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 amounts)                                                                 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 share*                                                                      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     assessments.   *Named Fred Thiel CEO in addition to his continued role as chairman of the     board.  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 revenue.  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.   LOCAL CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (Unaudited)                                                 March 31,      December 31,                                                  2014             2013 ASSETS 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                                                                                                                                          LIABILITIES AND STOCKHOLDERS’ EQUITY 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       LOCAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited)                                                      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 ) taxes                                                                      Provision for income taxes                            274          72                                                                           Net loss from continuing operations                    (2,828 )       (3,132 ) Income (loss) from discontinued operations (net of    -            (221   ) taxes) Net loss                                             $ (2,828 )     $ (3,353 )                                                                      Per share data: Basic net loss per share from continuing             $ (0.12  )     $ (0.14  ) operations Basic net loss per share from discontinued           $ -           $ (0.01  ) operations Basic net loss per share                             $ (0.12  )     $ (0.15  )                                                                      Diluted net loss per share from continuing           $ (0.12  )     $ (0.14  ) operations Diluted net loss per share from discontinued         $ -           $ (0.01  ) operations 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    LOCAL CORPORATION Supplemental Consolidated Statements of Operations Information Stock-based Compensation Expense * (in thousands, except per share data) (Unaudited)                                                            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.    LOCAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)                                                  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     ) liabilities 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   activities                                                                      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   ) facility Net cash provided by (used in) financing            309            (1,051 ) activities 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                                 $  -             $ -          LOCAL CORPORATION RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (in thousands, except per share amounts) (Unaudited)                                                                Three Months                                                                   Ended                                  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 intangibles Plus depreciation                   879              904             1,120 Plus stock-based                    253              534             207 compensation Less revaluation of                 334              (5     )        (871    ) derivatives Plus net loss from                  -                221             90 discontinued operations Plus LEC reserve                    -                -               1,721 Plus accrual for lease              -                256             - liability 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     share                                                                    Diluted weighted average            23,254           22,687          23,231 shares outstanding   Contact:  Investor Relations Contact: LHA Kirsten Chapman, 415-433-3777 local@lhai.com or Media Relations Contact: Local Corporation Cameron Triebwasser, 949-789-5223 ctriebwasser@local.com