ReachLocal Reports Third Quarter 2013 Results Revenue Grew 12%, Driven by International Revenue Growth of 29% (38% on a Constant Currency Basis) Chief Revenue Officer Josh Claman Appointed President WOODLAND HILLS, Calif., Nov. 5, 2013 (GLOBE NEWSWIRE) -- ReachLocal, Inc. (Nasdaq:RLOC), a leader in powering local online marketing for small-to-medium sized businesses (SMBs), today reported financial results for the third quarter ended September 30, 2013. Q3 Highlights *Year-over-year revenue grew 12% (15% on a constant currency basis) highlighted by 29% growth in international markets (38% on a constant currency basis) and 14% growth in the Direct Local channel (17% on a constant currency basis). *International revenue expanded to 34% of revenue (35% on a constant currency basis), up from 29% a year ago. *ReachEdge became available throughout the US on September 21, 2013 and has been sold to more than 500 customers. *Adjusted EBITDA was $7.3 million, which includes significant product and new market investment as well as the one-time costs associated with the departure of the company's former CEO. *Year-over-year Active Advertisers and Active Campaigns each grew 11% to 24,600 and 36,400, respectively. *Launched Direct Local operations in Belgium, increasing ReachLocal's global footprint to a total of 16 countries. *Repurchased 475,000 shares of stock for $5.9 million during the quarter under the company's buy-back authorization. Management Commentary "We are pleased by our solid third-quarter results highlighted by 15% revenue growth on a constant-currency basis," said David Carlick, interim CEO and chairman of the board. "We are excited by the initial uptake of our new ReachEdge marketing product and are particularly encouraged by the interest level and engagement of our clients with this new addition to the ReachLocal product set." Carlick added, "we are also pleased to announce that Josh Claman will become the President of ReachLocal. As Chief Revenue Officer, Josh has led our continued global expansion and our efforts towards enhancing and improving our go-to-market strategies. With his more than 25 years of experience building and leading multi-billion dollar sales and service organizations across Asia, Europe and the Americas, including with Dell, Josh is well suited to help lead the company in the next phase of its global growth." "On behalf of the board, I would like to thank Nathan Hanks, who has resigned as an officer and director of the Company. Nathan helped found the business, drove our rapid growth and positioned us for the future. His service, dedication and contributions to ReachLocal are greatly appreciated," Carlick concluded. Quarterly Results at a Glance (Table amounts in 000's except key metrics and per share amounts) Q3 2013 Q3 2012 % Change Revenue $133,148 $118,891 12% Net Income (Loss) $(1,122) $836 (234)% Net Income (Loss) per Diluted Share $(0.04) $0.03 (233)% Non-GAAP Net Income $2,630 $4,458 (41)% Non-GAAP Net Income per Diluted Share $0.09 $0.15 (40)% Adjusted EBITDA $7,302 $7,221 1% Underclassmen Expense $12,900 $11,441 13% Cash Flow from Continuing Operations $13,924 $9,503 47% Cash Flow from Operating Activities $13,924 $9,499 47% Revenue by Channel and Geography: Direct Local Revenue $106,207 $93,537 14% National Brands, Agencies and Resellers (NBAR) $26,941 $25,354 6% Revenue International Revenue (included above) $44,647 $34,679 29% Key Metrics (at period end): Active Advertisers 24,600 22,100 11% Active Campaigns 36,400 32,900 11% Total Upperclassmen 440 407 8% Total Underclassmen 517 450 15% Total IMCs 957 857 12% Business Outlook "In the fourth quarter we expect to see continuedgrowth in our international markets, partially offset by continued Fx headwinds, and continued stability in North America, subject to our typical seasonality. This should result in annual growth for 2013 of approximately 13%, or 15% on a constant currency basis, at the midpoint of our guidance range," said Ross Landsbaum, Chief Financial Officer. The Company's outlook is as follows: Fourth