ReachLocal Reports Second Quarter 2012 Results

Raises Full Year Guidance Based on Strong First Half of 2012

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 second quarter ended June 30, 2012.

• Revenue growth of 21% over the second quarter of 2011, highlighted by 43% growth in international markets and 23% growth in the direct local channel
• International revenue expanded to 26% of revenue from 22% for the prior year period. On a constant foreign exchange basis, international revenue grew 50% from the prior year period and consolidated revenue grew 23%
• Adjusted EBITDA grew 34% to $5.9 million, compared to $4.4 million for the prior year period
• Active Advertisers grew 17% to 21,300 and Active Campaigns grew 24% to 31,500 from the prior year period
• Repurchased $1.2 million or 134,000 shares of stock ($10.7 million or 1,410,000 shares to date) under the company's $20 million buy-back authorization

Management Commentary

"Significant growth across all of our geographies and sales channels, combined with solid gains in advertisers and campaigns over the prior year period resulted in a strong second quarter for ReachLocal," said Zorik Gordon, CEO. "Looking ahead to the second half of 2012 we intend to expand our global footprint, both in terms of entering new markets and expanding our salesforce in existing foreign markets to further leverage the solid productivity trends of our international IMCs. We also plan to introduce new products in the areas of online advertising, mobile and local commerce in the second half of 2012."

Quarterly Results at a Glance

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

		Q2 2012				Q2 2011				% Change
Revenue		$112,212				$92,752				21%
Net Income (Loss) from Continuing Operations		$332				$(276)				220%
Net Income (Loss) from Continuing Operations per Diluted Share		$0.01				$(0.01)				200%
Net Income (Loss)		$332				$(949)				135%
Net Income (Loss) per Diluted Share		$0.01				$(0.03)				133%
Non-GAAP Net Income		$3,402				$3,023				13%
Non-GAAP Net Income per Diluted Share		$0.12				$0.10				20%
Adjusted EBITDA		$5,947				$4,446				34%
Underclassmen Expense		$11,328				$10,728				6%
Cash Flow from Continuing Operations		$9,203				$9,139				1%
Cash Flow from Operating Activities		$9,161				$8,835				4%
Revenue by Channel and Geography:
Direct Local Revenue		$88,246				$71,839				23%
National Brands, Agencies and Resellers (NBAR) Revenue		$23,966				$20,913				15%
International Revenue (included above)		$29,536				$20,670				43%
Key Metrics (at period end):
Active Advertisers		21,300				18,200				17%
Active Campaigns		31,500				25,500				24%
Total Upperclassmen		397				330				20%
Total Underclassmen		431				439				(2)%
Total IMCs		828				769				8%

Business Outlook

"Based on a strong first half of the year, we are raising our 2012 full year guidance," said Ross Landsbaum, Chief Financial Officer. "We expect 2012 revenue to be in the range of $445 million to $454 million, and Adjusted EBITDA to be in the range of $19 million to $22 million."

The Company's outlook is as follows:

Third Quarter 2012

• Revenues in the range of $115.1 million to $117.1 million
• Adjusted EBITDA in the range of $5.0 million to $6.0 million
• Ending Upperclassmen headcount of 400 to 420
• Ending Underclassmen headcount of 440 to 460
• Ending total IMC headcount of 840 to 880

Fiscal Year 2012

• Revenues in the range of $445 million to $454 million
• Adjusted EBITDA in the range of $19 million to $22 million
• Ending Upperclassmen headcount of 420 to 450
• Ending Underclassmen headcount of 400 to 430
• Ending total IMC headcount of 820 to 880

Conference Call and Webcast Information

The ReachLocal second quarter 2012 teleconference and webcast is scheduled to begin at 2:00 p.m., Pacific Time, on Tuesday, July 31, 2012. To participate on the live call, analysts and investors should dial 877-941-2068 at least ten minutes prior to the call. ReachLocal will also offer a live and archived webcast of the conference call, accessible from the "Investors" section of the Company's Web site at www.reachlocal.com.

Use of Non-GAAP Measures

ReachLocal management evaluates and makes operating decisions using various financial and operational metrics. In addition to the Company's GAAP results, management also considers non-GAAP measures of non-GAAP net income (loss), non-GAAP net income (loss) per share, 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.

