Local.com Reports Third Quarter 2011 Financial Results

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Record Third Quarter Traffic; Record Fourth Quarter Revenue Projected

IRVINE, Calif.--(BUSINESS WIRE)-- Local.com Corporation (NASDAQ: LOCM), a leading online local media company, today reported its financial results for the third quarter of 2011.

SUMMARY RESULTS
(in thousands, except per share amounts)
		Q3 2011				Q2 2011				Q3 2010
Owned & Operated		$	13,457			$	9,502			$	11,576
Network			4,364				3,716				6,818
SAS			3,056				2,366				4,063
Revenue		$	20,877			$	15,584			$	22,457
Adjusted Net Income (Loss)*		$	(1,093	)		$	(1,903	)		$	4,595
Less interest and other income (expense), net			(227	)			(30	)			(79	)
Less provision for income taxes			(48	)			(51	)			-
Less non-cash depreciation, amortization and stock compensation			(3,176	)			(2,933	)			(2,597	)
Plus revaluation of warrants			513				411				1,830
Less non-recurring charges			-				(898	)			-
GAAP net income (loss)		$	(4,031	)		$	(5,404	)		$	3,749
Diluted Adjusted Net Income (Loss) per share *		$	(0.05	)		$	(0.09	)		$	0.27
Diluted GAAP net income (loss) per share		$	(0.18	)		$	(0.25	)		$	0.22
Diluted weighted average shares used for Adjusted Net Income (Loss) per share			21,940				21,254				17,202
Diluted weighted average shares used for GAAP net income (loss) per share			21,940				21,254				17,202
Cash		$	10,119			$	13,482			$	11,887

* See detailed reconciliation of GAAP to non-GAAP measures in the financial tables attached to this release.

"We are delivering on our commitment of strong second-half growth, exceeding prior revenue and Adjusted Net Income guidance. Our recent acquisitions and product development initiatives have yielded six new ad products that have dramatically broadened our product range. Our sales force has more than doubled from a year ago and is more effectively selling our own ad products directly to local merchants and our expanding publisher network," said Heath Clarke, Local.com chairman and chief executive officer. “We’re encouraged by the very positive response to our recently launched RAMP rich media platform and continue to optimize our new Spreebird business. We remain laser-focused on internal execution."

Third Quarter Results Highlights:

• Revenue – Third quarter 2011 revenue of $20.9 million represents a 34% increase over second quarter 2011 revenue of $15.6 million.

• Pro Forma Gross Revenue – The company’s prior third quarter revenue guidance of $21.5 million was based on accounting for Spreebird revenue inclusive of the portion of gross billings payable to merchants (Merchant Revenue Share). The company subsequently modified its accounting policy to exclude Merchant Revenue Share from its revenue. To provide a comparison between prior guidance, which included Merchant Revenue Share, the company would have achieved third quarter revenue of $22.5 million, representing a 44% increase over comparable second quarter revenue of $15.6 million and would have been $1.0 million higher than prior guidance had such accounting modifications not occurred.

Inclusion of Merchant Revenue Share in the calculation of revenue is a non-GAAP measure. An explanation of the company’s use of non-GAAP financial measures, including the limitations of such measures relative to GAAP measures is included below and reconciliation between GAAP and non-GAAP measures, where appropriate, is included in the financial tables attached to this release.

• GAAP Net Income (Loss) – Third quarter 2011 GAAP net loss was $4.0 million or ($0.18) per diluted share, compared to the second quarter 2011 GAAP net loss of $5.4 million or ($0.25) per diluted share.

• Adjusted Net Income (Loss) – Third quarter 2011 Adjusted Net Loss was $1.1 million or ($0.05) per diluted share compared to second quarter 2011 Adjusted Net Loss of $1.9 or ($0.09) per diluted share. The company's prior third quarter guidance and our actual financial results include an estimated net financial benefit of approximately $500,000 resulting from the modification of a partner contract, as previously disclosed in the company’s Form 8-K filed August 15, 2011.

Adjusted Net Income (Loss) 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 warrant revaluation; and non-recurring items.

• Cash – On Sept. 30, 2011, the company’s cash balance was $10.1 million. During the third quarter the company used $10.0 million cash for acquisitions largely offset by $8.0 million drawn on the company’s line of credit.

