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

Christa Quarles Eric Martinuzzi Jim Leahy Ross Sandler Brian Pitz

Good afternoon ladies and gentlemen and welcome to the Marchex Incorporated sponsored fourth quarter 2007 earnings conference call. At this time all participants have been placed on listen-only mode and we will open the floor for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, General Counsel and Chief Administrative Officer, Ethan Caldwell. Sir, the floor is yours.

Thank you. Good afternoon everyone and welcome to Marchex's business update and fourth 2007 conference call. Joining us today are Russell Horowitz, Chairman and Chief Executive Officer; John Keister, President and Chief Operating Officer; Michael Arends, Chief Financial Officer; Peter Christothoulou, Chief Strategy Officer; and Cameron Ferroni, Chief Technology Officer. During the course of this conference call, we will make forward looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts included on this call regarding our strategy, future operations, future financial position, future revenues, acquisitions, projected costs, prospects, plans and objectives of management, are forward-looking statements. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on the forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. There are a number of important factors that could cause Marchex's actual results to differ materially from those indicated by such forward-looking statements as are described in the risk factor section of our most recent periodic report and registration statement filed with the Securities and Exchange Commission. All of the information provided on this conference call is as of today's date and we undertake no duty to update the information provided herein. During the course of this conference call, we'll also reference certain non-GAAP measures of financial performance and liquidity including OIBA, adjusted OIBA, adjusted EBITDA, and adjusted non-GAAP EPS. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in today's earnings press release which is available on the Investor Relations section of our website and definitions of these measures as used by us and the reasons why we believe these measures provide useful information are also contained in today's earnings press release. At this time, I would like to turn the call over to Russell Horowitz, our Chairman and Chief Executive Officer.

