.2 million, of which $3.0 million is for rent under our facilities and other leases.

Cash used in operating activities was $5.8 million for the six months ended June 30, 2023. The cash used in operating activities was primarily a result of a net loss of $7.2 million adjusted for non-cash items of $3.5 million, which primarily included depreciation and amortization and stock-based compensation, and changes in working capital of $2.1 million, which primarily included a decrease in accounts payable and accrued expenses and other current liabilities offset by a decrease in accounts receivable account balances. The cash used in operating activities for the six months ended June 30, 2023 included higher costs to assist in reorganizing and efforts to reduce our on-going operating costs. We believe several of those initiatives during the six months ended June 30, 20 will benefit us through lower operating expenses in the near and intermediate term.

Cash used in operating activities was $789,000 for the six months ended June 30, 2022. The cash used in operating activities was primarily a result of a net loss of $3.1 million adjusted for non-cash items of $3.8 million, which primarily included depreciation and amortization and stock-based compensation, and changes in working capital of $1.4 million, which primarily included decreases in accounts receivable, deferred revenue, and prepaid expense and other current assets.

We expect that, at least for the near term, our revenues may continue to recover if macroeconomic conditions improve resulting in increased demand for our products and services. However, we continue to monitor the potential disruptions caused by supply chain issues that have ensued, which could cause our revenues to be lower than current levels if customers are unable to procure our services at the same volumes as previously. The adverse impact would reduce our operating cash flows and liquidity going forward.

Cash used in investing activities for the six months ended June 30, 2023 and 2022 was $522,000 and $1.5 million, respectively. The cash used was primarily attributable to cash paid for purchases of property and equipment for our technology infrastructure platform as well as capitalized software development costs. We procured $786,000 of additional server equipment under our financing lease agreement.

We expect property and equipment purchases in the near and intermediate term to be similar to or modestly lower compared to our most recent periods. We expect any increase to our operations to have a corresponding increase in expenditures for our systems and personnel. We expect our expenditures for product development initiatives will be relatively stable to modestly higher in the near and intermediate term and increase in the longer term in absolute dollars with any acceleration in development activities and as we increase the number of personnel and consultants to enhance our service offerings. In the intermediate to long term, we also expect to increase the number of personnel supporting our sales and marketing and related growth initiatives.

Cash used by financing activities for the six months ended June 30, 2023 was $59,000 as compared to cash provided by financing activities for the six months ended June 30, 2022 of $22,000. The change primarily attributable to principal payments on our finance lease offset by proceeds from stock options and the employee stock purchase program.

Based on our operating plans we believe that our resources will be sufficient to fund our operations, including any investments in strategic initiatives, for at least twelve months, however the length and severity of the macroconditions could influence our operating plans and resources significantly. Additional equity and debt financing may be needed to support our acquisition strategy, our long-term obligations, and our company’s needs. There can be no assurance that, if we needed additional funds, financing arrangements would be available in amounts or on terms acceptable to us, if at all. Failure to generate sufficient revenue or raise additional capital could have a material adverse effect on our ability to continue as a going concern and to achieve our intended business objectives.

Critical Accounting Policies

Our Condensed Consolidated Financial Statements have been prepared using accounting principles generally accepted in the United States (U.S. GAAP). Our critical accounting policies are those that we believe have the most significant impact to reported amounts of assets, liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities and that require the most difficult, subjective, or complex judgments.

The policies below are critical to our business operations and the understanding of our results of operations. In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of our results. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following topics reflect our critical accounting policies and our more significant judgment and estimates used in the preparation of our financial statements.

Principles of Consolidation

Our Company consolidates all entities that we control by ownership of a majority voting interest. All inter-company transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the Condensed Consolidated Financial Statements in the prior periods to conform to the current period presentation.

Revenue

We generate the majority of our revenues from core analytics and solutions services. Our call analytics technology platform provides data and insights that can measure the performance of calls and texts for our customers. We generate revenue from our call analytics technology platform when customers pay us a fee for each call, text, or other communication related data element they receive from calls or texts or for each phone number tracked based on a pre-negotiated rate. As such, the majority of 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).

Customers typically receive the benefit of our services as they are performed and substantially all of our revenue is recognized over time as services are performed. 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.

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 we would sell a promised good or service separately to a customer or the estimated standalone selling price.

In certain cases, we record 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.

Stock-Based Compensation

FASB ASC Topic 718, Compensation – Stock Compensation (ASC 718) requires the measurement and recognition of compensation for all stock-based awards made to employees, non-employees and directors including stock options, restricted stock issuances, and restricted stock units be based on estimated fair values. We account for forfeitures as they occur. We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the vesting or service period, as applicable, of the stock-based award using the straight-line method.

We generally use the Black-Scholes option pricing model as our method of valuation for stock-based awards with time-based vesting. Our determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award, our expected stock price, volatility over the term of the award and actual and projected exercise behaviors.

Although the fair value of stock-based awards is determined in accordance with ASC 718, Compensation – Stock Compensation the assumptions used in calculating fair value of stock-based awards and the use of the Black-Scholes option pricing model is highly subjective, and other reasonable assumptions could provide differing results. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. See Note 6. Stockholder’s Equity in the Notes to Condensed Consolidated Financial Statements for additional information.

Allowance for Doubtful Accounts and Advertiser Credits

Accounts receivable balances are presented net of allowance for doubtful accounts and advertiser credits. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our accounts receivable. We determine our allowance based on analysis of historical bad debts, advertiser concentrations, advertiser creditworthiness and current economic trends. We review the allowance for collectability on a quarterly basis. Account balances are written off against the allowance after all reasonable means of collection have been exhausted and the potential recovery is considered remote. If the financial condition of our advertisers were to deteriorate, resulting in an impairment of their ability to make payments, or if we underestimated the allowances required, additional allowances may be required which would result in increased general and administrative expenses in the period such determination was made.

We determine our allowance for advertiser credits and adjustments based upon our analysis of historical credits. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments and estimates.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed in business combinations accounted for under the purchase method. Intangible assets from acquisitions represent customer relationships, technologies, non-compete agreements, and tradenames related to previous acquisitions. These assets are determined to have definite lives and are amortized on a straight-line basis over the estimated period over which we expect to realize economic value related to the intangible asset. The amortization periods range from one year to 5 years.

We apply the provisions of the FASB ASC Topic 350, “Intangibles - Goodwill and Other” (ASC 350) whereby assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead test for impairment at least annually. ASC 350 also requires that intangible assets with definite useful lives be amortized over the respective estimated lives to their estimated residual values and reviewed for impairment in accordance with ASC 360, “Property Plant and Equipment” (ASC 360). Intangible assets are "grouped" and evaluated for impairment at the lowest level of identifiable cash flows.

Goodwill is tested annually on November 30 for impairment. Goodwill and intangible assets are also tested more frequently if events and circumstances indicate that the assets might be impaired. The provisions of the accounting standard for goodwill and other intangible assets allow us to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Events and circumstances considered in determining whether the carrying value of goodwill and intangible assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; and significant changes in competition and market dynamics. These estimates are inherently uncertain and can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, a loss of a significant customer, changes in competition or changes in the share price of common stock and market capitalization. If our stock price were to trade below book value per share for an extended period of time and/or we experience adverse effects of a continued downward trend in the overall economic environment, changes in the business itself, including changes in projected earnings and cash flows, we may have to recognize an impairment of all or some portion of our goodwill and intangible assets. An impairment loss is recognized to the extent that the carrying amount exceeds the asset or asset group’s fair value. If the fair value is lower than the carrying value, a material impairment charge may be reported in our financial results. We exercise judgment in the assessment of the related useful lives of intangible assets, the fair values, and the recoverability. In certain instances, the fair value is determined in part based on cash flow forecasts and discount rate estimates. We cannot accurately predict the amount and timing of any impairment of goodwill or intangible assets. Should the value of goodwill or intangible assets become impaired, we would record the appropriate charge, which could have an adverse effect on our financial condition and results of operations.

Any future impairment charges could have a material adverse effect on our financial results.

Provision for Income Taxes

We are subject to income taxes in the U.S. and certain international jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in results of operations in the period that includes the enactment date.

We determined that it is not more likely than not that our deferred tax assets (excluding certain insignificant Canadian deferred tax assets) will be realized and accordingly recorded 100% valuation allowance against these deferred tax assets as of December 31, ~~2019 (excluding certain insignificant Canadian deferred tax assets)~~2022 and ~~March 31, 2020.~~June 30, 2023. In assessing whether it is more likely than not that our deferred tax assets will be realized, factors considered included: historical taxable income, historical trends related to advertiser usage rates, projected revenues and expenses, macroeconomic conditions, issues facing the industry, existing contracts, our ability to project future results and any appreciation of its other assets. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. We considered the future reversal of deferred tax liabilities, carryback potential, projected taxable income, and tax planning strategies as well as its history of taxable income or losses in the relevant jurisdictions in making this assessment. Based on the level of historical taxable losses and the uncertainty of projections for future taxable income over the periods for which the deferred tax assets are deductible, we concluded that it is not more likely than not that the gross deferred tax assets will be realized. ~~Uncertain tax positions as of March 31, 2020 amounted to $1.4 million.~~

From time to time, various state, federal, and other jurisdictional tax authorities undertake reviews of us and our filings. We believe any adjustments that may ultimately be required as a result of any of these reviews will not be material to the financial statements.

~~Results of Operations~~

~~The following table presents certain of our operating results as a percentage of revenue for the periods indicated:~~Leases

Three Months Ended
March 31,

2019

2020

Revenue

100
%

100
%
Expenses:

Service costs

54
%

59
%
Sales and marketing

16
%

20
%
Product development

17
%

24
%
General and administrative

13
%

15
%
Amortization of intangible assets from
acquisitions

6
%

7
%
Acquisition-related costs (benefit)

0
%

(2
%)
Total operating expenses

106
%

123
%
Impairment of goodwill

(—
%)

(57
%)
Impairment of intangible assets from acquisitions

(—
%)

(24
%)
Loss from operations

(6
%)

(104
%)
Interest income and other, net

1
%

1
%
Loss before provision for income taxes

(5
%)

(103
%)
Income tax expense (benefit)

0
%

(3
%)
Net loss applicable to common stockholders

(5
%)

(100
%)

~~Comparison of the three months ended March 31, 2019 to the three months ended March 31, 2020.~~

~~Segments~~

Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally for our management. For the periods presented, we operated as a single segment.

~~Revenue~~

Revenue decreased 6% from $26.4 million for the three months ended March 31, 2019 to $24.8 million in the same period in 2020. This decrease was due primarily to a decrease in revenue from our call analytics services, and to a lesser extent, due to fewer accounts and local leads platform revenues from reseller partners like Thryv. The decreases in revenue were primarily due to the impact of the coronavirus pandemic on customer usage and associated reserves for services delivered but not recognized. These decreases were offset in a small part due to an increase in pay-for-call service revenues from reseller partners like Thryv and State Farm and contribution from Sonar, which we acquired in December 2019.

We expect our revenues to be lower than in our most recent quarters and that future new revenues from our prospective customers will be lower than anticipated as a result of the business disruption caused by the continuing coronavirus pandemic at least for the near term. We do believe the disruption will impact our business in the intermediate and long term as well in part because several customers have had their operations permanently impacted or shut down. We expect that in the first half of 2020 and potentially beyond, the disruption to our customers and our prospective customers has and will cause further delays in the sales process, delays in signing new customers, a decrease in business from existing customers, and also delays in launching pilots and tests and new customer programs that were previously planned, resulting in lower future revenues from our customers as well as lower than anticipated future new revenues from our prospective customers. We also expect in 2020 that financial difficulties and business interruptions caused by the coronavirus impact has and will further result in some cases in payment delays, and an impairment of our customers’ ability to make payments, which we expect will further reduce our revenues from recent quarterly results. To a lesser extent, we expect our revenues to be lower in the near term compared to the most recent quarters due to decreases in certain large advertiser budgets, reduced demand for calls from several of our pay-for-call service customers, and due to fewer small business accounts on our local leads platform.

their existing sales channels, which are then fulfilled by us across our distribution network. We are paid account fees and agency fees for our products in the form of a percentage of the cost of every call or click delivered to their advertisers. We also have a separate pay-for-call relationship with Thryv, through which we charge an agreed-upon price for qualified calls or leads from our network. These agreements expire on December 31, 2020 and we expect the remaining active accounts to be migrated or to wind down at that time or even earlier which will result in reduced revenue and profitability contribution. The local leads platform agreement provides Thryv flexibility to migrate active accounts to itself or a third-party provider prior to the end of an advertiser contract and provides Thryv with certain termination rights upon four-months prior notice. We expect Thryv may decrease the number of new advertiser accounts with us and may elect to migrate certain active accounts to itself or a third-party provider which would result in fewer small business accounts and related revenues, as well as reduced contribution and profitability. Thryv’s small business account base utilizing our platform has declined, and to the extent declines occur in their business, their small business accounts may spend fewer dollars on our pay-for-call services. We expect Thryv and local leads platform advertisers in future periods will comprise lower total revenues compared to previous periods and Thryv as a percentage of our total revenue may also comprise a smaller percentage of our total revenue. We have separate partner reseller agreements with Thryv for pay-for-call and call analytics services. ~~It is undetermined whether Thryv’s use of these service offerings will continue prospectively at or near current levels or at all.~~ Thryv is our largest reseller partner and was responsible for 27% and 26% of our total revenues for the three months ended March 31, 2019 and 2020, respectively. We also have a separate distribution partner agreement with Thryv. It is possible that changes to our relationship and agreements with Thryv may occur and result in a significant reduction in the paid account fees, agency fees, and per call or lead fees that we receive from Thryv. There can be no assurance that our business with Thryv in the future will continue at or near current revenue and contribution levels, that we will be able to renew and extend the contracts set to expire on December 31, 2020, and if renewed, the contracts may be on less favorable terms to us, any of which could have a material adverse effect on our future operating results.

