ReachLocal Inc - FORM 8-K - EX-99 - PRESS RELEASE

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Exhibit 99.01

ReachLocal Reports Second Quarter 2014 Results

(WOODLAND HILLS, CA) – August 6, 2014 - ReachLocal, Inc. (NASDAQ:RLOC), a leader in powering digital marketing for local businesses, today reported financial results for the second quarter ended June 30, 2014.

“After a thorough review of our business during my first four months as CEO, I’m confident that we can return ReachLocal to growth and profitability, as we look to further expand our ability to address the digital marketing needs of our clients,” said Sharon Rowlands, chief executive officer. “During the second half of 2014, we will move aggressively to enhance the business and make investments in the critical components for our success including accelerated product development, sales training and tools to enhance productivity.”

Quarterly Results at a Glance*

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

	Q2 2014			Q2 2013
Revenue	$	123,553		$	126,757
Net Income (Loss) from Continuing Operations	$	(10,326	)	$	1,321
Net Income (Loss) from Continuing Operations per Diluted Share	$	(0.36	)	$	0.04
Net Loss	$	(10,295	)	$	(141	)
Net Loss per Diluted Share	$	(0.36	)	$	0.00
Non-GAAP Net Income (Loss)	$	(6,488	)	$	4,356
Non-GAAP Net Income (Loss) per Diluted Share	$	(0.23	)	$	0.15
Adjusted EBITDA	$	(1,904	)	$	9,051
Cash Flow from Continuing Operations	$	(4,218	)	$	13,528
Cash Flow from Operating Activities	$	(5,480	)	$	11,568

*The amounts reflect that ClubLocal operations were determined to be discontinued operations during the fourth quarter of 2013. The definitions for Adjusted EBITDA and Non-GAAP Net Income, as set forth in full below, exclude discontinued operations.

	Q2 2014		Q2 2013		% Change
Revenue by Channel:
Direct Local Revenue	$	97,162	$	101,056		(4	)%
National Brands, Agencies and Resellers (NBAR) Revenue		26,391	$	25,701		3	%

Revenue by Geography:
North America	$	76,968	$	86,009		(11	)%
International Revenue	$	46,585	$	40,748		14	%

Key Metrics (at Period End)
Active Clients		23,200		23,700		(2	)%
Active Product Units		34,600		35,100		(1	)%

Business Outlook

“We continue to aggressively reshape the business to deliver better growth and profitability in 2015. In order to maintain maximum flexibility during this transitional period, we will only provide a quarterly outlook,” said ReachLocal chief financial officer Ross Landsbaum.

For the third quarter of 2014, ReachLocal’s outlook is as follows:

●

Revenue in the range of $116 to $121 million.

●

Adjusted EBITDA loss in the range of $4 to $7 million.

The Company’s prior full-year outlook for 2014 is withdrawn.

Conference Call and Webcast Information

The ReachLocal second quarter 2014 teleconference and webcast is scheduled to begin at 2:00 p.m., Pacific Time on Wednesday, August 6, 2014. To participate on the live call, analysts and investors should dial 1-888-329-8862 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 Active Clients and Active Product Units, 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), restructuring charges, and 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 has 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.

Active Clients 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 Clients by adjusting the number of Active Product Units to combine clients with more than one Active Product Unit as a single Active Client. Clients with more than one location are generally reflected as multiple Active Clients. Because this number includes clients served through the National Brands, Agencies and Resellers channel, Active Clients includes entities with which we do not have a direct client relationship. Numbers are rounded to the nearest hundred.

Active Product Units is a number we calculate to approximate the number of individual products, licenses or services we are providing to Active Clients. For example, if we were performing both ReachSearch and ReachDisplay campaigns for a client who also licenses ReachEdge, we consider that three Active Product Units. Similarly, if a client purchases ReachSearch campaigns for two different products or purposes, we consider that two Active Product Units. Numbers are rounded to the nearest hundred.

