ReachLocal Reports Fourth Quarter and Fiscal Year 2012 Results

Posts $455.4 Million in 2012 Revenue, 21% Year-over-Year Growth

Delivered $23.6 Million in Adjusted EBITDA, 49% Year-over-Year Growth

Will Announce New Products and Initiatives at Analyst Day on February 21, 2013

WOODLAND HILLS, Calif., Feb. 12, 2013 (GLOBE NEWSWIRE) -- ReachLocal, Inc. (Nasdaq:RLOC), a leader in local online marketing solutions for small- and medium-sized businesses (SMBs), today reported financial results for the fourth quarter and fiscal year ended December 31, 2012.

Q4 Year-Over-Year Highlights

• Revenue growth of 20%, highlighted by 47% growth in international markets and 23% growth in the direct local channel
• International revenue expanded to 30% of revenue, up from 25% in Q4 2011
• Adjusted EBITDA grew 23% to $6.4 million, compared to $5.2 million in Q4 2011
• Active Advertisers grew 15% to 22,000 and Active Campaigns grew 18% to 32,500
• Launched operations directly in Brazil and with a franchise partner in the Czech Republic
• Repurchased 480,000 shares of stock for $5.6 million

FY 2012 Highlights

• Revenue growth of 21%, with 49% growth in international markets and 23% growth in the direct local channel
• Loss from continuing operations of $232,000, compared to a loss of $4.1 million in 2011 and a Net Loss of $232,000, compared to a Net Loss of $10.3 million in 2011
• Adjusted EBITDA of $23.6 million, compared to $15.9 million in 2011
• Launched operations directly in Asia and Latin America, as well as in Eastern Europe with a Franchise Partner
• Non-GAAP net income of $13.0 million, compared to Non-GAAP net income of $9.6 million in 2011
• Repurchased 1,116,000 shares of stock for $10.8 million during 2012 and expanded buy-back authorization under which ReachLocal has repurchased 1,985,000 shares for $17.4 million to date
• Launched new products including ReachRetargeting and the new ReachLocal Mobile App

Management Commentary

"2012 was another excellent year for ReachLocal. We made progress across all of our key initiatives enabling us to deliver both strong revenue and Adjusted EBITDA growth," said Zorik Gordon, CEO. "We accelerated international expansion into two new continents, launched important new lead generation and mobile products, and continued to lay the foundation for our local commerce and software product initiatives that we plan to showcase at our upcoming analyst day this month."

Q4 Quarterly Results at a Glance

(Table amounts in 000's except key metrics and per share amounts)

2012 Annual Results and Key Metrics at a Glance

(Table amounts in 000's except key metrics and per share amounts)

Business Outlook

"We are pleased to have delivered strong revenue and profitability growth during 2012. As we look ahead, we intend to continue to invest in the long-term expansion and optimization of our distribution organization as well as in product expansion. We believe that we are well-positioned to deliver solid revenue growth and, even with our planned investments, modestly expand Adjusted EBITDA margins in 2013. Moreover, for the near-term, we currently expect to maintain revenue growth and annual margin expansion at levels equal to or better than our current expectation for 2013," said Ross Landsbaum, Chief Financial Officer.

The Company's outlook is as follows:

First Quarter 2013

• Revenues in the range of $121.5 million to $123.5 million
• Adjusted EBITDA in the range of $5.4 million to $6.4 million
• Ending Upperclassmen headcount of 410 to 430
• Ending Underclassmen headcount of 395 to 415
• Ending total IMC headcount of 805 to 845

Calendar  Year 2013

• Revenues in the range of $530 million to $540 million
• Adjusted EBITDA in the range of $29.5 million to $31.5 million
• Ending Upperclassmen headcount of 470 to 510
• Ending Underclassmen headcount of 300 to 340
• Ending total IMC headcount of 770 to 850

Conference Call and Webcast Information

The ReachLocal fourth quarter and fiscal year 2012 teleconference and webcast is scheduled to begin at 2:00 p.m., Pacific Time, on Tuesday, February 12, 2013. To participate on the live call, analysts and investors should dial 877-941-2068 at least ten minutes prior to the call. ReachLocal will also offer a live and archived webcast of the conference call, accessible from the "Investors" section of the Company's Web site at www.reachlocal.com.

Analyst & Investor Day Information

ReachLocal will host an Analyst and Investor Day on Thursday, February 21, 2013 at NASDAQ in Times Square. Key members of the senior management team will host a series of presentations beginning at 8:00 a.m. Eastern Time, providing insight into the global business and a preview of new product and technology initiatives for 2013 and beyond. Financial analysts and investors may register to attend by contacting Stephanie Boyar by email at stephanie@blueshirtgroup.com. Space is limited and pre-registration is required for admittance to the event.

Use of Non-GAAP Measures

ReachLocal management evaluates and makes operating decisions using various financial and operational metrics. In addition to the Company's GAAP results, management also considers non-GAAP measures of non-GAAP net income (loss), non-GAAP net income (loss) per share, and Adjusted EBITDA. Management believes that these non-GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. The attached tables provide a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Management also tracks and reports on Underclassmen Expense, Active Advertisers, Active Campaigns and the total number of Internet Marketing Consultants (IMCs), as management believes that these metrics are important gauges of the progress of the Company's performance. 

The non-GAAP net income is defined as net income (loss) from continuing operations before (a) stock-based compensation related expense (including the related adjustment to amortization of capitalized software development costs) and (b) acquisition related costs. Adjusted EBITDA is defined as net income (loss) from continuing operations before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, stock-based compensation, the effects of accounting for business combinations (including any impairment of acquired intangibles and, in the case of the acquisition of SMB:LIVE, the deferred cash consideration) and amounts included in other non-operating income or expense.

