Local Corporation Reports First Quarter 2014 Financial Results

  Local Corporation Reports First Quarter 2014 Financial Results

Business Wire

IRVINE, Calif. -- May 8, 2014

Local Corporation (NASDAQ: LOCM), a leading local advertising technology
company, reported its financial results for the first quarter 2014.

“We entered 2014 focused on three avenues to drive long-term shareholder
value: growing our core business, leveraging our Krillion^® data technology
and monetizing our intellectual property,” said Fred Thiel, Local Corporation,
CEO and chairman of the board. “I am excited about my expanded role in the
company and look forward to working with our talented team to deliver on our
vision and take the company to the next level. In the last six months, we have
expanded our Network; increased the number of impressions, clicks and calls in
our Extended Ad Network; and launched new products, including two ad
technology products and one app powered by Krillion. Overall, we believe our
first quarter results demonstrate our ability to invest in our business while
fostering growth.”

“Additionally, we are in the process of transferring the majority of our
patents from Local Corporation to a dedicated IP holding subsidiary, while the
Krillion patent will be consolidated with our other Krillion assets into our
Krillion subsidiary. We believe this organizational structure will create
flexibility to monetize our IP through licensing and/or other strategic
alternatives. We believe these efforts will facilitate revenue growth in 2015
and beyond,” added Thiel.

Key Highlights:

  *Grew total revenue 22% year-over-year to $26.2 million.
  *Increased Network revenue 78% year-over-year to $14.8 million.
  *Reduced net loss 16% year-over-year, reporting net loss of $2.8 million.
  *Delivered Adjusted EBITDA* of $712,000 while investing in growth.
  *Reported $189 revenue per thousand visitors (RKVs), up from $178 in fourth
    quarter 2013.

* Adjusted EBITDA is defined as net income (loss) excluding: provision for
income taxes; interest and other income (expense), net; depreciation;
amortization; stock-based compensation charges; gain or loss on derivatives’
revaluation; net income (loss) from discontinued operations; accrued lease
liability/asset; severance charges; LEC reserve; and finance-related charges.
See detailed reconciliation of GAAP to non-GAAP measures in the financial
tables attached to this release.

First Quarter 2014 Results Highlights:

(in thousands, except per share     Q1 2014      Q4 2013      Q1 2013
Owned & Operated                      $ 11,417       $ 10,701       $ 13,180
Network                                14,763       16,104       8,283  
Revenue                               $ 26,180       $ 26,805       $ 21,463
GAAP net loss                         $ (2,828 )     $ (1,679 )     $ (3,353 )
Diluted GAAP net loss per share       $ (0.12  )     $ (0.07  )     $ (0.15  )
Adjusted EBITDA*                      $ 712          $ 1,353        $ 685
Diluted Adjusted EBITDA per           $ 0.03         $ 0.06         $ 0.03
Cash                                  $ 3,711        $ 5,069        $ 3,067

* See detailed reconciliation of GAAP to non-GAAP measures in the financial
tables attached to this release.

“First quarter 2014 revenue of $26.2 million grew 22% year-over-year based on
strong contributions from our Extended Ad Network,” said Ken Cragun, Local
Corporation chief financial officer. “Total Network revenue grew 78%
year-over-year, as we added both new Network partners and ad products for
publishers. The growth in Network revenue combined with operating efficiencies
realized in 2013 enabled the company to continue to invest in new initiatives
and deliver Adjusted EBITDA of $712,000 in the first quarter of 2014.”

  *Revenue for the first quarter of 2014 was $26.2 million, a decrease of 2%
    compared to fourth quarter 2013 revenue of $26.8 million, an increase of
    22% over first quarter 2013 revenue of $21.5 million.

