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Item 7. Management’s Discussion and Analysis

2026-03-26 compared with 2025-03-14 · 47 added, 47 removed, 135 unchanged (41% of the section changed)

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This discussion contains forward-looking statements.

Please see page 1 on this Annual Report on Form 10-K “Forward-Looking Statements” and Item 1A of this Annual Report on Form 10-K under the caption “Risk Factors” for a discussion of the risks, uncertainties and assumptions associated with these statements.

Marchex, Inc.

harnesses the power of AI and conversational intelligence to provide actionable insights aligned with prescriptive vertical market data analytics, driving operational excellence and revenue acceleration.

Marchex enables executive, sales, and marketing teams to optimize customer journey experiences across communications channels.

Through our prescriptive analytics solutions, we enable the alignment of enterprise strategy, empowering businesses to increase revenue through informed decision-making and strategic execution.

Marchex provides conversational intelligence AI-powered solutions for market-leading companies in leading B2B2C vertical markets, including several of the world’s most innovative and successful brands.

Please see page 1 on this Form 10-K “Forward-Looking Statements” and Item 1A of this Form 10-K under the caption “Risk Factors” for a discussion of the risks, uncertainties and assumptions associated with these statements.

Marchex harnesses the power of AI and conversation intelligence to provide actionable insights derived from prescriptive vertical market data analytics.

Marchex enables organizations across business functions to optimize customer acquisitions and experiences, transforming conversations into meaningful business outcomes.

Marchex provides AI-powered conversation intelligence solutions for market-leading companies in leading B2B2C vertical markets, including many of the world’s most innovative and successful brands.

Our mission is to create intelligence around all types of business conversations.

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We were incorporated in Delaware on January 17, 2003.

We have offices in Seattle, Washington and Wichita, Kansas.

We have office space in Seattle, WA.

Components of the Results of our Operations

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Our cost of revenue represents the cost of providing our services to our customers.

These costs primarily consist of telecommunication costs, including the use of phone numbers relating to our services;

These costs primarily consist of cloud computing and hosting costs, telecommunication costs, including the use of phone numbers relating to our services;

bandwidth and software license fees;

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and payroll and related expenses of personnel, including stock based compensation.

The Company has historically reported these costs under the caption "service costs" on the Consolidated Statement of Operations, but determined that the change to "cost of revenue" on a go-forward basis, beginning on December 31, 2024, better aligns the Company's financial reporting to its industry and competitors for comparison.

Sales and Marketing

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advertising and promotional expenditures including online and outside marketing activities;

cost of systems used to sell to and serve customers;

and stock-based compensation of related personnel.

Product Development

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

Product development costs consist primarily of expenses incurred in the research and development ("R&D") of our products and services.

These costs primarily consist of payroll and related expenses for personnel;

costs of computer hardware and software;

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

costs incurred for 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 U.S.

generally accepted accounting principles ("GAAP").

For the periods presented, substantially all of our product development expenses are R&D and are expensed as incurred or capitalized into property and equipment in accordance with the U.S.

generally accepted accounting principles ("GAAP") once requirements have been met.

Description of Business and Summary of Significant Accounting Policies for more information on software development capitalization.

General and Administrative

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non-competition agreements;

These assets are fully amortized as of December 31, 2024.

and trade names.

These assets were fully amortized as of December 31, 2024.

Provision for Income Taxes

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Cost of revenue

Cost of revenue - amortization of capitalized software development costs

Total cost of revenue

Sales and marketing

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General and administrative

Acquisition settlement

Amortization of intangible assets from acquisitions

Acquisition and disposition related costs

Total operating expenses

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Total stock-based compensation

Stockholders' Equity of the Notes to Consolidated Financial Statements, as well as our Critical Accounting Policies for additional information about stock-based compensation.

Stockholders' Equity of the Notes to the Consolidated Financial Statements, as well as our Critical Accounting Policies for additional information about stock-based compensation.

Revenue decreased $2.7 million, or 6%, to $45.4 million for the year ended December 31, 2025 from $48.1 million for the year ended December 31, 2024.

This decrease was impacted primarily by lower conversational volumes in 2024 as compared to 2023, and certain non-recurring non-core analytics revenue in 2023.

The lower volumes primarily came from several of our small business listing and solution providers that mostly sell marketing services to local businesses.

This decrease was impacted by lower call volumes in 2025 compared to 2024, customer corporate development activities, which consolidated customer contracts and customer migration revenue dilution resulting in decreased revenues.

Cost of Revenue.

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As a percentage of revenue, cost of revenue was 37% and 36% for the years ended December 31, 2025 and 2024, respectively.

