10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended September 30, 2013

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the transition period from            to            

Commission file number 001-34749

REACHLOCAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-0498783
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

21700 Oxnard Street, Suite 1600 Woodland Hills, California	91367
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (818) 274-0260

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒

Non-accelerated filer ☐  (Do not check if a smaller reporting company) Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Class	Number of Shares Outstanding on November 1, 2013
Common Stock, $0.00001 par value	27,783,154

PAGE 1

INDEX

				Page
Part I.	Financial Information
	Item 1.	Condensed Consolidated Financial Statements (unaudited)		3
			Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	3
			Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012	4
			Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2013 and 2012	5
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012	6
			Notes to the Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
	Item 4.	Controls and Procedures		35
Part II.	Other Information			36
	Item 1.	Legal Proceedings		36
	Item 1A.	Risk Factors		36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
	Item 6.	Exhibits		37
		Signatures

PAGE 2

PART I

FINANCIAL INFORMATION

Item 1.         FINANCIAL STATEMENTS

REACHLOCAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(Unaudited)

	September 30, 2013			December 31, 2012
Assets
Current Assets:
Cash and cash equivalents	$	84,989		$	92,336
Short-term investments		553			3,149
Accounts receivable, net of allowance for doubtful accounts of $405 and $259 at September 30, 2013 and December 31, 2012, respectively		10,099			5,689
Other receivables and prepaid expenses		14,404			8,957
Total current assets		110,045			110,131
Property and equipment, net		12,136			11,066
Capitalized software development costs, net		18,795			14,704
Restricted certificates of deposit		1,697			1,226
Intangible assets, net		1,525			2,442
Other assets		9,254			4,044
Goodwill		42,083			42,083
Total assets	$	195,535		$	185,696
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	47,145		$	35,297
Accrued expenses		30,647			27,422
Deferred revenue and other current liabilities		37,444			36,304
Liabilities of discontinued operations		794			767
Total current liabilities		116,030			99,790
Deferred rent and other liabilities		4,626			4,020
Total liabilities		120,656			103,810
Commitments and contingencies (Note 8)
Stockholders’ Equity:
Common stock, $0.00001 par value—140,000 shares authorized; 27,746 and 28,154 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		—			—
Receivable from stockholder		(78	)		(89	)
Additional paid-in capital		107,078			110,573
Accumulated deficit		(28,974	)		(27,076	)
Accumulated other comprehensive loss		(3,147	)		(1,522	)
Total stockholders’ equity		74,879			81,886
Total liabilities and stockholders’ equity	$	195,535		$	185,696

See notes to condensed consolidated financial statements.

PAGE 3

REACHLOCAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
Revenue	$	133,148		$	118,891	$	382,023		$	335,106
Cost of revenue		66,764			59,500		192,564			167,546
Operating expenses:
Selling and marketing		48,980			42,860		140,470			122,579
Product and technology		5,901			5,448		17,574			14,180
General and administrative		11,376			9,966		30,588			30,241
Total operating expenses		66,257			58,274		188,632			167,000
Income from operations		127			1,117		827			560
Other income, net		181			33		522			338
Income from operations before provision for income taxes		308			1,150		1,349			898
Provision for income taxes		1,430			314		3,247			736
Net income (loss)	$	(1,122	)	$	836	$	(1,898	)	$	162
Net income (loss) per share, basic	$	(0.04	)	$	0.03	$	(0.07	)	$	0.01
Net income (loss) per share, diluted	$	(0.04	)	$	0.03	$	(0.07	)	$	0.01
Weighted average common shares used in computation of net income (loss) per share, basic		27,507			28,403		27,843			28,379
Weighted average common shares used in computation of net income (loss) per share, diluted		27,507			29,342		27,843			28,902

See notes to condensed consolidated financial statements.

PAGE 4

REACHLOCAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 

(in thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income (loss)	$	(1,122	)	$	836		$	(1,898	)	$	162
Other comprehensive income (loss):
Foreign currency translation adjustments		241			(197	)		(1,625	)		(445	)
Comprehensive income (loss)	$	(881	)	$	639		$	(3,523	)	$	(283	)

See notes to condensed consolidated financial statements.

PAGE 5

REACHLOCAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2013			2012
Cash flow from operating activities:
Net income (loss)	$	(1,898	)	$	162
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		12,006			9,669
Stock-based compensation		8,410			6,929
Excess tax benefits from stock-based awards		(1,127	)		—
Provision for doubtful accounts		513			18
Changes in operating assets and liabilities:
Accounts receivable		(4,908	)		(679	)
Other receivables and prepaid expenses		(5,448	)		(1,291	)
Other assets		(1,509	)		(216	)
Accounts payable and accrued expenses		16,777			10,510
Deferred revenue, rent and other liabilities		2,919			6,958
Net cash provided by operating activities, continuing operations		25,735			32,060
Net cash used in operating activities, discontinued operations		—			(182	)
Net cash provided by operating activities		25,735			31,878
Cash flow from investing activities:
Additions to property, equipment and software		(16,148	)		(12,067	)
Acquisitions, net of acquired cash		(363	)		(4,120	)
Loan to franchisee		(1,221	)		(1,863	)
Investment in partnership		(2,500	)		—
Maturities of certificates of deposits and short-term investments		2,566			466
Purchases of certificates of deposits and short-term investments		(563	)		(8,447	)
Net cash used in investing activities		(18,229	)		(26,031	)
Cash flow from financing activities:
Proceeds from exercise of stock options		5,333			1,639
Excess tax benefits from stock-based awards		1,127			—
Common stock repurchases		(18,904	)		(5,395	)
Net cash used in financing activities		(12,444	)		(3,756	)
Effect of exchange rate changes on cash and cash equivalents		(2,409	)		94
Net change in cash and cash equivalents		(7,347	)		2,185
Cash and cash equivalents—beginning of period		92,336			84,525
Cash and cash equivalents—end of period	$	84,989		$	86,710
Supplemental disclosure of non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	$	443		$	228
Deferred payment obligation decrease	$	(122	)	$	(75	)

See notes to condensed consolidated financial statements.

PAGE 6

REACHLOCAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(UNAUDITED)

1. Organization and Description of Business

ReachLocal, Inc. (the “Company”) was incorporated in the state of Delaware in August 2003. The Company’s operations are located in North America, Australia, the United Kingdom, the Netherlands, Germany, Austria, Belgium, Japan, Brazil and India. The Company’s mission is to help small- and medium-sized businesses (“SMBs”) acquire, transact with, maintain and retain customers via the Internet. The Company offers a comprehensive suite of online marketing solutions, including search engine marketing (ReachSearch™), Web presence (ReachCast™), display advertising (ReachDisplay™), display retargeting (ReachRetargeting™), online marketing analytics (TotalTrack®), and assisted chat service (TotalLiveChat™), each targeted to the SMB market. In 2013, the Company expanded its product suite to include a software-as-a-service, or SaaS, product, ReachEdge, which is a marketing system that combines an optimized website and automated lead management. The Company delivers its suite of services to SMBs through a combination of its proprietary technology platform, the RL Platform, its sales force of Internet Marketing Consultants, or IMCs, and select third-party agencies and resellers. The Company also has two services in beta: ClubLocal™, a consumer service through which it creates a direct relationship with consumers and provides home-related services by engaging third-party suppliers which perform the agreed services on the Company’s behalf, and ReachCommerce™, a SaaS product which supports online booking, transaction and back office processes.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of ReachLocal, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. The Condensed Consolidated Balance Sheet as of December 31, 2012 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, included in those audited consolidated financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company’s statement of financial position at September 30, 2013, the Company’s results of operations for the three and nine months ended September 30, 2013 and 2012, and the Company’s cash flows for the nine months ended September 30, 2013 and 2012. The results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013. All references to the three and nine months ended September 30, 2013 and 2012 in the notes to the condensed consolidated financial statements are unaudited.

Discontinued Operations

As a result of winding down and closing the operations of Bizzy, effective November 2011, the Company has reclassified and presented all related historical financial information as “discontinued operations” in the accompanying Condensed Consolidated Balance Sheets and Consolidated Statements of Cash Flows. In addition, all Bizzy-related activities have been excluded from the notes unless specifically referenced. 

PAGE 7

Reclassifications and Adjustments

Certain prior period amounts have been reclassified to conform to the current period. These reclassifications did not have a material impact on the Company's previously reported consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Therefore, actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue for its services when all of the following criteria are satisfied:

• persuasive evidence of an arrangement exists;

• services have been performed;

• the selling price is fixed or determinable; and

• collectability is reasonably assured.

The Company recognizes revenue as the cost for the third-party media is incurred, which is upon delivery of the advertising on behalf of its clients. The Company recognizes revenue for its ReachSearch product as clicks are recorded on sponsored links on the various search engines and for its ReachDisplay and ReachRetargeting products when the display advertisements record impressions or as otherwise provided in its agreement with the applicable publisher. The Company recognizes revenue for its ReachCast and ReachEdge products on a straight line basis over the applicable service period for each campaign. The Company recognizes revenue when it charges set-up, management service or other fees on a straight-line basis over the term of the related campaign contract or the completion of any obligation for services, if shorter. When the Company receives advance payments from clients, management records these amounts as deferred revenue until the revenue is recognized. When the Company extends credit, management records a receivable when the revenue is recognized.

When the Company sells through agencies, it either receives payment in advance of services or in some cases extends credit. The Company pays each agency an agreed-upon commission based on the revenue it earns or cash it receives. Some agency clients who have been extended credit may offset the amount otherwise due to the Company by any commissions they have earned. Management evaluates whether it is appropriate to record the gross amount of campaign revenue or the net amount earned after commissions. As the Company is the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, management recognizes the gross amount of such sales as revenue and any commissions are recognized as a selling and marketing expense.

The Company also has a small number of resellers, including a franchisee. Resellers integrate the Company’s services, including ReachSearch, ReachDisplay, and TotalTrack, into their product offerings. In most cases, the resellers integrate with the Company’s RL Platform through a custom Application Programming Interface (API). Resellers are responsible for the price and specifications of the integrated product offered to their clients. Resellers pay the Company in arrears, net of commissions and other adjustments. Management recognizes revenue generated under reseller agreements net of the agreed-upon commissions and other adjustments earned or retained by the reseller, as management believes that the reseller has retained sufficient control and bears sufficient risks to be considered the primary obligor in those arrangements.

ClubLocal revenue is recognized when services have been provided. As the Company is the primary obligor under the arrangements, has discretion in supplier selection, has latitude in establishing prices, and bears the credit risk, it recognizes the gross amount of sales as revenue and records the cost of the service provided as cost of revenue.

The Company offers incentives to clients in exchange for minimum commitments. In these circumstances, management estimates the amount of the incentives that will be earned by clients and adjusts the recognition of revenue to reflect such incentives. Estimates are based upon a statistical analysis of previous campaigns for which such incentives were offered.

PAGE 8

The Company accounts for sales and similar taxes imposed on its services on a net basis in the Condensed Consolidated Statements of Operations.

Software Development Costs

The Company capitalizes costs to develop software when management has determined that the development efforts will result in new or additional functionality, or new products. Costs capitalized as internal use software are amortized on a straight-line basis over the estimated three-year useful life. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and are recorded along with amortization of capitalized software development costs as product and technology expenses within the accompanying Condensed Consolidated Statements of Operations. The Company monitors its existing capitalized software costs and reduces its carrying value as the result of releases that render previous features or functions obsolete or otherwise reduce the value of previously capitalized costs.

Goodwill

The Company’s total goodwill of $42.1 million as of both September 30, 2013 and December 31, 2012, is related to the Company’s acquired businesses.   The Company operates in one reportable segment, in accordance with Accounting Standards Codification (“ASC”) 280, Segment Reporting, and has identified two reporting units—North America and Australia—for purposes of evaluating goodwill. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by each reporting unit’s management. North America’s assigned goodwill was $9.7 million and Australia’s assigned goodwill was $32.4 million as of both September 30, 2013 and December 31, 2012. The Company reviews the carrying amounts of goodwill for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. The Company performs its annual assessment of goodwill impairment as of the first day of each fourth quarter.

The Company follows the amended guidance for assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in accordance with ASC 350-20, Intangibles – Goodwill and Other. Entities are provided with the option of first performing a qualitative assessment on any of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a two-step impairment test is necessary. The first step of the impairment test involves comparing the estimated fair values of each of our reporting units with their respective carrying amounts, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of the reporting unit is less than its carrying amount, including goodwill, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The Company estimates fair value utilizing the projected discounted cash flow method and a discount rate determined by the Company to commensurate the risk inherent in its business model.

Long-Lived and Intangible Assets      

The Company reports finite-lived, acquisition-related intangible assets at fair value, net of accumulated amortization. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives of three years, or one year, in the case of certain customer relationships. Straight-line amortization is used because no other pattern over which the economic benefits will be consumed can be reliably determined.

The Company reviews the carrying values of long-lived assets, including intangible assets, for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. In its analysis of other finite lived amortizable intangible assets, the Company applies the guidance of ASC 350-20, Intangibles – Goodwill and Other, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets are attributable to the various developed technologies and client relationships of the businesses the Company has acquired.  Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

PAGE 9

Stock-Based Compensation

The Company accounts for stock-based compensation based on fair value. The Company follows the attribution method, which reduces current stock-based compensation expenses recorded by the effect of anticipated forfeitures. Management estimates forfeitures based upon its historical experience. 

The fair value of each award is estimated on the date of the grant and amortized over the requisite service period, which is the vesting period. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards on the date of grant. Determining the fair value of stock option awards at the grant date under this model requires judgment, including estimating volatility, expected term and risk-free interest rate. The fair value of restricted stock and restricted stock unit awards is based on the closing market price of the Company's common stock on the date of grant. In addition, the Company uses a Monte Carlo simulation model to estimate the fair value of performance-vesting restricted stock and restricted stock units. Determining the fair value of these awards at the grant date under this model requires judgment, including estimating volatility, risk-free rate and expected future stock price. The assumptions used in calculating the fair value of stock-based awards represent management’s estimate based on judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the Black-Scholes or Monte Carlo simulation models significantly change, stock-based compensation for future awards may differ materially from the awards granted previously.

Variable Interest Entities

In accordance with ASC 810, Consolidations, the applicable accounting guidance for the consolidation of variable interest entities (“VIE”), the Company analyzes its interests, including agreements, loans, guarantees, and equity investments, on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. The Company’s analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on the forecasted cash flows of the entity, and its qualitative analysis on the design of the entity, its organizational structure including its decision-making authority, and relevant agreements. If the Company determines that the entity is a VIE, the Company then assesses if it must consolidate the VIE as its primary beneficiary. The Company’s determination of whether it is the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that the Company absorbs, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. See Note 6, “Variable Interest Entities”, for more information.

Loan Receivable

 The Company records loan receivables at carrying value, net of potential allowance for losses. Losses on the receivable are recorded when probable and estimable. The Company routinely evaluates receivables for potential collection issues that might indicate an impairment. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that the Company will experience losses that are different from its current estimates. Write-offs are deducted from the allowance for losses when the Company judges the principal to be uncollectible. Any subsequent recoveries are added to other income at the time cash is received on a written-off balance. Interest income on loan receivables are accrued on a monthly basis over the life of the loan. See Note 6, “Variable Interest Entities”, for more information regarding the Company’s loan receivable.

Investment in Partnership

The Company accounts for investments in partnership under the cost method, which is periodically assessed for other-than-temporary impairment. If the Company determines that an other-than-temporary impairment has occurred, it will write-down the investment to its fair value. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if such significant adverse events were identified, the Company would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data.

Common Stock Repurchase and Retirement

Common stock repurchased is retired, and the excess of the cost over the par value of the common shares repurchased is recorded to additional paid-in capital.

PAGE 10

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential dilutive shares outstanding during the period, to the extent such shares are dilutive. Potential dilutive shares are composed of incremental common shares issuable upon the exercise of stock options, warrants and unvested restricted shares using the treasury stock method. The Company was in a net loss position for each of the three and nine-month periods ended September 30, 2013, and therefore the number of diluted shares was equal to the number of basic shares for each of these periods.

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
Numerator:
Net income (loss)	$	(1,122	)	$	836	$	(1,898	)	$	162
Denominator:
Weighted average common shares used in computation of net income (loss) per share, basic		27,507			28,403		27,843			28,379
Deferred stock consideration and unvested restricted stock		—			93		—			53
Stock options and warrant		—			846		—			470
Weighted average common shares used in computation of net income (loss) per share, diluted		27,507			29,342		27,843			28,902
Net income (loss) per share, basic	$	(0.04	)	$	0.03	$	(0.07	)	$	0.01
Net income (loss) per share, diluted	$	(0.04	)	$	0.03	$	(0.07	)	$	0.01

The following potentially dilutive securities have been excluded from the calculation of diluted net income (loss) per common share as they would be anti-dilutive for the periods below (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Deferred stock consideration and unvested restricted stock		403		—		304		—
Stock options and warrant		4,108		2,727		3,598		5,988
		4,511		2,727		3,902		5,988

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update require an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this update do not require new recurring disclosures. The amendments in this update are effective for the Company as of January 1, 2014. The Company does not expect this update to have a material impact on its consolidated financial statements.

PAGE 11

3. Fair Value of Financial Instruments

The following table summarizes the basis used to measure certain of the Company’s financial assets that are carried at fair value (in thousands):

			Basis of Fair Value Measurement
	Balance at September 30, 2013		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Certificates of deposit	$	2,250	$	2,250	$	—	$	—

			Basis of Fair Value Measurement
	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Certificates of deposit	$	4,375	$	4,375	$	—	$	—

The following table provides information about assets not carried at fair value in the Company’s Condensed Consolidated Balance Sheets (in thousands):

	September 30, 2013				December 31, 2012
	Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Loan receivable	$	3,303	$	3,268	$	1,954	$	1,954

The OxataSMB B.V. (“OxataSMB”) loan receivable is not actively traded and its fair value is estimated based on valuation methodologies using current market interest rate data adjusted for inherent credit risk. See Note 6, “Variable Interest Entities”, for further information on the loan receivable.

The Company also has an investment in a privately held partnership, which is a service provider, in which the Company’s ownership is less than 20% and the Company does not have significant influence. The investment is accounted for under the cost method, which is periodically assessed for other-than-temporary impairment. If the Company determines that an other-than-temporary impairment has occurred, it will write-down the investment to its fair value. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if such significant adverse events were identified, the Company would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data. The carrying amount of the Company’s cost method investment was $2.5 million as of September 30, 2013, and is included in “Other assets” in the accompanying Condensed Consolidated Balance Sheet.

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4. Acquisitions

Deferred Consideration

In connection with its 2012 RealPractice acquisition, the Company is obligated to pay an additional $0.3 million in cash on January 3, 2014, subject to adjustment.

Pursuant to the terms of its 2011 acquisition of DealOn, on February 8, 2012, the Company made a deferred payment in the amount of $0.5 million, net of the working capital adjustment and certain other adjustments, and issued 10,649 shares of its common stock. On August 8, 2012, the Company made an additional deferred payment in the amount of $0.4 million and issued 5,324 shares of its common stock. On February 8, 2013, the Company made the final deferred payment in connection with the DealOn acquisition in the amount of $0.4 million and issued 5,324 shares of its common stock.

As part of consideration paid to acquire SMB:Live Corporation (“SMB:Live”), on February 22, 2012, the Company paid $0.6 million in cash and issued 181,224 shares of its common stock as final payment in connection with the acquisition.

Intangible Assets

As of September 30, 2013, intangible assets from acquisitions included developed technology of $1.5 million (net of accumulated amortization of $1.6 million) amortized over three years. As of December 31, 2012, intangible assets from acquisitions included developed technology of $2.4 million (net of accumulated amortization of $2.9 million) amortized over three years, and customer relationships of $25,000 (net of accumulated amortization of $25,000) amortized over one year. Based on the current amount of intangibles subject to amortization, the estimated amortization expense over the remaining lives is as follows (in thousands):

Year Ending December 31,
2013 (3 months)	$	255
2014		853
2015		417
Total	$	1,525

For the three months ended September 30, 2013 and 2012, amortization expense related to acquired intangibles was $0.2 million and $0.6 million, respectively. For the nine months ended September 30, 2013 and 2012, amortization expense related to acquired intangibles was $0.9 million and $1.5 million, respectively.

5. Software Development Costs

Capitalized software development costs consisted of the following (in thousands):

	September 30, 2013			December 31, 2012
Capitalized software development costs	$	42,627		$	31,944
Accumulated amortization		(23,832	)		(17,240	)
Capitalized software development costs, net	$	18,795		$	14,704

The Company recorded amortization expense of $2.2 million and $1.7 million for the three months ended September 30, 2013 and 2012, respectively, and $6.6 million and $4.7 million for the nine months ended September 30, 2013 and 2012, respectively. As of September 30, 2013 and December 31, 2012, $2.2 million and $3.3 million, respectively, of capitalized software development costs were related to projects still in process.

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6. Variable Interest Entities

On July 6, 2012, the Company completed a transaction with OxataSMB, in which the Company entered into a franchise agreement with OxataSMB permitting OxataSMB to operate and resell the Company’s services under the ReachLocal brand in Slovakia, Czech Republic, Hungary, Poland and Russia. Pursuant to the franchise agreement, OxataSMB receives access to the RL platform, training, marketing and branding materials, media purchasing, campaign management and provisioning, sourcing of telephony, and technical support. The Company does not anticipate OxataSMB will pursue activities other than as a franchisee. In addition, the Company entered into a market development loan agreement with OxataSMB pursuant to which the Company agreed to provide financing to OxataSMB of up to €2.9 million ($3.9 million), of which €1.45 million ($2.0 million) was advanced in 2012. OxataSMB’s ability to draw down the remaining loan amount was dependent on OxataSMB achieving certain milestones by June 29, 2013. In August 2013, the Company advanced an additional €0.92 million ($1.2 million) to OxataSMB, and retains the discretion to advance some or all of the remaining amount of €0.53 million ($0.7 million) prior to December 29, 2013. The loan has a two-year term, maturing on June 29, 2014, and accrues interest at 4% per annum, but does not require principal or interest payments for two years, and can be extended for an additional 24 months based on achievement of certain milestones. Prior to advancement of the loan in 2012, OxataSMB had €1.45 million ($2.0 million) of contributed capital. In addition, the Company has an option to buy OxataSMB at an independently-determined fair value at the end of the initial loan term, subject to extension.

OxataSMB is considered a VIE with respect to the Company because, depending on its performance, OxataSMB may not have sufficient equity to finance its activities without additional financial support. Based on the Company’s initial assessment in 2012, the Company was not the primary beneficiary of OxataSMB because it did not have: (1) the power to direct the activities that most significantly impact OxataSMB’s economic performance or (2) the obligation to absorb losses of OxataSMB or the right to receive benefits from OxataSMB that could potentially be significant. Therefore, the Company did not consolidate the results of OxataSMB, and transactions with OxataSMB results were accounted for similarly to the Company’s resellers. At September 30, 2013, the Company concluded no events or changes in circumstances have occurred that would change the Company’s initial assessment of OxataSMB’s VIE status and that the Company was not a primary beneficiary of OxataSMB. The loan receivable is included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets. As of September 30, 2013, the Company’s maximum exposure to loss related to the unconsolidated VIE consisted of its loan and accumulated interest receivable of $3.3 million. No allowance for loan losses has been recorded against the loan receivable. However, should the operating and financial performance of OxataSMB not perform within expectations, a provision for loan loss may be necessary in the future.

