- Repays $4.5 million of debt
- Focuses organization on key initiatives
and reduces costs by approximately $2.6 million annually
- Implements mobile search solution
nQuery with top five global carrier
- Advances traffic quality tools and
Local audience monetization
Local Corporation (NASDAQ: LOCM), a leading local search and
advertising technology company, reported its financial results for
the third quarter 2014.
“During the third quarter, we achieved a 31 percent increase in
our Owned & Operated (O&O) revenue, which partially offset
lower Network revenue due to a proactive reduction in traffic with
the goal of protecting our advertisers from fraudulent traffic.
Traffic quality continues to be a top priority for us to ensure
that we’re providing the best outcome for our advertisers,” said
Local Corporation chairman and CEO, Fred Thiel. “Over the past
several months, we have been focused on actively managing and
optimizing our traffic sources and recently released our own
advanced traffic quality solution, nTegrity™. While getting the
solution in market took longer than anticipated, nTegrity ensures
that we are delivering a higher quality audience to our
advertisers, which we believe will increase their conversion rates
and result in increased traffic.”
“In 2014, we have been transforming the company to focus on our
core initiatives of building and monetizing our Local audience with
proprietary traffic quality tools and growing our mobile search
market share in North and South America. Our over 200 million
unique visitors annually across our O&O properties, including
our flagship site Local.com, provide us with a significant pool of
premium, first-party data with contextual search intent, which is a
key differentiator in attracting advertisers as we move to further
monetize our audience through programmatic advertising and
predictive retargeting across devices.”
“Furthermore, with regard to mobile, our hosted search solution
nQuery™ already powers millions of consumer searches per month, and
we continue to expand our partner base. In fact, we are
implementing our nQuery solution with a top five global carrier,
which is expected to grow our mobile search query volume
significantly. This high-intent mobile audience extends our reach,
which we believe will broaden our value proposition to our
advertisers in an increasingly mobile-first world.”
“We believe our core initiatives will diversify our revenue
streams, increase our reach and continue to provide competitive
differentiation. Our focus on innovation within these initiatives
has prompted us to proactively realign our organization and reduce
overhead, which we believe will enable us to fuel revenue growth,
expand margins and increase our profitability in the near term
while providing a plan for our long term growth and generating
meaningful shareholder value,” added Thiel.
Third Quarter 2014 Financial
Highlights
- Total revenue of $18.1 million with 31
percent O&O revenue growth year-over-year
- Net loss of $1.3 million
- Adjusted EBITDA* of $407,000, positive
for the seventh consecutive quarter
- Cash from operating activities of $3.0
million and free cash flow** of $2.2 million
- $4.5 million of debt repayment
- $201 revenue per thousand visitors
(RKVs), compared to $180 RKV in the third quarter of 2013
- Cash balance of $4.3 million at Sept.
30, 2014
* 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; settlement accrual; and severance
charges.
** Free cash flow is defined as net cash provided by operating
activities less capital expenditures.
See detailed reconciliation of GAAP to non-GAAP measures in the
financial tables attached to this release.
“Continued improvements in our O&O business in the third
quarter were offset by the shortfall in Network revenue in the
quarter,” said Local Corporation CFO Ken Cragun. “Our insistence on
delivering only quality traffic to our advertisers has resulted in
a decline in Network revenue while we enhanced our traffic quality
tools to address the pervasive increases in fraudulent traffic
activity experienced industry-wide. As a result, we are lowering
our 2014 revenue and Adjusted EBITDA guidance. In the fourth
quarter, we implemented new traffic tools and technology that we
expect to improve our Network revenue growth. In addition, earlier
today we right-sized the organization, which we expect will yield
approximately $2.6 million in annual cost savings and improve
Adjusted EBITDA profitability.”
Third Quarter Business
Highlights
- Intellectual Property Update: In
September, the lawsuit against Fry’s Electronics, Inc. regarding
the infringement of Local’s U.S. Patent No. 7,062,453, which covers
“methods and systems for dynamic networked commerce architecture”
was settled to the mutual satisfaction of the parties, and Fry’s
Electronics, Inc. agreed to license the patent. Local
Corporation is continuing its efforts to enforce its intellectual
property rights.
