Ladies and gentlemen, thank you for standing by, and welcome to Marchex Second 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 Investor Relations and Strategic Initiatives. Thank you, sir. Please go ahead.

Thank you, Katherine. Good afternoon, everyone, and welcome to Marchex's business update and second 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 operating 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 earnings press release is live 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. With the COVID-19 global pandemic still in full force throughout the second quarter and continuing today, the environment for many of our customers remains fluid. From March through early May, many of our customers were significantly disrupted from shutdowns. This was followed by a rebound in many categories beginning in mid-May that stabilized through the end of June. As States began to reopen COVID-19 remained a threat to businesses across the verticals we service from travel to auto to education. However, as we focused on supporting our customers who were re-emerging from shutdowns, we noticed that pent up consumer demand positively affected sales conversations in the latter half of the quarter. Our conversational data showed patterns of economic activity picking up in critical areas such as Auto Service repair shops and in the dental services industry where appointment volumes rebounded substantially in June. Other categories such as hospitality and senior living, despite still being significantly disrupted, also saw additional increases in sales conversations, although to a lesser extent. While many customers drove more business than anticipated into the end of the second quarter, we view this uptick with caution. In fact, although June is typical -- although July is typically a high seasonal point of the year for us with analytics volumes, in recent weeks, we've seen declines and certain categories more affected by the recent surges in COVID-19 cases. Many customers overall sales conversations remained down on a year-over-year basis. Furthermore, given the prevailing uncertainty for the rest of the year, many customers are adjusting their cost structures, and it will no doubt take an extended period for them to return to normalized operations. As we do everything we can to support our customers through this…

Thanks, Mike. In today's separate 8-K filings, we described how we are pursuing a strategic path to focus the company on conversational analytics, and sales engagement solutions. Over the past three years, we have taken several steps to redefine our opportunity and business model by solving an increasing array of critical problems for businesses that are looking to introduce artificial intelligence solutions into their sales engagement processes. Marchex has a wealth of data to deliver real time insights to help businesses close more of their sales prospects. The transport AI assisted selling is real and Marchex is ideally positioned to be a leader in this market. Despite the disruptive economic climate and all the current uncertainties, we do see a consistent message from our customers and our prospects. They have a strong desire for solutions that provide a unified view of conversations over the phone and via text in a way that empowers them to create better customer experiences and sales outcomes. Third Party industry research firms are seeing how these types of solutions can change the game of growing customer acquisition and loyalty. In the report that Mike mentioned earlier, Opus Research found that call recording and chat transcripts can be aggregated into a single source of truth that informs live or virtual sales representatives as they assist individuals to complete their desired tasks. The report also found that companies that build technology around purpose driven analytics of content and meta data to support their customers business goals have successfully established leadership in this emerging category. Marchex been named a leader is an important forward indicator in this dynamic market. Today Marchex can solve mission critical problems for our customers and focusing on this market is foundational for all of our investments and innovations. And looking at our customer sales processes. Their prospect conversations that occur over time and are omni channel, including email, phone conversation, text interactions and social media. Marchex offers customers a unified way for them to capture these conversations, and their most critical mobile channels, phone and text, recordings and transcripts are a rich source of conversational intelligence. And having more than 1 billion minutes of sales conversational data is another point of significant differentiation for Marchex. Today, the type of intelligence we provide is largely missing in prospects and customer records. Marchex has a significant opportunity to close the loop of prospects engagement, as well as offer rich sales engagement solutions. Today's strategic announcement represents an important step in our process. We continue to evaluate many scenarios, including looking at our cost structure to help ensure long term flexibility. And given the persistence of COVID-19 and its crisis, we will continue to explore initiatives that could potentially help us accelerate our market leadership and capture additional opportunities arising from these turbulent conditions. And with that, I'll hand the call back to Mike.

Thank you, Russ. For the second quarter revenues were $25.8 million similar to the first quarter, the second quarter was characterized largely by the events of the COVID-19 pandemic. New business remains largely disrupted in the quarter as many prospects or customers are putting off deployments of new sales technology, though interest remains active. And as a result, the second quarter was predominantly characterized by trends with existing customer volumes. On that basis, it was largely a tale of two halves with significant call volume disruptions in April, extending the March trends with those disruptions continuing into early May, followed by a rebound in the second half of the quarter. As the country slowly began reopening in May, many of our customers saw progressive increases in call volumes and sales, which steadied in June. Appointment rates in categories like auto services, dental, and even auto car sales, saw meaningful increases from the April period. As car dealerships, dental offices, hotels and small businesses started to reopen, we witness sales calls progressively increasing region-by-region. While each vertical has a different dynamic, and a portion of the volume recovery came as a result of consumers calling to inquire about such things as hours of operation in looking at the conversational data, it is clear that a two month hiatus in business availability for critical services led to some pent up demand that seems to manifest progressively in the second half of the quarter. Other verticals like hospitality and Senior Living saw smaller lift in June, but remain significantly disrupted. It's also worth noting, however that despite the rebound sales call volumes overall for many of our customers remains down on a year-over-year basis, and several have had to adjust their operational and financial planning as a result. Other items of note during…

[Operator Instructions] And your first question comes from the line of Darren Aftahi with Roth Capital Partners.

Hey, everyone, this is Dillon for Dan. Thanks for taking my questions. I have a few if I may. First on both the tender offer and the intent to divest the marketplace and other business. Could you talk a little about your thought process behind those options and what sort of if there are any other options you were considering?

