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Demand Media Earnings Released

Demand Media has released its earnings for the second quarter. This includes a 32% revenue increase to $79.5 million, compared with $60.4 million for the same quarter last year. It also includes loss ...
Demand Media Earnings Released
Written by Chris Crum
  • Demand Media has released its earnings for the second quarter. This includes a 32% revenue increase to $79.5 million, compared with $60.4 million for the same quarter last year. It also includes loss from operations of $0.9 million compared with $1 million in the same quarter last year, and net loss of $2.4 million compared with a net loss of $1.9 million in Q210.

    The company’s cash flow from operations grew 76% to $16.8 million, from $9.6 million in the year-ago quarter. That’s all GAAP. Non-GAAP can be viewed in the release below.

    “We posted another strong quarter, driven by significant year-over-year growth in both our Content & Media and Registrar businesses as we continued to enhance our content library with new talent, video, and feature articles,” said CEO Richard Rosenblatt. “We plan to build on this momentum by expanding our brand advertising relationships and accelerating our content platform’s international and social media growth initiatives.”

    “Year-over-year growth in our content library, audience and brand advertising revenue, combined with very strong Registrar performance drove our Q2 results,” added President and CFO Charles Hilliard. “We generated strong cash flow from operations, ending the quarter with over $100 million in cash, and plan to continue to invest further in quality content and other growth opportunities in a financially disciplined manner.”

    When Demand Media released its earnings report for the first quarter, it also announced a 20% decline in search referrals largely due to Google’s Panda update. Since then, Google has continued to “iterate” upon the Panda update. Some have seen some positive upticks in search traffic in the meantime. DaniWeb reported a full recovery. HubPages is betting on subdomaining to at least keep the lower quality content from affecting the rankings of the higher quality content.

    With its Q1 report, Demand Media announced a major content quality clean-up effort for its eHow property, which would see the editing of some content and the deletion of other content.

    Not a whole lot was mentioned in the report with regards to all of the Panda stuff, though the company did announce a three-year renewal and expansion of its advertising partnership with Google.

    In the cautionary info section, the company does note: “Potential risks and uncertainties include, among others: changes in the methodologies of Internet search engines, including the recent algorithmic changes made by Google to its search results as well as possible future changes, and the impact such changes may have on page view growth and driving search related traffic to our owned and operated websites and the websites of our network customers; the inherent challenges of estimating the overall impact on page views and search driven traffic to our owned and operated websites based on the limited data available to us since the last algorithmic changes made by Google…”

    It will be interesting to see if the topic is discussed anymore in the company’s conference call, as it was last quarter.

    The company also slipped in an announcements that it acquired brand advertising firm IndieClick and social app RSS Graffiti.

    Here’s the Q2 release in its entirety:

    Demand Media Reports Second Quarter 2011 Financial Results

    • Revenue Increases 32% and Revenue ex-TAC1 Grows 34% Year-over-Year
    • Cash Flow from Operations up 76% Year-over-Year
    • Adjusted OIBDA1 Increases 44% Year-over-Year

    SANTA MONICA, Calif., Aug 09, 2011 (BUSINESS WIRE) —

    Demand Media, Inc. (NYSE: DMD), a leading content and social media company, today reported financial results for the quarter ended June 30, 2011.

     

    Q211 Financial Summary:

    GAAP

     

    • Revenue increased 32% to $79.5 million, compared with $60.4 million in Q210.
    • Loss from operations of $(0.9) million compared with a loss from operations of $(1.0) million in Q210.
    • Net loss of $(2.4) million compared with a net loss of $(1.9) million in Q210. Net loss per share of $(0.03) compared with $(0.75) in Q210.
    • Cash flow from operations grew 76% to $16.8 million, from $9.6 million in Q210.

     

    Non-GAAP1

     

    • Revenue ex-TAC increased 34% to $76.6 million, from $57.3 million in Q210.
    • Adjusted OIBDA grew 44% to $20.5 million, or 26.8% of Revenue ex-TAC, compared with $14.3 million, or 24.9% of Revenue ex-TAC, in Q210.
    • Adjusted Net Income of $5.0 million increased 43% compared with $3.5 million in Q210. Adjusted Net Income per share – diluted of $0.06, grew 50% compared with $0.04 in Q210.
    • Discretionary Free Cash Flow increased 147% to $11.1 million, compared with $4.5 million in Q210.
    • Free Cash Flow of $(4.8) million compared with ($6.5) million in Q210.

