Leaf Group Ltd. (NYSE: LEAF), a diversified consumer internet
company, today reported financial results for the third quarter
ended September 30, 2020.
Unaudited Financial Summary |
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Society6 Group revenue |
|
$ |
43,631 |
|
$ |
19,205 |
|
|
$ |
94,289 |
|
|
$ |
51,406 |
|
Saatchi Art Group revenue |
|
|
4,668 |
|
|
4,122 |
|
|
|
11,398 |
|
|
|
11,948 |
|
Media Group revenue |
|
|
14,956 |
|
|
16,703 |
|
|
|
41,401 |
|
|
|
46,503 |
|
Total revenue |
|
$ |
63,255 |
|
$ |
40,030 |
|
|
$ |
147,088 |
|
|
$ |
109,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
3,686 |
|
$ |
(4,485 |
) |
|
$ |
(6,187 |
) |
|
$ |
(21,533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS - basic |
|
$ |
0.14 |
|
$ |
(0.17 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.83 |
) |
EPS - diluted |
|
$ |
0.13 |
|
$ |
(0.17 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1) |
|
$ |
2,579 |
|
$ |
300 |
|
|
$ |
(696 |
) |
|
$ |
(7,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
2,931 |
|
$ |
4,103 |
|
|
$ |
6,960 |
|
|
$ |
(8,745 |
) |
Free cash flow(1) |
|
$ |
936 |
|
$ |
2,297 |
|
|
$ |
1,542 |
|
|
$ |
(13,822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) These non-GAAP financial measures, and reasons for why the
Company believes these non-GAAP financial measures are useful, are
described below and reconciled to their most directly comparable
GAAP measures in the accompanying tables.
Q3 2020 Financial Summary:
Until Q3 2020, Leaf Group was comprised of two reporting
segments, Marketplaces and Media. With the continued growth of Leaf
Group’s Marketplaces segment, Leaf Group has decided to divide the
Marketplaces segment into two separate reporting segments, Society6
Group and Saatchi Art Group. Accordingly, as of Q3 2020, Leaf Group
is now comprised of three reporting segments: Society6 Group,
Saatchi Art Group, and Media Group. Please refer to the
accompanying tables for additional information. To assist in the
analysis and understanding of the new segment structure, Leaf Group
is providing selected recast financial data for each quarter of
fiscal year 2019 and the first three quarters of 2020 in its
supplemental financial summary, available on the Investor Relations
section of Leaf Group’s website, reflecting the new reporting
segments. These changes have no impact on Leaf Group’s previously
reported consolidated balance sheet, statement of income, or cash
flows.
For the third quarter of 2020:
- Total revenue
increased 58% year-over-year from $40.0 million to $63.3 million
due to a 127% increase in Society6 Group revenue and a 13% increase
in Saatchi Art Group revenue, partially offset by a 10% decrease in
Media Group revenue.
- Society6 Group
revenue increased 127% year-over-year from $19.2 million to $43.6
million. This increase was primarily attributable to overall
Direct-to-Consumer revenue growth of 140%, including 155% growth in
the U.S. and 60% growth internationally.
- Saatchi Art Group
revenue increased 13% year-over-year from $4.1 million to $4.7
million. This increase was primarily attributable to strength in
the Saatchi Art online marketplace with revenue growth of 68% and
the recently-launched The Other Art Fair Online Studios, partially
offset by the postponement or cancellation of its live fairs for
the third quarter 2020.
- Media Group revenue
decreased 10% year-over-year from $16.7 million to $15.0 million.
This decrease was primarily attributable to a 37% decrease in
visits, partially offset by a 43% increase in RPV. On a pro forma
basis after giving effect to the Hearst Transaction, visits
decreased by 22% and RPV increased by 14% year-over-year.(1)
- Net income was $3.7
million for the quarter, increasing $8.2 million year-over-year,
and Adjusted EBITDA was $2.6 million for the quarter, reflecting an
improvement of $2.3 million year-over-year. The increase in net
income for the quarter is primarily attributable to improved
operating performance and the additional $5.5 million gain
resulting from the Hearst Transaction.(1)
- Cash and cash
equivalents was $33.0 million at period end with $11.4 million in
debt outstanding including $7.1 million from the Paycheck
Protection Program and $4.0 million drawn on our revolving credit
facility.
- On a consolidated
basis, Leaf Group’s properties reached over 54 million monthly
unique visitors in the United States in September 2020 (source:
September 2020 U.S. comScore).
