IRVINE, Calif. -- (BUSINESS WIRE) -- 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:
* 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.”
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:
** 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.
|CONSOLIDATED BALANCE SHEETS|
(in thousands, except par value)
|June 30,||Dec 31,|
|Accounts receivable, net of allowances of $297 and $533, respectively||12,769||17,298|
|Prepaid expenses and other current assets||567||957|
|Total current assets||20,012||23,714|
|Property and equipment, net||6,343||6,073|
|Intangible assets, net||1,989||2,439|
|Long-term receivable, net of allowances of $3,431 and $3,431, respectively||-||-|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Other accrued liabilities||1,681||2,403|
|Revolving line of credit||8,867||7,342|
|Current portion of term loan||-||1,500|
|Total current liabilities||26,009||26,555|
|Long-term portion of term loan||-||375|
|Senior secure convertible notes, net of debt discount of $999 and $1,533, respectively||4,743||4,017|
|Deferred income taxes||444||347|
|Commitments and contingencies|
|Convertible preferred stock, $0.00001 par value; 10,000 shares authorized; none issued and outstanding for all periods presented||-||-|
|Common stock, $0.00001 par value; 65,000 shares authorized; 23,230 and 23,038 issued and outstanding, respectively||-||-|
|Additional paid-in capital||124,623||124,249|
|Total liabilities and stockholders’ equity||$||47,697||$||51,579|
|CONSOLIDATED STATEMENTS OF OPERATIONS|
(in thousands, except per share data)
Three Months Ended
Six Months Ended
|Costs and expenses:|
|Cost of revenues||16,512||16,452||36,917||32,046|
|Sales and marketing||2,166||2,009||4,516||5,189|
|General and administrative||3,238||2,845||6,556||5,791|
|Research and development||1,252||1,500||2,811||3,236|
|Amortization of intangibles||225||231||450||462|
|Total operating expenses||23,393||23,037||51,250||46,724|
|Interest and other income (expense), net||(564||)||(420||)||(1,107||)||(1,262||)|
|Change in fair value of conversion option and warrant liability||(64||)||638||(398||)||642|
|Loss from continuing operations before income taxes||(1,507||)||(163||)||(4,061||)||(3,224||)|
|Provision for (benefit from) income taxes||(177||)||159||97||230|
|Net loss from continuing operations||(1,330||)||(322||)||(4,158||)||(3,454||)|
|Loss from discontinued operations (net of taxes)||-||(3,264||)||-||(3,485||)|
|Per share data:|
|Basic and diluted net loss per share from continuing operations||$||(0.06||)||$||(0.01||)||$||(0.18||)||$||(0.15||)|
|Basic and diluted net loss per share from discontinued operations||$||(0.00||)||$||(0.14||)||$||(0.00||)||$||(0.15||)|
|Basic net income loss per share||$||(0.06||)||$||(0.16||)||$||(0.18||)||$||(0.31||)|
|Basic weighted average shares outstanding||23,228||22,877||23,226||22,721|
|Diluted weighted average shares outstanding||23,228||22,877||23,226||22,721|
|Supplemental Consolidated Statements of Operations Information|
|Q2 2014||Q1 2014||Q2 2013|
|Owned & Operated||$||12,602||$||11,417||$||11,066|
|Supplemental Consolidated Statements of Operations Information|
|Stock-based Compensation Expense *|
(in thousands, except per share data)
Three Months Ended
Six Months Ended
|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 compensation expense per share
*- Excludes impact of discontinued operations.
|CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Six Months Ended June 30,|
|Cash flows from operating activities:|
|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:|
|Prepaid expenses and other||390||(752||)|
|Accounts payable and accrued liabilities||(767||)||2,469|
|Net cash provided by (used in) operating activities||3,682||(1,115||)|
|Cash flows from investing activities:|
|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 convertible notes and warrants||-||5,000|
|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 facility||1,525||(1,333||)|
|Net cash (used in) provided by financing activities||(392||)||3,580|
|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:|
|Income taxes paid||$||-||$||2|
|Non-cash financing activities|
|Derivative liabilities recorded in connection with the issuance of senior convertible notes and warrants||$||-||$||2,182|
|RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA|
(in thousands, except per share amounts)
Three Months Ended
Three Months Ended
|Less interest and other income (expense), net||564||420||543|
|Plus provision (benefit) for income taxes||(177||)||159||274|
|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 operations||-||3,264||-|
|Plus accrual for lease liability/(assets)||-||(155||)||-|
|Plus severance charges||572||20||1,032|
|Diluted Adjusted EBITDA per share||$||0.04||$||0.05||$||0.03|
|Diluted weighted average shares outstanding||23,306||23,051||23,254|
|Monthly Unique Visitors (MUVs, millions)||Q2 2014||Q1 2014||Q2 2013|
|Revenue per thousand Visitors (RKV)||$204||$189||$199|