• Debt – During the third quarter the company entered into a loan and security agreement with Square 1 Bank. The loan and security agreement provides the company with a revolving credit facility of up to $12.0 million, limited by certain terms as set out in the loan and security agreement. The company currently has $8.0 million outstanding on the revolving credit facility.

Third Quarter Operating and Recent Highlights:

• Google, Inc. Agreement – On June 30, 2011, the company entered into a Google Services Agreement with Google, Inc. that became effective Aug. 1, 2011.

• Amended Yahoo!, Inc. Agreement – On July 29, 2011, the company entered into an extension and modification of its agreement with Yahoo!, Inc. through July 31, 2012.

• Organic and Overall Traffic – Overall traffic on the site and network was a record 91.9 million monthly unique visitors (MUVs) in the third quarter 2011, up 10.9% from the second quarter 2011 MUVs of 82.9 million. Organic traffic on the site and network was 29.1 million MUVs in the third quarter 2011, down 5.5% from the second quarter 2011 MUVs of 30.8 million. Organic traffic is defined as all non-SEM sourced traffic.

• Screamin’ Media Group Acquisition – On July 9, 2011, the company acquired Screamin’ Media Group, Inc. (“SMG”), which operates Screamin’ Daily Deals. SMG became part of the company’s Spreebird daily deals business operating under the company’s Spreebird brand. SMG is now a wholly-owned subsidiary of the company and has moved its operations into the company’s principal offices in Irvine, Calif.

• Launch of Rich Media Ad Platform (“RAMP”) - On September 14, 2011, the company launched the industry’s first rich media ad platform to incorporate dynamic, in-store product inventory availability and current pricing data for products sold by local retailers.

• Awarded Local Shopping Patent – On Oct. 4, 2011, the company was awarded a patent by the U.S. Patent and Trademark Office covering a system for providing localized shopping information.

• Spreebird Mobile Applications – On Oct. 13, 2011, the company launched mobile applications for its Spreebird daily deals business which allow consumers to browse, buy and redeem Spreebird deals on their Apple iOS or AndroidTM-enabled mobile phones and other mobile devices.

• Appointments to Management Team – Recent changes to the management team include the following:

• Bob Iguchi joined the company as vice president of operations
• Lori Chavez joined the company as vice president of marketing

• Appointed New Lead Director – On Oct. 14, 2011, the company announced the appointment of Lowell W. Robinson as lead director.

Owned & Operated:

• Revenue – Third quarter 2011 O&O revenue was $13.5 million, up 42% from second quarter 2011 O&O revenue of $9.5 million. Now included in O&O revenue is new revenue from the company’s Krillion business, which was not material in the third quarter of 2011.

• Monetization of Traffic – Revenue per thousand visitors (RKV) for third quarter 2011 was $254, up 30% from second quarter 2011 RKV of $194.

Network:

• Revenue – Third quarter 2011 Network revenue was $4.4 million, up 19% from second quarter 2011 Network revenue of $3.7 million.

• Network Sites – The Network business unit ended the third quarter 2011 with more than 1,600 regional media sites and more than 100,000 domains under management.

Sales & Advertiser Services (“SAS”):

• Revenue – Third quarter 2011 SAS revenue was $3.1 million, up 29% from second quarter 2011 SAS revenue of $2.4 million. Now included in SAS revenue is a total of $800,000 in new revenue from the company’s Spreebird and Rovion businesses.

• Small Business Subscribers – SAS ended the third quarter 2011 with more than 31,000 small business subscribers. The decrease in subscribers is due to expected attrition from customers using the company’s legacy ad products partially offset by an increase in sales of its Exact Match products as part of its ongoing efforts to increase our direct relationships with small businesses.

Fourth Quarter 2011 Financial Guidance:

Revenue – The company previously guided to fourth quarter revenues of approximately $24.0 million, which included revenues from its Spreebird subsidiary inclusive of Merchant Revenue Share.

The company’s prior fourth quarter revenue guidance of $24.0 million was based on accounting for Spreebird revenue inclusive of Merchant Revenue Share. The company subsequently modified its accounting policy to exclude Merchant Revenue Share from its revenue. To provide a comparison between prior guidance, which included Merchant Revenue Share, the company would have updated fourth quarter revenue to $26.0 million which would have been $2.0 million higher than prior guidance had such accounting modifications not occurred.