Caution Concerning Forward-Looking Statements

Statements in this press release regarding the Company’s outlook 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 rectify the challenges associated with its recent North American sales realignment; (ii) the Company’s abilily to obtain the cost savings contemplated by its recent restructuring; (iii) the Company’s ability to purchase media and receive rebates from Google, Yahoo! and Microsoft under commercially reasonable terms; (iv) the Company’s ability to recruit, train and retain its salespeople; (v) the Company’s ability to attract and retain customers and compete with a wide range of competitors on both price and product offering; (vi) the Company’s ability to successfully enter new markets and manage its international expansion; (vii) the Company’s ability to successfully develop and offer new products and services in the highly competitive online advertising industry; (viii) the impact of worldwide economic conditions, including the resulting effect on advertising budgets; and (ix) the Company’s 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. (NASDAQ: RLOC) helps local businesses grow and operate their business better with leading technology and expert service for our clients’ lead generation and conversion. ReachLocal is headquartered in Woodland Hills, Calif. For more information about ReachLocal, visit http://www.reachlocal.com, follow us at http://www.reachlocal.com/social, or email info@reachlocal.com.

Investor Relations:

Alex Wellins

The Blueshirt Group

(415) 217-5861

alex@blueshirtgroup.com

Media Contact:
Amber Seikaly Vice President Corporate Communications
(214) 294-0242
amber.seikaly@reachlocal.com

REACHLOCAL, INC.

UNAUDITED BALANCE SHEETS

(in thousands, except per share data)

	June 30,			December 31,
	2014			2013
Assets
Current Assets:
Cash and cash equivalents	$	64,274		$	77,514
Short-term investments		259			260
Accounts receivable, net		7,856			9,699
Prepaid expenses and other current assets		10,713			8,746
Deferred tax assets		2,151			1,250
Assets of discontinued operations		65			3,415
Total current assets		85,318			100,884

Property and equipment, net		14,075			12,903
Capitalized software development costs, net		19,960			17,300
Restricted deposits		3,866			3,654
Deferred tax assets		2,351			1,883
Intangible assets, net		2,033			1,270
Other assets		13,021			6,032
Goodwill		44,560			42,083
Total assets	$	185,184		$	186,009

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	33,485		$	36,970
Accrued compensation and benefits		17,121			17,280
Deferred revenue		31,469			33,013
Accrued restructuring		2,993			-
Other current liabilities		17,322			15,089
Liabilities of discontinued operations		849			1,324
Total current liabilities		103,239			103,676
Deferred rent and other liabilities		4,852			3,965
Total liabilities		108,091			107,641

Stockholders’ Equity:
Common stock		-			-
Receivable from stockholder		(79	)		(73	)
Additional paid-in capital		126,098			111,934
Accumulated deficit		(45,827	)		(29,559	)
Accumulated other comprehensive loss		(3,099	)		(3,934	)
Total stockholders’ equity		77,093			78,368
Total liabilities and stockholders’ equity	$	185,184		$	186,009

REACHLOCAL, INC.

UNAUDITED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Revenue	$	123,553		$	126,757		$	248,289		$	248,364
Cost of revenue		63,461			63,599			126,859			124,705
Operating expenses:
Selling and marketing		48,146			45,096			94,907			88,730
Product and technology		6,816			5,259			13,775			11,146
General and administrative		14,530			9,924			28,694			19,123
Restructuring charges		2,226			-			4,049			-
Total operating expenses		71,718			60,279			141,425			118,999

Operating income (loss)		(11,626	)		2,879			(19,995	)		4,660
Other income, net		195			114			383			341
Income (loss) from continuing operations before income taxes		(11,431	)		2,993			(19,612	)		5,001
Income tax provision (benefit)		(1,105	)		1,672			(2,973	)		3,328
Income (loss) from continuing operations		(10,326	)		1,321			(16,639	)		1,673
Gain (loss) from discontinued operations (including gain on disposal of $1,201 for the six months ended June 30, 2014)		49			(2,346	)		593			(3,960	)
Income tax provision (benefit)		18			(884	)		222			(1,511	)
Net loss	$	(10,295	)	$	(141	)	$	(16,268	)	$	(776	)