 7. Current Liabilities

Accrued expenses consisted of the following (in thousands):

	September 30, 2013		December 31, 2012
Accrued compensation and benefits	$	16,545	$	14,558
Other		14,102		12,864
Total accrued expenses	$	30,647	$	27,422

Deferred revenue and other current liabilities consisted of the following (in thousands):

	September 30, 2013		December 31, 2012
Deferred revenue	$	36,379	$	34,142
Other		1,065		2,162
Total deferred revenue and other current liabilities	$	37,444	$	36,304

 8. Commitments and Contingencies  

Litigation

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Although occasional adverse decisions or settlements may occur, management believes that the final disposition of existing matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

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9. Stockholders’ Equity

Common Stock Repurchases

On November 4, 2011, the Company announced that its Board of Directors authorized the repurchase of up to $20.0 million of the Company’s outstanding common stock. On December 13, 2012, the Company announced the Board of Directors increased the total authorized repurchase amount by $6.0 million, and on March 4, 2013, the Company announced that its Board of Directors increased the total authorized repurchase amount by an additional $21.0 million, to a total authorization of $47.0 million. At September 30, 2013, the Company had executed repurchases of 3.4 million shares of its common stock under the program for an aggregate of $36.3 million, of which $5.9 million or 475,000 shares were repurchased during the three months ended September 30, 2013, and $18.9 million or 1,395,000 shares were repurchased during the nine months ended September 30, 2013. Purchases may be made from time-to-time in open market or privately negotiated transactions as determined by the Company’s management. The amount and timing of the share repurchase will depend on business and market conditions, stock price, trading restrictions, acquisition activity, and other factors. The share repurchase program does not obligate the Company to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

10. Stock-Based Compensation

Stock Options

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and recognized on a straight-line basis over the requisite service period, which is generally the vesting period.

The following table summarizes stock option activity (in thousands, except years and per share amounts):

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2012		7,052		$	10.71
Granted		1,143		$	13.29
Exercised		(654	)	$	8.15
Forfeited		(557	)	$	12.10
Outstanding at September 30, 2013		6,984		$	11.28		4.4	$	9,878
Vested and exercisable at September 30, 2013		4,281		$	10.84		3.4	$	7,354
Unvested at September 30, 2013, net of estimated forfeitures		2,532		$	11.94		6.0	$	2,450

The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted during the three and nine months ended September 30, 2013 and 2012.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		1.36	%		0.61	%		0.92	%		0.78	%
Expected life (in years)		4.75			4.75			4.81			4.90
Expected volatility		57	%		60	%		59	%		59	%

The per-share weighted-average grant date fair value of options granted during the nine months ended September 30, 2013 was $6.32. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2013 was $3.8 million.

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Restricted Stock and Restricted Stock Units

The following table summarizes restricted stock and restricted stock unit awards (in thousands, except per share amounts):

	Number of shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2012		382		$	11.09
Granted		633		$	5.88
Forfeited		(136	)	$	7.41
Vested		(100	)	$	10.68
Unvested at September 30, 2013		779		$	7.49

Grants during the period included 506,000 performance-vesting shares of restricted stock and restricted stock units that will each vest based on achievement of both Company stock price targets and continued service. The grant date fair value of these awards were estimated using a Monte Carlo simulation model and were $5.52 per share. In addition, 30,000 performance-vesting shares of restricted stock were granted during the period that will vest based on achievement of certain business performance milestones. The grant date fair value of this award based on the Company’s closing stock price on that date was $13.45 per share and expense is recognized based on the achievement of certain business performance milestones.

Stock-Based Compensation Expense

The Company records stock-based compensation expense, net of amounts capitalized, as stock-based compensation in association with software development costs. The following table summarizes stock-based compensation (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Stock-based compensation	$	3,358	$	2,662	$	8,853	$	7,157
Less: Capitalized stock-based compensation		170		67		443		228
Stock-based compensation expense, net	$	3,188	$	2,595	$	8,410	$	6,929

Stock-based compensation, net of capitalization, is included in the accompanying Condensed Consolidated Statements of Operations within the following captions (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Stock-based compensation expense, net
Cost of revenue	$	176	$	73	$	471	$	198
Selling and marketing		765		437		2,396		1,122
Product and technology		163		488		425		868
General and administrative		2,084		1,597		5,118		4,741
	$	3,188	$	2,595	$	8,410	$	6,929

Stock-based compensation for the three and nine months ended September 30, 2013 included $0.7 million of expense related to the modification and acceleration of certain unvested stock options and restricted stock pursuant to the separation agreement between the Company and its former Chief Executive Officer.

As of September 30, 2013, there was $19.9 million of unrecognized stock-based compensation related to restricted stock, restricted stock units and outstanding stock options, net of estimated forfeitures. This amount is expected to be recognized over a weighted average period of 1.4 years. Future stock-based compensation expense for these awards may differ in the event actual forfeitures deviate from management’s estimates.

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11. Income Taxes

The Company follows ASC Topic 740-270, Income taxes—Interim Reporting, for the computation and presentation of its interim period tax provision. Accordingly, management estimates the effective annual tax rate and applies this rate to the year-to-date pre-tax book income or loss to determine the interim provision for income taxes. Additionally, unusual or infrequent items are booked in the period in which they occur. The Company’s policy is to recognize interest and penalties related to tax in income tax expense. For the three months ended September 30, 2013 and 2012, the income tax provisions were $1.4 million and $0.3 million, respectively, and for the nine months ended September 30, 2013 and 2012, the income tax provisions were $3.2 million and $0.7 million, respectively. The income tax provision for the nine months ended September 30, 2013 relates to federal, state and foreign income taxes, including the deferred tax impact of prior business combinations.

The Company and its subsidiaries file income tax returns in the U.S. federal, various state and foreign jurisdictions. With the use of net operating losses in recent periods and the filing in additional states, certain statutes will begin to expire as early as 2016, but the majority remain open at this time.

12. Segment Information

The Company operates in one operating segment. The Company’s chief operating decision maker (“CODM”) manages the Company’s operations on a consolidated basis for purposes of evaluating financial performance and allocating resources.

Revenue by geographic region with respect to the Direct Local and National Brands channels is based on the physical location of the sales office, and with respect to Agencies and Resellers, is based on the physical location of the agency or reseller. The following summarizes revenue and long-lived assets by geographic region (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Revenue:
North America	$	88,501	$	84,212	$	257,941	$	243,364
International		44,647		34,679		124,082		91,742
	$	133,148	$	118,891	$	382,023	$	335,106

	September 30, 2013		December 31, 2012
Long-lived assets (excluding patents and other intangibles):
North America	$	6,575	$	6,395
International		5,553		4,671
	$	12,128	$	11,066

The results of the Australia geographic region have been included in the Company’s condensed consolidated financial statements and include revenues of $21.4 million and $19.0 million for the three months ended September 30, 2013 and 2012, respectively, and $62.1 million and $52.9 million for the nine months ended September 30, 2013 and 2012, respectively. Long-lived assets of the Australia geographic region were $1.1 million and $1.7 million at September 30, 2013 and December 31, 2012, respectively.

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Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   

Cautionary Notice Regarding Forward-Looking Statements

In this document, ReachLocal, Inc. and its subsidiaries are referred to as “we,” “our,” “us,” the “Company” or “ReachLocal.”

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our 2012 Annual Report on Form 10-K.

This quarterly report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our 2012 Annual Report on Form 10-K. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

Our mission is to help small and medium-sized businesses, or SMBs, acquire, transact with, maintain and retain customers via the Internet. We offer a comprehensive suite of online marketing and reporting solutions, including ReachSearch™ (search engine marketing), ReachCast™ (Web presence), ReachDisplay™ (display advertising),  ReachRetargeting™ (display retargeting), online marketing analytics, and other related products and solutions, each targeted to the SMB market. In 2013, we expanded our product suite to include a software-as-a-service, or SaaS, product, ReachEdge, which is a marketing system that combines an optimized website and automated lead management. We deliver these solutions to SMBs through a combination of our proprietary platform, the RL Platform, and our sales force of Internet Marketing Consultants, or IMCs, and select third-party agencies, resellers and a franchisee. We also have two services in beta: , ClubLocal™, a consumer service through which we create a direct relationship with consumers and provide home-related services by engaging third-party suppliers which perform the agreed services on our behalf, and ReachCommerce™, a SaaS product which supports online booking, transaction and back office processes. 

We use our RL Platform to create advertising campaigns for SMBs to target potential customers in their geographic area, optimize those campaigns in real time and track tangible results. Through a single Internet advertising budget, we enable our clients to reach local customers—whether using traditional computing devices or mobile devices—across the Internet, including through all of the major search engines and leading general interest and vertically focused online publishers. In 2010, we expanded the RL Platform to include ReachCast, our full-service Web presence and social media solution, in September 2012, we launched ReachRetargeting, a ReachDisplay product targeting local consumers who have recently searched for an SMB’s business keywords as well as those who have recently visited their website, and in 2013, we launched ReachEdge. We continue to expand the RL Platform to include additional advertising products designed specifically for the needs of our SMB clients. Empowered by the RL Platform, our IMCs, which are based in or near the cities in which our clients operate, establish a direct consultative relationship with our clients and provide our solutions to achieve their marketing objectives.

We generate revenue by providing online advertising solutions for our clients through our portfolio of online marketing and advertising solutions. We sell ReachSearch, ReachDisplay and ReachRetargeting based on a package pricing model in which our clients commit to a fixed fee that includes the media; the optimization, reporting and tracking technologies of the RL Platform; and the personnel dedicated to support and manage their campaigns. We also generate revenue from digital marketing solutions for our clients that do not include the purchase of third-party media, including ReachCast, TotalTrack and TotalLiveChat. Generally, our products are sold to our clients in a single budget to simplify the purchasing process.

PAGE 18

We offer our products and services through two primary channels. Our IMCs sell our products and services directly to SMBs, which we refer to as our Direct Local channel. We also sell our products and services through third-party agencies and resellers, and to national or regional businesses with multiple locations, such as franchisors, which we refer to as national brands. Because the sale to agencies, resellers and national brands involves negotiations with businesses that generally represent an aggregated group of SMB advertisers, we group them together as our National Brands, Agencies and Resellers channel.

 In 2006, we entered our first market outside of North America through a joint venture in Australia, and in 2009, we acquired the remaining interest in the joint venture. We entered the United Kingdom and Canada in 2008, Germany and the Netherlands in 2011, Japan and Brazil in 2012, and Austria and Belgium in 2013. We also serve clients in New Zealand, Singapore, Slovakia, Poland, the Czech Republic and Russia through our resellers, including a franchisee. We have campaign provisioning and management, certain engineering, and other back office operations in India. 

Business Model and Operating Metrics

Our Direct Local channel represents the majority of our revenue. As a percentage of revenue, Direct Local revenue has increased to 80% for the nine months ended September 30, 2013, from 79% for the nine months ended September 30, 2012. Growth in Direct Local revenue is largely attributable to an increase in the number of Upperclassmen (as defined below) and the productivity of Upperclassmen driven by their increased tenure. Also contributing to the increase was growth in the number of international IMCs who, on average, are more productive than our North American IMCs.

IMCs

Our ongoing investment in our sales force has been the principal engine for our growth. Typically, each month, we hire 40-50 IMCs worldwide, with the hiring weighted towards the first ten months of the year. 

We refer to IMCs with 12 months or less of experience as Underclassmen and those with greater experience as Upperclassmen. In particular, our revenue growth is driven by the increase in the number of our Upperclassmen, who are significantly more productive than our Underclassmen. As such, we believe that our ability to grow our business is highly dependent on our ability to grow the number of our Upperclassmen. Beyond our hiring practices, which determine the number of IMCs to be hired as well as the rate at which we hire them, the increase in the number of Upperclassmen depends primarily on the productivity of Underclassmen, as the majority of Underclassmen attrition is involuntary and is based on performance relative to a standard level of revenue growth and other performance metrics determined by us. We do not expect all Underclassmen to become Upperclassmen, and our investment decisions anticipate the cost of attrition. Our revenue growth is also driven by the increase in the number of our international IMCs as our international IMCs are on average more productive than our North American IMCs, which we attribute to lower levels of competition and lower existing online advertising consumption by SMBs in those markets.

In addition to the number of IMCs, we also seek to improve our sales productivity by adjusting our sales practices and processes, and by modifying our commission structures to better align with our sales and performance objectives. For example, we use different forms of account management, including local management and centralized management, to increase our sales force productivity; and, during 2013, we also added a number of inside sales IMCs in North America to allow us to reach certain markets and potential clients more effectively. We experiment with and test various ways to enhance the performance of our sales force and service resources as we seek to accelerate our growth and improve our performance. However, there can be no assurance that such changes in our sales processes will achieve the desired objectives or that such changes will not have adverse consequences.

At September 30, 2013, we had 440 Upperclassmen and 517 Underclassmen, for a total of 957 IMCs, as compared to 407 Upperclassmen and 450 Underclassmen, for a total of 857 IMCs, at September 30, 2012.

Total IMCs at September 30, 2013 increased from a year ago due to increases in the number of Upperclassmen and Underclassmen to support our continued international growth. This total includes those involved in our inside sales efforts.

PAGE 19

Underclassmen Expense

Underclassmen do not, in the aggregate, make a positive contribution to operating income. Our largest operating expenses include the hiring, training and retention of Underclassmen in support of our goal of developing more Upperclassmen.

Underclassmen Expense is a number we calculate to approximate our investment in Underclassmen and is comprised of the selling and marketing expenses we allocate to Underclassmen during a reporting period. The amount includes the direct salaries and allocated benefits of the Underclassmen (excluding commissions and other variable compensation), training and sales organization expenses, including depreciation, allocated based on relative headcount and marketing expenses allocated based on relative revenue. While we believe that Underclassmen Expense provides useful information regarding our approximate investment in Underclassmen, the methodology we use to arrive at our estimated Underclassmen Expense was developed internally by management, 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, our calculation of Underclassmen Expense may not be comparable to similar measures used by other companies.

We determine the amount to invest in Underclassmen based on our objectives for development of the business and the key factors affecting IMC productivity described above. Underclassmen Expense for the nine months ended September 30, 2013 and 2012 was $35.7 million and $33.8 million, respectively. The increase in Underclassmen Expense in the nine months ended September 30, 2013, compared to the same period in 2012, was primarily attributable to our international expansion, partially offset by a reduced investment in North America. 

Active Advertisers and Active Campaigns

We track the number of Active Advertisers and Active Campaigns to evaluate the growth, scale and diversification of our business. We also use these metrics to determine the needs and capacity of our sales forces, our support organization, and other personnel and resources.

Active Advertisers is a number we calculate 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.

At September 30, 2013, we had approximately 24,600 Active Advertisers and 36,400 Active Campaigns, as compared to approximately 22,100 Active Advertisers and 32,900 Active Campaigns as of September 30, 2012. Active Advertisers and Active Campaigns increased over the period due to an increase in the number of Upperclassmen and the productivity of Upperclassmen driven by their increased tenure, an increase in the number of products available for our IMCs to sell, and growth within our National Brands, Agencies and Resellers channel.

 Basis of Presentation

Discontinued Operations

As a result of the winding down of the operations of Bizzy, we have reclassified and presented all related historical financial information as “discontinued operations” in the accompanying Condensed Consolidated Balance Sheets and Consolidated Statements of Cash Flows. In addition, we have excluded all Bizzy-related activities from the following discussions, unless specifically referenced.

PAGE 20

Sources of Revenue

We derive our revenue principally from the provision and sale of online advertising to our clients. Revenue includes (i) the sale of our ReachSearch, ReachDisplay, ReachRetargeting, and other products based on a package pricing model in which our clients commit to a fixed fee that includes the media, optimization, reporting and tracking technologies of the RL Platform, and the personnel dedicated to support and manage their campaigns; (ii) the sale of our ReachCast, ReachEdge, TotalTrack, TotalLiveChat, and other products and services; and (iii) set-up, management and service fees associated with these products and other services. We distribute our products and services directly through our sales force of IMCs, who are focused on serving SMBs in their local markets through an in-person, consultative process, which we refer to as our Direct Local channel, as well as a separate sales force targeting our National Brands, Agencies and Resellers channel. The sales cycle for sales to SMBs ranges from one day to over a month. Sales to our National Brands, Agencies and Resellers clients generally require several months.

We typically enter into multi-month agreements for the delivery of our products. Under our agreements, our Direct Local clients typically pay, in advance, a fixed fee on a monthly basis, which includes all charges for the included technology and media services, management, third-party content and other costs and fees. We record these prepayments as deferred revenue and only record revenue for income statement purposes as we purchase media and perform other services on behalf of clients. Certain Direct Local clients are extended credit privileges, with payment generally due in 30 days.

Our National Brands, Agencies and Resellers clients enter into agreements of various lengths or that are indefinite. Our National Brands, Agencies and Resellers clients either pay in advance or are extended credit privileges with payment generally due in 30 to 60 days. There were $4.8 million and $3.8 million of accounts receivables related to our National Brands, Agencies and Resellers at September 30, 2013 and December 31, 2012, respectively.

Cost of Revenue

Cost of revenue consists primarily of the costs of online media acquired from third-party publishers. Media cost is classified as cost of revenue in the period in which the corresponding revenue is recognized. From time to time, publishers offer us rebates based upon various factors and operating rules, including the amount of media purchased. We record these rebates in the period in which they are earned as a reduction to cost of revenue and the corresponding payable to the applicable publisher, or as an other receivable, as appropriate. Cost of revenue also includes the costs of third-party telephone and information services and other third-party service providers, data center and third-party hosting costs, credit card processing fees, and other direct costs. Cost of revenue also includes the cost of third-party suppliers related to our ClubLocal service.

In addition, cost of revenue includes costs to initiate, operate and manage clients’ campaigns, other than costs associated with our sales force, which are reflected as selling and marketing expenses. Cost of revenue includes salaries, benefits, bonuses and stock-based compensation for the related staff, and allocated overhead such as depreciation expense, rent and utilities, as well as an allocable portion of our technical operations costs. Cost of revenue also includes the amortization and impairment charges on certain acquired intangible assets.

Operating Expenses

Selling and Marketing. Selling and marketing expenses consist primarily of personnel and related expenses for our selling and marketing staff, including salaries and wages, commissions, and other variable compensation, benefits, bonuses and stock-based compensation; travel and business costs; training, recruitment, marketing and promotional events; advertising; other brand building and product marketing expenses; and occupancy, technology and other direct overhead costs. A portion of the compensation for IMCs, sales management and other employees in the sales organization is based on commissions and other variable compensation. In addition, the cost of agency commissions is included in selling and marketing expenses.

Product and Technology. Product and technology expenses consist primarily of personnel and related expenses for our product development and technology staff, including salaries, benefits, bonuses and stock-based compensation, and the cost of certain third-party service providers and other expenses, including occupancy, technology and other direct overhead costs. Technology operations costs, including related personnel and third-party costs, are included in product and technology expenses. We capitalize a portion of costs for software development and, accordingly, include amortization of those costs as product and technology expenses as the RL Platform addresses all aspects of our activities, including supporting the IMC selling and consultation process, online publisher integration, efficiencies and optimization, providing insight to our clients into the results and effects of their online advertising campaigns and supporting all of the financial and other back-office functions of our business.

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Product and technology expenses also include the amortization of the technology obtained in acquisitions and expenses of the deferred payment obligations related to acquisitions attributable to product and technology personnel.

General and Administrative. General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, human resources and corporate communications, including wages, benefits, bonuses and stock-based compensation, professional fees, insurance premiums and other expenses, including occupancy, technology and other direct overhead, public company costs and other corporate expenses.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses. We continually evaluate our estimates, judgments and assumptions based on available information and experience. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates.

There have been no material changes to our critical accounting policies. For further information on our critical and other significant accounting policies, see our 2012 Annual Report on Form 10-K.

We believe that the following critical accounting policies involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our condensed consolidated financial statements:

•     Revenue recognition

•     Software development costs

•     Goodwill

•     Long-lived and intangible assets

•     Stock-based compensation

•     Variable interest entities

•     Loan receivable

•     Investment in partnership

•     Income taxes

•     Common stock repurchase and retirement

Revenue Recognition

We recognize revenue for our services when all of the following criteria are satisfied:

•     persuasive evidence of an arrangement exists;

•     services have been performed;

•     the selling price is fixed or determinable; and

•     collectability is reasonably assured. 

We recognize revenue as the cost for the third-party media is incurred, which is upon delivery of the advertising on behalf of our clients. We recognize revenue for our ReachSearch product as clicks are recorded on sponsored links on the various search engines and for our ReachDisplay and ReachRetargeting product when the display advertisements record impressions or as otherwise provided in our agreement with the applicable publisher. We recognize revenue for our ReachCast product on a straight line basis over the applicable service period for each campaign. We recognize revenue when we charge set-up, management service or other fees on a straight line basis over the term of the related campaign contract or the completion of any obligation for services, if shorter. When we receive advance payments from clients, we record these amounts as deferred revenue until the revenue is recognized. When we extend credit, we record a receivable when the revenue is recognized.

When we sell through agencies, we either receive payment in advance of services or in some cases extend credit. We pay each agency an agreed-upon commission based on the revenue we earn or cash we receive. Some agency clients that have been extended credit may offset the amount otherwise due to us by any commissions they have earned. We evaluate whether it is appropriate to record the gross amount of campaign revenue or the net amount earned after commissions. As we are the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, we recognize the gross amount of such sales as revenue and any commissions are recognized as a selling and marketing expense.

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We also have a small number of resellers, including a franchisee. Resellers integrate our services, including ReachSearch, ReachDisplay and TotalTrack, into their product offerings. In most cases, the resellers integrate with our RL Platform through a custom Application Programming Interface (API). Resellers are responsible for the price and specifications of the integrated product offered to their clients. Resellers pay us in arrears, net of commissions and other adjustments. We recognize revenue generated under reseller agreements net of the agreed-upon commissions and other adjustments earned or retained by the reseller, as we believe that the reseller has retained sufficient control and bears sufficient risks to be considered the primary obligor in those arrangements.

ClubLocal revenue is recognized when services have been provided. As we are the primary obligor under the arrangements, have discretion in supplier selection, have latitude in establishing prices, and bear the credit risk, we recognize the gross amount of sales as revenue and records the cost of the service provided as cost of revenue.

We offer incentives to clients in exchange for minimum commitments. In these circumstances, we estimate the amount of the incentives that will be earned by clients and adjust the recognition of revenue to reflect such incentives. Estimates are based upon a statistical analysis of previous campaigns for which such incentives were offered.

We account for sales and similar taxes imposed on our services on a net basis in the Condensed Consolidated Statements of Operations.

Software Development Costs

We capitalize costs to develop software when we have determined that the development efforts will result in new or additional functionality, or new products. Costs capitalized as internal use software are amortized on a straight-line basis over the estimated three-year useful life. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and are recorded along with amortization of capitalized software development costs as product and technology expenses within the accompanying Condensed Consolidated Statements of Operations. We monitor our existing capitalized software costs and reduce its carrying value as the result of releases that render previous features or functions obsolete or otherwise reduce the value of previously capitalized costs. 

Goodwill

We have total goodwill of $42.1 million as of both September 30, 2013 and December 31, 2012, related to our acquired businesses. We operate in one reportable segment, in accordance with ASC 280, Segment Reporting, and have identified two reporting units—North America and Australia—for purposes of evaluating goodwill. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by each reporting unit’s management. North America’s assigned goodwill was $9.7 million and Australia’s assigned goodwill was $32.4 million as of both September 30, 2013 and December 31, 2012. We review the carrying amounts of goodwill for possible impairment whenever events or changes in circumstance indicate that the related carrying amount may not be recoverable. We perform our annual assessment of goodwill impairment as of the first day of each fourth quarter.

