Leaf Reports Fourth Quarter and Fiscal 2017 Results

Leaf Group Ltd. (NYSE: LFGR), a diversified consumer internet company comprised of several marketplace and media properties, today reported financial results for the fourth quarter and fiscal year ended December 31, 2017.

“We are very pleased with our performance in 2017. In Q4, our Media business achieved year-over-year revenue growth for the first time in over four years,” said Sean Moriarty, CEO of Leaf Group. “Our Marketplaces business continues to deliver consistent results with revenue increasing 24% in Q4 year-over-year.”

Q4 2017 Financial Summary:

“We continue to build positive momentum in the business and focus on delivering strong operating results,” said Jantoon Reigersman, CFO of Leaf Group. “With the successful completion of our follow-on offering in February 2018, we head in to 2018 well-positioned to execute on our long-term commitment to build a sustainable and profitable business.”

Leaf Group is comprised of two segments: Marketplaces and Media.
For the fourth quarter of 2017:

• Total revenue increased 17% year-over-year due to a 24% increase in Marketplaces revenue and a 3% increase in Media revenue.
• Marketplaces revenue grew 24% year-over-year driven by the acquisition of Deny Designs in May 2017, higher average order value and increased conversion.
• Media revenue increased by 3% year-over-year driven primarily by increased traffic and higher monetization on Livestrong.com, offset by the wind down of the lower-margin custom content business in Q2 2016.
• Net loss was $(5.3) million for the quarter and Adjusted EBITDA was $(0.4) million for the quarter, reflecting year-over-year improvements from lower Media operating expenses, including from the realignment of the lower-margin custom content business, and revenue growth in both Marketplaces and Media.
• Cash and cash equivalents was $31.3 million at period end with no debt outstanding.
• In February 2018, Leaf Group successfully completed its underwritten registered public offering of 3,373,332 shares of its common stock, including full exercise of the underwriter’s option to purchase additional shares of common stock, at a public offering price of $7.50 per share, for net proceeds of approximately $23.3 million.

Business Highlights:

• On a consolidated basis, Leaf Group’s properties reached over 50 million average monthly unique visitors in the U.S. during Q4 (source: Oct – Dec 2017 U.S. comScore).
• On a consolidated basis, Society6 and Deny Designs revenue grew 21% in Q4 on a year-over-year basis. Revenue growth was driven the acquisition of Deny Designs and price optimization efforts on Society6, which contributed to an increase in average order value of 17%. Deny Designs continues to focus on further strategic integration with Society6 and strengthening its position within the wholesale channel through expanding relationships with key retail partners.
• Saatchi Art, inclusive of The Other Art Fair, saw revenue grow 56% year-over-year in Q4 driven by an increase in the number of fairs hosted during the quarter, improving traffic and average order value, and a higher commission rate on Saatchi Art.
• The shifts in strategy made to the Media business over the past year and a half continued to produce positive results with Media revenue increasing 3% in Q4 on a year-over-year basis, marking the first quarter of year-over-year revenue growth in over four years. Livestrong.com revenue grew 28% year-over-year in Q4, driven primarily by higher monetization and an increase in visits of 25%. Revenue from eHow and the vertical properties that leverage content and topics formerly on eHow grew 11% year-over-year in Q4 driven primarily by an increase in visits of 29%.

About Leaf Group

Leaf Group Ltd. (NYSE: LFGR) is a diversified consumer internet company that builds enduring, creator-driven brands that reach passionate audiences in large and growing lifestyle categories, including art and design (Saatchi Art), fitness and wellness (Livestrong.com), home and décor (Society6 and Hunker), do-it-yourself projects and crafts (eHow), amongst others. 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; could cause actual results or developments to differ materially from those indicated due to a number of factors affecting Leaf Group’s operations, markets, products and services; 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, 2017 filed with the Securities and Exchange Commission (http://www.sec.gov) on March 1, 2018, as such risks and uncertainties may be updated from time to time 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 marketplaces and media properties; the company’s ability to attract new and repeat customers and artists to its marketplaces and successfully grow its marketplace businesses; the impact of increasing mobile usage on the company’s marketplace businesses; 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 based 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 advertising revenue; the company’s ability to effectively manage its expected uses of the proceeds from its recent follow-on offering of common stock; 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.