Thanks Dillon for the questions. This is Russ. As it relates to the tender offer under SEC rules, we're not able to comment beyond the specifics we included as part of that press release. So we need to refer to that for now. And there will be more information forthcoming over the next few weeks. In terms of the rationale or thinking behind the divestiture. This is one where we communicated for a while and it felt strongly that we got this emerging significant transformational opportunity around conversational intelligence and AI driven sales engagement solutions. And, the opportunity to create greater focus and emphasis on that is one of the elements that we felt would position us best going forward. We hired a number of years ago investment bankers to go out and see what options might exist to divest the media and local leads assets although were unsuccessful at that time, given some of the unique components here, which is you got a concentrated business with a couple of customers that represents the majority. And that was at a time where there was more contributions from that business than there is now. And so, as we thought about those options and wanting to create a path of greater clarity, and also looking at some of the other uncertainty sensitive key contracts coming up for renewal with those with those customers, we felt that creating a path and with a greatest degree of certainty around strategic clarity on moving forward, thoughtfully witness with this focus on what we think is the most meaningful opportunity for Marchex was the right step to take and all these components came together.

Thank you. And, Mike, I know you talked about sort of a new product that you've been in the process of developing with some of your auto OEMs that you expect to launch in pilots later this year? What sort of visibility do you have on that timeframe? And then is that solution also applicable to some of your other verticals as well?

Thanks, Dylan. With regard to the auto vertical, we've been fortunate in the last 24-months or so to be able to engage in a number of new pilots new engagements with a variety of these OEMs and related service providers to the auto industry. And I think part of what that's helped us with is definitely create more clarity on the roadmap for a product, a specialized product that's very much applicable for the auto vertical. It is applicable for other verticals that have similar type of sales presence. But those pilots to address your questions directly dealing we have tabled a number of them simply because of the COVID-19 impacts that were slated to roll out even starting near the end of the first quarter. It's been tabled for the time being, in many cases, some of those rollouts. And I would like to say today, that we're in a position to get clarity on exactly when they're going to be reinitiated. But unfortunately, there isn't a lot of clarity even at our customers level with exactly what their plans are. They're working very, very diligently on making sure that their core operations are up and running and that they're going to market in ways that can engage their consumer base. And we think we're going to be a part of that. And we're definitely looking to roll out our technology with them. It's just the timing of that remains uncertain, and it's unclear whether that's going to be in the near-term. We still do believe though that in the long-term, there's robust opportunity for this product offering within the auto vertical. We think because of a matter of selling, that this product as it gets rolled out, won't require massive tweaking to be able to apply to at least two or three other vertical scenarios. And we're looking forward to that, as well. But we don't see that in the near-term either.

Got it. Thank you. Regarding some of the AI product roadmap or analysts product roadmap, into some of the investments you're making there. Could you talk a little bit about some of the test integration via Sonar? How far are you along with sort of that maybe like as a percentage of being, I guess, ready to go to market?

Sure. Yes, this is Russ. So, yes, as we've emphasized, what the kind of the big problem that needs solving and where we see the significant opportunity is the ability to take analytics and intelligence across all critical conversations to surface really what the most successful path forward is for these businesses to close more sales and create better customer experiences, and the consumers to define the channels that they prefer to use. And the common use cases, particularly for the verticals that we emphasize, are around calls with voice as well as text. And so Sonar was a critical piece in accelerating our capabilities. And we're, well into an integration so that the capabilities that we've historically provided on the voice side, are fairly seamlessly being applied across voice and text, both as we finish up this year, and that's going to continue to be an important theme going into 2021. Now, the foundational piece of being integrated with voice and text on analytics gives us the insights we need to be able to create those AI driven sales engagement solutions to impact the sales process and lead to the value impact for our customers with those tools. So it's a critical effort. It's one that we're underway now. And we feel like between the short intermediate term, we're going to see a combination of combined voice text offerings on the analytic side, as well as integrate the text across the sales engagement side as well.

Got it. Thank you. Last one for me. With the sort of projected $46 million annualized run-rate in analytics. Could you talk about maybe the size of the customer base, the number of customers and sort of how the verticals now look first here in August versus maybe what that out, I guess sort of profile looks like maybe December of 2019.

Sure, Dillon, this is Mike. Again, I think from verticalized perspective, we've talked about some examples in the healthcare sector, the dental services, the auto OEM area, auto services, including we have, have had historically some travel and hospitality obviously that from a perspective today would be a big change from 2019 onwards, significantly down. Home Services is another very sizeable and meaningful category for us. We work with a variety of resellers to small and medium sized businesses. And I would say just generically, if you think about their activity in the current environment relative to where they've been in the past, those are areas where they're significantly down. What I would say is there are some areas for instance, the home service, there are pockets within Home Services that have actually increased or are more significant than what they've done in the past. And I would say a few of the emerging areas, we've spent more time with some of the sales efforts in the last 12 months in the auto sector, the auto services sector. Senior Living is a new one for us. Those would be some areas of changes or increases, however, recognizing that auto sales over the last four or five months have just been down in general. So consumer demand has reduced the overall volume in that area.

Got it. Thank you.

[Operator Instructions] And there are no further audio questions at this time.

Thank you everyone for joining us today in our second quarter conference call. We look forward to providing further updates as we progress during the year. Thank you.

Thank you, everyone.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.