Quarter 2013 *Revenue in the range of $133 million to $136 million *Adjusted EBITDA in the range of $8.8 million to $9.8 million Fiscal Year 2013 *Revenue in the range of $515 million to $518 million *Adjusted EBITDA in the range of $30 million to $31 million *Ending Upperclassmen headcount of 460 to 480 *Ending Underclassmen headcount of 460 to 480 *Ending total IMC headcount of 920 to 960 Conference Call and Webcast Information The ReachLocal third quarter 2013 teleconference and webcast is scheduled to begin at 2:00 p.m., Pacific Time on Tuesday, November 5, 2013. To participate on the live call, analysts and investors should dial 1-877-941-1427 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, Adjusted EBITDA and constant currency revenues.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. 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. 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. 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) our success indevelopingand offering new products and services in the highly competitive online advertising industry, (ii) our ability to expand our product suite into software-related products, (iii) our ability to expand into consumer-facing products; (iv) our ability to purchase media and receive rebates from Google, Yahoo! and Microsoft under commercially reasonable terms; (v) our ability to recruit, train and retain our Internet Marketing Consultants; (vi) our ability to attract and retain customers; (vii) our ability to successfully enter new markets and manage its international expansion; (viii) the impact of worldwide economic conditions, including the resulting effect on advertising budgets; and (ix) 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.(Nasdaq:RLOC) develops online marketing and transaction solutions that power local commerce for SMBs, from lead generation and lead conversion to booking and buying. Our global distribution network includes local Internet marketing consultants and service professionals, along with select third-party agencies and resellers, throughout the United States, Canada, Australia, Austria, Belgium, Brazil, Czech Republic, Germany, Japan, the Netherlands, New Zealand, Poland, Russia, Slovakia, and the United Kingdom. ReachLocal is headquartered in Woodland Hills, Calif. Subscribe to ReachLocal's free newsletter to receive news, tips, and other online marketing insights. REACHLOCAL, INC. UNAUDITED BALANCE SHEETS (in thousands, except per share data) September 30, December 31, 2013 2012 Assets Current Assets: Cash and cash equivalents $84,989 $92,336 Short-term investments 553 3,149 Accounts receivable, net 10,099 5,689 Other receivables and prepaid expenses 14,404 8,957 Total current assets 110,045 110,131 Property and equipment, net 12,136 11,066 Capitalized software development costs, net 18,795 14,704 Restricted certificates of deposit 1,697 1,226 Intangible assets, net 1,525 2,442 Otherassets 9,254 4,044 Goodwill 42,083 42,083 Total assets $195,535 $185,696 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $47,145 $35,297 Accrued expenses 30,647 27,422 Deferred revenue and other current liabilities 37,444 36,304 Liabilities of discontinued operations, net 794 767 Total current liabilities 116,030 99,790 Deferred rent and other liabilities 4,626 4,020 Total liabilities 120,656 103,810 Stockholders' Equity: Common stock -- -- Receivable from stockholder (78) (89) Additional paid-in capital 107,078 110,573 Accumulated deficit (28,974) (27,076) Accumulated other comprehensive loss (3,147) (1,522) Total stockholders' equity 74,879 81,886 Total liabilities and stockholders' equity $195,535 $185,696 REACHLOCAL, INC. UNAUDITED STATEMENTS OF OPERATIONS (in thousands, except per share data) ThreeMonthsEnded NineMonthsEnded September 30, September 30, 2013 2012 2013 2012 Revenue $133,148 $118,891 $382,023 $335,106 Cost of revenue 66,764 59,500 192,564 167,546 Operating expenses: Selling and marketing 48,980 42,860 140,470 122,579 Product and technology 5,901 5,448 17,574 14,180 General and 11,376 9,966 