ReachLocal Inc - FORM 8-K - EX-99.01 - PRESS RELEASE

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8-K - FORM 8-K - ReachLocal Inc	reachlocal_8k-073112.htm

Exhibit 99.01

ReachLocal Reports Second Quarter 2012 Results

Raises Full Year Guidance Based on Strong First Half of 2012

(WOODLAND HILLS, CA) – July 31, 2012 - ReachLocal, Inc. (NASDAQ:RLOC), a leader in local online marketing solutions for small- and medium-sized businesses (SMBs), today reported financial results for the second quarter ended June 30, 2012.

Revenue growth of 21% over the second quarter of 2011, highlighted by 43% growth in international markets and 23% growth in the direct local channel

International revenue expanded to 26% of revenue from 22% for the prior year period. On a constant foreign exchange basis, international revenue grew 50% from the prior year period and consolidated revenue grew 23%

Adjusted EBITDA grew 34% to $5.9 million, compared to $4.4 million for the prior year period

Active Advertisers grew 17% to 21,300 and Active Campaigns grew 24% to 31,500 from the prior year period

Repurchased $1.2 million or 134,000 shares of stock ($10.7 million or 1,410,000 shares to date) under the company’s $20 million buy-back authorization

Management Commentary

“Significant growth across all of our geographies and sales channels, combined with solid gains in advertisers and campaigns over the prior year period resulted in a strong second quarter for ReachLocal,” said Zorik Gordon, CEO. “Looking ahead to the second half of 2012 we intend to expand our global footprint, both in terms of entering new markets and expanding our salesforce in existing foreign markets to further leverage the solid productivity trends of our international IMCs. We also plan to introducenew products in the areas of online advertising, mobile and local commercein the second half of 2012.”

Quarterly Results at a Glance

(Table amounts in 000’s except key metrics and per share amounts)

		Q2 2012		Q2 2011		% Change
Revenue	$	112,212	$	92,752			21	%
Net Income (Loss) from Continuing Operations	$	332	$	(276	)		220	%
Net Income (Loss) from Continuing Operations per Diluted Share	$	0.01	$	(0.01	)		200	%
Net Income (Loss)	$	332	$	(949	)		135	%
Net Income (Loss) per Diluted Share	$	0.01	$	(0.03	)		133	%
Non-GAAP Net Income	$	3,402	$	3,023			13	%
Non-GAAP Net Income per Diluted Share	$	0.12	$	0.10			20	%
Adjusted EBITDA	$	5,947	$	4,446			34	%
Underclassmen Expense	$	11,328	$	10,728			6	%
Cash Flow from Continuing Operations	$	9,203	$	9,139			1	%
Cash Flow from Operating Activities	$	9,161	$	8,835			4	%


Revenue by Channel and Geography:
Direct Local Revenue	$	88,246	$	71,839			23	%
National Brands, Agencies and Resellers (NBAR) Revenue	$	23,966	$	20,913			15	%
International Revenue (included above)	$	29,536	$	20,670			43	%


Key Metrics (at period end):
Active Advertisers		21,300		18,200			17	%
Active Campaigns		31,500		25,500			24	%
Total Upperclassmen		397		330			20	%
Total Underclassmen		431		439			(2	)%
Total IMCs		828		769			8	%

Business Outlook

“Based on a strong first half of the year, we are raising our 2012 full year guidance,” said Ross Landsbaum, Chief Financial Officer. “We expect 2012 revenue to be in the range of $445 million to $454 million, and Adjusted EBITDA to be in the range of $19 million to $22 million.”