Net income (loss) per share:
Basic:
Income (loss) from continuing operations	$	(0.36	)	$	0.05		$	(0.59	)	$	0.06
Income (loss) from discontinued operations, net of income taxes		-			(0.06	)		0.01			(0.09	)
Net loss per share	$	(0.36	)	$	(0.01	)	$	(0.58	)	$	(0.03	)

Diluted:
Income (loss) from continuing operations	$	(0.36	)	$	0.04		$	(0.59	)	$	0.06
Income (loss) from discontinued operations, net of income taxes		-			(0.04	)		0.01			(0.09	)
Net loss per share	$	(0.36	)	$	-		$	(0.58	)	$	(0.03	)

Weighted average common shares used in the computation of income (loss) per share:
Basic		28,469			27,910			28,279			28,011
Diluted		28,469			29,656			28,279			29,591


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

Stock-based compensation:
Cost of revenue	$	255	$	153	$	530	$	271
Selling and marketing		859		709		1,736		1,494
Product and technology		222		38		608		262
General and administrative		2,140		1,509		5,173		3,034
	$	3,476	$	2,409	$	8,047	$	5,061

Depreciation and amortization:
Cost of revenue	$	169	$	187	$	346	$	398
Selling and marketing		674		678		1,309		1,649
Product and technology		2,650		2,576		5,608		5,189
General and administrative		525		322		977		430
	$	4,018	$	3,763	$	8,240	$	7,666

REACHLOCAL, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except per share data)

	Six Months Ended June 30,
	2014			2013
Cash flows from operating activities:
Income (loss) from continuing operations	$	(16,639	)	$	1,673
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization		8,240			7,666
Stock-based compensation		8,047			5,061
Restructuring charges		4,049			-
Excess tax benefits from stock-based awards		568			(1,090	)
Provision for doubtful accounts		1,602			296
Deferred taxes, net		(1,372	)		-
Changes in operating assets and liabilities:
Accounts receivable		(73	)		(3,030	)
Prepaid expenses and other current assets		(1,890	)		(1,667	)
Other assets		(397	)		(721	)
Accounts payable		(4,204	)		3,809
Accrued compensation and benefits		(524	)		(772	)
Deferred revenue		(2,129	)		921
Accrued restructuring		(867	)		-
Deferred rent and other liabilities		1,371			1,382
Net cash provided by (used in) operating activities, continuing operations		(4,218	)		13,528
Net cash used in operating activities, discontinued operations		(1,262	)		(1,960	)
Net cash provided by (used in) operating activities		(5,480	)		11,568

Cash flows from investing activities:
Additions to property, equipment and software		(10,942	)		(9,585	)
Acquisitions, net of acquired cash		(1,760	)		(363	)
Investment in partnership		(2,000	)		(2,500	)
Purchases of certificates of deposit and short-term investments		(73	)		(2,522	)
Maturities of certificates of deposits and short-term investments		-			2,578
Net cash used in investing activities, continuing operations		(14,775	)		(12,392	)
Net cash used in investing activities, discontinued operations		-			(1,598	)
Net cash used in investing activities		(14,775	)		(13,990	)

Cash flows from financing activities:
Proceeds from exercise of stock options		6,438			4,370
Excess tax benefits from stock-based awards		(568	)		1,090
Common stock repurchases		(21	)		(12,990	)
Net cash provided by (used in) financing activities		5,849			(7,530	)

Effect of exchange rate changes on cash and cash equivalents		1,166			(3,193	)

Net change in cash and cash equivalents		(13,240	)		(13,145	)
Cash and cash equivalents—beginning of period		77,514			92,320
Cash and cash equivalents—end of period	$	64,274		$	79,175

REACHLOCAL, INC.