We follow the amended guidance for assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in accordance with ASC 350-20, Intangibles – Goodwill and Other. Entities are provided with the option of first performing a qualitative assessment on any of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a two-step impairment test is necessary. The first step of the impairment test involves comparing the estimated fair values of each of our reporting units with their respective carrying amounts, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of the reporting unit is less than its carrying amount, including goodwill, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. We estimate fair value utilizing the projected discounted cash flow method and discount rate determined by management commensurate with the risk inherent in our business model.

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Long-Lived and Intangible Assets      

We report finite-lived, acquisition-related intangible assets at fair value, net of accumulated amortization. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives of three years, or one year, in the case of certain customer relationships. Straight-line amortization is used because no other pattern over which the economic benefits will be consumed can be reliably determined.

Management reviews the carrying values of long-lived assets, including intangible assets, for possible impairment whenever events or changes in circumstance indicate that the related carrying amount may not be recoverable. In our analysis of other finite lived amortizable intangible assets, we apply the guidance of ASC 350-20, Intangibles – Goodwill and Other, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets are attributable to the various developed technologies and client relationships of the businesses we have acquired.  Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

Stock-Based Compensation

We account for stock-based compensation based on fair value. We follow the attribution method, which reduces current stock-based compensation expenses recorded by the effect of anticipated forfeitures. We estimate forfeitures based upon our historical experience.

The fair value of each award is estimated on the date of the grant and amortized over the requisite service period, which is the vesting period. We use the Black-Scholes option pricing model to estimate the fair value of stock option awards on the date of grant. Determining the fair value of stock option awards at the grant date under this model requires judgment, including estimating volatility, expected term and risk-free interest rate. The fair value of restricted stock and restricted stock unit awards is based on the closing market price of the Company's common stock on the date of the grant. In addition, the Company uses a Monte Carlo simulation to estimate the fair value of performance-vesting restricted stock and restricted stock units. Determining the fair value of these awards at the grant date under this model requires judgment including estimating volatility, risk-free rate and expected future stock price. The assumptions used in calculating the fair value of stock-based awards represent management’s estimate based on judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the Black-Scholes model or Monte Carlo simulations significantly changes, stock-based compensation for future awards may differ materially from the awards granted previously.

Variable Interest Entities

In accordance with ASC 810, Consolidations, the applicable accounting guidance for the consolidation of variable interest entities, or VIE’s, we analyze our interests, including agreements, loans, guarantees, and equity investments, on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on the design of the entity, its organizational structure including its decision-making authority, and relevant agreements. If we determine that the entity is a VIE, we then assess if we must consolidate the VIE as its primary beneficiary. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that we absorb, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.

Loan Receivable

The loan receivable is recorded at carrying value, net of potential allowance for losses. Losses on the receivable are recorded when probable and estimable. We routinely evaluate the receivable for potential collection issues that might indicate an impairment. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that we will experience losses that are different from our current estimates. Write-offs are deducted from the allowance for losses when we judge the principal to be uncollectible. Any subsequent recoveries are recorded as other income at the time cash is received on a written-off balance. Interest income on the loan receivable is accrued on a monthly basis over the life of the loan.

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Investment in Partnership

The investment in partnership is accounted for under the cost method, which is periodically assessed for other-than-temporary impairment. If we determine that an other-than-temporary impairment has occurred, we will write-down the investment to its fair value. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if such significant adverse events were identified, we would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data.

Income Taxes

We record income taxes using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

We record tax benefits for income tax positions only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. We consider many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may differ from actual outcomes. We follow a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Our policy is to recognize interest and penalties related to tax in income tax expense.

Common Stock Repurchase and Retirement

Common stock repurchased is retired, and the excess of the cost over the par value of the common shares repurchased is recorded as a reduction to additional paid-in capital.

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 Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2013 and 2012

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
(in thousands)
Revenue	$	133,148		$	118,891	$	382,023		$	335,106
Cost of revenue (1)		66,764			59,500		192,564			167,546
Operating expenses:
Selling and marketing (1)		48,980			42,860		140,470			122,579
Product and technology (1)		5,901			5,448		17,574			14,180
General and administrative (1)		11,376			9,966		30,588			30,241
Total operating expenses		66,257			58,274		188,632			167,000
Income from continuing operations		127			1,117		827			560
Other income, net		181			33		522			338
Income from continuing operations before provision for income taxes		308			1,150		1,349			898
Provision for income taxes		1,430			314		3,247			736
Net income (loss)	$	(1,122	)	$	836	$	(1,898	)	$	162

(1) Stock-based compensation, net of capitalization, and depreciation and amortization, included in the above line items (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Stock-based compensation:
Cost of revenue	$	176	$	73	$	471	$	198
Selling and marketing		765		437		2,396		1,122
Product and technology		163		488		425		868
General and administrative		2,084		1,597		5,118		4,741
	$	3,188	$	2,595	$	8,410	$	6,929
Depreciation and amortization:
Cost of revenue	$	182	$	131	$	589	$	401
Selling and marketing		662		457		2,330		1,576
Product and technology		2,790		2,385		8,277		6,435
General and administrative		353		536		810		1,257
	$	3,987	$	3,509	$	12,006	$	9,669

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Revenue

	Three Months Ended September 30,				2013-2012			Nine Months Ended September 30,				2013-2012
	2013		2012		% Change			2013		2012		% Change
(in thousands)
Direct Local	$	106,207	$	93,537		13.5	%	$	305,167	$	263,534		15.8	%
National Brands, Agencies and Resellers		26,941		25,354		6.3			76,856		71,572		7.4
Total revenue	$	133,148	$	118,891		12.0	%	$	382,023	$	335,106		14.0	%
At period end:
Number of IMCs:
Upperclassmen									440		407		8.1	%
Underclassmen									517		450		14.9	%
Total									957		857		11.7	%
Active Advertisers (1)									24,600		22,100		11.3	%
Active Campaigns (2)									36,400		32,900		10.6	%

___________________

(1) Active Advertisers is a number we calculate 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.

(2) 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.

The increases in Direct Local revenue of $12.7 million and $41.6 million for the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012, were largely driven by an increase in the number of Upperclassmen in our international markets, and an increase in the productivity of our IMCs in our domestic markets attributable to their increased tenure. Also contributing to the increase was growth in the number of international IMCs who, on average, are more productive than our North American IMCs, which we attribute to less competition and higher growth rates of online advertising demand by SMBs in those markets, partially offset by the general strengthening of the U.S. dollar compared to certain foreign currencies. Growth in our Direct Local channel is dependent on the size of our sales force, the number of our products that each of our advertisers purchases, and the overall consumption of online marketing services in our markets. Our future growth in this channel is therefore dependent on our continued investment in higher growth international markets and product expansion, and the general conditions of the markets in which we operate.

Total IMCs at September 30, 2013 increased from a year ago due to an increase in the number of international IMCs to support our continued international growth. Total IMCs includes those involved in our inside sales efforts.

The increases in National Brands, Agencies and Resellers revenue of $1.6 million for the three months ended September 30, 2013 and $5.3 million for the nine months ended September 30, 2013, compared to the same period in 2012, were due to growth in the number of domestic National Brands clients and international Agencies and Resellers clients, partially offset by a decrease in the number of domestic Agencies and Resellers clients.

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Cost of Revenue

	Three Months Ended September 30,						2013-2012			Nine Months Ended September 30,						2013-2012
	2013			2012			% Change			2013			2012			% Change
(in thousands)
Cost of revenue	$	66,764		$	59,500			12.2	%	$	192,564		$	167,546			14.9	%
As a percentage of revenue:		50.1	%		50.0	%					50.4	%		50.0	%

The slight increase in our cost of revenue as a percentage of revenue for the three months ended September 30, 2013, compared to the same period in 2012, was primarily due to an increase in service and support costs and a decrease in publisher rebates, partially offset by increased media buying efficiencies and the change in our geographic, product and service mix. Publisher rebates as a percentage of revenue decreased to 4.2% of revenue for the three months ended September 30, 2013, from 4.5% for the three months ended September 30, 2012, as a result of a shift in product mix.

The increase in our cost of revenue as a percentage of revenue for the nine months ended September 30, 2013, compared to the same period in 2012, was primarily due to an increase in service and support costs and a decrease in publisher rebates, partially offset by the change in our geographic, product and service mix, and increased media buying efficiencies. Publisher rebates as a percentage of revenue decreased to 4.1% of revenue for the nine months ended September 30, 2013, from 4.6% for the nine months ended September 30, 2012, as a result of a shift in product mix and settlements.

Our cost of revenue as a percentage of revenue will be affected in the future by the mix and relative amount of media and other services we purchase to fulfill service requirements, the availability and amount of publisher rebates, the mix of products and services we offer, our geographic mix, our media buying efficiency, and the costs of support and delivery.

Operating Expenses

Over the past several years, we have significantly increased the scope of our operations. We intend to continue to increase our sales force, product offerings and the infrastructure to support them. In growing our business, particularly in international markets, and in developing new products and solutions, we are incurring expenses to support our long-term growth plans, acknowledging that these investments may put pressure on near-term periodic operating results and increase our operating expenses as a percentage of revenue.

Selling and Marketing 

	Three Months Ended September 30,						2013-2012			Nine Months Ended September 30,						2013-2012
	2013			2012			% Change			2013			2012			% Change
(in thousands)
Salaries, benefits and other costs	$	35,321		$	30,305			16.6	%	$	101,109		$	86,560			16.8	%
Commission expense		13,659			12,555			8.8	%		39,361			36,037			9.2	%
Total selling and marketing	$	48,980		$	42,860			14.3	%	$	140,470		$	122,597			14.6	%
Underclassmen Expense included above, excluding commissions (1)	$	12,900		$	11,441			12.8	%	$	35,731		$	33,824			5.6	%
As a percentage of revenue:
Salaries, benefits and other costs		26.5	%		25.5	%					26.5	%		25.8	%
Commission expense		10.3	%		10.6	%					10.3	%		10.8	%
Total selling and marketing		36.8	%		36.0	%					36.8	%		36.6	%

____________________

(1) See “Non-GAAP Financial Measures” for our definition of Underclassmen Expense.

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The increase in selling and marketing salaries, benefits and other costs in absolute dollars for the three months ended September 30, 2013, compared to the same period in 2012, was primarily due to an increase in expenses related to ClubLocal.

The increase in selling and marketing salaries, benefits and other costs in absolute dollars for the nine months ended September 30, 2013, compared to the same period in 2012, was primarily due to an increase in the number of IMCs and the proportion of international IMCs (who on average cost more than North American IMCs) as a result of our entrance into new international markets, and an increase in expenses related to ClubLocal. 

The increases in commission expense in absolute dollars for the three and nine months ended September 30, 2013, compared to the same periods in 2012, were due to increased sales. As a percentage of revenue, commission expense decreased compared to the same periods in 2012 due to a higher percentage of revenue from our international Direct Local channel, for which we pay lower commission rates. Commission expense includes commissions and other variable compensation. We do not expect continued decreases in commission expense as a percentage of revenue due to an expected higher percentage of Upperclassmen, who generally earn higher commission rates based on increased productivity.

Underclassmen Expense increased for the three and nine months ended September 30, 2013, as compared to the same periods in 2012, reflecting increased hiring in certain international markets.

Product and Technology

	Three Months Ended September 30,						2013-2012			Nine Months Ended September 30,						2013-2012
	2013			2012			% Change			2013			2012			% Change
(in thousands)
Product and technology expenses	$	5,901		$	5,448			8.3	%	$	17,574		$	14,180			23.9	%
Capitalized software development costs from product and technology resources		3,546			2,224			59.4	%		10,172			6,295			61.6	%
Total product and technology expenses and capitalized costs	$	9,447		$	7,672			23.1	%	$	27,746		$	20,475			35.5	%
Percentage of revenue:
Product and technology expenses costs		4.4	%		4.6	%					4.6	%		4.2	%
Capitalized software development costs from product and technology resources		2.7	%		1.9	%					2.7	%		1.9	%
Total product and technology costs expensed and capitalized		7.1	%		6.5	%					7.3	%		6.1	%

The increase in product and technology expenses in absolute dollars for the three months ended September 30, 2013, compared to the same period in 2012, was primarily attributable to $1.6 million of increased salaries and compensation expense as a result of increased headcount related to the ongoing development of the RL Platform and new commerce initiatives, partially offset by increased capitalization due to an increase in capitalizable projects, including those relating to our new product initiatives.

The increase in product and technology expenses in both absolute dollars and as a percentage of revenue for the nine months ended September 30, 2013, compared to the same period in 2012, was primarily attributable to $6.0 million of increased salaries and compensation expense as a result of increased headcount related to the ongoing development of the RL Platform and the new commerce initiatives, partially offset by increased capitalization due to an increase in capitalizable projects, including those relating to our new product initiatives, and $1.3 million of increased amortization expense related to previously capitalized software development costs and acquired intangibles. 

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General and Administrative

	Three Months Ended September 30,						2013-2012			Nine Months Ended September 30,						2013-2012
	2013			2012			% Change			2013			2012			% Change
(in thousands)
General and administrative	$	11,376		$	9,966			14.1	%	$	30,588		$	30,241			1.1	%
As a percentage of revenue:		8.5	%		8.4	%					8.0	%		9.0	%

The increase in general and administrative expenses in absolute dollars for the three months ended September 30, 2013, compared to the same period in 2012, was primarily due to $0.7 million of increased stock-based compensation and $0.6 million of severance and recruitment costs, both associated with the departure of our former Chief Executive Officer.

The increase in general and administrative expenses in absolute dollars for the nine months ended September 30, 2013, compared to the same period in 2012, was primarily due to $0.8 million of increased employee costs, $0.7 million of increased stock-based compensation and $0.6 million of severance and recruitment costs, both associated with the departure of our former Chief Executive Officer, partially offset by $0.8 million of decreased facilities costs, $0.5 million of decreased professional fees, which consist of tax, consulting, audit and legal fees, and $0.3 million of decreased business and license taxes.

We expect general and administrative expenses to increase in absolute dollars as we continue to add personnel and incur additional professional fees and other expenses to support our continued domestic and international growth.

Other Income, Net

Other income, net increased for the three and nine months ended September 30, 2013, compared to the same periods in 2012, due to foreign exchange rate fluctuations and higher yields on invested balances. Other income, net primarily consists of interest income resulting from invested balances. 

Provision for Income Taxes

The income tax provisions of $3.2 million and $0.7 million for the nine months ended September 30, 2013 and 2012, respectively, relate to federal, state and foreign income taxes, including the deferred tax impact of prior business combinations.  The overall increase in tax expense for the first nine months of 2013 compared to the same period in 2012 was primarily due to an increase in the income tax provision resulting from the realization of historic excess windfall tax benefits not previously recognized for financial statement purposes.

          Our effective tax rate differs from the federal statutory rate due to state taxes, significant permanent differences and adjustments to our valuation allowance. Significant permanent differences arise due to research and development credits, foreign tax rate benefits, and stock-based compensation expense that are not expected to generate a tax deduction, such as stock-based compensation expenses on grants to foreign employees, offset by tax benefits from disqualifying dispositions.

PAGE 30

Non-GAAP Financial Measures

In addition to our GAAP results discussed above, we believe Adjusted EBITDA and Underclassmen Expense are useful to investors in evaluating our operating performance. For the three and nine months ended September 30, 2013 and 2012, our Adjusted EBITDA and Underclassmen Expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
(in thousands)
Adjusted EBITDA (1)	$	7,302	$	7,221	$	21,243	$	17,190
Underclassmen Expense (2)	$	12,900	$	11,441	$	35,731	$	33,824

(1) Adjusted EBITDA. We define Adjusted EBITDA 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.

(2) Underclassmen Expense. We define Underclassmen Expense as our investment in Underclassmen, which is comprised of the selling and marketing expenses we allocate to Underclassmen during a reporting period. The amount includes the direct salaries and allocated benefits of the Underclassmen (excluding commissions and other variable compensation), training and sales organization expenses including depreciation allocated based on relative headcount and marketing expenses allocated based on relative revenue. While we believe that Underclassmen Expense provides useful information regarding our approximated investment in Underclassmen, the methodology we use to arrive at our 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, our calculation of Underclassmen Expense may not be comparable to similar measures used by other companies.

Our management uses Adjusted EBITDA because (i) it is a key basis upon which our management assesses our operating performance; (ii) it may be a factor in the evaluation of the performance of our management in determining compensation; (iii) we use it, in conjunction with GAAP measures such as revenue and income (loss) from operations, for operational decision-making purposes; and (iv) we believe it is one of the primary metrics investors use in evaluating Internet marketing companies.

We believe that Adjusted EBITDA permits an assessment of our operating performance, in addition to our performance based on our GAAP results that is useful in assessing the progress of the business. By excluding (i) the effects of accounting for business combinations and associated acquisition and integration costs, which obscure the measurable performance of the business operations; (ii) depreciation and amortization and other non-operating income and expense, each of which may vary from period to period without any correlation to underlying operating performance; and (iii) stock-based compensation, which is a non-cash expense, we believe that we are able to gain a fuller view of the operating performance of the business. We provide information relating to our Adjusted EBITDA so that investors have the same data that we employ in assessing our overall operations. We believe that trends in our Adjusted EBITDA are a valuable indicator of operating performance on a consolidated basis and of our ability to produce operating cash flow to fund working capital needs, capital expenditures and investments in Underclassmen.

In addition, we believe that Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other interested parties in our industry as a measure of financial performance and debt-service capabilities. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• Adjusted EBITDA does not reflect our 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, our working capital needs;

• Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;

• Adjusted EBITDA does not reflect the potentially significant interest expense or the cash requirements necessary to service interest or principal payments on indebtedness we may incur in the future;

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• Adjusted EBITDA does not reflect income and expense items that relate to our financing and investing activities, any of which could significantly affect our results of operations or be a significant use of cash;

• Adjusted EBITDA does not reflect certain tax payments that may represent a reduction in cash available to us; and

• Other companies, including companies in our industry, calculate Adjusted EBITDA measures differently, which reduces its 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 you may consider in addition to those measures. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results, including cash flows provided by operating activities, and using total Adjusted EBITDA as a supplemental financial measure.

The following table presents a reconciliation of Adjusted EBITDA to our income (loss) from operations for each of the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
(in thousands)
Income (loss) from continuing operations	$	127	$	1,117	$	827	$	560
Add:
Depreciation and amortization		3,987		3,509		12,006		9,669
Stock-based compensation, net		3,188		2,595		8,410		6,929
Acquisition and integration costs		—		—		—		32
Adjusted EBITDA	$	7,302	$	7,221	$	21,243	$	17,190

Liquidity and Capital Resources

	Nine Months Ended September 30,
Consolidated Statements of Cash Flow Data:	2013			2012
(in thousands)
Net cash provided by operating activities, continuing operations	$	25,735		$	32,060
Net cash used in operating activities, discontinued operations	$	—		$	(182	)
Net cash used in investing activities	$	(18,229	)	$	(26,031	)
Net cash used in financing activities	$	(12,444	)	$	(3,756	)

At September 30, 2013, we had cash and cash equivalents of $85.0 million and short-term investments of $0.6 million. Cash and cash equivalents consist of cash, money market accounts and certificates of deposit. Short term investments consist of certificates of deposit with original maturities in excess of three months but less than 12 months. To date, we have experienced no loss of our invested cash, cash equivalents or short-term investments, although some of those balances are subject to foreign currency exchange risk (see Item 3, “Foreign Currency Exchange Risk,” for more information). We cannot, however, provide any assurances that access to our invested cash, cash equivalents and short-term investments will not be impacted by adverse conditions in the financial markets. At September 30, 2013, we had no long-term indebtedness for borrowed money and are not subject to any restrictive bank covenants. At September 30, 2013, we had $1.7 million in restricted certificates of deposit to secure letters of credit issued to landlords and others. 

Due to our recent share repurchases and capital expenditures, our current liabilities exceed our current assets; however, we believe that our available cash and cash flows generated from operations will be sufficient to satisfy our working capital and planned investing and financing activities to support our long-term growth strategy, including share repurchases and capital expenditure requirements, for at least the next twelve months. Although we expect that cash flow from operations and our existing cash balances will be sufficient to continue funding our expansion activities, these investments, including investments in developing new products and services for our clients, could require us to seek additional equity or debt financing, and that financing may not be available on terms favorable to us or at all. In addition, we intend to continue to increase our investment in Underclassmen and in the development of new products and services for our clients, which could require significant capital and entail non-capitalized expenses that could decrease our income from operations. 

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Operating Activities

Our cash flow from operating activities during the nine months ended September 30, 2013 resulted primarily from adjustments for non-cash expenses and increases in operating liabilities. Our net loss of $1.9 million was more than offset by non-cash depreciation and amortization of $12.0 million, non-cash stock-based compensation of $8.4 million, and increases in accounts payable and accrued expenses of $16.8 million due to fluctuation in timing of payments of certain vendors. Partially offsetting these increases in cash flow were increases in other receivables and prepaid expenses of $5.4 million primarily due to timing of collection of vendor rebates, and an increase in accounts receivable of $4.9 million primarily due to an increase in the number of advertisers on credit terms. The decrease in cash flow from operating activities compared to the same period in 2012, was primarily due to smaller increases in operating liabilities, an increase in prepaid expenses benefiting future periods, and normalization of collections of vendor rebates.

Our cash flow from operating activities during the nine months ended September 30, 2012 resulted from income from continuing operations, net of income taxes, of $0.2 million, supplemented by non-cash depreciation and amortization of $9.7 million, and non-cash stock-based compensation of $6.9 million. Cash flow from operating activities also reflected increases in accounts payable and accrued expenses of $10.5 million due to growth of the business and the fluctuation in timing of payments to certain vendors, including the normalization of rebates receivable, and increases in deferred revenue, rent and other liabilities of $7.0 million due to the growth of our business.

Investing Activities

Our primary investing activities have consisted of purchases of property and equipment, capitalized software development costs, short-term investments, and business acquisitions. During the nine months ended September 30, 2013, our purchases of property and equipment and capitalization of software costs increased by $4.1 million year-over-year, reflecting our increased investment in our products, technology, facilities, and in newer markets. Purchases of property and equipment and capitalization of software costs will vary from period to period due to the timing of the expansion of our operations and our software development efforts. We expect to continue to use capital for acquisitions, purchases of property and equipment, and development of software.

During the nine months ended September 30, 2013, we had maturities of certificates of deposits and short-term investments aggregating $2.6 million. We also invested $2.5 million in a privately held partnership and provided additional financing of €0.9 million ($1.2 million) to OxataSMB. In addition, we made a final payment of $0.4 million on the deferred obligations related to the DealOn acquisition.

During the nine months ended September 30, 2012, our purchases of property and equipment and capitalization of software costs increased by $2.9 million year-over-year reflecting our increased investment in technology and facilities and newer markets. We entered into a market development loan agreement with OxataSMB pursuant to which we agreed to provide financing to OxataSMB of up to €2.9 million ($3.7 million), of which €1.45 million ($1.9 million) was advanced during the period. We also purchased certificates of deposits and short-term investments of $8.4 million. In addition, we made acquisition related payments of $4.1 million, consisting of payments on deferred obligations related to the DealOn and SMB:LIVE acquisitions totaling $1.6 million, and payment for the RealPractice acquisition of $2.6 million.