Thank you, Ethan. I will start today's call with an update regarding Marchex's progress in achieving local online industry leadership and the roll our focus had in driving our fourth quarter results. John will then discuss our operational priorities for this year and Mike will take you through our financial performance and initial guidance for 2008. I will then conclude with a few key takeaways before opening up the call for questions. Over the past quarters Marchex has established a clear framework for achieving local online industry leadership. At the core of this framework is our two fundamentals strategic objectives that guide everything we do. Our first objective is to build and deliver the most local-centric advertising platform in the industry at scale, delivering high quality [vertical needs] to advertisers through clicks and calls. By providing one of the most comprehensive platforms for aggregators and advertisers in the marketplace today, Marchex is a primary catalyst for increasing its option of local online advertising. Our second objective is to deliver unparallel utility and relevance to local consumers through our network of propriety local websites. In pursuing this objective, we have built one of the broadest footprints of local traffic online today. We are focused on these objectives because we believe that local online advertising is in the early stages of a multi-year mega trend that will become one of the most valuable online opportunities. Marchex is participating at scale in local as both in an advertising services provider and as a publisher or traffic owner. Today, there are no clear leaders in local, and Marchex is uniquely positioned to fill that void. Turning to the fourth quarter, we're pleased to see the investments we made in the local opportunity and our products, people, partnerships and infrastructure contribute to our fourth quarter financial performance and help us generate momentum for our business. In the fourth quarter, we continue to see strong growth in new local advertisers using Marchex products and services, adding more than 5,000 new advertisers through our direct sales channel and aggregator partnerships. The number of local advertisers and national advertisers with local interest using Marchex products and services is now more than 55,000. We are ahead on our scheduled pace to exceed our previously stated goal of more than 80,000 local advertisers by the end of 2009. Today, we have partnerships with more than 100 local aggregators, including AT&T, Idearc and The Cobalt Group. The majority of which we believe are in the early phases of adopting Marchex products and services. Furthermore, because the online business is a principle growth initiative for many of these partners, we believe local aggregators will continue to invest in clicks and call-based products essential to capitalizing on the local online opportunity. We believe both of these trends support the continued growth of our advertiser channel through 2008 and beyond. During the fourth quarter, we also continue to see positive momentum in our local content network, otherwise known as our proprietary traffic, which is comprised of local reference websites and community content and features. Local reference websites are those sites within our network that help consumers find local businesses and services. Traffic to these sites, including OpenList.com, Yellow.com, and sites such as ChicagoDoctors.com increased by more than 20% quarter-over-quarter. As a result of this growth, local traffic now comprises a clear majority of our proprietary traffic and we'll continue to be the driver of our traffic growth in 2008 and beyond. Community-based consumer engagement on our site also continues to increase. In the fourth quarter, visitors to our network added more than 50,000 reviews and ratings more than double the number added in the third quarter. Our local content network now features more than 1.3 million user-generated reviews and ratings including those from our partnerships with leading vertical providers such as HealthGrades and those added directly by consumers visiting our sites. In addition, local merchants are utilizing recently launched Marchex tools to confirm the accuracy of their business information on our network and add additional content relevant to local consumers looking for the products and services they offer. Consumers are increasingly using the Internet to find local information. According to our recent [news] in net rating support, 86% of search engines users are performing local searches, up from 70% in 2006. This trend will not only continue to drive significant growth in local online advertising, but we believe will be a primary driver of overall Internet advertising growth in the coming years. As we said in last quarter's call, the primary winners of the lion shares of local opportunity will be the providers that offer the most innovative local-centric approaches to driving local advertiser adoption and addressing consumer's local information needs. As our advertiser growth in 2007 demonstrates our local advertising platform, the only one in the marketplace that delivers both clicks and calls at scale, continues to be a primary catalyst for bringing local advertisers online and does not show time to slowing down. As the momentum from our local content network indicates, we're in a prime position to capture an increased share of the growing number of consumers looking for local information online. To do this, we'll continue to innovate on our local reference websites and build community content and features on our network to create the deepest, broadest and most relevant source of local information for consumers. For example, to leverage the comprehensive geographic coverage of our websites and to drive additional traffic growth and repeat usage on our network, we're adding timely community focus content provided by local contributors, from areas across the United States. In the last few months, we've watched the trial program on more than one hundred selected Marchex's own Zip Code websites, where residence can publish contents relating to businesses and events in their communities, as well as in rich local business listings with such things as reviews and photos. We're in an early stage in the trial, but initial results in terms of consumer interest, traffic and user growth are encouraging. Again, while its early in the trial, the average number of pages on these sites has more than doubled compared to prior pre-trial levels. We also believe that in order to deliver the most relevant local content to consumers and maximize monetization on our websites, we must deliver the most relevant local ads possible. We're achieving this by continuing to invest in robust local ad targeting capabilities and by building one of the industry's largest local ad networks with our propriety website business center. New advertiser relationships with leading local aggregators such as our recently announced relationship with Idearc Media, which has tens of thousands of local advertisers, are providing us with a significant number of additional targeted local ads for delivery across our broad range of local categories. These ads, in conjunction with others, from the other 55,000 local advertisers will enable us to better monetize our website with the most relevant ads and unlike more value from our local content network. While it's early in the year and prudent to take a conservative view, given the potential impact to our advertising business is in the event of economic downturns. Our local business is not a sign it's going down. Local online advertising has a tailwind driven by local advertiser shipping their dollars online and national advertisers allocating more of their online advertising budgets to locally targeted advertising. Also, today is a further indication of our ongoing commitment to the Marchex opportunity and belief in our strategy, we announced that we are increasing our stock repurchase program. Today, we're updating our program to increase the total shares we can purchase to 5 million, up from 3 million shares previously. Mike will touch on this more detail in a few minutes. With that as a backdrop, I'll turn the call over to John to discuss our operational priorities for 2008.

