OREANDA-NEWS. ReachLocal, Inc. (NASDAQ:RLOC), a leader in powering online marketing for local businesses, today reported financial results for the second quarter of 2016.   

On June 27, 2016, Gannett Co., Inc. and ReachLocal, Inc. announced the execution of a definitive merger agreement and on July 11, 2016, Gannett launched a cash tender offer for all of the Company’s outstanding stock at $4.60 per share.  The tender offer will be open until August 5, 2016 unless earlier terminated or extended.  The parties have received early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and expect the transaction to be completed during the third quarter.

“ReachLocal returned to sequential revenue growth and delivered reduced operating losses and increased Adjusted EBITDA in the second quarter," said Sharon Rowlands, chief executive officer.  “We look forward to continuing to make progress toward our goal of providing local businesses with the best and most complete digital marketing solution in the market as part of Gannett following the merger.”

             
Quarterly Results at a Glance            
(Table amounts in 000’s except key metrics and per share amounts)
      Q2 2016     Q2 2015
Revenue   $ 81,460     $ 98,776  
Net Loss   $ (4,237 )   $ (10,593 )
Net Loss per Diluted Share   $ (0.14 )   $ (0.36 )
Non-GAAP Net Loss   $ (1,476 )   $ (6,890 )
Non-GAAP Net Loss per Diluted Share   $ (0.05 )   $ (0.24 )
Adjusted EBITDA   $ 5,533     $ 715  
Cash Flow from Operating Activities, Continuing Operations   $ 3,990     $ (8,460 )
Cash Flow from Operating Activities   $ 3,983     $ (8,461 )
                 
Revenue by Channel (North America): 
Direct Local    $ 43,943     $  46,189  
National Brands, Agencies and Resellers (NBAR)    $ 15,546     $  17,787  
   
Revenue by Channel (International):   
Direct Local    $ 18,511     $  31,085  
National Brands, Agencies and Resellers (NBAR)    $ 3,460     $  3,715  
                 
Key Metrics (at Period End):                
Active Clients     16,000       19,500  
Active Product Units     27,700       29,600  
                 

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 and Active Product Units, as management believes that these metrics are important gauges of the progress of the Company’s performance.

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 goodwill), 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 goodwill 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.

About ReachLocal, Inc.

ReachLocal, Inc. (NASDAQ:RLOC) helps local businesses 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. and operates in four regions: Asia-Pacific, Europe, Latin America and North America.

REACHLOCAL, INC.      
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS      
(in thousands, except per share data)      
       
  June 30,    December 31,
    2016       2015  
Assets      
Current Assets:      
Cash and cash equivalents  $   15,171     $   18,833  
Short-term investments      274         359  
Accounts receivable, net      7,137         6,278  
Prepaid expenses and other current assets     6,748         8,296  
Total current assets      29,330         33,766  
       
Property and equipment, net      10,763         13,550  
Capitalized software development costs, net      19,559         20,691  
Restricted cash- term loan     12,500         15,000  
Restricted cash     3,451         3,502  
Intangible assets, net      3,543         4,011  
Non-marketable investments     9,000         9,000  
Other assets     2,557         2,547  
Goodwill      20,200         20,129  
Total assets  $   110,903     $   122,196  
       
Liabilities and Stockholders’ Equity      
Current Liabilities:      
Accounts payable  $   32,036     $   33,581  
Accrued compensation and benefits     12,739         14,478  
Deferred revenue      22,566         22,985  
Accrued restructuring     3,389         3,329  
Term loan     13,296         8,352  
Capital lease     707         698  
Other current liabilities     9,256         10,166  
Liabilities of discontinued operations     798         804  
Total current liabilities      94,787         94,393  
       
Term loan     11,758         16,194  
Convertible notes – related party     5,000         5,000  
Capital lease     131         484  
Deferred rent and other liabilities     8,031         8,111  
Total liabilities      119,707         124,182  
       
