Add
LOCM to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| LOCM > SEC Filings for LOCM > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
Although we have provided services for both local and national advertisers, our
focus is transitioning away from the national market and towards the local
search market. Our resources are currently being utilized almost entirely on
developing our products and services to address the needs of the local search
market.
We have increased our operating expenses, mainly sales and marketing expenses to
advertise and bring users (traffic) to our Local.com website. We will also
continue to increase our sales and marketing expenses to promote our Local.com
website.
Our revenue, profitability and future growth depend not only on our ability to
execute our business plan, but also, among other things, on customer acceptance
of our services, the growth of the paid-search market and competition from other
providers of paid-search technologies and services.
Sources of Revenue
We generate revenue primarily from direct and indirect advertiser relationships.
We generate revenue primarily on our Local.com website and private label network
from:
click-throughs on sponsored listings;
display of banner advertisements;
subscription advertiser listing; and
subscription web hosting services.
Operating Expenses
Search Serving
Search serving expenses consist primarily of revenue-sharing payments that we
make to our private label network, and to a lesser extent, Internet connectivity
costs, data center costs, amortization of certain software license fees and
maintenance and depreciation of computer equipment used in providing our
paid-search services. As we continue to experience growth, we expect our search
serving expense to increase proportionally.
Sales and Marketing
Sales and marketing expenses largely consist of advertising costs associated
with driving consumers to our Local.com website, sales commissions and salaries
for our internal and outsourced sales force, customer service staff and
marketing personnel, advertising and promotional expenses. We record advertising
costs and sales commission in the period in which the expense is incurred. We
expect our sales and marketing expenses will increase in absolute dollars as we
continue to experience growth.
We advertise on other search engine websites, primarily google.com, but also
yahoo.com, msn.com, ask.com, Intelius, whitepages.com, and several other
specialized sites, by bidding on certain keywords we believe will drive traffic
to our Local.com website. During the three month period ending March 31, 2009,
approximately 55% of our overall traffic was purchased from other search engine
websites. During the three months ended March 31, 2009, advertising costs to
drive consumers to our Local.com website were $6.0 million of which $4.5 million
was paid to Google, Inc. If we are unable to advertise on these websites, or the
cost to advertise on these websites increases, our financial results may suffer.
General and Administrative
General and administrative expenses consist of salaries and other costs
associated with employment of our executive, finance, human resources and
information technology staff, along with processing fees for our subscription
based advertiser sales, legal, tax and accounting, and professional service
fees. We expect our general and administrative costs to increase as we increase
the number of our subscription based advertisers and expand our management team.
Research and Development
Research and development expenses consist of salaries and other costs of
employment of our development staff, outside contractor costs and amortization
of capitalized website development costs. We expect research and development
expenses to continue at the same level for the next year.
Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities
and equity and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenue and
expenses during the reported period. We review our estimates on an ongoing
basis. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the result
of which forms the basis for making judgments about the carrying values of
assets and liabilities and the reported amounts of revenue and expenses. Actual
results may differ from these estimates under different assumptions or
conditions. Our significant accounting policies described in more detail in Note
1 to our consolidated financial statements included in this Report, involve
judgments and estimates that are significant to the presentation of our
consolidated financial statements.
Revenue Recognition
We recognize revenue when all of the following conditions are satisfied:
(1) there is persuasive evidence of an arrangement; (2) the service has been
provided to the customer; (3) the amount of fees to be paid by the customer is
fixed or determinable; and (4) the collection of our fees is probable.
We generate revenue when it is realizable and earned, as evidenced by
click-throughs occurring on advertisers' sponsored listings, the display of a
banner advertisement or the fulfillment of subscription listing obligations. We
enter into contracts to distribute sponsored listings and banner advertisement
with our direct and indirect advertisers. Most of these contracts are
short-term, do not contain multiple elements and can be cancelled at anytime.
Our indirect advertisers provide us with sponsored listings with bid prices
(what their advertisers are willing to pay for each click-through on those
listings). We recognize our portion of the bid price based upon the contractual
agreement. Sponsored listings and banner advertisements are included as search
results in response to keyword searches performed by consumers on our Local.com
website and on our private label network. Revenue is recognized when earned
based on click-through activity to the extent that collection is reasonably
assured from credit worthy advertisers. We have analyzed our revenue recognition
in accordance with Emerging Issues Task Force Issue No. 99-19, Reporting Revenue
Gross as a Principal versus Net as an Agent (EITF 99-19), and determined that
our web hosting revenue will be recognized net of direct costs. All other
revenue is recognized on a gross basis.
Allowance for Doubtful Accounts
Our management estimates the losses that may result from that portion of our
accounts receivable that may not be collectible as a result of the inability of
our customers to make required payments. Management specifically analyzes
accounts receivable and historical bad debt, customer concentration, customer
credit-worthiness, current economic trends and changes in customer payment terms
when evaluating the adequacy of the allowance for doubtful accounts. If we
believe that our customers' financial condition has deteriorated such that it
impairs their ability to make payments to us, additional allowances may be
required. We review past due accounts on a monthly basis and record an allowance
for doubtful accounts generally equal to any accounts receivable that are over
90 days past due.
