Local.com Corporation (

LOCM

)

Q3 2011 Earnings Conference Call

November 2, 2011 4:30 PM EST

Executives

David Katzoff – Associate VP

Heath Clarke – Chairman and CEO

Ken Cragun – CFO

Analysts

George Santana – Ascendiant

Jon Hickman – Ladenburg

Paul Resnik – RedChip Companies

David Kestenbaum – Morgan Joseph

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2011 Local.com earnings conference call.

My name is Chris and I will be your conference moderator for today.

Presently, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions).

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At this time, I would now like to turn the conference over to your presenter for today, Mr. David Katzoff, Associate Vice President. Sir, you may proceed.

David Katzoff

Welcome to Local.com’s third quarter 2011 conference call. With me today are Local.com Chairman and CEO, Heath Clarke; and our Chief Financial Officer, Ken Cragun. Heath and Ken will discuss our results and outlook for the fourth quarter 2011, and we will then open the lines for questions.

Today's discussions include forward-looking statements that are subject to risks and uncertainties that can cause actual results to differ materially from those expressed in the forward-looking statements. These risks and uncertainties will be outlined at the end of this conference call and are detailed in Local.com’s SEC filings.

Any forward-looking statements are only made as of the date of this call and we undertake no obligation to update such statements to reflect subsequent events or circumstances.

We use non-GAAP financial measures in evaluating our financial performance, specifically non-GAAP financial measures of the pro forma gross revenue and adjusted net income loss.

Please refer to the press release we issued today for how we define those non-GAAP measures and our reasons for using them, as well as a detailed review of our third quarter 2011 results, including the corresponding GAAP financial measures and a reconciliation of our non-GAAP financial measures to GAAP financial measures.

This conference call is publicly available via audio webcast through our website, and a replay of the call will be available for the next 90 days.

I'd now like to turn the call over to our CEO, Heath Clarke.

Heath Clarke

Thanks, David. Today we reported third quarter results and beat prior guidance and we’re projecting a record revenue of $24 million and break-even for the fourth quarter.

I’d like to begin the call by reminding our listeners of our mission to be a leader in connecting local merchants with online consumers. We’re committed to developing a competitive advantage in our space that provides merchants and consumers with the best possible products and services, while generating steady improvements in core earnings power that rewards our shareholders. In this regard, our results and guidance are a huge turnaround from the first half of this year which was beset with declining monetization caused by an ad partner. In the face of that challenge we invested internally and by acquisitions in revenue diversification, strengthened our management team and product development capabilities, and reorganized and expanded our sales force. I believe our results and guidance illustrates very clearly that these investments are paying off.

I’d like to discuss three key items on this call. Firstly, exclusive of our three most recent acquisitions, our operations have returned to profitability. Second, that we’re committed to extracting and growing the value of these acquisitions. And, third, we’re moving quickly towards monetizing more of our traffic with our own ad products sold by our own sales force.

Let’s review each of the items further starting with our core operations. When we connect local merchants with online consumers, we generate revenue from a variety of ad products we place in front of those consumers. Most of those ad products are provided by third parties like Google, Yahoo! or SuperMedia, and some are from our direct customers.

Our core operations consist of O&O, which is Owned & Operated, network and SAS or sales and ad services. Our O&O and network operations provide us with reach to consumers. And in the third quarter we reached over 90 million consumers, a new record for us and 10% growth over the second quarter, which was also a record. Almost all of these consumers were searching for a local product or service, which means they’re very valuable to advertisers and therefore highly monetizable with ad products, because they’re already shopping for something somewhere.

About 80% of our revenue comes from third-party ad feeds and the biggest third-party feed has historically been Yahoo! In the third quarter, we also implemented our new partnership with Google and this combination of partners has resulted in RKV, revenues per thousand visitors jumping 30% to $254 in Q3. Nearly all of this additional monetization drops to our bottom line and results in our business being profitable exclusive over our three months recent acquisitions. Better yet, we’re seeing additional monetization improvement in the fourth quarter which is driving our overall break-even guidance for Q4, which is about $1.5 million better than our prior Q4 guidance. We continue to focus on the optimization of our business in order to extract maximum yield from those assets.

Moving now to our acquisitions, we acquired four companies in the past 15 months and I’d like to report a progress of each of these. OCTANE was acquired in July 2010 due to its content marketplace and highly automated web hosting and SEO platform. OCTANE provides an SMB ad solution that we originally intended to offer to our channel partners for resell to their customers, because those partners, primarily Yellow Page publishers, had literally thousands of feet on the street that we felt we could leverage. We made great initial progress with this strategy until two things happened. One, algorithm changes by the major search engines affected our ability to deliver value to our customers. And, two, shifting priorities among the largest Yellow Page partners made this product a lower priority.

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