We also have agreements with advertising agencies, such as Resolution Media and OMD Digital, who act on an advertiser’s behalf and may represent more than one advertiser that utilizes our products and services. Our primary agreement with Resolution Media is for pay-for-call services whereby we charge an agreed-upon price for qualified calls or leads from our network and call analytic services. Resolution Media accounted for 14% and 15% of total revenues for the three months ended March 31, 2019 and 2020, respectively, of which the majority related to a single advertiser, State Farm. State Farm, who utilizes our services through Resolution Media and OMD Digital, accounted for 15% and 17% of total revenues for the three months ended March 31, 2019 and 2020, respectively. Resolution Media and OMD Digital place insertion orders for our services on behalf of State Farm for campaigns, which are generally for a set period of time and/or budget level. We expect in the near to intermediate term campaign spend levels related to State Farm to be lower compared to recent quarters.

We have revenue concentrations with other certain large customers including reseller partners and advertising agencies. Many of these customers are not subject to long term contracts with us or may have contracts with near term expiration dates and are able to reduce or cease advertising spend at any time and for any reason. Reseller partners purchase various advertising and marketing services from us, as well as provide us with a large number of advertisers. A loss of reseller partners or a decrease in revenue from these resellers could have a material adverse effect on our results of operations and financial condition. In some cases, we engage with advertisers through advertising agencies, who act on behalf of the advertisers. Advertising agencies, such as Resolution Media and OMD Digital, may place insertion orders with us on behalf of advertisers (including State Farm) for particular advertising campaigns, which are typically short term and subject to a specified dollar amount, and are not obligated to commit beyond the campaign governed by a particular insertion order and may also cancel the campaign prior to completion. Advertising agencies also have relationships with many different providers, each of whom may be running portions of the advertising campaign. We have call advertising agreements with certain large customers which provide flexibility around financial commitments, termination rights, indemnification, and security obligations. Our large customers may vary spend levels and there can be no assurances that our large customers will continue to spend at levels similar to prior quarters. If any of our largest customers are acquired, such acquisition may impact its advertising spending or budget with us, including due to rebranding, change in advertising agency, or change in media tactics. A significant reduction in advertising spending or budgets by our largest customers, or the loss of one or more of these customers, if not replaced by new customers or an increase in business from existing customers, would have a material adverse effect on our future operating results.

We believe that our future revenue growth will depend on, among other factors, our ability to attract new advertisers, compete effectively, maximize our sales efforts, demonstrate a positive return on investment for advertisers, successfully improve existing products and services, and develop successful new products and services. If we are unable to generate adequate revenue growth and to manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or maintain profitability. For additional discussion of trends and other factors in our business, refer to Industry and Market Factors in Item 2 of this Quarterly Report on Form 10-Q.

~~Expenses~~

~~Expenses were as follows (in thousands):~~

Three months ended March 31,

2019

% of
revenue

2020

% of
revenue

Service costs

$
14,258

54
%

$
14,498

59
%
Sales and marketing

4,113

16
%

4,991

20
%
Product development

4,568

17
%

6,043

24
%
General and administrative

3,320

13
%

3,737

15
%
Amortization of intangible assets from
acquisitions

1,568

6
%

1,763

7
%
Acquisition-related costs (benefit)

182

0
%

(635
)

(2
%)

$
28,009

106
%

$
30,397

123
%

We record stock-based compensation expense under the fair value method and we account for forfeitures as they occur. Stock-based compensation expense has been included in the same lines as compensation paid to the same employees in the condensed consolidated statements of operations. Stock-based compensation expense was included in the following operating expense categories as follows (in thousands):

Three Months Ended
March 31,

2019

2020

Service costs

$
59

$
22

Sales and marketing

177

316

Product development

76

94

General and administrative

233

625

Total stock-based compensation

$
545

$
1,057

~~See~~ ~~Note 4. Stock-based Compensation Plans~~ ~~of the Notes to Condensed Consolidated Financial Statements as well as our Critical Accounting Policies for additional information about stock-based compensation.~~

~~Service Costs~~. Service costs increased 2% from $14.3 million for the three months ended March 31, 2019 to $14.5 million in the same period in 2020. As a percentage of revenues, service costs were 54% and 59% for the three months ended March 31, 2019 and 2020, respectively. The increase in dollars was primarily due to an aggregate increase in distribution partner payments and communication and network costs totaling $300,000, with the latter increase due in part to an expansion in our communication and network infrastructure and due to our acquisition of Sonar in December 2019, partially offset by an aggregate decrease in stock-based compensation costs and outside service provider costs totaling $59,000. The increase as a percentage of revenue was primarily the result of call analytics platform revenues and our local leads platform comprising a lower percentage of revenue when compared to the 2019 period. Our local leads platform and call analytics platform revenues have a lower service cost as a percentage of revenue relative to our overall service cost percentage. Additionally, and to a lesser extent, the increase as a percentage of revenue was also due to an expansion in our communication and network infrastructure with lower corresponding revenues in 2020.

We expect that user acquisition costs and revenue shares to distribution partners are likely to increase prospectively given the competitive landscape for distribution partners. To the extent that payments to pay-for-call, or cost-per-action distribution partners make up a larger percentage of future operations, or the addition or renewal of existing distribution partner agreements are on terms less favorable to us, we expect that service costs will increase as a percentage of revenue. To the extent of revenue declines in these areas, we expect revenue shares to distribution partners to decrease in absolute dollars. Our other sources of revenues, such as our local leads platform have no corresponding distribution partner payments and accordingly have a lower service cost as a percentage of revenue relative to our overall service cost percentage. In addition, advertisers from whom we generate a portion of our call advertising revenues through our local leads platform generally have lower service costs as a percentage of revenue relative to our overall service cost percentage. To the extent our local leads platform makes up a smaller percentage of our future operations, we expect that service costs will increase as a percentage of revenue. We expect in the near and intermediate term for service costs as a percentage of revenue to be modestly higher relative to the most recent quarterly periods primarily due to our plan to make a strategic expense investment in 2020 to address various infrastructure initiatives, including consolidating infrastructure and data centers. We also expect service costs in absolute dollars to be higher in the near and intermediate term compared to the most recent quarters due to the lower prospective revenues from the COVID-19 impact which result in the fixed costs of our services comprising a greater

~~percentage of revenue. We also expect service costs to increase over the longer term in connection with any revenue increase and expansion in our communication and network infrastructure.~~

~~Sales and Marketing~~. Sales and marketing expenses increased 21% from $4.1 million for the three months ended March 31, 2019 to $5.0 million in the same period in 2020. As a percentage of revenue, sales and marketing expenses were 16% and 20% for the three months ended March 31, 2019 and 2020, respectively. The net increase in dollars and as a percentage of revenue was primarily attributable to an aggregate net increase in personnel and outside service provider costs and stock-based compensation costs totaling $743,000. The increase in personnel costs was primarily the result of an increase in the number of personnel to enhance our sales and marketing activities as well as our strategic technology business initiative, and to a lesser extent, as a result of the acquisition of Sonar in 2019. The percentage of revenue increase was also attributable to lower revenues in 2020.

We expect some volatility in sales and marketing expenses based on the timing of marketing initiatives but expect sales and marketing expenses in the near and intermediate term to be relatively stable to modestly higher in absolute dollars relative to the most recent quarterly periods due to our additions of personnel to help advance our selling and marketing efforts. We expect that sales and marketing expenses will increase in connection with any revenue increase to the extent that we also increase our marketing activities and correspondingly could increase as a percentage of revenue.

~~Product Development~~. Product development expenses increased 32% from $4.6 million for the three months ended March 31, 2019 to $6.0 million in the same period in 2020. As a percentage of revenue, product development expenses were 17% and 24% for the three months ended March 31, 2019 and 2020, respectively. The net increase in dollars and as a percentage of revenue was primarily due to an aggregate increase in personnel and outside service provider costs totaling $1.4 million, which was primarily the result of the acquisition of Sonar in December 2019, an increase in the number of personnel to enhance our service offerings, and due to an increase in personnel costs related to our strategic technology business initiative. The percentage of revenue increase was also attributable to lower revenues in 2020.

We expect product development expenditures to be relatively stable to modestly higher in the near and intermediate term in absolute dollars relative to our most recent quarterly periods. In the longer term, to the extent our revenues increase, we expect that product development expenses will increase in absolute dollars as we increase the number of personnel and consultants to enhance our service offerings and as a result of additional stock-based compensation expense.

~~General and Administrative~~. General and administrative expenses increased 13% from $3.3 million for the three months ended March 31, 2019 to $3.7 million in the same period in 2020. As a percentage of revenue, general and administrative expenses were 13% and 15% for the three months ended March 31, 2019 and 2020, respectively. The net increase in dollars and as a percentage of revenue was primarily due to an increase in bad debt expenses of approximately $300,000, which was primarily a result of the COVID-19 pandemic, and to a lesser extent, due to an aggregate net increase in personnel and outside service provider costs and stock-based compensation costs totaling approximately $97,000, which was primarily a result of the Sonar acquisition along with lower stock-based compensation forfeitures.

We expect that our general and administrative expenses will be relatively stable to modestly higher in the near term and modestly higher in the longer term to the extent that we expand our operations, and incur additional costs in connection with being a public company, including expenses related to professional fees and insurance, and as a result of stock-based compensation expense. We also expect fluctuations in our general and administrative expenses to the extent the recognition timing of stock compensation is impacted by market conditions relating to our stock price. In addition, we anticipate that our general and administrative expenses will be adversely impacted by the continuing COVID-19 pandemic at least for the near term.

~~Amortization of Intangible Assets from Acquisitions~~. Intangible amortization expense was $1.6 million and $1.8 million for the three months ended March 31, 2019 and 2020, respectively, and was associated with amortization of intangible assets acquired in the Telmetrics and Callcap acquisitions in November 2018 for the 2019 period, and was associated with amortization of intangible assets acquired in the Telmetrics and Callcap acquisitions and the Sonar acquisition in 2019 for the 2020 period. During 2019 and 2020, the amortization of intangibles related to service costs, sales and marketing and general and administrative expenses.

Our purchase accounting resulted in all assets and liabilities from our acquisitions being recorded at their estimated fair values on their respective acquisition dates. All goodwill, identifiable intangible assets and assumed liabilities resulting from our acquisitions have been recorded in our financial statements. Events and circumstances considered in determining whether the carrying value of amortizable intangible assets and goodwill may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; or a significant decline in our stock price and/or market capitalization for a sustained period of time. During the three months ended, we recorded an ~~impairment charge totaling $5.9 million relating to our intangible assets from acquisitions. For additional information, see the discussion in “Impairment of goodwill and impairment of intangible assets from acquisitions”~~ ~~below.~~

~~Acquisition-related Costs (Benefit)~~. The change in the acquisition related costs (benefit) from $182,000 to ($635,000) for the three months ended March 31, 2019 and 2020, respectively was primarily due to a $716,000 adjustment in 2020 to the estimated fair value of our contingent consideration liabilities related to our acquisition of Telmetrics in November 2018 and our acquisition of Sonar in 2019, offset by accretion of interest expense and professional and related fees primarily associated with our acquisitions of Telmetrics and Callcap in November 2018 and of Sonar in December 2019.

~~Impairment of goodwill and impairment of intangible assets from acquisitions.~~ For the three months ended March 31, 2020, our stock price was impacted by volatility in the U.S. financial markets as a result of the rapid spread of the coronavirus globally which has resulted in increased travel restrictions and disruption and shutdown of businesses, and traded below the then book value for an extended period of time. Accordingly, we tested our goodwill for impairment and concluded that the carrying value exceeded the estimated fair value of our single reporting unit and recognized an estimated preliminary impairment loss during the first quarter of 2020 of $14.2 million. The estimated fair value of our single reporting unit was based on estimates of future operating results, discounted cash flows and other market-based factors, including our stock price. The goodwill impairment loss resulted primarily from a sustained decline in our common stock share price and market capitalization as well as lower projected revenue growth rates and profitability levels compared to historical results. The lower projected operating results reflect changes in assumptions related to organic revenue growth rates, market trends, business mix, cost structure, and other expectations about the anticipated short-term and long-term operating results.

~~In addition, we performed an interim impairment test of our long-lived intangible assets using an undiscounted cash flow analysis pursuant to ASC 360,~~ ~~Property, Plant, and Equipment~~ to determine if the cash flows expected to be generated by the asset groups over the estimated remaining useful life of the primary assets were sufficient to recover the carrying value of the asset groups, which were determined to be at the acquisition level (Telmetrics, Callcap and Sonar). Based on this analysis, which included evaluating various cash flow scenarios, the undiscounted cash flows were not sufficient to recover the carrying value of the groups. As a result, we were required to determine the fair value of each asset group. To estimate the fair value, we utilized both the cost recovery and income approach, which is based on a discounted cash flow (DCF) analysis and calculates the fair value by estimating the after-tax cash flows attributable to the asset group and then discounting the after-tax cash flows to present value using a risk-adjusted discount rate. Assumptions used in the DCF require significant judgment, including judgment about appropriate discount rates and terminal values, growth rates, and the amount and timing of expected future cash flows. The forecasted cash flows are based on our most recent strategic plan and for periods beyond the strategic plan, our estimates were based on assumed growth rates expected as of the measurement date. We believe our assumptions were consistent with the plans and estimates that a market participant would use to manage the business. Based on the results of this testing, we recorded a pre-tax non-cash impairment totaling $5.9 million in the first quarter of 2020 relating to customer relationships, technologies, non-compete agreements and tradenames. This charge is reflected in our condensed consolidated statements of operations for the period ending March 31, 2020.