     

    “We posted another strong quarter, driven by significant year-over-year growth in both our Content & Media and Registrar businesses as we continued to enhance our content library with new talent, video, and feature articles,” said Richard Rosenblatt, chairman and CEO of Demand Media. “We plan to build on this momentum by expanding our brand advertising relationships and accelerating our content platform’s international and social media growth initiatives.”

    1 Non-GAAP measures are described below and are reconciled to the corresponding GAAP measures in the accompanying tables.

    Q211 Financial Highlights:

     

    • Content & Media Revenue increased 38% to $49.8 million, compared with $36.1 million in Q210.
    • Traffic acquisition costs (TAC), which represent the portion of Content & Media revenue shared with Demand Media partners, of $2.8 million, or 5.6% of Content & Media revenue, compared with $3.1 million, or 8.5% of Content & Media revenue, in Q210.
    • Content & Media Revenue ex-TAC grew 42% to $47.0 million, from $33.0 million in Q210.
    • Registrar Revenue increased 22% to $29.6 million, compared with $24.3 million in Q210.
    • Investment in Intangible Assets of $15.9 million increased 45% from $11.0 million in Q210.

     

    “Year-over-year growth in our content library, audience and brand advertising revenue, combined with very strong Registrar performance drove our Q2 results,” said Demand Media’s President and CFO Charles Hilliard.”We generated strong cash flow from operations, ending the quarter with over $100 million in cash, and plan to continue to invest further in quality content and other growth opportunities in a financially disciplined manner.”

    Q211 Business Highlights and Recent Developments:

    Advertising

     

    • Demand Media announced a significant multi-year media partnership with L’Oreal USA, representing one of L’Oreal USA’s largest digital marketing initiatives.
    • Brand advertising sales contributed to 18% year-over-year growth in owned & operated Content & Media RPMs in Q2.
    • In August 2011, the Company acquired IndieClick, expanding its brand advertising capabilities. IndieClick helps advertisers reach the valuable 18-34 year old demographic through innovative ad formats – including rich media, video, mobile and social media – that are integrated onto carefully selected destinations.
    • Today the Company announced a three-year renewal and expansion of its ongoing advertising partnership with Google.

     

    Publishing

     

    • In June 2011, the Company launched Rachael Ray and Buddies on the eHow Food channel.
    • During Q2, Demand Media captured the second largest YouTube partner audience of unique users worldwide, according to comScore, Inc.
    • In July 2011, Demand Media acquired a Latin American content team adding Spanish language capabilities and supporting the beta version launch of eHow Español in August 2011.

     

    Social

     

    • In August 2011, the Company expanded its social content capabilities through the acquisition of RSS Graffiti. During July 2011, over 600,000 brands, online publishers and individuals shared more than 60 million pieces of content with their friends and fans using the RSS Graffiti application.

     

    Registrar

     

    • ICANN recently approved the issuance of new generic top-level domains (gTLDs). As the world’s second largest Internet domain registrar, the Company’s Registrar business is expanding its technology platform to distribute new gTLDs when they are launched.

     

    Debt Financing

     

    • In August 2011, the Company replaced its existing $100 million credit facility with a new, five-year $105 million credit facility led by Silicon Valley Bank and U.S. Bank, N.A.