Adjusted Net Income – Adjusted Net Income for the fourth quarter 2011 is expected to be approximately break-even. The company's fourth quarter financial guidance includes a net financial benefit of approximately $500,000 resulting from the modification of a partner contract.

Projected fourth quarter 2011 Adjusted Net Income (Loss) Factors:

• Interest Expense of $150,000
• Tax Provision Expense of $50,000
• Depreciation Expense of $920,000
• Amortization Expense of $1.7 million
• Stock Compensation Expense of $800,000
• Warrant Revaluation Expense and Other Non-Recurring items are undeterminable*

Fiscal 2011 Financial Guidance:

Revenue – The company expects fiscal year 2011 revenue to be approximately $77.3 million.

Adjusted Net Income - Adjusted Net Loss for the fiscal year 2011 is expected to be approximately $3.0 million.

Projected fiscal year 2011 Adjusted Net Income Factors:

• Interest Expense of $460,000
• Tax Provision Expense of $160,000
• Depreciation Expense of $3.1 million
• Amortization Expense of $5.5 million
• Stock Compensation Expense of $3.8 million
• Warrant Revaluation Expense and Other Non-Recurring items are undeterminable*

* The valuation of the warrant liability is based in large part on the underlying price and volatility of our common stock during the quarter. Since we cannot predict this, we cannot project the non-cash gain or loss in connection with these warrants, and therefore, cannot reasonably project our GAAP net income. We, therefore, cannot provide GAAP guidance, but we do report GAAP results.

Conference Call Information:

Chairman and CEO Heath Clarke and CFO Ken Cragun will host a conference call today at 4:30 p.m. ET to discuss the results and outlook. Investors and analysts can participate in the call by dialing 1-866-800-8649 or 1-617-614-2703, passcode #45732003. To listen to the webcast, or to view the press release, please visit the Investor Relations section of the Local.com website at: http://ir.local.com. Institutional investors can access the call via Thomson/CCBN's password-protected event management site, StreetEvents, at: www.streetevents.com.

The replay can be accessed for approximately one week starting at 7:30 p.m. ET the day of the call by dialing 1-888-286-8010 or 1-617-801-6888, passcode #25747828. A replay of the webcast will be available for approximately 90 days at the company's website, starting approximately one hour after the completion of the call.

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About Local.com®

Local.com Corporation (NASDAQ: LOCM), a leading online local media company, enables brick-and-mortar businesses to connect with online customers using a variety of digital marketing products. The company reaches more than 25 million consumers each month on the flagship Local.com website, approximately 1,600 regional media sites and more than 100,000 geo-category websites. The company distributes daily deals to hundreds of thousands of email subscribers via Spreebird.com, rich media ads via Rovion.com, and real-time product inventory information from more than 70,000 retail locations nationwide via Krillion.com. To advertise, or for more information, visit: http://www.local.com/.

Forward Looking Statements

This press release contains forward looking statements that involve risks and uncertainties concerning Local.com Corporation’s expected financial performance, as well as Local.com’s strategic and operational plans. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among others, our advertising partners paying less RPC and revenues to us for our search results; 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 monetization partners 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; our ability to market the Local.com domain as a destination for consumers seeking local-search results; our ability to grow our business by enhancing our local-search services, including through businesses we acquire; the future performance of our OCTANE360 business; the integration and future performance of our Spreebird daily deals business, including the recently acquired Screamin Daily Deals business, our Krillion business and our Rovion business, as well as any other businesses we may acquire; our ability to successfully expand our Spreebird business into new markets, including through acquisitions; 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; 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, 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/A, subsequent Quarterly Reports on Form 10-Q and Form 10-Q/A, recent Current Reports on Form 8-K and Form 8-K/A, 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 “Pro Forma Gross Revenue” which we define as revenue plus Merchant Revenue Share and “Adjusted Net Income” 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 warrant revaluation; and non-recurring items. Neither Pro Forma Gross Revenue nor Adjusted Net Income, as defined above, are measurements under GAAP. Pro Forma Gross Revenue is reconciled to revenue, which we believe is the most comparable GAAP measure. Adjusted Net Income is reconciled to net income (loss) which we believe is the most comparable GAAP measure. A reconciliation of each of these non-GAAP financial measures are set forth at the end of this press release.

