Ladies and gentlemen, thank you for standing by, and welcome to Marchex First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Trevor Caldwell, Senior Vice President of Strategic Initiatives and Investor Relations. Thank you sir. Please go ahead.

Good afternoon, everyone, and welcome to Marchex's business update and first quarter 2020 conference call. Joining us today are Michael Arends and Russell Horowitz. Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements, including references to our financial and operational performance, and actual results may differ materially from those contemplated by these forward-looking statements. Risks and uncertainties that could cause these results to differ materially are set forth in today's earnings press release and in our most recent annual and quarterly report filed with the SEC any forward-looking statements that we make on this call are based on assumptions as of today, and we take no obligation to update these statements for subsequent events. During this call, we will present both GAAP and non-GAAP financial measures. The reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release is available on the Investor Relations sections of our website. At this time, I'd like to turn the call over to our Mike Arends, our Co-CEO and Chief Financial Officer.

Thank you, Trevor. Good afternoon and thank you everyone for joining us today. As we all try to navigate our way through this pandemic, our focus at Marchex has been to prioritize the health and well-being of our employees and to do everything in our power to support our customers. In early March as the situation began to unfold, we mobilized in just a matter of days to move our entire company to a remote working environment. We then began to create processes to best manage our business remotely while guiding our customers through this rapidly shifting landscape. I'm proud of our team's ability to adapt, which has helped us stay connected and supportive of each other and our customers during this challenging time. Like millions of other businesses, we have been impacted by the economic shutdown, but we remain very optimistic. Every day, we are inspired by how our team is adapting to this new and emerging world order. We're especially motivated by how our customers continue to turn to us for solutions and the ways we are finding to support them. For our customers, the pandemic remains a significant challenge as state governments across the country continue to extend stay-at-home orders. Revenues were measurably impacted as closures hit almost every business vertical, from auto dealerships and auto service locations, to dental offices, hotels, and many others. All of these verticals were growth opportunities for Marchex. Based on the conversations we're having with customers and prospects, we do see the potential for these opportunities as these industries resume operations in the future. The trend toward AI augmented sales acceleration solutions is very important to many of our customers. However, in today's climate and on a near-term basis, lots of businesses are just trying to make it through this crisis…

I'm actually -- technical difficulty, I'm here. Thanks, everyone. After three decades of running various public companies, our leadership team has experienced navigating economic crises and difficult market conditions. COVID-19 has its own unique characteristics, but Marchex has weathered challenging times before and I'm confident we will do so again. The pandemic makes us more aware of the reliance our customers have on us and accordingly, we are staying focused on continuing to innovate in ways that support them. We are also accelerating our infrastructure initiatives and revisiting our product pipeline to adapt to the real-time needs of our customers. To that end, we recently hired a new Chief Product and Strategy Officer, Ryan Polley. Ryan has a deep background in developing and implementing product strategies at emerging technology companies. He has a history of leadership in product, strategy, and partnership roles with innovative companies that provide data analytics and advertising products into the enterprise customer channel. We are very pleased to have Ryan on Board and to have him leading the efforts with growing our AI capabilities and helping steer us through this important time with our customers. We are also continuing to pursue a strategic review. We are currently evaluating many scenarios including looking at our cost structure to help ensure long-term flexibility and given the persistence of the COVID-19 crisis, we also plan to explore other initiatives that could possibly help Marchex accelerate our leadership and capture opportunities arising from these market conditions. We see significant opportunity in our business and remain committed to taking a disciplined approach as we look to enhance our operating profile and capitalize on the areas where we are building momentum, all while remaining focused on returning Marchex to grow as we get to the other side of the current challenges. And with that, I'll hand the call back to Mike.

