Local.com Corporation ( LOCM )

Q2 2010 Earnings Call Transcript

July 26, 2010 4:30 pm ET


Ken Cragun – VP, Finance

Heath Clarke – Chairman & CEO

Bruce Crair – President & COO

Brenda Agius – CFO


Richard Fetyko – Merriman & Co.

Ross Sandler – RBC Capital Markets

Jeff Rath – Canaccord

Jon Hickman – MDB Capital



Good day, ladies and gentlemen, and welcome to the Q2 2010 Local.com Corporation earnings conference call. My name is Adam and I'll be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. As a reminder this conference is being recorded for replay purposes.

I'd now like to turn the conference over to your host for today Mr. Ken Cragun, Vice President of Finance. Please proceed, sir.

Ken Cragun

Thank you and good afternoon. It's my pleasure to welcome you to Local.com's second quarter 2010 financial results conference call. With me today are Local.com's Chairman and CEO, Heath Clarke; President and Chief Operating Officer, Bruce Crair; and our Chief Financial Officer, Brenda Agius.

The executive team will discuss our financial results for the second quarter 2010 and our outlook for the third quarter. At the conclusion of their prepared remarks we will open the lines for questions. I would like to bring to everyone's attention that today's comments include forward-looking statements within the meaning of Section 21A of the Securities and Exchange Act of 1934, as amended.

These statements are subject to risks and uncertainties that may cause actual results and events 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 also detailed on Local.com's filings with the Securities and Exchange Commission.

Forward-looking statements made during today's call are only made as of the date of this conference call and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Before turning you over to Heath, it is important that I mention that we use non-GAAP financial measures in evaluating our financial performance, specifically the non-GAAP financial measure of adjusted net income.

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

To comply with the SEC's guidance on fair and open disclosure, we have made this conference call publicly available via audio webcast. Through the Investor Relations section of our Website and a replay of this conference call will be available for 90 days after the call. Today's call features shortened prepared remarks in order to spend more time on the questions-and-answers segment of the call.

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

Heath Clarke

Thanks, Ken. We're pleased to report another strong quarter once again achieving record revenue and adjusted net income. We delivered increased margins even though we continue to ramp our investments in product and R&D, which I'll talk more about in a moment.

Local has three business units – Owned & Operated, which represent our proprietary sites and traffic; Network, which represents third-party sites and traffic; and Sales & Ad Services, which includes our direct customers plus ad fees from partners such as Yahoo! Our recent acquisition OCTANE360 will run independently for now.

OCTANE revenue isn't expected to be material in the second half and will cost us $0.02 per share in adjusted net income during the third quarter. We believe OCTANE will help us to execute the various growth strategies of all our business units, which I will talk more about in a moment.

OCTANE's broadest potential is for the continued diversification of our revenue stream via unique advertiser products and the diversification of our traffic sources in the higher margin organic traffic.

Diversification is strategic to our goal of building a defensible local search business. In addition, OCTANE's unique patent pending technology has been a great addition to our platform and technology portfolio.

Let's dig into more detail. O&O revenue is up in real dollars and about 52% of our total second quarter revenue. Both SEM and organic traffic increased during the second quarter and we entered Q3 with organic traffic near all-time highs.

Although monetization was down, net-net we generated more money by SEM campaigns in lower monetizing, but higher volume, higher margin areas. Our O&O goal this year is to grow organic traffic through the addition of content are in towards our target soccer mom audience, and by delivering a better experience, so our users spend more time on our site and come back more often. This is a very large product and engineering effort and it's been underway since the first quarter.

We plan to increase the number of resources on this project through the end of the quarter, and after that we expect to maintain those staffing levels for a period of time. But a large portion of the work is behind the scene technology. We are excited about the progress we've made and expect Phase I to launch in the next 90 days.

We'll be debuting a new look and feel, logo and branding for the site as well as new content designed to increase the site stickiness and SEO traffic. This is an ongoing effort, and Phase II and 3 are planned for launch during 2011.

Read the rest of this transcript for free on seekingalpha.com

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