Financing Activities

Our cash used in financing activities during the nine months ended September 30, 2013 resulted primarily from repurchases of our common stock of $18.9 million pursuant to our share repurchase program, partially offset by $5.3 million in proceeds from exercise of stock options, and $1.1 million of excess tax benefits from stock-based awards.

Our cash used in financing activities during the nine months ended September 30, 2012 resulted primarily from repurchases of our common stock of $5.4 million pursuant to our share repurchase program, partially offset by $1.6 million in proceeds from exercise of stock options.

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Future cash flows from financing activities may also be affected by our repurchases of our common stock. On November 4, 2011, we announced that our Board of Directors authorized the repurchase of up to $20.0 million of our outstanding common stock. On December 13, 2012, we announced that our Board of Directors increased the authorized repurchase amount by $6.0 million, and on March 4, 2013, we announced that our Board of Directors increased the authorized repurchase amount by an additional $21.0 million, to a total authorization of $47.0 million. At September 30, 2013, we had repurchased $18.9 million of our common stock in total under the program. Purchases may be made from time-to-time in open market or privately negotiated transactions as determined by our management. The amount and timing of the share repurchase will depend on business and market conditions, stock price, trading restrictions, acquisition activity, and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our discretion.

Off-Balance Sheet Arrangements

At September 30, 2013, we did not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update require an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this update do not require new recurring disclosures. The amendments in this update are effective for us as of January 1, 2014. We do not expect this update to have a material impact on our consolidated financial statements.

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Item 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  

We are exposed to market risk in the ordinary course of our business. These risks primarily include interest rate, foreign exchange and inflation risks.

Interest Rate Fluctuation Risk

We do not have any long-term indebtedness for borrowed money. Our investments include cash, cash equivalents and short-term investments. Cash and cash equivalents and short-term investments consist of cash, money market accounts and certificates of deposit. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect our operating results or cash flows to be materially affected to any degree by a sudden change in market interest rates.

Foreign Currency Exchange Risk

We have foreign currency risks related to our investments, revenue and operating expenses denominated in currencies other than the U.S. dollar, principally the Australian dollar, the British pound sterling, the Canadian dollar, the euro, the Japanese yen, the Indian rupee, and the Brazilian real. For the nine months ended September 30, 2013, a 10% strengthening of the U.S. dollar relative to these foreign currencies would have resulted in a decrease in revenue of $13.6 million, but an increase in operating income of $0.7 million. A 10% weakening of the U.S. dollar relative to these foreign currencies, however, would have resulted in an increase in revenue of $13.6 million, but a decrease in operating income of $0.7 million. We currently do not hedge or otherwise manage our currency exposure. As our international operations expand to more countries and mature, our risks associated with fluctuations in currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the costs of our international expansion.

 Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Item 4.    CONTROLS AND PROCEDURES  

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our interim Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of September 30, 2013. Based on that evaluation, our interim Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to our management, including our interim Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II 

OTHER INFORMATION

Item 1.       LEGAL PROCEEDINGS 

From time to time we are involved in various legal proceedings and claims arising in the ordinary course of business. Although occasional adverse decisions or settlements may occur, we believe that the final disposition of existing matters will not have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A.    RISK FACTORS  

Investors should carefully consider the risk factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, in addition to the other information contained in our Annual Report and in this quarterly report on Form 10-Q.

Item 2.       UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  

On November 4, 2011, we announced that our Board of Directors authorized the repurchase of up to $20.0 million of our outstanding common stock.  On December 13, 2012, we announced that our Board of Directors increased our share repurchase program by $6.0 million, and on March 4, 2013, we announced that our Board of Directors increased the total authorized repurchase amount by an additional $21.0 million, to a total authorization of $47.0 million. At September 30, 2013, we had repurchased $18.9 million of our common stock in total under the program. Purchases may be made from time-to-time in open market or privately negotiated transactions as determined by our management. The amount and timing of the share repurchase will depend on business and market conditions, stock price, trading restrictions, acquisition activity, and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our discretion.

Common stock repurchases during the quarter ended September 30, 2013 were as follows:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program		Maximum Value of Shares That May Yet Be Purchased Under a Publicly Announced Program
July 2013		236,536	$	13.00		236,536	$	13,499,507
August 2013		38,000	$	13.56		38,000	$	12,983,061
September 2013		200,000	$	11.56		200,000	$	10,664,930

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 Item 6.                EXHIBITS  

Exhibit No	Description of Exhibit
10.01	Amendment to Transition Agreement between ReachLocal, Inc. and Michael Kline, dated August 7, 2013
10.02	Separation Agreement and General Release between ReachLocal, Inc. and Zorik Gordon, dated September 4, 2013
10.03	Separation Agreement and General Release between ReachLocal, Inc. and Nathan Hanks, dated November 1, 2013
31.01	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

REACHLOCAL, INC.
By:	/s/ David Scott Carlick
Name:	David Scott Carlick
Title:	Interim Chief Executive Officer
By:	/s/ Ross G. Landsbaum
Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

Date: November 6, 2013

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EX-10

Exhibit 10.01

August 7, 2013

Michael Kline

21700 Oxnard Street, Suite 1600

Woodland Hills, CA 91367

Dear Michael:

Reference is hereby made to your employment offer letter with ReachLocal, Inc. (the “Company”), dated as of May 14, 2004, as amended on February 22, 2010 (the “Employment Letter”).

In light of your request to transition out of your current role, the Employment Letter was further amended on November 1, 2012 (the “Amended Letter”) to set forth certain changes to the terms of your employment, including the date of your termination of employment, and the terms of your post-termination consulting services. This letter amends and restates the Amended Letter.

For good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, you and the Company mutually agree as follows:

1.     Employment Period. From July 1, 2013 through December 31, 2013 (such period, the “Employment Period”), you will continue your employment with the Company in your current position as the Company’s Chief Strategy Officer and President Local Commerce, reporting to the Chief Executive Officer, and on the terms and conditions as in effect on the date hereof (including without limitation an annual base salary of $333,000). In addition, you will work with the Chief Executive Officer to ensure a smooth transition of your responsibilities. Your employment with the Company will automatically and without further action terminate on December 31, 2013. As of the Termination Date (as defined below), you will no longer hold any positions with the Company or its subsidiaries except as expressly provided herein.

2.     Bonus Opportunity. You will continue to remain eligible to receive an annual bonus with respect to the 2013 fiscal year (the “Bonus”) under the ReachLocal Incentive Bonus Plan. The amount of the Bonus, if any, will be determined in the sole discretion of the Compensation Committee (the “Committee”) in accordance with the methodology previously established by the Committee with respect to the Bonus and will be targeted at $337,250. Except as set forth below, payment of the Bonus (to the extent it becomes payable) will be contingent on your continued employment through the payment date and will be paid on the regular schedule for payment of the 2013 bonuses to senior management (in calendar year 2014).

3.     Equity Compensation. Subject to the approval of the Committee and your continued employment through the grant date, the Company will grant you 30,000 restricted shares of the Company’s common stock (the “2013 RSA Grant”). The 2013 RSA Grant will vest based on the achievement of specified performance goals, and will be subject to terms and conditions, in each case set forth in a restricted stock award agreement in a form prescribed by the Company. In addition, notwithstanding anything to the contrary contained in the Company’s Amended and Restated Change in Control and Severance Policy for Senior Management, as amended from time to time (“Severance Policy”), any accelerated vesting provisions contained in the Severance Policy shall not apply to the 2013 RSA Grant.

21700 Oxnard Street; Suite 1600; Woodland Hills, CA 91367 

O: 818.274.0260; Fax: 818.274.0261 

4.     Early Termination of Employment. In the event your employment is terminated by the Company prior to the conclusion of the Employment Period other than for Cause (as defined in the Severance Policy) (other than due to death or disability), then, subject to your timely execution and non-revocation of a release of claims against the Company (in a form prescribed by the Company), in addition to any payments or benefits to which you may become entitled under the Severance Policy (i) if the Bonus (to the extent any becomes payable) has not been paid prior to the Termination Date, the Company shall pay you the Bonus (if any) payable in accordance with the terms set forth above and on the regular schedule for payment of bonuses to senior management (in calendar year 2014), (ii) notwithstanding anything to the contrary contained in the Severance Policy, each outstanding equity award then held by you other than the 2013 RSA Grant shall, immediately prior to such termination, vest with respect to that number of shares that would have otherwise vested pursuant to each such equity award through June 30, 2015 (had you remained in service with the Company through such date), and (iii) the 2013 RSA Grant will remain outstanding and eligible to vest in accordance with the terms and conditions applicable to the 2013 RSA Grant set forth in the applicable award agreement.

5.     Consulting Services. If (i) your employment is terminated by reason of the expiration of the Employment Period or (ii) the Company terminates your employment during the Employment Period other than for Cause (but not by reason of your death or disability), in either case, and provided that you and the Company have reached agreement on the Consulting Objectives (as defined below), then for the period from your termination date (the “Termination Date”) through June 30, 2014 (the “Consulting Period”) you will provide consulting services as an independent contractor to the Company. You and the Company shall mutually agree, in good faith, on reasonable objectives to be accomplished by the conclusion of the Consulting Period (the “Consulting Objectives”), and you shall also be available on an as needed basis, to assist the Company in matters pertaining to your transition of your responsibilities (the “Consulting Services”) in accordance with the following terms:

a.     Effective as of the Termination Date you will no longer be eligible to participate in the Severance Policy.

b.     As consideration for the ongoing provision of the Consulting Services and subject to your execution of a release of claims against the Company (in a form prescribed by the Company) within twenty-one (21) days following the Termination Date and non-revocation of such release during any applicable revocation period:

(i)     During the period beginning on January 1, 2014 and ending on June 30, 2014, the Company shall pay you a monthly consulting fee equal to (x) the difference between (i) $333,000 and (ii) any amounts paid to you as base salary during the Employement Period and paid or payable to you under the Severance Policy, if any, divided by (y) six (6), (the “Consulting Fee”), less any applicable taxes and withholdings, payable ratably during the such period on the Company’s standard bi-monthly payroll dates and otherwise in accordance with the Company’s standard payroll practices as in effect from time to time; provided, however, that no portion of the Consulting Fee shall be made prior to the 30^th day following the Termination Date (such 30^th day, the “First Payment Date”) (with any amounts otherwise payable prior to the First Payment Date paid on the First Payment Date without interest).

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(ii)      Notwithstanding anything to the contrary contained in the Severance Policy, so long as you timely elect health benefits continuation pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder (“COBRA”), the Company shall pay or reimburse you for the applicable premiums for such continuation coverage under COBRA (payable as and when such payments become due) during the Consulting Period; provided, however, that (A) if any plan pursuant to which such benefits are provided ceases prior to the expiration of the period of continuation coverage to be exempt from the application of Section 409A of the Code, or (B) the Company is otherwise unable to continue to cover you under its group health plans (including because taxes or penalties would be imposed on the Company in connection with such continuation coverage), then, in either case, an amount equal to each remaining Company subsidy shall thereafter be paid to you in substantially equal monthly installments over the remaining portion of the continuation coverage period.

(iii)     Subject to Sections 4 and 5(e), your stock options under those certain Stock Option Grant Notice and Stock Option Agreements, with grant dates of September 19, 2008, May 20, 2010, February 17, 2012 and June 25, 2012, your restricted stock units under that certain Restricted Stock Unit Award Agreement, with a grant date of February 17, 2012 and the 2013 RSA Grant, each shall continue to vest in accordance with the terms set forth in the applicable award agreement until the conclusion of the Consulting Period or, if earlier, until the termination of your Consulting Services for any reason.

c.     During the Consulting Period, the Company shall reimburse you for reasonable business expenses in accordance with the Company’s applicable reimbursement policies, as in effect from time to time.

d.    During the Consulting Period, the Company acknowledges that the Consulting Services may be provided by you outside of the Company’s office, though you will make yourself available to visit the offices at mutual agreeable times when necessary.

e.     If (i) the Consulting Period and your Consulting Services are terminated due to the expiration of the Consulting Period and provided that you have achieved the Consulting Objective and have, otherwise, satisfactorily performed the Consulting Services, as determined by the Committee in its sole discretion, (ii) the Company terminates the Consulting Period and your Consulting Services hereunder without Cause (as defined in the Severance Policy) (other than due to death or disability) or (iii) the Company experiences a Change in Control (as defined in the Company’s Amended and Restated 2008 Stock Incentive Plan (the “Plan”)) during the Consulting Period, then, subject to, at the request of the Company, your timely execution and non-revocation of a release of claims against the Company (in a form prescribed by the Company), all outstanding equity awards then held by you other than the 2013 RSA Grant shall, immediately prior to such termination or Change in Control, vest with respect to that number of shares that would have otherwise vested pursuant to each such equity award through June 30, 2015 (had you remained in service with the Company through such date). For the avoidance of doubt, nothing contained herein shall limit the ability of the Company, in connection with a Change in Control, (A) to terminate your Company equity awards in exchange for payment of the applicable transaction consideration (net of any applicable exercise price) or (B) to otherwise treat any such equity awards in accordance with the terms of the Plan.

3

f.     In addition, if the Company terminates the Consulting Period and your Consulting Services hereunder without Cause (other than due to death or disability) then (i) the Company shall pay you, in one cash lump sum on the 30^th day following the termination date, an amount equal to the aggregate unpaid Consulting Fee that would have been payable to you through June 30, 2014 had you continued to provide the Consulting Services hereunder until that date, (ii) the Company shall continue to pay directly or reimburse you for the applicable premiums for continuation coverage under COBRA in accordance with Section 4(b)(ii) above from the termination date through June 30, 2014 and (iii) the 2013 RSA Grant will remain outstanding and eligible to vest in accordance with the terms and conditions applicable to the 2013 RSA Grant set forth in the applicable award agreement.

You understand and acknowledge that if you are terminated for Cause during the Employment Period or you voluntarily resign before the conclusion of the Employment Period, you will not be eligible to receive any of the foregoing compensation or benefits.

6.     Company Property. Upon the termination of the Employment Period or the Consulting Period for any reason, you agree to return to the Company all property of the Company in your possession, including without limitation, all devices (including personal digital assistants (PDAs)), files, records, data, notes, reports, correspondence, financial information, business plans and forecasts, credit cards, entry cards, identification badges, keys, materials, equipment and other documents or property (including all copies thereof); provided, however, that you shall be entitled to keep, and shall not be required to return to the Company, your Company-provided laptop and any associated hardware. In addition, you shall be entitled to retain, and the Company agrees to maintain and provide you access to, your Company e-mail address as long as the Company is responsible for maintaining reachlocal.com e-mail addresses generally.

7.     Post-Termination Obligations. You acknowledge and agree that you (i) continue to be subject to the Amended and Restated Non-Disclosure and Confidentiality Agreement executed as of October 31, 2012 (the “Confidentiality Agreement”), which shall survive the termination of your employment with the Company and the termination of the Consulting Period, (ii) are bound by the commitments and obligations set forth in the Confidentiality Agreement, including, without limitation, the covenants concerning Confidential Information, Solicitation of Employees and Solicitation of Customers (as described in the Confidentiality Agreement), and (iii) hereby reaffirm such covenants. You further acknowledge that, since the date on which you executed the Confidentiality Agreement, you have continued to receive some or all of the Confidential Information as described in the Confidentiality Agreement.

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8.     Acknowledgements.

a.     You acknowledge and agree that you are hereby expressly consenting to all of the foregoing and, accordingly, none of the foregoing changes to the terms of your employment shall constitute “Good Reason” for purposes of the Severance Policy, the Employment Letter or otherwise. Furthermore, you and the Company acknowledge and agree that neither the termination of your employment pursuant to Section 1 above nor any of the changes to the terms of your employment hereunder will constitute an “Involuntary Termination”, a termination by the Company without “Cause” or a termination by you for “Good Reason” for purposes of the Severance Policy, the Employment Letter, the Amended Letter, any applicable equity award agreement or otherwise.

b.     You acknowledge and agree that, as of the commencement of the Consulting Period, you will solely be an independent contractor and shall not be construed to be an employee of the Company in any manner under any circumstances or for any purposes whatsoever. You acknowledge and agree that, as of the Termination Date, you will no longer have any decision-making authority with respect to the Company or its subsidiaries.

9.     409A Considerations. To the extent that any payment under this letter constitutes nonqualified deferred compensation for purposes of Section 409A of the Code, and such payment would otherwise be payable hereunder by reason of a termination of your employment, then, to the extent required by Section 409A of the Code, all references to your termination of employment will be construed to mean a “separation from service” (within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulation Section 1.409A-1(h)) (“Separation from Service”), and such amounts will only be paid upon or by reference to your Separation from Service. Notwithstanding anything to the contrary in this letter, no compensation or benefits will be paid to you prior to the expiration of the six (6)-month period following your Separation from Service to the extent thatthe Company determines that paying such amounts at the time or times indicated in this letter would result in a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code. If the payment of any such amounts is delayed as a result of the previous sentence, then on the first day following the end of such six (6)-month period (or such earlier date upon which such amount can be paid under Section 409A of the Code without resulting in a prohibited distribution, including as a result of your death), the Company will pay you a lump-sum amount equal to the cumulative amount that would have otherwise been payable to you during such period. To the extent that any installment payments under this letter are deemed to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code, for purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), each such payment that you may be eligible to receive under this letter shall be treated as a separate and distinct payment. To the extent permitted under Section 409A of the Code, any separate payment or benefit under this letter or otherwise will not be deemed “nonqualified deferred compensation” subject to Section 409A and the six (6)-month delay requirement under 409A(a)(2)(B)(i) of the Code to the extent provided in the exceptions in Treasury Regulation Section 1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable exception or provision of Section 409A of the Code.

5

Please confirm your agreement to the foregoing by signing and dating the enclosed duplicate original of this letter in the space provided below for your signature and returning it to the Company. Please retain one fully-executed original for your files. Once executed and delivered, this letter will serve as an amendment and restatement of the Amended Letter.

Sincerely, ReachLocal, Inc.
By:	/s/ Zorik Gordon
	Zorik Gordon, CEO

Accepted, Acknowledged and Agreed,

this 7th day of August, 2013.

/s/ Michael Kline               

Michael Kline

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EX-10

Exhibit 10.02

REACHLOCAL, INC.

Separation Agreement

And

General Release

Zorik Gordon (referred to as “Executive”) and ReachLocal, Inc., on behalf of itself and its successors, subsidiaries, affiliates, and related companies (referred to collectively as the “Company”), enter into this Separation Agreement and General Release (the “Agreement”) as of this 3rd day of September 2013 (“Effective Date”).

The Executive and the Company agree that Executive’s employment with the Company terminated effective August 30, 2013 (“Termination Date”). The following sets forth the terms and conditions surrounding Executive’s termination of employment and related matters.

1.    Termination of Employment. The Parties acknowledge and agree that Executive has resigned from his position as Chief Executive Officer of the Company and a member of the Board of Directors of the Company and that Executive shall cease to be an employee, officer and director of the Company and its subsidiaries and affiliates, effective as of the Termination Date. As of such date, Executive shall no longer hold himself out as an employee, officer, director or representative of the Company. As of the Termination Date, the employment offer letter dated May 14, 2004, as amended on February 22, 2010 between the Company and Executive (the “Offer Letter”), shall terminate and shall be of no further force and effect, and neither the Company nor Executive shall have any further obligations thereto, except to the extent otherwise expressly provided therein.

2.    Consideration. Subject to and conditioned upon Executive’s execution of this Agreement and continued compliance with the terms and conditions of this Agreement and the Confidentiality Agreement (as defined below):

a.     Severance. During the twelve-month period following the Termination Date (the “Severance Period”), the Company shall pay Executive an aggregate amount equal to $400,000, which will be payable in substantially equal installments over the Severance Period in accordance with the Company’s standard payroll practices as in effect from time to time, with the first payment being made on the first payroll date following the date on which this Agreement becomes effective.

b.     Continued Healthcare Coverage. So long as Executive timely elects health benefits continuation pursuant to Section 4980B of the Code and the regulations thereunder (“COBRA”), Executive shall be entitled to receive payment by the Company of Executive’s applicable premiums for such continuation coverage under COBRA (payable as and when such payments become due) during the period commencing on the Termination Date and ending on the earliest to occur of (i) the twelve month anniversary of the Termination Date, (ii) the expiration of Executive’s eligibility for benefits under COBRA, and (iii) the date on which Executive and his or her covered dependents, if any, become eligible for health insurance coverage through another source.

c.     Treatment of Stock Options. As of the date hereof, Executive holds the outstanding stock option grants identified on Exhibit A (collectively, the “Stock Option Grants”). Each Stock Option Grant will become immediately vested as of the Termination Date with respect to the number of shares set forth on Exhibit A attached hereto and shall be exercisable at any time up to the 270^th day following the Termination Date.

d.     Treatment of Restricted Shares. As of the date hereof, Executive holds the outstanding time-based vesting restricted shares identified on Exhibit A (collectively, the “Restricted Shares”). The Restricted Shares will become immediately vested as of the Termination Date with respect to the number of shares set forth on Exhibit A attached hereto.

e.     Treatment of Performance Vesting Restricted Stock Award. As of the date hereof, Executive holds an outstanding performance vesting restricted stock award with respect to 54,475 shares of the Company’s common stock (the “Performance Vesting Restricted Stock Award”) granted February 14, 2013 pursuant to that certain Restricted Stock Award Grant Notice and Restricted Stock Agreement (the “Restricted Stock Agreement”). The Company and Executive agree and acknowledge that the Performance Vesting Restricted Stock Award shall remain outstanding and eligible to vest in accordance with Sections (3) and (4) of the Restricted Stock Agreement as though Executive’s resignation constitutes a Qualifying Termination under the Restricted Stock Agreement.

f.     Section 409A. It is intended that all of the benefits and payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (with state laws of similar effect, “Section 409A”), provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Executive's right to receive any installment payments under this Agreement shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment shall at all times be considered a separate and distinct payment.

3.    Bonus Opportunity. Executive will remain eligible to receive a pro rated annual bonus with respect to the 2013 fiscal year (the “Bonus”) under the ReachLocal Incentive Bonus Plan. The amount of the Bonus, if any, will be equal to the product of (a) the average of the percentages of the target annual bonus payable to each of the Company’s named executive officers (other than Executive) under the ReachLocal Incentive Bonus Plan for the 2013 fiscal year that is actually paid to each such officer, as determined in the sole discretion of the Compensation Committee (the “Committee”) in accordance with the methodology previously established by the Committee with respect to the bonuses payable to such officers under the ReachLocal Incentive Bonus Plan, multiplied by (b) $500,000, multiplied by (c) the number of days from and including January 1, 2013 through and including the Termination Date divided by 365. Except as set forth below, payment of the Bonus (to the extent it becomes payable) will be paid on or after March 2, 2014, but in no event later than March 15, 2014.

4.    No Other Compensation Owed. Executive acknowledges and agrees that except for the payments provided above and accrued but unpaid amounts as of the Termination Date, no other compensation, payments, wages, salary, bonuses, commissions, benefits, severance, equity, or remuneration of any kind whatsoever are owing to Executive as a result of his employment with or termination of employment from the Company, or under the Offer Letter, the Severance Policy (as defined below) or the Restricted Stock Agreement.