Management believes that Pro Forma Gross Revenue provides a useful comparison to previously issued revenue guidance prior the company’s modification of its revenue reporting policy in accordance with GAAP to exclude Merchant Revenue Share, as announced on October 3, 2011. Going forward, management does not anticipate providing Pro Forma Gross Revenue figures.

A limitation of non-GAAP Pro Forma Gross Revenue is that it includes items that have the effect of materially increasing the company’s revenue, including specifically with respect to its Spreebird daily deals business. The GAAP results for revenue are accurate, but do not allow investors to see the impact that the modification in accounting policies with respect to reporting revenue have had on the company’s Q3 2011 results compared to its guidance issued prior to the accounting modification.

Management believes that Adjusted Net Income 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 and marketable securities, expense from the company’s financing transactions and the costs associated with income tax expense, capital investments, stock-based compensation expense, warrant revaluation charges and non-recurring items which are not directly attributable to the underlying performance of the company’s business operations. Management uses Adjusted Net Income in evaluating the overall performance of the company’s business operations.

A limitation of non-GAAP Adjusted Net Income is that it excludes items that often have a material effect on the company’s net income and earnings per common share calculated in accordance with GAAP. Therefore, management compensates for this limitation by using Adjusted Net Income in conjunction with net income (loss) and net income (loss) per share measures. The company believes that Adjusted Net Income 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 or earnings per share.

LOCAL.COM CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
				September 30,				December 31,
				2011				2010
ASSETS				(unaudited)
Current assets:
	Cash and cash equivalents			$	10,119			$	13,079
	Restricted cash				10				-
	Accounts receivable, net of allowances of $300 and $297, respectively				13,018				11,912
	Notes receivable – current portion				249				249
	Prepaid expenses and other current assets				646				1,454
		Total current assets			24,042				26,694
Property and equipment, net					8,118				7,119
Goodwill					32,509				17,339
Intangible assets, net					11,201				8,989
Long term portion of note receivable					551				751
Deposits					57				52
Total assets				$	76,478			$	60,944
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	9,524			$	7,626
	Accrued compensation				1,761				1,906
	Deferred rent				578				641
	Warrant liability				357				2,840
	Other accrued liabilities				1,639				651
	Revolving line of credit				8,000				7,000
	Deferred revenue				1,931				699
		Total current liabilities			23,790				21,363
Deferred income taxes					188				188
Total liabilities					23,978				21,551
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; 22,009 and 16,584 issued and outstanding, respectively				-				-
	Additional paid-in capital				118,054				94,194
	Accumulated deficit				(65,554	)			(54,801	)
		Stockholders’ equity			52,500				39,393
Total liabilities and stockholders’ equity				$	76,478			$	60,944

LOCAL.COM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
				Three Months Ended								Nine Months Ended
				September 30,								September 30,
				2011				2010				2011				2010
Revenue				$	20,877			$	22,457			$	53,256			$	64,092
Costs and expenses:
	Cost of revenues				12,507				10,705				34,307				34,683
	Sales and marketing				6,777				4,031				14,705				11,074
	General and administrative				2,981				2,663				8,882				6,786
	Research and development				1,510				1,499				4,397				3,753
	Amortization of intangibles				1,371				1,561				3,779				4,245
		Total operating expenses			25,146				20,459				66,070				60,541
Operating income (loss)					(4,269	)			1,998				(12,814	)			3,551
	Interest and other income (expense), net				(227	)			(79	)			(312	)			(196	)
	Revaluation of warrants				513				1,830				2,483				1,893
Income (loss) before income taxes					(3,983	)			3,749				(10,643	)			5,248
	Provision for income taxes				48				-				110				135
Net income (loss)				$	(4,031	)		$	3,749			$	(10,753	)		$	5,113
Per share data:
Basic net income (loss) per share				$	(0.18	)		$	0.23			$	(0.51	)		$	0.32
Diluted net income (loss) per share				$	(0.18	)		$	0.22			$	(0.51	)		$	0.31
Basic weighted average shares outstanding					21,940				16,662				21,151				15,760
Diluted weighted average shares outstanding					21,940				17,202				21,151				16,715