Stockholders’ Deficit:      
Receivable from stockholder      (57 )       (55 )
Additional paid-in capital     143,512         140,398  
Accumulated deficit     (146,473 )       (136,084 )
Accumulated other comprehensive loss      (5,786 )       (6,245 )
Total stockholders’ deficit     (8,804 )       (1,986 )
Total liabilities and stockholders’ deficit $   110,903     $   122,196  
REACHLOCAL, INC.              
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS              
(in thousands, except per share data)              
               
  Three Months  Ended   Six Months  Ended
  June 30,    June 30,
    2016       2015       2016       2015  
Revenue  $   81,460     $   98,776     $   160,169     $   198,339  
Cost of revenue   45,591       55,390       89,442       111,607  
Operating expenses:              
Selling and marketing   22,975         33,046         46,099         69,329  
Product and technology   6,063         7,082         12,149         14,504  
General and administrative   9,536         9,910         17,414         20,623  
Restructuring charges   233         3,133         2,689         4,588  
Total operating expenses    38,807         53,171         78,351         109,044  
               
Operating loss     (2,938 )       (9,785 )       (7,624 )       (22,312 )
Loss on deconsolidation of subsidiaries, net     (99 )       -          (171 )       -   
Interest expense     (1,115 )       (713 )       (2,230 )       (788 )
Other income (expense), net    90         (135 )       78         (216 )
Loss before income taxes    (4,062 )       (10,633 )       (9,947 )       (23,316 )
Income tax provision (benefit)   175         (40 )       442         59  
Net loss $   (4,237 )   $   (10,593 )   $   (10,389 )   $   (23,375 )
               
Net loss per share:               
Net loss per share, basic and diluted $   (0.14 )   $   (0.36 )   $   (0.35 )   $   (0.80 )
               
Weighted average common shares used in the computation of net loss per share:              
Basic and diluted     29,840         29,097         29,824         29,083  
               
               
Stock-based compensation, net of capitalization, and depreciation and amortization included in above line items:
               
Stock-based compensation:               
Cost of revenue  $   59     $   134     $   109     $   290  
Selling and marketing      207         424         408         906  
Product and technology      178         126         240         294  
General and administrative     953         1,530         1,780         2,870  
  $   1,397     $   2,214     $   2,537     $   4,360  
               
Depreciation and amortization:              
Cost of revenue  $   166     $   219     $   325     $   351  
Selling and marketing      504         824         1,067         1,657  
Product and technology      3,259         3,591         6,533         7,298  
General and administrative      503         515         1,040         977  
  $   4,432     $   5,149     $   8,965     $   10,283  
REACHLOCAL, INC.        
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS         
(in thousands, except per share data)        
  Six Months Ended
June 30, 		  
   
    2016       2015    
Cash flows from operating activities:        
Loss from continuing operations $   (10,389 )   $   (23,375 )  
Adjustments to reconcile loss from continuing operations to net cash provided by (used in)
operating activities:		        
Depreciation and amortization      8,965         10,283    
Stock-based compensation     2,537         4,360    
Restructuring charges     2,689         4,588    
Loss on deconsolidation of subsidiary     171         -     
(Gain) loss on disposal of fixed assets     (9 )       135    
Provision for doubtful accounts      396         66    
Non-cash interest expense, net     558         173    
Changes in operating assets and liabilities:        
Accounts receivable      (1,103 )       1,859    
Prepaid expenses and other current assets     1,419         2,229    
Restricted cash     (249 )       -     
Other assets      55         (264 )  
Accounts payable     (1,894 )       (8,475 )  
Accrued compensation and benefits     (648 )       (823 )  
Deferred revenue     (598 )       (1,259 )  
Accrued restructuring     (1,280 )       (2,358 )  
Deferred rent and other liabilities     (29 )       (129 )  
Net cash provided by (used in) operating activities, continuing operations      591         (12,990 )  
Net cash used in operating activities, discontinued operations     (7 )       (60 )  
Net cash provided by (used in) operating activities      584         (13,050 )  
         