Thanks, Russ. Our 2008 priorities are pretty straightforward. We're focused on initiatives that will increase both our local advertiser relationships and our local traffic. Specifically, we will focus on four main priorities. One, continue to innovate on our local advertising platform by building and integrating new products throughout the year. These new products include first, a new performance based local advertising product, which will integrate search packages with call tracking features in the third quarter; second, we will be evolving our pay-per-phone-call marketplace throughout the year, which will involve multiple product releases at various points during 2008; and third, a number of enhanced local ad targeting capabilities throughout the year that will enable us to consistently improve the matching of our local advertisers with our local traffic. Number two, we will consolidate our brands to make it easier for both advertisers and consumers to interact with Marchex. On the local advertising services side of our business, we will consolidate our brands to make it easier for advertisers to take advantage of our full suite of products and services. We will also create an over arching consumer-facing brand for our local content network that engages consumers and reflects the utility, breadth and depth of our offering in terms of local reference and community. Our third area of focus is to continue to grow our local content network through several means including one, launching new and enhanced tools that will further enable local consumers and merchants to contribute content that enriches the utility and relevance of our local business information; two, updating the user interface to provide a more intuitive user experience; and three, launching features which encourage user interaction and increased usage. Our fourth focus is to add category base call advertising units to our website that could improve usability and relevance, diversify our advertising inventory, and improve our local content networks monetization and yield capabilities. These advertising units will be performance-based, meaning the advertiser will pay Marchex when a call to the merchant is completed. We believe that overtime these types of advertising units will become increasingly important to local merchants and that delivering them on our local network will enable us to capitalize on this trend. Our focus on each of these priorities will leverage both the investments we made in 2007 and the investments built into our 2008 financial outlook. We believe successfully executing on these priorities and other related local initiatives will position Marchex for accelerating growth rates in 2008 and higher growth rates in subsequent years. Now, I'd like the hand the call over to Mike to walk though our financial performance and our guidance for 2008.

