Marchex Reports Earnings

Marchex reported its financial results for the quarter ending after closing of trading today:

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

• GAAP net income applicable to common stockholders was $509,000 for the second quarter of 2008 or $0.01 per diluted share. This compares to GAAP net income applicable to common stockholders of $354,000 or $0.01 per diluted share for the same period of 2007.

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

Local Advertising Services: For the second quarter of 2008, revenue from Local Advertising Services was $20.8 million. In the second quarter, Marchex added more than 10,000 new advertisers through its local aggregator partnerships and direct sales channel.

Marchex now has more than 75,000 advertisers using its products and services and, based on current growth rates, is ahead of pace to reach its previously stated goal of 100,000 advertisers using Marchex products and services by the end of 2009.

Local Search Network (proprietary traffic sources): For the second quarter of 2008, revenue from Marchex’s Local Search Network was $16.6 million. Additionally, Marchex attracted more than 32 million unique visitors for the month of June 2008 and delivered more than 125 million revenue-generating events and referrals in the second quarter

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

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

MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
					Three Months Ended
					June 30,
						2007				2008
Revenue					$	34,665,637			$	37,363,887
Expenses:
Service costs (1)						16,764,588				17,414,301
Sales and marketing (1)						7,112,929				7,896,035
Product development (1)						2,662,779				4,252,469
General and administrative (1)						4,057,643				5,074,875
Amortization of intangible assets from acquisitions						4,074,254				3,661,275
Facility relocation						121,124				–
Total operating expenses						34,793,317				38,298,955
Gain on sales and disposals of intangible assets, net						123,246				2,010,576
Income (loss) from operations						(4,434	)			1,075,508
Interest income and other, net						748,314				133,080
Income before provision for income taxes						743,880				1,208,588
Income tax expense						412,978				733,229
Net income						330,902				475,359
Convertible preferred stock dividends and discount on preferred stock redemption, net						(23,482	)			(33,697	)
Net income applicable to common stockholders					$	354,384			$	509,056
Basic and diluted net income applicable to common stockholders					$	0.01			$	0.01
Shares used to calculate basic net income per share applicable to common stockholders						39,597,600				36,580,610
Shares used to calculate diluted net income per share applicable to common stockholders						40,534,319				37,504,686
(1) Includes stock-based compensation allocated as follows:
Service costs					$	31,741			$	86,087
Sales and marketing						89,800				326,004
Product development						450,692				396,289
General and administrative						1,770,488				1,860,856
Total					$	2,342,721			$	2,669,236

MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
					Six Months Ended
					June 30,
						2007				2008
Revenue					$	68,889,038			$	74,406,214
Expenses:
Service costs (1)						32,005,816				36,301,616
Sales and marketing (1)						14,622,850				14,867,783
Product development (1)						5,260,435				8,439,573
General and administrative (1)						8,238,418				10,033,984
Amortization of intangible assets from acquisitions						8,597,388				7,713,637
Facility relocation						121,124				–
Total operating expenses						68,846,031				77,356,593
Gain on sales and disposals of intangible assets, net						155,510				2,155,267
Income (loss) from operations						198,517				(795,112	)
Interest income and other, net						1,460,301				417,406
Income (loss) before provision for income taxes						1,658,818				(377,706	)
Income tax expense						886,766				393,276
Net income (loss)						772,052				(770,982	)
Convertible preferred stock dividends and discount on preferred stock redemption, net						(130,030	)			(44,585	)
Net income (loss) applicable to common stockholders					$	902,082			$	(726,397	)
Basic and diluted net income (loss) per share applicable to common stockholders					$	0.02			$	(0.02	)
Shares used to calculate basic net income (loss) applicable to common stockholders						39,382,979				37,121,849
Shares used to calculate diluted net income (loss) applicable to common stock holders						40,371,282				37,130,260
(1) Includes stock-based compensation allocated as follows:
Service costs					$	150,276			$	225,658
Sales and marketing						462,158				856,714
Product development						939,944				806,998
General and administrative						3,677,557				3,847,338
Total					$	5,229,935			$	5,736,708

MARCHEX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
			December 31,				June 30,
Assets				2007				2008
Current assets:
Cash and cash equivalents			$	36,456,307			$	28,978,958
Trade accounts receivable, net				18,307,386				22,407,461
Prepaid expenses and other current assets				2,118,390				3,553,256
Refundable taxes				1,693,695				1,538,255
Deferred tax assets				867,465				1,213,561
Total current assets				59,443,243				57,691,491
Property and equipment, net				7,357,903				6,727,401
Deferred tax assets				7,447,315				9,395,438
Intangibles and other assets, net				17,381,827				14,832,251
Goodwill				204,766,826				204,777,254
Intangible assets from acquisitions, net				23,797,231				16,071,848
Total assets			$	320,194,345			$	309,495,683
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable			$	11,625,779			$	13,525,119
Accrued expenses and other current liabilities				3,668,342				4,887,395
Deferred revenue				2,906,379				2,616,993
Total current liabilities				18,200,500				21,029,507
Other non-current liabilities				105,370				68,213
Total liabilities				18,305,870				21,097,720
Stockholders’ equity:
Convertible preferred stock				1,446,649				964,689
Class A common stock				113,717				112,217
Class B common stock				321,061				286,419
Treasury stock				(22,116,275	)			(134,460	)
Additional paid-in capital				329,835,529				295,683,672
Accumulated deficit				(7,712,206	)			(8,514,574	)
Total stockholders’ equity				301,888,475				288,397,963
Total liabilities and stockholders’ equity			$	320,194,345			$	309,495,683

MARCHEX, INC. AND SUBSIDIARIES
Reconciliation of Revenue to Pro Forma Revenue
(unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2007			2008			2007			2008
Revenue, as reported	$	34,665,637		$	37,363,887		$	68,889,038		$	74,406,214
VoiceStar pro forma revenue		569,810			–			962,019			–
Pro forma Revenue	$	35,235,447		$	37,363,887		$	69,851,057		$	74,406,214