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Local Corporation Reports Third Quarter 2012 Financial Results

Our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, 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 measure of “Adjusted Net Income” and “Adjusted Net Loss” 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; net income (loss) from discontinued operations; impairment charges and severance charges. Adjusted Net Income (Loss), as defined above, is not a measurement under GAAP. Adjusted Net Income (Loss) is reconciled to net income (loss) which we believe is the most comparable GAAP measure. A reconciliation of net income (loss) to Adjusted Net Income (Loss) is set forth at the end of this press release.

Management believes that Adjusted Net Income (Loss) 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 severance charges which are not directly attributable to the underlying performance of the company’s business operations. Management uses Adjusted Net Income (Loss) in evaluating the overall performance of the company’s business operations.

A limitation of non-GAAP Adjusted Net Income (Loss) 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 (Loss) in conjunction with net income (loss) and net income (loss) per share measures. The company believes that Adjusted Net Income (Loss) 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 CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except par value)
   
September 30, December 31,
2012 2011
ASSETS
Current assets:
Cash $ 3,706 $ 10,394
Restricted cash 42 10
Accounts receivable, net of allowances of $553 and $550, respectively 13,954 13,456
Notes receivable – current portion 392 392
Prepaid expenses and other current assets 518 732
Assets held for sale   2,517     2,187  
 
Total current assets 21,129 27,171
 
Property and equipment, net 7,116 8,018
Goodwill 25,870 31,370
Intangible assets, net 4,426 8,833
Long term portion of note receivable 183 350
Deposits   60     69  
 
Total assets $ 58,784   $ 75,811  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 12,156 $ 12,193
Accrued compensation 968 2,152
Deferred rent 485 551
Warrant liability 34 207
Other accrued liabilities 1,421 2,422
Revolving line of credit 7,627 8,000
Deferred revenue 229 281
Liabilities held for sale   49     32  
 
Total current liabilities   22,969     25,838  
 
Deferred income taxes   265     265  
 
Total liabilities   23,234     26,103  
 
Commitments and contingencies
 
Stockholders’ equity (deficit):
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; 22,095 and 22,082 issued and outstanding, respectively - -
Additional paid-in capital 121,261 119,068
Accumulated deficit   (85,711 )   (69,360 )
 
Stockholders’ equity   35,550     49,708  
 
Total liabilities and stockholders’ equity $ 58,784   $ 75,811  
 
LOCAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
         

Three Months Ended September 30,

Nine Months Ended September 30,

2012     2011 2012     2011
Revenue $ 24,771   $ 20,688   $ 76,875   $ 52,960  
Costs and expenses:
Cost of revenues 18,463 12,487 55,798 34,273
Sales and marketing 4,152 5,905 14,443 13,340
General and administrative 2,522 2,975 7,706 8,882
Research and development 1,227 1,511 3,684 4,396
Amortization of intangibles 1,865 1,255 3,608 3,585
Impairment of goodwill and intangible assets   -     -     6,451     -  
 
Total operating expenses   28,229     24,133     91,690     64,476  
 
Operating income (loss) (3,458 ) (3,445 ) (14,815 ) (11,516 )
 
Interest and other income (expense), net (131 ) (227 ) (325 ) (312 )
Change in fair value of warrant liability   65     513     173     2,483  
 
Income (loss) from continuing operations before income taxes (3,524 ) (3,159 ) (14,967 ) (9,345 )
 
Provision for income taxes   22     47     121     107  
 
Net income (loss) from continuing operations (3,546 ) (3,206 ) (15,088 ) (9,452 )
Income (loss) from discontinued operations (net of taxes)   (256 )   (825 )   (1,263 )   (1,301 )
Net Income (loss) $ (3,802 ) $ (4,031 ) $ (16,351 ) $ (10,753 )
 
Per share data:
 
Basic net income (loss) per share from continuing operations $ (0.16 ) $ (0.15 ) $ (0.68 ) $ (0.45 )
Basic net income (loss) per share from discontinued operations $ (0.01 ) $ (0.04 ) $ (0.06 ) $ (0.06 )
Basic net income (loss) per share $ (0.17 ) $ (0.18 ) $ (0.74 ) $ (0.51 )
 