The identified intangible assets acquired in the Telmetrics, Callcap and Sonar acquisitions are $11.8 million in aggregate and are being amortized on a straight-line basis over a range of useful lives of 12 to 60 months. As of March 31, 2020, we have $19.1 million of goodwill on our balance sheet.

The current business environment is subject to evolving market conditions and requires significant management judgment to interpret the potential impact to our assumptions. To the extent that changes in the current business environment impact our ability to achieve levels of forecasted operating results and cash flows, or should other events occur indicating the remaining carrying value of our assets might be impaired, we would test our goodwill and intangible assets for impairment and may recognize an additional impairment loss to the extent that the carrying amount exceeds such assets’ fair values. We will continue to monitor our financial performance, stock price and other factors in order to determine if there are any additional indicators of impairment prior to our annual impairment evaluation in November 2020. As a result, we may record an additional impairment loss in the near or intermediate term, which could have an adverse effect on our financial condition and results of operations.

~~Income Taxes. Income tax expense (benefit) for the three months ended March 31, 2019 and 2020 was ($119,000) and ($743,000), respectively.~~ ~~Income tax benefit consisted primarily of deferred tax benefit related to one of our foreign jurisdictions, offset in part by U.S. state income tax expense for the three months ended March 31, 2019.~~ Income tax benefit consisted primarily of deferred tax benefit related to one of our foreign jurisdictions, offset in part by U.S. state income tax expense and foreign tax expense for the three months ended March 31, 2020. The effective tax rate differed from the expected tax rate of 21% for 2019 and 2020 due to a full valuation allowance and to a lesser extent due to state income taxes, non-deductible stock-based compensation related to incentive stock options recorded under the fair-value method, federal research and development credits, and other non-deductible amounts.

~~Net Loss.~~ ~~Net loss was ($1.3) million and ($24.9) million for the three months ended March 31, 2019 and 2020, respectively. The increase in loss was primarily attributable to a long-lived intangible assets and~~ ~~an estimated preliminary~~ goodwill impairment charge during the three months ended March 31, 2020 with no corresponding amounts in the 2019 period, and to a lesser extent, higher amortization of intangible assets from acquisitions costs in 2020 as a result of the Sonar acquisition in December 2019 and due to

higher operating costs in the 2020 period. These increases in costs were partially offset by a $716,000 adjustment in the 2020 period to the estimated fair value of our contingent consideration liabilities related to our acquisition of Telmetrics in November 2018 and to our acquisition of Sonar December 2019, in addition to an increase in the income tax benefit in the 2020 period when compared to the 2019 period of approximately $624,000.

~~Liquidity and Capital Resources~~

As of March 31, 2020, we had cash and cash equivalents of $40.3 million and we had current and long term contractual obligations of $14.6 million, of which $9.3 million is for rent under our facility leases, up to $1.8 million for contingent cash earnout payments related to the Telmetrics acquisition, and a contingent earnout arrangement related to the Sonar acquisition that requires us to pay up to a maximum 389,000 shares of Class B common stock, valued at approximately $1.4 million as of the acquisition date.

Cash used in operating activities for the three months ended March 31, 2020 of approximately $(1.7) million consisted primarily of a net loss of $(24.9) million, adjusted for non-cash items of $23.2 million, which primarily includes an aggregate estimated preliminary impairment of goodwill and impairment to long-lived intangible assets in the amount of $20.1 million, in addition to depreciation and amortization, accretion of interest expense, allowance for doubtful accounts and advertiser credits, deferred income taxes, and stock-based compensation, an adjustment to the estimated fair value of our contingent consideration liability related to our recent acquisitions of Telmetrics in November 2018 and Sonar in December 2019, and approximately $(113,000) used by working capital and other activities.

Cash provided by operating activities for the three months ended March 31, 2019 of approximately $5.6 million consisted primarily of a net loss of $1.3 million, adjusted for non-cash items of $2.4 million, which primarily includes depreciation and amortization, accretion of interest expense, allowance for doubtful accounts and advertiser credits, deferred income taxes, and stock-based compensation, and approximately $4.5 million provided by working capital and other activities, which includes customer deposits.

With respect to a significant portion of our call-based advertising services, the amount payable to our distribution partners will be calculated at the end of a calendar month, with a payment period following the delivery of the phone calls or other actions. These services constituted a significant portion of revenues for the three months ended March 31, 2019 and 2020. We generally receive payment from advertisers in close proximity to the timing of the corresponding payments to the distribution partners who provide calls, other delivery actions, or placement for the listings. In certain cases, payments to distribution partners are paid in advance or are fixed in advance based on a guaranteed minimum amount of usage delivered. We have no corresponding payments to distribution partners related to our local leads platform.

Nearly all of our reseller partner agreements, including our agreements with resellers such as Thryv, CDK Global, hibu Inc., and Web.com, are billed on a monthly basis following the month of our phone call or other action delivery. This payment structure results in our advancement of monies to the distribution partners who have provided the corresponding calls, other delivery actions, or placements of the listings. For these services, reseller partner payments are generally received two to four weeks or longer following payment to the distribution partners. We also have payment agreements with advertising agencies such as Resolution Media and OMD Digital whereby we receive payment after the agency’s advertiser pays the agency, which is generally between 60 and 120 days or longer, following the delivery of services. We expect that in the future periods, if the amounts from our reseller partner and agency arrangements account for a greater percentage of our operating activity, working capital requirements will increase as a result.

For the three months ended and as of March 31, 2020, amounts from these partners and agencies totaled 48% of total revenue and $9.3 million in net accounts receivable. Based on the timing of payments, we generally have this level of amounts in outstanding accounts receivable at any given time from these partners and advertising agencies. A single advertiser, State Farm, who represented the majority of the revenue and accounts receivable generated by Resolution Media and OMD Digital, accounted for 17% of total revenues and 40% of accounts receivable for the three months ended and as of March 31, 2020, respectively. We expect in the near to intermediate term campaign spend levels related to State Farm to be modestly lower compared to recent quarters, which will result in lower total revenues and contribution. Net accounts receivable balances outstanding as of March 31, 2020 from Thryv, Inc. (formerly known as Dex Media, Inc., successor in interest to Yellowpages.comLLC) (“Thryv”) totaled $2.0 million.

We have revenue concentrations with certain large advertisers including reseller partners and advertising agencies. Many of these customers are not subject to long term contracts with us or have contracts with near term expiration dates and are generally able to reduce or cease advertising spending at any time and for any reason. Reseller partners purchase various advertising and marketing services, as well as provide us with a large number of advertisers. This could have a material adverse effect on our results of operations and financial condition. There can be no assurances that these partners or other advertisers will not experience financial difficulty, curtail operations, reduce or eliminate spend budgets, change marketing strategies or agency affiliations, be acquired by parent companies with alternative media tactics, delay payments or otherwise forfeit balances owed. In addition, many of our customers have experienced financial distress, and may file for bankruptcy protection, go out of business, or suffer further disruptions

in their business due to the COVID-19 outbreak which could delay or jeopardize the collection of accounts receivable and have a material adverse effect on our results of operations and liquidity. We expect that, at least for the near term, our revenues will be lower than in recent periods as a result of business disruption to our customers and prospects caused by the continuing COVID-19 situation. We do believe the disruption will impact our business in the intermediate and long term as well in part because several customers have had their operations permanently impacted or shut down. Further, we expect in the first half of 2020 and potentially beyond, that in some cases financial difficulties and business interruptions caused by the COVID-19 outbreak have and will result in further payment delays and an impairment of our customers to make payments. In turn, this will also cause our revenues to be lower than current levels if customers are unable to procure our services at the same volumes as previously, which we expect will be the case for several of our customers. It will also adversely impact our collectability associated with our accounts receivable balances and result in higher bad debt expenses. In addition, we expect it will reduce our cash flows from the levels we have experienced in recent periods. This expected adverse impact on our operating cash flows will correspondingly reduce our liquidity.

Cash used in investing activities for the three months ended March 31, 2020 of approximately $(509,000) was primarily attributable to purchases for property and equipment. Cash used in investing activities for the three months ended March 31, 2019 of approximately $143,000 was attributable to purchases for property and equipment.

We expect property and equipment purchases in the near and intermediate term to be modestly higher compared to our most recent periods. We expect any increase to our operations to have a corresponding increase in expenditures for our systems and personnel. We plan to make a strategic expense investment in 2020 to address various infrastructure initiatives, including consolidating infrastructure and data centers. In consideration of the strategic expense initiative, we expect our expenditures for product development initiatives will be stable to modestly higher in the near and intermediate term and increase in the longer term in absolute dollars with any acceleration in development activities and as we increase the number of personnel and consultants to enhance our service offerings. In the intermediate to long term, we also expect to increase the number of personnel supporting our sales, marketing and related growth initiatives.

Cash provided by financing activities for the three months ended March 31, 2020 of approximately $9,000 was primarily attributable to proceeds from the employee stock purchase plan. Cash provided by financing activities for the three months ended March 31, 2019 of approximately $195,000 was primarily attributable to proceeds from employee stock option exercises and the employee stock purchase plan.

We anticipate that we will need to invest working capital towards the development of our overall operations and to fund any losses from operations, and we expect that capital expenditures may increase in future periods, particularly with any increase in our operating activities. We may also pursue a significant number of acquisitions. As a result, we could experience a reduction of our cash balances or the incurrence of debt. We committed $2.5 million in funding for a strategic technology business initiative. We expect to fulfill this commitment during 2020.

In the second quarter of 2018, we provided a bank letter of credit to the lessor of our office space in Seattle, Washington in the amount of $575,000, which we fully collateralized with a certificate of deposit to the issuing bank. The letter of credit will be reduced by $100,000 annually starting in April 2019. The letter of credit was collateralized by a $575,000 certificate of deposit, which was restricted in use and is included in other assets in the Company’s condensed consolidated balance sheet as of December 31, 2018 and March 31, 2019. On April 2, 2019, the Company was no longer required to collateralize the letter of credit and the certificate of deposit matured and was closed.

During the second quarter of 2020, we secured a $4.0 million promissory note with a bank lender pursuant to a government loan program. The loan bears an interest rate of 1% per annum, has a two-year maturity, allows for early repayment and a deferment period of six months. Certain of our subsidiaries have recently secured similar loans in the aggregate principal amount of approximately $1.3 million. Amounts under the loans will be repayable to the lenders in monthly installments following the six-month deferment period. The loans or portions thereof may be eligible for forgiveness if certain requirements of the government program are met.

In November 2014, our board of directors authorized a new share repurchase program (the “2014 Repurchase Program”) which supersedes and replaces any prior repurchase programs. Under the 2014 Repurchase Program, we are authorized to repurchase up to 3 million shares of our Class B common stock in the aggregate through open market and privately negotiated transactions, at such times and in such amounts as we deem appropriate. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when we might otherwise be precluded from doing so under insider trading laws. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability, and other market conditions. The 2014 Repurchase Program does not have an expiration date and may be expanded, limited or terminated at any time without prior notice. We have made no repurchases under the 2014 Repurchase Program for the three months ended March 31, 2019 and 2020.

operating plans and resources significantly. Additional equity and debt financing may be needed to support our acquisition strategy, our long-term obligations and our company’s needs. There can be no assurance that, if we needed additional funds, financing arrangements would be available in amounts or on terms acceptable to us, if at all. Failure to generate sufficient revenue or raise additional capital could have a material adverse effect on our ability to continue as a going concern or to achieve our intended business objectives.

~~Critical Accounting Policies~~

Our condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States for interim financial information. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Additionally, As of March 31, 2020, the impact of the outbreak of COVID-19 continues to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.

~~Our critical accounting policies relate to the following matters and are described below:~~

~~Revenue;~~

~~Stock-based compensation;~~

~~Allowance for doubtful accounts and advertiser credits;~~

~~Goodwill and intangible assets;~~

~~Provision for income taxes; and~~

~~Leases~~

~~Revenue~~

~~We generate the majority of our revenues from advertisers for~~ ~~our performance based advertising services, which include the use of~~ our call analytics technology and pay-for-call advertising products and services. Our revenue also consists of payments from our reseller partners for use of our local leads platform and marketing services, which they offer to their small business customers ~~as well as payments from advertisers for cost per action services~~. Customers typically receive the benefit of our services as they are performed and substantially all of our revenue is recognized over time as the services are performed. We adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (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.

We generate revenue from our call analytics technology platform when advertisers pay us a fee for each call/text or call/text related data element they receive from calls or texts including call-based ads we distribute through our sources of call distribution or for each phone number tracked based on a pre-negotiated rate. For our call marketplace services, advertisers or advertising service providers are charged on a pay-for-call or cost-per-action basis. For pay-for-call advertising, we generate revenue upon delivery of qualified and reported phone calls or other action to our advertisers or advertising service providers’ listing, which occurs when a mobile, online or offline user makes a phone call, clicks, or completes a specified action on any of their advertisements after it has been placed by us or by our distribution partners. Each qualified phone call or specified action on an advertisement listing represents a completed transaction. For cost-per-action services, we generate revenue when a user makes a phone call from our advertiser’s listing or is redirected from one of our websites or a third-party website in our distribution network to an advertiser website and completes the specified action.

We generate revenue from reseller partners utilizing our local leads platform and are paid account fees and/or agency fees for our products in the form of a percentage of the cost of every call or click delivered to advertisers. The reseller partners engage the

advertisers and are the principal for the transaction, and we, in certain instances, are only financially liable to the publishers in our capacity as a collection agency for the amount collected from the advertisers. We recognize revenue for these fees under the net revenue recognition method. In limited arrangements resellers pay us a fee for fulfilling an advertiser’s campaign in its distribution network and we act as the principal and recognize revenue for these fees under the gross revenue recognition method.