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

• Adjusted EBITDA does not reflect the Company's cash expenditures for capital equipment or other contractual commitments;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect capital expenditure requirements for such replacements;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, the Company's working capital needs;
• Adjusted EBITDA and non-GAAP net income (loss) do not consider the potentially dilutive impact of issuing equity-based compensation to the Company's management and other employees;
• Adjusted EBITDA does not reflect the potentially significant interest expense or the cash requirements necessary to service interest or principal payments on indebtedness that the Company may incur in the future;
• Adjusted EBITDA does not reflect income and expense items that relate to the Company's financing and investing activities, any of which could significantly affect the Company's results of operations or be a significant use of cash;
• Adjusted EBITDA and non-GAAP net income (loss) do not reflect costs or expenses associated with accounting for business combinations;
• Adjusted EBITDA does not reflect certain tax payments that may represent a reduction in cash available to the Company; and
• Other companies, including companies in the same industry, calculate Adjusted EBITDA and non-GAAP net income (loss) measures differently, which reduces their usefulness as a comparative measure.

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

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

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

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

Caution Concerning Forward-Looking Statements

Statements in this press release regarding the Company's guidance for future periods and the quotes from management constitute "forward-looking" statements within the meaning of the Securities Exchange Act of 1934. These statements reflect the Company's current views about future events and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to materially differ from those expressed or implied by the forward-looking statements. Actual events or results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including: (i) 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. Subscribe to the company's free newsletter to receive news, tips, and other online marketing insights.

REACHLOCAL, INC.
UNAUDITED BALANCE SHEETS
(in thousands, except per share data)
	June 30,				December 31,
	2012				2011
Assets
Current assets:
Cash and cash equivalents	$	94,339			$	84,525
Short-term investments		259				644
Accounts receivable, net		4,407				4,240
Other receivables and prepaid expenses		8,661				9,226
Total current assets		107,666				98,635
Property and equipment, net		11,097				9,885
Capitalized software development costs, net		12,792				10,942
Restricted certificates of deposit		969				1,286
Intangible assets, net		1,031				1,957
Goodwill		41,766				41,766
Other assets		1,934				1,966
Total assets	$	177,255			$	166,437
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable	$	32,158			$	29,831
Accrued expenses		23,730				19,537
Deferred revenue and other liabilities		35,413				30,747
Liabilities of discontinued operations, net		818				996
Total current liabilities		92,119				81,111
Deferred rent and deferred payment obligations		2,887				3,039
Total liabilities		95,006				84,150
Stockholders' Equity:
Common stock		-				-
Receivable from stockholder		(87	)			(87	)
Additional paid-in capital		109,767				108,883
Accumulated deficit		(26,908	)			(26,234	)
Accumulated other comprehensive loss		(523	)			(275	)
Total stockholders' equity		82,249				82,287
Total liabilities and stockholders' equity	$	177,255			$	166,437
Note: During the year ended December 31, 2011, the Company recorded the results of operations and financial position of its Bizzy subsidiary as discontinued operations.

REACHLOCAL, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
	Three Months Ended							Six Months Ended
	June 30,							June 30,
		2012			2011				2012				2011
Revenue	$	112,212		$	92,752			$	216,215			$	176,810
Cost of revenue		55,656			46,598				108,046				91,098
Operating expenses:
Selling and marketing		41,176			34,527				79,719				66,688
Product and technology		4,399			3,521				8,732				6,543
General and administrative		10,468			8,572				20,275				15,649
Total operating expenses		56,043			46,620				108,726				88,880
Income (loss) from continuing operations		513			(466	)			(557	)			(3,168	)
Other income, net		102			221				305				417
Income (loss) from continuing operations before provision for income taxes		615			(245	)			(252	)			(2,751	)
Provision for income taxes		283			31				422				197
		-
Income (loss) from continuing operations, net of income taxes		332			(276	)			(674	)			(2,948	)
Loss from discontinued operations, net of income taxes		-			(673	)			-				(1,448	)
Net income (loss)	$	332		$	(949	)		$	(674	)		$	(4,396	)
Net income (loss) per share available to common stockholders
Basic income (loss) per share from continuing operations	$	0.01		$	(0.01	)		$	(0.02	)		$	(0.10	)
Basic loss per share from discontinued operations		-			(0.02	)			-				(0.05	)
Basic net income (loss) per share	$	0.01		$	(0.03	)		$	(0.02	)		$	(0.15	)
Diluted income (loss) per share from continuing operations	$	0.01		$	(0.01	)		$	(0.02	)		$	(0.10	)
Diluted loss per share from discontinued operations		-			(0.02	)			-				(0.05	)
Diluted net income (loss) per share	$	0.01		$	(0.03	)		$	(0.02	)		$	(0.15	)
Weighted average common shares used in computation of net income (loss) per share
Basic		28,431			29,043				28,771				28,752
Diluted		28,961			29,043				28,771				28,752
Stock-based compensation, net of capitalization, and depreciation and amortization included in above line items:
Stock-based compensation:
Cost of revenue	$	71		$	65			$	125			$	116
Selling and marketing		385			373				685				742
Product and technology		131			326				380				556
General and administrative		1,651			1,481				3,144				2,571
	$	2,238		$	2,245			$	4,334			$	3,985
Depreciation and amortization:
Cost of revenue	$	148		$	201			$	270			$	357
Selling and marketing		601			342				1,119				667
Product and technology		2,081			1,704				4,050				3,171
General and administrative		366			314				721				612
	$	3,196		$	2,561			$	6,160			$	4,807
Note: During the year ended December 31, 2011, the Company recorded the results of operations and financial position of its Bizzy subsidiary as discontinued operations.

REACHLOCAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
		Six Months Ended June 30,
			2012				2011
Cash flow from operating activities:
Net loss from continuing operations, net of income taxes		$	(674	)		$	(2,948	)
Adjustments to reconcile net loss from continuing operations, net of income taxes to net cash provided by operating activities:
Depreciation and amortization			6,160				4,807
Stock-based compensation, net			4,334				3,985
Provision for doubtful accounts			78				111
Accrual of interest on deferred payment obligations			-				-
Changes in operating assets and liabilities:
Accounts receivable			(246	)			189
Other receivables and prepaid expenses			568				(1,415	)
Other assets			9				143
Accounts payable and accrued expenses			6,677				5,316
Deferred revenue, rent and other liabilities			5,651				3,519
Net cash provided by operating activities, continuing operations			22,557				13,707
Net cash provided by operating activities , discontinued operations			(178	)			(843	)
Net cash provided by operating activities			22,379				12,864
Cash flow from investing activities:
Additions to property, equipment and software			(8,195	)			(6,003	)
Acquisitions, net of acquired cash			(1,074	)			(5,958	)
Maturities of certificates of deposits and short-term investments			701				-
Purchases of certificates of deposit and short term investments			-				(142	)
Net cash used in investing activities, continuing operations			(8,568	)			(12,103	)
Net cash used in investing activities, discontinued operations			-				(809	)
Net cash used in investing activities			(8,568	)			(12,912	)
Cash flow from financing activities:
Proceeds from exercise of stock options			336				4,909
Common stock repurchases			(4,025	)			-
Net cash provided by (used in) financing activities			(3,689	)			4,909
Effect of exchange rates on cash			(308	)			656
Net change in cash and cash equivalents			9,814				5,517
Cash and cash equivalents—beginning of period			84,525				79,906
Cash and cash equivalents—end of period		$	94,339			$	85,423
Note: During the year ended December 31, 2011, the Company recorded discontinued operations related to its Bizzy subsidiary.

	Three Months Ended							Six Months Ended
	June 30,							June 30,
	2012			2011				2012				2011
Reconciliation of Adjusted EBITDA to income (loss) from continuing operations
(in thousands)
Income (loss) from continuing operations	$	513		$	(466	)		$	(557	)		$	(3,168	)
Add:
Depreciation and amortization		3,196			2,561				6,160				4,807
Stock-based compensation, net		2,238			2,245				4,334				3,985
Acquisition and integration costs		-			106				32				520
Adjusted EBITDA (1)	$	5,947		$	4,446			$	9,969			$	6,144
Underclassmen Expense (2)	$	11,328		$	10,728			$	22,383			$	21,124
Note: During the year ended December 31, 2011, the Company recorded the results of operations and financial position of its Bizzy subsidiary as discontinued operations.

