This article by Jim Roumell is excerpted from a letter of Roumell Asset Management.
Marchex (MCHX) continued on its path to segue from a call-generating marketplace platform to one focused on call analytics to major corporations. The past three years’ heightened R&D spend is paying off: customer analytic wins are growing and the company’s cash burn has stopped. The company announced that it added more than 40 new clients in 2017 and we believe the vast majority are analytic wins. Moreover, Adjusted EBITDA in the fourth quarter was $1 million versus ($2 million) in the fourth quarter of 2016; 2017’s overall Adjusted EDITDA came in at $1 million versus ($6.6 million) for 2016. MCHX appears well on its way to pivoting to a leading call analytics platform generating recurring revenue that is no longer dependent on generating customer referrals for sales.
RAM had anticipated $10 million of cash burn in 2017. In fact, MCHX was free cash flow neutral for the year and confident enough in its business trajectory and liquidity profile that it announced a special $0.50/share dividend, or roughly $25 million of its $100 million cash hoard. This will still leave roughly $1.75/share in net, U.S. domiciled, cash.
On the product development end, MCHX continued to strengthen its speech analytics capabilities using artificial intelligence to help customers understand what is happening on inbound calls from consumers to businesses. During 2017 MCHX announced strategic partnerships with Facebook and integrated its software with Adobe. We met with Mike Arends, Chief Financial Officer in January and came away with renewed confidence that the company is executing on its plan to be a leading call analytics platform powered by artificial intelligence. We believe the company’s shares remain cheap.
Disclosure: The specific securities identified and described do not represent all of the securities purchased, sold, or recommended and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
About The Author: Jim Roumell
Jim Roumell entered the securities industry in 1986. Before founding the firm in 1998, he was a Registered Principal at Raymond James Financial Services, Inc. Mr. Roumell is a frequent contributor to Manual of Ideas Global and has been featured in such publications as Barron’s, Kiplinger’s, Value Investor Insight, Financial Planning Magazine, and The Washington Post. He is listed and quoted in “The Art of Value Investing: How the World’s Best Investors Beat the Market.” Mr. Roumell was selected to participate in, and won, two consecutive Wall Street Journal stock picking contests in 2001 and 2002. He is a Board Member and Chairman of the Investment Committee of Wayne State University Foundation. He is also a Board Member and serves on the Investment Committee of Amalgamated Casualty Insurance Company. Mr. Roumell is a graduate of Wayne State University in Detroit, Michigan.
More posts by Jim Roumell