We have entered into agreements with various third-party distribution partners in order to expand our distribution network, which includes 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. These partners provide distribution for pay-for-call advertisement listings, which contain all tracking numbers and/or URL strings. We generally pay distribution partners based on a percentage of revenue or a fixed amount per phone call or other action on these listings. We act as the principal, and we are responsible for providing customer and administrative services to the advertiser. The revenue derived from advertisers who receive paid introductions through us as supplied by distribution partners is reported gross based upon the amounts received from the advertiser. We also recognize revenue for certain agency or reseller contracts with advertisers under the net revenue recognition method. Under these specific agreements, we purchase listings on behalf of advertisers from our distribution network. We are paid account fees and also agency fees based on the total amount of the purchase made on behalf of these advertisers. Under these agreements, our advertisers are primarily responsible for choosing the publisher and determining pricing, and we, in certain instances, are only financially liable to the publisher for the amount collected from our advertisers. This creates a sequential liability for media purchases made on behalf of advertisers. In certain instances, the web publishers engage the advertisers directly and we are paid an agency fee based on the total amount of the purchase made by the advertiser. In limited arrangements, resellers pay us a fee for fulfilling an advertiser’s campaign in our distribution network and we act as the primary obligor. We recognize revenue for these fees under the gross revenue recognition method.

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 we would sell a promised good or service separately to a customer or the estimated standalone selling price.

In certain cases, we record 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.

~~Stock-Based Compensation~~

~~FASB ASC Topic 718,~~ ~~Compensation – Stock Compensation~~ (ASC 718) requires the measurement and recognition of compensation for all stock-based awards made to employees, non-employees and directors including stock options, restricted stock issuances, and restricted stock units be based on estimated fair values. We account for forfeitures as they occur. We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the vesting or service period, as applicable, of the stock-based award using the straight-line method.

We generally use the Black-Scholes option pricing model as our method of valuation for stock-based awards with time-based vesting. Our determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the expected life of the award, our expected stock price, volatility over the term of the award and actual and projected exercise behaviors.

~~Although the fair value of stock-based awards is determined in accordance with ASC 718,~~ ~~Compensation – Stock Compensation~~ the assumptions used in calculating fair value of stock-based awards and the use of the Black-Scholes option pricing model is highly subjective, and other reasonable assumptions could provide differing results. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. ~~See Note 4). Stock-based Compensation Plans~~ ~~in the Notes to Condensed Consolidated Financial Statements for additional information.~~

~~Allowance for Doubtful Accounts and Advertiser Credits~~

means of collection have been exhausted and the potential recovery is considered remote. If the financial condition of our advertisers were to deteriorate, resulting in an impairment of their ability to make payments, or if we underestimated the allowances required, additional allowances may be required which would result in increased general and administrative expenses in the period such determination was made.

~~Goodwill and Intangible Assets~~

~~Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed in business combinations accounted for under the purchase method.~~

We apply the provisions of the FASB ASC Topic 350, “Intangibles - Goodwill and Other” (ASC 350) whereby assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually. ASC 350 also requires that intangible assets with definite useful lives be amortized over the respective estimated lives to their estimated residual values, and reviewed for impairment in accordance with ASC 360.

Goodwill is tested annually on November 30 for impairment and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. The provisions of the accounting standard for goodwill and other intangible assets allow us to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Events and circumstances considered in determining whether the carrying value of goodwill may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; and significant changes in competition and market dynamics. These estimates are inherently uncertain and can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, a loss of a significant customer, changes in competition or changes in the share price of common stock and market capitalization. If our stock price were to trade below book value per share for an extended period of time and/or we experience adverse effects of a continued downward trend in the overall economic environment, changes in the business itself, including changes in projected earnings and cash flows, we may have to recognize an impairment of all or some portion of our goodwill. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. If the fair value is lower than the carrying value, a material impairment charge may be reported in our financial results. We exercise judgment in the assessment of the related useful lives of intangible assets, the fair values, and the recoverability. In certain instances, the fair value is determined in part based on cash flow forecasts and discount rate estimates. We cannot accurately predict the amount and timing of any impairment of goodwill.

The testing of goodwill for impairment requires us to make significant estimates about its future performance and cash flows, as well as other assumptions. Events and circumstances considered in determining whether the carrying value of goodwill may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant changes in competition and market dynamics; significant and sustained declines in our stock price and market capitalization; a significant decline in its expected future cash flows or a significant adverse change in our business climate. These estimates and circumstances are inherently uncertain and can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, a loss of a significant customer, changes in competition, volatility in financial markets, or changes in the share price of our common stock and market capitalization.

which were determined to be at the acquisition level (Telmetrics, Callcap and Sonar). Based on this analysis, which included evaluating various cash flow scenarios, the undiscounted cash flows were not sufficient to recover the carrying value of the groups. As a result, we were required to determine the fair value of each asset group. To estimate the fair value, we utilized both the cost recovery and income approach, which is based on a discounted cash flow (DCF) analysis and calculates the fair value by estimating the after-tax cash flows attributable to the asset group and then discounting the after-tax cash flows to present value using a risk-adjusted discount rate. Assumptions used in the DCF require significant judgment, including judgment about appropriate discount rates and terminal values, growth rates, and the amount and timing of expected future cash flows. The forecasted cash flows are based on our most recent strategic plan and for periods beyond the strategic plan, our estimates were based on assumed growth rates expected as of the measurement date. We believe our assumptions were consistent with the plans and estimates that a market participant would use to manage the business. Based on the results of this testing, we recorded an estimated preliminary pre-tax non-cash goodwill impairment totaling $14.2 million and a pre-tax non-cash impairment totaling $5.9 million in the first quarter of 2020 relating to customer relationships, technologies, non-compete agreements and tradenames. These charges are reflected in our condensed consolidated statements of operations for the period ending March 31, 2020.

We are experiencing and expect to further experience impacts from quarantines, market downturns and changes in customer behavior related to pandemic fears and impacts on our workforce. In addition, many of our customers, distribution partners, reseller partners and agencies, service providers and suppliers may experience or already has experienced financial distress, may file for bankruptcy protection, go out of business, or suffer further disruptions in their business due to the coronavirus outbreak. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain, but has resulted in a material adverse impact on our business, results of operations and financial condition at least for the near term. To the extent that changes in the current business environment impact our ability to achieve levels of forecasted operating results and cash flows, if our stock price were to trade below book value per share for an extended period of time and/or should other events occur indicating the remaining carrying value of our assets might be impaired, we would test our goodwill and long-lived intangible assets for impairment and may recognize an additional impairment loss to the extent that the carrying amount exceeds such asset’s fair value. We will continue to monitor our financial performance, stock price and other factors in order to determine if there are any indicators of impairment prior to our annual impairment evaluation in November 2020. ~~As a result, we may record an additional impairment loss in the near or intermediate term, which~~ ~~could have an adverse effect on our financial condition and results of operations.~~

~~Provision for Income Taxes~~

We are subject to income taxes in the U.S. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in results of operations in the period that includes the enactment date. Uncertain tax positions as of March 31, 2020 were $1.4 million.

~~Leases~~

~~We adopted FASB ASC Topic 842, “Leases” (ASC 842) on January 1, 2019 and used the effective date of January 1, 2019 as our date of initial application.~~ We determine if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to us the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to us if we obtain the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. We have lease agreements which include lease components. We do not have lease agreements which include non-lease components or variable lease components.

Operating leases are included in right of use assets (“ROU”) and lease liabilities on our ~~condensed consolidated balance sheets.~~ Condensed Consolidated Balance Sheets. Assets under finance leases, which primarily represent computer equipment, are included in Property, plant and equipment, net, with the related liabilities included in finance lease liability, current and finance lease liability, non-current on the Condensed Consolidated Balance Sheets.

Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. We primarily leases office facilities which are classified as operating ~~leases. We do not have finance~~ leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in our leases, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The lease term for all of our leases includes the non-cancellable period of the lease. Options for lease renewals have been excluded from the lease term (and lease liability) for our leases as the reasonably certain threshold is not met. Lease payments included in the measurement of the lease liability are comprised of fixed payments.

The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we 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. We also elected the practical expedient to not separate lease and non-lease components for all of its leases.

Recent Accounting Pronouncement Not Yet Effective

For discussion regarding recent accounting pronouncements not yet effective, see Note ~~2. Significant Accounting Policies~~ 1. Description of Business and Basis of Presentation of the Notes to our Condensed Consolidated Financial Statements.

Web site

Our web site, www.marchex.com, provides access, without charge, to our annual report on Form 10-K, ~~as amended,~~ quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such materials are electronically filed with the Securities and Exchange Commission. To

view these filings, please go to our web site and click on “Investor Relations” and then click on “SEC Filings.” Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings, and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about us, our services, and other matters, and for complying with our disclosure obligations under Regulation FD:

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Marchex Twitter Account (https://twitter.com/marchex)

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Marchex Company Blog (http://~~www.marchex.com/blog)~~

wwwblog.marchex.com/blog)

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Marchex LinkedIn Account (http://linkedin.com/company/marchex)

The information we post through these social media channels may be deemed material. Accordingly, investors should monitor the above account and the blog, in addition to following our investor relations website, press releases, SEC filings, and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company under SEC Regulations, we are not required to provide this information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer/~~our~~ principal financial officer, of the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, our principal executive ~~officer /our~~ officer/principal financial officer has concluded that, as of the date of the evaluation, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the ~~three~~six months ended ~~March 31, 2020,~~June 30, 2023, no change was made to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 outbreak. We are continually monitoring and assessing the COVID-19 situation and our internal controls to minimize any impact on their design and operating effectiveness.

Limitations on the Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives.

In addition, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

~~We are not a party~~See Note 10: Commitments, Contingencies and Taxes of the Notes to ~~any material legal proceedings. From time to time, however, we may be subject to legal proceedings and claims~~Consolidated Financial Statements contained in the ~~ordinary course of business, including claims of alleged infringement of intellectual property rights, and a variety of claims arising in connection with our products and services.~~Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

Set forth below and elsewhere in this report and in other documents we file with the SEC are risks and uncertainties that could cause our actual results to materially differ from the results contemplated by the forward-looking statements contained in this report and in other documents we file with the SEC. Some of the risk factors were previously disclosed in our December 31, 2019 Annual Report on Form 10-K, as amended. They have been updated to include information as of May 19, 2020.RISK FACTORS

An investment in our Class B common stock involves various risks, including those mentioned below and those that are discussed from time to time in our other periodic filings with the SEC. Investors should carefully consider these risks, along with the other information contained in this report, before making an investment decision regarding our stock. There may be additional risks of which we are currently unaware, or which we currently consider immaterial. All of these risks could have a material adverse effect on our business, financial condition, results of operations, and the value of our stock.

~~Risks Relating to Our Company~~FINANCIAL RISKS

The continuing impacts of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect on our business, operations, and our future financial performance.

In late 2019, COVID-19 emerged and by early March ~~11,~~ 2020 was declared a global pandemic by the World Health Organization. Governments and municipalities around the world instituted measures in an effort to control the spread of COVID-19, including quarantines, shelter-in-place orders, school closings, travel restrictions, and closure of non-essential businesses. By the end of March 2020, the macroeconomic impacts became significant, exhibited by, among other things, a rise in unemployment and market volatility.

The global health and economic implications of this pandemic has had and is expected to continue to have significant impacts on our business, operations and future financial performance at least for the near term. As a result of the scale of the continuing COVID-19 pandemic and the speed at which the global community has been impacted, including as a result of continuing global supply chain disruptions and constraints, our quarterly and annual revenue trends or growth rates and expenses as a percentage of our revenues may differ significantly from our historical trends and rates, and our future operating results may fall below expectations.

The impact of the continuing COVID-19 pandemic on our business, operations and future financial performance could include, but are not limited to:

~~Significant~~ significant decline in revenues due to customers adversely impacted by the COVID-19 pandemic, including many of our larger customers (such as automotive manufacturing, automotive services, dental and health provider networks, home services, real estate, small business resellers, agencies and hospitality ~~companies,~~companies), which have seen their operations ~~largely limited or shut-down)~~.

~~Significant~~adversely impacted; significant decline in revenues as customer spending slows due to an economic ~~downturn.~~

~~Significant~~downturn; significant decrease in our operating cash flows as a result of decreased customer spending and deterioration in the credit quality of our customers, which could adversely affect our accounts ~~receivables.~~

~~Sales~~receivables; sales prospects delaying decision making and reducing propensity to ~~purchase.~~

~~Extensive recent burn rate and anticipated~~purchase; continued or increased significant burn ~~rate.~~

~~Challenges~~rate; challenges in servicing customers and extending and entering into new ~~agreements.~~

~~Anticipated~~agreements; anticipated reduction in customer budgets and slower sales ~~cycles.~~

~~Customer~~cycles; customer requests for price concessions and extended payment ~~terms.~~

~~Customer~~terms; customer cancellations and inability to ~~pay.~~

~~Customer~~pay; customer reconsideration and delay in launching previously slated test programs with ~~us.~~

~~Our~~us; our working capital needs and declining cash ~~position.~~

~~Recent~~position; recent and potentially future losses and asset ~~impairments.~~

~~Suspension~~impairments; suspension of hiring ~~initiatives.~~

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~~Absence of debt or equity financing alternatives.~~

~~The~~initiatives; absence of debt or equity financing alternatives; and the rapid and broad-based shift to a remote working environment creates inherent productivity, connectivity, and oversight challenges. In addition, the changed environment under which we are operating could have an impact on our internal controls over financial reporting as well as our ability to meet a number of our compliance requirements in a timely or quality manner.

We have largely incurred net losses since our inception, and we may incur net losses in the foreseeable future.

We had an accumulated deficit of ~~$285.1~~$319 million as of ~~March 31, 2020.~~June 30, 2023. Our net expenses may increase based on the initiatives we undertake which for instance, may include increasing our sales and marketing activities, hiring

additional personnel, incurring additional costs as a result of being a public company, acquiring additional businesses and making additional equity grants to our employees. This may result in the reduction of our cash balances or the incurrence of debt.