Thanks Russ. For the first quarter, revenues were $24.8 million. The quarter was characterized largely by the events of the pandemic. In January and early February, we were pacing at slightly at significantly higher volume levels than at present. Then in March, as the country went into a rolling quarantine, many of our customers saw substantial and progressive decreases in call volumes and sales throughout the month. Call volumes in our analytics and solutions products started declining meaningfully in March and by the end of March, we're down in some areas nearly 30%. In certain verticals, we saw volume decreases even greater than this as we exited the quarter. These declines continued into April. As car dealerships, dental offices, hotels, and small businesses closed or shut down operations, sales calls transitioned to cancel appointments. We've seen this trend largely persist these past weeks as much of the country remains in lockdown. However, recently, we have started to see some progress in certain verticals coming off of the lows in April. However, we are still down meaningfully, broadly speaking on a year-over-year basis, as the majority of locations for many of our customers remain disrupted or closed. This affected our financial results in several ways, including we recorded a preliminary estimated impairment charge to our goodwill and intangible assets totaling $20.1 million as a result of the pandemics indirect varying impacts. Secondly, we saw lower volumes resulting in decreased revenue and operating contribution. Third, included in revenue results is an adjustment or reserve reducing revenue by $900,000 for call analytics services delivered, but where revenue was not recognized because criteria for recognition were not met. For instance, uncertainty of a customer's ability to contract with and pay for services delivered given their deteriorating operational and financial condition. We further record in…

[Operator Instructions] Your first question is from the line of Darren Aftahi with Roth Capital Partners.

Hey, this is Dillon on for Darren. Thanks for taking my questions. First one related to some of your OEM auto customers that you spoke to strategically looking for some sort of new product or like plug in to the suite. Are those products you've been working on developing already? Or is this sort of like a step one in the process for you on some of those?

Yes, Dillon, this is Russ. Very good question. As we hit on, we think auto is one of our more prominent growth opportunities. And when we look at our product priorities, it effectively dovetails into kind of two primary focus one is, we've got our existing relationships, where we've got, products launched and kind of on around, obviously, impacted in the moment. But when we look at the longer term opportunity, and what we've seen is them requesting for us to accelerate some of our product initiatives to address specific sales enablement scenarios, both from the OEM and the dealer level. And so these were planned initiative. But given the feedback and what we think maybe a catalyst for these opportunities, there's been a reprioritization effort to potentially deliver some of these solutions sooner. And we think in that process, it could also potentially accelerate, winning some new customers across the auto vertical as well.

Got it. Thank you. And then sort of across the verticals that you saw, are you able to quantify or at least speak to sort of how things were in April and May relative to that last week in March? And then, do you have any insight into what verticals you see getting back up and moving for customers faster than others, whether that's based on business specifics or sort of geographically?

Hi, Dillon, this is Mike. Thank you for the question. So if you look at the trend, as we progress through the course of March, we started at the beginning of March, and we saw some single digit percentage call volume declines. By the end of March as we exited on the main platform for the analytics and solutions we saw near 30% overall call volume declines. And as I mentioned in the remarks that continued into April where we saw progressively into the 30s and near 40%, overall call volume decline. In certain verticals, and some of the ones that I mentioned earlier, including the hospitality in particular, they were substantially more affected on a percentage basis. And even there is a 40% decline levels on a year-over-year basis. As we've looked in the last week to two weeks, there has been some progression. It has come off the lows that we were in at partway through April, and there has been some progress in certain verticals. And an example of that would be there has been some more activity from consumers' engagement with businesses in the auto services sector, and that's been very recent, it hasn't been a substantial amount, but it has improved from those lows that we saw in April. In terms of just what visibility we have on a go forward basis, I think the really hard part for us to focus on and think about is what exactly the impact of the COVID-19 is going to have on different verticals. There are so many different outcomes. There's so many different variations. What our focus is going to be is on helping those customers that we serve today, focusing on making sure that we can create flexibility for our company to deal with more than one type of outcome, depending on how the situation unfolds, and remaining committed and believing in our long term opportunity which we think is intact and will emerge and putting ourselves in that position.

Thank you. And then last one for me on some of the delays in sales edge rescue. What sort of criteria need to be met on either the customer side as to how those get restarted or back on back on track? Or is that just a derivative? How long? Yes, keep the pandemic last.