____________
(1) On April 24, 2020, Leaf Group entered
into an Asset Sale and Services Agreement with Hearst Newspapers
(“Hearst”), pursuant to which the Company sold to Hearst a library
of content carried on certain websites that had been hosted by the
Company on behalf of Hearst for $9.5 million, of which $4.0 million
was paid at signing (the “Hearst Transaction”). The balance of $5.5
million was paid on August 21, 2020, upon completion of the
migration of the Hearst Content to servers controlled by Hearst. As
of April 25, 2020, the Company is no longer including visits to the
sites migrated to Hearst in the Hearst Transaction in its media
group metrics.
Unaudited Operating Metrics:
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|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
September 30, |
|
|
September 30, |
|
|
2020 |
|
2019 |
|
% Change |
|
|
2020 |
|
2019 |
|
% Change |
|
Society6 Group
Metrics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Transactions(1) |
|
681,400 |
|
|
309,656 |
|
120 |
|
% |
|
|
1,515,120 |
|
|
824,260 |
|
84 |
|
% |
Gross Transaction Value (in thousands)(2) |
$ |
49,095 |
|
$ |
22,192 |
|
121 |
|
% |
|
$ |
108,134 |
|
$ |
58,899 |
|
84 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saatchi Art Group
Metrics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Transactions(3) |
|
8,541 |
|
|
6,834 |
|
25 |
|
% |
|
|
22,762 |
|
|
21,599 |
|
5 |
|
% |
Gross Transaction Value (in thousands)(4) |
$ |
9,784 |
|
$ |
7,149 |
|
37 |
|
% |
|
$ |
28,214 |
|
$ |
22,628 |
|
25 |
|
% |
Number of Art Fairs(5) |
|
— |
|
|
3 |
|
(100 |
) |
% |
|
|
— |
|
|
9 |
|
(100 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media Group
Metrics:(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Visits per Google Analytics (in thousands)(7) |
|
461,471 |
|
|
736,608 |
|
(37 |
) |
% |
|
|
1,699,126 |
|
|
2,194,681 |
|
(23 |
) |
% |
Revenue per Visit (RPV)(8) |
$ |
32.41 |
|
$ |
22.68 |
|
43 |
|
% |
|
$ |
24.37 |
|
$ |
21.19 |
|
15 |
|
% |
Pro forma Visits per Google Analytics (in thousands)(7)(9) |
|
461,471 |
|
|
589,789 |
|
(22 |
) |
% |
|
|
1,524,853 |
|
|
1,732,100 |
|
(12 |
) |
% |
Pro forma Revenue per Visit (RPV)(8)(9) |
$ |
32.41 |
|
$ |
28.32 |
|
14 |
|
% |
|
$ |
27.15 |
|
$ |
26.85 |
|
1 |
|
% |
(1) Number of transactions is defined as the total number of
Society6 Group transactions successfully completed by a customer
during the applicable period.
(2) Gross transaction value is defined as the total dollar value
of Society6 Group transactions. Gross transaction value is the
total amount paid by the customer for a Society6 Group product,
which consists of the following elements: the product price,
inclusive of the commission payable to the artist, shipping
charges, and sales taxes, less any promotional discounts. Gross
transaction value does not reflect any subsequent cancellations,
refunds or credits and does not represent revenue earned by the
Company.
(3) Number of transactions is defined as the total number of
Saatchi Art Group transactions successfully completed by a customer
during the applicable period, excluding certain transactions
generated by Saatchi Art’s The Other Art Fair, which include sales
of stand space to artists at fairs, sponsorship fees and ticket
sales.
(4) Gross transaction value is defined as the total dollar value
of Saatchi Art Group transactions, excluding the revenue from
certain transactions generated by Saatchi Art’s The Other Art Fair,
which include sales of stand space to artists at fairs, sponsorship
fees and ticket sales. Gross transaction value is the total amount
paid by the customer for a Saatchi Art Group product, which
consists of the following elements: the product price, inclusive of
the commission payable to the artist, shipping charges, and sales
taxes, less any promotional discounts. Gross transaction value does
not reflect any subsequent cancellations, refunds or credits and
does not represent revenue earned by the Company.
(5) Number of Art Fairs is defined as in-person art fairs hosted
by The Other Art Fair.
(6) Media Group Metrics include visits and revenue generated by
OnlyInYourState subsequent to its acquisition in February 2019.