As of March 31, 2009, one customer represented 78% of our total accounts
receivable. This customer has historically paid within the payment period
provided for under the contract and management believes this customer will
continue to do so.
Stock Based Compensation
We account for stock based compensation in accordance with SFAS No. 123R.
Total stock-based compensation expense recognized for the three months ended
March 31, 2009 and 2008 is as follows (in thousands, except per share amount):
Three Months Ended March 31,
2009 2008
Sales and marketing $ 183 $ 240
General and administrative 236 339
Research and development 67 71
Total stock-based compensation expense $ 486 $ 650
Basic and diluted net stock-based compensation expense per share $ 0.03 $ 0.05
|
Results of Operations
The following table sets forth our historical operating results as a percentage
of revenue for the three months ended March 31, 2009 and 2008:
Three Months Ended March 31,
2009 2008
Revenue 100.0 % 100.0 %
Operating Expenses:
Search serving 10.0 16.4
Sales and marketing 83.6 86.4
General and administrative 21.3 16.3
Research and development 7.7 9.9
Amortization and write-down of intangibles 3.2 3.6
Total operating expenses 125.8 132.7
Operating loss (25.8 ) (32.7 )
Interest and other income (expense) 0.0 1.5
Loss before income taxes (25.8 ) (31.2 )
Provision for income taxes 0.0 0.0
Net loss (25.8 )% (31.2 )%
|
Three months ended March 31, 2009 and 2008 Revenue (dollars in thousands)
Three Months Ended March 31,
Percent of Percent of
Total Total Percent
2009 Revenue 2008 Revenue Change
Local domestic $ 10,828 97.9 % $ 8,038 90.9 % 34.7 %
Local international 131 1.2 % 138 1.6 % (5.1 )%
Total local 10,959 99.1 % 8,176 92.5 % 34.0 %
National 105 0.9 % 666 7.5 % (84.2 )%
Total revenue $ 11,064 100.0 % $ 8,842 100.0 % 25.1 %
|
Local domestic revenue for the three months ended March 31, 2009 increased
$2.8 million, or 34.7%, compared to the same period in 2008. The increase in
revenue is primarily due to increased traffic at our website and increased
monetization as our revenue per thousand visitors (RKV) increased to $246 for
the three months ended March 31, 2009 from $228 for the three months ended
March 31, 2008. The increase in traffic at our website is the result of higher
marketing expense to attract users to Local.com as well as increased organic
search traffic over the same period. The increase in RKV was a result of
additional ad units per page, optimization of search results to improve page
yields, greater revenue share received from our advertising partners and
improved search engine marketing. Local domestic revenue also benefited from the
LaRoss and LiveDeal transactions that closed in February and March 2009,
respectively.
Our Local.com international revenue for the three months ended March 31, 2009
decreased $7,000, or 5.1%, compared to the same period in 2008. The decrease in
revenue is primarily due to decreased traffic which produced a lower number of
click-throughs. In April 2009, we discontinued local international advertising.
The U.S. Local.com site will utilize the search serving assets previously
dedicated to support international revenue.
National revenue for the three months ended March 31, 2009 decreased $561,000,
or 84.2%, compared to the same period in 2008. The decrease in revenue is
primarily due to a decrease in revenue-generating click-throughs as we utilized
fewer resources to operate national search in order to focus on local search.
Based on the above, total revenue for the three months ended March 31, 2009,
increased to $11.1 million from $8.8 million for the three months ended
March 31, 2008 an increase of $2.2 million, or 25.1%.
The following table identifies our major customers across all product lines and
on our Local.com website that represented greater than 10% of our total revenue
in the periods presented:
Percentage of Total Revenue Percentage of Total Revenue
Three Months Ended March 31, 2009 Three Months Ended March 31, 2008
Across all Local.com Across all Local.com
Customer product lines website only product lines website only
Yahoo! Inc. 51.4 % 44.6 % 54.2 % 47.5 %
Idearc Media Corp. 18.5 % 13.5 % 15.8 % 14.5 %
|
On March 31, 2009, Idearc announced that it filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Idearc also
announced that it has reached an agreement in principle with the agent bank and
a steering group of its secured lenders on certain critical elements of a plan
of reorganization. Idearc announced it maintains substantial cash balances and
continues to generate positive cash flow, and has reached an agreement on use of
cash collateral. Idearc expects to operate business as usual throughout its
restructuring process, with no interruption in the solutions and services it
provides. At March 31, 2009 we did not have any accounts receivable outstanding
with Idearc.