       *Owned & Operated (O&O) Revenue  for the first quarter of 2014 was
         $11.4 million. Compared to the fourth quarter of 2013, O&O revenue
         increased 7% from $10.7 million, the second straight quarter of
         sequential revenue growth for O&O based on improvements in
         monetization. However, it decreased 13% from $13.2 million in the
         first quarter 2013, due to a year-over-year reduction in revenue per
         click from a major partner and a change in the traffic mix that was
         more heavily weighted toward mobile, which monetizes at a lower rate.
       *Network Revenue for the first quarter of 2014 was $14.8 million.
         Network revenue was down 8% compared to $16.1 million in the
         seasonally strong fourth quarter of 2013. However, compared to the
         first quarter of 2013, Network revenue increased 78% from $8.3
         million, mainly due to the increase in revenue from the company’s
         Extended Ad Network and partially offset by a decrease in organic
         traffic to certain Managed Network partner sites. The Extended Ad
         Network is comprised of select online and mobile publishers who have
         available advertising inventory and are looking for access to
         relevant advertisers to generate additional revenue to their sites
         and apps. The Managed Network consists of online publishers that
         implement the company’s white-labeled hosted local search solutions.

  *Gross margin for the first quarter of 2014 was 22%, a decrease from 27% in
    the first quarter of 2013 and 24% in the fourth quarter of 2013. The
    decrease reflects the decline in high-margin organic traffic.
  *GAAP net loss for the first quarter of 2014, which included $1.0 million
    in severance charges, was $2.8 million, or ($0.12) per diluted share. This
    compares to a fourth quarter 2013 GAAP net loss of $1.7 million, or
    ($0.07) per diluted share and a first quarter 2013 GAAP net loss, which
    included $747,000 in severance charges of $3.4 million, or ($0.15) per
    diluted share.
  *Adjusted EBITDA for the first quarter of 2014 was $712,000, or $0.03 per
    diluted share. This compares to fourth quarter 2013 Adjusted EBITDA of
    $1.4 million, or $0.06 per diluted share, and first quarter 2013 Adjusted
    EBITDA of $685,000, or $0.03 per diluted share.
  *Cash balance was $3.7 million as of Mar. 31, 2014, a decrease of
    approximately $1.4 million compared to the Dec. 31, 2013 cash balance of
    $5.1 million, due largely to severance payments.
  *Debt as of Mar. 31, 2014 included borrowings of $9.6 million under its
    Square 1 Bank credit facility and $5.0 million related to its subordinated
    secured convertible notes. The Square 1 Bank credit facility had
    availability of approximately $2.0 million as of Mar. 31, 2014.

First Quarter 2014 Operating Highlights:

Monthly Unique Visitors (MUVs, millions)   Q1 2014   Q4 2013   Q1 2013
Overall Traffic                                 72          80          106
Organic Traffic                                 17          26          49
Mobile Traffic                                  23          31          32
Revenue per thousand Visitors (RKV)          $  189      $  178      $  215

“During the first quarter, we continued to roll out new ad tech products to
increase traffic and revenue,” concluded Thiel. “We believe these new products
were well received by our Network publishers and drove strong growth for our
Extended Ad Network. Also, while we are still in the early stages with the
Krillion platform, we are launching and testing new ad products featuring our
proprietary local shopping data. For example, we partnered with a national
retailer this quarter on nFuse™ powered by Krillion. In 2014, we expect to
launch more new ad products, increase distribution and onboard new
advertisers, retailers and publishers.”

  *Overall traffic on the sites and Network decreased sequentially as
    expected from the seasonally strong fourth quarter. The MUV decrease from
    the prior year period is due to lower organic traffic as a result of
    algorithmic changes by a large search engine that negatively affected
    traffic to many of the company’s Network sites.

  *Organic traffic on the site and Network, defined as all non-SEM sourced
    traffic, decreased sequentially and year-over-year. The company’s Network
    team is working on improving the content and presentation of the Network
    sites, along with other efforts intended to improve the relevance of these
    Network sites, all of which the company believes will increase the level
    of organic traffic received by such sites.
  *Mobile traffic decreased sequentially as expected, due to the change in
    shopping patterns after the holiday season. This year-over-year decrease
    reflects the lower organic traffic.
  *Revenue per thousand visitors (RKV) increased 6% sequentially, reflecting
    the impact of our efforts to enhance the user experience to optimize
    revenue and expand margins. RKV was down 12% year-over-year primarily due
    to the traffic mix, which was more heavily weighted toward mobile, which
    monetizes at a lower rate.

