Demand Media Inc : Demand Media Reports Second Quarter 2012 Financial Results
08/07/2012| 04:10pm US/Eastern
Recommend:
0
Revenue Grows 17% and Revenue ex-TAC(1) Up
16% Year-over-Year
Adjusted EBITDA(1) Increases 20%
Year-over-Year
Cash Flow from Operations Grows 30%Year-over-Year
Company Achieves Positive Net Income
Demand Media, Inc. (NYSE: DMD), a leading digital media company, today
reported financial results for the quarter ended June 30, 2012.
"We are pleased to report another strong quarter reflecting solid
company performance," said Richard Rosenblatt, Chairman and CEO of
Demand Media. "We intend to continue to execute on our long-term growth
initiatives, which include expanding our content platform and large
audiences into mobile, video and international channels. We also see
significant opportunities in the new generic Top Level Domain process
and invested over $18 million in Q2 in what we believe is a seminal
event for the internet and our leading Registrar."
Financial Summary
In millions, except per share amounts
Three months ended June 30,
2011
2012
Change
Total Revenue
$
79.5
$
93.1
17%
Content & Media Revenue ex-TAC(1)
$
47.0
$
55.3
18%
Registrar Revenue
29.6
33.4
13%
Total Revenue ex-TAC(1)
$
76.6
$
88.7
16%
Income (loss) from Operations
$
(0.9
)
$
0.9
NA
Adjusted EBITDA(1)
$
20.5
$
24.6
20%
Net income (loss)
$
(2.4
)
$
0.1
NA
Adjusted net income(1)
$
5.0
$
7.8
54%
EPS
$
(0.03
)
$
--
NA
Adjusted EPS(1)
$
0.06
$
0.09
50%
Cash Flow from Operations
$
16.8
$
21.9
30%
Free Cash Flow(1) (2)
$
(4.8
)
$
16.6
NA
(1) These non-GAAP financial measures are described below
and reconciled to their comparable GAAP measures in the accompanying
tables. Effective Q1 2012, the Company began reporting Adjusted
EBITDA instead of Adjusted OIBDA. Reconciliations for both measures
are available on the investor relations section of the Company's
website.
(2) In April 2012, the Company invested $18.1 million
in generic Top Level Domain ("gTLD") applications, which did not
impact its recurring Free Cash Flow metric.
Q2 2012 Financial Summary:
Content & Media revenue ex-TAC grew 18% year-over-year, and increased
9% compared to the first quarter of 2012, with sequential growth
driven primarily by accelerating revenue and traffic in our core Owned
& Operated properties.
Registrar revenue grew 13% year-over-year, and increased 3% compared
to the first quarter of 2012. Revenue growth was driven by an increase
in number of domains on our platform, due primarily to growth from new
partners.
Free Cash Flow increased by $21.4 million year-over-year. The increase
was driven by 30% growth in cash flow from operations and an 84%
decline in investment in intangible assets to $2.5 million. The
decrease in intangible assets investment was the result of a managed
reduction in content spend, primarily on eHow, as the Company
continues to make improvements to its content creation and
distribution platform.
"In addition to accelerating revenue growth, expanding our EBITDA margin
and growing our cash flow from operations, we delivered our first
quarter of positive net income as a public company in Q2," said Senior
Vice President, Finance and incoming CFO Mel Tang. "Based on our strong
first half performance and outlook for the remainder of 2012, we are
increasing guidance for fiscal year 2012."
Q2 2012 Business Highlights:
During the quarter, Demand Media invested $18.1 million in gTLD
applications, 26 individually, and an additional 107 through a
strategic arrangement with Donuts Inc., as previously disclosed on
June 11, 2012. Demand Media is the only applicant for 16 of its 26
stand-alone applications for new gTLDs. In addition, Demand Media has
been selected as the technical registry operator for gTLD strings
awarded to Donuts, the single largest applicant in the process. The
Company expects to begin generating revenue from its new gTLD
initiative starting in 2013, subject to ICANN's timeline.
