LookSmart Reports Second Quarter 2008 Results

Revenue Increased 27% to $17.1 Million Versus Q2 2007
Q2 Net Loss Per Share of ($0.01) versus Net Loss Per Share of ($0.09) in Q2 2007

LookSmart, Ltd. (NASDAQ: LOOK), an online search advertising network and technology solutions company, today announced financial results for the second quarter ended June 30, 2008.

Revenues for the second quarter of 2008 were $17.1 million, a 27% increase from $13.5 million in the second quarter of 2007 and a 2% decrease from $17.5 million in the first quarter of 2008. Net loss for the second quarter of 2008 was $176 thousand, or ($0.01) per share based on approximately 17.0 million weighted average shares outstanding, compared to a net loss of $2.1 million, or ($0.09) per share based on approximately 22.9 million weighted average shares outstanding in the second quarter of 2007. Net loss for the first quarter of 2008 was $0.5 million, or ($0.02) per share based on 20.5 million weighted average shares outstanding.

During the first quarter of 2008, the company classified certain consumer assets as Assets Held for Sale on the Consolidated Balance Sheet. The results for the current and prior periods exclude these certain consumer assets which are accounted for in discontinued operations.

Loss from continuing operations for the second quarter of 2008 was $40 thousand, or approximately break-even on a per share basis on approximately 17.0 million weighted average shares outstanding, compared to a loss from continuing operations in the second quarter of 2007 of $1.3 million, or ($0.06) per share based on 22.9 million weighted average shares outstanding. Loss from continuing operations in the first quarter of 2008 was $181 thousand, or ($0.01) per share based on 20.5 million weighted average shares outstanding.

“During the second quarter we made continued progress in sustaining year-over-year revenue growth, and in approaching profitability,” commented Ted West, President and Chief Executive Officer. “We expanded our base of search advertising customers, and we grew paid clicks served on our search advertiser networks. These results reflect the entire organization’s continued focus on driving revenue growth and diversity, improving operating efficiency, and generating positive cash flow from operations.”

Revenues from the Company’s Advertiser Network were $15.7 million in the second quarter of 2008, an increase of 30% from $12.1 million in the second quarter of 2007. Revenues from the Company’s Publisher Solutions were $1.4 million in the second quarter of 2008, flat with $1.4 million in the second quarter of 2007.

Gross margins from continuing operations were 40% in the second quarter of 2008 versus 46% in the second quarter of 2007 primarily due to higher traffic acquisition costs (TAC) and line rental charges on the Advertiser Network in the second quarter of 2008 as compared to the prior year period. During the second quarter of 2008, the Company continued to manage TAC higher in order to drive higher advertising revenues and profit contribution in the Advertiser Network. Gross margins from continuing operations for the first quarter of 2008 were 42%.

Total operating expenses in the second quarter of 2008 were $7.1 million, which included $0.5 million of non-cash, share-based compensation charges. This compares to total operating expenses of $8.1 million in the second quarter of 2007, which included $0.6 million of non-cash, share-based compensation charges, and $8.0 million in the first quarter of 2008, which included $1.0 million of non-cash, share-based compensation charges.

On a non-GAAP basis, for the second quarter of 2008, Adjusted EBITDA (net loss before interest income, net, taxes, depreciation and amortization excluding stock based compensation charges and loss from discontinued operations) was $1.0 million compared to an Adjusted EBITDA loss of $0.8 million in the second quarter of 2007.

An explanation of LookSmart’s use of non-GAAP financial measures, including the limitations of such measures relative to GAAP measures and reconciliation between GAAP and non-GAAP measures where appropriate, is included later in this release.

Capital expenditures, including capitalization of internally developed software, remained constant at $0.7 million in the second quarter of 2008, compared to $0.7 million in the second quarter of 2007. During the second quarter of both 2008 and 2007, the Company purchased no intangible assets. Depreciation and amortization from continuing operations was $0.8 million in the second quarter of 2008 compared to $0.4 million in the second quarter of 2007.

The Company ended the quarter with approximately $34.4 million in cash, cash equivalents, and short-term investments, an increase of approximately $1.6 million from approximately $32.8 million on March 31, 2008. This increase in cash was primarily due to the receipt of previously escrowed proceeds from the sale of certain consumer assets of approximately $1.0 million with the remainder being generated from operations.

Q2 2008 Key Metrics Performance
Total paid clicks increased to approximately 193 million for the second quarter of 2008 compared to approximately 120 million for the second quarter of 2007 and 152 million for the first quarter of 2008.
Average revenue per click (RPC) for the second quarter of 2008 was approximately $0.08, a decrease from approximately $0.10 in the second quarter of 2007, and a decrease from the first quarter of 2008 at approximately $0.10. The change reflects a shift in channels to reach search advertising network customers.
Traffic acquisition costs (TAC) of 61.9% for LookSmart’s Ad Network increased from the 58.1% rate in the second quarter of 2007, and increased from the 61.5% rate in the first quarter of 2008.

Stock Repurchase Program for LookSmart Common Stock

On February 26, 2008, the Company announced the authorization of a stock repurchase program pursuant to which up to $5 million of its outstanding common stock may be repurchased through December 31, 2008. During the first quarter of 2008 the Company repurchased 801,092 shares of its common stock at an average price of $3.51 per share, for a total expenditure of approximately $2.8 million. The Company did not repurchase any additional shares of its common stock during the second quarter of 2008. As such, the Company currently has $2.2 million authorized for share repurchase through the open market at the prevailing market price or in privately negotiated transactions under this program.

The number of shares of common stock outstanding at the end of the second quarter of 2008 was 17,035,390.

Conference Call

LookSmart will host a conference call today at 5:00 p.m. ET to discuss its financial results. To listen to the call from the US, dial 1-800-762-8932; from outside the US, dial 1-480-629-9031. A telephonic replay of the call will be available until Tuesday, August 12, 2008, 11:59 p.m. ET. To access the replay from the US, dial 1-800-406-7325 and enter passcode 3902941, from outside the US, dial 1-303-590-3030 and enter passcode 3902941. The call will also be available live by webcast on LookSmart’s Investor Relations website at http://www.shareholder.com/looksmart/.

About LookSmart, Ltd.

LookSmart is an online search advertising and technology solutions company that provides performance solutions for online advertisers and publishers. LookSmart offers advertisers targeted, pay-per-click (PPC) search advertising and contextual search advertising via its Advertiser Networks; and an Ad Center platform for customizable private-label advertiser solutions for online publishers. LookSmart is based in San Francisco, California. For more information, visit www.looksmart.com or call 415-348-7500.