Form 8-K DEMAND MEDIA INC. For: Mar 04

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 4, 2015

 

DEMAND MEDIA, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code: (310) 394-6400

Not Applicable

(Former name or former address if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

 

 

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Item 2.02Results of Operations and Financial Condition.

On March 5, 2015, Demand Media, Inc. (the “Company”) issued a press release announcing financial results for its fiscal quarter and fiscal year ended December 31, 2014.  The full text of the Company’s press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

The information in this Item 2.02 of Form 8-K and Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

The Company makes reference to certain non-GAAP financial measures in the press release, and will make reference to these same measures in its related earnings conference call.  A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in the attached press release.

 

Item 5.02Departure of Director or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On March 4, 2015, the Board of Directors of the Company (the “Board”) appointed Rachel Glaser to serve as Chief Financial Officer of the Company, effective upon her commencement of employment, which is expected to occur on April 13, 2015. Ms. Glaser will serve as the Company’s principal financial officer when she joins the Company. Peter Kim, the Company’s Senior Vice President, Accounting and interim Chief Accounting Officer, will serve as the Company’s principal accounting officer. Mr. Kim will also serve as the Company’s principal financial officer on an interim basis until Ms. Glaser’s start date.

Ms. Glaser, 53, has served as Chief Financial Officer of Move, Inc., an online network of websites for real estate search, finance, and moving and home enthusiasts, since 2012. From April 2008 to November 2011, Ms. Glaser served as Chief Operating and Financial Officer of MyLife.com, a subscription-based people search business, and from May 2005 to April 2008, she was the Senior Vice President of Finance at Yahoo! Inc., a global internet services provider. Between 1986 and 2005, Ms. Glaser held finance and operations positions of increasing responsibility at The Walt Disney Company, a media and entertainment company, and was Vice President of Operations and Business Planning for the Consumer Products group at the time of her departure. From August 2010 to July 2014, Ms. Glaser served on the board of directors of Sport Chalet, Inc., a full service specialty retailer, and as a member of its Audit Committee and Corporate Governance and Nominating Committee. Ms. Glaser received a bachelor’s degree in Psychology from the University of California at Berkeley and a master’s degree in Business Administration from the University of Southern California.

 

Mr. Kim, 42, is the Company’s Senior Vice President, Accounting and interim Chief Accounting Officer. Mr. Kim joined Demand Media in July 2013 as Senior Vice President, Accounting and became interim Chief Accounting Officer in March 2015. In his current role, Mr. Kim oversees and manages the Company’s accounting, finance and tax functions, which includes accounting operations and policy, financial controls and reporting. Mr. Kim was also integral to the Company’s tax-free spin-off of its domain name services business in August 2014. Prior to joining Demand Media, Mr. Kim was the Corporate Controller at RealD Inc., a global licensor of stereoscopic 3D technologies, from 2010 to 2013, where he played a critical role in RealD’s initial and secondary public offerings. From 2003 to 2010, Mr. Kim was Vice President, Reporting for Entravision Communications Inc, a diversified Spanish-language media company. Prior to that, Mr. Kim worked at the The Walt Disney Company and a boutique public accounting firm. Mr. Kim holds a bachelor’s degree from the University of California at Los Angeles in Economics.

 

Glaser Employment Agreement

On March 4, 2015, the Company entered into an Employment Agreement with Rachel Glaser (the “Glaser Agreement”). The Glaser Agreement is effective as of April 13, 2015 and expires on April 13, 2019, unless earlier terminated.

The Glaser Agreement provides for an annual base salary of $350,000, subject to increase at the discretion of the Compensation Committee of the Board (the “Compensation Committee”). The Glaser Agreement also provides an opportunity for Ms. Glaser to earn an annual discretionary cash performance bonus targeted at 60% of her base salary in effect for any calendar year, based on: (i) for fiscal 2015, the achievement of individual performance objectives, as determined by the Board or Compensation Committee, and (ii) for all other fiscal years during her employment period, the attainment of Company-based operating and financial metrics established by the Board or Compensation Committee. Ms. Glaser is also entitled to participate in customary health, welfare and fringe benefit plans.

