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Share Name | Share Symbol | Market | Type |
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(MM) | NASDAQ:LOCM | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.092 | 0 | 01:00:00 |
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
* 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
Recent Developments & Business Outlook
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:
** 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 17,298Escrow 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 InformationRevenue 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$
-
$ 7Non-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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