ReachLocal Reports First Quarter 2014 Results

WOODLAND HILLS, Calif., May 6, 2014 (GLOBE NEWSWIRE) -- ReachLocal, Inc. (Nasdaq:RLOC), a leader in powering local online marketing for small- to medium-sized businesses (SMBs), today reported financial results for the first quarter ended March 31, 2014.

Q1 Highlights

• Revenue growth of 3%, with 23% growth in international markets (31% on a constant currency basis).
• International revenue grew to 38% of revenue (40% on a constant currency basis), up from 32% of revenue in 2013.
• North American revenue declined 7% relative to the prior year quarter and 8.9% relative to the fourth quarter of 2013, primarily due to the ongoing realignment of the North American sales force.
• More than 500 new ReachEdge licenses were sold during the quarter, bringing the total sold to date to over 1,500 licenses.
• Active Clients and Active Product Units each grew 6% over the prior year.

Management Commentary

"After five weeks on the job, I'm confident that the company is on the right journey and we have the right strategy to navigate through a tough transformation," said Sharon Rowlands, chief executive officer. "I deeply believe both in this company and its market opportunity, which is still largely untapped and highly fragmented. I am truly excited to be leading ReachLocal in its mission to help SMBs grow their businesses, while, at the same time, increasing value for our shareholders."

Josh Claman, president, added "Starting in Q4 of 2013, the company made a significant investment to take its North America sales force to the next level with a sales realignment. This transition has resulted in a longer and deeper disruption than we originally expected. However, we firmly believe that this initiative will ultimately increase the effectiveness of our sales force." Claman continued, "We are taking steps to improve our execution of recruitment, onboarding and training, while also further refining our marketing activities and improving our back end systems to improve efficiency and the client experience."

Business Outlook

"Given our expectations of continued disruption from the ongoing realignment of our North American sales force and other challenges, we are revising our full year business outlook," said chief financial officer Ross Landsbaum.

The Company's outlook is as follows:

Second Quarter of 2014:

• Revenue in the range of $120 to $125 million. 
• Adjusted EBITDA in the range of $0 to a loss of $5 million.        

Fiscal Year 2014:

• Revenue in the range of $500 to $525 million.
• Adjusted EBITDA in the range of $2 to $5 million.

Conference Call and Webcast Information

The ReachLocal first quarter 2014 teleconference and webcast is scheduled to begin at 2:00 p.m., Pacific Time on Tuesday, May 6, 2014. To participate on the live call, analysts and investors should dial 1-877-941-1427 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 Active Clients (which we used to refer to as Active Advertisers) and Active Product Units (which we used to refer to as Active Campaigns), 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), restructuring charges, and 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 has 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.

Active Clients 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 Clients by adjusting the number of Active Product Units to combine clients with more than one Active Product Unit as a single Active Client. Clients with more than one location are generally reflected as multiple Active Clients. Because this number includes clients served through the National Brands, Agencies and Resellers channel, Active Clients includes entities with which we do not have a direct client relationship. Numbers are rounded to the nearest hundred.

Active Product Units is a number we calculate to approximate the number of individual products, licenses or services we are providing to Active Clients. For example, if we were performing both ReachSearch and ReachDisplay campaigns for a client who also licenses ReachEdge, we consider that three Active Product Units. Similarly, if a client purchases ReachSearch campaigns for two different products or purposes, we consider that two Active Product Units. 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 salespeople and the success of the Company's sales realignment; (iii) the Company's ability to attract and retain customers and compete with a wide range of competitors on both price and product offering; (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) the Company's 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. (Nasdaq:RLOC) helps SMBs grow and operate their business better with leading technology and expert service for our clients' lead generation and conversion. ReachLocal is headquartered in Woodland Hills, Calif. For more information about ReachLocal, visit http://www.reachlocal.com.

For more information about ReachLocal, visit http://www.reachlocal.com, follow us at http://www.reachlocal.com/social, or email info@reachlocal.com.

CONTACT: Investor Relations:
         Alex Wellins
         The Blueshirt Group
         (415) 217-5861
         alex@blueshirtgroup.com
         
         Media Contact:
         Amber Seikaly Vice President Corporate Communications
         (214) 294-0242
         amber.seikaly@reachlocal.com