On a consolidated basis, Demand Media ranked as a top 20 US web
propertythroughout the first half of 2012, ranking as #17
in June 2012(1). Demand Media's worldwide unique users
exceeded 109 million in June 2012(1).
On a standalone basis, eHow.com
ranked as the #16 website in the US in June 2012(1).
LIVESTRONG.COM/eHow
Health improved its ranking to the #2 Health property in
the US, based on unique visits, throughout the second quarter of 2012(1).
Cracked.com
continued its ranking as the most visited humor site in the US
throughout the first half of 2012, with more time spent on the site
than any other humor website(1).
During the second quarter of 2012, Demand Media repurchased 111,000
shares of common stock for $1 million under its Board-authorized $50
million share repurchase program. Since the program's inception, the
Company has repurchased nearly 2.9 million shares of common stock for
$21 million.
(1) Source: comScore.
Operating Metrics:
Three months ended June 30,
%
2011
2012
Change
Content & Media Metrics:
Owned and operated
Page views(1) (in millions)
2,573
3,333
30
%
RPM(2)
$
15.19
$
13.50
(11
)%
Network of customer websites
Page views(1) (in millions)
3,688
4,770
29
%
RPM(2)
$
2.91
$
3.08
6
%
RPM ex-TAC(3)
$
2.15
$
2.16
--
%
Registrar Metrics:
End of Period # of Domains(4) (in millions)
11.9
13.5
14
%
Average Revenue per Domain(5)
$
10.17
$
9.96
(2
)%
____________________
(1)
Page views represent the total number of web pages viewed across (a)
our owned and operated websites and/or (b) our network of customer
websites, to the extent that the viewed customer web pages host the
Company's content, social media and/or monetization services.
(2)
RPM is defined as Content & Media revenue per one thousand page
views.
(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.
Beginning July 1, 2011, the number of net new domains has been adjusted
to include only new registered domains added to our platform for which
the Company has recognized revenue. Excluding the impact of this change,
end of period # of domains at June 30, 2012 and average revenue per
domain during the three months ended June 30, 2012 would have increased
15% and decreased 4%, respectively, compared to the corresponding
prior-year periods.
Q2 2012 Operating Metrics:
Owned & Operated page views increased 30% year-over-year, driven by
strong traffic growth on LIVESTRONG.COM and Cracked.com as well
as continued growth on eHow.com. This mix shift in page views to
relatively lower RPM properties in Q2 2012 resulted in an 11%
year-over-year decline in RPM.
Network page views grew 29% year-over-year, primarily due to the
acquisition of IndieClick in August 2011, which generated nearly 1.8
billion page views during the quarter ended June 30, 2012, offset
partly by a decline in page views associated with certain social media
customers. Network RPM ex-TAC was flat year-over-year, reflecting
higher RPMs ex-TAC from YouTube Channels offset by lower RPMs ex-TAC
from IndieClick.
End of period domains increased 14% to 13.5 million year-over-year,
driven by the addition of higher volume customers and continued growth
from existing resellers, with average revenue per domain decreasing by
2%, due to a mix shift to higher volume resellers.
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.
Excluding up to $4 million of 2012 expenses that the Company expects to
incur related to the formation of its generic Top Level Domain ("gTLD")
initiative, the Company's guidance for the third quarter ending
September 30, 2012 and fiscal year ending December 31, 2012 is as
follows:
Third Quarter 2012
Revenue in the range of $94.5 - $96.5 million
Revenue ex-TAC in the range of $90.0 - $92.0 million
Adjusted EBITDA in the range of $25.0 - $26.0 million
Adjusted EPS in the range of $0.09 - $0.10 per share
Weighted average diluted shares of 87.5 - 88.5 million
Full Year 2012
Revenue in the range of $373.0 - $377.0 million
Revenue ex-TAC in the range of $355.5 - $359.5 million
Adjusted EBITDA in the range of $98.5 - $100.5 million
Adjusted EPS in the range of $0.35 - $0.37 per share
Weighted average diluted shares of 87.0 - 88.0 million
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 12779178. In order to
participate on the live call, it is recommended that 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 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 in this release.
