Demand Media Reports Fourth Quarter and Full Year 2015 Results

Santa Monica, CA- Demand Media, Inc. (NYSE: DMD), a diversified Internet company comprised of several media and marketplace properties, today reported financial results for the fourth quarter and fiscal year ended December 31, 2015.

“As my first full year at Demand concludes, I am encouraged by the progress we have made in stabilizing our Content & Media businesses and growing our Marketplace businesses,” said Sean Moriarty, CEO of Demand Media. “We head into 2016 focused on driving audience and revenue growth by building great products across our properties that consumers love, share and visit often.”

Q4 2015 Financial Summary:

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

“We believe that the company is well positioned for growth across all of our businesses,” said Rachel Glaser, Demand Media’s CFO. “From a cost perspective, we are streamlining infrastructure and operations while also making prudent investments in the right places. We have an operating plan that we believe puts us on track for profitability.”

For the fourth quarter of 2015:

• Total revenue declined 20% year-over-year due to a 44% decline in Content & Media revenue partially offset by a 29% increase in Marketplaces revenue.
• Content & Media revenue declined 44% year-over-year driven primarily by traffic declines to eHow and lower ad monetization yields.
• Marketplaces revenue grew 29% year-over-year driven primarily by new product introductions, increased conversion rates and traffic growth on Society6, as well as increased average revenue per transaction resulting from a shift towards higher priced items on Society6.
• Adjusted EBITDA was $(0.9) million for the quarter, primarily reflecting the decline in higher margin Content & Media advertising revenue, partially offset by growth in Marketplaces and managed reductions in operating expenses other than product costs.
• Cash and cash equivalents was $38.6 million at period end with no debt outstanding.

Business Highlights:

• On a consolidated basis, Demand Media’s properties reached more than 59 million unique visitors in the US in January 2016, including more than 41 million mobile visitors (source: January 2016 US comScore). Demand Media’s consolidated unique visitors increased in January 2016 largely as a result of Cracked’s comScore traffic being attributed to Demand Media rather than CollegeHumor following the end of Cracked’s relationship with Electus/CollegeHumor.

Content & Media:

• eHow focused on producing high-quality content during Q4, including topically relevant and highly shareable videos, and saw increased traffic from Pinterest and other social channels. eHow also completed several improvements to its platform, such as the additions of a responsive homepage and public facing contributor and user profiles. In January 2016, eHow Home ranked as the #8 Home property in the US and eHow reached nearly 24 million unique visitors in the US across desktop and mobile platforms (source: January 2016 US comScore).
• Livestrong.com launched a single page article layout with infinite scroll for mobile during Q4 and a new home page in January, while continuing to improve and renovate health and nutrition content on the site. In January 2016, Livestrong/eHow Health ranked as the #4 Health property in the US and Livestrong.com reached nearly 26 million unique visitors in the US across desktop and mobile platforms (source: January 2016 US comScore).
• Cracked continued to see meaningful growth in video views and podcast listens. Cracked Video had a record number of views in December and the Cracked YouTube Channel now has over one million subscribers. The Cracked Podcast was selected by iTunes as one of the best podcasts of 2015. In January 2016, Cracked ranked as the #6 Humor property in the US with more than 8 million unique visitors across desktop and mobile platforms (source: January 2016 US comScore).
• studioD, which includes our content marketing and content channel offerings, launched its largest influencer campaign to date, with 36 campaign bloggers and social influencers creating original content to promote a client’s new product launch. studioD’s content marketing and custom content business also continued to grow, with new deals from Nestlé® and Office Depot.

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 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 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, including evaluating investment decisions, and in its discussions with investors, commercial bankers, securities analysts and other users of the company’s financial statements.

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. 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 income (loss) from discontinued operations, net of taxes, net interest 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, in fiscal 2014, goodwill impairment. Management believes that the exclusion of certain expenses 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 our businesses and reflects the company’s 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 income (loss) from discontinued operations, net of taxes, and 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 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 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 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, 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 marketing solutions (studioD) and diverse advertising offerings help advertisers find innovative ways to engage with their customers.

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 the company’s 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 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 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: 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.