Yes, a lot of it is a derivative. You know, when you look at, you know, deploying and operationalizing these products, it requires operational continuity, you know, at store franchise level. And so, as there's greater visibility on reopening and bringing these stores online again, you know, that helps unlock you know, the timing of how we can roll out and operationalize you know, the various relationships and, and programs. So they are tied together, as Mike mentioned, the last few weeks have been at least ticking in the right direction as it relates to, to some of these trends, and so a little premature to get more specific than that. But, as Mike mentioned, all the clients are intact. We're engaged with all of them. And now we're just kind of scheduling implementations is we have the opportunity to.

Great. Thank you.

Thank you.

[Operator Instructions] Your next question is from the line of Michael Latimore with Northland Capital Management.

Hi, this is Anchal Sahu [ph] on for Mike Latimore. And thanks for taking my question. Could you just comment on Sonar revenue contribution to Q1 and it's Sonar not going 20% as you had forecasted previously?

So this is Mike, and thanks for the question. Sonar when we had forecasts that originally when we shared some of the feedback and the commentary on what we thought it would contribute in near the end of 2019. It was not going to contribute anything material from the perspective of 2020 revenue stream. So, it was certainly something that we focused on, and believe that text communication and messaging is a way that consumers are going to continue to increase in terms of their appetite for working and engaging with businesses. And one of the things that we had slated was an integration that by the end of 2020, the technology would be integrated from a testing perspective into our core analytics platform. Those pieces of the puzzle are still intact. In terms of the revenue contribution, it was a fairly nominal amount as we had forecast back at the end of 2019. It was a few hundred thousand dollars. In terms of a growing, I don't think unfortunately, if you just look at the impact of COVID-19, there is anything that is growing on the -- on the contrary, as we've seen some of the volume declines across the board with our main platform and the call volumes. We've seen that consistent also with some of the texting and specific to some of the customers they may be more effective in some verticals than others.

Okay. And as various industries with a home dollar, such as at HVAC have been impacted by COVID-19 what have seen that vertical to date, and are things starting to improve some with the various states reopening?

I think one of the areas that we've seen some significant weakness in originally in March and then in April was the Home Services category. We mentioned our dental network relationships in the healthcare industry that we work with that we've seen effectively shut down in some cases, because they've been required to provide some of the PPE to some of the other health care facilities. Those are a couple of years in the hospitality sector has been significantly impacted. Auto service centers, auto manufacturers and their dealership networks or other ones that we've seen significantly affected. Even in the real estate vertical. We've seen impacts there. As I mentioned before, there was an auto services stream of companies that we saw some folks from the consumer side engaging in more robustly here in the last week and a half. And that trend, specifically, so far over the last few days has continued to improve. We've seen some things in the Home Services vertical, where if you look at the last few days and on a week over week basis. There's some improvement there. Do we know exactly, if it's attributable to some of the reopening, we don't have that correlation or that dataset, but we could correlate it from a guest perspective and go from there. Again, one of the comments, we mentioned before was just setting ourselves up for flexibility with whatever some of the different set of outcomes, which is a very wide range, depending on how COVID-19 impacts in the very near term, as well as for the intermediate term so that we have the opportunity to take advantage of our long term opportunity, and that is something that we remain focused on.

Okay. That’s helpful. And the last one, are there any key technology updates you need to have this year for your bigger customers?

Yes, good question. One of the things that I think we feel good about is that, you know, coming into 2020, our belief was that, it was it was really about execution more than anything, and that, based on our product development efforts, as well as recent acquisitions like Sonar. We had all the key ingredients that we needed to deliver difference making products that really could extend analytics into the sales enablement solutions. And so with where we are now, we always look at strategic scenarios, but to a large degree, we've got what we need. It's just about execution now; given the visibility we have on opportunities with a whole bunch of customers where we think there's meaningful headroom over time. And as we implement those we know that will gain learnings and that'll build momentum on adding new customers as well. So, right now it's about execution, utilizing our existing product momentum, and just delivering on those product opportunities.

Yes. Okay. Thank you.

Thank you.

There are no further questions.

Thank you everyone for taking the time today. I just want to reiterate to everyone who's listening to stay safe and healthy. And we'll look forward to in the coming periods hopefully, being in a situation where we can give updates where everything is in a better place. We look forward to that. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.