From April 25, 2020 onwards, Media Group Metrics exclude visits
generated by certain domains no longer under our control as a
result of the Hearst Transaction.
(7) Visits per Google Analytics is defined as the total number
of times users access the Company’s content across (a) one of its
owned and operated properties and/or (b) one of its customers’
properties, to the extent that the visited customer web pages are
hosted by the Company. In each case, breaks of access of at least
30 minutes constitute a unique visit. Additionally, a visit is also
considered to have ended at midnight or if a user arrives via one
campaign, leaves, and then comes back via a different campaign.
(8) RPV is defined as Media Group revenue per one thousand
visits.
(9) Pro forma Visits and Pro forma Revenue per Visit exclude
visits generated by certain domains no longer under our control as
a result of the Hearst Transaction for all periods reported. The
number of visits is derived from Google Analytics.
Shareholder Letter and Conference Call
Information
Leaf Group’s detailed Shareholder Letter is available at
https://ir.leafgroup.com/investor-overview/quarterly-and-annual-results/default.aspx.
Leaf Group will host a corresponding conference call and
presentation to answer questions today at 5:00 p.m. Eastern time
(2:00 p.m. Pacific time). To access the conference call and
presentation, dial 833-502-0482 (U.S./CAN) or 778-560-2575
(International) and reference conference ID 5599376. To participate
on the live call, 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 Leaf Group’s
corporate website at http://ir.leafgroup.com and via replay
beginning approximately two hours after the completion of the call.
The accompanying slide presentation will also be posted to our
website at
https://ir.leafgroup.com/investor-overview/events-and-presentations/
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”),
Leaf Group uses certain non-GAAP financial measures, as described
below. These non-GAAP financial measures are presented to enhance
the user’s overall understanding of Leaf Group’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, together with the GAAP financial results, 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 and gains 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, to evaluate investment decisions, and in its
discussions with investors, commercial bankers, equity research
analysts and other users of the Company’s financial statements.
Accordingly, the Company believes that these non-GAAP financial
measures provide useful information to investors and others in
understanding and evaluating the Company’s operating results in the
same manner as the Company’s management and in comparing operating
results across periods and to those of Leaf Group’s peer
companies.
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 financial performance and
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 or include 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 interest (income) 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, contingent payments to certain key employees/equity
holders of acquired businesses and other payments attributable to
acquisition, disposition or corporate realignment activities.
Management believes that the exclusion of certain expenses and
gains 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 the Company’s businesses, and
reflects its 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
amounts of such expenses is the result of long-term investment
decisions made in previous periods rather than day-to-day operating
decisions.
The Company defines Segment Operating
Contribution as earnings before corporate or unallocated
expenses and also excludes: (a) depreciation expense; (b)
amortization of intangible assets; (c) share-based compensation
expense; (d) interest and other income (expense); (e) income taxes;
and (f) contingent payments to certain key employees/equity holders
of acquired businesses. Management believes that the exclusion of
certain expenses and gains in calculating Segment Operating
Contribution provides a useful measure for period-to-period
comparisons of the segment’s underlying revenue and operating costs
that is focused more closely on the current costs necessary to
operate the segment, and reflects the segment’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 amounts of such expenses is the result of long-term
investment decisions made in previous periods rather than
day-to-day operating decisions.
The Company defines Free Cash Flow as net cash
provided by (used in) operating activities net of cash flows from
contingent payments to certain key employees/equity holders of
acquired businesses; other payments attributable to acquisition,
disposition or corporate realignment activities; purchases of
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 its businesses, pursuing new business
opportunities and potential acquisitions, paying dividends and
repurchasing shares.