Upon commencement of her employment or shortly thereafter, Ms. Glaser will be granted stock options covering 200,000 shares with a per share exercise price to be equal to the closing price per share on the grant date. These stock options will vest with respect to 25% of the shares subject to the stock option on April 13, 2016 and with respect to an additional 1/48th of the shares subject to the stock option on each monthly anniversary of April 13, 2016 thereafter, subject to Ms. Glaser’s continued employment through the applicable vesting date. Upon commencement of her employment or shortly thereafter, Ms. Glaser will also be granted 75,000 restricted stock units (“RSUs”), which will vest over four years with 25% of the RSUs vesting on May 15, 2016 and an additional 1/16^th of the RSUs vesting

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on each quarterly anniversary of May 15, 2016 thereafter, subject to Ms. Glaser’s continued employment through the applicable vesting date. In addition, during the employment period set forth in the Glaser Agreement and at the Company’s discretion, Ms. Glaser will be eligible to receive periodic equity-based incentive awards from the Company.

If Ms. Glaser’s employment is terminated by the Company without “cause,” or by Ms. Glaser for “good reason” in connection with a “change in control,” or as a result of Ms. Glaser’s death or “disability” (each, as defined in the Glaser Agreement), then, in addition to accrued amounts, Ms. Glaser will be entitled to receive the following benefits:

 

 

 

 

 

Ms. Glaser’s right to receive the severance payments (either in connection with a change in control or outside the change in control context) described above is subject to her delivery of an effective general release of claims in favor of the Company. In addition, to the extent that any payment or benefit received or to be received by Ms. Glaser, including any payment or benefit received in connection with a termination of Ms. Glaser’s employment, would be subject to an excise tax under Section 4999 of the Internal Revenue Code, such payments and/or benefits will be subject to a “best pay cap” reduction if such reduction would result in a greater net after-tax benefit to Ms. Glaser than receiving the full amount of such payments.

 

Kim Employment Agreement

On March 4, 2015, the Company entered into an Amended and Restated Employment Agreement with Peter Kim (the “Kim Agreement”). The Kim Agreement is effective as of March 5, 2015 and expires on March 5, 2018, unless earlier terminated.

The Kim Agreement provides for an annual base salary of $275,000. The Kim Agreement also provides an opportunity for Mr. Kim to earn an annual discretionary cash performance bonus targeted at 30% of his base salary actually paid for any calendar year, based on the attainment of Company performance metrics applicable to senior employees and/or individual performance objectives, in each case as established and approved by the Board or Compensation Committee. Mr. Kim is also entitled to participate in customary health, welfare and fringe benefit plans.

In connection with entering into the Kim Agreement, Mr. Kim was granted stock options covering 25,000 shares with a per share exercise price equal to $5.10. These stock options will vest over three years with one-third (1/3) of the shares subject to the stock option vesting on March 1, 2016 and an additional 1/36^th of the shares subject to the stock option vesting on each monthly anniversary of March 1, 2016 thereafter, subject to Mr. Kim’s continued employment through the applicable vesting date. Mr. Kim was also granted 10,000 RSUs in connection with entering into the Kim Agreement, which will vest in three substantially equal installments over three years commencing on March 1, 2016 and each anniversary of March 1, 2016 thereafter, subject to Mr. Kim’s continued employment through the applicable vesting date. From time to time during his employment with the Company, Mr. Kim has also received other equity awards under the Company’s equity incentive plans. In addition, during the employment period set forth in the Kim Agreement, Mr. Kim is eligible to receive periodic equity-based incentive awards from the Company.