The Company’s outlook is as follows:

Third Quarter 2012

Revenues in the range of $115.1 million to $117.1 million

Adjusted EBITDA in the range of $5.0 million to $6.0 million

Ending Upperclassmen headcount of 400 to 420

Ending Underclassmen headcount of 440 to 460

Ending total IMC headcount of 840 to 880

Fiscal Year 2012

Revenues in the range of $445 million to $454 million

Adjusted EBITDA in the range of $19 million to $22 million

Ending Upperclassmen headcount of 420 to 450

Ending Underclassmen headcount of 400 to 430

Ending total IMC headcount of 820 to 880

Conference Call and Webcast Information

The ReachLocal second quarter 2012 teleconference and webcast is scheduled to begin at 2:00 p.m., Pacific Time, on Tuesday, July 31, 2012. To participate on the live call, analysts and investors should dial 877-941-2068 at least ten minutes prior to the call. ReachLocal will also offer a live and archived webcast of the conference call, accessible from the “Investors” section of the Company’s Web site at www.reachlocal.com.

Use of Non-GAAP Measures

ReachLocal management evaluates and makes operating decisions using various financial and operational metrics. In addition to the Company’s GAAP results, management also considers non-GAAP measures of non-GAAP net income (loss), non-GAAP net income (loss) per share, and Adjusted EBITDA. Management believes that these non-GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. The attached tables provide a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Management also tracks and reports on Underclassmen Expense, Active Advertisers, Active Campaigns and the total number of Internet Marketing Consultants (IMCs), as management believes that these metrics are important gauges of the progress of the Company’s performance.

The non-GAAP net income is defined as net income (loss) from continuing operations before (a) stock-based compensation related expense (including the related adjustment to amortization of capitalized software development costs) and (b) acquisition related costs. Adjusted EBITDA is defined as net income (loss) from continuing operations before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, stock-based compensation, the effects of accounting for business combinations (including any impairment of acquired intangibles and, in the case of the acquisition of SMB:LIVE, the deferred cash consideration) and amounts included in other non-operating income or expense.

Acquisition Related Costs: Acquisition related costs, including the amortization and any impairment of acquired intangibles and the deferred cash consideration for the SMB:LIVE acquisition, are excluded from the non-GAAP operating results as these are non-recurring charges which the Company would not have incurred as part of continuing operations.

Each of these non-GAAP measures, while having utility, also have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. Some of these limitations are:

Adjusted EBITDA does not reflect the Company’s cash expenditures for capital equipment or other contractual commitments;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect capital expenditure requirements for such replacements;

Adjusted EBITDA does not reflect changes in, or cash requirements for, the Company’s working capital needs;

Adjusted EBITDA and non-GAAP net income (loss) do not consider the potentially dilutive impact of issuing equity-based compensation to the Company’s management and other employees;

Adjusted EBITDA does not reflect the potentially significant interest expense or the cash requirements necessary to service interest or principal payments on indebtedness that the Company may incur in the future;

Adjusted EBITDA does not reflect income and expense items that relate to the Company’s financing and investing activities, any of which could significantly affect the Company’s results of operations or be a significant use of cash;

Adjusted EBITDA and non-GAAP net income (loss) do not reflect costs or expenses associated with accounting for business combinations;

Adjusted EBITDA does not reflect certain tax payments that may represent a reduction in cash available to the Company; and

Other companies, including companies in the same industry, calculate Adjusted EBITDA and non-GAAP net income (loss) measures differently, which reduces their usefulness as a comparative measure.

Adjusted EBITDA is not intended to replace operating income (loss), net income (loss) and other measures of financial performance reported in accordance with GAAP. Rather, Adjusted EBITDA is a measure of operating performance that may be considered in addition to those measures. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to the Company to invest in the growth of the business.

Underclassmen Expense is a number the Company calculates to approximate its investment in Underclassmen and is comprised of the selling and marketing expenses allocated to Underclassmen during a reporting period. The amount includes the direct salaries and allocated benefits of the Underclassmen (excluding commissions), training and sales organization expenses including depreciation allocated based on relative headcount and marketing expenses allocated based on relative revenue. While management believes that Underclassmen Expense provides useful information regarding the Company’s approximated investment in Underclassmen, the methodology used to arrive at the estimated Underclassmen Expense was developed internally by the Company, is not a concept or method recognized by GAAP and other companies may use different methodologies to calculate or approximate measures similar to Underclassmen Expense. Accordingly, the calculation of Underclassmen Expense may not be comparable to similar measures used by other companies. Management refers to sales through its sales force of Internet Marketing Consultants as its Direct Local channel. As the sale to agencies, resellers and national brands involves negotiations with businesses that generally represent an aggregated group of SMB advertisers, management groups them together as the National Brands, Agencies and Resellers (NBAR) channel.