About Leaf Group
Leaf Group Ltd. (NYSE: LEAF) is a diversified consumer internet
company that builds enduring, creator-driven brands that reach
passionate audiences in large and growing lifestyle categories,
including fitness and wellness (Well+Good, Livestrong.com and
MyPlate App), and home, art and design (Saatchi Art, Society6 and
Hunker). 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 the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. The forward-looking
statements set forth in this press release include, among other
things, statements regarding potential synergies achieved from
acquisitions, the impact of strategic operational changes and the
Company’s 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,
2019 filed with the Securities and Exchange Commission
(http://www.sec.gov) on March 16, 2020, 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: risks associated
with political and economic instability domestically and
internationally including those resulting from the COVID-19
pandemic, which have and could lead to fluctuations in the
availability of credit, decreased business and consumer confidence
and increased unemployment; the Company’s ability to execute its
business plan to return to compliance with the continued listing
criteria of the New York Stock Exchange (“NYSE”); the Company’s
ability to continue to comply with applicable listing standards
within the available cure period; changes by the Small Business
Administration or other governmental authorities regarding the
Coronavirus Aid, Relief and Economic Security Act of 2020 (the
“CARES Act”), the Paycheck Protection Program (“PPP”) or related
administrative matters; the Company’s ability to comply with the
terms of the PPP loan and the CARES Act, including to use the
proceeds of the PPP loan; the Company’s ability to successfully
drive and increase traffic to its marketplaces and media
properties; changes in the methodologies of internet search
engines, including ongoing algorithmic changes made by Google, Bing
and Yahoo!; the Company’s ability to attract new and repeat
customers and artists to its marketplaces and successfully grow its
marketplace businesses; the potential impact on advertising-based
revenue from 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
Company’s dependence on various agreements with a specific business
partner for a significant portion of its advertising revenue; the
effects of shifting consumption of media content and online
shopping from desktop to mobile devices and/or social media
platforms; the Company’s history of incurring net operating losses;
the Company’s ability to obtain capital when desired on favorable
terms; potential write downs, reserves against or impairment of
assets including receivables, goodwill, intangibles (including
media content) or other assets; the Company’s ability to
effectively integrate, manage, operate and grow acquired
businesses; the Company’s ability to retain key personnel; the
Company’s ability to prevent any actual or perceived security
breaches; the Company’s ability to expand its business
internationally; the Company’s ability to generate long-term value
for its stockholders; and ongoing actions taken and any future
actions that may be taken by activist stockholders. 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. Any forward-looking statement made by the Company in
this press release is based only on information currently available
to the Company and speaks only as of the date on which it is made.
The Company undertakes no obligation to revise or update any
forward-looking information, whether written or oral, that may be
made from time to time, whether as a result of new information,
future developments or otherwise, except as required by law, and
may not provide this type of information in the future.
(Tables Follow)
|
|
Investor
Contacts: |
|
Brian GephartChief Financial
Officer(310) 917-6414IR@leafgroup.com Shawn MilneInvestor
Relations(310) 656-6346shawn.milne@leafgroup.com |
|
|
|