Supplemental Consolidated Statements of Operations Information
Stock-based Compensation Expense
(in thousands, except per share data)
				Three Months Ended						Nine Months Ended
				September 30,						September 30,
				2011			2010			2011			2010
Cost of revenues				$	12		$	78		$	165		$	163
Sales and marketing					365			243			1,043			562
General and administrative					491			260			1,427			845
Research and development					87			125			312			420
Total stock-based compensation expense				$	955		$	706		$	2,947		$	1,990
Basic and diluted net stock-based compensation expense per share				$	0.04		$	0.04		$	0.14		$	0.12

LOCAL.COM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
						Nine Months Ended September 30,
						2011				2010
Cash flows from operating activities:
	Net income (loss)					$	(10,753	)		$	5,113
	Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
		Depreciation and amortization					5,981				5,081
		Provision for doubtful accounts					25				205
		Stock-based compensation expense					2,948				1,990
		Revaluation of warrants					(2,483	)			(1,893	)
		Changes in operating assets and liabilities:
			Accounts receivable				(871	)			(8,673	)
			Note receivable				200				-
			Prepaid expenses and other assets				821				(189	)
			Accounts payable and accrued liabilities				789				1,257
			Deferred revenue				1,152				(27	)
				Net cash provided by (used in) operating activities			(2,191	)			2,864
Cash flows from investing activities:
	Capital expenditures						(3,144	)			(4,983	)
	Decrease in restricted cash						-				35
	Issuance of notes receivable						(1,085	)			-
	Proceeds from notes receivable						1,085				-
	Acquisitions, net of cash acquired						(15,969	)			(3,825	)
	Purchases of intangible assets						(762	)			(3,887	)
				Net cash used in investing activities			(19,875	)			(12,660	)
Cash flows from financing activities:
	Proceeds from exercise of warrants						-				6,974
	Proceeds from exercise of options						170				1,878
	Proceeds from the public offering of common stock						18,227				-
	Payment of revolving credit facility						(7,000	)			(3,000	)
	Proceeds from revolving credit facility						8,000				7,000
	Repurchases of common stock						-				(1,221	)
	Payment of financing related costs						(291	)			(28	)
				Net cash provided by financing activities			19,106				11,603
Net (decrease) increase in cash and cash equivalents							(2,960	)			1,807
Cash and cash equivalents, beginning of period							13,079				10,080
Cash and cash equivalents, end of period						$	10,119			$	11,887
Supplemental Cash Flow Information:
	Interest paid					$	136			$	381
	Income taxes paid					$	11			$	206

LOCAL.COM CORPORATION
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME
(in thousands, except per share amounts)
(Unaudited)
												Three Months
												Ended
				Three Months Ended September 30,								June 30,
				2011				2010				2011
Net income (loss)				$	(4,031	)		$	3,749			$	(5,404	)
Less interest and other income (expense), net					227				79				30
Plus provision for income taxes					48				-				51
Plus amortization of intangibles					1,371				1,561				1,210
Plus depreciation					850				330				703
Plus stock-based compensation					955				706				1,020
Less revaluation of warrants					(513	)			(1,830	)			(411	)
Plus non-recurring charges*					-				-				898
Adjusted Net Income (Loss)				$	(1,093	)		$	4,595			$	(1,903	)
Diluted Adjusted Net Income (loss) per share				$	(0.05	)		$	0.27			$	(0.09	)
Diluted weighted average shares outstanding					21,940				17,202				21,254

* Included in non-recurring charges are costs incurred due to a change in officer as well as severance cost incurred during the quarter

RECONCILIATION OF REVENUE TO PRO FORMA GROSS REVENUE
(in thousands, except per share amounts)
(Unaudited)
				Three Months
				Ended
				September 30,
				2011
Revenue				$	20,877
Merchant Revenue Share					1,576
Pro Forma Gross Revenue				$	22,453

Investor Relations Contact:RedChip Companies, Inc.Paul Kuntz, 1-800-733-2447, Ext. 105[email protected]orMedia Relations Contact:Local.comCameron Triebwasser, 949-789-5223[email protected]

Source: Local.com Corporation

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