Active Advertisers is a number the Company calculates to approximate the number of clients directly served through our Direct Local channel as well as clients served through our National Brands, Agencies and Resellers channel. We calculate Active Advertisers by adjusting the number of Active Campaigns to combine clients with more than one Active Campaign as a single Active Advertiser. Clients with more than one location are generally reflected as multiple Active Advertisers. Because this number includes clients served through the National Brands, Agencies and Resellers channel, Active Advertisers includes entities with which we do not have a direct client relationship. Numbers are rounded to the nearest hundred.

Active Campaigns is a number we calculate to approximate the number of individual products or services we are managing under contract for Active Advertisers. For example, if we were performing both ReachSearch and ReachDisplay campaigns for a client, we consider that two Active Campaigns. Similarly, if a client purchased ReachSearch campaigns for two different products or purposes, we consider that two Active Campaigns. Numbers are rounded to the nearest hundred.

Caution Concerning Forward-Looking Statements

Statements in this press release regarding the Company’s guidance for future periods and the quotes from management constitute “forward-looking” statements within the meaning of the Securities Exchange Act of 1934. These statements reflect the Company’s current views about future events and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to materially differ from those expressed or implied by the forward-looking statements. Actual events or results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including: (i) the Company’s ability to purchase media and receive rebates from Google, Yahoo! and Microsoft under commercially reasonable terms; (ii) the Company’s ability to recruit, train and retain its Internet Marketing Consultants; (iii) the Company’s ability to attract and retain customers; (iv) the Company’s ability to successfully enter new markets and manage its international expansion; (v) the Company’s ability to successfully develop and offer new products and services in the highly competitive online advertising industry; (vi) the impact of worldwide economic conditions, including the resulting effect on advertising budgets; and (vii) our ability to comply with government regulation affecting our business, including regulations or policies governing consumer privacy. More information about these factors and other potential factors that could affect the Company's business and financial results is contained in its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K . The Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.

About ReachLocal, Inc.

ReachLocal, Inc.'s (NASDAQ: RLOC) mission is to help small- and medium-sized businesses (SMBs) acquire, maintain and retain customers via the Internet. ReachLocal offers a comprehensive suite of online marketing solutions, including search engine marketing (ReachSearch™), Web presence (ReachCast™), display advertising and remarketing (ReachDisplay™), online marketing analytics (TotalTrack®), and assisted chat service (TotalLiveChat™), each targeted to the SMB market. ReachLocal delivers this suite of services to SMBs through a combination of its proprietary technology platform and its direct, "feet-on-the-street" sales force of Internet Marketing Consultants and select third-party agencies and resellers. ReachLocal is headquartered in Woodland Hills, CA, with offices throughout North America and in Australia, the United Kingdom, Germany, the Netherlands and Japan. Subscribe to the company's free newsletter to receive news, tips, and other marketing insights.

Investor Relations:

Alex Wellins

The Blueshirt Group

(415) 217-5861

alex@blueshirtgroup.com

Media Contact:

Jason Treu

Vice President of Public Relations

ReachLocal, Inc.

(214) 294-0307

jason.treu@reachlocal.com

(Tables to follow)

REACHLOCAL, INC.