The change from the prior year was primarily due to $1.8 million in lower conversational data processing and telecommunication costs due to a combination of lower conversational volumes, benefits from leveraging AI technology, and efficient vendor costs management.

In addition, personnel costs were $1.7 million lower as we reorganized and realigned our technology teams.

The change from the prior year was primarily attributable to a decrease in costs from investment in cloud infrastructure and platform integration, and personnel and outside labor costs of $0.5 million, as we reorganized and realigned our personnel in 2025.

Sales and Marketing.

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As a percentage of revenue, sales and marketing expenses were 28% and 25% for the years ended December 31, 2025 and 2024, respectively.

The change from the prior year was primarily attributable to $1.0 million in higher personnel costs, primarily due to investments made in the sales and marketing function to increase the sales workforce and prioritize go-to-market initiatives.

This was partially offset by lower stock-based compensation costs of $0.3 million.

The change from prior year was primarily attributable to an increase in contract asset amortization charges of $0.6 million.

Product Development.

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As a percentage of revenue, product development expenses were 21% and 26% for the years ended December 31, 2025 and 2024, respectively.

The change from the prior year was primarily attributable to $2.9 million in lower personnel and contractor costs, as we reorganized and realigned our research and development teams.

The change from the prior year was primarily attributable to $2.0 million in lower personnel and outside labor costs due to the reorganization and realignment of our personnel in 2025 and the capitalization of software development costs in 2025.

Additionally, there were approximately $0.5 million less in cloud infrastructure costs in 2025 due to the completion of the certain development activities in 2024 which resulted in those costs being incorporated in cost of revenue upon completion of the development activities.

General and Administrative.

General and administrative expenses was consistent at $10.2 million for both the years ended December 31, 2024 and 2023.

General and administrative expenses increased $0.6 million, or 6%, to $10.8 million for the year ended December 31, 2025 from $10.2 million for the year ended December 31, 2024.

As a percentage of revenue, general and administrative expenses were 24% and 21% for the years ended December 31, 2025 and 2024, respectively.

The change from prior year was primarily attributable to an increase in personnel costs and share-based compensation costs, which largely consist of one-time reorganization charges and associated impacts to share-based compensation as we reorganized and realigned our personnel throughout 2025.

Acquisition settlement .

Acquisition settlement expense was $1.4 million and for the year ended December 31, 2025.

The amount represents the cost recorded in the period associated with the probable resolution of a historical acquisition related matter.

Amortization of Intangible Assets from Acquisitions .

Intangibles amortization expense was $0.6 million and $2.0 million for the years ended December 31, 2024 and 2023, respectively.

This expense was associated with amortization of intangible assets acquired from business acquisitions made in 2018 and 2019, and is further categorized as cost of revenue or sales and marketing expense in the Company's Consolidated Statements of Operations based on the nature of the underlying intangible asset.

The year over year decrease was driven by certain assets reaching the end of their useful life in the fourth quarter of the prior year.

Intangible asset amortization from these acquisitions was completed in 2024 as a result of the remainder of these assets reaching the end of their useful lives.

Intangibles amortization expense was $0 and $0.6 million for the years ended December 31, 2025 and 2024, respectively.

During 2024, the intangible assets acquired from acquisitions all reached the end of their useful lives and consequently there was no amortization expense in 2025.

Income tax expense was $0.1 million and $0.4 million for the years ended December 31, 2025 and 2024, respectively, consisting primarily of deferred tax expense and U.S.

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We incurred federal taxable losses in both 2025 and 2024.

The effective tax rate differed from the expected tax rate of 21% in both years primarily due to a the valuation allowance and, to a lesser extent, state income taxes, foreign branch income and rate differential, non-deductible stock-based compensation related to incentive stock options recorded under the fair-value method, and other non-deductible amounts.

The effective tax rate differed from the expected tax rate of 21% in both years primarily due to the valuation allowance, non-deductible stock-based compensation related to restricted stock units and incentive stock options recorded under the fair-value method, and other non-deductible amounts.

At both December 31, 2025 and 2024, based on all the available evidence, both positive and negative, we determined that it is more likely than not that our deferred tax assets will not be realized and accordingly recorded a full valuation allowance.

Net loss decreased $5.0 million, or 51%, to $4.9 million for the year ended December 31, 2024 from $9.9 million for the year ended December 31, 2023.

The decrease in net loss was primarily attributable to the $7.0 million decrease in operating expenses, driven by the decrease in cost of revenue and product development expenses discussed above, that was partially offset by the $1.8 million decrease in revenue also discussed above.

Liquidity and Capital Resources

As of December 31, 2025 and 2024, we had cash and cash equivalents of $9.9 million and $12.8 million, respectively.