5.    Release of Claims. In exchange for the promises contained in this Agreement and to the extent permitted by law, Executive hereby waives, releases and forever discharges, and agrees that Executive will not in any manner institute, prosecute or pursue, any and all complaints, claims, charges, liabilities, claims for relief, demands, suits, actions or causes of action, whether in law or in equity, know or unknown (collectively, “Claims”), which Executive asserts or could assert, at common law, under any express or implied contract, arising in tort or under any statute, rule, regulation, order or law, whether federal, state, or local, or on any grounds whatsoever, including without limitation, claims under the Employment, Confidential Information, and Invention Assignment Agreement executed on or about June 2, 2004 (the “Confidentiality Agreement”), Title VII of the Civil Rights Act of 1964, the California Fair Employment and Housing Act, the California Labor Code, the California Business and Professions Code, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, and the Executive Retirement Income Security Act of 1974, against the Company and any of its or their current or former, owners, officials, directors, officers, shareholders, affiliates, agents, representatives, employees, attorneys, subsidiaries, parents, divisions, branches, units, successors, predecessors, and assigns (collectively referred to as “Released Parties”) with respect to any event, matter, claim, damage or injury arising out of or relating to Executive’s employment relationship with the Company, the termination of such employment relationship, or the Confidentiality Agreement arising up to the date and time of signing of this Agreement by Executive.

Notwithstanding the foregoing, the release does not terminate Executive’s rights (a) set forth in this Agreement, (b) with respect to the Stock Option Grants, the Restricted Shares or the Performance Vesting Restricted Stock Award, (c) Executive’s rights to be indemnified by the Company or any of its subsidiaries under any agreement with the Company or any of its subsidiaries, the Company’s certificate of incorporation or bylaws, or under applicable law or (d) resulting from any breaches of this Agreement.

This Agreement also does not extend to those rights which as a matter of law cannot be waived, including, but not limited to, unwaivable rights. If any claim is not subject to release, to the extent permitted by law, Executive waives any right or ability to be a class or collective action representative or to otherwise participate in any putative or certified class, collective or multi-party actionor proceeding based on such a claim in which the Company or any other releasee identified in this Agreement is a party.

6.    Outstanding Claims. Executive represents that Executive has not filed or otherwise pursued any charges, complaints or claims of any nature which are in any way pending against the Company or any of the Released Parties with any local, state or federal government agency or court with respect to any matter covered by this Agreement, and, to the extent permitted by law, will not do so in the future. Executive further represents that he is not aware of any such claims against the Company, including any claims under the Fair Labor Standards Act or the Family and Medical Leave Act. If any government agency or court assumes jurisdiction of any charge, complaint, cause of action or claim covered by this Agreement against the Company or any of the Released Parties, on behalf of or related to Executive, Executive will withdraw from and/or dismiss the matter with prejudice, as to any claims Executive might have. Executive agrees not to participate or cooperate in such matter(s) except as required by law. Notwithstanding the foregoing or any other provision of this Agreement, this Agreement is not intended to interfere with Executive's exercise of any protected, nonwaivable right, including Executive's right to file a charge with the Equal Employment Opportunity Commission or other government agency.  By entering into this Agreement, however, Executive acknowledges that the consideration set forth herein is in full satisfaction of any amounts to which Executive might be entitled and Executive is forever discharging the Company and the other Released Parties from any liability to Executive for any acts or omissions occurring on or before the date of Executive's signing of this Agreement.

7.    Exchange Act Section 16. Executive acknowledges that if Executive makes any “reportable transactions” under Section 16 of the Exchange Act of 1934, as amended, Executive shall immediately notify the Company of such transactions.

8.    Acknowledgement of Confidentiality Agreement. Executive acknowledges that Executive (a) previously executed the Employment, Confidential Information, and Invention Assignment Agreement executed on or about June 2, 2004 and (b) that during the course of his employment he became acquainted with other employees of the Company, and became privy to Confidential Information regarding such other employees including their skills, abilities, contacts, customers, compensation, and other information which would provide a competitive advantage in recruiting such employees. Accordingly, Executive acknowledges that he remains subject to the confidentiality and non-solicit obligations set forth therein. Without limiting the generality of the foregoing:

a.     Confidentiality Obligations. Executive agrees to hold in strictest confidence all Confidential Information. "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customer information (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the term of my employment), prospective customer lists, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances, employee, independent contractor, or vendor information, or other business information, or compilations of such information, disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. Confidential Information does not include any of the foregoing items which have become publicly known and made generally available through no wrongful act or omission of Executive or of others who were under confidentiality obligations as to the item or items involved or improvements or new versions thereof; provided, however, that the availability of individual items of information contained in a compilation through independent means shall not remove the compilation itself from protected status under this Agreement so long as the compilation remains confidential.

b.     Non-Solicitation Obligations. Executive agrees that for a period of twelve (12) months immediately following the Termination Date, that Executive will not, either directly or indirectly, solicit, induce, recruit or encourage any of the Company’s employees or independent contractors with whom Executive worked during his employment with the Company to terminate their relationship with the Company. Executive acknowledges that if he violates this provision, the duration of such obligations shall be extended by the duration of such violation.

c.     Executive acknowledges that during the course of his employment, he has been provided access to trade secret information regarding customers and prospective customers of the Company, including customer lists and other information containing identities and contact information for current and prospective customers. Executive agree that he will not use such trade secrets to either directly or indirectly solicit, induce, or encourage any of the Company’s customers or prospective customers to terminate or otherwise modify, to the detriment of the Company, its relationship with the Company.

9.    Return of Property. Executive affirms that Executive will return all of the Company’s property, documents, and/or any confidential or proprietary information in Executive’s possession or control, including, without limitation, all computers, telephones, pagers memoranda, books, papers, letters, formulae, computer data, disks, manuals, price information, order forms, employee lists, potential employee lists, client lists, customer pricing, contract terms, supplier lists, and other data (and all copies thereof or therefrom) in any way relating to the Company’s business and affairs, provided, however, that Executive shall be entitled to keep, and shall not be required to return to the Company, Executive’s Company-provided laptop, desktop and any associated hardware. The Company agrees and acknowledges that during the twelve-month period following the Termination Date, the Company shall forward to Executive’s designated personal email account all personal emails of Executive.

10.  Non-Disparagement Covenant. Executive will not disparage or denigrate the Company, its officers, directors and employees, or its products and services of the Company. In particular, Executive agrees that Executive will not provide information, issue statements, or take any action, directly or indirectly, that would cause the Company, its business strategies and operations, and any of the Company’s officers, directors, employees, shareholders, or affiliates, any embarrassment or humiliation or otherwise cause or contribute to the Company being held in disrepute.

11.  Remedies. In recognition of the fact that irreparable injury will result to the Company in the event of a breach by Executive of Paragraphs 6, 7, 8, 9 or 10 of this Agreement that monetary damages for such breach would not be readily calculable, and that the Company would not have an adequate remedy at law, Executive acknowledges, consents and agrees that in the event of such breach, or the threat thereof, the Company shall be entitled, in addition to any other legal remedies and damages available, to specific performance thereof and to temporary and permanent injunctive relief (without the necessity of posting a bond) to restrain the violation or threatened violation of such obligations by Executive. Should Executive ever breach any provision or obligation under this Agreement, Executive explicitly agrees to pay all damages (including, but not limited to, litigation and/or defense costs, expenses, and reasonable attorneys’ fees) incurred by the Company as a result of the breach. Nothing in this Paragraph shall, or is intended to, limit or restrict any other rights or remedies the Company may have by virtue of this Agreement or otherwise.

11.  No Admission of Liability. By entering into this Agreement, the Company and all Released Parties do not admit any liability whatsoever to Executive or to any other person arising out of any claims heretofore or hereafter asserted by Executive.

12.  Agreement to Cooperate With the Company. Executive agrees to assist the Company in any formal or informal legal matters in which Executive is named as a party or has knowledge relevant to the matter. Executive acknowledges and agrees that such assistance may include, but will not be limited to, providing background information regarding any matter on which Executive previously worked, aiding in the drafting of declarations, executing declarations or similar documents, testifying or otherwise appearing at investigation interviews, depositions, arbitrations or court hearings and preparing for the above-described or similar activities. Executive understands that Executive will receive no additional pay for Executive’s assistance beyond that provided in this Agreement.

13.  Tax Withholding. The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

14.  Severability. In the event any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity, duration, or subject, it shall be construed by limiting and reducing it to the extent necessary to be valid and enforceable under the applicable law as it shall then appear while giving effect, to the greatest degree possible, to the original intent of such provision.

15.  Executive Acknowledgements. Executive hereby affirms and acknowledges that Executive has read the foregoing Agreement, has had sufficient time and opportunity to review or discuss it with the counsel of Executive's choice, and fully understands and appreciates the meaning of each of its terms, and that it is a voluntary, full and final compromise, release and settlement of all claims, known or unknown, with respect to the claims identified and referred to herein.

16.  Entire Agreement. This Agreement, together with the Confidentiality Agreement, constitutes the complete understanding between Executive and the Company and supersedes any and all prior agreements (including the Offer Letter, to the extent the terms thereof are inconsistent with this Agreement), promises, representations, or inducements, no matter its or their form, concerning its subject matter. No promises or agreements made subsequent to the execution of this Agreement by Executive and the Company shall be binding unless reduced to writing and signed by authorized representatives of Executive and the Company.

17.   Choice of Law/Venue. This Agreement shall be governed by California law. If a dispute arises under this Agreement Executive and the Company both irrevocably consent to the exclusive jurisdiction and venue of the state and federal courts located within Los Angeles County, California for resolution of any matters arising hereunder; and the prevailing party in any court proceeding shall be entitled to recover its reasonable attorneys’ fees, expenses and costs.

PLEASE READ THIS AGREEMENT AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS BEFORE SIGNING IT. EXECUTIVE SHOULD CONSULT AN ATTORNEY OF HIS CHOICE ABOUT THIS AGREEMENT BEFORE HE SIGNS THE AGREEMENT. THIS AGREEMENT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS, INCLUDING THOSE UNDER FEDERAL, STATE AND LOCAL LAWS PROHIBITING DISCRIMINATION IN EMPLOYMENT, TO THE EXTENT PERMITTED BY LAW.

IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, EXECUTIVE IS HEREBY ADVISED AS FOLLOWS:

(A)     EXECUTIVE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT;

(B)     EXECUTIVE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS AGREEMENT BEFORE SIGNING IT; AND

(C)     EXECUTIVE HAS SEVEN (7) DAYS AFTER SIGNING THIS AGREEMENT TO REVOKE THIS AGREEMENT, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD.

EXECUTIVE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS EXECUTIVE HAS OR MIGHT HAVE AGAINST RELEASEES.

Dated: September 3, 2013	/s/ Zorik Gordon
		Zorik Gordon
Dated: September 4, 2013	ReachLocal, Inc.
	By  /s/ David Scott Carlick
		David Scott Carlick
		Interim CEO

Exhibit A

Stock Option Grants

Grant Date	Number of Shares Vested as of Prior to Termination	Number of Shares to Accelerate in Connection with Termination	Total Exercisable as of Termination Date
September 19, 2008	420,000	0	420,000
May 20, 2010	162,500	37,500	200,000
February 17, 2012	38,999	26,000	64,999
June 25, 2012	40,229	34,483	74,712
February 14, 2013	0	17,497	17,497

Restricted Shares

Grant Date	Number of Shares to Accelerate in Connection with Termination
February 17, 2012	3,250

EX-10

Exhibit 10.03

REACHLOCAL, INC.

Separation Agreement

And

General Release

Nathan Hanks (referred to as “Executive”) and ReachLocal, Inc., on behalf of itself and its successors, subsidiaries, affiliates, and related companies (referred to collectively as the “Company”), enter into this Separation Agreement and General Release (the “Agreement”) effective as of the eighth (8th) day following the date Executive signs this Agreement if not revoked in accordance with the last paragraph hereof (the “Effective Date”).

Executive and the Company agree that as of the Effective Date, the terms and conditions of Executive’s employment with and service to the Company will be as set forth below:

1.     Resignation from Board of Directors. Effective as November 1, 2013, Executive has resigned as a member of the Board of Directors of the Company.

2.     Employment Arrangements.

a.     As of November 1, 2013, Executive resigns as President of the Company and shall through December 15, 2013 (the “Termination Date”), assume the role of Senior Adviser, reporting to the Interim Chief Executive Officer. In such capacity, Executive shall assist in the transition of his former responsibilities as President of the Company and shall complete such special projects as the Interim Chief Executive Officer may assign from time to time.

b.     Effective as of the Termination Date, Executive shall resign from his position as Senior Adviser of the Company and Executive shall cease to be an employee and officer of the Company and its subsidiaries and affiliates. As of such date, Executive shall no longer hold himself out as an employee, officer, director or representative of the Company. As of the Termination Date, that certain employment offer letter dated May 6, 2004, as amended on February 22, 2010 between the Company and Executive (the “Offer Letter”), shall terminate and shall be of no further force and effect, and neither the Company nor Executive shall have any further obligations thereto, except to the extent otherwise expressly provided therein.

3.     Consideration. Subject to and conditioned upon Executive’s execution and non-revocation of this Agreement in accordance with the terms hereof, continued compliance with the terms and conditions of this Agreement and the Confidentiality Agreement (as defined below) and timely execution and non-revocation, within thirty (30) days following the Termination Date, of a release of claims against the Company in the form attached hereto as Exhibit B (the “Release”):

a.     Severance. During the twelve-month period following the Termination Date (the “Severance Period”), the Company shall pay Executive an aggregate amount equal to $400,000, which will be payable in substantially equal installments over the Severance Period in accordance with the Company’s standard payroll practices as in effect from time to time, with the first payment being made on the first payroll date following the date on which the Release has become effective and is no longer revocable.

b.     Bonus Opportunity. Executive will remain eligible to receive a pro rated annual bonus with respect to the 2013 fiscal year (the “Bonus”) under the ReachLocal Incentive Bonus Plan. The amount of the Bonus, if any, will be equal to the product of (i) the average of the percentages of the target annual bonus payable to each of the Company’s executive officers (other than Executive) that remains employed by the Company through the payment date under the ReachLocal Incentive Bonus Plan for the 2013 fiscal year that is actually paid to each such officer, as determined in the sole discretion of the Compensation Committee (the “Committee”) in accordance with the methodology previously established by the Committee with respect to the bonuses payable to such officers under the ReachLocal Incentive Bonus Plan, multiplied by (ii) $500,000, multiplied by (iii) the number of days from and including January 1, 2013 through and including the Termination Date divided by 365. Except as set forth below, payment of the Bonus (to the extent it becomes payable) will be paid on or after March 2, 2014, but in no event later than March 15, 2014.

c.     Continued Healthcare Coverage. So long as Executive timely elects health benefits continuation pursuant to Section 4980B of the Code and the regulations thereunder (“COBRA”), Executive shall be entitled to receive payment by the Company of Executive’s applicable premiums for such continuation coverage under COBRA (payable as and when such payments become due) during the period commencing on the Termination Date and ending on the earliest to occur of (i) the twelve month anniversary of the Termination Date, (ii) the expiration of Executive’s eligibility for benefits under COBRA, and (iii) the date on which Executive and his or her covered dependents, if any, become eligible for health insurance coverage through another source.

d.     Treatment of Stock Options. As of the date hereof, Executive holds the outstanding stock option grants identified on Exhibit A (collectively, the “Stock Option Grants”). Each Stock Option Grant will become immediately vested as of the Termination Date with respect to the number of shares set forth on Exhibit A attached hereto. All Stock Option Grants, other than the June 25, 2007 grant (the “2007 Grant”), shall be exercisable at any time up to the 270^th day following the Termination Date, but in no event later than the expiration date of the applicable Stock Option. The 2007 Grant shall expire in accordance with its terms.

e.     Treatment of Restricted Shares. As of the date hereof, Executive holds the outstanding time-based vesting restricted shares identified on Exhibit A (collectively, the “Restricted Shares”). The Restricted Shares will become immediately vested as of the Termination Date with respect to the number of shares set forth on Exhibit A attached hereto.

f.     Treatment of Performance Vesting Restricted Stock Award. As of the date hereof, Executive holds an outstanding performance vesting restricted stock award with respect to 54,475 shares of the Company’s common stock (the “Performance Vesting Restricted Stock Award”) granted February 14, 2013 pursuant to that certain Restricted Stock Award Grant Notice and Restricted Stock Agreement (the “Restricted Stock Agreement”). The Company and Executive agree and acknowledge that the Performance Vesting Restricted Stock Award shall remain outstanding and eligible to vest in accordance with Sections (3) and (4) of the Restricted Stock Agreement as though Executive’s resignation constitutes a Qualifying Termination under the Restricted Stock Agreement.

g.     Section 409A. It is intended that all of the benefits and payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (with state laws of similar effect, “Section 409A”), provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Executive’s right to receive any installment payments under this Agreement shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment shall at all times be considered a separate and distinct payment.

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4.     No Other Compensation Owed. Executive acknowledges and agrees that except for the payments provided above and accrued but unpaid amounts as of the Termination Date, no other compensation, payments, wages, salary, bonuses, commissions, benefits, severance, equity, or remuneration of any kind whatsoever are owing to Executive as a result of his employment with or termination of employment from the Company, or under the Offer Letter, the Severance Policy (as defined below) or the Restricted Stock Agreement.

5.     Release of Claims. In exchange for the promises contained in this Agreement and to the extent permitted by law, Executive hereby waives, releases and forever discharges, and agrees that Executive will not in any manner institute, prosecute or pursue, any and all complaints, claims, charges, liabilities, claims for relief, demands, suits, actions or causes of action, whether in law or in equity, know or unknown (collectively, “Claims”), which Executive asserts or could assert, at common law, under any express or implied contract, arising in tort or under any statute, rule, regulation, order or law, whether federal, state, or local, or on any grounds whatsoever, including without limitation, claims under the Employment, Confidential Information, and Invention Assignment Agreement (the “Confidentiality Agreement”), Title VII of the Civil Rights Act of 1964, Age Discrimination in Employment Act, as amended, the Texas Labor Code, the Texas Commission of Human Rights Act, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, and the Executive Retirement Income Security Act of 1974, against the Company and any of its or their current or former, owners, officials, directors, officers, shareholders, affiliates, agents, representatives, employees, attorneys, subsidiaries, parents, divisions, branches, units, successors, predecessors, and assigns (collectively referred to as “Released Parties”) with respect to any event, matter, claim, damage or injury arising out of or relating to Executive’s employment relationship with the Company, the termination of such employment relationship, or the Confidentiality Agreement arising up to the date and time of signing of this Agreement by Executive.

Notwithstanding the foregoing, the release does not terminate Executive’s rights (a) set forth in this Agreement, (b) with respect to the Stock Option Grants, the Restricted Shares or the Performance Vesting Restricted Stock Award, (c) Executive’s rights to be indemnified by the Company or any of its subsidiaries under any agreement with the Company or any of its subsidiaries, the Company’s certificate of incorporation or bylaws, or under applicable law or (d) resulting from any breaches of this Agreement.

This Agreement also does not extend to those rights which as a matter of law cannot be waived, including, but not limited to, unwaivable rights. If any claim is not subject to release, to the extent permitted by law, Executive waives any right or ability to be a class or collective action representative or to otherwise participate in any putative or certified class, collective or multi-party actionor proceeding based on such a claim in which the Company or any other releasee identified in this Agreement is a party.

6.     Outstanding Claims. Executive represents that Executive has not filed or otherwise pursued any charges, complaints or claims of any nature which are in any way pending against the Company or any of the Released Parties with any local, state or federal government agency or court with respect to any matter covered by this Agreement, and, to the extent permitted by law, will not do so in the future. Executive further represents that he is not aware of any such claims against the Company, including any claims under the Fair Labor Standards Act or the Family and Medical Leave Act. If any government agency or court assumes jurisdiction of any charge, complaint, cause of action or claim covered by this Agreement against the Company or any of the Released Parties, on behalf of or related to Executive, Executive will withdraw from and/or dismiss the matter with prejudice, as to any claims Executive might have. Executive agrees not to participate or cooperate in such matter(s) except as required by law. Notwithstanding the foregoing or any other provision of this Agreement, this Agreement is not intended to interfere with Executive’s exercise of any protected, nonwaivable right, including Executive’s right to file a charge with the Equal Employment Opportunity Commission or other government agency.  By entering into this Agreement, however, Executive acknowledges that the consideration set forth herein is in full satisfaction of any amounts to which Executive might be entitled and Executive is forever discharging the Company and the other Released Parties from any liability to Executive for any acts or omissions occurring on or before the date of Executive’s signing of this Agreement.

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7.     Exchange Act Section 16. Executive acknowledges that if Executive makes any “reportable transactions” under Section 16 of the Exchange Act of 1934, as amended, Executive shall immediately notify the Company of such transactions.

8.     Acknowledgement of Confidentiality Agreement. Executive acknowledges that Executive (a) previously executed the Confidentiality Agreement, which shall survive the termination of Executive’s employment with the Company, (b) is bound by the commitments and obligations set forth in the Confidentiality Agreement, including, without limitation, the covenants set forth in Sections 3 (Confidential Information), 8 (Solicitation of Employees), 9 (Solicitation of Customers), and 10 (Covenant Not to Compete) therein and (c) Executive reaffirms such covenants. Executive further acknowledges that, since the date on which he executed the Confidentiality Agreement, he has received some or all of the Confidential Information as described in Section 3 of the Confidentiality Agreement.

9.     Return of Property. Executive affirms that on or prior to the Termination Date, Executive will return all of the Company’s property, documents, and/or any confidential or proprietary information in Executive’s possession or control, including, without limitation, all computers, telephones, pagers memoranda, books, papers, letters, formulae, computer data, disks, manuals, price information, order forms, employee lists, potential employee lists, client lists, customer pricing, contract terms, supplier lists, and other data (and all copies thereof or therefrom) in any way relating to the Company’s business and affairs, provided, however, that Executive shall be entitled to keep, and shall not be required to return to the Company, Executive’s Company-provided laptop any associated hardware. The Company agrees and acknowledges that during the twelve-month period following the Termination Date, the Company shall forward to Executive’s designated personal email account all personal emails of Executive.

10.   Non-Disparagement Covenant. Executive will not disparage or denigrate the Company, its officers, directors and employees, or its products and services of the Company. In particular, Executive agrees that Executive will not provide information, issue statements, or take any action, directly or indirectly, that would cause the Company, its business strategies and operations, and any of the Company’s officers, directors, employees, shareholders, or affiliates, any embarrassment or humiliation or otherwise cause or contribute to the Company being held in disrepute.

11.   Remedies. In recognition of the fact that irreparable injury will result to the Company in the event of a breach by Executive of Paragraphs 8, 9 or 10 of this Agreement that monetary damages for such breach would not be readily calculable, and that the Company would not have an adequate remedy at law, Executive acknowledges, consents and agrees that in the event of such breach, or the threat thereof, the Company shall be entitled, in addition to any other legal remedies and damages available, to specific performance thereof and to temporary and permanent injunctive relief (without the necessity of posting a bond) to restrain the violation or threatened violation of such obligations by Executive. Should Executive ever breach any provision or obligation under this Agreement, Executive explicitly agrees to pay all damages (including, but not limited to, litigation and/or defense costs, expenses, and reasonable attorneys’ fees) incurred by the Company as a result of the breach. Nothing in this Paragraph shall, or is intended to, limit or restrict any other rights or remedies the Company may have by virtue of this Agreement or otherwise.

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12.   No Admission of Liability. By entering into this Agreement, the Company and all Released Parties do not admit any liability whatsoever to Executive or to any other person arising out of any claims heretofore or hereafter asserted by Executive.

