Form 8-K DEMAND MEDIA INC. For: Aug 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): August 4, 2016

 

DEMAND MEDIA, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

 

 

Registrant’s telephone number, including area code: (310) 656-6253

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:

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

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

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

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

 

 

 

 

Item 2.02Results of Operations and Financial Condition.

On August 4, 2016, Demand Media, Inc. (the “Company”) issued a press release announcing financial results for its fiscal quarter ended June 30, 2016.  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 and pro forma financial information in the press release, and will make reference to certain non-GAAP financial measures and pro forma financial information in its related earnings conference call. A reconciliation of these non-GAAP financial measures and pro forma financial information to the most directly comparable GAAP financial measures is contained in the attached press release.

 

Item 9.01Financial Statements and Exhibits.

(d)Exhibits

 

 

 

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.

 

 

 

 

INDEX TO EXHIBITS

 

 

 

Exhibit 99.1

Demand Media Reports Second Quarter 2016 Results

SANTA MONICA, CA – August 4, 2016 - Demand Media, Inc. (NYSE: DMD), a diversified Internet company comprised of several marketplaces and media properties, today reported financial results for the second quarter ended June 30, 2016.

“Q2 was another strong quarter for our Marketplace businesses, with Saatchi Art and Society6 both growing in revenue, traffic and conversion rates,” said Sean Moriarty, CEO of Demand Media. “In addition, Livestrong.com delivered its highest Q2 traffic of all time and increased revenue versus Q1.”

 

 

 

Q2 2016 Financial Summary:

Demand Media is comprised of two service offerings: Marketplaces and Content & Media.

“In Q2, our Marketplaces businesses grew to 55% of our total revenue and grew 28% year-over-year,” said Rachel Glaser, Demand Media’s CFO. “That growth, coupled with gradually increasing stability of our media businesses and streamlined corporate overhead costs, puts us on a great trajectory for 2017.”

For the second quarter of 2016:

Business Highlights:

Marketplaces:

Content & Media:

Operating Metrics:

 

 

Conference Call and Webcast Information

Demand Media will host a corresponding conference call and live webcast today at 4:30 p.m. Eastern time (1:30 p.m. Pacific time). To access the conference call, dial 877-201-0168 (US/CAN) or 647-788-4901 (International) and reference conference ID 52506900. 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 Demand Media’s corporate website at http://ir.demandmedia.com and via replay beginning approximately two hours after the completion of the call. 

Use of Non-GAAP Financial Measures

To supplement its consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”), Demand Media uses certain non-GAAP financial measures, as described below. These non-GAAP financial measures are presented to enhance the user’s overall understanding of Demand Media’s financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The non-GAAP financial measures presented in this release, together with the GAAP financial results, are the primary measures used by the company’s management and board of directors to understand and evaluate the company’s financial performance and operating trends, including period-to-period comparisons, because they exclude certain expenses and gains that management believes are not indicative of the company’s core operating results. Management also uses these measures to prepare and update the company’s short and long term financial and operational plans, to evaluate investment decisions, and in its discussions with investors, commercial bankers, equity research analysts and other users of the company’s financial statements. Accordingly, the company believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the company’s operating results in the same manner as management and in comparing operating results across periods and to those of Demand Media’s peer companies.

 

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 in the tables captioned “Reconciliations of Non-GAAP Financial Measures” included at the end of this release. In addition to the non-GAAP financial measures presented in this press release, the company is also providing certain pro forma financial information to reflect the dispositions of the Cracked business and certain other non-strategic properties. Investors and others are encouraged to review the company’s financial information in its entirety and not rely on a single financial measure.

 

The company defines Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income (loss) excluding interest (income) expense, income tax expense (benefit), and certain other non-cash or non-recurring items impacting net income (loss) from time to time, principally comprised of depreciation and amortization, stock-based compensation and acquisition, disposition and realignment costs. Management believes that the exclusion of certain expenses and gains in calculating Adjusted EBITDA provides a useful measure for period-to-period comparisons of the company’s underlying core revenue and operating costs that is focused more closely on the current costs necessary to operate the company’s businesses and reflects its ongoing business in a manner that allows for meaningful analysis of trends. Management also believes that excluding certain non-cash charges can be useful because the amount of such expenses is the result of long-term investment decisions in previous periods rather than day-to-day operating decisions.

 

The company defines Adjusted Net Income (Loss) as net income (loss) excluding the effect of certain non-cash items and other items not directly related to the operation of the company’s ongoing business, principally comprised of stock-based compensation; amortization of intangible assets; acquisition, disposition and realignment costs; and gains or losses on asset dispositions. Adjusted Net Income (Loss) is calculated using the application of a normalized effective tax rate. The company defines Adjusted Earnings Per Share (Adjusted EPS) as Adjusted Net Income (Loss) divided by the weighted average number of shares outstanding. Management believes that

Adjusted Net Income (Loss) and Adjusted EPS provide investors with additional useful information to measure the company’s financial performance, particularly from period to period, because they exclude certain non-cash and other expenses and gains that are not directly related to the operation of the company’s ongoing business.

