Leaf Reports Second Quarter 2017 Results

Leaf Group Ltd. (NYSE: LFGR), a diversified Internet company comprised of several marketplace and media properties, today reported financial results for the second quarter ended June 30, 2017.

“Our multi-year efforts to drive growth in our media businesses are paying off. Livestrong.com delivered its fourth straight quarter of revenue growth with a 50% increase in revenue year-over-year,” said Sean Moriarty, CEO of Leaf Group. “Our Marketplaces showed continued strength with revenue increasing 32% year-over-year in Q2 with our expanding portfolio of growing brands.”

Q2 2017 Financial Summary:

Leaf Group is comprised of two segments: Marketplaces and Media. With the continued growth of and expanding portfolio within Leaf Group’s Marketplaces segment, the company will begin to report certain financial information on a segment basis. The two reporting segments are consistent with historical revenue reported: Marketplaces and Media. Please refer to the accompanying tables for additional information.

For the second quarter of 2017:

• Total revenue increased 17% year-over-year due to a 32% increase in Marketplaces revenue, partially offset by a 1% decline in Media revenue. On a pro forma basis eliminating the impact of the dispositions of the Cracked business and certain other non-strategic properties, total revenue increased 19% year-over-year.
• Marketplaces revenue grew 32% year-over-year driven primarily by the acquisitions of Deny Designs and The Other Art Fair, increased conversion rates, new product introductions, optimization of product prices and a higher commission rate on Saatchi Art, partially offset by increased promotions.
• Media revenue declined 1% year-over-year driven primarily by lower ad monetization yields, the strategic wind down of our lower-margin content studio business in Q2 2016, and the divestitures of certain media properties including Cracked. On a pro forma basis eliminating the impact of the dispositions of the Cracked business and certain other non-strategic properties, Media revenue increased 2% year-over-year.
• Adjusted EBITDA was $(3.9) million for the quarter, primarily reflecting increased marketing efforts and additional headcount in the Marketplaces business, partially offset by lower costs in the Media business.
• Cash and cash equivalents was $30.5 million at period end with no debt outstanding.

Business Highlights:

• On a consolidated basis, Leaf Group’s properties reached over 50 million average monthly unique visitors in the U.S. during Q2, including more than 36 million average monthly mobile visitors (source: Apr – Jun 2017 U.S. comScore).
• Society6 revenue grew 17% year-over-year in Q2 driven by improvements to its on-site search experience that contributed to increased transactions and higher conversion rates. Society6 has continued to focus on customer acquisition, with new customer growth of 26% year-over-year and repeat customer growth of 37% year-over-year in Q2.
• Saatchi Art, inclusive of The Other Art Fair, saw revenue grow 63% year-over-year in Q2, driven by three art fairs hosted in Q2, increased transactions, improvement in conversion rates and a higher commission rate on Saatchi Art. Saatchi Art continued to see the benefits of increased marketing investment and The Other Art Fair’s launch of two new fairs in Q2, leading to a combined new customer growth of 62% and repeat customer growth of 27% year-over-year.
• The Media business nears its one year milestone in its strategic shift to launch editorial branded sites leveraging topics and content from eHow. The Media business continued to see the long-term benefits with 2% revenue growth on a pro forma basis. Livestrong.com revenue grew 50% in Q2 on a year-over-year basis, driven both by a 17% increase in visits and improved monetization yields. Additionally, Hunker.com, a new brand that explores home design through the lens of personal identity and style, reached nearly 3 million average monthly visitors during the first quarter of being launched.
• The acquisition of Deny Designs, an original home décor brand and manufacturer based in Denver, Colorado, was completed in May 2017 and the integration of Deny Designs with Leaf Group’s complementary marketplaces is underway.

About Leaf Group

Leaf Group Ltd. (NYSE: LFGR) is a diversified Internet company that builds platforms across its marketplaces (Society6, Saatchi Art, Deny Designs and The Other Art Fair) and various media properties (including Livestrong.com, eHow and Cuteness) to enable communities of creators to reach passionate audiences in large and growing lifestyle categories. In addition, Leaf Group’s diverse advertising offerings help brands and publishers find innovative ways to engage with their customers. For more information about Leaf Group, visit www.leafgroup.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 statements regarding potential synergies achieved from acquisitions, the impact of strategic operational changes and our future financial performance. 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 Leaf Group’s annual report on Form 10-K for the fiscal year ending December 31, 2016 filed with the Securities and Exchange Commission (http://www.sec.gov) on February 23, 2017, as such risks and uncertainties are updated in Leaf Group’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: the company’s ability to successfully drive and increase traffic to its media and marketplaces properties; the company’s ability to attract new and repeat customers and artists to its marketplaces and successfully grow its marketplaces business; the impact of increasing mobile usage on the company’s marketplaces business; changes in the methodologies of internet search engines, including ongoing algorithmic changes made by Google, Bing and Yahoo!; the effects of shifting consumption of media content and online shopping from desktop to mobile devices and/or social media platforms; the potential impact on advertising revenue of lower ad unit rates, a reduction in online advertising spending, a loss of advertisers, lower advertising yields, increased availability of ad blocking software, particularly on mobile devices and/or ongoing changes in ad unit formats; the impact of certain changes made to the business model for the company’s media properties, including the ability to successfully launch, manage and grow new vertically focused web properties; our ability to effectively integrate, manage, operate and grow our recently acquired Deny Designs marketplace business; the company’s dependence on material agreements with a specific business partner for a significant portion of its revenue; 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.