Thanks, John. Looking at our fourth quarter financial results, we are pleased that several of the initiatives we invested in during 2007 put us in a position to build increasing local leadership, while also driving financial performance. 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 our local content network was $11.4 million. Total unique visitors to our 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 our local content network performed well, we do expect it to be subject to seasonal trends in traffic. For example, 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 our local content network for the quarter, was more than $50 million. The principle factors driving revenue growth in the fourth quarter were one, strength in our local advertising services business underlined by the continued growth in the number of new advertisers using Marchex product and services; and two, relative strength in our revenue from proprietary traffic sources on a sequential basis, driven largely by strength in our local reference websites. We're experiencing strong demand from aggregators and other partners for traffic from our local reference websites due to its quality and high conversion rates. In regards to monetization from third-party sources during the quarter, we continue to be modestly impacted from the rates we received from third-party sources consistent with our guidance last quarter. Overall, we reduced dependence on our largest third-party monetization sources, which we've communicated as one our short and long-term strategic priority. As Russ discussed, we are highly focused on the initiatives, we believe will unlock the value of our proprietary traffic. Consistent with our message over the last two quarters, our strategic plan has been to gradually take over more of our own inventory to sell directly to our advertisers. The first order impact of this effort can be a slower overall growth rate in our revenue from proprietary traffic sources in the near term. However, taking control over additional inventory will increase our ability to secure new aggregated relationship such as our recently announced relationship with Idearc. They advertise on our local website through our pay-per-click network as well as new direct advertiser relationships. And looking at 2008 overall, we are highly focused on the priorities that we believe will lead to accelerating growth and gross margin expansion as the year progresses, including one, increase competitive bidding on our sites by adding thousands of new advertisers which can drive rates higher over time. Two, launching new products and features that help unlock the value of our existing advertisers by improving the relevance of our local advertiser targeting. And three, continue to grow the traffic and usage on our local content network. We expect each of these initiatives will help close the gap between the rate we see from third parties and the rate we see from our direct advertisers. The cumulative effect of these changes will lead to a second order impact of stronger long-term growth in revenue from proprietary traffic sources. This will also provide Marchex the strategic benefit of greater defensibility and greater long term profitability as we capture margin benefit from taking greater share of advertising dollars on our local content network. We believe local inventory is among the most valuable online and that the value of our traffic today, along with our strategies to grow that traffic overtime will lead us to accelerating growth in revenue from proprietary traffic sources, while at the same time lessening our dependence on any single third-party monetization source. We believe the effects and benefits of this strategy will be increasingly evident as we move through 2008. 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, our 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 revenue and included the addition of VoiceStar to our operating mix for the quarter much of which is sale and marketing related. We also won increased sales and marketing related hiring; two, increased marketing initiatives to acquire direct advertiser relationships; and three, increased marketing for our local reference websites as aggregator demand for traffic from this channel is robust. We are continuing to work on increasing the return on investment on our marketing spend for our local websites as we add new rich content and features to these sites. As our marketing efforts improve on these sites, we may increase our marketing overtime. Other operating costs for the fourth quarter included additional investment in personnel and product development, increased technology infrastructure costs, and additional professional fees including intellectual property initiatives Adjusted operating income before amortization for the fourth quarter was $5.3 million. Adjusted EBITDA for the fourth quarter was $7.9 million. Adjusted operating income before amortization and adjusted EBITDA are two of the principal metrics we use to measure the progress of our business, liquidity, and our ability to generate cash. GAAP net loss applicable to common stockholders was $1.4 million or $0.04 per diluted share for 2007. This compares to GAAP net income applicable to common stockholders of $2.8 million or a $0.04 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 the dividends on the redeemed preferred shares of a $197,000. Going forward, our GAAP results may be impacted by a number of factors, including stock-based compensation charges, increased amortization associated with our acquisitions, other potential future acquisitions, our preferred stock dividends and increased public company costs, which will also impact our adjusted operating income before amortization and adjusted EBITDA results. Adjusted non-GAAP earnings per share and estimate some Wall Street investors utilize as a supplemental measure of our operating progress with $0.08 per share for the fourth quarter. Turing to the balance sheet, we had approximately $36.5 million cash on hand as of December 31, 2007. During the fourth quarter, we used approximately $8.5 million to acquire approximately 770,000 shares of our outstanding Class B common stock, bringing our total shares acquired in 2007 to 2.2 million shares or 5% of our common shares outstanding as part of our stock repurchases program. As Russ mentioned, today, we are increasing the amount of shares available for purchase under our repurchase program to up to a total of 5 million shares, up from the 3 million shares previously authorized. Last the shares repurchased to-date, under this revised program, an additional 2.8 million shares remain available for repurchase. We continue to believe our share represented a compelling value on the strategic landscape and as such will be opportunistic with our stock repurchases program. Importantly, we continue to generate significant cash flow from operations. Going forward, we expect to continue to generate significant cash flow, although will remain lumpy based on the timing of certain investments, payments and other factors. We anticipate that we will use our cash principally to continue investing in our stock repurchase plan and in long-term growth initiatives including internal product development, sales initiatives and selected acquisition opportunities. I would now like to discuss our initial guidance for 2008, including guidance for the first quarter. Our initial guidance for 2008 is for revenue of more than $150 million. We expect 2008 will be a year characterized by significant progress as we expect to launch new products across our business throughout the year. Importantly, we expect this progress will lead to accelerating topline growth as we move through the year. While the economy has led to some uncertainty with regards to advertiser budgets for our initial guidance this year, we believe our focus on local leadership will increasingly show that Marchex is in a position to grow faster, invest appropriately and also deliver increased operating leverage as we move through 2008. We expect adjusted operating income before amortization for 2008 to be more than $21 million. For the year, we are making the financial commitment to investing and grow our business while also showing increasing operating leverage as we move through the year. Based on our current revenue mix, and anticipated growth, we expect to see adjusted OIBA margins increasing from the beginning of 2008 to the end of 2008 for 2008 adjusted EBITDA, we expect to add back approximately $9 million to our adjusted operating income before amortization, implying adjusted EBITDA of more than $30 million for 2008. For color on a mix of operating costs throughout the year, as a reminder, our investment in VoiceStar and integration initiatives, which we announced in August of last year, included $5 million of investment in 2008, the majority of which is weighted to the first half of the year. Similarly, some of our investment taking over greater control of our own advertising inventory coupled with our investments in our local advertising platform to support our large partners like AT&T will begin to payoff as new products launch throughout the year. As these products launch, we expect our growth from existing and new revenue streams will lead to stronger growth in our overall business and to increase operating leverage as we grow past the six cost components of these initiatives are disproportionately weighted to the first half of 2008. Our guidance for the first quarter of 2008 is for revenue of $35.5 million or more for color on guidance for the first quarter of 2008. While we anticipate continued momentum in our local advertising services business, we do expect a seasonal impact from advertisers, lowering their budget relative to the seasonally high fourth quarter. Additionally, we expect revenue from proprietary traffic sources to be in a similar range to slightly better than the fourth quarter of 2007. This is based on anticipated increases in consumer usage on our local content network, and increased amounts from third parties with certain offsets from our ongoing initiatives to increase direct sales of advertising inventory and lower sales of marketing expense on a year-over-year basis. For the first quarter, we expect sales and marketing costs to be in the range of 15% to 17% of revenue. For adjusted operating income before amortization in the first quarter, we anticipate $4.5 million or more. For 2008 first quarter adjusted EBITDA, we expect to add back approximately $2.3 million to our adjusted operating income. This add back implies adjusted EBITDA of $6.8 million or more. We're very excited by our opportunities in the local market. Our investments are focused on continuing to make Marchex a leader in local, while delivering accelerating growth rates and operating leverage in 2008 and beyond. We look forward to updating you on our outlook as we move through the year. With that, I'd like to turn the call back to Russ. <> Thanks Mike, I'll conclude by emphasizing a few key points. First, we believe Marchex has the most local-centric advertising platform in the industry at scale, which consists of large partners and direct advertisers looking for locally targeted fulfillment of both clicks and calls. Second, we have a clear focus on delivering unparalleled utility and relevance to local consumers to our network of propriety local website, and third, we continue to realize strong growth in the number of local and national advertisers, using Marchex's products and services. We continue to sharpen the focus of our entire organization, including our sales, business development product teams around our local mission and opportunity. As a result, we believe Marchex is in an excellent position to capture an increasing share of local advertising as they migrate online as well as an increased share of consumers looking for local information. The opportunity in local is large and [its now]. In order to capitalize on this opportunity, in 2008, Marchex will represent the momentum we are have coming out of the fourth quarter to firmly establish ourselves as leaders in local in terms of, first, our industry position, second, the value of our intellectual property and third, our financial performance. We'll accomplish these by continuing to emphasize the three pillars of Marchex; our business, our products and our people. I'd now like to turn the call over to the operator for question.