     

    Operating Metrics:

    Three months endedJune 30, Six months endedJune 30,
    2010 2011 %
    Change
    2010 2011 %
    Change
    Content & Media Metrics:
    Owned and operated
    Page views(1) (in millions) 1,994 2,573 29% 3,948 5,155 31%
    RPM(2) $ 12.89 $ 15.19 18% $ 11.81 $ 15.45 31%
    Network of customer websites
    Page views(1) (in millions) 3,153 3,688 17% 5,799 7,454 29%
    RPM(2) $ 3.30 $ 2.91 (12)% $ 3.39 $ 2.96 (13)%
    RPM ex-TAC(3) $ 2.32 $ 2.15 (7)% $ 2.40 $ 2.15 (10)%
    Registrar Metrics:
    End of Period # of Domains(4) (in millions) 10.1 11.9 18% 10.1 11.9 18%
    Average Revenue per Domain(5) $ 10.00 $ 10.17 2% $ 9.96 $ 10.03 1%
    (1) Page views represent the total number of web pages viewed across our owned and operated websites and/or our network of customer websites. During the quarter ended June 30, 2011, owned and operated page views were positively impacted by a product change associated with certain page features, including the presentation of picture slide shows, which did not impact advertising impressions. Excluding the impact of such change, during the quarter and six months ended June 30, 2011, page views would have increased approximately 21% and 28%, respectively, compared to the corresponding prior-year periods.
    (2) RPM is defined as Content & Media revenue per one thousand page views. During the quarter ended June 30, 2011, owned and operated RPMs were negatively impacted by a product change associated with certain page features, including the presentation of picture slide shows, which did not impact advertising impressions. Excluding the impact of such change, during the quarter and six months ended June 30, 2011, RPMs would have increased approximately 26% and 33%, respectively, compared to the corresponding prior-year periods.
    (3) RPM ex-TAC is defined as Content & Media Revenue ex-TAC per one thousand page views.
    (4) Domain is defined as an individual domain name paid for by a third-party customer where the domain name is managed through our Registrar service offering.
    (5) Average revenue per domain is calculated by dividing Registrar revenue for a period by the average number of domains registered in that period. Average revenue per domain for partial year periods is annualized.

    Business Outlook

    The following forward-looking information includes certain projections made by management as of the date of this press release. The Company does not intend to revise or update this information, except as required by law, and may not provide this type of information in the future. Due to a variety of factors, actual results may differ significantly from those projected. The factors that may affect results include, without limitation, the factors referenced later in this announcement under the caption “Cautionary Information Regarding Forward-Looking Statements.” These and other factors are discussed in more detail in the Company’s filings with the Securities and Exchange Commission.

    Below is the Company’s guidance for the quarter ending September 30, 2011, and fiscal year ending December 31, 2011.

    (In millions) Third Quarter(2)2011 Fiscal Year(2) 2011
    Revenue $78.5 – $82.5 $321.5 – $329.5
    TAC (traffic acquisition costs) $3.5 $13.5
    Revenue ex-TAC $75.0 – $79.0 $308.0 – $316.0
    Income (loss) from operations ($5.8)- ($4.3) ($10.1) – ($7.1)
    Depreciation $5.0 $21.0
    Amortization of intangible assets $11.0 $41.5
    Stock-based compensation $7.0 $28.5
    Acquisition and realignment costs(1) $1.3 $2.1
    Adjusted OIBDA $18.5 – $20.0 $83.0 – $86.0
    Weighted average diluted shares(3) 88.0 – 90.0 90.0 – 92.0
    (1) Acquisition and realignment costs include non-cash purchase accounting adjustments, acquisition-related legal and accounting professional fees and employee severance payments attributable to corporate realignment activities. Management does not consider these expenses to be indicative of the Company’s core operating results.
    (2) The Company expects the combined effect of acquisitions, all of which were completed post June 30, 2011, to contribute approximately $3.0 million and $1.5 million of full-year 2011 revenue and revenue ex-TAC, respectively, with the majority of such effect occurring in the fourth quarter of 2011; to be negative to full year 2011 Income (loss) from operations and to be neutral to full year 2011 Adjusted OIBDA.
    (3) Weighted average diluted shares include the weighted average common stock and restricted stock for the periods presented and all dilutive common stock equivalents in each period. Fiscal year 2011 amounts have been adjusted to reflect the revised capital structure following the Company’s initial public offering, which was completed on January 31, 2011, whereby the Company issued 5.2 million shares of common stock and converted certain warrants and all of its convertible preferred stock into 62.2 million shares of common stock as if those transactions were consummated on January 1, 2011.