30,588 30,241 administrative Total operating 66,257 58,274 188,632 167,000 expenses Income from operations 127 1,117 827 560 Other income, net 181 33 522 338 Income before provision 308 1,150 1,349 898 for income taxes Provision for income 1,430 314 3,247 736 taxes Net income (loss) $(1,122) $836 $(1,898) $162 Net income (loss) per share Basic $(0.04) $0.03 $(0.07) $0.01 Diluted $(0.04) $0.03 $(0.07) $0.01 Weighted average common shares used in computation of net income (loss) per share Basic 27,507 28,403 27,843 28,379 Diluted 27,507 29,342 27,843 28,902 Stock-based compensation, net of capitalization, and depreciation and amortization included in above line items: Stock-based compensation: Cost of revenue $176 $73 $471 $198 Sellingand marketing 765 437 2,396 1,122 Productand technology 163 488 425 868 Generaland 2,084 1,597 5,118 4,741 administrative $3,188 $2,595 $8,410 $6,929 Depreciation and amortization: Cost of revenue $182 $131 $589 $401 Sellingand marketing 662 457 2,330 1,576 Productand technology 2,790 2,385 8,277 6,435 Generaland 353 536 810 1,257 administrative $3,987 $3,509 $12,006 $9,669 REACHLOCAL, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except per share data) Nine Months Ended September 30, 2013 2012 Cash flow from operating activities: Net income (loss) $(1,898) $162 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 12,006 9,669 Stock-based compensation 8,410 6,929 Excess tax benefits from stock-based (1,127) -- awards Provision for doubtful accounts 513 18 Changes in operating assets and liabilities: Accounts receivable (4,908) (679) Other receivables and prepaid expenses (5,448) (1,291) Other assets (1,509) (216) Accounts payable and accrued expenses 16,777 10,510 Deferred revenue, rent and other 2,919 6,958 liabilities Net cash provided by operating activities, 25,735 32,060 continuing operations Net cash used for operating activities, -- (182) discontinued operations Net cash provided by operating activities 25,735 31,878 Cash flow from investing activities: Additions to property, equipment and (16,148) (12,067) software Acquisitions, net of acquired cash (363) (4,120) Loan to franchisee (1,221) (1,863) Investment in partnership (2,500) -- Purchases of certificates of deposit and (563) (8,447) short-term investments Maturities ofcertificates of deposits and 2,566 466 short-term investments Net cash used in investing activities (18,229) (26,031) Cash flow from financing activities: Proceeds from exercise of stock options 5,333 1,639 Excess tax benefits from stock-based 1,127 -- awards Common stock repurchases (18,904) (5,395) Net cash used in financing activities (12,444) (3,756) Effect of exchange rate changes on cash (2,409) 94 and cash equivalents Net change in cash and cash equivalents (7,347) 2,185 Cash and cash equivalents—beginning of 92,336 84,525 period Cash and cash equivalents—end of period $84,989 $86,710 REACHLOCAL, INC. Reconciliation of Adjusted EBITDA to Income from Operations (in thousands) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Income from operations $127 $1,117 $827 $560 Add: Depreciation and amortization 3,987 3,509 12,006 9,669 Stock-based compensation 3,188 2,595 8,410 6,929 Acquisition and integration -- -- -- 32 costs Adjusted EBITDA (1) $7,302 $7,221 $21,243 $17,190 Underclassmen Expense (2) $12,900 $11,441 $35,731 $33,824 REACHLOCAL, Inc. Reconciliation of GAAP to Non-GAAP Operating Results for Three Months Ended September 30, 2013 and 2012 (in thousands, except per share amounts) Three Months Ended September 30, 2013 Three Months Ended September 30, 2012 Adjustments: Adjustments: GAAP Stock-based GAAP Stock-based Continuing Compensation Continuing Compensation Operations Related Acquisition Non-GAAP Operations Related Acquisition Non-GAAP "As Expense (3) Related Operating "As Expense (3) Related Operating Reported" Costs (4) Results Reported" Costs (4) Results Revenue $133,148 -- -- $133,148 $118,891 -- -- $118,891 Cost of 66,764 (177) -- 66,587 59,500 (72) (15) 59,413 revenue Operating expenses: Sales and 48,980 (765) -- 