Krillion Highlights:

Krillion, the enterprise-ready flexible platform, seamlessly integrates local
shopping data across multiple distribution channels. The initiative is in its
early stages and will enable the company to generate revenue from data
licensing and performance ad units.

  *Launched nFuse™, a hyperlocal, data-driven mobile ad solution powered by
    Krillion. The company has conducted an nFuse beta test with a national
    retailer in two markets with positive initial results, prompting the
    retailer to extend the test by adding new cities.
  *Launched nStore™, which is powered by Krillion’s where-to-buy StockCheck™
    technology to enable manufacturers to drive shoppers to retailers through
    their branded websites, mobile sites and apps, social channels and rich
    media ads.
  *Released Version 1.5 of the Havvit™ app for iOS^® 7-enabled devices
    powered by Krillion to provide real-time inventory availability that
    informs shoppers if their desired product is in stock and available at
    nearby stores. Version 1.5 also includes Krillion’s smart price comparison
    feature that alerts shoppers if their desired product is available at a
    lower price from another retailer nearby.

Other Highlights:

  *Launched Mobile Display Ad Network providing advertisers and publishers
    with additional reach and exposure for their brands through the
    distribution of relevant display ads across Local’s Extended Ad Network of
    online sites and apps.
  *Launched nList™, which utilizes the company’s proprietary technology to
    enable publishers to build an engaging web page featuring both paid and
    organic content. The solution also provides reporting functionality, which
    is both critical for the company’s publishers and its own internal quality
  *Named Fred Thiel CEO in addition to his continued role as chairman of the

Fiscal 2014 Financial Guidance:

Revenue - The company continues to expect 2014 revenue of between $103 million
and $107 million, which at the mid-point, is an increase of 11% over 2013

Adjusted EBITDA** – The company reiterated expected Adjusted EBITDA for 2014
to be between $3 million and $4 million or between $0.13 and $0.17 per diluted
share, assuming diluted weighted average shares of 23.5 million taking into
account the dilutive effect of stock options and warrants. The decrease from
2013 Adjusted EBITDA is a result of the company’s continued investments in
expanding new initiatives in shopping and mobile and due to lower than
expected gross margins from lower organic traffic.

Projected 2014 Adjusted EBITDA Factors:

  *Interest Expense of $1.7 million
  *Income Tax Provision of $200,000
  *Depreciation Expense of $4.0 million
  *Amortization Expense of $900,000
  *Stock Compensation Expense of $800,000
  *Severance Charges of $1.8 million
  *Warrant and conversion option revaluation expense items are
    undeterminable, but may be significant non-cash gains or losses**

** The valuation of the warrant liability and the conversion option liability
is based in large part on the underlying price and volatility of the company’s
common stock during the period. Since the company cannot predict this, the
company cannot project the non-cash gain or loss in connection with these
warrants and the conversion option, and therefore, cannot reasonably project
its GAAP net income (loss). Therefore, the company cannot provide GAAP
guidance, but does report GAAP results.

Conference Call Information:

CEO and chairman of the board Fred Thiel and CFO Ken Cragun, will host a
conference call today at 5 p.m. ET to discuss the results and outlook.
Investors and analysts can participate in the call by dialing 1-877-883-4693
or 1-315-625-6982, passcode #33027431. To listen to the webcast, or to view
the press release, please visit the Investor Relations section of the Local
Corporation website at: http://ir.local.com.

The replay can be accessed for approximately one week starting at 7:30 p.m. ET
the day of the call by dialing 1-800-585-8367 or 1-404-537-3406, passcode #
33027431. A replay of the webcast will be available for approximately 90 days
on the company’s website, starting approximately one hour after the completion
of the call.