If Mr. Kim’s employment is terminated by the Company without “cause,” or by Mr. Kim for “good reason” in connection with a “change in control,” or as a result of Mr. Kim’s death or “disability” (each, as defined in the Kim Agreement), or without “cause” within six months of the commencement of employment of a permanent Chief Financial Officer (a “Post CFO Appointment Termination”) then, in addition to accrued amounts, Mr. Kim will be entitled to receive the following benefits:

 

 

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Mr. Kim’s right to receive the severance payments (either in connection with a change in control or outside the change in control context) described above is subject to his delivery of an effective general release of claims in favor of the Company. In addition, to the extent that any payment or benefit received or to be received by Mr. Kim, including any payment or benefit received in connection with a termination of Mr. Kim’s employment, would be subject to an excise tax under Section 4999 of the Internal Revenue Code, such payments and/or benefits will be subject to a “best pay cap” reduction if such reduction would result in a greater net after-tax benefit to Mr. Kim than receiving the full amount of such payments.

 

Item 7.01Regulation FD Disclosure.

The press release issued by the Company on March 5, 2015 announcing its financial results also announced the appointment of Ms. Glaser as Chief Financial Officer of the Company. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. The information in this Item 7.01 of Form 8-K and Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

Item 9.01Financial Statements and Exhibits.

(d)Exhibits

 

 

 

 

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SIGNATURES

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

 

 

 

 

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INDEX TO EXHIBITS

 

 

 

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Exhibit 99.1

Demand Media Reports Fourth Quarter and Fiscal 2014 Results

 

SANTA MONICA, CA – March 5, 2015 - Demand Media, Inc. (NYSE: DMD), a diversified Internet company, today reported financial results for the fourth quarter and fiscal year ended December 31, 2014.

 

“As we move into 2015, my optimism for Demand’s future is driven by strong growth in our marketplace businesses and continued improvements in quality across our content and media assets,” said Sean Moriarty, CEO of Demand Media. “We have initiated the hard work we believe is necessary to improve the consumer experience on eHow, and we are beginning to see positive results in traffic and user engagement from our improvements to Livestrong.

 

I am also excited to announce the conclusion of our CFO search with the appointment of Rachel Glaser, and we are looking forward to her start date in mid-April. Her depth of experience in finance and operations will be critical to our transformation as we continue to focus on disciplined capital deployment and investment across our portfolio of businesses. Rachel comes to Demand from Move, Inc., where she served as CFO and helped lead Move through its successful transformation and recent sale to News Corp.”

 

Q4 2014 Financial Summary:

Demand Media is a diversified Internet company that builds platforms across media and marketplace properties to enable communities of creators to reach passionate audiences in large and growing lifestyle categories. Its business is comprised of two service offerings: Content & Media and Marketplaces. The Content & Media service offering operates leading online destinations such as eHow, Livestrong.com and Cracked, as

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well as an innovative content creation platform powered by a large community of experts. Through its Marketplaces service offering, Demand Media operates Society6, a community of artists marketing and selling their designs on a wide variety of lifestyle products, and Saatchi Art, a community of artists marketing and selling original artwork or reproduction prints.

Business Highlights:

Content & Media:

Marketplaces:

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Operating Metrics:

Q4 2014 Operating Metrics:

Conference Call and Webcast Information

Demand Media will host a corresponding conference call and live webcast at 4:30 p.m. Eastern time today. To access the conference call, dial 888-329-8862 (US/CAN) or 719-325-2464 (International) and reference conference ID 2861800. To participate on the live call, analysts should dial-in at least 10 minutes prior to the commencement of the call.  A live webcast also will be available on the Investor Relations section of the Company's corporate website at http://ir.demandmedia.com and via replay beginning approximately two hours after the completion of the call.  

About Non-GAAP Financial Measures

To supplement its consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), Demand Media uses

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certain non-GAAP financial measures, as described below.  The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.  For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of Non-GAAP Financial Measures” included at the end of this release.

The non-GAAP financial measures presented in this release are the primary measures used by the Company's management and board of directors to understand and evaluate its financial performance and operating trends, including period-to-period comparisons, to prepare and approve its annual budget and to develop short and long term operational plans. We believe our presented non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) management frequently uses them in its discussions with investors, commercial bankers, securities analysts and other users of its financial statements.

