ReachLocal, Inc. (Nasdaq:RLOC), a leader in powering online
marketing for local businesses, today raised its outlook for fourth
quarter 2015 Adjusted EBITDA and announced a series of strategic
actions to improve Adjusted EBITDA and its liquidity position in
order to provide a foundation for future growth. The Company:
- Entered into a new financing agreement with affiliates of
VantagePoint Capital Partners and amended its existing agreement
with Hercules Technology Growth Capital to provide additional
liquidity.
- Estimates that operating expenses for 2015 will be
approximately 25% lower than 2014 levels, and that additional
already-implemented and planned efficiency programs will further
reduce operating expenses in 2016 by at least 15% over 2015
levels.
- Revised terms with its key publishers to improve its ability to
earn performance bonuses following up on winning top honors with
Google's Innovator Award for its ReachEdge™ solution and winning
Google's Quality Score Champion Award for North America and
LATAM.
- Exited direct sales in the UK market in line with its goal of
eliminating unprofitable revenues.
“We have taken a number of proactive, strategic
steps to reduce costs and improve our cash position and are pleased
to raise our Adjusted EBITDA outlook for the fourth quarter and
provide an initial view of our Adjusted EBITDA for next year,” said
Sharon Rowlands, ReachLocal’s Chief Executive Officer. “One
of our goals for 2015 was to progressively improve Adjusted EBITDA
throughout the year, and today’s upward revision is evidence that
we are moving in the right direction. Our revised outlook is
driven primarily by more aggressive expense management and business
optimization initiatives and incremental upside expected from
recently revised publisher rebate agreements.”
Financing Agreements
ReachLocal has entered into a $10 million financing
arrangement with affiliates of its largest shareholder,
VantagePoint Capital Partners, for the immediate issuance of $5
million of Convertible Secured Subordinated Notes and the
possibility of an additional $5 million of notes to be issued upon
mutual agreement. The notes bear interest at a rate of 4
percent, mature in April 2018 and may be converted into ReachLocal
common stock at a conversion price of $5 per share at the holder’s
option.
“VantagePoint Capital Partners is pleased to
provide this facility. Based on our analysis, the $5 million we are
providing today, together with the company’s other resources,
provides sufficient liquidity to fully support the company's 2016
operating plan,” said VantagePoint CEO Alan Salzman. “We have
confidence that the ReachLocal management team has implemented the
right strategic, cost-cutting, and operational steps so that the
company can focus on enhancing Adjusted EBITDA and increasing
shareholder value during 2016.”
In addition, Hercules Technology Growth Capital has
agreed to reduce the amount of restricted cash required by the
Hercules term loan from $17.5 million to $15.0 million. The
amended loan agreement with Hercules also provides that the
restricted cash will be reduced to $12.5 million as soon as May
2016 if ReachLocal achieves certain profitability targets as
provided in the Hercules term loan.
ReachLocal anticipates ending 2015 with cash, cash
equivalents and restricted cash of at least $30 million, including
$15 million of restricted cash under the Hercules loan
agreement.
Operating Expenses
As discussed on its quarterly earnings calls,
throughout 2015 ReachLocal has implemented a number of actions
designed to lower operating expenses and promote operating
efficiencies. ReachLocal now estimates that these programs will
result in an expected 25% decrease in 2015 operating expenses
compared to 2014. Additional cost-focused activities already
implemented should result in a further reduction of at least 15% in
2016 operating expenses below 2015 levels.
Publisher Agreements and Awards
ReachLocal has also agreed to revised terms with
key publishers to give it the ability to optimize media costs
through improved performance bonuses.
As previously announced, ReachLocal won Google's
Innovator Award for its ReachEdge™ Solution awarded to the Premier
SMB Partner delivering outstanding technology innovations in their
digital advertising solutions. The Company also won Google's
Quality Score Champion Award for North America and LATAM.
This prestigious award recognizes the Premier SMB Partner with the
highest average AdWords Quality Score during the judging period,
indicating the superior quality of ReachSearch technology and
ReachLocal’s service platform.
Exit from Direct Sales in the U.K. Market
ReachLocal has decided to exit from direct sales in
the U.K. market, consistent with its previously stated strategy of
focusing only on markets with the potential for positive,
sustainable economics and contribution margin. For the nine
months ended September 30, 2015, ReachLocal reported revenues of
$20.2 million and an Adjusted EBITDA loss of $1.8 million
attributable to operations in the UK. The impact of the
transaction to exit the UK will have an immaterial impact on
Adjusted EBITDA in the fourth quarter. A reconciliation table
showing historical pro forma performance of excluding the UK for
2014 and the first three quarters of 2015 will be posted on
ReachLocal’s investor relations site.
Business Outlook
The actions detailed above enable ReachLocal to:
- Raise its Adjusted EBITDA guidance for the fourth quarter of
2015 to the range of $2.4 million to $3.0 million, up from the
prior range of $0.8 million to $1.4 million. The Company’s prior
revenue outlook of $88 million to $92 million for the fourth
quarter of 2015 is unchanged.
- ReachLocal anticipates ending 2015 with cash, cash equivalents
and restricted cash of at least $30 million, including $15 million
of restricted cash under the Hercules loan agreement.
- Provide an initial outlook for Adjusted EBITDA of $15 to $17
million for the full year 2016.
“Taken together, these strategic actions improve
our financial position and substantially increase our liquidity as
we work to return ReachLocal to growth. We are comfortable that we
have the liquidity to achieve our plans and have strong confidence
in getting to cash flow positive in the second half of 2016.
Our confidence in our business, leading edge technology and
superior service is supported by our three recent awards from
Google – Quality Score Champion in North America and Latin America
and the Innovator Award for Canada. ReachLocal has made great
strides in improving client experience and expanding our software
solutions during 2015 and we expect to continue these trends in
2016,” concluded Rowlands.
About ReachLocal, Inc.
ReachLocal, Inc. (RLOC) helps local businesses grow and operate
their business better with leading technology and expert service
for our clients’ lead generation and conversion. ReachLocal is
headquartered in Woodland Hills, Calif. and operates in four
regions: Asia-Pacific, Europe, Latin America and North America.
For more information please visit ReachLocal at
www.reachlocal.com, follow us at www.reachlocal.com/social or email
info@reachlocal.com.
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 including 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. 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 goodwill), restructuring charges, and
other non-operating income or expense. 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 does 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 does 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.
Other companies, including companies in the same industry,
calculate Adjusted EBITDA 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.
Caution Concerning Forward-Looking
Statements
Statements in this press release regarding the
Company’s outlook 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 increase productivity of its sales operations;
(ii) the Company’s ability to obtain the cost savings contemplated
by its cost reduction initiatives and maintain sufficient
liquidity; (iii) the Company’s ability to purchase media and
receive rebates from Google, Yahoo! and Microsoft under
commercially reasonable terms; (iv) the Company’s ability to
recruit, train and retain its salespeople; (v) the Company’s
ability to attract and retain customers and compete with a wide
range of competitors on both price and product offerings; (vi) the
Company’s ability to satisfy the covenants under its various
financing arrangements, some which have required amendments in the
past; (vii) the Company’s ability to manage its international
operations; (viii) the Company’s ability to successfully develop
and offer new products and services in the highly competitive
online advertising industry; (ix) the impact of worldwide economic
conditions, including the resulting effect on advertising budgets;
and (x) the Company’s 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.
Investor Relations:
Alex Wellins
The Blueshirt Group
(415) 217-5861
alex@blueshirtgroup.com
Media Contact:
Amber Seikaly
Vice President Corporate Communications
(214) 294-0242
amber.seikaly@reachlocal.com
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