Reconciliation of Adjusted EBITDA to Operating Income (Loss)

(in thousands)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014			2013
Operating income (loss)	$	(11,626	)	$	2,879	$	(19,995	)	$	4,660
Add:
Depreciation and amortization		4,018			3,763		8,240			7,666
Stock-based compensation		3,476			2,409		8,047			5,061
Acquisition and integration costs		2			-		16			-
Restructuring charges		2,226			-		4,049			-
Adjusted EBITDA (1)	$	(1,904	)	$	9,051	$	357		$	17,387

REACHLOCAL, Inc.

Reconciliation of GAAP to Non-GAAP Operating Results for Three Months Ended June 30, 2014 and 2013

(in thousands, except per share amounts)

	Three Months Ended June 30, 2014															Three Months Ended June 30, 2013
				Adjustments:														Adjustments:
	GAAP Operating			Stock-based Compensation			Acquisition			Restructuring			Non-GAAP			GAAP Operating		Stock-based Compensation			Acquisition			Restructuring		Non-GAAP
	Results			Related			Related			Related			Operating			Results		Related			Related			Related		Operating
	"As Reported"			Expense (2)			Costs (3)			Costs (4)			Results			"As Reported"		Expense (2)			Costs (3)			Costs (4)		Results
Revenue	$	123,553			-			-			-		$	123,553		$	126,757		-			-			-	$	126,757

Cost of revenue		63,461			(255	)		-			-			63,206			63,599		(153	)		(13	)		-		63,433

Operating expenses:
Sales and marketing		48,146			(859	)		-			-			47,287			45,096		(709	)		-			-		44,387
Product and technology		6,816			(325	)		(212	)		-			6,279			5,259		(354	)		(259	)		-		4,646
General and administrative		14,530			(2,140	)		(123	)		-			12,267			9,924		(1,509	)		-			-		8,415
Restructuring charges		2,226			-			-			(2,226	)		-			-		-			-			-		-
Total operating expenses		71,718			(3,324	)		(335	)		(2,226	)		65,833			60,279		(2,572	)		(259	)		-		57,448
Operating income (loss)		(11,626	)		3,579			335			2,226			(5,486	)		2,879		2,725			272			-		5,876
Other income, net		195			-			-			-			195			114		-			-			-		114
Income (loss) from continuing operations before income taxes		(11,431	)		3,579			335			2,226			(5,291	)		2,993		2,725			272			-		5,990
Income tax provision (benefit) (6)		(1,105	)		1,342			126			834			1,197			1,672		-			(38	)		-		1,634
Income (loss) from continuing operations	$	(10,326	)		2,237			209			1,392		$	(6,488	)	$	1,321		2,725			310			-	$	4,356

Net income (loss) per share
Basic income (loss) per share	$	(0.36	)										$	(0.23	)	$	0.05									$	0.16
Diluted income (loss) per share	$	(0.36	)										$	(0.23	)	$	0.04									$	0.15

Weighted average shares outstanding
Basic		28,469												28,469			27,910										27,910
Diluted		28,469												28,469			29,656										29,656

REACHLOCAL, Inc.

Reconciliation of GAAP to Non-GAAP Operating Results for Six Months Ended June 30, 2014 and 2013

(in thousands, except per share amounts)

	Six Months Ended June 30, 2014															Six Months Ended June 30, 2013
				Adjustments:														Adjustments:
	GAAP Operating			Stock-based Compensation			Acquisition			Restructuring			Non-GAAP			GAAP Operating		Stock-based Compensation			Acquisition			Restructuring		Non-GAAP
	Results			Related			Related			Related			Operating			Results		Related			Related			Related		Operating
	"As Reported"			Expense (2)			Costs (3)			Costs (4)			Results			"As Reported"		Expense (2)			Costs (3)			Costs (4)		Results
Revenue	$	248,289			-			-			-		$	248,289		$	248,364		-			-			-	$	248,364

Cost of revenue		126,859			(530	)		-			-			126,329			124,705		(271	)		(21	)		-		124,413