48,215 42,860 (438) -- 42,422 marketing Product and 5,901 (402) (259) 5,240 5,448 (824) (456) 4,168 technology General and 11,376 (2,084) -- 9,292 9,966 (1,597) (152) 8,217 administrative Total Operating 66,257 (3,251) (259) 62,747 58,274 (2,859) (608) 54,807 expenses Income from 127 3,428 259 3,814 1,117 2,931 623 4,671 operations Other income, 181 -- -- 181 33 -- -- 33 net Income before provision for 308 3,428 259 3,995 1,150 2,931 623 4,704 (benefit from) income taxes Provision for (benefit from) 1,430 -- (65) 1,365 314 -- (68) 246 income taxes Net income $(1,122) 3,428 324 $2,630 $836 2,931 691 $4,458 (loss) Net income (loss) per share Basic income (loss) per $(0.04) $0.10 $0.03 $0.16 share Diluted income (loss) per $(0.04) $0.09 $0.03 $0.15 share Weighted average shares outstanding Basic 27,507 27,507 28,403 28,403 Diluted 27,507 28,652 29,342 29,342 REACHLOCAL, Inc. Reconciliation of GAAP to Non-GAAP Operating Results for Nine Months Ended September 30, 2013 and 2012 (in thousands, except per share amounts) Nine Months Ended September 30, 2013 Nine Months Ended September 30, 2012 Adjustments: Adjustments: GAAP Stock-based GAAP Stock-based Continuing Compensation Continuing Compensation Operations Related Acquisition Non-GAAP Operations Related Acquisition Non-GAAP "As Expense (3) Related Operating "As Expense (3) Related Operating Reported" Costs (4) Results Reported" Costs (4) Results Revenue $382,023 -- -- $382,023 $335,106 -- -- $335,106 Cost of 192,564 (472) (21) 192,071 167,546 (197) (37) 167,312 revenue Operating expenses: Sales and 140,470 (2,396) -- 138,074 122,579 (1,123) -- 121,456 marketing Product and 17,574 (1,332) (908) 15,334 14,180 (1,873) (1,009) 11,298 technology General and 30,588 (5,118) -- 25,470 30,241 (4,741) (536) 24,964 administrative Total Operating 188,632 (8,846) (908) 178,878 167,000 (7,737) (1,545) 157,718 expenses Income from 827 9,318 929 11,074 560 7,934 1,582 10,076 operations Other income, 522 -- -- 522 338 -- -- 338 net Income before provision for 1,349 9,318 929 11,596 898 7,934 1,582 10,414 (benefit from) income taxes Provision for (benefit from) 3,247 -- (152) 3,095 736 -- (141) 595 income taxes Net income $(1,898) 9,318 1,081 $8,501 $162 7,934 1,723 $9,819 (loss) Net income (loss) per share Basic income (loss) per $(0.07) $0.31 $0.01 $0.35 share Diluted income (loss) per $(0.07) $0.29 $0.01 $0.34 share Weighted average shares outstanding Basic 27,843 27,843 28,379 28,379 Diluted 27,843 29,303 28,902 28,902 REACHLOCAL, INC. Reconciliation of GAAP to Constant Currency Revenue (in thousands) ThreeMonthsEnded NineMonthsEnded September 30, September 30, 2013 2012 2013 2012 North American GAAP $88,501 $84,212 $257,941 $243,364 Revenue Constant Currency 177 -- 251 -- Adjustment North American Revenue at $88,678 $84,212 $258,192 $243,364 Constant Currency (5) As Reported Growth Rates 5.1% 12.2% 6.0% 13.7% Constant Currency Growth 5.3% 12.2% 6.1% 13.7% Rates International GAAP Revenue $44,647 $34,679 $124,081 $91,742 Constant Currency 3,148 -- 4,640 -- Adjustment International Revenue at $47,795 $34,679 $128,721 $91,742 Constant Currency (5) As Reported Growth Rates 28.7% 47.2% 35.2% 49.3% Constant Currency Growth 37.8% 47.2% 40.3% 49.3% Rates Consolidated GAAP Revenue $133,148 $118,891 $382,023 $335,106 Constant Currency 3,325 -- 4,891 -- Adjustment Consolidated Revenue at $136,473 $118,891 $386,914 $335,106 Constant Currency (5) As Reported Growth Rates 12.0% 20.5% 14.0% 21.7% Constant Currency Growth 14.8% 20.5% 15.5% 21.7% Rates 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) 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, 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. (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. CONTACT: Investor Relations: Alex Wellins The Blueshirt Group (415) 217-5861 firstname.lastname@example.org Media Contact: Dana Harris Vice President, Corporate Communications ReachLocal, Inc. (818) 936-9904 email@example.com
ReachLocal Reports Third Quarter 2013 Results
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