Operating expenses:
Operating expenses were as follows (dollars in thousands):
Three Months Ended March 31,
Percent of Percent of
Total Total Percent
2009 Revenue 2008 Revenue Change
Search serving $ 1,109 10.0 % $ 1,453 16.4 % (23.7) %
Sales and marketing 9,250 83.6 % 7,643 86.4 % 21.0 %
General and administrative 2,352 21.3 % 1,443 16.3 % 63.0 %
Research and development 856 7.7 % 878 9.9 % (2.5) %
Amortization and write-down of
intangibles 355 3.2 % 318 3.6 % 11.6 %
Total operating expenses $ 13,922 125.8 % $ 11,735 132.7 % 18.6 %
|
Search serving
Search serving expenses for the three months ended March 31, 2009 decreased by
$0.3 million, or 23.7%, compared to the same period in 2008. The decrease was
primarily due to decreased revenue share payments related to National revenue,
partially offset by higher costs to increase our network bandwidth and an
increase in our revenue share payments to our private label network partners. As
we are projecting growth during 2009, particularly in our private label network,
we expect our search serving expense to increase from current levels.
Sales and marketing
Sales and marketing expenses for the three months ended March 31, 2009 increased
by $1.6 million, or 21.0%, compared to the same period in 2008. The increase was
primarily due to an increase in advertising costs associated with driving
consumers to our Local.com website. We have also increased our sales efforts by
establishing outsourced telesales partners. We expect our sales and marketing
expenses will increase in absolute dollars as we continue to experience growth.
Sales and marketing expenses were 83.6% and 86.4% of total revenue for the three
months ended March 31, 2009 and 2008, respectively. The decrease in percentage
was due to a greater return on our consumer-driving advertising costs and an
increase in the amount organic traffic, which typically yields revenue without
sales and marketing costs.
General and administrative
General and administrative expenses for the three months ended March 31, 2009
increased by $0.9 million, or 63.0%, compared to the same period in 2008. The
increase was primarily due to $658,000 of non-recurring charges including
acquisition-related charges and change in officer. The increase is also
attributable to higher transaction processing costs due to higher revenues
related to our subscription-based revenues.
Research and development
Research and development expenses for the three months ended March 31, 2009
decreased by $22,000, or 2.5%, essentially flat compared to the same period in
2008. We expect research and development expenses to continue at the same level.
Amortization of intangibles
Amortization of intangibles expense was $355,000 and $318,000 for the three
months ended March 31, 2009 and 2008, respectively. Amortization will increase
in 2009 due to the LaRoss and LiveDeal acquisitions of customer-related
intangible assets. The LaRoss and LiveDeal customer-related intangible assets of
$1,113,000 and $3,092,000, respectively, will be amortized over two years.
Interest and other income (expense), net
Interest and other income (expense) was $3,000 and $135,000 for the three months
ended March 31, 2009 and 2008, respectively, representing a decrease of
$132,000. The decrease is due to a decrease in cash over the same period,
coupled with a decline in interest rates. We expect interest and other income
(expense) to continue at the same level.
Provision for income taxes
Provision for income taxes was $1,000 for the three months ended March 31, 2009
and 2008, respectively. These amounts represent the minimum amounts required for
state income taxes.
Liquidity and Capital Resources
Liquidity and capital resources highlights (in thousands):
March 31, December 31,
2009 2008
Cash and cash equivalents $ 11,076 $ 12,142
Working capital $ 4,387 $ 10,837
|
Cash flow highlights (in thousands):
Three Months Ended March 31,
2009 2008
Net cash provided by (used in) operating activities $ 3,651 $ (1,508 )
Net cash (used in) provided by investing activities $ (4,480 ) $ 2,004
Net cash used in financing activities $ (237 ) $ (12 )
|
We have funded our business, to date, primarily from issuances of equity and debt securities. Cash and cash equivalents were $11.1 million as of March 31, 2009 and $12.1 million as of December 31, 2008. We had working capital of $4.4 million as of March 31, 2009 and $10.8 million as of December 31, 2008. Net cash provided by operations was $3.7 million for the three months ended March 31, 2009. Net loss adjusted for non-cash charges used cash of $1.8 million. Changes in operating assets and liabilities provided cash of $5.4 million, the largest component of which represents an increase in deferred revenue related to a prepayment from a significant customer. Net cash used by operations was $1.5 million for the three months ended March 31, 2008, primarily from the net loss adjusted for non-cash items. There are four primary drivers that affect cash used in operations: net income; non-cash adjustments to net income; changes in accounts receivable; and changes in accounts payable. For the three months ended March 31, 2009 the terms of our accounts receivable and accounts payable remained unchanged; although, as noted above, we received a prepayment from a significant customer in the first quarter of 2009, increasing deferred revenue by $3.4 million from December 31, 2008.
The table below substantiates the change in net cash provided by (used in) operating activities for the quarters ended March 31, 2009 and 2008 (in thousands):
Three Months Ended March 31,
2009 2008 Change
Net loss $ (2,856 ) $ (2,759 ) $ (97 )
Non-cash(1) 1,086 1,211 (125 )
Subtotal (1,770 ) (1,548 ) (222 )
Deferred revenue 3,400 (50 ) 3,450
AR, AP and Other 2,021 90 1,931
Net cash provided by (used in) operations $ 3,651 $ (1,508 ) $ 5,159
|
(1) - Includes depreciation, . . .
|
|