| The Reporting Persons purchased the securities of the Issuer reported herein based on their belief that the securities were undervalued and represented an attractive investment opportunity. The Reporting Persons have had and anticipate having further conversations with members of the Issuer’s management and board of directors regarding possible ways to enhance shareholder value. The topics of these conversations may cover a range of issues, including those relating to the Issuer’s business, management, board composition, operations, capital allocation, asset allocation, capitalization, corporate structure, dividend policy, financial condition, mergers and acquisitions strategy, overall business strategy and plans, executive compensation, organizational documents and corporate governance matters. The Reporting Persons believe the current market price of the Shares does not reflect the Issuer’s intrinsic value. The Issuer has $42.5 million in cash, no debt, and a history of generating positive cash flow from operations. The Issuer generated over $106 million of revenue in 2019 with its emergent analytics software business growing and generating $52 million revenue, and the cash-flowing call marketplaces business stabilized and generating $54 million in revenue. The Reporting Persons believe the analytics business is undervalued presently, and has the potential to deliver exponential value creation for shareholders over the coming years. Similar software businesses focused on speech, text, and call analytics are commonly valued at multiples of sales from 3-5x. A 3x multiple on the Issuer’s call analytics business alone accounts for +180% of the Issuer’s current market capitalization, excluding the potentially significant value of the considerable recorded voice data library and call marketplaces business. The Issuer’s stock has fallen 52% over the past twelve months, and, in our opinion, the decline can largely be attributed to slower than expected growth in the analytics software business related to integration headwinds from the 2018 acquisitions of Callcap and Telmetrics. These acquisitions have concealed an otherwise rapidly growing analytics platform. The growth stumbles can also be linked to a transitioning business model, where the product quality, growth of the platform, and market opportunity outpaced sales leadership’s ability to fully convert the near-term sales pipeline. Despite these challenges, the Reporting Persons believe the software analytics business will approach a growth inflection point in 2020. With new leadership in place with John Roswech joining as Chief Revenue Officer and Ryan Polley joining as Chief Product and Strategy Officer, the Issuer has a materially strengthened team managing the rollout of the Marchex Sales Edge Suite broadly, and Sales Edge Rescue product specifically. As well, recent conversations with the Issuer indicate that management has a solid grasp on the Callcap, Telmetrics, and Sonar Technologies acquisitions and expects any lingering integration issues to be resolved by the fourth quarter of 2020 at the latest. After years of investment in the analytics products and platform, which we estimate exceeded $150 million, the Reporting Persons look forward to breakout sales growth in 2020. As the Issuer’s management team mentioned on the last earnings call, early momentum with the Sales Edge Rescue product and the expected expansion into a key OEM client could each independently drive material growth. With accelerating growth, the Reporting Persons can see a path to the Issuer’s stock trading over $5.75 per share (+186% upside from current levels), assuming 10% analytics sales growth in FY20, a 4x sales multiple on that business, and stable cash balance. Over the next twelve months, higher valuations could be reached if the market begins to ascribe the value of the marketplaces business and data library. Absent a significant increase in growth in 2020 in the analytics business, the Reporting Persons anticipate the Issuer may consider a broad range of strategic options to maximize the value of its business units, balance sheet, intellectual property, and data library. Conversely, with rapid growth in the analytics business and the gross margin expansion that should accompany it, the Reporting Persons wonder if the analytics business will ultimately receive the maximal value as a standalone company, and also anticipate the company taking measures to simplify its structure and streamline its model over time. The Reporting Persons also expect the Issuer’s long-term track record of returning capital to shareholders through buybacks and special dividends to persist for the foreseeable future. The Reporting Persons appreciate the energy and attention that Founder & Executive Chairman Russell Horowitz brings to the Issuer. He cares tremendously about the outcome of this company, and the Reporting Persons look to see his years of hard work become manifest in sustainable value creation for the Issuer’s shareholders. At the time of this filing, the impact of COVID-19 remains unquantifiable. Based on our interactions with the Issuer and knowledge of the underlying markets, the Reporting Persons believe whatever impact the novel coronavirus could have on the Issuer should be transitory. The Reporting Persons may consider, explore and/or develop plans and/or make proposals (whether preliminary or firm) with respect to, among other things, potential changes in the matters set forth above. The Reporting Persons may discuss such matters with other shareholders or other third parties, including industry analysts, investment professionals, investors, potential acquirers, existing or potential strategic partners or competitors, service providers and financing sources. The Reporting Persons may exchange information with any such persons pursuant to appropriate confidentiality or similar agreements which may include customary standstill provisions. No Reporting Person has any present plan or proposal which would relate to or would result in any of the matters set forth in subparagraphs (a)- (j) of Item 4 of Schedule 13D except as set forth herein or such as would occur upon completion of any of the actions discussed herein. The Reporting Persons may in the future take one or more of the actions described in subsections (a) through (j) of Item 4 of Schedule 13D and may discuss such actions with the Issuer's management and board of directors, other stockholders of the Issuer, and other interested parties, such as those set out above. The Reporting Persons intend to review their investments in the Issuer on a continuing basis. Depending on various factors, including, without limitation, the Issuer's financial position and strategic direction, the outcome of the discussions and actions referenced above, actions taken by the Issuer's board of directors, price levels of the Shares, other investment opportunities available to the Reporting Persons, conditions in the securities market and general economic and industry conditions, the Reporting Persons may in the future take actions with respect to its investment position in the Issuer as it deems appropriate, including, without limitation, purchasing additional Shares or selling some or all of its Shares, and/or engaging in hedging or similar transactions with respect to the Shares. | |