    Conference Call and Webcast Information

    Demand Media will host a corresponding conference call and live webcast at 5:00 p.m. Eastern time today. To access the conference call, dial 877.565.1268 (for domestic participants) or 937.999.3108 (for international participants). The conference ID is 82803485. To participate on the live call, analysts and investors 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 athttp://ir.demandmedia.com and via replay beginning approximately two hours after the completion of the call. An audio replay of the call will also be available to investors beginning at approximately 6:00 p.m. Eastern on August 9, 2011 until 11:59 p.m. Eastern on August 11, 2011, by dialing 855.859.2056 (for the U.S. and Canada) or 404.537.3406 (for international callers) and entering passcode 82803485.

    About Non-GAAP Financial Measures

    To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we use certain non-GAAP financial measures 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 “Reconciliation of Non-GAAP Measures to Unaudited Consolidated Statements of Operations” included at the end of this release.

    The non-GAAP financial measures presented 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. Additionally, Adjusted OIBDA is the primary measure used by the compensation committee of the Company’s board of directors to establish the target for and fund its annual employee bonus pool. We believe these 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.

    Revenue ex-TAC is defined by the Company as GAAP revenue less traffic acquisition costs (TAC). TAC comprises the portion of Content & Media GAAP revenue shared with the Company’s network customers. Management believes that Revenue ex-TAC is a meaningful measure of operating performance because it is frequently used for internal managerial purposes and helps facilitate a more complete period-to-period understanding of factors and trends affecting the Company’s underlying revenue performance.

    Adjusted operating income before depreciation and amortization (“Adjusted OIBDA”) is defined by the Company as operating income (loss) before depreciation, amortization, stock-based compensation, as well as the financial impact of acquisition and realignment costs, and any gains or losses on certain asset sales or dispositions. Acquisition and realignment costs include such items, when applicable, as (1) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (2) legal, accounting and other professional fees directly attributable to acquisition activity, and (3) employee severance payments attributable to acquisition or corporate realignment activities. Management does not consider these expenses to be indicative of the Company’s ongoing operating results or future outlook.

    Management believes that this non-GAAP measure reflects the Company’s 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 OIBDA 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 content assets in a given period bears little relationship to the amount of its investment in 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 Net Income is defined by the Company as net income (loss) before the effect of stock-based compensation, amortization of intangible assets acquired via business combinations and acquisition and realignment costs, and any 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) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (2) legal, accounting and other professional fees directly attributable to acquisition activity, and (3) employee severance payments attributable to acquisition or corporate realignment activities. Management does not consider these expenses to be indicative of the Company’s ongoing operating results or future outlook.

    Management believes that Adjusted Net Income and Adjusted Net Income per share 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 combinations, as well as certain other non-cash expenses such as purchase accounting adjustments and stock-based compensation) and include a normalized effective tax rate based on the Company’s statutory tax rate.

    Discretionary Free Cash Flow is defined by the Company as net cash provided by operating activities, less capital expenditures to acquire property and equipment. Free Cash Flow is defined by the Company as net cash provided by operating activities, less capital expenditures to acquire property and equipment and less investments in intangible assets. Management believes that Discretionary Free Cash Flow and Free Cash Flow provide investors with additional useful information to measure operating liquidity because they reflect the Company’s operating cash flows after investing in capital assets and intangible assets. These measures are 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, potential acquisitions, payment of dividends and share repurchases.