13.   Agreement to Cooperate With the Company. Executive agrees to assist the Company in any formal or informal legal matters in which Executive is named as a party or has knowledge relevant to the matter. Executive acknowledges and agrees that such assistance may include, but will not be limited to, providing background information regarding any matter on which Executive previously worked, aiding in the drafting of declarations, executing declarations or similar documents, testifying or otherwise appearing at investigation interviews, depositions, arbitrations or court hearings and preparing for the above-described or similar activities. Executive understands that Executive will receive no additional pay for Executive’s assistance beyond that provided in this Agreement.

14.   Tax Withholding. The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

15.   Severability. In the event any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity, duration, or subject, it shall be construed by limiting and reducing it to the extent necessary to be valid and enforceable under the applicable law as it shall then appear while giving effect, to the greatest degree possible, to the original intent of such provision.

16. Executive Acknowledgements. Executive hereby affirms and acknowledges that Executive has read the foregoing Agreement, has had sufficient time and opportunity to review or discuss it with the counsel of Executive’s choice, and fully understands and appreciates the meaning of each of its terms, and that it is a voluntary, full and final compromise, release and settlement of all claims, known or unknown, with respect to the claims identified and referred to herein.

17.   Entire Agreement.

a.     This Agreement, together with the Confidentiality Agreement and the Arbitration Agreement (as defined below), constitutes the complete understanding between Executive and the Company and supersedes any and all prior agreements (including the Offer Letter, to the extent the terms thereof are inconsistent with this Agreement), promises, representations, or inducements, no matter its or their form, concerning its subject matter. No promises or agreements made subsequent to the execution of this Agreement by Executive and the Company shall be binding unless reduced to writing and signed by authorized representatives of Executive and the Company.

b.      Executive acknowledges and agrees that Executive is hereby expressly consenting to all of the foregoing, including without limitation, his resignation from the Board and any modification of his authority, duties and responsibilities as set forth in Section 2 above, and, accordingly, none of the foregoing changes to the terms of Executive’s service relationship shall constitute “Good Reason” within the meaning of the Company’s Amended and Restated Change in Control and Severance Policy for Senior Management (the “Severance Policy”), an “Involuntary Termination” within the meaning of the Offer Letter or the Severance Policy, or “Good Reason” within the meaning of the Restricted Stock Agreement. Furthermore, Executive and the Company acknowledge and agree that the termination of Executive’s employment as set forth herein will not constitute (i) a termination by the Company without “Cause” or by Executive for “Good Reason” for purposes of the Severance Policy, (ii) an “Involuntary Termination” for purposes of the Offer Letter or (iii) a “Qualifying Termination” for purposes of the Restricted Stock Agreement.

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18    Choice of Law/Venue. This Agreement shall be governed by Texas law. If a dispute arises under this Agreement: (a) Executive and the Company acknowledge and re-affirm their commitment to arbitrate such disputes pursuant to the separate Arbitration Agreement executed by Executive on September 8, 2009 (the “Arbitration Agreement”); (b) Executive and the Company both irrevocably consent to the exclusive jurisdiction and venue of the state and federal courts located within Collin County, Texas for resolution of any matter not subject to the foregoing Arbitration Agreement; and (c) the prevailing party in any arbitration or court proceeding shall be entitled to recover its reasonable attorneys’ fees, expenses and costs.

PLEASE READ THIS AGREEMENT AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS BEFORE SIGNING IT. EXECUTIVE SHOULD CONSULT AN ATTORNEY OF HIS CHOICE ABOUT THIS AGREEMENT BEFORE HE SIGNS THE AGREEMENT. THIS AGREEMENT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS, INCLUDING THOSE UNDER FEDERAL, STATE AND LOCAL LAWS PROHIBITING DISCRIMINATION IN EMPLOYMENT, TO THE EXTENT PERMITTED BY LAW.

IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, EXECUTIVE IS HEREBY ADVISED AS FOLLOWS:

(A)     EXECUTIVE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT;

(B)     EXECUTIVE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS AGREEMENT BEFORE SIGNING IT; AND

(C)     EXECUTIVE HAS SEVEN (7) DAYS AFTER SIGNING THIS AGREEMENT TO REVOKE THIS AGREEMENT, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD. IF EXECUTIVE WISHES TO REVOKE THIS AGREEMENT, EXECUTIVE MUST DELIVER NOTICE OF EXECUTIVE’S REVOCATION IN WRITING, NO LATER THAN 5:00 P.M. ON THE 7TH DAY FOLLOWING EXECUTIVE’S EXECUTION OF THIS AGREEMENT TO REACHLOCAL, INC., 21700 OXNARD STREET, SUITE 1600, WOODLAND HILLS, CA 91367, ATTN: ADAM WERGELES, AWERGELES@REACHLOCAL.COM. EXECUTIVE UNDERSTANDS THAT IF HE REVOKES THIS AGREEMENT, IT WILL BE NULL AND VOID IN ITS ENTIRETY (OTHER THAN SECTION 1), AND HE WILL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS PROVIDED IN SECTION 3 OF THIS AGREEMENT.

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EXECUTIVE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS EXECUTIVE HAS OR MIGHT HAVE AGAINST RELEASEES.

 

Dated: November 1, 2013		/s/ Nathan Hanks
		Nathan Hanks
Dated: November 1, 2013	ReachLocal, Inc.
	By	/s/ David Carlick
		David Carlick
		Interim CEO

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Exhibit A

Stock Option Grants

Grant Date	Exercise Price	Number of Shares Vested as of Prior to Termination1	Number of Shares to Accelerate in Connection with Termination	Total Exercisable as of Termination Date
June 25, 2007	$1.03	50,000	0	50,000
February 1, 2008	$9.226	100,000	0	100,000
September 19, 2008	$10.91	140,000	0	140,000
April 23, 2009	$10.91	220,000	0	220,000
May 20, 2010	$13.00	87,500	12,500	100,000
February 17, 2011	$22.46	68,749	25,000	93,749
February 17, 2012	$7.86	6,666	16,000	22,666
February 14, 2013	$12.98	0	21,385	21,385

Restricted Shares

Grant Date	Number of Shares to Accelerate in Connection with Termination
February 17, 2012	2,000

¹ Estimated number of shares subject to vested options as of December 15, 2013 will be reduced by option exercises after the date hereof and before December 15, 2013.

Exhibit B

Form of General Release

Nathan Hanks (referred to as “Executive”) hereby agrees as follows as of this [___] day of [_________], 2013:

1.     Release. In consideration for the amounts payable to Nathan Hanks, (“Executive”) pursuant to the terms of that certain Separation Agreement and General Release (the “Agreement”) dated ___________, 2013 between Executive and ReachLocal, Inc. (the “Company”), and to the extent permitted by law, Executive hereby waives, releases and forever discharges, and agrees that Executive will not in any manner institute, prosecute or pursue, any and all complaints, claims, charges, liabilities, claims for relief, demands, suits, actions or causes of action, whether in law or in equity, know or unknown (collectively, “Claims”), which Executive asserts or could assert, at common law, under any express or implied contract, arising in tort or under any statute, rule, regulation, order or law, whether federal, state, or local, or on any grounds whatsoever, including without limitation, claims under the Employment, Confidential Information, and Invention Assignment Agreement (the “Confidentiality Agreement”), Title VII of the Civil Rights Act of 1964, Age Discrimination in Employment Act, as amended, the Texas Labor Code, the Texas Commission of Human Rights Act, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, and the Executive Retirement Income Security Act of 1974, against the Company and any of its or their current or former, owners, officials, directors, officers, shareholders, affiliates, agents, representatives, employees, attorneys, subsidiaries, parents, divisions, branches, units, successors, predecessors, and assigns (collectively referred to as “Released Parties”) with respect to any event, matter, claim, damage or injury arising out of or relating to Executive’s employment relationship with the Company, the termination of such employment relationship, or the Confidentiality Agreement arising up to the date and time of signing of this Agreement by Executive.

Notwithstanding the foregoing, the release does not terminate Executive’s rights (a) set forth in the Agreement, (b) with respect to the Stock Option Grants, the Restricted Shares or the Performance Vesting Restricted Stock Award as set forth in the Agreement, or (c) Executive’s rights to be indemnified by the Company or any of its subsidiaries under any agreement with the Company or any of its subsidiaries, the Company’s certificate of incorporation or bylaws, or under applicable law.

This Release also does not extend to those rights which as a matter of law cannot be waived, including, but not limited to, unwaivable rights. If any claim is not subject to release, to the extent permitted by law, Executive waives any right or ability to be a class or collective action representative or to otherwise participate in any putative or certified class, collective or multi-party actionor proceeding based on such a claim in which the Company or any other releasee identified in this Release is a party.

2.     Outstanding Claims. Executive represents that Executive has not filed or otherwise pursued any charges, complaints or claims of any nature which are in any way pending against the Company or any of the Released Parties with any local, state or federal government agency or court with respect to any matter covered by this Release, and, to the extent permitted by law, will not do so in the future. Executive further represents that he is not aware of any such claims against the Company, including any claims under the Fair Labor Standards Act or the Family and Medical Leave Act. If any government agency or court assumes jurisdiction of any charge, complaint, cause of action or claim covered by this Release against the Company or any of the Released Parties, on behalf of or related to Executive, Executive will withdraw from and/or dismiss the matter with prejudice, as to any claims Executive might have. Executive agrees not to participate or cooperate in such matter(s) except as required by law. Notwithstanding the foregoing or any other provision of this Release, this Release is not intended to interfere with Executive’s exercise of any protected, nonwaivable right, including Executive’s right to file a charge with the Equal Employment Opportunity Commission or other government agency.  By entering into this Release, however, Executive acknowledges that the consideration set forth herein is in full satisfaction of any amounts to which Executive might be entitled and Executive is forever discharging the Company and the other Released Parties from any liability to Executive for any acts or omissions occurring on or before the date of Executive’s signing of this Release.

3.     Executive Acknowledgements. Executive hereby affirms and acknowledges that Executive has read the Release and the Agreement, has had sufficient time and opportunity to review or discuss it with the counsel of Executive’s choice, and fully understands and appreciates the meaning of each of their terms, and that it is a voluntary, full and final compromise, release and settlement of all claims, known or unknown, with respect to the claims identified and referred to herein.

4.     Choice of Law/Venue. This Release shall be governed by Texas law. If a dispute arises under this Release: (a) Executive and the Company acknowledge and re-affirm their commitment to arbitrate such disputes pursuant to the separate Arbitration Agreement executed by Executive on September 8, 2009 (the “Arbitration Agreement”); (b) Executive and the Company both irrevocably consent to the exclusive jurisdiction and venue of the state and federal courts located within Collin County, Texas for resolution of any matter not subject to the foregoing Arbitration Agreement; and (c) the prevailing party in any arbitration or court proceeding shall be entitled to recover its reasonable attorneys’ fees, expenses and costs.

PLEASE READ THIS RELEASE CAREFULLY CONSIDER ALL OF ITS PROVISIONS BEFORE SIGNING IT. EXECUTIVE SHOULD CONSULT AN ATTORNEY OF HIS CHOICE ABOUT THIS RELEASE BEFORE HE SIGNS THE RELEASE. THIS RELEASE CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS, INCLUDING THOSE UNDER FEDERAL, STATE AND LOCAL LAWS PROHIBITING DISCRIMINATION IN EMPLOYMENT, TO THE EXTENT PERMITTED BY LAW.

IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, EXECUTIVE IS HEREBY ADVISED AS FOLLOWS:

(A)     EXECUTIVE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS RELEASE;

(B)     EXECUTIVE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT; AND

(C)     EXECUTIVE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE THIS RELEASE, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD. IF EXECUTIVE WISHES TO REVOKE THIS RELEASE, EXECUTIVE MUST DELIVER NOTICE OF EXECUTIVE’S REVOCATION IN WRITING, NO LATER THAN 5:00 P.M. ON THE 7TH DAY FOLLOWING EXECUTIVE’S EXECUTION OF THIS RELEASE TO REACHLOCAL, INC., 21700 OXNARD STREET, SUITE 1600, WOODLAND HILLS, CA 91367, ATTN: ADAM WERGELES, AWERGELES@REACHLOCAL.COM. EXECUTIVE UNDERSTANDS THAT IF HE REVOKES THIS RELEASE, IT WILL BE NULL AND VOID IN ITS ENTIRETY, AND HE WILL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS PROVIDED IN SECTION 3 OF THE AGREEMENT.

EXECUTIVE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS EXECUTIVE HAS OR MIGHT HAVE AGAINST RELEASEES.

Dated:
	Nathan Hanks

EX-31

Exhibit 31.01

I, David Scott Carlick, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of ReachLocal, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ David Scott Carlick

David Scott Carlick

Interim Chief Executive Officer

Date: November 6, 2013

EX-31

Exhibit 31.02

I, Ross G. Landsbaum, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of ReachLocal, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Ross G. Landsbaum

Ross G. Landsbaum

Chief Financial Officer

Date: November 6, 2013

EX-32

Exhibit 32.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 of ReachLocal, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Scott Carlick, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David Scott Carlick

David Scott Carlick

Interim Chief Executive Officer

(Principal Executive Officer)

Date: November 6, 2013

EX-32

Exhibit 32.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 of ReachLocal, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ross G. Landsbaum, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ross G. Landsbaum

Ross G. Landsbaum

Chief Financial Officer

(Principal Financial Officer)

Date: November 6, 2013

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Note 11 - Income Taxes

9 Months Ended

Sep. 30, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

11. Income Taxes

The Company follows ASC Topic 740-270, Income taxes—Interim Reporting, for the computation and presentation of its interim period tax provision. Accordingly, management estimates the effective annual tax rate and applies this rate to the year-to-date pre-tax book income or loss to determine the interim provision for income taxes. Additionally, unusual or infrequent items are booked in the period in which they occur. The Company’s policy is to recognize interest and penalties related to tax in income tax expense. For the three months ended September 30, 2013 and 2012, the income tax provisions were $1.4 million and $0.3 million, respectively, and for the nine months ended September 30, 2013 and 2012, the income tax provisions were $3.2 million and $0.7 million, respectively. The income tax provision for the nine months ended September 30, 2013 relates to federal, state and foreign income taxes, including the deferred tax impact of prior business combinations.

The Company and its subsidiaries file income tax returns in the U.S. federal, various state and foreign jurisdictions. With the use of net operating losses in recent periods and the filing in additional states, certain statutes will begin to expire as early as 2016, but the majority remain open at this time.

XML

Condensed Consolidated Statements of Operations (unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenue	$ 133,148	$ 118,891	$ 382,023	$ 335,106
Cost of revenue	66,764	59,500	192,564	167,546
Operating expenses:
Selling and marketing	48,980	42,860	140,470	122,579
Product and technology	5,901	5,448	17,574	14,180
General and administrative	11,376	9,966	30,588	30,241
Total operating expenses	66,257	58,274	188,632	167,000
Income from operations	127	1,117	827	560
Other income, net	181	33	522	338
Income from operations before provision for income taxes	308	1,150	1,349	898
Provision for income taxes	1,430	314	3,247	736
Net income (loss)	$ (1,122)	$ 836	$ (1,898)	$ 162
Net income (loss) per share, basic (in Dollars per share)	$ (0.04)	$ 0.03	$ (0.07)	$ 0.01
Net income (loss) per share, diluted (in Dollars per share)	$ (0.04)	$ 0.03	$ (0.07)	$ 0.01
Weighted average common shares used in computation of net income (loss) per share, basic (in Shares)	27,507	28,403	27,843	28,379
Weighted average common shares used in computation of net income (loss) per share, diluted (in Shares)	27,507	29,342	27,843	28,902

XML

Note 4 - Acquisitions

9 Months Ended

Sep. 30, 2013

Disclosure Text Block Supplement [Abstract]

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

4. Acquisitions

Deferred Consideration

In connection with its 2012 RealPractice acquisition, the Company is obligated to pay an additional $0.3 million in cash on January 3, 2014, subject to adjustment.

Pursuant to the terms of its 2011 acquisition of DealOn, on February 8, 2012, the Company made a deferred payment in the amount of $0.5 million, net of the working capital adjustment and certain other adjustments, and issued 10,649 shares of its common stock. On August 8, 2012, the Company made an additional deferred payment in the amount of $0.4 million and issued 5,324 shares of its common stock. On February 8, 2013, the Company made the final deferred payment in connection with the DealOn acquisition in the amount of $0.4 million and issued 5,324 shares of its common stock.

As part of consideration paid to acquire SMB:Live Corporation (“SMB:Live”), on February 22, 2012, the Company paid $0.6 million in cash and issued 181,224 shares of its common stock as final payment in connection with the acquisition.

Intangible Assets

As of September 30, 2013, intangible assets from acquisitions included developed technology of $1.5 million (net of accumulated amortization of $1.6 million) amortized over three years. As of December 31, 2012, intangible assets from acquisitions included developed technology of $2.4 million (net of accumulated amortization of $2.9 million) amortized over three years, and customer relationships of $25,000 (net of accumulated amortization of $25,000) amortized over one year. Based on the current amount of intangibles subject to amortization, the estimated amortization expense over the remaining lives is as follows (in thousands):

Year Ending December 31,
2013 (3 months)	$	255
2014		853
2015		417
Total	$	1,525

For the three months ended September 30, 2013 and 2012, amortization expense related to acquired intangibles was $0.2 million and $0.6 million, respectively. For the nine months ended September 30, 2013 and 2012, amortization expense related to acquired intangibles was $0.9 million and $1.5 million, respectively.

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Note 7 - Current Liabilities (Tables)

9 Months Ended

Sep. 30, 2013

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

	September 30, 2013		December 31, 2012
Accrued compensation and benefits	$	16,545	$	14,558
Other		14,102		12,864
Total accrued expenses	$	30,647	$	27,422

Schedule Of Deferred Revenue and Other Current Liabilities [Text Block]

	September 30, 2013		December 31, 2012
Deferred revenue	$	36,379	$	34,142
Other		1,065		2,162
Total deferred revenue and other current liabilities	$	37,444	$	36,304

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Note 12 - Segment Information

9 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

12. Segment Information

The Company operates in one operating segment. The Company’s chief operating decision maker (“CODM”) manages the Company’s operations on a consolidated basis for purposes of evaluating financial performance and allocating resources.

Revenue by geographic region with respect to the Direct Local and National Brands channels is based on the physical location of the sales office, and with respect to Agencies and Resellers, is based on the physical location of the agency or reseller. The following summarizes revenue and long-lived assets by geographic region (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Revenue:
North America	$	88,501	$	84,212	$	257,941	$	243,364
International		44,647		34,679		124,082		91,742
	$	133,148	$	118,891	$	382,023	$	335,106

	September 30, 2013		December 31, 2012
Long-lived assets (excluding patents and other intangibles):
North America	$	6,575	$	6,395
International		5,553		4,671
	$	12,128	$	11,066

The results of the Australia geographic region have been included in the Company’s condensed consolidated financial statements and include revenues of $21.4 million and $19.0 million for the three months ended September 30, 2013 and 2012, respectively, and $62.1 million and $52.9 million for the nine months ended September 30, 2013 and 2012, respectively. Long-lived assets of the Australia geographic region were $1.1 million and $1.7 million at September 30, 2013 and December 31, 2012, respectively.

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Note 12 - Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Note 12 - Segment Information (Details) [Line Items]
Number of Operating Segments			1
Revenues	$ 133,148	$ 118,891	$ 382,023	$ 335,106
Long-Lived Assets	12,128		12,128		11,066
Australia [Member]
Note 12 - Segment Information (Details) [Line Items]
Revenues	21,400	19,000	62,100	52,900
Long-Lived Assets	$ 1,100		$ 1,100		$ 1,700

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Note 7 - Current Liabilities (Details) - Accrued expenses (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Accrued expenses [Abstract]
Accrued compensation and benefits	$ 16,545	$ 14,558
Other	14,102	12,864
Total accrued expenses	$ 30,647	$ 27,422

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Note 2 - Summary of Significant Accounting Policies (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Note 2 - Summary of Significant Accounting Policies (Details) [Line Items]
Goodwill (in Dollars)	$ 42,083	$ 42,083
Number of Reportable Segments	1
Number of Reporting Units	2
Finite-Lived Intangible Asset, Useful Life	3 years
North America [Member]
Note 2 - Summary of Significant Accounting Policies (Details) [Line Items]
Goodwill (in Dollars)	9,700	9,700
Australia [Member]
Note 2 - Summary of Significant Accounting Policies (Details) [Line Items]
Goodwill (in Dollars)	$ 32,400	$ 32,400
Customer Relationships [Member]
Note 2 - Summary of Significant Accounting Policies (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life	1 year	1 year

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Note 12 - Segment Information (Tables)

9 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Revenue:
North America	$	88,501	$	84,212	$	257,941	$	243,364
International		44,647		34,679		124,082		91,742
	$	133,148	$	118,891	$	382,023	$	335,106

	September 30, 2013		December 31, 2012
Long-lived assets (excluding patents and other intangibles):
North America	$	6,575	$	6,395
International		5,553		4,671
	$	12,128	$	11,066

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Note 10 - Stock-Based Compensation (Details) - Stock Based Compensation Expense, Net of Capitalization, Included in the Condensed Consolidated Statements of Operations (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Stock-based compensation expense, net
	$ 3,188	$ 2,595	$ 8,410	$ 6,929
Cost of Sales [Member]
Stock-based compensation expense, net
Allocated stock-based compensation expense	176	73	471	198
Selling and Marketing Expense [Member]
Stock-based compensation expense, net
Allocated stock-based compensation expense	765	437	2,396	1,122
Product and Technology [Member]
Stock-based compensation expense, net
Allocated stock-based compensation expense	163	488	425	868
General and Administrative Expense [Member]
Stock-based compensation expense, net
Allocated stock-based compensation expense	$ 2,084	$ 1,597	$ 5,118	$ 4,741

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Note 4 - Acquisitions (Details) - Estimated Amortization Expense Over the Remaining lives (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Estimated Amortization Expense Over the Remaining lives [Abstract]
2013 (3 months)	$ 255
2014	853
2015	417
Total	$ 1,525

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Note 9 - Stockholders' Equity (Details) (USD $) In Millions, except Share data, unless otherwise specified	0 Months Ended			3 Months Ended	9 Months Ended	23 Months Ended
	Mar. 04, 2013	Dec. 13, 2012	Nov. 04, 2011	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2013
Stockholders' Equity Note [Abstract]
Stock Repurchase Program, Authorized Amount	$ 47.0		$ 20.0
Stock Repurchase Program Increase In Total Authorized Repurchase Amount	21.0	6.0
Stock Repurchased During Period, Shares (in Shares)				475,000	1,395,000	3,400,000
Stock Repurchased During Period, Value				$ 5.9	$ 18.9	$ 36.3

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Note 12 - Segment Information (Details) - Revenue and Long Lived Assets by Geographic Area (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 133,148	$ 118,891	$ 382,023	$ 335,106
Long-lived Assets	12,128		12,128		11,066
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	88,501	84,212	257,941	243,364
Long-lived Assets	6,575		6,575		6,395
International [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	44,647	34,679	124,082	91,742
Long-lived Assets	$ 5,553		$ 5,553		$ 4,671

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Note 3 - Fair Value of Financial Instruments (Details) - Basis of Fair Value Measurement (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Note 3 - Fair Value of Financial Instruments (Details) - Basis of Fair Value Measurement [Line Items]
Certificates of deposit	$ 2,250	$ 4,375
Fair Value, Inputs, Level 1 [Member]
Note 3 - Fair Value of Financial Instruments (Details) - Basis of Fair Value Measurement [Line Items]
Certificates of deposit	2,250	4,375
Fair Value, Inputs, Level 2 [Member]
Note 3 - Fair Value of Financial Instruments (Details) - Basis of Fair Value Measurement [Line Items]
Certificates of deposit	0	0
Fair Value, Inputs, Level 3 [Member]
Note 3 - Fair Value of Financial Instruments (Details) - Basis of Fair Value Measurement [Line Items]
Certificates of deposit	$ 0	$ 0