REACHLOCAL, Inc.
Reconciliation of GAAP to Non-GAAP Operating Results for Three Months Ended June 30, 2012 and 2011
(in thousands, except per share amounts)
	Three Months Ended June 30, 2012													Three Months Ended June 30, 2011
				Adjustments:														Adjustments:
	GAAP Continuing Operations "As Reported"			Stock-based Compensation Related Expense (3)			Acquisition Related Costs (4)			Non-GAAP Operating Results				GAAP Continuing Operations "As Reported"				Stock-based Compensation Related Expense (3)			Acquisition Related Costs (4)			Non-GAAP Operating Results
Revenue	$	112,212		-			-			$	112,212			$	92,752			-			-			$	92,752
Cost of revenue		55,656		(71	)		(11	)			55,574				46,598			(65	)		(92	)			46,441
Operating expenses:
Sales and marketing		41,176		(385	)		-				40,791				34,527			(373	)		-				34,154
Product and technology		4,399		(465	)		(238	)			3,696				3,521			(633	)		(416	)			2,472
General and administrative		10,468		(1,651	)		(192	)			8,625				8,572			(1,481	)		(225	)			6,866
Total Operating expenses		56,043		(2,501	)		(430	)			53,112				46,620			(2,487	)		(641	)			43,492
Income (Loss) from continuing operations		513		2,572			441				3,526				(466	)		2,552			733				2,819
Other income, net		102		-			-				102				221			-			14				235
Income (Loss) from continuing operations before provision for income taxes		615		2,572			441				3,628				(245	)		2,552			747				3,054
Provision for income taxes		283		-			(57	)			226				31			-			-				31
Net income (loss) from continuing operations	$	332		2,572			498			$	3,402			$	(276	)		2,552			747			$	3,023
Net income (loss) per share from continuing operations available to common stockholders
Basic income (loss) per share from continuing operations	$	0.01								$	0.12			$	(0.01	)								$	0.10
Diluted income (loss) per share from continuing operations	$	0.01								$	0.12			$	(0.01	)								$	0.10
Weighted average shares outstanding
Basic		28,431									28,431				29,043										29,043
Diluted		28,961									28,961				29,043										31,289
Note: During the year ended December 31, 2011, the Company recorded the results of operations and financial position of its Bizzy subsidiary as discontinued operations. Accordingly, related prior-period amounts have been reclassified to conform to the current period presentation.

REACHLOCAL, Inc.
Reconciliation of GAAP to Non-GAAP Operating Results for Six Months Ended June 30, 2012 and 2011
(in thousands, except per share amounts)
	Six Months Ended June 30, 2012														Six Months Ended June 30, 2011
					Adjustments:														Adjustments:
	GAAP Continuing Operations "As Reported"				Stock-based Compensation Related Expense (3)			Acquisition Related Costs (4)			Non-GAAP Operating Results				GAAP Continuing Operations "As Reported"				Stock-based Compensation Related Expense (3)				Acquisition Related Costs (4)				Non-GAAP Operating Results
Revenue	$	216,215			-			-			$	216,215			$	176,810				-				-			$	176,810
Cost of revenue		108,046			(125	)		(22	)			107,899				91,098				(116	)			(144	)			90,838
Operating expenses:
Sales and marketing		79,719			(685	)		-				79,034				66,688				(742	)			-				65,946
Product and technology		8,732			(1,049	)		(553	)			7,130				6,543				(1,137	)			(730	)			4,676
General and administrative		20,275			(3,144	)		(384	)			16,747				15,649				(2,572	)			(795	)			12,282
Total Operating expenses		108,726			(4,878	)		(937	)			102,911				88,880				(4,451	)			(1,525	)			82,904
Income (Loss) from continuing operations		(557	)		5,003			959				5,405				(3,168	)			4,567				1,669				3,068
Other income, net		305			-			-				305				417				-				14				431
Income (Loss) from continuing operations before provision for income taxes		(252	)		5,003			959				5,710				(2,751	)			4,567				1,683				3,499
Provision (benefit) for income taxes		422			-			(73	)			349				197				-				-				197
Net income (loss) from continuing operations	$	(674	)		5,003			1,032			$	5,361			$	(2,948	)		$	4,567			$	1,683			$	3,302
Net income (loss) per share from continuing operations available to common stockholders
Basic income (loss) per share from continuing operations	$	(0.02	)								$	0.19			$	(0.10	)										$	0.11
Diluted income (loss) per share from continuing operations	$	(0.02	)								$	0.18			$	(0.10	)										$	0.11
Weighted average shares outstanding
Basic		28,771										28,771				28,752												28,752
Diluted		28,771										29,297				28,752												31,365
Note: During the year ended December 31, 2011, the Company recorded the results of operations and financial position of its Bizzy subsidiary as discontinued operations. Accordingly, related prior-period amounts have been reclassified to conform to the current period presentation.

Footnotes

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

(2) Underclassmen Expense is a number the Company calculates to approximate its investment in Underclassmen and is comprised of the selling and marketing expenses allocated to Underclassmen during a reporting period. The amount includes the direct salaries and allocated benefits of the Underclassmen (excluding commissions), training and sales organization expenses including depreciation allocated based on relative headcount and marketing expenses allocated based on relative revenue.

(3) Stock-based Compensation Related Expense: Includes stock-based compensation expense and the related adjustment to amortization of capitalized software development costs.

(4) Acquisition related costs, including the amortization and any impairment of acquired intangibles 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.

Investor Relations:
The Blueshirt Group
Alex Wellins, 415-217-5861
alex@blueshirtgroup.com
or
Media Contact:
ReachLocal, Inc.
Jason Treu, 214-294-0307
Vice President of Public Relations
jason.treu@reachlocal.com

Source: ReachLocal, Inc.

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