Cash flows from investing activities:        
Additions to property, equipment and software      (5,257 )       (7,748 )  
Proceeds from sales of property and equipment     348         -     
Changes in restricted cash due to certificates of deposits     360         50    
Maturities of  certificates of deposits and short-term investments     145         796    
Net cash used in investing activities     (4,404 )       (6,902 )  
         
Cash flows from financing activities:        
Proceeds from term loan, net     -          24,700    
Changes in restricted cash- term loan     2,500         (17,500 )  
Payment of deferred and contingent consideration     (1,346 )       (434 )  
Proceeds from exercise of stock options      5         6    
Principal payments on capital lease obligations     (385 )       (443 )  
Term loan costs     -          (194 )  
Common stock repurchases     (492 )       (5 )  
Net cash provided by financing activities      282         6,130    
         
Effect of exchange rate changes on cash and cash equivalents     (124 )       (1,274 )  
         
Net change in cash and cash equivalents      (3,662 )       (15,096 )  
Cash and cash equivalents—beginning of period      18,833         43,720    
Cash and cash equivalents—end of period  $   15,171     $   28,624    
REACHLOCAL, INC.              
Reconciliation of Adjusted EBITDA to Net Loss              
(in thousands)              
               
  Three Months Ended   Six Months Ended
  June 30,    June 30, 
    2016       2015         2016       2015  
               
Net loss $   (4,237 )   $   (10,593 )   $   (10,389 )   $   (23,375 )
Add (subtract):              
Income tax provision (benefit)     175         (40 )       442         59  
Other income (expense), net      (90 )       135         (78 )       216  
Interest expense     1,115         713         2,230         788  
Loss on deconsolidation of subsidiaries, net     99         -          171         -   
Operating loss     (2,938 )       (9,785 )       (7,624 )       (22,312 )
Add:              
Depreciation and amortization      4,432         5,149         8,965         10,283  
Stock-based compensation     1,397         2,214         2,537         4,360  
Acquisition and integration costs      2,409         4         2,419         11  
Restructuring charges     233         3,133         2,689         4,588  
Adjusted EBITDA (1) $   5,533     $   715     $   8,986     $   (3,070 )
REACHLOCAL, Inc.                      
Reconciliation of GAAP to Non-GAAP Operating Results for Three Months Ended June 30, 2016 and 2015        
(in thousands, except per share amounts)                     
                       
                       
  Three Months Ended June 30, 2016   Three Months Ended June 30, 2015
    Adjustments:       Adjustments:  
    Stock-based           Stock-based      
  GAAP Compensation Acquisition Restructuring  Non-GAAP   GAAP Compensation Acquisition Restructuring  Non-GAAP
  Operating Results Related Related Related Operating   Operating Results Related Related Related Operating
  "As Reported" Expense (2) Costs (3) Costs (4) Results   "As Reported" Expense (2) Costs (3) Costs (4) Results
Income (loss) before income taxes $   (4,062 ) $   1,534   $   2,651   $   233   $   356     $   (10,633 ) $   2,331   $   460   $   3,133   $   (4,709 )
  Income tax provision (5)     175       576       994       87       1,832         (40 )     874       172       1,175       2,181  
Net Income (loss) $   (4,237 ) $   958   $   1,657   $   146   $   (1,476 )   $   (10,593 ) $   1,457   $   288   $   1,958   $   (6,890 )
                       
Net loss per share:                       
  Net loss per share, basic and diluted $   (0.14 )       $   (0.05 )   $  (0.36 )       $   (0.24 )
                       
Weighted average shares outstanding                       
  Basic and diluted     29,840             29,840         29,097             29,097  
REACHLOCAL, Inc.                      
Reconciliation of GAAP to Non-GAAP Operating Results for Six Months Ended June 30, 2016 and 2015        
(in thousands, except per share amounts)                      
                       
