This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Marchex Inc. (MCHX: chart) on February 14, 2008.

Chairman and CEO: Russell Horowitz
President and COO: John Keister
CFO: Michael Arends
CSO: Peter Christothoulou
CTO: Cameron Ferroni
CAO and General Counsel: Ethan Caldwell

Key Investors Issues

- The net loss was 2 cents per share as against a loss of 1 cent per share in prior year.
- Quarterly revenue was $37 million versus $32.6 million in last year.
- For fiscal 2007, revenue was $139.4 million, compared to $127.8 million for 2006.

Fourth Quarter Fiscal 2007 Financial Highlights

GAAP net loss applicable to common stockholders was $774,000 for the fourth quarter of 2007 or 2 cents loss per diluted share.

This compares to GAAP net income applicable to common stockholders of $5 million or 1 cent loss per diluted share for the same period of 2006. The GAAP diluted EPS calculation in 2006 excludes the effect of the non-cash non-recurring discount on preferred stock redemption of $5.8 million, net of dividends on the redeemed preferred shares of $197,000. The fourth quarter 2007 results included non-cash stock-based compensation expense recorded under the fair value method of $2.1 million, compared to non-cash stock-based compensation expense of $2.6 million for the same period in 2006.

- Adjusted non-GAAP EPS for the fourth quarter of 2007 was 8 cents compared to 13 cents for the same period of 2006.
- Adjusted operating income before amortization was $5.3 million for the fourth quarter of 2007, compared to $8.3 million for the same period of 2006.
- Adjusted EBITDA was $7.9 million in the fourth quarter of 2007, compared to $10 million for the same period of 2006.

Revenue for the fourth quarter was $37 million compared to $32.6 million in the fourth quarter of 2006.

Revenue from proprietary traffic sources also referred to as local content network was $11.4 million. Total unique visitors to the firm’s proprietary network of websites were more than $26 million for the month of December, according to internal logs. It is important to note that while the firm’s local content network performed well, the firm does expect it to be subject to seasonal trends in traffic. In the later part of December, based on typical seasonality, there was an expected drop-off in traffic to local sites, similar to overall seasonal internet traffic trends. The number of revenue generated events and referrals on local content network for the quarter was more than $50 million.

The principle factors driving revenue growth in the fourth quarter were:
- strength in local advertising services business underlined by the continued growth in the number of new advertisers using Marchex product and services;
- Relative strength in revenue from proprietary traffic sources on a sequential basis, driven largely by strength in the firm’s local reference websites. The company is experiencing strong demand from aggregators and other partners for traffic from its local reference websites due to its quality and high conversion rates.

With regards to monetization from third-party sources during the quarter, the firm continues to be modestly impacted from the rates it received from third-party sources consistent with its guidance last quarter. Overall, the firm reduced dependence on its largest third-party monetization sources.

The firm is highly focused on the initiatives, which the firm believes will unlock the value of its proprietary traffic.

Consistent with its message over the last two quarters, the firm’s strategic plan has been to gradually take over more of its own inventory to sell directly to its advertisers. The first order impact of this effort can be a slower overall growth rate in its revenue from proprietary traffic sources in the near term. However, taking control over additional inventory will increase its ability to secure new aggregated relationship such as its recently announced relationship with Idearc. They advertise on the firm’s local website through its pay-per-click network as well as new direct advertiser relationships.

Revenue from local advertising services was $25.6 million.

The growth was driven primarily by the addition of more locally focused advertisers using Marchex products and services.

Total operating costs excluding stock-based compensation and amortization of intangible assets for the fourth quarter of 2007 were $31.7 million compared to $24.4 million in the fourth quarter of 2006.

In looking at the mix in operating costs for the fourth quarter, the service costs excluding stock-based compensation increased as a percentage of revenue on a year-over-year basis, largely due to the shift and in revenue mix, which led to increases in distribution partner payments, and are contemplated investments in increased personnel, contractor, and infrastructure.

Sales and marketing was 15% of the revenue.

This included the addition of VoiceStar to the operating mix for the quarter much of which is sale and marketing related. The firm also won increased sales and marketing related hiring; two, increased marketing initiatives to acquire direct advertiser relationships; and three, increased marketing for the local reference websites as aggregator demand for traffic from this channel is robust. The firm is continuing to work on increasing the return on investment on its marketing spend for its local websites as it adds new rich content and features to these sites. As its marketing efforts improve on these sites, the firm may increase its marketing overtime.