UNAUDITED BALANCE SHEETS

(in thousands, except per share data)

	June 30, 2012			December 31, 2011
Assets
Current assets:
Cash and cash equivalents	$	94,339		$	84,525
Short-term investments		259			644
Accounts receivable, net		4,407			4,240
Other receivables and prepaid expenses		8,661			9,226
Total current assets		107,666			98,635

Property and equipment, net		11,097			9,885
Capitalized software development costs, net		12,792			10,942
Restricted certificates of deposit		969			1,286
Intangible assets, net		1,031			1,957
Goodwill		41,766			41,766
Other assets		1,934			1,966
Total assets	$	177,255		$	166,437

Liabilities and Stockholders’ Equity

Current Liabilities:
Accounts payable	$	32,158		$	29,831
Accrued expenses		23,730			19,537
Deferred revenue and other liabilities		35,413			30,747
Liabilities of discontinued operations, net		818			996
Total current liabilities		92,119			81,111


Deferred rent and deferred payment obligations		2,887			3,039
Total liabilities		95,006			84,150

Stockholders’ Equity:
Common stock		-			-
Receivable from stockholder		(87	)		(87	)
Additional paid-in capital		109,767			108,883
Accumulated deficit		(26,908	)		(26,234	)
Accumulated other comprehensive loss		(523	)		(275	)
Total stockholders’ equity		82,249			82,287
Total liabilities and stockholders’ equity	$	177,255		$	166,437

Note: During the year ended December 31, 2011, the Company recorded the results of operations and financial position of its Bizzy subsidiary as discontinued operations.

REACHLOCAL, INC.

UNAUDITED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012			2011

Revenue	$	112,212	$	92,752		$	216,215		$	176,810
Cost of revenue		55,656		46,598			108,046			91,098
Operating expenses:
Selling and marketing		41,176		34,527			79,719			66,688
Product and technology		4,399		3,521			8,732			6,543
General and administrative		10,468		8,572			20,275			15,649

Total operating expenses		56,043		46,620			108,726			88,880

Income (loss) from continuing operations		513		(466	)		(557	)		(3,168	)
Other income, net		102		221			305			417

Income (loss) from continuing operations before provision for income taxes		615		(245	)		(252	)		(2,751	)
Provision for income taxes		283		31			422			197
		-
Income (loss) from continuing operations, net of income taxes		332		(276	)		(674	)		(2,948	)
Loss from discontinued operations, net of income taxes		-		(673	)		-			(1,448	)
Net income (loss)	$	332	$	(949	)	$	(674	)	$	(4,396	)

Net income (loss) per share available to common stockholders
Basic income (loss) per share from continuing operations	$	0.01	$	(0.01	)	$	(0.02	)	$	(0.10	)
Basic loss per share from discontinued operations		-		(0.02	)		-			(0.05	)
Basic net income (loss) per share	$	0.01	$	(0.03	)	$	(0.02	)	$	(0.15	)

Diluted income (loss) per share from continuing operations	$	0.01	$	(0.01	)	$	(0.02	)	$	(0.10	)
Diluted loss per share from discontinued operations		-		(0.02	)		-			(0.05	)
Diluted net income (loss) per share	$	0.01	$	(0.03	)	$	(0.02	)	$	(0.15	)


Weighted average common shares used in computation of net income (loss) per share
Basic		28,431		29,043			28,771			28,752
Diluted		28,961		29,043			28,771			28,752


Stock-based compensation, net of capitalization, and depreciation and amortization included in above line items:


Stock-based compensation:
Cost of revenue	$	71	$	65		$	125		$	116
Selling and marketing		385		373			685			742
Product and technology		131		326			380			556
General and administrative		1,651		1,481			3,144			2,571
	$	2,238	$	2,245		$	4,334		$	3,985

Depreciation and amortization:
Cost of revenue	$	148	$	201		$	270		$	357
Selling and marketing		601		342			1,119			667
Product and technology		2,081		1,704			4,050			3,171
General and administrative		366		314			721			612
	$	3,196	$	2,561		$	6,160		$	4,807

Note: During the year ended December 31, 2011, the Company recorded the results of operations and financial position of its Bizzy subsidiary as discontinued operations.