- Network Traffic Quality
Improvements: During the third quarter, the company developed a
traffic quality solution, nTegrity, which it believes will better
protect advertisers from fraudulent traffic types such as
programmable headless browsers, BotNets and JavaScript
manipulation. Launched in the fourth quarter, nTegrity will be used
to detect, analyze and decide whether or not to show ads from the
company’s ad partners on a real time, impression-by-impression
basis, using an array of proprietary and third-party tools. The
company expects nTegrity to increase conversion rates for
advertisers and expects advertisers’ spend with Local Corporation
to increase in turn.
Recent Developments & Business
Outlook
- Mobile Search Advances: The
company is implementing its nQuery solution with a top five global
carrier. nQuery is already deployed with a major U.S. mobile
carrier, 18 international and prepaid MVNOs and 10,000 U.S. hotels.
Providing a custom, hosted search solution, nQuery now powers
millions of search queries globally. The company expects to further
grow nQuery via partnerships with entities that specialize in
monetizing subscriber traffic for mobile operators and Wi-Fi
networks.
- Successful Programmatic Launch:
The company entered the programmatic media marketplace to leverage
its robust local audience data and connect advertisers with real
people in real time, on the right platform. The company’s valuable,
high-intent, first-party consumer data, includes behavioral, geo
and device attributes from its 20 million monthly unique visitors
across its O&O properties. The company anticipates this will
enable additional scale over time, as any number of publishers can
access multiple advertisers and multiple, targeted ads based on
specific interests.
- Local Content and Search Engine
Marketing Expansion: This quarter, the company continues to
ingest new category data from additional sources, while adding
content partnerships for its O&O properties. The company is
also initiating additional keyword campaigns, vertical categories
and rich content enhancements. Together, management believes these
will increase traffic.
Third Quarter 2014 Traffic
Overview
Monthly unique visitors were 66 million in the third quarter,
compared to 73 million in the second quarter of 2014. Ongoing
enhancements across the O&O properties delivered RKV of $201,
compared to $204 in the second quarter of 2014 and $180 in the
third quarter of 2013.
Fiscal 2014 Financial
Guidance
The company now expects 2014 revenue to be in the range of $87
million to $90 million, with the fourth quarter 2014 revenue range
of $20 million to $23 million, increasing over the third quarter
primarily driven by Network revenue growth.
Adjusted EBITDA** for 2014 is now expected to be in the
range of $2 million to $2.4 million, or between $0.09 per diluted
share and $0.10 per diluted share, assuming diluted weighted
average shares of 23.5 million and taking into account the dilutive
effect of stock options and warrants.
Projected 2014 Adjusted EBITDA Factors:
- Interest Expense of $2.1 million
- Income Tax Provision of $100,000
- Depreciation Expense of $4.0
million
- Amortization Expense of $700,000
- 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 # 22899979.
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 24 hours starting
at 7:30 p.m. ET the day of the call by dialing 1-800-585-8367 or
1-404-537-3406, passcode #22899979. 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 advertising technology company that aggregates and curates the
most relevant and rich personalized content and presents it to
millions of consumers wherever and however they search for
information, while providing significant reach and value to the
company’s advertisers and partners. For more information,
visit: http://www.localcorporation.com or visit the company’s
flagship site: http://www.local.com.
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 and consumers to the sites of our advertisers,
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 measures of
“Adjusted EBITDA” and “free cash flow.” 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; settlement accrual; and severance charges. Adjusted
EBITDA is reconciled to net income (loss) which we believe is the
most comparable GAAP measure. Free cash flow is defined as net cash
provided by operating activities less capital expenditures. Free
cash flow is reconciled to net cash provided by operating
activities which we believe is the most comparable GAAP measure.
Adjusted EBITDA and free cash flow, as defined above, are not
measurements under GAAP. A reconciliation of net income (loss) to
Adjusted EBITDA and free cash flow to net cash provided by
operating activities 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; settlement accrual; 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.
Management also believes free cash flow to be a liquidity
measure that provides useful information to management and
investors about the amount of cash generated by the business that,
after the acquisition of property and equipment, including
information technology infrastructure and land and buildings, can
be used for strategic opportunities, including investing in our
business, making strategic acquisitions, and strengthening the
balance sheet. Analysis of free cash flow also facilitates
management's comparisons of our operating results to competitors'
operating results.
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.