(Operator Instructions) And we'll take the first question from Christa Quarles. Your line is live.

Hi. First question is on the $25.6 million of local based revenue, obviously it is up 30% in the quarter. I was just wondering if you could just give us an essence of the complexion of that between owned and the marketing services there. And as well, maybe what the growth rate was for the year, I guess, I am trying to figure out is that growth rate ultimately accelerating on the local side? And then a second question just on the margins, Mike you indicated they are going to see or we should see increased leverage throughout the year, yet, if I take your sort of baseline guidance, it looks like you go from 19.2% EBITDA margins to 20% for the full year. So I am just trying to figure out is that just conservatism on the full year side and then I guess, where do you stand on sort of the long-term greater than 30% margins. Thanks.

Why don't you start with the second part, Mike, and then I will get the first one.

So, Christa, the first part, think about we've given more than guidance. So I think that may help explain we have put conservatism given some of the initial guidance at the beginning part of the year and we do see things accelerating as we go throughout the year. In terms of going in the long term to 30%, I think that was your, the second part of that question. Think about accelerating EBITDA margins and growing back into the mid-20s, we will look and give more updates probably in future periods as to what makes sense from that standpoint. But our goal is to keep moving towards the mid-20s at the first starting point.

Okay.

Hi, this is Russ. So on your first answer question, the $37 million was broken into two buckets. They were $25.6 million from local advertising services and $11.4 million from our proprietary traffic. Within that $25.6 million you've got a combination, which includes our agency platform to partners like AT&T as well as our marketing products like pay-per-click et cetera focused on national advertisers with local interest as well as our call-based marketing products. When you look at the contributions, we saw growth across all three of those contributing sources within local advertising services and on the other side, when you look at that $11.4 million from proprietary traffic, we saw it much earlier in today's call 20% sequential growth in traffic. And at the same time, as we previously guided we saw slightly over monetization rates based on the mix of rates from third parties as well the rates we get under our own inventory. But it is a week-to-week sequential growth of 15%, which we feel very good about when you look at traffic growth and balance on monetization between our own and third parties.

And just one quick follow-up, if I may, how does Ingenio affect your ability to work with AT&T in a call base now?

