ReachLocal Reports 44% Annual Revenue Growth for 2010 and Announces Acquisition of DealOn

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, 2010.

2010 Annual Results and Key Metrics at a Glance
(Amounts in 000’s except key metrics and per share amounts)

* Full year results for 2009 include a one-time non-cash gain of $16.2 million in connection with the acquisition of the portion of ReachLocal Australia which the Company did not already own.

"During 2010, ReachLocal continued to be the premier provider of local online marketing solutions for small- and medium-sized businesses (SMBs). Our winning strategy of delivering a complete portfolio of online marketing solutions for SMBs through a combination of technology and a feet-on-the-street sales force drove strong revenue and operating cash flow growth. We continued to diversify our business in 2010, launching ReachCast, our award-winning digital presence product, and Bizzy, our personalized local recommendation engine, which are both off to a strong start,” said Zorik Gordon, President and CEO of ReachLocal. "Today we are also announcing our expansion into Germany and the acquisition of DealOn. This acquisition marks our entrance into the fast-growing local deals space, giving us an even broader range of product offerings to deliver to SMB advertisers. We enter 2011 with a more diversified and complete set of assets in local markets around the world than ever before.”

Quarterly Results at a Glance
(Amounts in 000’s except per share amounts)

"Our strong operational and financial results for the fourth quarter include 39% year-over-year revenue growth for Direct Local and 86% year-over-year revenue growth from our international operations,” said CFO Ross Landsbaum. He added, "For calendar 2010, we delivered 44% revenue growth as the result of the increased number and productivity of our IMCs and continued expansion of our NBAR channel. At the same time, we delivered solid growth in operating cash flow, while substantially increasing our investment in underclassmen expense and product and technology.”

Business Outlook

"Looking ahead, ReachLocal has an outlook of continued 30-plus percent revenue growth and increasing adjusted EBITDA margins for calendar year 2011, all while continuing its investment in IMCs, new international territories, and new product development and launches," said Ross Landsbaum, CFO of ReachLocal. "Our outlook reflects our 2010 year-end IMC count and IMC productivity growth, modest revenue impact from the DealOn acquisition, and minimal improvement in the macroeconomic climate in the SMB sector,” added Landsbaum.

The Company’s outlook for the first quarter and fiscal year 2011 is as follows:

First Quarter 2011

• Revenues in the range of $83 to $85 million
• Adjusted EBITDA in the range of $(0.5) to $(1.5) million
• Ending Upperclassmen headcount of 295 to 315
• Ending Underclassmen headcount of 400 to 420
• Ending total IMC headcount of 695 to 735

Fiscal Year 2011

• Revenues in the range of $380 to $400 million
• Adjusted EBITDA in the range of $6 to $8 million
• Ending Upperclassmen headcount of 400 to 440
• Ending Underclassmen headcount of 345 to 385
• Ending total IMC headcount of 745 to 825

The 2011 guidance reflects the acquisition of DealOn and assumes $5 million to $6 million in increased net costs to expand that business.

Conference Call and Webcast Information

The ReachLocal fourth quarter and fiscal year 2010 teleconference and webcast is scheduled to begin at 2:00 p.m., Pacific Time, on Tuesday, February 15, 2011, during which the Company will provide forward-looking information. To participate on the live call, analysts and investors should dial 877-941-4774 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.

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 net income (loss), 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 each of these metrics are important gauges of the progress of the Company’s performance.

The non-GAAP net income is defined as earnings before (a) stock-based compensation related expense (including the related adjustment to amortization of capitalized software development costs) and (b) acquisition related costs (including in the case of the February 2010 acquisition of SMB:Live, the amortization of acquired intangibles and the deferred cash consideration). Adjusted EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, stock-based compensation, the effects of accounting for business combinations and amounts included in other non-operating income or expense.

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 the Company’s Direct Local channel as well as clients served through the Company’s National Brands, Agencies and Resellers channel. The Company calculates 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 the Company does not have a direct client relationship. Numbers are rounded to the nearest hundred.

Active Campaigns is a number the Company calculates to approximate the number of individual products or services the Company is managing under contract for Active Advertisers. For example, if the Company is performing both ReachSearch and ReachDisplay campaigns for a client, the Company considers that two Active Campaigns. Similarly, if a client purchased ReachSearch campaigns for two different products or purposes, the Company considers 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 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 final Prospectus related to its initial public offering filed pursuant to Rule 424(b) under the Securities Act with the SEC on May 19, 2010 and the Company’s updates in its 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 advertising (ReachDisplay™) and remarketing, online marketing analytics (TotalTrack®), and our out-of-the-box 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. Bizzy™, a personalized local business recommendation engine, and DealOn™, a local deals company, are wholly owned subsidiaries. ReachLocal is headquartered in Woodland Hills, CA, with offices throughout North America and in Australia, the United Kingdom and Germany.