    The use of these 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 these non-GAAP financial measures is that they do not have standardized meanings, and therefore other 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 the most comparable GAAP financial measures within its financial press releases. These non-GAAP financial measures should be considered in addition to, not as a substitute for, measures prepared in accordance with GAAP. Further, these non-GAAP financial measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. We encourage investors and others to review our 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 content and social media company that serves consumers, advertisers, publishers and creative professionals with a diverse portfolio of properties, products and services. Through brands like eHow, LIVESTRONG.COM, Cracked and typeF, Demand Media informs and entertains one of the internet’s largest audiences every month, helps advertisers find innovative ways to engage with their customers and enables publishers to expand their online presence. Founded in 2006, Demand Media is headquartered in Santa Monica, CA with offices in Kirkland, WA; Austin, TX; Chicago, IL; New York, NY; and London, UK. For more information about Demand Media visitwww.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 the Company’s 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 include, among others: changes in the methodologies of Internet search engines, including the recent algorithmic changes made by Google to its search results as well as possible future changes, and the impact such changes may have on page view growth and driving search related traffic to our owned and operated websites and the websites of our network customers; the inherent challenges of estimating the overall impact on page views and search driven traffic to our owned and operated websites based on the limited data available to us since the last algorithmic changes made by Google; our ability to compete with new or existing competitors; our ability to maintain or increase our advertising revenue; our ability to continue to drive and grow traffic to our owned and operated websites and the websites of our network customers; our ability to effectively monetize our portfolio of content; our dependence on material agreements with a specific business partner for a significant portion of our revenue; future internal rates of return on content investment and our decision to invest in different types of content in the future; our ability to attract and retain freelance content creators; the effects of changes in marketing expenditures or shifts in marketing expenditures; the effects of seasonality on traffic to our owned and operated websites and the websites of our network customers; changes in stock-based compensation; 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 or other assets; changes in tax laws, our business or other factors that would impact anticipated tax benefits or expenses; our ability to successfully identify, consummate and integrate acquisitions, including integrating our recent acquisitions; our ability to retain key customers and key personnel; risks associated with litigation; the impact of governmental regulation; and the effects of discontinuing or discontinued business operations.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.More information about potential risk factors that could affect our operating and financial results are contained in our annual report on Form 10-K for the fiscal year ending December 31, 2010 filed with the Securities and Exchange Commission (http://www.sec.gov) on March 1, 2011, and as such risk factors may be updated in our 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.”

    Furthermore, as discussed above, 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.

    Demand Media, Inc. and Subsidiaries
    Unaudited Condensed Consolidated Statements of Operations
    (In thousands, except per share amounts)
    Three months ended June 30, Six months ended June 30,
    2010 2011 2010 2011
    Revenue $ 60,355 $ 79,455 $ 114,002 $ 158,978
    Operating expenses
    Service costs (exclusive of amortization of intangible assets shown separately below) (1) (2) 31,571 37,869 61,735 75,523
    Sales and marketing (1) (2) 5,645 9,286 10,396 18,869
    Product development (1) (2) 6,482 9,642 12,514 18,893
    General and administrative (1) (2) 9,462 13,787 17,440 30,811
    Amortization of intangible assets 8,238 9,750 16,173 19,953
    Total operating expenses 61,398 80,334 118,258 164,049
    Income (loss) from operations (1,043 ) (879 ) (4,256 ) (5,071 )
    Other income (expense)
    Interest income 3 5 11 47
    Interest expense (168 ) (163 ) (349 ) (325 )
    Other income (expense), net (109 ) (2 ) (128 ) (259 )
    Total other expense (274 ) (160 ) (466 ) (537 )
    Income (loss) before income taxes (1,317 ) (1,039 ) (4,722 ) (5,608 )
    Income tax (expense) (610 ) (1,332 ) (1,327 ) (2,345 )
    Net income (loss) $ (1,927 ) $ (2,371 ) $ (6,049 ) $ (7,953 )
    (1) Stock-based compensation expense included in the line items above:
    Service costs $ 221 $ 347 $ 428 $ 584
    Sales and marketing 504 1,136 968 2,036
    Product development 437 1,130 775 2,246
    General and administrative 1,367 2,807 2,600 9,481
    Total stock-based compensation expense $ 2,529 $ 5,420 $ 4,771 $ 14,347
    (2) Depreciation included in the line items above:
    Service costs $ 3,483 $ 4,149 $ 6,826 $ 8,193
    Sales and marketing 41 115 82 187
    Product development 318 438 659 759
    General and administrative 516 878 921 1,450
    Total depreciation $ 4,358 $ 5,580 $ 8,488 $ 10,589
    Earnings (loss) per common share:
    Net income (loss) $ (1,927 ) $ (2,371 ) $ (6,049 ) $ (7,953 )
    Cumulative preferred stock dividends (3) (8,243 ) (16,206 ) (2,477 )
    Net loss attributable to common stockholders $ (10,170 ) $ (2,371 ) $ (22,255 ) $ (10,430 )
    Basic and diluted net loss per share $ (0.75 ) $ (0.03 ) $ (1.69 ) $ (0.14 )
    Weighted average number of shares 13,482 83,088 13,174 73,477
    (3) As a result of the Company’s initial public offering which was completed on January 31, 2011, all shares of the Company’s preferred stock were converted to common stock.
    Demand Media, Inc. and Subsidiaries
    Unaudited Condensed Consolidated Balance Sheets
    (In thousands)
    December