A limitation of using free cash flow versus the GAAP measure of
net cash provided by operating activities as a means for evaluating
the company is that free cash flow does not represent the total
increase or decrease in the cash balance from operations for the
period because it excludes cash used for capital expenditures
during the period. The company believes that free cash flow
provides investors with an additional tool in evaluating the
company’s liquidity.
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 the
GAAP measures.
LOCAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
September 30, Dec 31,
2014 2013 ASSETS Current
assets: Cash $ 4,311 $ 5,069 Accounts receivable, net of allowances
of $312 and $533, respectively 8,079 17,298
Escrow receivable
-
390
Prepaid expenses and other current assets 445
957 Total current assets 12,835 23,714 Property and
equipment, net 6,048 6,073 Goodwill 19,281 19,281 Intangible
assets, net 1,870 2,439 Long-term receivable, net of allowances of
$3,431 and $3,431, respectively - - Deposits 72
72 Total assets $ 40,106 $ 51,579
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
liabilities: Accounts payable $ 11,290 $ 12,786 Accrued
compensation 973 1,462 Deferred rent 171 323 Warrant liability 622
537 Other accrued liabilities 1,835 2,403 Revolving line of credit
4,320 7,342 Current portion of term loan - 1,500 Senior secure
convertible notes, net of debt discount of $702 4,876 - Deferred
revenue 164 202 Total current
liabilities 24,251 26,555 Long-term portion of term loan -
375 Senior secure convertible notes, net of debt discount of $1,533
- 4,017 Deferred income taxes 444 347
Total liabilities 24,695 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 124,841 124,249 Accumulated deficit
(109,430 ) (103,964 ) Stockholders’ equity
15,411 20,285 Total liabilities and
stockholders’ equity $ 40,106 $ 51,579
LOCAL CORPORATION CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended September
30,
Nine Months EndedSeptember
30,
2014 2013
2014 2013 Revenue $
18,141 $ 23,472 $ 66,835 $ 67,591 Costs
and expenses: Cost of revenues 14,628 16,208 51,545 48,253 Sales
and marketing 1,622 2,230 6,138 7,419 General and administrative
2,074 3,894 8,630 9,685 Research and development 1,452 1,664 4,263
4,900 Amortization of intangibles 119 225 569 687 Income from
settlement and patent licensing (700 ) -
(700 ) - Total operating expenses
19,195 24,221 70,445
70,944 Operating income (loss) (1,054 ) (749 )
(3,610 ) (3,353 ) Interest and other income (expense), net
(539 ) (537 ) (1,646 ) (1,799 ) Change in fair value of conversion
option and warrant liability 285 (413 )
(113 ) 229 Income (loss) from continuing
operations before income taxes (1,308 ) (1,699 ) (5,369 ) (4,923 )
Provision for (benefit from) income taxes -
(109 ) 97 121 Net income
(loss) from continuing operations (1,308 ) (1,590 ) (5,466 ) (5,044
) Income (loss) from discontinued operations (net of taxes)
- (154 ) - (3,639 ) Net income
(loss) $ (1,308 ) $ (1,744 ) $ (5,466 ) $ (8,683 ) Per share
data: Basic and diluted net income (loss) per share from
continuing operations $ (0.06 ) $ (0.07 ) $ (0.24 ) $ (0.22 ) Basic
and diluted net income (loss) per share from discontinued
operations $ (0.00 ) $ (0.01 ) $ (0.00 ) $ (0.16 ) Basic and
diluted net income (loss) per share $ (0.06 ) $ (0.08 ) $ (0.24 ) $
(0.38 ) Basic and diluted weighted average shares
outstanding 23,230 22,962 23,228 22,802
LOCAL
CORPORATION Supplemental Consolidated Statements of
Operations Information
Revenue Breakdown
(in thousands)
(Unaudited)
Q3 2014 Q2 2014
Q3 2013 Owned & Operated $ 11,673 $ 12,602 $ 8,932
Network 6,468 9,912 14,540 Revenue $ 18,141 $
22,514 $ 23,472
LOCAL CORPORATION
Supplemental Consolidated Statements of Operations
Information Stock-based Compensation Expense *
(in thousands, except per share data)
(Unaudited)
Three Months Ended September
30,
Nine Months EndedSeptember
30,
2014 2013 2014
2013 Cost of revenues $ 10 $ 26 $ 33 $ 85
Sales and marketing 22 83 75 333 General and administrative 169 192
475 787 Research and development 17 51 51
207 Total stock-based compensation expense* $ 218 $ 352 $
634 $ 1,412 Basic and diluted net stock-based compensation
expense per share $ 0.01 $ 0.02 $ 0.03 $ 0.06
*- Excludes impact of discontinued
operations.