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Note 10 - Stock-Based Compensation (Details) - Weighted Average Assumptions Used to Estimate Fair Value of Stock Options Granted	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Weighted Average Assumptions Used to Estimate Fair Value of Stock Options Granted [Abstract]
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Risk-free interest rate	1.36%	0.61%	0.92%	0.78%
Expected life (in years)	4 years 9 months	4 years 9 months	4 years 295 days	4 years 328 days
Expected volatility	57.00%	60.00%	59.00%	59.00%

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Note 10 - Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2012		7,052		$	10.71
Granted		1,143		$	13.29
Exercised		(654	)	$	8.15
Forfeited		(557	)	$	12.10
Outstanding at September 30, 2013		6,984		$	11.28		4.4	$	9,878
Vested and exercisable at September 30, 2013		4,281		$	10.84		3.4	$	7,354
Unvested at September 30, 2013, net of estimated forfeitures		2,532		$	11.94		6.0	$	2,450

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		1.36	%		0.61	%		0.92	%		0.78	%
Expected life (in years)		4.75			4.75			4.81			4.90
Expected volatility		57	%		60	%		59	%		59	%

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

	Number of shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2012		382		$	11.09
Granted		633		$	5.88
Forfeited		(136	)	$	7.41
Vested		(100	)	$	10.68
Unvested at September 30, 2013		779		$	7.49

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Stock-based compensation	$	3,358	$	2,662	$	8,853	$	7,157
Less: Capitalized stock-based compensation		170		67		443		228
Stock-based compensation expense, net	$	3,188	$	2,595	$	8,410	$	6,929

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Stock-based compensation expense, net
Cost of revenue	$	176	$	73	$	471	$	198
Selling and marketing		765		437		2,396		1,122
Product and technology		163		488		425		868
General and administrative		2,084		1,597		5,118		4,741
	$	3,188	$	2,595	$	8,410	$	6,929

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Condensed Consolidated Statements of Cash Flows (unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash flow from operating activities:
Net income (loss)	$ (1,898)	$ 162
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	12,006	9,669
Stock-based compensation	8,410	6,929
Excess tax benefits from stock-based awards	(1,127)
Provision for doubtful accounts	513	18
Changes in operating assets and liabilities:
Accounts receivable	(4,908)	(679)
Other receivables and prepaid expenses	(5,448)	(1,291)
Other assets	(1,509)	(216)
Accounts payable and accrued expenses	16,777	10,510
Deferred revenue, rent and other liabilities	2,919	6,958
Net cash provided by operating activities, continuing operations	25,735	32,060
Net cash used in operating activities, discontinued operations		(182)
Net cash provided by operating activities	25,735	31,878
Cash flow from investing activities:
Additions to property, equipment and software	(16,148)	(12,067)
Acquisitions, net of acquired cash	(363)	(4,120)
Loan to franchisee	(1,221)	(1,863)
Investment in partnership	(2,500)
Maturities of certificates of deposits and short-term investments	2,566	466
Purchases of certificates of deposits and short-term investments	(563)	(8,447)
Net cash used in investing activities	(18,229)	(26,031)
Cash flow from financing activities:
Proceeds from exercise of stock options	5,333	1,639
Excess tax benefits from stock-based awards	1,127
Common stock repurchases	(18,904)	(5,395)
Net cash used in financing activities	(12,444)	(3,756)
Effect of exchange rate changes on cash and cash equivalents	(2,409)	94
Net change in cash and cash equivalents	(7,347)	2,185
Cash and cash equivalents—beginning of period	92,336	84,525
Cash and cash equivalents—end of period	84,989	86,710
Supplemental disclosure of non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	443	228
Deferred payment obligation decrease	$ (122)	$ (75)

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Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

2. Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of ReachLocal, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. The Condensed Consolidated Balance Sheet as of December 31, 2012 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, included in those audited consolidated financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company’s statement of financial position at September 30, 2013, the Company’s results of operations for the three and nine months ended September 30, 2013 and 2012, and the Company’s cash flows for the nine months ended September 30, 2013 and 2012. The results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013. All references to the three and nine months ended September 30, 2013 and 2012 in the notes to the condensed consolidated financial statements are unaudited.

Discontinued Operations

As a result of winding down and closing the operations of Bizzy, effective November 2011, the Company has reclassified and presented all related historical financial information as “discontinued operations” in the accompanying Condensed Consolidated Balance Sheets and Consolidated Statements of Cash Flows. In addition, all Bizzy-related activities have been excluded from the notes unless specifically referenced. 

Reclassifications and Adjustments

Certain prior period amounts have been reclassified to conform to the current period. These reclassifications did not have a material impact on the Company's previously reported consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Therefore, actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue for its services when all of the following criteria are satisfied:

• persuasive evidence of an arrangement exists;

• services have been performed;

• the selling price is fixed or determinable; and

• collectability is reasonably assured.

The Company recognizes revenue as the cost for the third-party media is incurred, which is upon delivery of the advertising on behalf of its clients. The Company recognizes revenue for its ReachSearch product as clicks are recorded on sponsored links on the various search engines and for its ReachDisplay and ReachRetargeting products when the display advertisements record impressions or as otherwise provided in its agreement with the applicable publisher. The Company recognizes revenue for its ReachCast and ReachEdge products on a straight line basis over the applicable service period for each campaign. The Company recognizes revenue when it charges set-up, management service or other fees on a straight-line basis over the term of the related campaign contract or the completion of any obligation for services, if shorter. When the Company receives advance payments from clients, management records these amounts as deferred revenue until the revenue is recognized. When the Company extends credit, management records a receivable when the revenue is recognized.

When the Company sells through agencies, it either receives payment in advance of services or in some cases extends credit. The Company pays each agency an agreed-upon commission based on the revenue it earns or cash it receives. Some agency clients who have been extended credit may offset the amount otherwise due to the Company by any commissions they have earned. Management evaluates whether it is appropriate to record the gross amount of campaign revenue or the net amount earned after commissions. As the Company is the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, management recognizes the gross amount of such sales as revenue and any commissions are recognized as a selling and marketing expense.

The Company also has a small number of resellers, including a franchisee. Resellers integrate the Company’s services, including ReachSearch, ReachDisplay, and TotalTrack, into their product offerings. In most cases, the resellers integrate with the Company’s RL Platform through a custom Application Programming Interface (API). Resellers are responsible for the price and specifications of the integrated product offered to their clients. Resellers pay the Company in arrears, net of commissions and other adjustments. Management recognizes revenue generated under reseller agreements net of the agreed-upon commissions and other adjustments earned or retained by the reseller, as management believes that the reseller has retained sufficient control and bears sufficient risks to be considered the primary obligor in those arrangements.

ClubLocal revenue is recognized when services have been provided. As the Company is the primary obligor under the arrangements, has discretion in supplier selection, has latitude in establishing prices, and bears the credit risk, it recognizes the gross amount of sales as revenue and records the cost of the service provided as cost of revenue.

The Company offers incentives to clients in exchange for minimum commitments. In these circumstances, management estimates the amount of the incentives that will be earned by clients and adjusts the recognition of revenue to reflect such incentives. Estimates are based upon a statistical analysis of previous campaigns for which such incentives were offered.

The Company accounts for sales and similar taxes imposed on its services on a net basis in the Condensed Consolidated Statements of Operations.

Software Development Costs

The Company capitalizes costs to develop software when management has determined that the development efforts will result in new or additional functionality, or new products. Costs capitalized as internal use software are amortized on a straight-line basis over the estimated three-year useful life. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and are recorded along with amortization of capitalized software development costs as product and technology expenses within the accompanying Condensed Consolidated Statements of Operations. The Company monitors its existing capitalized software costs and reduces its carrying value as the result of releases that render previous features or functions obsolete or otherwise reduce the value of previously capitalized costs.

Goodwill

The Company’s total goodwill of $42.1 million as of both September 30, 2013 and December 31, 2012, is related to the Company’s acquired businesses.   The Company operates in one reportable segment, in accordance with Accounting Standards Codification (“ASC”) 280, Segment Reporting, and has identified two reporting units—North America and Australia—for purposes of evaluating goodwill. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by each reporting unit’s management. North America’s assigned goodwill was $9.7 million and Australia’s assigned goodwill was $32.4 million as of both September 30, 2013 and December 31, 2012. The Company reviews the carrying amounts of goodwill for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. The Company performs its annual assessment of goodwill impairment as of the first day of each fourth quarter.

The Company follows the amended guidance for assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in accordance with ASC 350-20, Intangibles – Goodwill and Other. Entities are provided with the option of first performing a qualitative assessment on any of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a two-step impairment test is necessary. The first step of the impairment test involves comparing the estimated fair values of each of our reporting units with their respective carrying amounts, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of the reporting unit is less than its carrying amount, including goodwill, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The Company estimates fair value utilizing the projected discounted cash flow method and a discount rate determined by the Company to commensurate the risk inherent in its business model.

Long-Lived and Intangible Assets      

The Company reports finite-lived, acquisition-related intangible assets at fair value, net of accumulated amortization. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives of three years, or one year, in the case of certain customer relationships. Straight-line amortization is used because no other pattern over which the economic benefits will be consumed can be reliably determined.

The Company reviews the carrying values of long-lived assets, including intangible assets, for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. In its analysis of other finite lived amortizable intangible assets, the Company applies the guidance of ASC 350-20, Intangibles – Goodwill and Other, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets are attributable to the various developed technologies and client relationships of the businesses the Company has acquired.  Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

Stock-Based Compensation

The Company accounts for stock-based compensation based on fair value. The Company follows the attribution method, which reduces current stock-based compensation expenses recorded by the effect of anticipated forfeitures. Management estimates forfeitures based upon its historical experience. 

The fair value of each award is estimated on the date of the grant and amortized over the requisite service period, which is the vesting period. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards on the date of grant. Determining the fair value of stock option awards at the grant date under this model requires judgment, including estimating volatility, expected term and risk-free interest rate. The fair value of restricted stock and restricted stock unit awards is based on the closing market price of the Company's common stock on the date of grant. In addition, the Company uses a Monte Carlo simulation model to estimate the fair value of performance-vesting restricted stock and restricted stock units. Determining the fair value of these awards at the grant date under this model requires judgment, including estimating volatility, risk-free rate and expected future stock price. The assumptions used in calculating the fair value of stock-based awards represent management’s estimate based on judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the Black-Scholes or Monte Carlo simulation models significantly change, stock-based compensation for future awards may differ materially from the awards granted previously.

Variable Interest Entities

In accordance with ASC 810, Consolidations, the applicable accounting guidance for the consolidation of variable interest entities (“VIE”), the Company analyzes its interests, including agreements, loans, guarantees, and equity investments, on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. The Company’s analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on the forecasted cash flows of the entity, and its qualitative analysis on the design of the entity, its organizational structure including its decision-making authority, and relevant agreements. If the Company determines that the entity is a VIE, the Company then assesses if it must consolidate the VIE as its primary beneficiary. The Company’s determination of whether it is the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that the Company absorbs, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. See Note 6, “Variable Interest Entities”, for more information.

Loan Receivable

 The Company records loan receivables at carrying value, net of potential allowance for losses. Losses on the receivable are recorded when probable and estimable. The Company routinely evaluates receivables for potential collection issues that might indicate an impairment. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that the Company will experience losses that are different from its current estimates. Write-offs are deducted from the allowance for losses when the Company judges the principal to be uncollectible. Any subsequent recoveries are added to other income at the time cash is received on a written-off balance. Interest income on loan receivables are accrued on a monthly basis over the life of the loan. See Note 6, “Variable Interest Entities”, for more information regarding the Company’s loan receivable.

Investment in Partnership

The Company accounts for investments in partnership under the cost method, which is periodically assessed for other-than-temporary impairment. If the Company determines that an other-than-temporary impairment has occurred, it will write-down the investment to its fair value. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if such significant adverse events were identified, the Company would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data.

Common Stock Repurchase and Retirement

Common stock repurchased is retired, and the excess of the cost over the par value of the common shares repurchased is recorded to additional paid-in capital.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential dilutive shares outstanding during the period, to the extent such shares are dilutive. Potential dilutive shares are composed of incremental common shares issuable upon the exercise of stock options, warrants and unvested restricted shares using the treasury stock method. The Company was in a net loss position for each of the three and nine-month periods ended September 30, 2013, and therefore the number of diluted shares was equal to the number of basic shares for each of these periods.

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
Numerator:
Net income (loss)	$	(1,122	)	$	836	$	(1,898	)	$	162
Denominator:
Weighted average common shares used in computation of net income (loss) per share, basic		27,507			28,403		27,843			28,379
Deferred stock consideration and unvested restricted stock		—			93		—			53
Stock options and warrant		—			846		—			470
Weighted average common shares used in computation of net income (loss) per share, diluted		27,507			29,342		27,843			28,902
Net income (loss) per share, basic	$	(0.04	)	$	0.03	$	(0.07	)	$	0.01
Net income (loss) per share, diluted	$	(0.04	)	$	0.03	$	(0.07	)	$	0.01

The following potentially dilutive securities have been excluded from the calculation of diluted net income (loss) per common share as they would be anti-dilutive for the periods below (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Deferred stock consideration and unvested restricted stock		403		—		304		—
Stock options and warrant		4,108		2,727		3,598		5,988
		4,511		2,727		3,902		5,988

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update require an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this update do not require new recurring disclosures. The amendments in this update are effective for the Company as of January 1, 2014. The Company does not expect this update to have a material impact on its consolidated financial statements.

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Note 5 - Software Development Costs

9 Months Ended

Sep. 30, 2013

Research and Development [Abstract]

Research, Development, and Computer Software Disclosure [Text Block]

5. Software Development Costs

Capitalized software development costs consisted of the following (in thousands):

	September 30, 2013			December 31, 2012
Capitalized software development costs	$	42,627		$	31,944
Accumulated amortization		(23,832	)		(17,240	)
Capitalized software development costs, net	$	18,795		$	14,704

The Company recorded amortization expense of $2.2 million and $1.7 million for the three months ended September 30, 2013 and 2012, respectively, and $6.6 million and $4.7 million for the nine months ended September 30, 2013 and 2012, respectively. As of September 30, 2013 and December 31, 2012, $2.2 million and $3.3 million, respectively, of capitalized software development costs were related to projects still in process.

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Note 3 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

3. Fair Value of Financial Instruments

The following table summarizes the basis used to measure certain of the Company’s financial assets that are carried at fair value (in thousands):

			Basis of Fair Value Measurement
	Balance at September 30, 2013		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Certificates of deposit	$	2,250	$	2,250	$	—	$	—

			Basis of Fair Value Measurement
	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Certificates of deposit	$	4,375	$	4,375	$	—	$	—

The following table provides information about assets not carried at fair value in the Company’s Condensed Consolidated Balance Sheets (in thousands):

	September 30, 2013				December 31, 2012
	Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Loan receivable	$	3,303	$	3,268	$	1,954	$	1,954

The OxataSMB B.V. (“OxataSMB”) loan receivable is not actively traded and its fair value is estimated based on valuation methodologies using current market interest rate data adjusted for inherent credit risk. See Note 6, “Variable Interest Entities”, for further information on the loan receivable.

The Company also has an investment in a privately held partnership, which is a service provider, in which the Company’s ownership is less than 20% and the Company does not have significant influence. The investment is accounted for under the cost method, which is periodically assessed for other-than-temporary impairment. If the Company determines that an other-than-temporary impairment has occurred, it will write-down the investment to its fair value. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if such significant adverse events were identified, the Company would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data. The carrying amount of the Company’s cost method investment was $2.5 million as of September 30, 2013, and is included in “Other assets” in the accompanying Condensed Consolidated Balance Sheet.

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Note 10 - Stock-Based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Note 10 - Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value (in Dollars per share)			$ 6.32
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value			$ 3,800,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in Shares)			633,000
Share-based Compensation	3,188,000	2,595,000	8,410,000	6,929,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	19,900,000		19,900,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			1 year 146 days
Performance Shares [Member] | Stock Price Targets and Service [Member]
Note 10 - Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value (in Dollars per share)			$ 5.52
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in Shares)			506,000
Performance Shares [Member] | Business Performance Milestones [Member]
Note 10 - Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value (in Dollars per share)			$ 13.45
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in Shares)			30,000
Employee Stock Option [Member] | Separation Agreement with Former CEO [Member]
Note 10 - Stock-Based Compensation (Details) [Line Items]
Share-based Compensation	$ 700,000		$ 700,000

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Note 2 - Summary of Significant Accounting Policies (Details) - The following table sets forth the computation of basic and diluted net income (loss) per share (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Numerator:
Net income (loss) (in Dollars)	$ (1,122)	$ 836	$ (1,898)	$ 162
Denominator:
Weighted average common shares used in computation of net income (loss) per share, basic	27,507	28,403	27,843	28,379
Deferred stock consideration and unvested restricted stock		93		53
Stock options and warrant		846		470
Weighted average common shares used in computation of net income (loss) per share, diluted	27,507	29,342	27,843	28,902
Net income (loss) per share, basic (in Dollars per share)	$ (0.04)	$ 0.03	$ (0.07)	$ 0.01
Net income (loss) per share, diluted (in Dollars per share)	$ (0.04)	$ 0.03	$ (0.07)	$ 0.01

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Note 3 - Fair Value of Financial Instruments (Details) - Assets Not Carried at Fair Value (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets Not Carried at Fair Value [Abstract]
Loan receivable	$ 3,268	$ 1,954
Loan receivable	$ 3,303	$ 1,954

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Note 6 - Variable Interest Entities (Details) In Millions, unless otherwise specified	9 Months Ended				1 Months Ended		12 Months Ended		9 Months Ended
	Sep. 30, 2013 USD ($)	Sep. 30, 2013 EUR (€)	Sep. 30, 2013 Amount Advanced [Member] USD ($)	Sep. 30, 2013 Amount Advanced [Member] EUR (€)	Aug. 31, 2013 Increase In Amount Advanced [Member] USD ($)	Aug. 31, 2013 Increase In Amount Advanced [Member] EUR (€)	Dec. 29, 2013 Amount Available [Member] USD ($)	Dec. 29, 2013 Amount Available [Member] EUR (€)	Sep. 30, 2013 Other Ownership Interests Value [Member] USD ($)	Sep. 30, 2013 Other Ownership Interests Value [Member] EUR (€)	Sep. 30, 2013 Contingent Commitment [Member] USD ($)
Note 6 - Variable Interest Entities (Details) [Line Items]
Loan To Franchisee (in Euro)	$ 3.90	€ 2.90	$ 2.00	€ 1.45	$ 1.20	€ 0.92	$ 0.70	€ 0.53	$ 2.00	€ 1.45
Loan To Franchisee	3.90	2.90	2.00	1.45	1.20	0.92	0.70	0.53	2.00	1.45
Debt Instrument, Term	2 years	2 years
Debt Instrument, Interest Rate, Stated Percentage	4.00%	4.00%
Variable Interest Entity, Reporting Entity Involvement, Maximum Loss Exposure, Amount											$ 3.3

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Note 10 - Stock-Based Compensation (Details) - Summary of Stock Based Compensation (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Summary of Stock Based Compensation [Abstract]
Stock-based compensation	$ 3,358	$ 2,662	$ 8,853	$ 7,157
Less: Capitalized stock-based compensation	170	67	443	228
Stock-based compensation expense, net	$ 3,188	$ 2,595	$ 8,410	$ 6,929

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Condensed Consolidated Balance Sheets (unaudited) (Parentheticals) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Allowance for doubtful accounts (in Dollars)	$ 405	$ 259
Common stock, par value (in Dollars per share)	$ 0.00001	$ 0.00001
Common stock, shares authorized	140,000	140,000
Common stock, shares issued	27,746	28,154
Common stock, shares outstanding	27,746	28,154

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Note 8 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

 8. Commitments and Contingencies  

Litigation

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Although occasional adverse decisions or settlements may occur, management believes that the final disposition of existing matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

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Condensed Consolidated Statements of Comprehensive Loss (unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Net income (loss)	$ (1,122)	$ 836	$ (1,898)	$ 162
Other comprehensive income (loss):
Foreign currency translation adjustments	241	(197)	(1,625)	(445)
Comprehensive income (loss)	$ (881)	$ 639	$ (3,523)	$ (283)

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Condensed Consolidated Balance Sheets (unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Current Assets:
Cash and cash equivalents	$ 84,989	$ 92,336
Short-term investments	553	3,149
Accounts receivable, net of allowance for doubtful accounts of $405 and $259 at September 30, 2013 and December 31, 2012, respectively	10,099	5,689
Other receivables and prepaid expenses	14,404	8,957
Total current assets	110,045	110,131
Property and equipment, net	12,136	11,066
Capitalized software development costs, net	18,795	14,704
Restricted certificates of deposit	1,697	1,226
Intangible assets, net	1,525	2,442
Other assets	9,254	4,044
Goodwill (in Dollars)	42,083	42,083
Total assets	195,535	185,696
Current Liabilities:
Accounts payable	47,145	35,297
Accrued expenses	30,647	27,422
Deferred revenue and other current liabilities	37,444	36,304
Liabilities of discontinued operations	794	767
Total current liabilities	116,030	99,790
Deferred rent and other liabilities	4,626	4,020
Total liabilities	120,656	103,810
Commitments and contingencies (Note 8)
Stockholders’ Equity:
Common stock, $0.00001 par value—140,000 shares authorized; 27,746 and 28,154 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively	0	0
Receivable from stockholder	(78)	(89)
Additional paid-in capital	107,078	110,573
Accumulated deficit	(28,974)	(27,076)
Accumulated other comprehensive loss	(3,147)	(1,522)
Total stockholders’ equity	74,879	81,886
Total liabilities and stockholders’ equity	$ 195,535	$ 185,696

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Note 2 - Summary of Significant Accounting Policies (Details) - Potentially Dilutive Securities In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially Dilutive Securities	4,511	2,727	3,902	5,988
Deferred Stock Consideration [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially Dilutive Securities	403		304
Stock Options and Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially Dilutive Securities	4,108	2,727	3,598	5,988

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Note 5 - Software Development Costs (Tables)

9 Months Ended

Sep. 30, 2013

Research and Development [Abstract]

	September 30, 2013			December 31, 2012
Capitalized software development costs	$	42,627		$	31,944
Accumulated amortization		(23,832	)		(17,240	)
Capitalized software development costs, net	$	18,795		$	14,704

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Note 10 - Stock-Based Compensation (Details) - Summary of Restricted Stock Awards and Restricted Stock Unit Awards (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Summary of Restricted Stock Awards and Restricted Stock Unit Awards [Abstract]
Unvested at December 31, 2012	382
Unvested at December 31, 2012 (in Dollars per share)	$ 11.09
Unvested at September 30, 2013	779
Unvested at September 30, 2013 (in Dollars per share)	$ 7.49
Granted	633
Granted (in Dollars per share)	$ 5.88
Forfeited	(136)
Forfeited (in Dollars per share)	$ 7.41
Vested	(100)
Vested (in Dollars per share)	$ 10.68

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Note 7 - Current Liabilities (Details) - Deferred Revenue and Other Current Liabilities (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Deferred Revenue and Other Current Liabilities [Abstract]
Deferred revenue	$ 36,379	$ 34,142
Other	1,065	2,162
Total deferred revenue and other current liabilities	$ 37,444	$ 36,304

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Note 5 - Software Development Costs (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Research and Development [Abstract]
Capitalized Computer Software, Amortization	$ 2.2	$ 1.7	$ 6.6	$ 4.7
Capitalized Software Development Costs For Projects In Process	$ 2.2		$ 2.2		$ 3.3

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Note 5 - Software Development Costs (Details) - Capitalized Software Development Costs (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Capitalized Software Development Costs [Abstract]
Capitalized software development costs	$ 42,627	$ 31,944
Accumulated amortization	(23,832)	(17,240)
Capitalized software development costs, net	$ 18,795	$ 14,704

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Note 7 - Current Liabilities

9 Months Ended

Sep. 30, 2013

Payables and Accruals [Abstract]

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

 7. Current Liabilities

Accrued expenses consisted of the following (in thousands):

	September 30, 2013		December 31, 2012
Accrued compensation and benefits	$	16,545	$	14,558
Other		14,102		12,864
Total accrued expenses	$	30,647	$	27,422

Deferred revenue and other current liabilities consisted of the following (in thousands):

	September 30, 2013		December 31, 2012
Deferred revenue	$	36,379	$	34,142
Other		1,065		2,162
Total deferred revenue and other current liabilities	$	37,444	$	36,304

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Note 3 - Fair Value of Financial Instruments (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013
Fair Value Disclosures [Abstract]
Cost Method Investments	$ 2.5

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Note 10 - Stock-Based Compensation (Details) - Summary of Vested and Unvested Options Activity (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Summary of Vested and Unvested Options Activity [Abstract]
Outstanding at December 31, 2012	7,052
Outstanding at December 31, 2012 (in Dollars per share)	$ 10.71
Outstanding at September 30, 2013	6,984
Outstanding at September 30, 2013 (in Dollars per share)	$ 11.28
Outstanding at September 30, 2013	4 years 146 days
Outstanding at September 30, 2013 (in Dollars)	$ 9,878
Vested and exercisable at September 30, 2013	4,281
Vested and exercisable at September 30, 2013 (in Dollars per share)	$ 10.84
Vested and exercisable at September 30, 2013	3 years 146 days
Vested and exercisable at September 30, 2013 (in Dollars)	7,354
Unvested at September 30, 2013, net of estimated forfeitures	2,532
Unvested at September 30, 2013, net of estimated forfeitures (in Dollars per share)	$ 11.94
Unvested at September 30, 2013, net of estimated forfeitures	6 years
Unvested at September 30, 2013, net of estimated forfeitures (in Dollars)	$ 2,450
Granted	1,143
Granted (in Dollars per share)	$ 13.29
Exercised	(654)
Exercised (in Dollars per share)	$ 8.15
Forfeited	(557)
Forfeited (in Dollars per share)	$ 12.10

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Note 10 - Stock-Based Compensation

9 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

10. Stock-Based Compensation

Stock Options

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and recognized on a straight-line basis over the requisite service period, which is generally the vesting period.