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is defined by the Company as net income (loss) excluding income (loss) from discontinued operations, net of taxes, before income tax expense (benefit), interest and other income (expense), net, depreciation and amortization, stock-based compensation, impairment charges, and any acquisition and realignment costs. Acquisition and realignment costs include such items, when applicable, as (1) legal, accounting and other professional fees directly attributable to acquisition or corporate realignment activities, and (2) employee severance and other payments attributable to acquisition or corporate realignment activities. Management does not consider these costs to be indicative of the Company's core operating results.

Management believes that Adjusted EBITDA reflects the Company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of the Company's underlying recurring revenue and operating costs, which is focused more closely on the current costs necessary to utilize previously acquired long-lived assets. In addition, management believes that it can be useful to exclude certain non-cash charges because the amount of such expenses is the result of long-term investment decisions in previous periods rather than day-to-day operating decisions. For example, due to the long-lived nature of a majority of its media content, the revenue generated by the Company's media content assets in a given period bears little relationship to the amount of its investment in media content in that same period. Accordingly, management believes that content acquisition costs represent a discretionary long-term capital investment decision undertaken at a point in time. This investment decision is clearly distinguishable from other ongoing business activities, and its discretionary nature and long-term impact differentiate it from specific period transactions, decisions regarding day-to-day operations, and activities that would have an immediate impact on operating or financial performance if materially changed, deferred or terminated.

Adjusted Earnings Per Share (Adjusted EPS) is defined by the Company as Adjusted Net Income (Loss) divided by the weighted average number of shares outstanding. Adjusted Net Income (Loss) is defined by the Company as net income (loss) excluding income (loss) from discontinued operations, net of taxes, before the effect of stock-based compensation, amortization of intangible assets acquired via business combinations, accelerated amortization of content intangible assets removed from service, impairment charges, accelerated depreciation of fixed assets removed from services due to restructuring, write-off of debt issuance costs, acquisition and realignment costs, and gains or losses on certain asset sales or dispositions, and is calculated using the application of a normalized effective tax rate. Acquisition and realignment costs include such items, when applicable, as (1) legal, accounting and other professional fees directly attributable to acquisition or corporate realignment activities, and (2) employee severance and other payments attributable to acquisition or corporate realignment activities. Management does not consider these costs to be indicative of the Company's core operating results.

Management believes that Adjusted Net Income (Loss) and Adjusted EPS provide investors with additional useful information to measure the Company's underlying financial performance, particularly from period to period, because these measures are exclusive of certain non-cash expenses not directly related to the operation of its ongoing business (such as amortization of intangible assets acquired via business

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combinations and impairment charges, as well as certain other non-cash expenses such as stock-based compensation) and include a normalized effective tax rate based on the Company's statutory tax rate.

Free Cash Flow is defined by the Company as net cash provided by operating activities excluding cash outflows from acquisition and realignment activities, such as expenditures related to the separation of Demand Media into two distinct publicly traded companies and formation expenses directly related to the Company’s gTLD initiative undertaken prior to such separation, less capital expenditures to acquire property and equipment and purchases of intangible assets.

Management believes that Free Cash Flow provides investors with useful information to measure operating liquidity because it reflects the Company's underlying cash flows from recurring operating activities after investing in capital assets and intangible assets. Free Cash Flow is used by management, and may also be useful for investors, to assess the Company's ability to generate cash flow for a variety of strategic opportunities, including reinvestment in the business, pursuing new business opportunities, potential acquisitions, payment of dividends and share repurchases.

The use of non-GAAP financial measures has certain limitations because they do not reflect all items of income and expense, or cash flows, that affect the Company's operations. An additional limitation of non-GAAP financial measures is that they do not have standardized meanings, and therefore other companies, including peer companies, may use the same or similarly named measures but exclude different items or use different computations. Management compensates for these limitations by reconciling these non-GAAP financial measures to their most comparable GAAP financial measures within its financial press releases. Non-GAAP financial measures should be considered in addition to, not as a substitute for, financial measures prepared in accordance with GAAP. Investors and others are encouraged to review the Company’s financial information in its entirety and not rely on a single financial measure. The accompanying tables have more details on the GAAP financial measures and the related reconciliations.