We have in the past and may in the future find it advisable to take measures to streamline operations and reduce expenses, including, without limitation, reducing our workforce or discontinuing certain products or businesses. Such measures may place significant strains on our management and employees, and could impair our development, marketing, sales, and customer support efforts. We may also incur liabilities from these measures. Such effects from streamlining could have a negative impact on our business and financial results.

We believe that our future revenue growth will depend on, among other factors, our ability to attract new ~~advertisers,~~customers, compete effectively, maximize our sales efforts, demonstrate a positive return on investment, ~~for advertisers,~~ successfully improve existing products and services, and develop successful new products and services. If we are unable to generate adequate revenue growth and to manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or maintain profitability.

We are dependent on certain distribution partners, for distribution of our services, and we derive a significant amount of our total revenue through these distribution partners. A loss of distribution partners or a decrease in revenue from certain distribution partners could adversely affect our business.

A relatively small number of distribution partners currently deliver a significant percentage of calls and traffic to our advertisers. There was no distribution partner paid more than 10% of total revenues for the for the three months ended March 31, 2020. Our existing agreements with many of our larger distribution partners permit either company to terminate without penalty on short notice and are primarily structured on a variable-payment basis, under which we make payments based on a specified percentage of revenue or based on the number of paid phone calls or click-throughs. We intend to continue devoting resources in support of our larger distribution partners, but there are no guarantees that these relationships will remain in place over the short-or long-term. In addition, we cannot be assured that any of these distribution partners will continue to generate current levels of revenue for us or that we will be able to maintain the applicable variable payment terms at their current levels. A loss of any of these distribution partners or a decrease in revenue or contribution due to lower calls and traffic or less favorable variable payment terms from any one of these distribution relationships could have a material adverse effect on our business, financial condition and results of operations.

Companies distributing advertising through mobile or online Internet have experienced, and will likely continue to experience, consolidation. This consolidation has reduced the number of partners that control the mobile and online advertising outlets with the most user calls and traffic. According to the comScore qSearch analysis of the U.S. desktop search marketplace for February 2020, Verizon Media and Microsoft accounted for 11.4% and 25.4%, respectively, of the core search market in the United States and Google accounted for 62.4%. As a result, the larger distribution partners have greater control over determining the market terms of distribution, including placement of call and click-based advertisements and cost of placement. In addition, many participants in the performance-based advertising and search marketing industries control significant portions of mobile and online traffic that they deliver to advertisers. We do not believe, for example, that Google, Microsoft, and Verizon Media are as reliant as we are on a third-party distribution network to deliver their services. This gives these companies a significant advantage over us in delivering their services, and with a lesser degree of risk.

We rely on certain advertiser reseller partners and agencies, including Thryv, Resolution Media, OMD Digital, CDK Global, hibu, Inc., and Web.com for the purchase of various advertising and marketing services, as well as to provide us with a large number of advertisers. A loss of certain advertiser reseller partners and agencies or a decrease in revenue from these reseller partners and agencies could adversely affect our business. Such advertisers are subject to varying terms and conditions, which may result in claims or credit risks to us.

We benefit from the established relationships and national sales teams that certain of our reseller partners, who are leading reseller partners of advertisers and advertising agencies, have in place throughout the U.S. and international markets. These advertiser

reseller partners and agencies refer or bring advertisers to us for the purchase of various advertising products and services. We derive a sizeable portion of our total revenue through these advertiser reseller partners and agencies. Additionally, these advertiser reseller partners and agencies may decide to operate the advertising services we perform internally with their own teams and technology. A loss of certain advertiser reseller partners and agencies or a decrease in revenue from these clients could adversely affect our business.

Under one of our contracts with Thryv, Inc. (formerly known as Dex Media, Inc., successor in interest to Yellowpages.com LLC) (“Thryv”), we generate revenues from our local leads platform. This local leads platform agreement will expire on December 31, 2020 and we expect the remaining active accounts to be migrated or to wind down at that time which will result in reduced revenue and profitability contribution. The local leads platform agreement provides Thryv flexibility to migrate active accounts to itself or a third-party provider prior to the end of an advertiser contract and provides Thryv with certain termination rights upon four months notice. We expect Thryv may decrease the number of new advertiser accounts with us and may elect to migrate certain active accounts to itself or a third-party provider which would result in fewer small business accounts and related revenues, as well as reduced contribution and profitability. Thryv’s small business account base utilizing our platform has declined, and to the extent declines occur in their business, their small business accounts may spend fewer dollars on our pay-for-call services. We expect Thryv and local leads platform advertisers in future periods will comprise lower total revenues compared to previous periods and Thryv as a percentage of our total revenue may also comprise a smaller percentage of our total revenue. We also have separate pay-for-call services and distribution partner agreements with Thryv and separate reseller partner agreements with Thryv for pay-for-call and call analytics services. Thryv is our largest reseller partner and was responsible for 26% of our total revenues for the three months ended March 31, 2020. It is possible that changes to our relationship and agreements with Thryv may occur and result in a significant reduction in the paid account fees, agency fees, call analytics revenues, and per call or lead fees that we receive from Thryv. There can be no assurance that our business with Thryv in the future will continue at or near current revenue and contribution levels, that we will be able to renew and extend the contracts set to expire on December 31, 2020, and if renewed, the contracts may be on less favorable terms to us, any of which could have a material adverse effect on our future operating results.

These reseller partners and agencies may in certain cases be subject to negotiated terms and conditions separate from those applied to advertising clients. In some cases, the applicable contract terms may be the result of legacy or industry association documentation or simply customized advertising solutions for large reseller partners and agencies. In any case, as a consequence of such varying terms and conditions, we may be subject to claims or credit risks that we may otherwise mitigate more efficiently across our automated advertiser management platform.

These claims and risks may vary depending on the nature of the aggregated client base. Among other claims, we may be subject to disputes based on third-party tracking information or analysis. We may also be subject to differing credit profiles and risks based on the agency relationship associated with these advertisers. For such advertisers, payment may be made on an invoice basis. In some limited circumstances, we may also have accepted individual advertiser payment liability in place of liability of the advertising agency or media advisor.

We received approximately ~~50% and 53%~~30% of our revenue from our five largest customers for the ~~year ended December 31, 2019~~three and ~~the three~~six months ended ~~March 31, 2020, respectively,~~June 30, 2023, and the loss of one or more of these customers could adversely impact our results of operations and financial condition.

Our five largest customers accounted for approximately ~~50% and 53% of our total revenues for the year ended December 31, 2019 and the three months ended March 31, 2020, respectively. Thryv was our largest customer and was responsible for 26%~~30% of our total revenues for the three and six months ended ~~March 31, 2020.~~

~~We have agreements with Resolution Media and OMD Digital, who act as agents on advertisers’ behalf, for pay-for-call services whereby we charge an agreed upon price for qualified calls or leads from~~June 30, 2023. In particular, our network and call analytic services. A single advertiser, State Farm who utilizes our services primarily through Resolution Media and OMD Digital, accounted for 17% of total revenues for the three months ended March 31, 2020. We expectcustomers in the ~~near to intermediate term campaign spend levels~~automotive and related ~~to State Farm to be lower compared to recent quarters, which will result in lower total revenues and contribution.~~services sectors account for a significant portion of our revenue.

Many of our ~~other large~~ customers ~~including reseller partners, and advertising agencies~~ are not subject to long term contracts with us or have contracts with near term expiration dates and are able to reduce or in some cases cease ~~advertising spend~~spending at any time and for any reason. Reseller partners purchase various advertising and marketing services from us, as well as provide us with a large number of advertisers. A loss of reseller partners or a decrease in revenue from these resellers could adversely affect our business. In some cases, we engage with advertisers through advertising agencies, who act on behalf of the advertisers. Advertising agencies, such as Resolution Media and OMD Digital, may place insertion orders with us on behalf of advertisers (including State Farm) for particular advertising campaigns, which are typically short term and subject to a specified dollar amount, and are not obligated to commit beyond the campaign governed by a particular insertion order and may also cancel the campaign prior to completion. Advertising agencies also have relationships with many different providers, each of whom may be running portions of the advertising campaign. We have ~~call advertising~~ agreements with certain large customers which provide flexibility around financial commitments, termination rights, indemnification, and security obligations. Our large customers may vary spend levels and there can be no assurances that our large customers will continue to spend at levels similar to prior quarters. If any of our largest customers are acquired, such acquisition may impact its ~~advertising~~ spending with us. Furthermore, our large customers from time to time may impose financial condition, data security and privacy or ~~budget with us, including due~~insurance requirements that we may not be able to ~~rebranding, change in advertising agency, or change in media tactics.~~satisfy. A significant reduction in ~~advertising~~ spending ~~or budgets~~ by our largest customers, or the loss of one or more of these customers, if not replaced by new customers or an increase in business from existing customers, would have a material adverse effect on our ~~future operating results.~~business, financial condition and results of operations.

Our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that may have an adverse effect on our business.

Our large customers have substantial purchasing power and leverage in negotiating contractual arrangements with us. These customers may seek for us to develop additional features, may require penalties for failure to deliver such features, may seek discounted product or service pricing, and may seek more favorable contractual terms. As we sell more products and services to this class of customer, we may be required to agree to such terms and conditions. Such large customers also have substantial leverage in negotiating resolution of any disagreements or disputes that may arise. Any of the foregoing factors could result in a material adverse effect on our business, financial condition and results of operations.

If some of our customers experience financial distress or suffer disruptions in their business, their weakened financial position could negatively affect our own financial position and results.

We have a diverse customer base, and, at any given time, one or more customers may experience financial distress, file for bankruptcy protection, go out of business, or suffer disruptions in their business. We believe this risk is magnified at least for the near term by the disruption caused by the recent coronavirus outbreak. In addition, this disruption has disproportionately impacted certain business sectors, including sectors where we have significant customers such as automotive, financial services, home services and travel and hospitality. If a customer with whom we do a substantial amount of business experiences financial difficulty or suffers disruptions in their business, it could delay or jeopardize the collection of accounts receivable, result in significant reductions in services provided by us and may have a material adverse effect on our results of operations and liquidity.

~~We may incur liabilities for the activities of our advertisers, reseller partners, distribution partners and other users of our services, which could adversely affect our business.~~

Many of our advertisement distribution processes are automated. In some cases, advertisers or reseller partners use our online tools and account management systems to create and submit advertiser listings, and in other cases, we create and submit advertising listings on behalf of our advertisers or reseller partners using the distribution partners’ user interface. Although we monitor our distribution partners on an ongoing basis primarily for traffic quality, these partners control the distribution of the advertiser listings provided in the user interface submissions.

We have a large number of distribution partners who display our advertiser listings on their networks. Our advertiser listings are delivered to our distribution partners in an automated fashion through the distribution partners’ user interface. Our distribution partners are contractually required to use the listings created by our advertiser customers in accordance with applicable laws and regulations and in conformity with the publication restrictions in our agreements, which are intended to promote the quality and validity of the traffic provided to our advertisers. Nonetheless, we do not operationally control or manage these distribution partners or third parties they may contract with and any breach of these agreements on the part of any distribution partner or its affiliates could result in liability for our business. These agreements include indemnification obligations on the part of our distribution partners, but there is no guarantee that we would be able to collect against offending distribution partners or their affiliates in the event of a claim under these indemnification provisions. Alternatively, we may incur substantial costs as part of our indemnification obligations to distribution partners for liability they may incur as a result of displaying content we have provided them. Any costs incurred as a result

~~of activities of our distribution partners and their third-party partners could have a material adverse effect on our business, operating results and financial condition.~~

We do not conduct a manual editorial review of a substantial number of the advertiser listings directly submitted by advertisers or reseller partners online, nor do we manually review the display of the vast majority of the advertiser listings by our distribution partners submitted to us by the distribution partners’ user interface. Likewise, in cases where we provide editorial or value-added services for our large reseller partners or agencies, such as ad creation and optimization for local advertisers or landing pages and micro-sites for pay-for-call customers, we rely on the content and information provided to us by these agents on behalf of their individual advertisers. We do not investigate the individual business activities of these advertisers other than the information provided to us or in some cases review of advertiser websites. We may not successfully avoid liability for unlawful activities carried out by our advertisers or reseller partners and other users of our services or unpermitted uses of our advertiser listings by distribution partners and their affiliates.

Our potential liability for unlawful activities of our advertisers and other users of our services or unpermitted uses of our advertiser listings and advertising services and platform by distribution partners and reseller partners and agencies could require us to implement measures to reduce our exposure to such liability, which may require us, among other things, to spend substantial resources, to discontinue certain service offerings or to terminate certain distribution partner relationships. For example, as a result of the actions of advertisers in our network, we may be subject to private or governmental actions relating to a wide variety of issues, such as privacy, data security, gambling, promotions, and intellectual property ownership and infringement. Under agreements with certain of our larger distribution partners, we may be required to indemnify these distribution partners against liabilities or losses resulting from the content of our advertiser listings, or resulting from third party intellectual property infringement claims. Although our advertisers agree to indemnify us with respect to claims arising from these listings, we may not be able to recover all or any of the liabilities or losses incurred by us as a result of the activities of our advertisers.

~~The actual or perceived improper sending of text messages or voice calls may subject us to potential risks,~~ including liabilities or claims relating to consumer protection laws and regulatory enforcement, including fines. For example, the Telephone Consumer Protection Act of 1991 restricts telemarketing and the use of automatic SMS text messages without explicit customer consent. The scope and interpretation of the laws that are or may be applicable to the delivery of text messages or voice calls are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers or distribution partners to comply with these laws by obtaining proper consent, we could face direct liability. We rely on contractual representations made to us by our customers and distribution partners that they will comply with our policies and applicable law, including, without limitation, our email and messaging policies. We cannot predict whether our role in facilitating our customers’ or other users’ activities or activities by our distribution partners would expose us to liability under applicable law. Even if claims asserted against us do not result in liability, we may incur substantial costs in investigating and defending such claims. If we are found liable for our customers’ or other users’ activities or activities by our distribution partners, we could be required to pay fines or penalties, redesign business methods or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability, which could have a material adverse effect on our business, financial condition and results of operations.