Effective Q1 2012, the Company began reporting Adjusted EBITDA instead
of Adjusted OIBDA. While the dollar value of each measure is the same, a
comparison of the historical reconciliation of both measures is provided
in our supplemental financial schedules posted on the investor relations
section of our corporate website at http://ir.demandmedia.com.
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.
Additionally, Adjusted EBITDA is the primary measure used by the
compensation committee of the Company's board of directors to establish
the funding targets for and fund its annual bonus pool for the Company's
employees and executives. 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.
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 of its Content & Media service
offering.
Adjusted earnings before interest, taxes, depreciation and
amortization ("Adjusted EBITDA") is defined by the Company as net
income (loss) before income tax expense, other income (expense),
interest expense (income), depreciation, amortization, stock-based
compensation, as well as the financial impact of acquisition and
realignment costs, the formation expenses directly related to its gTLD
initiative, 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 these non-GAAP financial measures reflect 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 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 is defined by the Company as Adjusted
Net Income divided by the weighted average number of shares outstanding. 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, accelerated amortization of
intangible assets removed from service, acquisition and realignment
costs, the formation expenses directly related to its gTLD initiative,
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 Earnings 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 excluding cash outflows from
acquisition and realignment activities, and the formation expenses
directly related to its gTLD initiative, less capital expenditures to
acquire property and equipment. Free Cash Flow is defined by the
Company as Discretionary Free Cash Flow less investments in
intangible assets and is not impacted by payments for gTLD applications,
which were $18.1 million in Q2 2012. 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 underlying cash flows from recurring
operating activities 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, pursuing new business opportunities, 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 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.
Further, these non-GAAP financial measures may differ from the non-GAAP
financial 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 leading digital media company that
informs and entertains one of the internet's largest audiences, helps
advertisers find innovative ways to engage with their customers and
enables publishers to expand their online presence. Headquartered in
Santa Monica, CA, Demand Media has offices in North America, South
America and Europe. For more information about Demand Media, please
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 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 ongoing 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; changes in our content creation
and distribution platform, including the possible repurposing of content
to alternate distribution channels, reduced investments in intangible
assets or the sale or removal of content; our ability to successfully
launch, produce and monetize new content formats; the inherent
challenges of estimating the overall impact on page views and search
driven traffic to our owned and operated websites based on the data
available to us as internet search engines continue to make adjustments
to their search algorithms; 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, including premium video and other formats of text
content; our ability to attract and retain freelance creative
professionals; changes in our level of investment in media content
intangibles; the effects of changes or shifts in internet marketing
expenditures, including from text to video content as well as from
desktop to mobile content; the effects of seasonality on traffic to our
owned and operated websites and the websites of our network customers;