Yeah. Ingenio is the relationship we have before AT&T acquired them. We obviously have a very deep relationship with AT&T around a number of products as well as our traffic for fulfillment on advertisers that they sell. And now with Ingenio being part of AT&T and given our focus on the call space, we think it can deepen the relationship. We view ourselves as a med integration point for local advertisers whether they are focused on search campaigns or call campaigns. That Ingenio can give us call-based advertisers to distribute it to our network. It just brings efficiency of yield and relevance. So we think it's a good thing.

Great. Thanks.

Thank you. We'll take the next question from Eric Martinuzzi. Your line is live.

Thanks. Two questions. First, I'd like to know if the Idearc relationship -- if there was any -- if AT&T had sort of any say or had a right to comment on that relationship and then go into what you think the Idearc relationship can mean. And then secondly, I know that you had an 8-K filing this afternoon. It looks like Russ terminated one 10b5 plan and then he has got a new one that starts in December, could you address that please? Thanks.

Sure. On the 10b5-1 plan, I originally filed a plan in early 2006 about two years ago, [prior to a three-year] plan that would sell only a small minority in my shares overtime in light of where the stock prices -- it made sense to terminate that plan and so that's what we announced today. At the same time, I filed a new plan which wouldn't go into effect until December 1st at the soonest. But this time I added certain price limitations below which shares won't be [full]. So as of now, that initial plan is terminated and there won't be any subsequent sales before December at the earliest with price elements built in as well. Hopefully, that clears that up. On the first guides, the rights of the Idearc are important one and clearly, we have a deep relationship with AT&T around multiple products. But as we noted, we think we're relevant to anybody focused in the local space. We have two ways to address the local market. We have a platform that allows aggregators to sell local products [such as calls] and we sell them directly to national advertisers with local interest. And some of those local partners will take that platform as well as the other traffic difficult to span. Others may only use one or the other. Now, with Idearc, we think it's great that they recognize the value and scale of our traffic and we're able to be a meaningful partner for them, gives us more competition in our network and more relevance as it relates to supporting local consumers, and at the same time, it allows us to decrease dependence on any single third-party monetization source. In the past, we've had single sources in the upper 30% range. In our field, a lot of those things really prefer to come down to moderate levels that we think is healthier.

Okay.

Overtime, our goal is to work with every major local aggregator in a way that's appropriate. And as I mentioned, we think we are relevant to everyone in this space given our focus on our local ad platform as well as our scale of local traffic.

Okay. Thanks.

Thank you. We will take the next question from William Morrison. Your line is live.

Hi, there. This is actually Rob on the call for Bill. Just wondering if you had given out an update on Openlist integration? And then I guess, in sort of a related question, you saw, quite a sequential increase in the number of revenue generating referrals and if you may speak qualitively to the impact that Openlist integration might have had on that and where, while uniques are flat, does that market repeat usage and where are you seeing that more strongly? Thank you.

Sure. Clearly, one of the favorable trends that we saw in Q4 was increased traffic in usage levels. And hence we noted an increase of 20% overall. The strength in our local reference site, which includes Openlist and Openlist integrated sites as well as Yellow.com, it clearly led the way. So that was very favorable. It is consistent with increased revenue generating events going up to $50 million. And as we've noted and Mike walked through in today's call, the first order impact as we look at taking more inventory in diversified amortization sources can be lower rate. And then the second order impact as we get greater competition can lead to higher rates. So we're in that first window, where we have got higher traffic, more user activity, with modestly lower rates. The net impacts were a nice growth in proprietary revenue, which we know is good for our business model. But we've been able to do that well, having modestly lower rates. We like the direction. It's consistent with where we are in last quarter and we think it supports the very favorable trends between diversified monetization and at the same time higher traffic growth, which we all know is a critical driver of sustainability and value creation.

And then just clearly on the competitive Openlist integration, did you have an update on the number of price of (inaudible) with Openlist so far?

Well, right now, we communicated more than 150, 000. We periodically add to that. If there is milestone that make sense we'll update it, but given it's the vast majority of every website we own and today, we also noted the clear majority of our traffics all local. We haven't updated it. Those are the published numbers.

Okay. Thank you very much.

And then lastly, again, the key there now is less about the numbers and more about the user experience with better features.

Thank you. We'll take the next question from Jim Leahy. Your line is live.