The following table summarizes stock option activity (in thousands, except years and per share amounts):

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2012		7,052		$	10.71
Granted		1,143		$	13.29
Exercised		(654	)	$	8.15
Forfeited		(557	)	$	12.10
Outstanding at September 30, 2013		6,984		$	11.28		4.4	$	9,878
Vested and exercisable at September 30, 2013		4,281		$	10.84		3.4	$	7,354
Unvested at September 30, 2013, net of estimated forfeitures		2,532		$	11.94		6.0	$	2,450

The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted during the three and nine months ended September 30, 2013 and 2012.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		1.36	%		0.61	%		0.92	%		0.78	%
Expected life (in years)		4.75			4.75			4.81			4.90
Expected volatility		57	%		60	%		59	%		59	%

The per-share weighted-average grant date fair value of options granted during the nine months ended September 30, 2013 was $6.32. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2013 was $3.8 million.

Restricted Stock and Restricted Stock Units

The following table summarizes restricted stock and restricted stock unit awards (in thousands, except per share amounts):

	Number of shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2012		382		$	11.09
Granted		633		$	5.88
Forfeited		(136	)	$	7.41
Vested		(100	)	$	10.68
Unvested at September 30, 2013		779		$	7.49

Grants during the period included 506,000 performance-vesting shares of restricted stock and restricted stock units that will each vest based on achievement of both Company stock price targets and continued service. The grant date fair value of these awards were estimated using a Monte Carlo simulation model and were $5.52 per share. In addition, 30,000 performance-vesting shares of restricted stock were granted during the period that will vest based on achievement of certain business performance milestones. The grant date fair value of this award based on the Company’s closing stock price on that date was $13.45 per share and expense is recognized based on the achievement of certain business performance milestones.

Stock-Based Compensation Expense

The Company records stock-based compensation expense, net of amounts capitalized, as stock-based compensation in association with software development costs. The following table summarizes stock-based compensation (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Stock-based compensation	$	3,358	$	2,662	$	8,853	$	7,157
Less: Capitalized stock-based compensation		170		67		443		228
Stock-based compensation expense, net	$	3,188	$	2,595	$	8,410	$	6,929

Stock-based compensation, net of capitalization, is included in the accompanying Condensed Consolidated Statements of Operations within the following captions (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Stock-based compensation expense, net
Cost of revenue	$	176	$	73	$	471	$	198
Selling and marketing		765		437		2,396		1,122
Product and technology		163		488		425		868
General and administrative		2,084		1,597		5,118		4,741
	$	3,188	$	2,595	$	8,410	$	6,929

Stock-based compensation for the three and nine months ended September 30, 2013 included $0.7 million of expense related to the modification and acceleration of certain unvested stock options and restricted stock pursuant to the separation agreement between the Company and its former Chief Executive Officer.

As of September 30, 2013, there was $19.9 million of unrecognized stock-based compensation related to restricted stock, restricted stock units and outstanding stock options, net of estimated forfeitures. This amount is expected to be recognized over a weighted average period of 1.4 years. Future stock-based compensation expense for these awards may differ in the event actual forfeitures deviate from management’s estimates.

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Note 6 - Variable Interest Entities

9 Months Ended

Sep. 30, 2013

Variable Interest Entity [Abstract]

Variable Interest Entity [Text Block]

6. Variable Interest Entities

On July 6, 2012, the Company completed a transaction with OxataSMB, in which the Company entered into a franchise agreement with OxataSMB permitting OxataSMB to operate and resell the Company’s services under the ReachLocal brand in Slovakia, Czech Republic, Hungary, Poland and Russia. Pursuant to the franchise agreement, OxataSMB receives access to the RL platform, training, marketing and branding materials, media purchasing, campaign management and provisioning, sourcing of telephony, and technical support. The Company does not anticipate OxataSMB will pursue activities other than as a franchisee. In addition, the Company entered into a market development loan agreement with OxataSMB pursuant to which the Company agreed to provide financing to OxataSMB of up to €2.9 million ($3.9 million), of which €1.45 million ($2.0 million) was advanced in 2012. OxataSMB’s ability to draw down the remaining loan amount was dependent on OxataSMB achieving certain milestones by June 29, 2013. In August 2013, the Company advanced an additional €0.92 million ($1.2 million) to OxataSMB, and retains the discretion to advance some or all of the remaining amount of €0.53 million ($0.7 million) prior to December 29, 2013. The loan has a two-year term, maturing on June 29, 2014, and accrues interest at 4% per annum, but does not require principal or interest payments for two years, and can be extended for an additional 24 months based on achievement of certain milestones. Prior to advancement of the loan in 2012, OxataSMB had €1.45 million ($2.0 million) of contributed capital. In addition, the Company has an option to buy OxataSMB at an independently-determined fair value at the end of the initial loan term, subject to extension.

OxataSMB is considered a VIE with respect to the Company because, depending on its performance, OxataSMB may not have sufficient equity to finance its activities without additional financial support. Based on the Company’s initial assessment in 2012, the Company was not the primary beneficiary of OxataSMB because it did not have: (1) the power to direct the activities that most significantly impact OxataSMB’s economic performance or (2) the obligation to absorb losses of OxataSMB or the right to receive benefits from OxataSMB that could potentially be significant. Therefore, the Company did not consolidate the results of OxataSMB, and transactions with OxataSMB results were accounted for similarly to the Company’s resellers. At September 30, 2013, the Company concluded no events or changes in circumstances have occurred that would change the Company’s initial assessment of OxataSMB’s VIE status and that the Company was not a primary beneficiary of OxataSMB. The loan receivable is included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets. As of September 30, 2013, the Company’s maximum exposure to loss related to the unconsolidated VIE consisted of its loan and accumulated interest receivable of $3.3 million. No allowance for loan losses has been recorded against the loan receivable. However, should the operating and financial performance of OxataSMB not perform within expectations, a provision for loan loss may be necessary in the future.

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Note 1 - Organization and Description of Business

9 Months Ended

Sep. 30, 2013

Disclosure Text Block [Abstract]

Nature of Operations [Text Block]

1. Organization and Description of Business

ReachLocal, Inc. (the “Company”) was incorporated in the state of Delaware in August 2003. The Company’s operations are located in North America, Australia, the United Kingdom, the Netherlands, Germany, Austria, Belgium, Japan, Brazil and India. The Company’s mission is to help small- and medium-sized businesses (“SMBs”) acquire, transact with, maintain and retain customers via the Internet. The Company offers a comprehensive suite of online marketing solutions, including search engine marketing (ReachSearch™), Web presence (ReachCast™), display advertising (ReachDisplay™), display retargeting (ReachRetargeting™), online marketing analytics (TotalTrack®), and assisted chat service (TotalLiveChat™), each targeted to the SMB market. In 2013, the Company expanded its product suite to include a software-as-a-service, or SaaS, product, ReachEdge, which is a marketing system that combines an optimized website and automated lead management. The Company delivers its suite of services to SMBs through a combination of its proprietary technology platform, the RL Platform, its sales force of Internet Marketing Consultants, or IMCs, and select third-party agencies and resellers. The Company also has two services in beta: ClubLocal™, a consumer service through which it creates a direct relationship with consumers and provides home-related services by engaging third-party suppliers which perform the agreed services on the Company’s behalf, and ReachCommerce™, a SaaS product which supports online booking, transaction and back office processes.

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Note 11 - Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Income Tax Disclosure [Abstract]
Income Tax Expense (Benefit)	$ 1,430	$ 314	$ 3,247	$ 736

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Note 4 - Acquisitions (Details) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended			0 Months Ended			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Feb. 22, 2012	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 RealPractice [Member]	Feb. 08, 2013 DealOn [Member]	Aug. 08, 2012 DealOn [Member]	Feb. 08, 2012 DealOn [Member]	Sep. 30, 2013 Developed Technology [Member]	Dec. 31, 2012 Developed Technology [Member]	Sep. 30, 2013 Customer Relationships [Member]	Dec. 31, 2012 Customer Relationships [Member]
Note 4 - Acquisitions (Details) [Line Items]
Business Combination, Contingent Consideration, Liability						$ 300,000
Deferred Payment							400,000	400,000	500,000
Deferred Payment Shares (in Shares)							5,324	5,324	10,649
Payments to Acquire Businesses, Gross	600,000
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in Shares)	181,224
Finite-lived Intangible Assets Acquired										1,500,000	2,400,000		25,000
Finite-Lived Intangible Assets, Accumulated Amortization										1,600,000	2,900,000		25,000
Finite-Lived Intangible Asset, Useful Life				3 years						3 years	3 years	1 year	1 year
Amortization of Intangible Assets		$ 200,000	$ 600,000	$ 900,000	$ 1,500,000

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Accounting Policies, by Policy (Policies)

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The condensed consolidated financial statements include the accounts of ReachLocal, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. The Condensed Consolidated Balance Sheet as of December 31, 2012 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, included in those audited consolidated financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company’s statement of financial position at September 30, 2013, the Company’s results of operations for the three and nine months ended September 30, 2013 and 2012, and the Company’s cash flows for the nine months ended September 30, 2013 and 2012. The results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013. All references to the three and nine months ended September 30, 2013 and 2012 in the notes to the condensed consolidated financial statements are unaudited.

Discontinued Operations, Policy [Policy Text Block]

Discontinued Operations

As a result of winding down and closing the operations of Bizzy, effective November 2011, the Company has reclassified and presented all related historical financial information as “discontinued operations” in the accompanying Condensed Consolidated Balance Sheets and Consolidated Statements of Cash Flows. In addition, all Bizzy-related activities have been excluded from the notes unless specifically referenced.

Reclassification, Policy [Policy Text Block]

Reclassifications and Adjustments

Certain prior period amounts have been reclassified to conform to the current period.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Therefore, actual results could differ from those estimates.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company recognizes revenue for its services when all of the following criteria are satisfied:

• persuasive evidence of an arrangement exists;

• services have been performed;

• the selling price is fixed or determinable; and

• collectability is reasonably assured.

The Company recognizes revenue as the cost for the third-party media is incurred, which is upon delivery of the advertising on behalf of its clients. The Company recognizes revenue for its ReachSearch product as clicks are recorded on sponsored links on the various search engines and for its ReachDisplay and ReachRetargeting products when the display advertisements record impressions or as otherwise provided in its agreement with the applicable publisher. The Company recognizes revenue for its ReachCast and ReachEdge products on a straight line basis over the applicable service period for each campaign. The Company recognizes revenue when it charges set-up, management service or other fees on a straight-line basis over the term of the related campaign contract or the completion of any obligation for services, if shorter. When the Company receives advance payments from clients, management records these amounts as deferred revenue until the revenue is recognized. When the Company extends credit, management records a receivable when the revenue is recognized.

When the Company sells through agencies, it either receives payment in advance of services or in some cases extends credit. The Company pays each agency an agreed-upon commission based on the revenue it earns or cash it receives. Some agency clients who have been extended credit may offset the amount otherwise due to the Company by any commissions they have earned. Management evaluates whether it is appropriate to record the gross amount of campaign revenue or the net amount earned after commissions. As the Company is the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, management recognizes the gross amount of such sales as revenue and any commissions are recognized as a selling and marketing expense.

The Company also has a small number of resellers, including a franchisee. Resellers integrate the Company’s services, including ReachSearch, ReachDisplay, and TotalTrack, into their product offerings. In most cases, the resellers integrate with the Company’s RL Platform through a custom Application Programming Interface (API). Resellers are responsible for the price and specifications of the integrated product offered to their clients. Resellers pay the Company in arrears, net of commissions and other adjustments. Management recognizes revenue generated under reseller agreements net of the agreed-upon commissions and other adjustments earned or retained by the reseller, as management believes that the reseller has retained sufficient control and bears sufficient risks to be considered the primary obligor in those arrangements.

ClubLocal revenue is recognized when services have been provided. As the Company is the primary obligor under the arrangements, has discretion in supplier selection, has latitude in establishing prices, and bears the credit risk, it recognizes the gross amount of sales as revenue and records the cost of the service provided as cost of revenue.

The Company offers incentives to clients in exchange for minimum commitments. In these circumstances, management estimates the amount of the incentives that will be earned by clients and adjusts the recognition of revenue to reflect such incentives. Estimates are based upon a statistical analysis of previous campaigns for which such incentives were offered.

The Company accounts for sales and similar taxes imposed on its services on a net basis in the Condensed Consolidated Statements of Operations.

Research, Development, and Computer Software, Policy [Policy Text Block]

Software Development Costs

The Company capitalizes costs to develop software when management has determined that the development efforts will result in new or additional functionality, or new products. Costs capitalized as internal use software are amortized on a straight-line basis over the estimated three-year useful life. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and are recorded along with amortization of capitalized software development costs as product and technology expenses within the accompanying Condensed Consolidated Statements of Operations. The Company monitors its existing capitalized software costs and reduces its carrying value as the result of releases that render previous features or functions obsolete or otherwise reduce the value of previously capitalized costs.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

The Company’s total goodwill of $42.1 million as of both September 30, 2013 and December 31, 2012, is related to the Company’s acquired businesses.   The Company operates in one reportable segment, in accordance with Accounting Standards Codification (“ASC”) 280, Segment Reporting, and has identified two reporting units—North America and Australia—for purposes of evaluating goodwill. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by each reporting unit’s management. North America’s assigned goodwill was $9.7 million and Australia’s assigned goodwill was $32.4 million as of both September 30, 2013 and December 31, 2012. The Company reviews the carrying amounts of goodwill for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. The Company performs its annual assessment of goodwill impairment as of the first day of each fourth quarter.

The Company follows the amended guidance for assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in accordance with ASC 350-20, Intangibles – Goodwill and Other. Entities are provided with the option of first performing a qualitative assessment on any of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a two-step impairment test is necessary. The first step of the impairment test involves comparing the estimated fair values of each of our reporting units with their respective carrying amounts, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of the reporting unit is less than its carrying amount, including goodwill, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The Company estimates fair value utilizing the projected discounted cash flow method and a discount rate determined by the Company to commensurate the risk inherent in its business model.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Long-Lived and Intangible Assets      

The Company reports finite-lived, acquisition-related intangible assets at fair value, net of accumulated amortization. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives of three years, or one year, in the case of certain customer relationships. Straight-line amortization is used because no other pattern over which the economic benefits will be consumed can be reliably determined.

The Company reviews the carrying values of long-lived assets, including intangible assets, for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. In its analysis of other finite lived amortizable intangible assets, the Company applies the guidance of ASC 350-20, Intangibles – Goodwill and Other, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets are attributable to the various developed technologies and client relationships of the businesses the Company has acquired.  Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The Company accounts for stock-based compensation based on fair value. The Company follows the attribution method, which reduces current stock-based compensation expenses recorded by the effect of anticipated forfeitures. Management estimates forfeitures based upon its historical experience. 

The fair value of each award is estimated on the date of the grant and amortized over the requisite service period, which is the vesting period. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards on the date of grant. Determining the fair value of stock option awards at the grant date under this model requires judgment, including estimating volatility, expected term and risk-free interest rate. The fair value of restricted stock and restricted stock unit awards is based on the closing market price of the Company's common stock on the date of grant. In addition, the Company uses a Monte Carlo simulation model to estimate the fair value of performance-vesting restricted stock and restricted stock units. Determining the fair value of these awards at the grant date under this model requires judgment, including estimating volatility, risk-free rate and expected future stock price. The assumptions used in calculating the fair value of stock-based awards represent management’s estimate based on judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the Black-Scholes or Monte Carlo simulation models significantly change, stock-based compensation for future awards may differ materially from the awards granted previously.

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

Variable Interest Entities

In accordance with ASC 810, Consolidations, the applicable accounting guidance for the consolidation of variable interest entities (“VIE”), the Company analyzes its interests, including agreements, loans, guarantees, and equity investments, on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. The Company’s analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on the forecasted cash flows of the entity, and its qualitative analysis on the design of the entity, its organizational structure including its decision-making authority, and relevant agreements. If the Company determines that the entity is a VIE, the Company then assesses if it must consolidate the VIE as its primary beneficiary. The Company’s determination of whether it is the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that the Company absorbs, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. See Note 6, “Variable Interest Entities”, for more information.

Loan Receivable

 The Company records loan receivables at carrying value, net of potential allowance for losses. Losses on the receivable are recorded when probable and estimable. The Company routinely evaluates receivables for potential collection issues that might indicate an impairment. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that the Company will experience losses that are different from its current estimates. Write-offs are deducted from the allowance for losses when the Company judges the principal to be uncollectible. Any subsequent recoveries are added to other income at the time cash is received on a written-off balance. Interest income on loan receivables are accrued on a monthly basis over the life of the loan.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Loan Receivable

 The Company records loan receivables at carrying value, net of potential allowance for losses. Losses on the receivable are recorded when probable and estimable. The Company routinely evaluates receivables for potential collection issues that might indicate an impairment. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that the Company will experience losses that are different from its current estimates. Write-offs are deducted from the allowance for losses when the Company judges the principal to be uncollectible. Any subsequent recoveries are added to other income at the time cash is received on a written-off balance. Interest income on loan receivables are accrued on a monthly basis over the life of the loan.

Investment, Policy [Policy Text Block]

Investment in Partnership

The Company accounts for investments in partnership under the cost method, which is periodically assessed for other-than-temporary impairment. If the Company determines that an other-than-temporary impairment has occurred, it will write-down the investment to its fair value. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if such significant adverse events were identified, the Company would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data.

Common Stock Repurchase And Retirement [Policy Text Block]

Common Stock Repurchase and Retirement

Common stock repurchased is retired, and the excess of the cost over the par value of the common shares repurchased is recorded to additional paid-in capital.

Earnings Per Share, Policy [Policy Text Block]

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential dilutive shares outstanding during the period, to the extent such shares are dilutive. Potential dilutive shares are composed of incremental common shares issuable upon the exercise of stock options, warrants and unvested restricted shares using the treasury stock method. The Company was in a net loss position for each of the three and nine-month periods ended September 30, 2013, and therefore the number of diluted shares was equal to the number of basic shares for each of these periods.

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Note 9 - Stockholders' Equity

9 Months Ended

Sep. 30, 2013

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

9. Stockholders’ Equity

Common Stock Repurchases

On November 4, 2011, the Company announced that its Board of Directors authorized the repurchase of up to $20.0 million of the Company’s outstanding common stock. On December 13, 2012, the Company announced the Board of Directors increased the total authorized repurchase amount by $6.0 million, and on March 4, 2013, the Company announced that its Board of Directors increased the total authorized repurchase amount by an additional $21.0 million, to a total authorization of $47.0 million. At September 30, 2013, the Company had executed repurchases of 3.4 million shares of its common stock under the program for an aggregate of $36.3 million, of which $5.9 million or 475,000 shares were repurchased during the three months ended September 30, 2013, and $18.9 million or 1,395,000 shares were repurchased during the nine months ended September 30, 2013. Purchases may be made from time-to-time in open market or privately negotiated transactions as determined by the Company’s management. The amount and timing of the share repurchase will depend on business and market conditions, stock price, trading restrictions, acquisition activity, and other factors. The share repurchase program does not obligate the Company to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

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Note 4 - Acquisitions (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure Text Block Supplement [Abstract]

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Year Ending December 31,
2013 (3 months)	$	255
2014		853
2015		417
Total	$	1,525

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Note 2 - Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
Numerator:
Net income (loss)	$	(1,122	)	$	836	$	(1,898	)	$	162
Denominator:
Weighted average common shares used in computation of net income (loss) per share, basic		27,507			28,403		27,843			28,379
Deferred stock consideration and unvested restricted stock		—			93		—			53
Stock options and warrant		—			846		—			470
Weighted average common shares used in computation of net income (loss) per share, diluted		27,507			29,342		27,843			28,902
Net income (loss) per share, basic	$	(0.04	)	$	0.03	$	(0.07	)	$	0.01
Net income (loss) per share, diluted	$	(0.04	)	$	0.03	$	(0.07	)	$	0.01

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Deferred stock consideration and unvested restricted stock		403		—		304		—
Stock options and warrant		4,108		2,727		3,598		5,988
		4,511		2,727		3,902		5,988

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Document And Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 01, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	ReachLocal Inc
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		27,783,154
Amendment Flag	false
Entity Central Index Key	0001297336
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

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Note 3 - Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

			Basis of Fair Value Measurement
	Balance at September 30, 2013		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Certificates of deposit	$	2,250	$	2,250	$	—	$	—

			Basis of Fair Value Measurement
	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Certificates of deposit	$	4,375	$	4,375	$	—	$	—

Schedule of Carrying Values and Estimated Fair Values of Debt Instruments [Table Text Block]

	September 30, 2013				December 31, 2012
	Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Loan receivable	$	3,303	$	3,268	$	1,954	$	1,954