our ability to continue to add partners to our registrar platform on
competitive terms; our ability to successfully pursue and implement our
gTLD initiative; 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, and media content 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, 2011 filed with the Securities and Exchange Commission (http://www.sec.gov)
on February 24, 2012, 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,
2011
2012
2011
2012
Revenue
$
79,455
$
93,055
$
158,978
$
179,289
Operating expenses
Service costs (exclusive of amortization of intangible assets shown
separately below) (1) (2)
37,869
44,367
75,523
85,629
Sales and marketing (1) (2)
9,286
11,660
18,869
22,053
Product development (1) (2)
9,642
10,587
18,893
20,711
General and administrative (1) (2)
13,787
15,754
30,811
31,149
Amortization of intangible assets
9,750
9,759
19,953
21,715
Total operating expenses
80,334
92,127
164,049
181,257
Income (loss) from operations
(879
)
928
(5,071
)
(1,968
)
Other income (expense)
Interest income
5
10
47
25
Interest expense
(163
)
(173
)
(325
)
(310
)
Other income (expense), net
(2
)
(45
)
(259
)
(64
)
Total other expense
(160
)
(208
)
(537
)
(349
)
Income (loss) before income taxes
(1,039
)
720
(5,608
)
(2,317
)
Income tax (expense) benefit
(1,332
)
(626
)
(2,345
)
569
Net income (loss)
$
(2,371
)
$
94
$
(7,953
)
$
(1,748
)
(1) Stock-based compensation expense included in the line
items above:
Service costs
$
347
$
761
$
584
$
1,469
Sales and marketing
1,136
1,585
2,036
3,121
Product development
1,130
2,085
2,246
3,773
General and administrative
2,807
4,118
9,481
7,577
Total stock-based compensation expense
$
5,420
$
8,549
$
14,347
$
15,940
(2) Depreciation included in the line items above:
Service costs
$
4,149
$
3,552
$
8,193
$
7,202
Sales and marketing
115
106
187
240
Product development
438
271
759
553
General and administrative
878
899
1,450
1,797
Total depreciation
$
5,580
$
4,828
$
10,589
$
9,792
Income (loss) per common share:
Net income (loss)
$
(2,371
)
$
94
$
(7,953
)
$
(1,748
)
Cumulative preferred stock dividends (3)
--
--
(2,477
)
--
Net income (loss) attributable to common stockholders
$
(2,371
)
$
94
$
(10,430
)
$
(1,748
)
Net income (loss) per share - basic
$
(0.03
)
$
--
$
(0.14
)
$
(0.02
)
Net income (loss) per share - diluted
$
(0.03
)
$
--
$
(0.14
)
$
(0.02
)
Weighted average number of shares - basic
83,088
83,925
73,477
83,433
Weighted average number of shares - diluted
83,088
86,802
73,477
83,433
(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,
June 30,
2011
2012
Current assets
Cash and cash equivalents
$
86,035
$
94,187
Accounts receivable, net
32,665
37,511
Prepaid expenses and other current assets
8,656
8,958
Deferred registration costs
50,636
57,513
Total current assets
177,992
198,169
Property and equipment, net
32,626
34,105
Intangible assets, net
111,304
94,525
Goodwill
256,060
256,037
Deferred registration costs
9,555
11,128
Other long-term assets
2,566
23,471
Total assets
$
590,103
$
617,435
Liabilities, Convertible Preferred Stock and Stockholders' Equity
Current liabilities
Accounts payable
$
10,046
$
12,865
Accrued expenses and other current liabilities
33,932
31,496
Deferred tax liabilities
18,288
20,109
Deferred revenue
71,109
79,366
Total current liabilities
133,375
143,836
Deferred revenue
14,802
16,200
Other liabilities
1,660
2,663
Total liabilities
149,837
162,699
Stockholders' equity
Common stock and additional paid-in capital
528,042
548,237
Treasury stock
(17,064
)
(21,020
)
Accumulated other comprehensive income
59
38
Accumulated deficit
(70,771
)
(72,519
)
Total stockholders' equity
440,266
454,736
Total liabilities, convertible preferred stock and stockholders'
equity
$
590,103
$
617,435
Demand Media, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Three months ended June 30,
Six months ended June 30,
2011
2012
2011
2012
Cash flows from operating activities:
Net income (loss)
$
(2,371
)
$
94
$
(7,953
)
$
(1,748
)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization
15,330
14,587
30,542
31,507
Stock-based compensation
5,426
8,549
14,262
15,940
Other
1,214
1,037
2,069
(383
)
Net change in operating assets and liabilities, net of effect of
acquisitions
(2,751
)
(2,394
)
(2,852
)