    31, 2010

    June 30,
    2011
    Current assets
    Cash and cash equivalents $ 32,338 $ 103,602
    Accounts receivable, net 26,843 30,456
    Prepaid expenses and other current assets 7,360 7,008
    Deferred registration costs 44,213 47,504
    Total current assets 110,754 188,570
    Property and equipment, net 34,975 35,134
    Intangible assets, net 102,114 114,848
    Goodwill 224,920 227,849
    Deferred registration costs 8,037 8,806
    Other long-term assets 7,667 3,841
    Total assets $ 488,467 $ 579,048
    Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
    Current liabilities
    Accounts payable $ 8,330 $ 7,787
    Accrued expenses and other current liabilities 29,570 27,124
    Deferred tax liabilities 15,248 17,791
    Deferred revenue 61,832 67,125
    Total current liabilities 114,980 119,827
    Deferred revenue 14,106 14,306
    Other liabilities 1,043 976
    Total liabilities 130,129 135,109
    Convertible preferred stock
    Total convertible preferred stock 373,754
    Stockholders’ equity (deficit)
    Common stock and additional paid-in capital 36,723 504,039
    Accumulated other comprehensive income 108 100
    Accumulated deficit (52,247 ) (60,200 )
    Total stockholders’ equity (deficit) (15,416 ) 443,939
    Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 488,467 $ 579,048
    Demand Media, Inc. and Subsidiaries
    Unaudited Condensed Consolidated Statements of Cash Flows
    (In thousands)
    Three months ended
    June 30,
    Six months ended
    June 30,
    2010 2011 2010 2011
    Cash flows from operating activities:
    Net income (loss) $ (1,927 ) $ (2,371 ) $ (6,049 ) $ (7,953 )
    Adjustments to reconcile net income (loss) to net cash provided by operating activities:
    Depreciation and amortization 12,596 15,330 24,661 30,542
    Stock-based compensation 2,434 5,426 4,578 14,262
    Other 719 1,214 1,281 2,069
    Net change in operating assets and liabilities, net of effect of acquisitions (4,267 ) (2,751 ) (49 ) (2,852 )
    Net cash provided by operating activities 9,555 16,848 24,422 36,068
    Cash flows from investing activities:
    Purchases of property and equipment (5,066 ) (5,746 ) (9,502 ) (10,830 )
    Purchases of intangibles (10,973 ) (15,858 ) (21,141 ) (30,062 )
    Proceeds from maturities and sales of marketable securities, net 1,475 2,300
    Cash paid for acquisitions (3,839 )
    Net cash used in investing activities (14,564 ) (21,604 ) (28,343 ) (44,731 )
    Cash flows from financing activities:
    Proceeds (payment) of debt, net (10,000 )
    Proceeds from issuance of common stock, net 189 (250 ) 714 78,625
    Proceeds from exercises of stock options 674 1,525
    Other (638 ) (106 ) (781 ) (215 )
    Net cash provided by (used in) financing activities (449 ) 318 (10,067 ) 79,935
    Effect of foreign currency on cash and cash equivalents (15 ) (16 ) (59 ) (8 )
    Change in cash and cash equivalents (5,473 ) (4,454 ) (14,047 ) 71,264
    Cash and cash equivalents, beginning of period 39,034 108,056 47,608 32,338
    Cash and cash equivalents, end of period $ 33,561 $ 103,602 $ 33,561 $ 103,602
    Demand Media, Inc. and Subsidiaries
    Reconciliations of Non-GAAP Measures to Unaudited Consolidated Statements of Operations
    (In thousands, except per share amounts)
      Three months ended
    June 30,
    Six months ended
    June 30,
    2010 2011 2010 2011
    Revenue ex-TAC:
    Content & Media revenue $ 36,093 $ 49,822 $ 66,291 $ 101,674
    Less: traffic acquisition costs (TAC) (3,063 ) (2,813 ) (5,757 ) (6,003 )