                       
  Six Months Ended June 30, 2016   Six Months Ended June 30, 2015
    Adjustments:       Adjustments:  
    Stock-based           Stock-based      
  GAAP Compensation Acquisition Restructuring  Non-GAAP   GAAP Compensation Acquisition Restructuring  Non-GAAP
  Operating Results Related Related Related Operating   Operating Results Related Related Related Operating
  "As Reported" Expense (2) Costs (3) Costs (4) Results   "As Reported" Expense (2) Costs (3) Costs (4) Results
Income (loss) from continuing operations before income
taxes		 $   (9,947 ) $   2,808   $   2,901   $   2,689   $   (1,549 )   $   (23,316 ) $   4,593   $   932   $   4,588   $   (13,203 )
  Income tax provision (benefit) (5)     442       1,053       1,088       1,008       3,591         59       1,722       350       1,721       3,851  
Income (loss) from continuing operations $   (10,389 ) $   1,755   $   1,813   $   1,681   $   (5,140 )   $   (23,375 ) $   2,871   $   582   $   2,867   $   (17,054 )
                       
Net loss per share:                       
  Net loss per share, basic and diluted $   (0.35 )       $   (0.17 )   $   (0.80 )       $   (0.59 )
                       
Weighted average shares outstanding                       
  Basic and diluted     29,824             29,824         29,083             29,083  
REACHLOCAL, INC.              
Reconciliation of GAAP to Constant Currency Revenue              
(in thousands)              
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2016       2015       2016       2015  
North American GAAP Revenue $ 59,489     $   63,976     $   115,062     $   127,475  
Constant Currency Adjustment    131         -         384         -  
North American Revenue at Constant Currency (6) $ 59,620     $   63,976     $   115,446     $   127,475  
               
  As Reported Growth Rates   (7.0 %)     (16.9 %)     (9.7 %)     (17.2 %)
  Constant Currency Growth Rates   (6.8 %)     (16.5 %)     (9.4 %)     (16.8 %)
               
International GAAP Revenue $   21,971     $   34,800     $   45,107     $   70,864  
Constant Currency Adjustment     370         -         2,259         -  
International Revenue at Constant Currency (6) $   22,341     $   34,800     $   47,366     $   70,864  
               
  As Reported Growth Rates   (36.9 %)     (25.3 %)     (36.3 %)     (24.8 %)
  Constant Currency Growth Rates   (35.8 %)     (11.4 %)     (33.2 %)     (12.6 %)
               
Consolidated GAAP Revenue $   81,460     $   98,776     $   160,169     $   198,339  
Constant Currency Adjustment     501         -         2,643         -  
Consolidated Revenue at Constant Currency (6) $   81,961     $   98,776     $   162,812     $   198,339  
               
  As Reported Growth Rates   (17.5 %)     (20.1 %)     (19.2 %)     (20.1 %)
  Constant Currency Growth Rates   (17.0 %)     (14.7 %)     (17.9 %)     (15.4 %)
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 goodwill), restructuring charges, and other non-operating income or expense.
 
(2) Stock-based Compensation Related Expense: Includes stock-based compensation expense and the related adjustment to amortization of capitalized software development costs. 
 
(3) Acquisition Related Costs, including the amortization and any impairment of acquired intangibles and goodwill, 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.
 
(4) Restructuring Related Costs 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. 
 
(5)  The income tax provision (benefit) for the Non-GAAP adjustments is estimated using the effective statutory rate for those jurisdictions.
 
(6) Constant currency revenues are determined by recalculating net revenues denominated in currencies other than U.S. Dollars in the current fiscal period using average exchange rates for that particular currency during the corresponding financial period of the prior year. The company uses this non-GAAP measure to evaluate performance on a comparable basis excluding the impact of foreign currency fluctuations. Where constant currency revenue is presented for a period longer than one fiscal quarter, it is computed as the sum of the amount separately calculated for each quarter during that period.