Local Corporation Reports Second Quarter 2014 Financial Results

  Local Corporation Reports Second Quarter 2014 Financial Results

 Reiterates 2014 guidance: Revenue range of $103 million to $107 million and
              Adjusted EBITDA range of $3 million to $4 million

Business Wire

IRVINE, Calif. -- August 12, 2014

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

“We continue to transform our business to deliver rich and relevant content to
consumers by leveraging our local search expertise and proprietary
technology,” said Fred Thiel, Local Corporation chairman and CEO. “Our Owned &
Operated (O&O) business, led by our flagship site, Local.com, continues to
execute on strategic initiatives. Our focus on the consumer search experience
and our enterprise partner relationships yielded year-over-year revenue growth
for O&O with improved traffic and monetization.

“In our Network business, we continued a significant effort to improve traffic
quality during the quarter. We believe traffic quality is critical to
attracting advertisers, which increases revenue and expands margin. While the
Network benefited from rapid traffic growth over the past year, the Network
traffic quality was impaired by persistent efforts on the part of
sophisticated third parties intent on defrauding advertisers for their own
gain. All advertising companies are faced with this challenge, as has been
widely reported in the news in recent periods.

“While we are not alone in this challenge, we are intent on leading the charge
to overcome it. In the last two quarters alone, we have implemented very
aggressive traffic quality monitoring and filtering tools. We believe these
tools, together with those of our advertising partners, combined with
continued vigilance will improve traffic quality and ensure the value of our
Network to advertisers. In the short term, the impact of traffic that was
disqualified, due to quality issues, has resulted in decreased Network traffic
and revenue in the second quarter. Nevertheless, with improved traffic quality
tools and the addition of new sites and partners that meet our high-quality
traffic standards, we expect the Network to return to growth, as we exit 2014.

“Our innovation efforts are advancing with great strides. This quarter in the
mobile segment of our business we achieved a major milestone with the launch
of nQuery™, our new white-label search experience that opens up the market for
mobile carriers and other enterprise partners to participate in revenue from
mobile search. Our initial nQuery relationships are expected to give Local
Corporation potentially significant market share in the Tier II mobile phone
carrier marketplace and contribute significant incremental revenue later this
year and into 2015. Mobile is the fastest growing segment of search, according
to BIA/Kelsey, as mobile local ad revenues are projected to more than triple
over the next five years, reaching $15.7 billion in 2018.

“As we move through the second half of 2014 and into 2015, our new product
releases are expected to drive incremental top-line growth and improved
profitability. We remain excited about the large opportunities ahead of us in
the local search space and reiterate our 2014 guidance.”

Second Quarter 2014 Financial Highlights:

  *Reported total revenue of $22.5 million; O&O revenue grew 14%
    year-over-year.
  *Increased cash balance to $6.7 million at June 30, up $3.0 million from
    March 31.
  *Improved net loss 63% year-over-year to $1.3 million.
  *Delivered Adjusted EBITDA of $1.0 million, positive for the sixth
    consecutive quarter.
  *Reported $204 revenue per thousand visitors (RKVs), up 8% sequentially,
    the second consecutive quarter of improvement.
  *Reiterated 2014 guidance: Revenue midrange expected to increase 11%
    compared to 2013, and Adjusted EBITDA is expected to be between $3 million
    and $4 million.

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

“Our second quarter O&O revenue grew 14% year-over-year, again exceeding
internal revenue expectations,” said Ken Cragun, Local Corporation CFO. “This
reflects our ability to increase the number of visits by high-intent local
consumers and improve monetization. In the Network, we focused on improving
traffic quality by augmenting our traffic quality tools and processes to
better identify low-quality or invalid traffic and ending relationships with
associated publishing partners. This resulted in a lower revenue run-rate in
the near term, but is expected to enhance our long-term position. In the
second quarter, we are pleased to report that we grew our cash balance by $3.0
million, reduced our debt by $700,000, and delivered positive Adjusted EBITDA
for the sixth consecutive quarter. We remain confident in the momentum of our
O&O business and new mobile search initiatives and, accordingly, we confirm
our 2014 guidance.”

Business Highlights

  *Local Search Growth: Local Corporation continues to implement improved
    traffic acquisition and monitoring tools, infrastructure updates and user
    interface enhancements to increase search traffic, which delivered 14%
    growth for the company’s O&O business. During the second quarter, overall
    traffic reached 73 million monthly unique visitors (“MUV”), up from 72
    million in the first quarter of 2014, and RKV increased to $204 from $189
    for the same periods. The company is also encouraged by recent
    enhancements to the relevance of local search results by one of the major
    search engines. This is expected to result in a significant increase in
    organic traffic and ad conversions, which the company believes will lead
    to an improvement in gross margins.
  *New Mobile Initiatives: Local Corporation continues to be committed to
    taking local search across multiple screens where consumers are spending
    more time searching for the products and services they need and want. The
    company recently launched nQuery™ by Local, which provides a
    white-labeled, hosted search solution that powers customized local search
    experiences and supports the company’s goal to populate local search
    across the Internet of everything. The company recently entered into
    partnerships with entities that specialize in monetizing subscriber
    traffic for mobile operators and Wi-Fi networks. Through these
    partnerships, Local Corporation will power search for a major US mobile
    carrier, 18 international and prepaid MVNO’s and 10,000 U.S. hotels
    currently under contract. nQuery is already powering millions of user
    searches per month and is expected to grow significantly with the
    onboarding of new partners.
  *Local Shopping Expansion: The company is in the process of integrating an
    engaging consumer shopping discovery experience powered by Krillion® into
    its O&O properties. This destination is expected to grow and further
    monetize the highly relevant O&O traffic base as well as increase repeat
    visitor traffic. We believe the value of the Krillion technology is that
    it seamlessly ingests, aggregates and localizes various types of dynamic
    data and distributes this rich content across multiple channels.
  *Innovation Focus: The company recently established Local Labs, which is
    expected to serve as a digital technology hub and start-up incubator
    focused on innovating the digital ecosystem. This team will be
    spearheading concept creation for several new product categories and
    customer use cases. The company is keenly focused on investing in
    innovation as a primary vehicle for growth.
  *Intellectual Property Update: This quarter, the company was granted its
    thirteenth patent, which covers an online advertising monetization and
    yield optimization method and/or system and also began the process of
    establishing a flexible organizational structure to pursue its Krillion
    data and IP licensing strategy. In July, the company’s cascading menu
    patent trial was stayed pending completion of an administrative action
    with the United States Patent and Trademark Office. The trial is expected
    to resume after the completion of such action.
  *Strengthened Leadership: In June, the board appointed two new directors.
    David M. Hughes, CEO of The Search Agency, brings 15 years of strategic
    executive leadership experience with specialties in global digital
    marketing and managed services and software-as-a-service platform
    products. John M. Payne, CEO of SimpleAir, Inc., has 30 years of
    experience leading public and private companies specializing in early
    stage software and technology companies, as well as IP licensing
    strategies.

Fiscal 2014 Financial Guidance:

Revenue for 2014 is expected to be in the range of $103 million to $107
million, which at the mid-point is an increase of 11% over 2013 revenue.

Adjusted EBITDA** for 2014 is expected to be in the range of $3 million to $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. 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:

Chairman and CEO Fred Thiel and CFO Ken Cragun will host a conference call
today at 5 p.m. ET to discuss the results and outlook. To participate in the
call, please dial-in 10 minutes in advance to 1-877-883-4693 or
1-315-625-6982, passcode #79486261. To listen to the webcast and download the
associated presentation, 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
#79486261. 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 search and 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® data ingestion 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
while also maintaining the quality level of such traffic, 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;
and severance 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; and severance 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)
                                                                  
                                                   June 30,       Dec 31,
                                                    2014         2013     
ASSETS
Current assets:
  Cash                                             $ 6,676        $ 5,069
  Accounts receivable, net of allowances of $297     12,769         17,298
  and $533, respectively
  Escrow receivable                                  -              390
  Prepaid expenses and other current assets         567          957      
              Total current assets                   20,012         23,714
                                                                  
Property and equipment, net                          6,343          6,073
Goodwill                                             19,281         19,281
Intangible assets, net                               1,989          2,439
Long-term receivable, net of allowances of           -              -
$3,431 and $3,431, respectively
Deposits                                            72           72       
Total assets                                       $ 47,697      $ 51,579   
                                                                  
                                                                  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
  Accounts payable                                 $ 12,289       $ 12,786
  Accrued compensation                               2,013          1,462
  Deferred rent                                      224            323
  Warrant liability                                  743            537
  Other accrued liabilities                          1,681          2,403
  Revolving line of credit                           8,867          7,342
  Current portion of term loan                       -              1,500
  Deferred revenue                                  192          202      
              Total current liabilities              26,009         26,555
                                                                  
Long-term portion of term loan                       -              375
Senior secure convertible notes, net of debt         4,743          4,017
discount of $999 and $1,533, respectively
Deferred income taxes                               444          347      
Total liabilities                                   31,196       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; 23,230 and 23,038 issued        -              -
  and outstanding, respectively
  Additional paid-in capital                         124,623        124,249
  Accumulated deficit                               (108,122 )    (103,964 )
              Stockholders’ equity                  16,501       20,285   
Total liabilities and stockholders’ equity         $ 47,697      $ 51,579   
                                                                             

                                                  
LOCAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
                                                       
                             Three Months Ended        Six Months Ended

                             June 30,                  June 30,
                              2014      2013       2014      2013   
Revenue                      $ 22,514    $ 22,656    $ 48,694    $ 44,120 
Costs and expenses:
  Cost of revenues             16,512       16,452       36,917       32,046
  Sales and marketing          2,166        2,009        4,516        5,189
  General and                  3,238        2,845        6,556        5,791
  administrative
  Research and development     1,252        1,500        2,811        3,236
  Amortization of             225        231        450        462    
  intangibles
                                                                    
        Total operating       23,393     23,037     51,250     46,724 
        expenses
                                                                    
Operating loss                 (879   )     (381   )     (2,556 )     (2,604 )
                                                                    
  Interest and other           (564   )     (420   )     (1,107 )     (1,262 )
  income (expense), net
  Change in fair value of
  conversion option and       (64    )    638        (398   )    642    
  warrant liability
                                                                    
Loss from continuing
operations before income       (1,507 )     (163   )     (4,061 )     (3,224 )
taxes
                                                                    
  Provision for (benefit      (177   )    159        97         230    
  from) income taxes
                                                                    
Net loss from continuing       (1,330 )     (322   )     (4,158 )     (3,454 )
operations
Loss from discontinued        -          (3,264 )    -          (3,485 )
operations (net of taxes)
Net loss                     $ (1,330 )   $ (3,586 )   $ (4,158 )   $ (6,939 )
                                                                    
Per share data:
                                                                    
Basic and diluted net loss
per share from continuing    $ (0.06  )   $ (0.01  )   $ (0.18  )   $ (0.15  )
operations
Basic and diluted net loss
per share from               $ (0.00  )   $ (0.14  )   $ (0.00  )   $ (0.15  )
discontinued operations
Basic net income loss per    $ (0.06  )   $ (0.16  )   $ (0.18  )   $ (0.31  )
share
                                                                    
                                                                    
Basic weighted average         23,228       22,877       23,226       22,721
shares outstanding
Diluted weighted average       23,228       22,877       23,226       22,721
shares outstanding
                                                                             

                                               
LOCAL CORPORATION
Supplemental Consolidated Statements of Operations Information
Revenue Breakdown
(in thousands)
(Unaudited)
                                                    
                       Q2 2014        Q1 2014       Q2 2013
Owned & Operated       $   12,602     $  11,417     $  11,066
Network                   9,912        14,763       11,590
Revenue                $   22,514     $  26,180     $  22,656
                                                       

                                                          
LOCAL CORPORATION
Supplemental Consolidated Statements of Operations Information
Stock-based Compensation Expense *
(in thousands, except per share data)
(Unaudited)
                                                              
                                         Three Months Ended   Six Months Ended
                                         June 30,             June 30,
                                           2014     2013    2014   2013
Cost of revenues                         $  11       $ 31     $ 23     $ 59
Sales and marketing                         25         116      53       250
General and administrative                  110        306      306      596
Research and development                   17        73      34      156
Total stock-based compensation expense*  $  163      $ 526    $ 416    $ 1,061
                                                                       
Basic and diluted net stock-based        $  0.01     $ 0.02   $ 0.02   $ 0.05
compensation expense per share
                                                                         
*- Excludes impact of discontinued operations.
                                                                         

                                                   
LOCAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
                                                     
                                                     Six Months Ended June 30,
                                                       2014       2013   
Cash flows from operating activities:
Net loss                                             $  (4,158  )   $ (6,939 )
Adjustments to reconcile net loss to cash provided
(used in) by operating activities:
Depreciation and amortization                           2,253         2,569
Provision for doubtful accounts                         450           350
Stock-based compensation expense                        416           1,077
Loss on exchange of warrants                            -             723
Change in fair value of derivative liabilities          398           (642   )
Non-cash interest expense                               534           186
Impairment of goodwill and intangible assets            -             3,051
Deferred income taxes                                   97            -
Changes in operating assets and liabilities:
Accounts receivable                                     4,079         (3,162 )
Long-term receivable                                    -             (137   )
Note receivable                                         -             101
Prepaid expenses and other                              390           (752   )
Accounts payable and accrued liabilities                (767    )     2,469
Deferred revenue                                       (10     )    (9     )
Net cash provided by (used in) operating               3,682       (1,115 )
activities
                                                                    
Cash flows from investing activities:
Restricted Cash                                         -             42
Capital expenditures                                    (2,073  )     (1,397 )
Proceeds from escrow payout                            390         -      
Net cash used in investing activities                  (1,683  )    (1,355 )
                                                                    
Cash flows from financing activities:
Proceeds from issuance of senior secured                -             5,000
convertible notes and warrants
Proceeds from exercise of options                       4             21
Payment of financing related costs                      (46     )     (108   )
Payment of term loan                                    (1,875  )     -
Proceeds from (payment of) revolving credit            1,525       (1,333 )
facility
Net cash (used in) provided by financing               (392    )    3,580  
activities
Net increase in cash                                    1,607         1,110
Cash, beginning of period                              5,069       3,696  
Cash, end of period                                  $  6,676      $ 4,806  
                                                                    
Supplemental Cash Flow Information:
Interest paid                                        $  411        $ 247    
Income taxes paid                                    $  -          $ 2      
                                                                    
Non-cash financing activities
Derivative liabilities recorded in connection with
the issuance of senior convertible notes and         $  -          $ 2,182  
warrants
                                                                             

                                                            
LOCAL CORPORATION
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA
(in thousands, except per share amounts)
(Unaudited)
                                                                 
                                       Three Months Ended        Three Months
                                       June 30,                  Ended
                                                                 March 31,
                                        2014      2013        2014    
Net loss                               $ (1,330 )   $ (3,586 )   $  (2,828  )
                                                                 
Less interest and other income           564          420           543
(expense), net
Plus provision (benefit) for income      (177   )     159           274
taxes
Plus amortization of intangibles         225          231           225
Plus depreciation and amortization       924          934           879
Plus stock-based compensation            163          526           253
Less revaluation of derivatives          64           (638   )      334
Plus net loss from discontinued          -            3,264         -
operations
Plus accrual for lease                   -            (155   )      -
liability/(assets)
Plus severance charges                  572        20          1,032   
                                                                 
Adjusted EBITDA                        $ 1,005     $ 1,175     $  712     
                                                                 
Diluted Adjusted EBITDA per share      $ 0.04      $ 0.05      $  0.03    
                                                                 
Diluted weighted average shares          23,306       23,051        23,254
outstanding
                                                                            

                                                          
LOCAL CORPORATION
OPERATING HIGHLIGHTS
                                                             
Monthly Unique Visitors (MUVs, millions) Q2 2014   Q1 2014   Q2 2013
Overall Traffic                          73        72        93
Organic Traffic                          16        17        43
Mobile Traffic                           21        23        34
                                                             
Revenue per thousand Visitors (RKV)      $204      $189      $199

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
 
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