Diluted net income (loss) per share from continuing operations $ (0.16 ) $ (0.15 ) $ (0.68 ) $ (0.45 )
Diluted net income (loss) per share from discontinued operations $ (0.01 ) $ (0.04 ) $ (0.06 ) $ (0.06 )
Diluted net income (loss) per share $ (0.17 ) $ (0.18 ) $ (0.74 ) $ (0.51 )
 
 
Basic weighted average shares outstanding 22,092 21,940 22,087 21,151
Diluted weighted average shares outstanding 22,092 21,940 22,087 21,151
 
Supplemental Consolidated Statements of Operations Information
Stock-based Compensation Expense
(in thousands, except per share data)
       

Three Months Ended September 30,

Nine Months Ended September 30,

2012   2011 2012   2011
Cost of revenues $ 22 $ 12 $ 61 $ 165
Sales and marketing 261 306 846 955
General and administrative 320 491 988 1,427
Research and development   63   87   163   313
Total stock-based compensation expense* $ 666 $ 896 $ 2,058 $ 2,860
 
Basic and diluted net stock-based compensation expense per share $ 0.03 $ 0.04 $ 0.09 $ 0.14

*- Excludes impact of discontinued operations.

 
LOCAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
       
Nine Months Ended September 30,
2012   2011
Cash flows from operating activities:
Net income (loss) $ (16,351 ) $ (10,753 )
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization 6,581 5,981
Provision for doubtful accounts 138 25
Stock-based compensation expense 2,176 2,948
Change in fair value of warrant liability (173 ) (2,483 )
Impairment of goodwill and intangible assets 6,451 -
Changes in operating assets and liabilities:
Accounts receivable (636 ) (871 )
Note receivable 167 200
Prepaid expenses and other 223 821
Accounts payable and accrued liabilities (2,248 ) 789
Deferred revenue   (75 )   1,152  
Net cash used in operating activities   (3,747 )   (2,191 )
 
Cash flows from investing activities:
Capital expenditures (2,553 ) (3,144 )
Increase in restricted cash (32 ) -
Issuance of notes receivable - (1,085 )
Proceeds from notes receivable - 1,085
Acquisitions, net of cash acquired - (15,969 )
Purchases of intangible assets   -     (762 )
Net cash used in investing activities   (2,585 )   (19,875 )
 
Cash flows from financing activities:
Proceeds from exercise of options 22 170
Proceeds from the public offering of common stock - 18,227
Payment of revolving credit facility (1,373 ) (7,000 )
Proceeds from revolving credit facility 1,000 8,000
Payment of financing related costs   (5 )   (291 )
Net cash (used in) provided by financing activities   (356 )   19,106  
Net increase (decrease) in cash (6,688 ) (2,960 )
Cash, beginning of period   10,394     13,079  
Cash, end of period $ 3,706   $ 10,119  
 
Supplemental Cash Flow Information:
Interest paid $ 320   $ 136  
Income taxes paid $ 12   $ 11  
 
LOCAL CORPORATION
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME
(in thousands, except per share amounts)
(Unaudited)
     

Three Months Ended September 30,

Three Months Ended

June 30,

2012   2011 2012
GAAP net income (loss) $ (3,802 ) $ (4,031 ) $ (9,347 )
 
Plus interest and other income (expense), net 131 227 97
Plus provision for income taxes 22 47 44
Plus amortization of intangibles 1,865 1,256 819
Plus depreciation 935 849 907
Plus stock-based compensation 666 896 667
Less revaluation of warrants (65 ) (513 ) (166 )
Plus net loss from discontinued operations 256 825 482
Plus asset Impairment charge - - 6,451
Plus severance charges*   144     -     514  
 
Adjusted Net Income (Loss) $ 152   $ (444 ) $ 468  
 
Diluted Adjusted Net Income (loss) per share $ 0.01   $ (0.02 ) $ 0.02  
 
Diluted weighted average shares outstanding 22,245 21,940 22,219

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

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