    Content & Media Revenue ex-TAC 33,03024,262 47,00729,633 60,53447,711 95,67157,304
    Registrar revenue
    Total Revenue ex-TAC $ 57,292 $ 76,642 $ 108,245 $ 152,975
    Adjusted OIBDA:
    Income (loss) from operations $ (1,043 ) $ (879 ) $ (4,256 ) $ (5,071 )
    Depreciation 4,358 5,580 8,488 10,589
    Amortization of intangible assets 8,238 9,750 16,173 19,953
    Stock-based compensation 2,529 5,420 4,771 14,347
    Acquisition and realignment costs(1) 209 638 425 771
    Adjusted OIBDA $ 14,291 $ 20,509 $ 25,601 $ 40,589
    Discretionary and Total Free Cash Flow:
    Net cash provided by operating activities $ 9,555 $ 16,848 $ 24,422 $ 36,068
    Purchases of property and equipment (5,066 ) (5,746 ) (9,502 ) (10,830 )
    Discretionary Free Cash Flow 4,489 11,102 14,920 25,238
    Purchases of intangible assets (10,973 ) (15,858 ) (21,141 ) (30,062 )
    Free Cash Flow $ (6,484 ) $ (4,756 ) $ (6,221 ) $ (4,824 )
    Adjusted Net Income:
    GAAP net income (loss) $ (1,927 ) $ (2,371 ) $ (6,049 ) $ (7,953 )
    (a) Stock-based compensation 2,529 5,420 4,771 14,347
    (b) Amortization of intangible assets – M&A 4,269 3,097 8,938 6,831
    (c) Acquisition and realignment costs(1) 209 638 425 771
    (d) Income tax effect of items (a) – (c) & application of 38% statutory tax rate to pre-tax income (1,552 ) (1,752 ) (2,250 ) (3,865 )
    Adjusted Net Income $ 3,528 $ 5,032 $ 5,835 $ 10,131
    Non-GAAP Adjusted Net Income per share – diluted $ 0.04 $ 0.06 $ 0.07 $ 0.11
    Shares used to calculate non-GAAP Adjusted Net Income per share – diluted (2) 85,676 88,691 85,268 89,258
    (1) Acquisition and realignment costs include non-cash purchase accounting adjustments, acquisition-related legal and accounting professional fees and employee severance payments attributable to corporate realignment activities. Management does not consider these costs to be indicative of the Company’s core operating results.
    (2) Shares used to calculate non-GAAP Adjusted Net Income per share – diluted include the weighted average common stock and restricted stock for the periods presented and all dilutive common stock equivalent at each period. Amounts have been adjusted in all periods to reflect the revised capital structure following the Company’s initial public offering which was completed on January 31, 2011, whereby the Company issued 5,175 shares of common stock and converted certain warrants and all of the convertible preferred stock into 62,155 shares of common stock as if those transactions were consummated on January 1, 2010.
    Demand Media, Inc. and Subsidiaries
    Unaudited GAAP Revenue, by Revenue Source
    (In thousands)
      Three months ended
    June 30,
    Six months ended
    June 30,
    2010 2011 2010 2011
    Content & Media:
    Owned and operated websites $ 25,703 $ 39,095 $ 46,636 $ 79,619
    Network of customer websites 10,390 10,727 19,655 22,055
    Total revenue – Content & Media 36,093 49,822 66,291 101,674
    Registrar 24,262 29,633 47,711 57,304
    Total revenue $ 60,355 $ 79,455 $ 114,002 $ 158,978
      Three months ended
    June 30,
    Six months ended
    June 30,
    2010 2011 2010 2011
    Content & Media:
    Owned and operated websites 43 % 49 % 41 % 50 %
    Network of customer websites 17 % 14 % 17 % 14 %
    Total revenue – Content & Media 60 % 63 % 58 % 64 %
    Registrar 40 % 37 % 42 % 36 %
    Total revenue 100 % 100 % 100 % 100 %

    SOURCE: Demand Media, Inc.

     

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