Operating expenses:
Sales and marketing		94,907			(1,736	)		-			-			93,171			88,730		(1,494	)		-			-		87,236
Product and technology		13,775			(831	)		(444	)		-			12,500			11,146		(884	)		(649	)		-		9,613
General and administrative		28,694			(5,173	)		(137	)		-			23,384			19,123		(3,034	)		-			-		16,089
Restructuring charges		4,049			-			-			(4,049	)		-			-		-			-			-		-
Total operating expenses		141,425			(7,740	)		(581	)		(4,049	)		129,055			118,999		(5,412	)		(649	)		-		112,938
Operating income (loss)		(19,995	)		8,270			581			4,049			(7,095	)		4,660		5,683			670			-		11,013
Other income, net		383			-			-			-			383			341		-			-			-		341
Income (loss) from continuing operations before income taxes		(19,612	)		8,270			581			4,049			(6,712	)		5,001		5,683			670			-		11,354
Income tax provision (benefit) (6)		(2,973	)		3,101			218			1,518			1,865			3,328		-			(87	)		-		3,241
Income (loss) from continuing operations	$	(16,639	)		5,169			363			2,531		$	(8,577	)	$	1,673		5,683			757			-	$	8,113

Net income (loss) per share
Basic income (loss) per share	$	(0.59	)										$	(0.30	)	$	0.06									$	0.29
Diluted income (loss) per share	$	(0.59	)										$	(0.30	)	$	0.06									$	0.27

Weighted average shares outstanding
Basic		28,279												28,279			28,011										28,011
Diluted		28,279												28,279			29,591										29,591

REACHLOCAL, INC.

Reconciliation of GAAP to Constant Currency Revenue

(in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
North American GAAP Revenue	$	76,968		$	86,009		$	154,056		$	168,929
Constant Currency Adjustment		234			-			572			-
North American Revenue at Constant Currency (5)	$	77,202		$	86,009		$	154,628		$	168,929

As Reported Growth Rates		(10.5%	)		4.1	%		(8.8%	)		6.2	%
Constant Currency Growth Rates		(10.2%	)		4.1	%		(8.5%	)		6.2	%

International GAAP Revenue		46,585		$	40,748		$	94,233		$	79,435
Constant Currency Adjustment		121			-			3,065			-
International Revenue at Constant Currency (5)	$	46,706		$	40,748		$	97,298		$	79,435

As Reported Growth Rates		14.3	%		38.0	%		18.6	%		39.2	%
Constant Currency Growth Rates		14.6	%		40.7	%		22.5	%		41.5	%

Consolidated GAAP Revenue	$	123,553		$	126,757		$	248,289		$	248,364
Constant Currency Adjustment		355			-			3,637			-
Consolidated Revenue at Constant Currency (5)	$	123,908		$	126,757		$	251,926		$	248,364

As Reported Growth Rates		(2.5%	)		13.0	%		-			14.9	%
Constant Currency Growth Rates		(2.2%	)		13.6	%		1.4	%		15.4	%

Footnotes

(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), restructuring charges, and other non-operating income or expense.

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

(3) Acquisition Related Costs, including the amortization and any impairment of acquired intangibles, 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.

(4) Restructuring Related Costs are excluded from the non-GAAP operating results as these are non-recurring charges with the Company would not have incurred as part of continuing operations.

(5) Constant currency revenues are determined by recalculating net revenues denominated in currencies other than U.S. Dollars in the current fiscal period using average exchange rates for that particular currency during the corresponding financial period of the prior year. The company uses this non-GAAP measure to evaluate performance on a comparable basis excluding the impact of foreign currency fluctuations. Where constant currency revenue is presented for a period longer than one fiscal quarter, it is computed as the sum of the amount separately calculated for each quarter during that period.

(6) The income tax provision (benefit) for the Non-GAAP adjustments is estimated using the effective statutory rate for those jurisdictions.

ReachLocal Inc - FORM 8-K - EX-99 - PRESS RELEASE - August 6, 2014

Attached files

ReachLocal Inc Reports