Leaf Group Ltd. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations (In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
September 30, |
|
September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
$ |
45,135 |
|
|
$ |
19,611 |
|
|
$ |
97,439 |
|
|
$ |
53,021 |
|
Service revenue |
|
18,120 |
|
|
|
20,419 |
|
|
|
49,649 |
|
|
|
56,836 |
|
Total revenue |
|
63,255 |
|
|
|
40,030 |
|
|
|
147,088 |
|
|
|
109,857 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
Product costs (exclusive of amortization of intangible assets shown
separately below)(1) |
|
33,753 |
|
|
|
14,221 |
|
|
|
72,752 |
|
|
|
40,049 |
|
Service costs (exclusive of amortization of intangible assets shown
separately below)(1)(2) |
|
8,468 |
|
|
|
9,107 |
|
|
|
25,270 |
|
|
|
26,000 |
|
Sales and marketing(1)(2) |
|
9,594 |
|
|
|
7,372 |
|
|
|
24,699 |
|
|
|
22,498 |
|
Product development(1)(2) |
|
4,967 |
|
|
|
4,973 |
|
|
|
14,728 |
|
|
|
15,652 |
|
General and administrative(1)(2) |
|
7,691 |
|
|
|
8,072 |
|
|
|
22,948 |
|
|
|
24,724 |
|
Amortization of intangible assets |
|
518 |
|
|
|
807 |
|
|
|
1,922 |
|
|
|
2,619 |
|
Total operating expenses |
|
64,991 |
|
|
|
44,552 |
|
|
|
162,319 |
|
|
|
131,542 |
|
Loss from operations |
|
(1,736 |
) |
|
|
(4,522 |
) |
|
|
(15,231 |
) |
|
|
(21,685 |
) |
Interest income |
|
1 |
|
|
|
44 |
|
|
|
27 |
|
|
|
232 |
|
Interest expense |
|
(103 |
) |
|
|
(5 |
) |
|
|
(292 |
) |
|
|
(15 |
) |
Other income, net |
|
5,537 |
|
|
|
(6 |
) |
|
|
9,384 |
|
|
|
6 |
|
Income (loss) before income taxes |
|
3,699 |
|
|
|
(4,489 |
) |
|
|
(6,112 |
) |
|
|
(21,462 |
) |
Income tax benefit
(expense) |
|
(13 |
) |
|
|
4 |
|
|
|
(75 |
) |
|
|
(71 |
) |
Net income (loss) |
$ |
3,686 |
|
|
$ |
(4,485 |
) |
|
$ |
(6,187 |
) |
|
$ |
(21,533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share—basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.14 |
|
|
$ |
(0.17 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.83 |
) |
Diluted |
$ |
0.13 |
|
|
$ |
(0.17 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares - basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
27,016 |
|
|
|
26,089 |
|
|
|
26,720 |
|
|
|
25,868 |
|
Diluted |
|
27,954 |
|
|
|
26,089 |
|
|
|
26,720 |
|
|
|
25,868 |
|
__________________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Depreciation expense
included in the above line items: |
|
|
|
|
|
|
|
|
|
|
|
Product costs |
$ |
479 |
|
|
$ |
401 |
|
|
$ |
1,538 |
|
|
$ |
1,162 |
|
Service costs |
|
1,116 |
|
|
|
951 |
|
|
|
3,265 |
|
|
|
2,831 |
|
Sales and marketing |
|
10 |
|
|
|
7 |
|
|
|
29 |
|
|
|
20 |
|
Product development |
|
15 |
|
|
|
12 |
|
|
|
42 |
|
|
|
35 |
|
General and administrative |
|
142 |
|
|
|
184 |
|
|
|
477 |
|
|
|
1,073 |
|
Total depreciation |
$ |
1,762 |
|
|
$ |
1,555 |
|
|
$ |
5,351 |
|
|
$ |
5,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Stock-based compensation
included in the above line items: |
|
|
|
|
|
|
|
|
|
|
|
Service costs |
$ |
265 |
|
|
$ |
315 |
|
|
$ |
1,002 |
|
|
$ |
758 |
|
Sales and marketing |
|
300 |
|
|
|
269 |
|
|
|
1,028 |
|
|
|
520 |
|
Product development |
|
658 |
|
|
|
635 |
|
|
|
2,000 |
|
|
|
1,791 |
|
General and administrative |
|
812 |
|
|
|
1,241 |
|
|
|
3,232 |
|
|
|
3,521 |
|
Total stock-based compensation |
$ |
2,035 |
|
|
$ |
2,460 |
|
|
$ |
7,262 |
|
|
$ |
6,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leaf Group Ltd. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets (In thousands)
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2020 |
|
2019 |
Assets |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
33,038 |
|
|
$ |
18,106 |
|
Accounts receivable, net |
|
|
13,297 |
|
|
|
14,402 |
|
Prepaid expenses and other current assets |
|
|
3,701 |
|
|
|
2,555 |
|
Total current assets |
|
|
50,036 |
|
|
|
35,063 |
|
Property and equipment,
net |
|
|
14,333 |
|
|
|
13,797 |
|
Operating lease right-of-use
assets |
|
|
10,726 |
|
|
|
12,645 |
|
Intangible assets, net |
|
|
11,312 |
|
|
|
12,589 |
|
Goodwill |
|
|
19,244 |
|
|
|
19,465 |
|
Other assets |
|
|
1,275 |
|
|
|
1,044 |
|