About Local Corporation

Local Corporation (NASDAQ:LOCM) is a leading local advertising technology
company that connects millions of online and mobile consumers with businesses
and products through a variety of innovative digital advertising solutions.
The company’s patented Krillion® local shopping platform aggregates, localizes
and distributes dynamic, national and regional retail shopping content, from
approximately 120,000 store locations, representing nearly 3 million localized
products. For more information, visit: http://www.localcorporation.com or
http://www.krillion.com. To download the company’s iOS® 7-compatible Havvit™
shopping app, go to: iTunes® (http://bit.ly/1d8Y111).

IOS is a trademark or registered trademark of Cisco in the U.S. and other
countries and is used under license.

Forward Looking Statements

This press release contains certain “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Words or expressions such as ‘anticipate,’
‘believe,’ ‘estimate,’ ‘plans,’ ‘expect,’ ‘intend,’ ‘project,’ ‘forecast,’
‘potential,’ ‘feel’ and similar expressions and phrases are intended to
identify such forward-looking statements. Any forward-looking statements are
based on the beliefs of our management as well as assumptions made by and
information currently available to our management. Actual results could differ
materially from those contemplated by the forward-looking statements as a
result of certain factors, including, but not limited to, our advertising
partners paying less revenue per click and revenues to us for our search
results, our ability to purchase advertising from third parties to drive users
to our sites, including at a profit, our ability to adapt our business
following the shifts in our monetization partners, our ability to monetize the
Local.com domain, including at a profit, our ability to retain a monetization
partner for the Local.com domain and other web properties under our management
that allows us to operate profitably, our ability to develop, market and
operate our local-search technologies and our Krillion local shopping
technologies, our ability to maintain and grow the number of Network partner
sites and the aggregate levels of user traffic from such Network partner
sites, our ability to market the Local.com domain as a destination for
consumers seeking local-search results, our ability to adapt to policy and
technological changes promulgated by our advertising partners and traffic
acquisition partners, our ability to grow our business by enhancing our
local-search services, including through businesses we acquire, the
integration and future performance of our Krillion business, the possibility
that the information and estimates used to predict anticipated revenues and
expenses associated with the businesses we acquire are not accurate,
difficulties executing integration strategies or achieving planned synergies,
the possibility that integration costs and go-forward costs associated with
the businesses we acquire will be higher than anticipated, the possibility of
impairment of assets associated with the businesses we have acquired, our
ability to successfully expand our sales channels for new and existing
products and services, our ability to increase the number of businesses that
purchase our advertising products, our ability to expand our advertiser and
distribution networks, our ability to integrate and effectively utilize our
acquisitions’ technologies, our ability to develop our products and sales,
marketing, finance and administrative functions and successfully integrate our
expanded infrastructure, as well as our dependence on major advertisers, our
ability to successfully assert our intellectual property rights, competitive
factors and pricing pressures, changes in legal and regulatory requirements,
and general economic conditions. Any forward-looking statements reflect our
current views with respect to future events and are subject to these and other
risks, uncertainties and assumptions relating to our operations, results of
operations, growth strategy and liquidity. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by this paragraph. Unless otherwise
stated, all site traffic and usage statistics are from third-party service
providers engaged by the company.

Our most recent Annual Report on Form 10-K, our Quarterly Reports on Form
10-Q, recent Current Reports on Form 8-K, and other Securities and Exchange
Commission filings discuss the foregoing risks as well as other important risk
factors that could contribute to such differences or otherwise affect our
business, results of operations and financial condition. The forward-looking
statements in this release speak only as of the date they are made. We
undertake no obligation to revise or update publicly any forward-looking
statement for any reason.

Non-GAAP Financial Measures

This press release includes the non-GAAP financial measure of “Adjusted
EBITDA” which we define as net income (loss) excluding: provision for income
taxes; interest and other income (expense), net; depreciation; amortization;
stock based compensation charges; gain or loss on derivatives’ revaluation;
net income (loss) from discontinued operations; accrued lease liability/asset;
severance charges; LEC reserve; and finance related charges. Adjusted EBITDA,
as defined above, is not a measurement under GAAP. Adjusted EBITDA is
reconciled to net income (loss) which we believe is the most comparable GAAP
measure. A reconciliation of net income (loss) to Adjusted EBITDA is set forth
at the end of this press release.