Hi, guys. Two quick questions. First, just an update on any specifics you can give us on how VoiceStar is tracking and how that business is being taken by your customers? And second, just any comments on Yahoo! as a third-party partner and what's going on with them at this point?

Sure. The VoiceStar integration is going very well. Clearly, given our window of opportunity for the leadership, we accelerated investment on a post-acquisition basis, and that's the interest to the first half of the year, but its contribution is going arguably even better than we forecasted at the time of the acquisition. And when we look at cross-sell opportunities while our earlier net cycle, it is going well and it's a very important part of our product launches, when you look at our schedule for 2008. When you look at performance-based products that include both search and voice-based products like call tracking. And so that's the key theme and we are really pleased with that direction. And at Yahoo!, it's your second question, I think at their [peak] we disclosed a monetized, the mid-30s -- upper 30s as a percentage of our revenue. In Q3, we disclosed that the number had declined to 28%. Well, the exact number won't be disclosed for Q4 until we file our 10-K, it'll be great to get in Q4. So we have a great relationship with the Yahoo! at a lot of levels, but we recognize that on a long-term opportunity is diversification at that point, looking at minimal concentration across our business and at the time, really looking at relevance with direct advertisers as well. Operator: Thank you. We'll take the next question from Jordan Rohan. Your line is live.

Hey, guys, its Ross Sandler from Jordan's team. Just Russ, a quick question on the kind of high level strategy, do you think now with the VoiceStar acquisition and some of the other ones you've made over the past 12 or 18 months, that we're finally at point with Marchex story that the acquisition portfolio is pretty much built-out and are there any other services that you think are really strategic at this point, or do you feel that you're in decent with the assets that you have? And I have one follow-up.

Look I think we're in good shape with the assets we have. We have the ingredients of our own six steps to be a leader in local, to drive higher growth rates, and to deliver operating leverage. In an industry like ours, where there is consolidation, you look at things from time-to-time, but what we like is we have clarity of mission, clarity of focus, and again the ingredients of our own success. So we feel very good about where we are and our ability to deliver.

Okay. And at some point, does it make any sense to, take maybe some of the vertical dominance that you guys have picked up over the years and look at, divest some of them giving the inflationary pressures that are going on in our space or is it going to be kind of hang on to that stuff, and at some point, look to take on a bigger strategy on the vertical side?

It may make sense to divest some and that will be opportunity-driven. The thing that we talked about in the past is, certain verticals are very relevant in the local taxonomy and could be localized. Remodeling that one as an example where you can create of lots of localized sub-elements of the site as well as sub-categorized version. So when we look at all the different websites as distribution points for our enriched content to get out to local consumers, clearly, we're looking at which ones make the most sense in our logical distribution points for that content. If they both ultimately don’t fit and at the same time the opportunity merits is, yeah, we would consider divesting those. So it's on the landscape and it will be opportunity-driven.

Thanks.

Thank you very much, ladies and gentlemen. (Operator Instructions). And we'll take the next question from Brian Pitz. Your line is live.

Thanks. Two questions. Would you comment on how much of your direct navigation revenue was monetized by Yahoo! in the quarter? And then maybe any color regarding how click-through rates on Openlist enabled sites may have changed? And how this may be offset by a higher organic search traffic? Thanks.

Sure. I'd mentioned that. Yahoo! as a percentage of revenue in Q3 was 28%. While we haven't filed the percentage today, it is a decreased percentage of a higher revenue total. And so we are growing our revenue and doing it with a diversified step of monetization partners including our own advertisers. So that's an important theme. And the second part of your question if you can reiterate that basically…

Sure. Color of that click-through rates on Openlist enabled sites, how they may have changed and is this being offset by high organic traffic?

The interaction rates have increased, but because we have integrated in rich content which is a mix of editorial and paid, the paid events have gone down. But when you look at the overall trend of organics aggregate growth the trend is very favorable and we see more traffic for our growth.

Okay. And that's pretty consistent?

It is.

Okay. Great. Thanks.

Thank you.

Thank you very much ladies and gentlemen. There appear to be no further questions. Do you have any closing comments you’d like to finish with?

We appreciate everybody's participation today and we look forward to keeping you posted as we progress throughout the year.

Thank you very much. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.