Leaf Reports Fourth Quarter and Fiscal 2016 Results

Leaf Group Ltd. (NYSE: LFGR), a diversified Internet company comprised of several marketplace and media properties, today reported financial results for the fourth quarter and fiscal year ended December 31, 2016.

“Q4 marks our second consecutive quarter of revenue growth – up a solid 9% year-over-year on a pro forma basis,” said Sean Moriarty, CEO of Leaf Group. “With continued growth in our Marketplaces business, strong growth for Livestrong.com and renewed growth in our other Media properties, we are very optimistic about 2017.”

Q4 2016 Financial Summary:

Leaf Group is comprised of two service offerings: Marketplaces and Media.

“In 2016 we optimized infrastructure and corporate overhead expenses, while also improving unit economics at the business unit level,” said Rachel Glaser, Leaf Group’s CFO. “As we enter 2017, we remain focused on balancing our resource and investment needs to grow topline revenue against our long-term commitment to reach profitability.”

For the fourth quarter of 2016:

• Total revenue declined 1% year-over-year due to a 30% decline in Media revenue partially offset by a 23% increase in Marketplaces 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 9% year-over-year.
• Marketplaces revenue grew 23% year-over-year driven primarily by increased traffic, new product introductions and higher conversion rates.
• Media revenue declined 30% year-over-year driven primarily by the divestitures of certain online properties including Cracked, traffic declines on eHow and lower ad monetization yields. On a pro forma basis eliminating the impact of the dispositions of the Cracked business and certain other non-strategic properties, Media revenue declined 12% year-over-year.
• Adjusted EBITDA was $(2.6) million for the quarter, primarily reflecting the decline in higher margin Media advertising revenue, partially offset by growth in Marketplaces and managed reductions in operating expenses other than product and marketing costs.
• Cash and cash equivalents was $50.9 million at period end with no debt outstanding. During Q4, the company used $1.4 million to repurchase approximately 226,000 shares of its common stock at an average price of $5.98 per share. As of December 31, 2016, approximately $14.4 million of authorized funds remained available for share repurchases under the company’s stock repurchase plan.

Business Highlights:

• On a consolidated basis, Leaf Group’s properties reached more than 47 million average monthly unique visitors in the U.S. during Q4, including more than 26 million average monthly mobile visitors (source: Oct – Dec 2016 U.S. comScore). On a yearly basis, mobile visitors to our properties increased 20% in 2016 as compared to 2015 (source: US comScore).
• Society6 revenue grew 20% year-over-year in Q4 driven by total transactions growth of 28%. Society6 revenue for “Cyber Weekend” (Thanksgiving through Cyber Monday) increased 30% year-over-year, and four new products were introduced during the quarter.
• Saatchi Art grew revenue, traffic and gross transaction value on both a quarter-over-quarter and year-over-year basis in Q4, with Q4 revenue increasing 28% year-over-year. Both new customers and repeat customers grew more than 30% year-over-year during Q4.
• The shifts in strategy made to the Media business over the last few quarters continued to produce positive results during Q4. Livestrong.com revenue grew 20% in Q4 on a year-over-year basis, driven primarily by visits increasing 18%. The eHow sites, consisting of eHow, Cuteness, Techwalla, Sapling and LEAFtv, saw both revenue and traffic increase quarter-over-quarter on a combined basis.
• In recognition of its corporate transformation, Leaf Group’s CEO Sean Moriarty, CFO Rachel Glaser, and members of the Board of Directors and executive leadership will represent the company for the ringing of The Opening Bell® at the New York Stock Exchange on Monday, February 27, 2017.

About Leaf Group

Leaf Group Ltd. (NYSE: LFGR) is a diversified Internet company that builds platforms across its marketplace (Society6 and Saatchi Art) and media (Livestrong.com and eHow) properties 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 our expectations for 2017. 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 traffic to its media and marketplace properties; the company’s ability to attract new customers 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 and/or increased availability of ad blocking software, particularly on mobile devices; the impact of certain changes made to the business model for the company’s media properties; 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.