Management believes that Adjusted EBITDA provides useful information to
investors about the company’s performance because it eliminates the effects of
period-to-period changes in income from interest on the company’s cash,
expense from the company’s financing transactions and the costs associated
with income tax expense, capital investments, stock-based compensation
expense, net income (loss) from discontinued operations, derivatives’
revaluation charges; accrued lease liability/asset; severance charges; LEC
reserve; and finance related charges which are not directly attributable to
the underlying performance of the company’s business operations. Management
uses Adjusted EBITDA in evaluating the overall performance of the company’s
business operations.

A limitation of non-GAAP Adjusted EBITDA is that it excludes items that often
have a material effect on the company’s net income (loss) and earnings per
common share calculated in accordance with GAAP. Therefore, management
compensates for this limitation by using Adjusted EBITDA in conjunction with
net income (loss) and net income (loss) per share measures. The company
believes that Adjusted EBITDA provides investors with an additional tool for
evaluating the company’s core performance, which management uses in its own
evaluation of overall performance, and as a base-line for assessing the future
earnings potential of the company. While the GAAP results are more complete,
the company prefers to allow investors to have this supplemental metric since,
with reconciliation to GAAP; it may provide greater insight into the company’s
financial results. The non-GAAP measures should be viewed as a supplement to,
and not as a substitute for, or superior to, GAAP net income (loss) or
earnings (loss) per share.

(in thousands, except par value)

                                               March 31,      December 31,
                                                 2014             2013
Current assets:
Cash                                             $ 3,711          $ 5,069
Accounts receivable, net of allowances of          18,219           17,298
$655 and $533, respectively
Escrow receivable                                  390              390
Prepaid expenses and other current assets         701            957      
Total current assets                               23,021           23,714
Property and equipment, net                        6,134            6,073
Goodwill                                           19,281           19,281
Intangible assets, net                             2,214            2,439
Long-term receivable, net of allowances of         -                -
$3,431 and $3,431, respectively
Deposits                                          72             72       
Total assets                                     $ 50,722        $ 51,579   
Current liabilities:
Accounts payable                                 $ 14,371         $ 12,786
Accrued compensation                               1,294            1,462
Deferred rent                                      273              323
Warrant liability                                  710              537
Other accrued liabilities                          1,587            2,403
Revolving line of credit                           9,567            7,342
Current portion of term loan                       -                1,500
Deferred revenue                                  195            202      
Total current liabilities                          27,997           26,555
Long-term portion of term loan                     -                375
Senior secure convertible notes, net of            4,435            4,017
discount of $1,276 and $1,533, respectively
Deferred income taxes                             621            347      
Total liabilities                                 33,053         31,294   
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.00001 par
value; 10,000 shares authorized; none issued       -                -
and outstanding for all periods presented
Common stock, $0.00001 par value; 65,000
shares authorized; 23,227 and 23,038 issued        -                -
and outstanding, respectively
Additional paid-in capital                         124,461          124,249
Accumulated deficit                               (106,792 )      (103,964 )
Stockholders’ equity                              17,669         20,285   
Total liabilities and stockholders’ equity       $ 50,722        $ 51,579   

(in thousands, except per share data)

                                                    Three Months Ended
                                                     March 31,
                                                     2014         2013
Revenue                                              $ 26,180      $ 21,463 
Costs and expenses:
Cost of revenues                                       20,405         15,594
Sales and marketing                                    2,350          3,179
General and administrative                             3,318          2,947
Research and development                               1,559          1,735
Amortization of intangibles                           225          231    
Total operating expenses                              27,857       23,686 
Operating loss                                         (1,677 )       (2,223 )
Interest and other income (expense), net               (543   )       (842   )
Change in fair value of derivative liabilities        (334   )      5      
Loss from continuing operations before income          (2,554 )       (3,060 )
Provision for income taxes                            274          72     
Net loss from continuing operations                    (2,828 )       (3,132 )
Income (loss) from discontinued operations (net of    -            (221   )
Net loss                                             $ (2,828 )     $ (3,353 )
Per share data:
Basic net loss per share from continuing             $ (0.12  )     $ (0.14  )
Basic net loss per share from discontinued           $ -           $ (0.01  )
Basic net loss per share                             $ (0.12  )     $ (0.15  )
Diluted net loss per share from continuing           $ (0.12  )     $ (0.14  )
Diluted net loss per share from discontinued         $ -           $ (0.01  )
Diluted net loss per share                           $ (0.12  )     $ (0.15  )
Basic weighted average shares outstanding              23,225         22,564
Diluted weighted average shares outstanding            23,225         22,564