REACHLOCAL, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except per share data)

	Six Months Ended June 30,
	2012			2011
Cash flow from operating activities:
Net loss from continuing operations, net of income taxes	$	(674	)	$	(2,948	)
Adjustments to reconcile net loss from continuing operations, net of income taxes to net cash provided by operating activities:
Depreciation and amortization		6,160			4,807
Stock-based compensation, net		4,334			3,985
Provision for doubtful accounts		78			111
Accrual of interest on deferred payment obligations		-			-
Changes in operating assets and liabilities:
Accounts receivable		(246	)		189
Other receivables and prepaid expenses		568			(1,415	)
Other assets		9			143
Accounts payable and accrued expenses		6,677			5,316
Deferred revenue, rent and other liabilities		5,651			3,519
Net cash provided by operating activities, continuing operations		22,557			13,707
Net cash provided by operating activities , discontinued operations		(178	)		(843	)
Net cash provided by operating activities		22,379			12,864

Cash flow from investing activities:
Additions to property, equipment and software		(8,195	)		(6,003	)
Acquisitions, net of acquired cash		(1,074	)		(5,958	)
Maturities of certificates of deposits and short-term investments		701			-
Purchases of certificates of deposit and short term investments		-			(142	)
Net cash used in investing activities, continuing operations		(8,568	)		(12,103	)
Net cash used in investing activities, discontinued operations		-			(809	)
Net cash used in investing activities		(8,568	)		(12,912	)

Cash flow from financing activities:
Proceeds from exercise of stock options		336			4,909
Common stock repurchases		(4,025	)		-
Net cash provided by (used in) financing activities		(3,689	)		4,909

Effect of exchange rates on cash		(308	)		656

Net change in cash and cash equivalents		9,814			5,517
Cash and cash equivalents—beginning of period		84,525			79,906

Cash and cash equivalents—end of period	$	94,339		$	85,423

Note: During the year ended December 31, 2011, the Company recorded discontinued operations related to its Bizzy subsidiary.

	Three Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012			2011
Reconciliation of Adjusted EBITDA to income (loss) from continuing operations
(in thousands)
Income (loss) from continuing operations	$	513	$	(466	)	$	(557	)	$	(3,168	)
Add:
Depreciation and amortization		3,196		2,561			6,160			4,807
Stock-based compensation, net		2,238		2,245			4,334			3,985
Acquisition and integration costs		-		106			32			520
Adjusted EBITDA (1)	$	5,947	$	4,446		$	9,969		$	6,144


Underclassmen Expense (2)	$	11,328	$	10,728		$	22,383		$	21,124

Note: During the year ended December 31, 2011, the Company recorded the results of operations and financial position of its Bizzy subsidiary as discontinued operations.

REACHLOCAL, Inc.

Reconciliation of GAAP to Non-GAAP Operating Results for Three Months Ended June 30, 2012 and 2011

(in thousands, except per share amounts)

	Three Months Ended June 30, 2012										Three Months Ended June 30, 2011
			Adjustments:											Adjustments:
	GAAP Continuing Operations "As Reported"		Stock-based Compensation Related Expense (3)			Acquisition Related Costs (4)			Non-GAAP Operating Results		GAAP Continuing Operations "As Reported"			Stock-based Compensation Related Expense (3)			Acquisition Related Costs (4)			Non-GAAP Operating Results
Revenue	$	112,212		-			-		$	112,212	$	92,752			-			-		$	92,752

Cost of revenue		55,656		(71	)		(11	)		55,574		46,598			(65	)		(92	)		46,441

Operating expenses:
Sales and marketing		41,176		(385	)		-			40,791		34,527			(373	)		-			34,154
Product and technology		4,399		(465	)		(238	)		3,696		3,521			(633	)		(416	)		2,472
General and administrative		10,468		(1,651	)		(192	)		8,625		8,572			(1,481	)		(225	)		6,866
Total Operating expenses		56,043		(2,501	)		(430	)		53,112		46,620			(2,487	)		(641	)		43,492
Income (Loss) from continuing operations		513		2,572			441			3,526		(466	)		2,552			733			2,819
Other income, net		102		-			-			102		221			-			14			235
Income (Loss) from continuing operations before provision for income taxes		615		2,572			441			3,628		(245	)		2,552			747			3,054
Provision for income taxes		283		-			(57	)		226		31			-			-			31
Net income (loss) from continuing operations	$	332		2,572			498		$	3,402	$	(276	)		2,552			747		$	3,023