Acquisition Related Costs:  Acquisition related costs, including the amortization and any impairment of acquired intangibles and the deferred cash consideration for the SMB:LIVE acquisition, are excluded from the non-GAAP operating results as these are non-recurring charges which the Company would not have incurred as part of continuing operations.

Each of these non-GAAP measures, while having utility, also have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of these limitations are:

• Adjusted EBITDA does not reflect the Company's cash expenditures for capital equipment or other contractual commitments;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect capital expenditure requirements for such replacements;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, the Company's working capital needs;
• Adjusted EBITDA and non-GAAP net income (loss) do not consider the potentially dilutive impact of issuing equity-based compensation to the Company's management and other employees;
• Adjusted EBITDA does not reflect the potentially significant interest expense or the cash requirements necessary to service interest or principal payments on indebtedness that the Company may incur in the future;
• Adjusted EBITDA does not reflect income and expense items that relate to the Company's financing and investing activities, any of which could significantly affect the Company's results of operations or be a significant use of cash;
• Adjusted EBITDA and non-GAAP net income (loss) do not reflect costs or expenses associated with accounting for business combinations;
• Adjusted EBITDA does not reflect certain tax payments that may represent a reduction in cash available to the Company; and
• Other companies, including companies in the same industry, calculate Adjusted EBITDA and non-GAAP net income (loss) measures differently, which reduces their usefulness as a comparative measure.

Adjusted EBITDA is not intended to replace operating income (loss), net income (loss) and other measures of financial performance reported in accordance with GAAP. Rather, Adjusted EBITDA is a measure of operating performance that may be considered in addition to those measures. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to the Company to invest in the growth of the business.

Underclassmen Expense is a number the Company calculates to approximate its investment in Underclassmen and is comprised of the selling and marketing expenses allocated to Underclassmen during a reporting period. The amount includes the direct salaries and allocated benefits of the Underclassmen (excluding commissions), training and sales organization expenses including depreciation allocated based on relative headcount and marketing expenses allocated based on relative revenue. While management believes that Underclassmen Expense provides useful information regarding the Company's approximated investment in Underclassmen, the methodology used to arrive at the estimated Underclassmen Expense was developed internally by the Company, is not a concept or method recognized by GAAP and other companies may use different methodologies to calculate or approximate measures similar to Underclassmen Expense. Accordingly, the calculation of Underclassmen Expense may not be comparable to similar measures used by other companies. Management refers to sales through its sales force of Internet Marketing Consultants as its Direct Local channel. As the sale to agencies, resellers and national brands involves negotiations with businesses that generally represent an aggregated group of SMB advertisers, management groups them together as the National Brands, Agencies and Resellers (NBAR) channel.

Active Advertisers is a number the Company calculates to approximate the number of clients directly served through our Direct Local channel as well as clients served through our National Brands, Agencies and Resellers channel. We calculate Active Advertisers by adjusting the number of Active Campaigns to combine clients with more than one Active Campaign as a single Active Advertiser. Clients with more than one location are generally reflected as multiple Active Advertisers. Because this number includes clients served through the National Brands, Agencies and Resellers channel, Active Advertisers includes entities with which we do not have a direct client relationship. Numbers are rounded to the nearest hundred.

Active Campaigns is a number we calculate to approximate the number of individual products or services we are managing under contract for Active Advertisers. For example, if we were performing both ReachSearch and ReachDisplay campaigns for a client, we consider that two Active Campaigns. Similarly, if a client purchased ReachSearch campaigns for two different products or purposes, we consider that two Active Campaigns. Numbers are rounded to the nearest hundred.

Caution Concerning Forward-Looking Statements

Statements in this press release regarding the Company's guidance for future periods and the quotes from management constitute "forward-looking" statements within the meaning of the Securities Exchange Act of 1934. These statements reflect the Company's current views about future events and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to materially differ from those expressed or implied by the forward-looking statements. Actual events or results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including: (i) the Company's ability to purchase media and receive rebates from Google, Yahoo! and Microsoft under commercially reasonable terms; (ii) the Company's ability to recruit, train and retain its Internet Marketing Consultants; (iii) the Company's ability to attract and retain customers; (iv) the Company's ability to successfully enter new markets and manage its international expansion; (v) the Company's ability to successfully develop and offer new products and services in the highly competitive online advertising industry; (vi) the impact of worldwide economic conditions, including the resulting effect on advertising budgets; and (vii) our ability to comply with government regulation affecting our business, including regulations or policies governing consumer privacy. More information about these factors and other potential factors that could affect the Company's business and financial results is contained in its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. The Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.

About ReachLocal, Inc.

ReachLocal, Inc.'s (Nasdaq:RLOC) mission is to help small- and medium-sized businesses (SMBs) acquire, maintain and retain customers via the Internet. ReachLocal offers a comprehensive suite of online marketing solutions including search engine marketing (ReachSearch™), Web presence (ReachCast™), display retargeting (ReachRetargeting™), display advertising  (ReachDisplay™), online marketing analytics (TotalTrack®) and assisted chat service (TotalLiveChat™), each targeted to the SMB market. ReachLocal delivers this suite of services to SMBs through a combination of its proprietary technology platform and its direct, "feet-on-the-street" sales force of Internet Marketing Consultants and select third-party agencies and resellers.  ReachLocal is headquartered in Woodland Hills, CA, with offices throughout North America and in Australia, the United Kingdom, Germany, the Netherlands and Japan. Subscribe to ReachLocal's free newsletter to receive news, tips, and other online marketing insights.

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