Supplemental Consolidated Statements of Operations Information
Stock-based Compensation Expense *
(in thousands, except per share data)

                                                          Three Months Ended
                                                            March 31,
                                                            2014      2013
Cost of revenues                                            $  12       $ 28
Sales and marketing                                            29         134
General and administrative                                     195        290
Research and development                                      17        82
Total stock-based compensation expense                      $  253      $ 534
Basic and diluted net stock-based compensation expense      $  0.01     $ 0.02
per share

*- Excludes impact of discontinued operations.

(in thousands)

                                                Three Months Ended March 31,
                                                  2014            2013
Cash flows from operating activities:
Net loss                                          $  (2,828  )      $ (3,353 )
Adjustments to reconcile net loss to cash
(used in) provided by operating activities:
Depreciation and amortization                        1,104            1,267
Provision for doubtful accounts                      150              -
Stock-based compensation expense                     253              543
Loss on exchange of warrants                         -                723
Change in fair value of derivative                   334              (5     )
Non-cash interest expense                            257              -
Deferred income taxes                                274              -
Changes in operating assets and liabilities:
Accounts receivable                                  (1,071  )        (98    )
Long-term receivable                                 -                6
Note receivable                                      -                50
Prepaid expenses and other                           256              (359   )
Other non-current assets                             -                (10    )
Accounts payable and accrued liabilities             551              2,253
Deferred revenue                                    (7      )       40     
Net cash (used in) provided by operating            (727    )       1,057  
Cash flows from investing activities:
Capital expenditures                                (940    )       (635   )
Net cash used in investing activities               (940    )       (635   )
Cash flows from financing activities:
Proceeds from exercise of options                    -                1
Payment of financing related costs                   (41     )        (94    )
Payment of term loan                                 (1,875  )        -
Proceeds from (payment of) revolving credit         2,225          (958   )
Net cash provided by (used in) financing            309            (1,051 )
Net decrease in cash                                 (1,358  )        (629   )
Cash, beginning of period                           5,069          3,696  
Cash, end of period                               $  3,711         $ 3,067  
Supplemental Cash Flow Information:
Interest paid                                     $  202           $ 118    
Income taxes paid                                 $  -             $ -      

(in thousands, except per share amounts)

                                                              Three Months
                                 Three Months Ended March 31,     December 31,
                                 2014            2013           2013
Net loss                         $  (2,828  )      $ (3,353 )     $  (1,679  )
Less interest and other             543              842             522
income (expense), net
Plus provision (benefit) for        274              72              18
income taxes
Plus amortization of                225              231             225
Plus depreciation                   879              904             1,120
Plus stock-based                    253              534             207
Less revaluation of                 334              (5     )        (871    )
Plus net loss from                  -                221             90
discontinued operations
Plus LEC reserve                    -                -               1,721
Plus accrual for lease              -                256             -
Plus finance related charges        -                236             -
Plus severance charges             1,032          747           -       
Adjusted EBITDA                  $  712           $ 685         $  1,353   
Diluted Adjusted EBITDA per      $  0.03          $ 0.03        $  0.06    
Diluted weighted average            23,254           22,687          23,231
shares outstanding


Investor Relations Contact:
Kirsten Chapman, 415-433-3777
Media Relations Contact:
Local Corporation
Cameron Triebwasser, 949-789-5223
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