About Demand Media

Demand Media, Inc. (NYSE: DMD) is a diversified Internet company that builds platforms across our media (eHow, LIVESTRONG.com and Cracked) and marketplace (Society6 and Saatchi Art) properties to enable communities of creators to reach passionate audiences in large and growing lifestyle categories. In addition, Demand Media’s Content Solutions and Demand360 programmatic offerings help advertisers find innovative ways to engage with their customers. For more information about Demand Media, visit www.demandmedia.com.

Cautionary Information Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements involve risks and uncertainties regarding our future financial performance, and are based on current expectations, estimates and projections about our industry, financial condition, operating performance and results of operations, including certain assumptions related thereto. Statements containing words such as guidance, may, believe, anticipate, expect, intend, plan, project, projections, business outlook, and estimate or similar expressions constitute forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance. Potential risks and uncertainties that could affect our operating and financial results are described in our annual report on Form 10-K for the fiscal year ending December 31, 2013 filed with the Securities and Exchange Commission (http://www.sec.gov) on March 17, 2014, as such risks and uncertainties are updated in our annual and quarterly reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission, including, without limitation, information under the captions Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations. These risks and uncertainties include, among others: the impact of the separation of our business into two separate smaller, less diversified public companies; the expectation that the separation transaction is tax-free; revenue and growth expectations for the two independent companies and the ability of each company to operate as an independent entity following the separation transaction; our dependence on material agreements with a specific business partner for a significant portion of our revenue; the fact that we generate the majority of our revenue from advertising and the potential impact of a reduction in online advertising spending, a loss of advertisers or lower advertising yields; changes in our Content & Media business model to improve user experience and engagement, including redesigning our websites, refining and consolidating our existing content library, reducing the number of advertisements per page and developing a greater variety of content formats, and the impact of such changes on revenue and expenses; our ability to successfully grow new lines of business such as online marketplaces and content solutions as part of our growth strategy; changes in the methodologies of internet search engines, including ongoing algorithmic changes made by Google, Bing and Yahoo!, as well as possible future changes, and the impact such changes may have on visits and driving search related traffic to our owned & operated online properties and our customers’ online properties; the effects of shifting consumption of media content from desktop to mobile; changes in amortization or depreciation

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expense due to a variety of factors; potential write downs, reserves against or impairment of assets including receivables, goodwill, intangibles (including media content) or other assets; and our ability to retain key personnel. From time to time, we may consider acquisitions or divestitures that, if consummated, could be material. Any forward-looking statements regarding financial metrics are based upon the assumption that no such acquisition or divestiture is consummated during the relevant periods. If an acquisition or divestiture were consummated, actual results could differ materially from any forward-looking statements. We do not intend to revise or update the information set forth in this press release, except as required by law, and may not provide this type of information in the future.

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(Tables Follow)

 

 

 

 

 

 

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Demand Media, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

 

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Demand Media, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands)

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Demand Media, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

 

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Demand Media, Inc. and Subsidiaries

Reconciliations of Non-GAAP Measures

(In thousands, except per share amounts)

 

 

(1) Represents depreciation expense of the Company’s long-lived tangible assets and amortization expense of its finite-lived intangible assets, including amortization expense related to its investment in media content assets, included in the Company’s GAAP results of operations.

(2) Represents the fair value of stock-based awards to purchase the Company’s stock included in its GAAP results of operations.

(3) Acquisition and realignment costs include such items, when applicable, as (a) legal, accounting and other professional fees directly attributable to acquisition or corporate realignment activities, (b) employee severance and other payments attributable to acquisition or corporate realignment activities, and (c) expenditures related to the separation of Demand Media into two distinct publicly traded companies.

(4) Comprises formation expenses directly related to the Company's gTLD initiative that did not generate associated revenue in 2013.

(5) The Company elected to remove certain content assets from service, resulting in accelerated amortization expense.

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