Our insurance policies may not provide coverage for liability arising out of activities of our customers, distribution partners or other users of our services. In addition, our reliance on some content and information provided to us by our large advertiser reseller partners and agencies may expose us to liability not covered by our insurance policies. Furthermore, we may not be able to obtain or maintain adequate insurance coverage to reduce or limit the liabilities associated with our businesses. Any costs incurred as a result of such liability or asserted liability could have a material adverse effect on our business, operating results and financial condition.

~~If we do not maintain and grow a critical mass of advertisers and distribution partners, the value of our services could be adversely affected.~~

Our success depends, in large part, on the maintenance and growth of a critical mass of advertisers and distribution partners and a continued interest in our call analytics, pay-for-call, performance-based advertising, and search marketing services. Advertisers will generally seek the most competitive return on investment from advertising and marketing services. Distribution partners will also seek the most favorable payment terms available in the market. Advertisers and distribution partners may change providers or the volume of business with a provider, unless the product and terms are competitive. In this environment, we must compete to acquire and maintain our network of advertisers and distribution partners. If our business is unable to maintain and grow our base of advertisers, our current distribution partners may be discouraged from continuing to work with us, and this may create obstacles for us to enter into agreements with new distribution partners. Our business also depends in part on certain of our large reseller partners and agencies to grow their base of advertisers as these advertisers become increasingly important to our business and our ability to attract additional distribution partners and opportunities. Similarly, if our distribution network does not grow and does not continue to improve over time, current and prospective advertisers and reseller partners and agencies may reduce or terminate this portion of their business with us. Any decline in the number of advertisers and distribution partners could adversely affect the value of our services.

~~The mobile advertising market may develop more slowly than expected, which could harm our business.~~

If the market for mobile marketing and advertising develops more slowly than we expect, our business could suffer. Our future success is highly dependent on the commitment of advertisers and marketers to mobile communications as an advertising and marketing medium, the willingness of our potential advertisers to outsource their mobile advertising and marketing needs, and our ability to sell our mobile advertising services to reseller partners and agencies. The mobile advertising and marketing market is rapidly evolving. Businesses, including current and potential advertisers, may find mobile advertising or marketing to be less effective than traditional advertising media or marketing methods or other technologies for promoting their products and services. As a result, the future demand and market acceptance for mobile marketing and advertising is uncertain. Many of our current or potential advertisers may have little or no experience using mobile communications for advertising or marketing purposes and have allocated only a limited portion of their advertising or marketing budgets to mobile communications advertising or marketing, and there is no certainty that they will allocate more funds in the future, if any. Funds to these types of campaigns may fluctuate greatly as different agencies and advertisers test and refine their overall marketing strategies to include mobile advertising and analytics tools. The adoption rate and budget commitments may vary from period to period as agencies and advertisers determine the appropriate mix of media and lead sources in short and long term campaigns.

We are dependent upon the quality of mobile, online, offline and other traffic sources in our network to provide value to our advertisers and the advertisers of our reseller partners and agencies, and any failure in our quality control could have a material adverse effect on the value of our services to our advertisers and adversely affect our revenues.

We utilize certain monitoring processes with respect to the quality of the mobile, online, offline and other traffic sources that we deliver to our advertisers. Among the factors we seek to monitor are sources and causes of low quality phone calls such as unwanted telemarketer calls or other actions such as non-human processes, including robots or robocallers, spiders or other software, the mechanical automation of calling, and other types of invalid calls, call fraud, or call spam, the purpose of which is something other than to view the underlying content. Similarly, our network service providers may adopt new filtering technologies in an effort to combat spam or robocalling. Such technologies may inadvertently filter desired messages or calls to or from our customers. Additionally, we also seek to identify other indicators which may suggest that a user may not be targeted by or desirable to our advertisers. Even with such monitoring in place, there is a risk that a certain amount of low quality mobile, online, offline and other traffic or traffic that is deemed to be less valuable by our advertisers will be delivered to such advertisers, which may be detrimental to those relationships. We have regularly refunded fees that our advertisers had paid to us which were attributed to low quality mobile, online, offline and other traffic. If we are unable to stop or reduce low quality phone calls and Internet traffic, these refunds may increase. Low quality mobile, online, offline and other traffic may further prevent us from growing our base of advertisers and cause us to lose relationships with existing advertisers, or become the target of litigation, both of which would adversely affect our revenues.

We depend on being able to secure enough phone numbers to support our advertisers and other users of our services and any obstacles that we face which prevent us from meeting this demand could adversely affect our business.

We utilize phone numbers as part of a number of information and analytic services to advertisers, such as our call analytics, call tracking, and pay-for-call services. Our services that utilize phone numbers are designed to enable advertisers and other users of our services to utilize mobile, online and offline advertising and to help measure the effectiveness of mobile, online and offline advertising campaigns. We secure a majority of our phone numbers through telecommunication carriers that we have contracted with and a smaller number through the 800 Service Management System, and such telecommunication carriers provide the underlying telephone service. Our telecommunications carriers and telephone number acquisition process are subject to the rules and guidelines established

by the Federal Communications Commission. Furthermore, to the extent we offer call recording and pay-for-call services, we may be directly subject to certain telecommunications-related regulations. The Federal Communications Commission and our telecommunication carriers may change the rules and guidelines for securing phone numbers or change the requirements for retaining the phone numbers we have already secured. As a result, we may not be able to secure or retain sufficient phone numbers needed for our services. We may also be limited in the number of available telecommunications carriers or vendors to provide such phone numbers to us in the event of any industry consolidations.

~~Our automated voice and mobile advertising-based technologies are heavily reliant on vendors.~~

Certain voice and mobile advertising-based products are heavily reliant on vendors. The free directory product that we provide relies on technology provided by third party vendors that include voice recognition software and business, government and residence data listings. We cannot guarantee that the technology, data and services provided by our third-party vendors will be of sufficient quality to meet the demands of our customers and partners. Further, we cannot guarantee that the technologies, data and services will be available to us in the future on acceptable terms, if at all. Any perception by our customers or partners that our voice and mobile advertising-based products are incomplete or not of sufficient quality could lead to a loss in confidence by our customers or partners, which in turn could lead to a decline in revenues. If we are unable to continue maintaining, advancing and improving our voice and mobile advertising-based products, our operating results may be adversely affected.

~~Our business strategy is evolving and may involve pursuing new lines of business or strategic transactions and investments, some of which may not be successful.~~

Our industry is undergoing significant change and our business strategy is continuing to evolve to meet these changes. In order to profitably grow our business, we may need to expand into new lines of business beyond our current focus of providing call analytics and advertising products and services, which may involve pursuing strategic transactions, including potential acquisitions of, or investments in, related or unrelated businesses. In addition, we may seek divestitures of existing businesses or assets and may pursue other strategic alternatives and opportunities. There can be no assurance that we will be successful with our efforts to evolve our business strategy and we could suffer significant losses as a result, which could have a material adverse effect on our business, financial condition and results of operations.

~~Our recent investment in a new business may not be successful.~~

We have recently made a majority equity investment in a newly established company which intends to enable businesses to offer regular car service primarily as an employee benefit. This business model is unrelated to our current focus of providing conversational analytics and sales enablement solutions. This new business is subject to the various risk factors associated with any early stage company. In addition, we are reliant on the management team of this new business in overseeing its day to day operations. There can be no assurance that this new business will be successful in achieving its business model or if ultimately successful the timing of any such success or that our investment will prove to be profitable.

~~Our acquisitions could divert management’s attention, cause ownership dilution to our stockholders, cause our earnings to decrease and be difficult to integrate.~~

Our business strategy includes identifying, structuring, completing and integrating acquisitions. Acquisitions involve a high degree of risk. We may also be unable to find a sufficient number of attractive opportunities to meet our objectives which include revenue growth, profitability and competitive market share. Our acquired companies may have histories of net losses and may expect net losses for the foreseeable future. Acquisitions are accompanied by a number of risks that could harm our business, operating results and financial condition:

~~We could experience a substantial strain on our resources, including time and money, and we may not be successful;~~

~~Our management’s attention could be diverted from our ongoing business concerns;~~

~~We may seek to enter new markets where we have no or limited experience or where competitors may have stronger market positions;~~

~~Integrating new companies, including Telmetrics, Callcap and Sonar, may take longer than expected;~~

~~While integrating new companies, we may lose key executives or other employees of these companies;~~

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~~We may issue shares of our Class B common stock as consideration for acquisitions which may result in ownership dilution to our stockholders;~~

Acquisitions of certain companies may result in us pursuing a diversified operating or holding company structure to allow us to focus on running diverse businesses independently, but in such event we may not realize the anticipated strategic benefits;

~~We could fail to successfully integrate our financial and management controls, technology, reporting systems and procedures, or adequately expand, train and manage our workforce;~~

~~We could experience customer dissatisfaction or performance problems with an acquired company or technology;~~

~~We could become subject to unknown or underestimated liabilities of an acquired entity or incur unexpected expenses or losses from such acquisitions, including litigation;~~

We could incur possible impairment charges related to goodwill or other intangible assets resulting from acquisitions or other unanticipated events or circumstances, any of which could harm our business; and

~~We may be exposed to investigations and/or audits by federal, state or other taxing authorities.~~

~~Consequently, we might not be successful in integrating any acquired businesses, products or technologies, and might not achieve anticipated revenue and cost benefits.~~

~~We may decide to dispose of assets or a business that may no longer help us meet our objectives.~~

If we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the achievement of our strategic objectives. We may also dispose of a business at a price or on terms that are less desirable than we had anticipated. In addition, we may experience greater disruption to our remaining business than expected, and the impact of the divestiture on our revenue may be larger than projected.

~~Our international operations and any expansion subjects us to additional risks and uncertainties and we may not be successful with our international operations.~~

We have operations in Canada through Telmetrics and through our international subsidiaries, in other countries. We have international subsidiaries in Canada, Ireland, and the United Kingdom. Any international expansion presents unique challenges and risks. Compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business in international jurisdictions and could interfere with our ability to offer our products and services to one or more countries or expose us or our employees to fines and penalties. We may also have to offer our products and services in a modified format which may not be as compelling to certain customers, and we are subject to increased foreign currency exchange rate risks and our international operations and any expansion will require additional management attention and resources. We cannot assure you that we will be successful in our international operations. There are risks inherent in conducting business in international markets, including:

~~the need to localize our products and services to foreign customers’ preferences and customs, including the possibility of storing data locally if customers require;~~

~~difficulties in managing operations due to language barriers, distance, staffing and cultural differences;~~

application of foreign laws and regulations to us, in particular data and privacy regulations in Europe and other international jurisdictions, including the EU General Data Protection Regulation which went into full force and effect in May 2018 and which supersedes the current EU data protection regulation, which continue to change and impose significantly more liability and product limitations on service providers in our industry;

~~compliance with anti-bribery laws, such as the Foreign Corrupt Practices Act and the UK Anti-Bribery Act;~~

~~tariffs and other trade barriers;~~

~~fluctuations in currency exchange rates;~~

~~establishing local offices, sales channels, management systems and infrastructures;~~

~~reduced protection for intellectual property rights in some countries;~~

~~changes in foreign political and economic conditions;~~

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~~compliance with the laws of numerous taxing jurisdictions, both foreign and domestic;~~

~~foreign exchange controls that might prevent us from repatriating cash earned outside the United States;~~

~~the complexity and potentially adverse tax consequences of U.S. tax laws as they relate to our international operations;~~

~~increased costs to establish and maintain effective controls at foreign locations; and~~

~~overall higher costs of doing business internationally.~~

~~Our failure to address these risks adequately could materially and adversely affect our business, revenue, results of operations and financial condition.~~

We may be subject to intellectual property claims, which could adversely affect our financial condition and ability to use certain critical technologies, divert our resources and management attention from our business operations and create uncertainty about ownership of technology essential to our business.

Our success depends, in part, on our ability to operate without infringing on the intellectual property rights of others. There can be no guarantee that any of our intellectual property will not be challenged by third parties. We may be subject to patent infringement claims or other intellectual property infringement claims, and claims of copyright infringement with respect to certain of our websites that would be costly to defend and could limit our ability to use certain critical technologies. Our call advertising business increases the potential intellectual property infringement claims we may be subject to, particularly in light of the large number of patents which have been issued (or are pending) in the telecommunications field over the last several decades, both in the U.S. and internationally.

We believe that a consolidation of patent portfolios by major technology companies and independent asset holding companies will increase the chances of aggressive assertions of patent and other intellectual property claims. Within the technology telecommunications and online sectors, among other related sectors, we have witnessed various claim holders and alleged rights holders pursue business strategies devoted to extracting settlements or license fees for a wide range of basic and commonly accepted methods and practices. We may be subject to those intellectual property claims in the ordinary course of our business. Also, our partners and customers may also find that they are subject to similar claims, in which case we may be included in any related process or dispute settlement. Any patent or other intellectual property litigation could negatively impact our business by diverting resources and management attention from other aspects of the business and adding uncertainty as to the ownership of technology, services and property that we view as proprietary and essential to our business. In addition, a successful claim of patent infringement against us and our failure or inability to license the infringed or similar technology on reasonable terms, or at all, could prevent us from using critical technologies which could have a material adverse effect on our business.

We may need additional funding to meet our obligations and to pursue our business strategy. Additional funding may not be available to us and our financial condition could therefore be adversely affected.