(4,965
)
Net cash provided by operating activities
16,848
21,873
36,068
40,351
Cash flows from investing activities:
Purchases of property and equipment
(5,746
)
(3,122
)
(10,830
)
(7,443
)
Purchases of intangibles
(15,858
)
(2,549
)
(30,062
)
(5,122
)
Payments for gTLD applications
--
(18,072
)
--
(18,202
)
Cash paid for acquisitions
--
(26
)
(3,839
)
(269
)
Other
--
(855
)
--
(855
)
Net cash used in investing activities
(21,604
)
(24,624
)
(44,731
)
(31,891
)
Cash flows from financing activities:
Proceeds from issuance of common stock, net
(249
)
--
78,625
--
Repurchases of common stock
--
(966
)
--
(3,956
)
Proceeds from exercises of stock options and contributions to ESPP
674
3,741
1,525
5,856
Other
(107
)
(1,391
)
(215
)
(2,187
)
Net cash provided by (used in) financing activities
318
1,384
79,935
(287
)
Effect of foreign currency on cash and cash equivalents
(16
)
(14
)
(8
)
(21
)
Change in cash and cash equivalents
(4,454
)
(1,381
)
71,264
8,152
Cash and cash equivalents, beginning of period
108,056
95,568
32,338
86,035
Cash and cash equivalents, end of period
$
103,602
$
94,187
$
103,602
$
94,187
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,
2011
2012
2011
2012
Revenue ex-TAC:
Content & Media revenue
$
49,822
$
59,667
$
101,674
$
113,630
Less: traffic acquisition costs (TAC)
(2,813
)
(4,380
)
(6,003
)
(7,759
)
Content & Media Revenue ex-TAC
47,009
55,287
95,671
105,871
Registrar revenue
29,633
33,388
57,304
65,659
Total Revenue ex-TAC
$
76,642
$
88,675
$
152,975
$
171,530
Adjusted EBITDA(1):
Net income (loss)
$
(2,371
)
$
94
$
(7,953
)
$
(1,748
)
Income tax expense/(benefit)
1,332
626
2,345
(569
)
Interest and other expense, net
160
208
537
349
Depreciation and amortization(2)
15,330
14,587
30,542
31,507
Stock-based compensation
5,420
8,549
14,347
15,940
Acquisition and realignment costs(3)
638
52
771
113
gTLD expense(4)
--
453
--
882
Adjusted EBITDA
$
20,509
$
24,569
$
40,589
$
46,474
Discretionary and Total Free Cash Flow:
Net cash provided by operating activities
$
16,848
$
21,873
$
36,068
$
40,351
Purchases of property and equipment
(5,746
)
(3,122
)
(10,830
)
(7,443
)
gTLD expense cash flows(4)
--
422
--
735
Discretionary Free Cash Flow
11,102
19,173
25,238
33,644
Purchases of intangible assets
(15,858
)
(2,549
)
(30,062
)
(5,122
)
Free Cash Flow(4)(5)
$
(4,756
)
$
16,624
$
(4,824
)
$
28,522
Adjusted Net Income:
GAAP net income (loss)
$
(2,371
)
$
94
$
(7,953
)
$
(1,748
)
(a) Stock-based compensation
5,420
8,549
14,347
15,940
(b) Amortization of intangible assets - M&A
3,097
2,737
6,830
5,666
(c) Content intangible assets removed from service(2)
--
--
--
1,818
(d) Acquisition and realignment costs(3)
638
52
771
113
(e) gTLD expense(4)
--
453
--
882
(f) Income tax effect of items (a) - (e) & application of 38%
statutory tax rate to pre-tax income
(1,752
)
(4,128
)
(3,864
)
(8,968
)
Adjusted Net Income
$
5,032
$
7,757
$
10,131
$
13,703
Non-GAAP Adjusted Net Income per share - diluted
$
0.06
$
0.09
$
0.11
$
0.16
Shares used to calculate non-GAAP Adjusted Net Income per share -
diluted(6)
88,691
86,802
89,258
86,117
(1)
Effective Q1 2012, the Company began reporting Adjusted EBITDA
instead of Adjusted OIBDA. While the dollar value of each measure
does not differ, a comparison of the historical reconciliation of
both measures is provided in our supplemental financial schedules
available on the investor relations section of our corporate website.
(2)
In conjunction with its previously announced plans to improve its
content creation and distribution platform, the Company elected to
remove certain content assets from service, resulting in $1.8
million of accelerated amortization expense in the first quarter of
2012.
(3)
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
costs to be indicative of the Company's core operating results.
(4)
Comprises formation expenses directly related to the Company's gTLD
initiative that is not expected to generate associated revenue in
2012.
(5)
In April 2012, the Company invested $18.1 million in gTLD
applications, which did not impact its recurring Free Cash Flow
metric.
(6)
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 2011 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, 2011.
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