As of December 31, 2024, we had current and non-current contractual obligations of $11.4 million, of which $1.8 million is for payments due under our facilities and financed equipment leases.

As of December 31, 2025, we had current and non-current contractual obligations of $7.3 million, of which $0.8 million is for payments due under our facility lease.

Cash used in operating activities was $1.4 million during the year ended December 31, 2025.

The cash used in operating activities was primarily the result of a net loss of $4.9 million, adjusted for non-cash items of $4.5 million, which primarily included depreciation and amortization and stock-based compensation, and the rest attributed to changes in working capital of $0.7 million.

The change in working capital was driven primarily by a decrease in accrued expenses and other current liabilities as well as a decrease in accounts payable, partially offset by an increase in accounts receivable and prepaid expenses and other assets.

The cash used in operating activities was primarily the result of a net loss of $5.2 million, adjusted for non-cash items of $4.6 million, which primarily included depreciation, amortization, and stock-based compensation, and the rest was attributed to changes in working capital and the acquisition settlement of $2.1 million and $1.4 million, respectively.

The change in working capital was driven primarily by a decrease in accrued expenses, other current, and other liabilities.

Cash used in operating activities was $1.1 million during the year ended December 31, 2024.

The cash used in operating activities was primarily the result of a net loss of $9.9 million, adjusted for non-cash items of $7.1 million, which primarily included depreciation and amortization and stock-based compensation, and the rest attributed to changes in working capital of $1.6 million.

The change in working capital was driven primarily by a decrease in accrued expenses and other current liabilities as well as a decrease in accounts payable, partially offset by an increase in prepaid expenses and other assets and accounts receivable.

Cash used in investing activities for the years ended December 31, 2024 and 2023, was $0.4 million and $1.3 million, respectively, and was primarily attributable to cash paid for purchases of property and equipment for our technology infrastructure platform as well as capitalized software development costs in both years.

Cash used in financing activities for the years ended December 31, 2024 and 2023, was $0.3 million and $0.2 million, respectively, and was primarily attributable to payments made related to equipment financing lease obligations for both years.

The cash used in operating activities was primarily the result of a net loss of $4.9 million, adjusted for non-cash items of $4.5 million, which primarily included depreciation, amortization, and stock-based compensation, and the rest was attributed to changes in working capital of $0.7 million.

The change in working capital was driven primarily by a decrease in accrued expenses and other current liabilities as well as a decrease in accounts payable.

Cash used in investing activities for the year ended December 31, 2025 was $1.3 million and was primarily attributable to cash paid for capitalized software development projects, partially offset by proceeds collected from the domain asset sale in the current year.

Cash used in investing activities for the year ended December 31, 2024 was $0.4 million and was primarily attributable to cash paid for purchases of property and equipment for our technology infrastructure platform.

Cash used in financing activities for the years ended December 31, 2025 and 2024, was $0.1 million and $0.3 million, respectively.

Cash used in financing activities for the year ended December 31, 2025 was primarily attributable to payments made related to equipment financing lease obligations, partially offset by proceeds from exercises of stock options, and issuances and vesting of restricted stock.

Cash used in financing activities for the year ended December 31, 2024 was primarily attributable to payments made related to equipment financing lease obligations.

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 macroeconomic factors 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.

Additional equity and debt financing may be needed to support our acquisition strategy, long-term obligations, and other 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.

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Critical Accounting Policies

Our Consolidated Financial Statements have been prepared in accordance with U.S.

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.

Our Consolidated Financial Statements have been prepared in conformity with U.S.

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 that require the most difficult, subjective, or complex judgments.

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of our results.

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Actual results may differ from these estimates under different assumptions or conditions.

There have been no significant changes in our critical accounting policies and estimates during the year ended December 31, 2025.

While our significant accounting policies are more fully described in Note 1:

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Stock-Based Compensation

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 718, Compensation – Stock Compensation, 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.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 718, Compensation – Stock Compensation, requires the measurement and recognition of compensation for all stock-based awards made to employees, non-employees and directors including stock options, restricted stock awards ("RSAs"), and restricted stock units ("RSUs") be based on estimated fair values.

We account for forfeitures as they occur.

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These variables include, but are not limited to, the expected life of the award, our expected stock price, and volatility over the term of the award.

Although the fair value of stock-based awards is determined in accordance with ASC 718, 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.

Although the fair value of stock-based awards is determined in accordance with ASC 718, the assumptions used in calculating fair value of stock-based awards and the use of the Black-Scholes option pricing model is 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.

Stockholders' Equity in the Notes to Consolidated Financial Statements for additional information.

Stockholders' Equity for additional information.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis