ReachLocal, Inc.
May 1, 2012

ReachLocal Reports First Quarter 2012 Results

Direct Local Revenue Grows 27%, International Revenue Grows 60%

Raises Guidance for the Year

WOODLAND HILLS, Calif--(BUSINESS WIRE)-- ReachLocal, Inc. (NASDAQ:RLOC), a leader in local online marketing solutions for small- and medium-sized businesses (SMBs), today reported financial results for the first quarter ended March 31, 2012.

Management Commentary

"ReachLocal delivered strong first quarter results due to strong international demand for our online marketing solutions for SMBs and strengthening demand for our products in North America as the economy showed signs of improvement," said Zorik Gordon, CEO of ReachLocal.

"As we move through 2012, we intend to continue to grow our distribution capabilities through our local salesforce, enhance our technology platform including mobile and local commerce initiatives and continue our global expansion," said Gordon.

Quarterly Results at a Glance

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

  Q1 2012   Q1 2011   % Change
Revenue $104,003 $ 84,058 24%
Net Loss from Continuing Operations $(1,006) $(2,672) 62%
Net Loss from Continuing Operations per Diluted Share $(0.03) $(0.09) 63%
Net Loss $(1,006) $(3,447) 71%
Net Loss per Diluted Share $(0.03) $(0.12) 71%
Non-GAAP Net Income $ 1,959 $ 279 602%
Non-GAAP Net Income per Diluted Share $0.07 $0.01 575%
Adjusted EBITDA $ 4,022 $ 1,698 137%
Underclassmen Expense $ 11,055 $ 10,396 6%
Cash Flow from Continuing Operations $ 13,354 $ 4,568 192%
Cash Flow from Operating Activities $ 13,218 $ 4,029 228%


Revenue by Channel and Geography:

Direct Local Revenue $ 81,740 $ 64,515 27%
National Brands, Agencies and Resellers (NBAR) Revenue $ 22,263 $ 19,543 14%
International Revenue (included above) $ 27,527 $ 17,206 60%

Key Metrics (at period end):

Active Advertisers 20,400 17,400 17%
Active Campaigns 30,100 24,300 24%
Total Upperclassmen 381 303 26%
Total Underclassmen 417 435 (4)%
Total IMCs 798 738 8%

ReachLocal's Bizzy operations are reported as a discontinued operation. A table reconciling the impact of this classification on prior periods is available on the Company's investor relations site.

Business Outlook

"We are pleased with our performance for the quarter and are cautiously optimistic regarding the North American economy," said Ross Landsbaum, Chief Financial Officer. "Based on our performance to date and the improving economic climate, we are raising our full-year 2012 guidance. We expect 2012 revenue to be in the range of $439 million to $454 million, and Adjusted EBITDA to be in the range of $18 million to $22 million."

The Company's outlook is as follows:

Second Quarter 2012

Fiscal Year 2012

Conference Call and Webcast Information

The ReachLocal first quarter 2012 teleconference and webcast is scheduled to begin at 2:00 p.m., Pacific Time, on Tuesday, May 1, 2012, during which the Company will provide forward-looking information. To participate on the live call, analysts and investors should dial 877-941-4774 at least ten minutes prior to the call. ReachLocal will also offer a live and archived webcast of the conference call, accessible from the "Investors" section of the Company's Web site at

Use of Non-GAAP Measures

ReachLocal management evaluates and makes operating decisions using various financial and operational metrics. In addition to the Company's GAAP results, Management also considers non-GAAP measures of non-GAAP net income (loss), non-GAAP net income (loss) per share, and Adjusted EBITDA. Management believes that these non-GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. The attached tables provide a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Management also tracks and reports on Underclassmen Expense, Active Advertisers, Active Campaigns and the total number of Internet Marketing Consultants (IMCs), as management believes that these metrics are important gauges of the progress of the Company's performance.

The non-GAAP net income is defined as net income (loss) from continuing operations before (a) stock-based compensation related expense (including the related adjustment to amortization of capitalized software development costs) and (b) acquisition related costs. Adjusted EBITDA is defined as net income (loss) from continuing operations before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, stock-based compensation, the effects of accounting for business combinations (including any impairment of acquired intangibles and, in the case of the acquisition of SMB:LIVE, the deferred cash consideration) and amounts included in other non-operating income or expense.

Acquisition Related Costs: Acquisition related costs, including the amortization and any impairment of acquired intangibles and the deferred cash consideration for the SMB:LIVE acquisition, are excluded from the non-GAAP operating results as these are non-recurring charges which the Company would not have incurred as part of continuing operations. This definition therefore excludes the effect of the impairment of certain intangibles acquired in the DealOn acquisition.

Each of these non-GAAP measures, while having utility, also have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of these limitations are:

Adjusted EBITDA is not intended to replace operating income (loss), net income (loss) and other measures of financial performance reported in accordance with GAAP. Rather, Adjusted EBITDA is a measure of operating performance that may be considered in addition to those measures. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to the Company to invest in the growth of the business.

Underclassmen Expense is a number the Company calculates to approximate its investment in Underclassmen and is comprised of the selling and marketing expenses allocated to Underclassmen during a reporting period. The amount includes the direct salaries and allocated benefits of the Underclassmen (excluding commissions), training and sales organization expenses including depreciation allocated based on relative headcount and marketing expenses allocated based on relative revenue. While management believes that Underclassmen Expense provides useful information regarding the Company's approximated investment in Underclassmen, the methodology used to arrive at the estimated Underclassmen Expense was developed internally by the Company, is not a concept or method recognized by GAAP and other companies may use different methodologies to calculate or approximate measures similar to Underclassmen Expense. Accordingly, the calculation of Underclassmen Expense may not be comparable to similar measures used by other companies. Management refers to sales through its sales force of Internet Marketing Consultants as its Direct Local channel. As the sale to agencies, resellers and national brands involves negotiations with businesses that generally represent an aggregated group of SMB advertisers, management groups them together as the National Brands, Agencies and Resellers (NBAR) channel.

Active Advertisers is a number the Company calculates to approximate the number of clients directly served through our Direct Local channel as well as clients served through our National Brands, Agencies and Resellers channel. We calculate Active Advertisers by adjusting the number of Active Campaigns to combine clients with more than one Active Campaign as a single Active Advertiser. Clients with more than one location are generally reflected as multiple Active Advertisers. Because this number includes clients served through the National Brands, Agencies and Resellers channel, Active Advertisers includes entities with which we do not have a direct client relationship. Numbers are rounded to the nearest hundred.

Active Campaigns is a number we calculate to approximate the number of individual products or services we are managing under contract for Active Advertisers. For example, if we were performing both ReachSearch and ReachDisplay campaigns for a client, we consider that two Active Campaigns. Similarly, if a client purchased ReachSearch campaigns for two different products or purposes, we consider that two Active Campaigns. Numbers are rounded to the nearest hundred.

Caution Concerning Forward-Looking Statements

Statements in this press release regarding the Company's guidance for future periods and the quotes from management constitute "forward-looking" statements within the meaning of the Securities Exchange Act of 1934. These statements reflect the Company's current views about future events and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to materially differ from those expressed or implied by the forward-looking statements. Actual events or results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including: (i) the Company's ability to purchase media and receive rebates from Google, Yahoo! and Microsoft under commercially reasonable terms; (ii) the Company's ability to recruit, train and retain its Internet Marketing Consultants; (iii) the Company's ability to attract and retain customers; (iv) the Company's ability to successfully enter new markets and manage its international expansion; (v) the Company's ability to successfully develop and offer new products and services in the highly competitive online advertising industry; (vi) the impact of worldwide economic conditions, including the resulting effect on advertising budgets; and (vii) our ability to comply with government regulation affecting our business, including regulations or policies governing consumer privacy. More information about these factors and other potential factors that could affect the Company's business and financial results is contained in its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K . The Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.

About ReachLocal, Inc.

ReachLocal, Inc.'s (NASDAQ:RLOC) mission is to help small- and medium-sized businesses (SMBs) acquire, maintain and retain customers via the Internet. ReachLocal offers a comprehensive suite of online marketing solutions, including search engine marketing (ReachSearch™), Web presence (ReachCast™), display advertising and remarketing (ReachDisplay™), online marketing analytics (TotalTrack®), and assisted chat service (TotalLiveChat™), each targeted to the SMB market. ReachLocal delivers this suite of services to SMBs through a combination of its proprietary technology platform and its direct, "feet-on-the-street" sales force of Internet Marketing Consultants and select third-party agencies and resellers. ReachLocal is headquartered in Woodland Hills, CA, with offices throughout North America and in Australia, the United Kingdom, Germany, the Netherlands and Japan.

(in thousands, except per share data)
March 31, December 31,
2012 2011
Current assets:
Cash and cash equivalents $ 90,336 $ 84,525
Short-term investments 497 644
Accounts receivable, net 4,388 4,240
Other receivables and prepaid expenses   8,354     9,226  
Total current assets 103,575 98,635
Property and equipment, net 11,321 9,885
Capitalized software development costs, net 11,643 10,942
Restricted certificates of deposit 1,069 1,286
Intangible assets, net 1,472 1,957
Goodwill 41,766 41,766
Other assets   1,991     1,966  
Total assets $ 172,837   $ 166,437  
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 32,541 $ 29,831
Accrued expenses 20,634 19,537
Deferred revenue and other liabilities 35,025 30,747
Liabilities of discontinued operations, net   860     996  
Total current liabilities 89,060 81,111
Deferred rent and deferred payment obligations   2,686     3,039  
Total liabilities   91,746     84,150  
Stockholders' Equity:
Common stock - -
Receivable from stockholder (87 ) (87 )
Additional paid-in capital 108,596 108,883
Accumulated deficit (27,240 ) (26,234 )
Accumulated other comprehensive loss   (178 )   (275 )
Total stockholders' equity   81,091     82,287  
Total liabilities and stockholders' equity $ 172,837