LOCAL CORPORATION CONSOLIDATED STATEMENTS
OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30, 2014 2013
Cash flows from operating activities: Net loss
$
(5,466
)
$
(8,683
)
Adjustments to reconcile net loss to cash provided by operating
activities: Depreciation and amortization 3,497 3,732 Provision for
doubtful accounts 650 809 Stock-based compensation expense 634
1,431 Non-cash interest expense 831 409 Loss on exchange of
warrants
-
723 Change in fair value of conversion option and warrant liability
113 (229 ) Impairment of goodwill and intangible assets - 3,051
Deferred income taxes 97 - Changes in operating assets and
liabilities: Accounts receivable 8,569 (4,866 ) Long term
receivable - (137 ) Note receivable - 152 Prepaid expenses and
other 512 (411 ) Accounts payable and accrued liabilities
(2,705
)
4,386 Deferred revenue (38 ) (41 ) Net cash provided
by operating activities 6,694 326
Cash flows from investing activities: Capital expenditures
(2,903
)
(2,379 ) Restricted cash - 42 Proceeds from escrow payout
390 - Net cash used in investing activities
(2,513
)
(2,337 ) Cash flows from financing activities:
Proceeds from exercise of options 9 22 Proceeds from issuance of
senior secured convertible notes and warrants - 5,000 Payment of
financing related costs (51 ) (527 ) Proceeds (payment) of
revolving credit facility (3,022 ) (583 ) Payment of term loan
(1,875 ) (750 ) Net cash provided by (used in)
financing activities (4,939 ) 3,162 Net
increase (decrease) in cash (758 ) 1,151 Cash, beginning of period
5,069 3,696 Cash, end of period
$
4,311
$ 4,847 Supplemental Cash Flow Information:
Interest paid
$
595
$ 426 Income taxes paid
$
-
$ 7
Non-cash investing activities
Derivative liabilities recorded in connection with the issuance of
senior convertible notes and warrants
$
-
$ 2,182
LOCAL CORPORATION
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA
(in thousands, except per share
amounts)
(Unaudited)
Three Months Ended September
30, Three Months Ended June 30, 2014
2013 2014
Net loss $ (1,308 ) $ (1,744 ) $ (1,330 ) Less interest and
other income (expense), net 539 537 564 Plus provision (benefit)
for income taxes - (109 ) (177 ) Plus amortization of intangibles
119 225 225 Plus depreciation and amortization 1,124 937 924 Plus
stock-based compensation 218 352 163 Less revaluation of
derivatives (285 ) 413 64 Plus net loss from discontinued
operations - 154 - Plus severance charges - 5 572 Plus settlement
accrual - 550 -
Adjusted EBITDA $ 407 $ 1,320 $ 1,005
Diluted Adjusted EBITDA per share $ 0.02 $ 0.06 $
0.04 Diluted weighted average shares outstanding
23,304 23,191 23,306
LOCAL CORPORATION
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO
FREE CASH FLOW
(in thousands)
(Unaudited)
Three months ended September
30, 2014
Net cash provided by operating activities $ 3,012 Less capital
expenditures (830 ) Free cash flow $ 2,182 Net
cash used in investing activities* $ (830 ) Net cash used in
financing activities $ (4,547 )
*Includes capital expenditures
LOCAL CORPORATION OPERATING HIGHLIGHTS
Monthly Unique
Visitors (MUVs, millions)
Q3 2014
Q2 2014 Q3 2013 Overall
Traffic 66 73 80 Organic Traffic 12 16 35 Mobile Traffic 17 21 32
Revenue per thousand Visitors (RKV) $201 $204 $180
Investor Relations
Contact:LHAKirsten Chapman,
415-433-3777local@lhai.comorMedia
Relations Contact:Local CorporationCameron Triebwasser,
949-789-5223ctriebwasser@local.com
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