Net income (loss) per share from continuing operations available to common stockholders
Basic income (loss) per share from continuing operations	$	0.01							$	0.12	$	(0.01	)							$	0.10

Diluted income (loss) per share from continuing operations	$	0.01							$	0.12	$	(0.01	)							$	0.10

Weighted average shares outstanding
Basic		28,431								28,431		29,043									29,043
Diluted		28,961								28,961		29,043									31,289

Note: During the year ended December 31, 2011, the Company recorded the results of operations and financial position of its Bizzy subsidiary as discontinued operations. Accordingly, related prior-period amounts have been reclassified to conform to the current period presentation.

REACHLOCAL, Inc.

Reconciliation of GAAP to Non-GAAP Operating Results for Six Months Ended June 30, 2012 and 2011

(in thousands, except per share amounts)

	Six Months Ended June 30, 2012											Six Months Ended June 30, 2011
				Adjustments:											Adjustments:
	GAAP Continuing Operations "As Reported"			Stock-based Compensation Related Expense (3)			Acquisition Related Costs (4)			Non-GAAP Operating Results		GAAP Continuing Operations "As Reported"			Stock-based Compensation Related Expense (3)			Acquisition Related Costs (4)			Non-GAAP Operating Results
Revenue	$	216,215			-			-		$	216,215	$	176,810			-			-		$	176,810

Cost of revenue		108,046			(125	)		(22	)		107,899		91,098			(116	)		(144	)		90,838

Operating expenses:
Sales and marketing		79,719			(685	)		-			79,034		66,688			(742	)		-			65,946
Product and technology		8,732			(1,049	)		(553	)		7,130		6,543			(1,137	)		(730	)		4,676
General and administrative		20,275			(3,144	)		(384	)		16,747		15,649			(2,572	)		(795	)		12,282
Total Operating expenses		108,726			(4,878	)		(937	)		102,911		88,880			(4,451	)		(1,525	)		82,904
Income (Loss) from continuing operations		(557	)		5,003			959			5,405		(3,168	)		4,567			1,669			3,068
Other income, net		305			-			-			305		417			-			14			431
Income (Loss) from continuing operations before provision for income taxes		(252	)		5,003			959			5,710		(2,751	)		4,567			1,683			3,499
Provision (benefit) for income taxes		422			-			(73	)		349		197			-			-			197
Net income (loss) from continuing operations	$	(674	)		5,003			1,032		$	5,361	$	(2,948	)	$	4,567		$	1,683		$	3,302

Net income (loss) per share from continuing operations available to common stockholders
Basic income (loss) per share from continuing operations	$	(0.02	)							$	0.19	$	(0.10	)							$	0.11

Diluted income (loss) per share from continuing operations	$	(0.02	)							$	0.18	$	(0.10	)							$	0.11


Weighted average shares outstanding
Basic		28,771									28,771		28,752									28,752
Diluted		28,771									29,297		28,752									31,365

(1) Adjusted EBITDA is defined as net income (loss) from continuing operations before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, stock-based compensation, the effects of accounting for business combinations (including any impairment of acquired intangibles and, in the case of the acquisition of SMB:LIVE, the deferred cash consideration) and amounts included in other non-operating income or expense.

(2) Underclassmen Expense is a number the Company calculates to approximate its investment in Underclassmen and is comprised of the selling and marketing expenses allocated to Underclassmen during a reporting period. The amount includes the direct salaries and allocated benefits of the Underclassmen (excluding commissions), training and sales organization expenses including depreciation allocated based on relative headcount and marketing expenses allocated based on relative revenue.

(3) Stock-based Compensation Related Expense: Includes stock-based compensation expense and the related adjustment to amortization of capitalized software development costs.

(4) Acquisition related costs, including the amortization and any impairment of acquired intangibles and the deferred cash consideration for the SMB:LIVE acquisition, are excluded from the non-GAAP operating results as these are non-recurring charges which the Company would not have incurred as part of continuing operations.

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