We may require additional funding to meet our ongoing obligations and to pursue our business strategy, which may include the selective acquisition of businesses and technologies. In addition, we have incurred, and we may incur certain obligations in the future. There can be no assurance that, if we were to need additional funds to meet these obligations, additional financing arrangements would be available in amounts or on terms acceptable to us, if at all. Furthermore, if adequate additional funds are not available, we will be required to delay, reduce the scope of, or eliminate material parts of the implementation of our business strategy, including potential additional acquisitions or ~~internally-developed~~internally developed businesses.

~~The loss~~Our quarterly results of ~~our senior management, including other key personnel, could harm our current and future~~ operations ~~and prospects.~~

We have experienced turnover in certain senior executives in recent years.. Additional turnover at the senior management level may create instability within the Company and our employees may decide to terminate their employment, which could further impede the maintenance of our day to day operations. Such instability could impede our ability to implement fully our business plan and growth strategy, which would harm our business and prospects.

We may have difficulty retaining current personnel as well as attracting and retaining additional qualified, experienced, highly skilled personnel, which could adversely affect the implementation of our business plan.

Our performance is largely dependent upon the talents and efforts of highly skilled individuals. In order to fully implement our business plan, we will need to retain our current qualified personnel, as well as attract and retain additional qualified personnel. Thus, our success will, in significant part, depend upon our retention of current personnel as well as the efforts of personnel not yet identified and upon our ability to attract and retain highly skilled managerial, engineering, sales and marketing personnel. We are also dependent on managerial and technical personnel to the extent they may have knowledge or information about our businesses and technical systems that may not be known by our other personnel. There can be no assurance that we will be able to attract and retain necessary personnel. The failure to hire and retain such personnel could adversely affect the implementation of our business plan.

If we are unable to obtain and maintain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss or damage. Our ability to effectively recruit and retain qualified officers and directors may also be adversely affected if we experience difficulty in maintaining adequate directors’ and officers’ liability insurance.

We may not be able to obtain and maintain insurance policies on terms affordable to us that would adequately insure our business and property against damage, loss or claims by third parties. To the extent our business, property or systems suffer any damages, losses or claims by third parties that are not covered or adequately covered by insurance, our financial condition may be materially adversely affected. We currently have directors’ and officers’ liability insurance. If we are unable to maintain sufficient insurance as a public company to cover liability claims made against our officers and directors, we may not be able to retain or recruit qualified officers and directors to manage our company, which could have a material adverse effect on our operations.

~~It may be difficult for us to retain or attract qualified officers and directors,~~seasonality, which could adversely affect our ~~business~~growth rate and ~~our ability to maintain~~in turn the ~~listing~~market price of our ~~Class B common stock on the NASDAQ Global Select Market.~~securities.

~~We may be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of changes~~Our quarterly results have fluctuated in the ~~rules~~past and ~~regulations which govern publicly-held companies, including, but not limited~~may fluctuate in the future due to ~~certifications from executive officers~~seasonality. Our experience has shown that during the spring and requirements for financial experts on boards of directors. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting these roles. Further, applicable rules and regulationssummer months, call volumes in certain verticals such as home services are generally higher than during other times of the ~~Securities~~year and ~~Exchange Commission~~during the latter part of the fourth quarter of the calendar year we generally experience lower call volumes. The extent to which call volumes may decrease during these off-peak periods is difficult to predict. Prolonged or severe decreases in call volumes during these periods may adversely affect our growth rate and results, and in turn, the NASDAQ Stock Market heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, our business and our ability to maintain the listingmarket price of our ~~shares~~securities. Historically, we have seen this trend generally reversing in the first quarter of ~~Class B common stock on~~ the ~~NASDAQ Global Select Market could~~calendar year with increased call volumes and often new budgets at the beginning of the year for many of our customers with fiscal years ending December 31. However, there can be ~~adversely affected.~~no assurances such seasonal trends will consistently repeat each year.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud, which could harm our brand and operating results.

Effective internal controls are necessary for us to provide reliable and accurate financial reports and effectively prevent fraud. We have devoted significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002. In addition, Section 404 under the Sarbanes-Oxley Act of 2002 requires that we assess and in certain instances for our auditors to attest to the effectiveness of our controls over financial reporting. Our current and future compliance with the annual internal control report requirement will depend on the effectiveness of our financial reporting and data systems and controls across our operating subsidiaries. We expect these systems and controls to become increasingly complex to the extent that we integrate acquisitions and our business grows. To effectively manage this growth, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. We cannot be certain that these measures will ensure that we design, implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation or operation, could harm our operating results or cause us to fail to meet our financial reporting obligations. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock and our access to capital.

The Tax Cuts and Jobs Act of 2017 could adversely affect our business and financial condition.

On December 22, 2017, the U.S. government enacted comprehensive Federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act ~~among other changes,~~ makes a U.S. federal net operating loss generally less valuable as an asset ~~due to a new flat U.S. federal corporate income tax rate of 21%, replacing a graduated rate with a maximum income tax rate of 35%, effective January 1, 2018~~ and the elimination of the corporate alternative minimum tax for taxable years beginning after December 31, 2017. The alternative minimum tax credit carryforward is refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50% (100% in the case of taxable years beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability.changes use limitations. Net operating losses arising in taxable years beginning after December 31, 2017 are limited in use to offset eighty percent of taxable income, without the ability to carryback such net operating losses, but with an indefinite carryforward of such losses (instead of the former 2-year carryback and 20-year carryforward for net operating losses arising in taxable years beginning before December 31, 2017). ~~The amount of~~Our ability to utilize our net operating losses is conditioned upon our achieving profitability in the ~~net interest expense deduction is generally limited to (a) 30% of adjusted~~future and generating U.S. federal taxable income ~~calculated without regard~~and our operating loss carryforwards generated prior to ~~depreciation, amortization or depletion, effective for tax years beginning after~~ December 31, 2017 and before January 1, 2022 and (b) 30% of net interest expense exceeding earnings before income taxes (reduced by depreciation, amortization and depletion), effective for tax years beginning after January 1, 2022. Disallowed amountscould expire unused.

We may be ~~carried forward indefinitely, subject~~required to ~~ownership change limitations.~~pay additional income, sales, or other taxes.

Tax authorities at the international, federal, state, and local levels are continually reviewing the appropriate treatment of companies engaged in e-commerce and digital information services. Furthermore, from time to time, various state, federal and other jurisdictional tax authorities undertake reviews of us and our filings. In evaluating the exposure associated with various tax filing positions, we may on occasion accrue charges for probable exposures. We ~~continue to examine~~cannot predict the outcome of any of these reviews nor whether any will have a material adverse impact ~~this tax reform legislation may have~~ on our business. ~~Notwithstanding~~

Our operations are less diversified, and we have reduced sources of revenue following the ~~reduction~~divestiture transaction, which may negatively impact the value and liquidity of our Class B common stock.

We consummated the divestiture of our media assets in October 2020, in part to focus on the ~~corporate income tax rate,~~conversational analytics and sales engagement solutions opportunity. Following the ~~overall impact~~divestiture, the scope of ~~the Tax Act is uncertain~~our operations has been reduced in that our sources of revenue are limited to our conversational analytics business, through which we provide various analytics solutions and products, but without our ~~business~~former call marketplace product, local leads product or other related assets and ~~financial condition could be adversely affected.~~

operations. We may ~~experience unforeseen liabilities arising out~~not be able to secure additional sources of ~~third-party domain names included in~~revenue or to grow our ~~distribution network,~~remaining conversational analytics business, which could negatively impact ~~our financial results.~~

~~We display pay-for-call listings on third party domain names~~the value and ~~third-party websites that are part~~liquidity of our ~~distribution network,~~Class B common stock.

STRATEGIC RISKS

The markets in which ~~could subject us to a wide variety of civil claims including intellectual property ownership~~we operate are highly competitive and ~~infringement. The potential violation of third party intellectual property rights~~rapidly changing and ~~potential causes of action under consumer protection laws~~we may ~~subject us to unforeseen liabilities including injunctions and judgments for money damages.~~

~~We may face risks related to litigation that could result in significant legal expenses and settlement or damage awards.~~

~~From time to time, we are subject to claims and litigation, which could seriously harm our business and require us to incur significant costs.~~

We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these types of lawsuits. Defending against litigation may require significant attention and resources of management. Regardless of the outcome, such litigation could result in significant legal expenses.

~~If we are a party to material litigation and if the defenses we claim are ultimately unsuccessful, or if we are unable to achieve a favorable settlement, we could~~ be ~~liable for large damage awards that could have a material adverse effect on our business and consolidated financial statements.~~

~~Risks Relating to Our Business and Our Industry~~

~~If we are~~ unable to compete successfully.

There are a number of companies that develop or may develop products that compete in ~~the highly competitive performance-based advertising and search marketing industries, we may experience reduced demand for~~ our ~~products and services.~~

targeted markets. We ~~operate in a highly competitive and changing environment. We principally compete with other companies which offer services in the following areas:~~

~~sales to advertisers of call and text analytics and call tracking;~~

~~sales to advertisers of pay-for-call services;~~

~~delivery of pay-for-call advertising to end users or customers of advertisers through mobile and online destination websites or other offline distribution outlets;~~

~~services and outsourcing of technologies that allow advertisers to manage their advertising campaigns across multiple networks and track the success of these campaigns;~~

~~aggregation or optimization of online advertising for distribution through mobile and online search engines and applications, product shopping engines, directories, websites or other offline outlets;~~

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provision of local and vertical websites containing information designed to attract users and help consumers make better, more informed local decisions, while providing targeted advertising inventory for advertisers; and

~~local search sales training.~~

Although we currently pursue a strategy that allows us to potentially partner with all relevant companies in the industry, there are certain companies in the industry that may not wish to partner with us. Despite the fact that we currently work with several of our potential competitors, there are no guarantees that these companies will continue to work with us in the future.

~~We currently or potentially compete with leading search engines and digital advertising networks such as Google, Microsoft, and Verizon Media. We also~~ compete with call analytics technology providers such as Twilio, Invoca, ~~DialogTech,~~ and ~~Convirza.~~Convirza as well as messaging platform providers such as EZ Texting. As we continue to advance our data analytics technologies, we anticipate facing increased competition from companies providing ~~more broad advertising~~broader products and solutions, such as ~~data management~~ companies like ~~Oracle. We also face~~Oracle and Google (which offers Google Ads call tracking). The markets for our products and services are characterized by intense competition, evolving industry and regulatory standards, emerging business and distribution models, disruptive software and hardware technology developments, short product and service life cycles, price sensitivity on the ~~call supply side, where competing mobile advertising companies like GroundTruth look to outbid, partner with or otherwise secure sources~~part of ~~call supply we utilize. Many of these actual or perceived~~customers, and frequent new product introductions. Current and potential competitors ~~also currently~~have established, or may establish, cooperative relationships among themselves or with third parties to increase the ability of their technologies to address the needs of our prospective customers. Furthermore, there has been a trend toward industry consolidation in our markets for several years. We expect this trend to continue as companies attempt to strengthen or hold their market positions.

The competition in our targeted markets could adversely affect our operating results by reducing the ~~future~~volume of the products and services we license or sell or the prices we can charge. Some of our current or potential competitors have ~~business relationships with us, particularly in distribution. However, such companies may terminate their relationships with us. Furthermore, our~~significantly greater financial, technical, and marketing resources than we do. These competitors may be able to ~~secure agreements with us~~respond more rapidly than we can to new or emerging technologies or changes in customer requirements. They may also devote greater resources to the development, promotion and sale of their products than we do. To the extent they do so, market acceptance and penetration of our products and services, and therefore our revenues, may be adversely affected. Our success depends substantially upon our ability to enhance our products and services and to develop and introduce, on a timely and cost-effective basis, new products and services that meet changing customer requirements and incorporate technological enhancements. If we are unable to develop or acquire new products, services, functionalities, or technologies to adapt to these changes our business will suffer.

The conversational analytics and solutions market may develop more ~~favorable terms,~~slowly than expected, which could harm our business.

If the market for conversational analytics solutions develops more slowly than we expect, our business could suffer. Our future success is highly dependent on the commitment of advertisers and marketers to mobile communications as an advertising and marketing medium, the increased adoption by businesses of conversational analytics and solutions, and our ability to sell our conversational analytics and solutions services to large to small customers in different verticals as well as to reseller partners and agencies. The mobile advertising and marketing market are rapidly evolving, and most businesses have historically not utilized nor allocated a portion of their

marketing and/or sales budgets to conversational analytics and solutions. As a result, the future demand and market acceptance for conversational analytics and related services is uncertain.

We depend on the growth of mobile technologies, call technologies, the Internet and the Internet infrastructure for our future growth and any decrease in growth or anticipated growth in mobile, telecommunications, and Internet usage could adversely affect our business prospects.

Our future revenue and profits, if any, depend upon the continued widespread use of mobile technologies and the Internet as an effective commercial and business medium. Factors which could reduce the ~~usage~~widespread use of mobile technologies (including mobile devices, in particular) and the Internet include possible disruptions or other damage to the mobile, Internet or telecommunications infrastructure and networks; failure of the individual networking infrastructures of our ~~services, increase~~customers or cloud-based providers to alleviate potential overloading and delayed response times; increased governmental regulation and taxation; and actual or perceived lack of data security or privacy protection.

In particular, concerns over the ~~amount payable~~security of online transactions and the privacy of users, including the risk of identity theft, may inhibit the growth of Internet and mobile usage, including commercial transactions. In order for the mobile and online commerce market to ~~our distribution partners, reduce total revenue~~develop successfully, we and ~~thereby~~other market participants must be able to transmit confidential information, including credit card information, securely over public networks. Any decrease in anticipated mobile and Internet growth and usage could have a material adverse effect on our business prospects.

Our business strategy is evolving and may involve pursuing new lines of business or strategic transactions and investments, some of which may not be successful.