 

The company defines Free Cash Flow as net cash provided by (used in) operating activities net of cash outflows from acquisition, disposition and realignment activities; 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 reinvesting in the business, pursuing new business opportunities and potential acquisitions, paying dividends and repurchasing shares.

About Demand Media

 

Demand Media, Inc. (NYSE: DMD) is a diversified Internet company that builds platforms across its media (eHow and LIVESTRONG.COM) 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 custom content solutions (studioD) and diverse advertising 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 Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements set forth in this press release include:  the company’s expectations regarding its trajectory for 2017; the company’s expectation that the integration of its studioD business into its broader Content & Media business will result in annualized savings of approximately $8 million; and the company’s plans that the studioD business will continue to create content for third-party brands and publishers, with the custom content business focused on creating sponsored content and integrated native advertising campaigns that include distribution of custom content on the company’s owned and operated properties. In addition, 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. These forward-looking statements involve risks and uncertainties regarding the company’s future financial performance, and are based on current expectations, estimates and projections about the company’s industry, financial condition, operating performance and results of operations, including certain assumptions related thereto. Potential risks and uncertainties that could affect the company’s operating and financial results are described in Demand Media’s annual report on Form 10-K for the fiscal year ending December 31, 2015 filed with the Securities and Exchange Commission (http://www.sec.gov) on March 1, 2016, as such risks and uncertainties are updated in Demand Media’s quarterly reports on 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: 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 traffic to the company’s online properties; the effects of shifting consumption of media content and online shopping from desktop to mobile; the potential impact on advertising revenue of lower ad unit rates, a reduction in online advertising spending, a loss of advertisers, lower advertising yields and/or increased availability of ad blocking software, particularly on mobile devices; the company’s dependence on material agreements with a specific business partner for a significant portion of its revenue; the impact on revenue and expenses of changes made to the company’s Content & Media properties that are intended to improve user experience and engagement; the company’s ability to attract new customers to its marketplaces and successfully grow its marketplaces business; the company’s ability to successfully expand its current lines of business and grow new lines of business; changes in amortization or depreciation 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 the company’s ability to retain key personnel. From time to time, the company 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. The company does 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.

# # #

(Tables Follow)

 

 

 

Demand Media, Inc. and Subsidiaries 

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

 

(3) Certain prior period amounts relating to personnel costs (including stock-based compensation) have been reclassified to conform to the current period presentation, resulting in the following changes in our condensed consolidated statements of operations for the three and six month periods ended June 30, 2015, respectively: (i) decreases of $0.7 million and $1.7 million in general and administrative expense; (ii) increases of $0.5 million and $1.2 million in product development expense; (iii) increases of $0.2 million and $0.4 million in sales and marketing expense; and (iv) increases of less than $0.1 million and $0.2 million in service costs.

 

Demand Media, Inc. and Subsidiaries 

Unaudited Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

Demand Media, Inc. and Subsidiaries 

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

Demand Media, Inc. and Subsidiaries 

Reconciliations of Non-GAAP Financial Measures

(In thousands, except per share amounts)

 

 

 

(1) Primarily consists of income from the disposition of certain businesses, including Cracked, and online properties.

(2) 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 as included in the company’s GAAP results of operations.

(3) Represents the fair value of stock-based awards granted to employees, as included in the company’s GAAP results of operations.

(4) Represents such items, when applicable, as (a) legal, accounting and other professional fees directly attributable to acquisition, disposition or corporate realignment activities and (b) employee severance and other payments attributable to acquisition, disposition or corporate realignment activities.

(5) Represents accelerated amortization expense resulting from the company’s decision to remove certain content assets from service.

(6) Represents the gain on sale from the disposition of certain businesses and online properties.

 

 

 

 

 

 

 

Demand Media, Inc. and Subsidiaries 

Reconciliations of Pro forma Financial Measures

(In thousands)

 

 

 

(1) Represents revenue associated with the divested Cracked business and certain other divested non-strategic properties.

 

 

 

 

(1) Primarily consists of income from the disposition of certain businesses, including Cracked, and online properties.

(2) 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 as included in the company’s GAAP results of operations.

(3) Represents the fair value of stock-based awards granted to employees, as included in the company’s GAAP results of operations.

(4) Represents such items, when applicable, as (a) legal, accounting and other professional fees directly attributable to acquisition, disposition or corporate realignment activities and (b) employee severance and other payments attributable to acquisition, disposition or corporate realignment activities.

(5) Consists of the following pro forma adjustments associated with the divested Cracked business and certain other divested non-strategic properties (amounts in thousands): (i) for the three months ended June 30, 2016, (a) net loss of $1,007, and (b) stock-based compensation of $783; and (ii) for the three months ended June 30, 2015, (a) net income of $1,607; (b) depreciation and amortization of $144; and (c) stock-based compensation of $129.