Our industry is undergoing significant change and our business strategy is continuing to evolve to meet these changes. In order to profitably grow our business, we may need to expand into new lines of business beyond our current focus of providing call and text analytics and communications services, which may involve pursuing strategic transactions, including potential acquisitions of, or investments in, related or unrelated businesses. In addition, we may seek divestitures of existing businesses or assets and may pursue other strategic alternatives and opportunities. There can be no assurance that we will be successful with our efforts to evolve our business strategy and we could suffer significant losses as a result, which could have a material adverse effect on our business, financial condition and results of operations.

Our acquisitions could divert management’s attention, cause ownership dilution to our stockholders, cause our earnings to decrease and be difficult to integrate.

Our business strategy includes identifying, structuring, completing, and integrating acquisitions. Acquisitions involve a high degree of risk. We may also be unable to find a sufficient number of attractive opportunities to meet our objectives which include revenue growth, profitability, and competitive market share. Our acquired companies may have histories of net losses and may expect net losses for the foreseeable future.

Acquisitions are accompanied by a number of risks that could harm our business, operating results and financial ~~condition. We expect competition to intensify in the future because current~~condition: we could experience a substantial strain on our resources, including time and new competitors can enter our market with little difficulty. The barriers to entering our market are relatively low. Further, if the consolidation trend continues among the larger media and search engine companies with greater brand recognition, the share of the market remaining for smaller search marketing services providers could decrease, even though the number of smaller providers could continue to increase. These factors could adversely affect our competitive position. Some of our competitors, as well as potential entrants into our market, may be better positioned to succeed in this market. They may have:

~~longer operating histories;~~

~~more management experience;~~

~~an employee base with more extensive experience;~~

~~better geographic coverage;~~

~~larger customer bases;~~

~~greater brand recognition; and~~

~~significantly greater financial, marketing and other resources.~~

Currently, and in the future, as the use of the Internet and other mobile and online services increases, there will likely be larger, more well-established and well-financed entities that acquire companies and/or invest in or form joint ventures in categories or countries of interest to us, all of which could adversely impact our business. Any of these trends could increase competition and reduce the demand for any of our services.

~~We face competition from traditional media companies,~~money, and we may not be ~~included~~successful; our management’s attention could be diverted from our ongoing business concerns; we may seek to enter new markets where we have no or limited experience or where competitors may have stronger market positions; integrating new companies may take longer than expected; while integrating new companies, we may lose key executives or other employees of these companies; we may issue shares of our Class B common stock as consideration for acquisitions which may result in ownership dilution to our stockholders; acquisitions of certain companies may result in us pursuing a diversified operating or holding company structure to allow us to focus on running diverse businesses independently, but in such event we may not realize the ~~advertising budgets~~anticipated strategic benefits; we could fail to successfully integrate our financial and management controls, technology, reporting systems and procedures, or adequately expand, train and manage our workforce; we could experience customer dissatisfaction or performance problems with an acquired company or technology; we could become subject to unknown or underestimated liabilities of ~~large advertisers,~~an acquired entity or incur unexpected expenses or losses from such acquisitions, including litigation; we could incur possible impairment charges related to goodwill or other intangible assets resulting from acquisitions or other unanticipated events or circumstances, any of which could harm our ~~operating results.~~business; and we may be exposed to investigations and/or audits by federal, state or other taxing authorities.

Consequently, we might not be successful in integrating any acquired businesses, products or technologies, and might not achieve anticipated revenue and cost benefits.

We may decide to dispose of assets or a business that may no longer help us meet our objectives.

If we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the achievement of our strategic objectives. We may also dispose of a business at a price or on terms that are less desirable than we had anticipated. In addition, we may experience greater disruption to ~~digital/online companies,~~our remaining business than expected, and the impact of the divestiture on our revenue may be larger than projected, including with respect to our recent divestiture of our media assets to focus on the conversational analytics and sales engagement solutions opportunity.

OPERATIONAL RISKS

We depend on being able to secure enough phone numbers and associated telecommunication services to support our customers and other users of our services and any obstacles that we face ~~competition~~which prevent us from ~~companies~~meeting this demand could adversely affect our business.

We utilize phone numbers as part of a number of information and analytic services to our customers, such as our call and text analytics and communications. We secure a majority of our phone numbers through telecommunication carriers that ~~offer traditional media advertising opportunities. Most large advertisers~~we have ~~set advertising budgets,~~contracted with and a ~~very small portion~~smaller number through the 800 Service Management System, and such telecommunication carriers provide the underlying telephone service. Our telecommunications carriers and telephone number acquisition process are subject to the rules and guidelines established by the Federal Communications Commission. Furthermore, we may be directly subject to certain telecommunications-related regulations. The Federal Communications Commission and our telecommunication carriers may change the rules and guidelines for securing phone numbers or change the requirements for retaining the phone numbers we have already secured. As a result, we may not be able to secure or retain sufficient phone numbers needed for our services. We may also be limited in the number of available telecommunications carriers or vendors to provide such phone numbers and associated services to us in the event of any industry consolidations. In addition, mobile carriers in the United States and Canada have added, or are currently contemplating adding significant one-time and recurring registration requirements, including “10DLC” brand registration, and/or use limitations (e.g. messaging volume caps) for each phone number, and have imposed or are considering imposing significant additional fees as well as penalties for failure to register or certain use violations for registered numbers. Moreover, mobile carriers and our telecommunication service providers use various automated screening technologies on messaging content crossing their networks, which ~~is allocated~~operate based on disparate and sometimes unpredictable sets of standards and restrictions. The application of such screening technologies to ~~mobile~~ content transmitted by our customers through their use of our services may negatively impact our ability to provide services to certain customers deemed potentially problematic by carriers, subject us to financial penalties, and/or ~~Internet advertising. We expect that large advertisers will continue~~result in telecommunication service providers refusing to ~~focus most~~provide service to us. Any of ~~their advertising efforts on traditional media. If we fail to convince these companies to spend~~the foregoing factors could result in a ~~portion of their advertising budgets with us, or if our existing advertisers reduce the amount they spend~~material adverse effect on our ~~programs,~~business, financial condition and results of operations.

Our international operations and any expansion subjects us to additional risks and uncertainties and we may not be successful with our ~~operating results would be harmed.~~international operations.

~~If we are not able~~We have operations in Canada and through our other international subsidiaries, in other countries. We have international subsidiaries in Canada and Ireland. Any international expansion presents unique challenges and risks. Compliance with complex foreign and U.S. laws and regulations that apply to ~~respond~~our international operations increases our cost of doing business in international jurisdictions and could interfere with our ability to ~~the rapid technological change characteristic of our industry,~~offer our products and services to one or more countries or expose us or our employees to fines and penalties. We may ~~cease~~also have to ~~be competitive.~~

~~The market for~~offer our products and services ~~is characterized by rapid change~~ in ~~business models and technological infrastructure,~~a modified format which may not be as compelling to certain customers, and we are subject to increased foreign currency exchange rate risks and our international operations and any expansion will require additional management attention and resources. We cannot assure you that we will be successful in our international operations.

There are risks inherent in conducting business in international markets, including: the need to constantly adapt to changing markets and technologies to provide new and competitive products and services. If we are unable to ensure that our users, advertisers, reseller partners, and distribution partners have a high-quality experience withlocalize our products and services ~~then~~to foreign customers’ preferences and customs, including the possibility of storing data locally if customers require; difficulties in managing operations due to language barriers, distance, staffing and cultural differences; application of foreign laws and regulations to us, in particular data and privacy regulations in Europe, the United Kingdom, and other international jurisdictions, including the EU General Data Protection Regulation and its UK equivalent; compliance with anti-bribery laws, such as the Foreign Corrupt Practices Act and the UK Anti-Bribery Act; tariffs and other trade barriers; fluctuations in currency exchange rates; establishing local offices, sales channels, management systems and infrastructures; reduced protection for intellectual property rights in some countries; changes in foreign political and economic conditions; compliance with the laws of numerous taxing jurisdictions, both foreign and domestic; foreign exchange controls that might prevent us from repatriating cash earned outside the United States; the complexity and potentially adverse tax consequences of U.S. tax laws as they ~~may become dissatisfied~~relate to our international operations; increased costs to establish and ~~move to competitors’ products~~maintain effective controls at foreign locations; and ~~services. Accordingly, our future success will depend, in part, upon our ability to develop and offer competitive products and services for both our target market and for~~

~~applications in new markets. We may not, however, be able to successfully do so, and our competitors may develop innovations that render our products and services obsolete or uncompetitive.~~overall higher costs of doing business internationally.

Our technical systems are vulnerable to interruption and damage that may be costly and time-consuming to resolve and may harm our business and reputation.

A disaster could interrupt our services for an indeterminate length of time and severely damage our business, prospects, financial condition, and results of operations. Our systems and operations are vulnerable to damage or interruption from:

fire;

floods;

network failure;

hardware failure;

software failure;

power loss;

telecommunications failures;

break-ins;

terrorism, war or sabotage;

computer viruses;

denial of service attacks;

penetration of our network by unauthorized computer users and “hackers” and other similar events;

natural disasters, including, but not limited to, hurricanes, tornadoes, and earthquakes; and

	At December 31,		At March 31,
	2019		2020
Level 1 Assets:
Cash	$	15,258	$	12,961
Money market funds		27,268		27,351
Total cash and cash equivalents	$	42,526	$	40,312

	At December 31, 2019			At March 31, 2020
Computer and other related equipment	$	19,386		$	19,610
Purchased and internally developed software		6,693			6,700
Furniture and fixtures		1,033			1,033
Leasehold improvements		1,737			2,060
	$	28,849		$	29,403
Less: Accumulated depreciation and amortization		(25,821	)		(26,139	)
Property and equipment, net	$	3,028		$	3,264

	Total
Gross future operating lease payments ⁽¹⁾	$	8,289
Less: imputed interest		(1,384	)
Present value of total operating lease liabilities		6,905
Less: current portion of operating lease liabilities		(1,495	)
Total long-term operating lease liabilities	$	5,410

	Facilities operating leases⁽¹⁾		Other contractual obligations		Total
2020	$	1,335	$	1,213	$	2,548
2021		1,850		690		2,540
2022		1,811		179		1,990
2023		1,865		27		1,892
2024 and after		2,438		—		2,438
Total minimum payments	$	9,299	$	2,109	$	11,408

Cash and cash equivalents	$	359
Accounts receivable		1,274
Prepaid expenses and other current assets	586
Property and equipment	281
Identifiable intangible assets		6,351
Liabilities assumed		(885	)
Deferred tax liabilities		(1,677	)
Net assets acquired		6,289
Goodwill ⁽¹⁾		5,472
Total ⁽¹⁾	$	11,761

(1) Included working capital adjustments finalized subsequent to the acquisition in November 2018, resulting in total consideration of approximately $11.8 million and an adjustment to goodwill in the amount of $61,000 during the year ended December 31, 2019.

Cash	$	24,993
Fair value of equity consideration		10,017
Total	$	35,010

Cash ⁽¹⁾	$	8,408
Fair value of equity consideration		3,803
Future consideration		1,016
Total	$	13,227


Acquisition-related liabilities (Level 3):
Balance at December 31, 2018:	$	—
Contingent consideration - Telmetrics acquisition		1,509
Contingent consideration - Sonar acquisition		1,016
Change in fair value ⁽¹⁾		(941	)
Balance at December 31, 2019 ⁽²⁾:	$	1,584
Change in fair value ⁽¹⁾		(716	)
Balance at March 31, 2020 ⁽²⁾:	$	868

(1) The Company recognized a net change in fair value of the contingent consideration of approximately $941,000 and $716,000 for the year ended December 31, 2019 and the three months ended March 31, 2020, respectively. The change is recorded on the income statement in acquisition-related costs (benefit). The net change in fair value was primarily due to a change in the assumptions used in the original estimate of the liability.

(2) There were no transfers between levels during the periods presented.

	As of December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	13,018	$	(2,784	)	$	10,234
Technologies		9,369		(2,252	)		7,117
Non-compete agreements		3,409		(1,628	)		1,781
Tradenames		734		(381	)		353
Total identifiable intangible assets from acquisitions	$	26,530	$	(7,045	)	$	19,485

	As of March 31, 2020
	Gross Carrying Amount		Accumulated Amortization			Impairment			Net Carrying Amount
Customer relationships	$	13,018	$	(3,484	)	$	(4,202	)	$	5,332
Technologies		9,369		(2,916	)		(1,062	)		5,391
Non-compete agreements		3,409		(1,934	)		(458	)		1,017
Tradenames		734		(473	)		(181	)		80
Total identifiable intangible assets from acquisitions	$	26,530	$	(8,807	)	$	(5,903	)	$	11,820

Balance as of December 31, 2019	$	33,433
Adjustment to goodwill ⁽¹⁾		(88	)
Impairment of goodwill ⁽²⁾		(14,213	)
Balance as of March 31, 2020	$	19,132

(1) Included working capital adjustments finalized subsequent to the Sonar acquisition in December 2019, resulting in total consideration of approximately $13.2 million and an adjustment to goodwill in the amount of $88,000 during the three months ended March 31, 2020.

(2) The impairment is estimated and preliminary as of March 31, 2020 and is recorded on the income statement within impairment of goodwill.


Exhibit Number		Description
††31.1		Certification of Principal Executive Officer ~~and~~pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
††31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
††32		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†101.INS	~~Filed herewith.~~	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
†101.SCH		Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents.
†104		Cover Page Interactive Data File (embedded within the Inline XBRL document)


	MARCHEX, INC.

Date: ~~May 22, 2020~~February 8, 2024	By:	/s/ M~~ICHAEL~~HOLLY A. A~~RENDS~~GLIO
	Name:	~~Michael~~Holly A. ~~Arends~~Aglio
	Title:	~~Co-CEO and~~ Chief Financial Officer (~~Principal Executive Officer for SEC reporting purposes,~~ Principal Financial Officer and Principal Accounting Officer)