Total assets |
|
$ |
106,926 |
|
|
$ |
94,603 |
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable |
|
$ |
9,627 |
|
|
$ |
7,825 |
|
Accrued expenses and other current liabilities |
|
|
24,462 |
|
|
|
21,291 |
|
Deferred revenue |
|
|
5,308 |
|
|
|
2,464 |
|
Debt, current |
|
|
8,407 |
|
|
|
4,000 |
|
Total current liabilities |
|
|
47,804 |
|
|
|
35,580 |
|
Deferred tax liability |
|
|
86 |
|
|
|
63 |
|
Operating lease
liabilities |
|
|
8,561 |
|
|
|
10,863 |
|
Debt, non-current |
|
|
2,979 |
|
|
|
— |
|
Other liabilities |
|
|
182 |
|
|
|
287 |
|
Total liabilities |
|
|
59,612 |
|
|
|
46,793 |
|
Commitments and
contingencies |
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
Common stock |
|
|
3 |
|
|
|
3 |
|
Additional paid-in capital |
|
|
568,062 |
|
|
|
562,332 |
|
Treasury stock |
|
|
(35,706 |
) |
|
|
(35,706 |
) |
Accumulated other comprehensive loss |
|
|
(59 |
) |
|
|
(20 |
) |
Accumulated deficit |
|
|
(484,986 |
) |
|
|
(478,799 |
) |
Total stockholders’ equity |
|
|
47,314 |
|
|
|
47,810 |
|
Total liabilities and stockholders’ equity |
|
$ |
106,926 |
|
|
$ |
94,603 |
|
Leaf
Group Ltd. and SubsidiariesUnaudited Condensed
Consolidated Statements of Cash Flows (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months endedSeptember 30, |
|
Nine months endedSeptember 30, |
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Cash flows from
operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
3,686 |
|
|
$ |
(4,485 |
) |
|
$ |
(6,187 |
) |
|
$ |
(21,533 |
) |
|
Adjustments to reconcile net
income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,280 |
|
|
|
2,362 |
|
|
|
7,273 |
|
|
|
7,740 |
|
|
Non-cash lease expense |
|
|
700 |
|
|
|
424 |
|
|
|
2,073 |
|
|
|
1,386 |
|
|
Deferred income taxes |
|
|
13 |
|
|
|
15 |
|
|
|
23 |
|
|
|
20 |
|
|
Stock-based compensation |
|
|
2,035 |
|
|
|
2,460 |
|
|
|
7,262 |
|
|
|
6,590 |
|
|
Gain from sale of asset |
|
|
(5,500 |
) |
|
|
— |
|
|
|
(9,300 |
) |
|
|
— |
|
|
Other |
|
|
74 |
|
|
|
97 |
|
|
|
309 |
|
|
|
118 |
|
|
Change in operating assets and liabilities, net of effect of
acquisitions and disposals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(2,467 |
) |
|
|
(360 |
) |
|
|
873 |
|
|
|
654 |
|
|
Prepaid expenses and other current assets |
|
|
240 |
|
|
|
722 |
|
|
|
(1,182 |
) |
|
|
845 |
|
|
Other long-term assets |
|
|
24 |
|
|
|
7 |
|
|
|
32 |
|
|
|
109 |
|
|
Operating lease ROU assets and liabilities |
|
|
(734 |
) |
|
|
(415 |
) |
|
|
(2,146 |
) |
|
|
(1,695 |
) |
|
Accounts payable |
|
|
1,144 |
|
|
|
1,549 |
|
|
|
1,802 |
|
|
|
2,034 |
|
|
Accrued expenses and other liabilities |
|
|
2,245 |
|
|
|
1,658 |
|
|
|
3,284 |
|
|
|
(5,607 |
) |
|
Deferred revenue |
|
|
(809 |
) |
|
|
69 |
|
|
|
2,844 |
|
|
|
594 |
|
|
Net cash provided by (used in) operating activities |
|
|
2,931 |
|
|
|
4,103 |
|
|
|
6,960 |
|
|
|
(8,745 |
) |
|
Cash flows from
investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and
equipment |
|
|
(1,832 |
) |
|
|
(1,806 |
) |
|
|
(5,255 |
) |
|
|
(5,167 |
) |
|
Purchases of intangible
assets |
|
|
(163 |
) |
|
|
— |
|
|
|
(163 |
) |
|
|
— |
|
|
Proceeds from sale of
assets |
|
|
5,500 |
|
|
|
— |
|
|
|
9,500 |
|
|
|
— |
|
|
Cash paid for acquisitions,
net of cash acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,900 |
) |
|
Net cash provided by (used in) investing activities |
|
|
3,505 |
|
|
|
(1,806 |
) |
|
|
4,082 |
|
|
|
(7,067 |
) |
|
Cash flows from
financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory
note |
|
|
— |
|
|
|
— |
|
|
|
7,144 |
|
|
|
— |
|
|
Proceeds from exercises of
stock options and purchases under ESPP |
|
|
14 |
|
|
|
281 |
|
|
|
42 |
|
|
|
726 |
|
|
Taxes paid on net share
settlements of restricted stock units |
|
|
(1,321 |
) |
|
|
(364 |
) |
|
|
(2,068 |
) |
|
|
(2,403 |
) |
|
Cash paid for acquisition
holdback |
|
|
— |
|
|
|
— |
|
|
|
(36 |
) |
|
|
(625 |
) |
|
Cash paid for contingent
consideration liability |
|
|
— |
|
|
|
— |
|
|
|
(856 |
) |
|
|
(934 |
) |
|
Cash paid for debt issuance
costs |
|
|
— |
|
|
|
— |
|
|
|
(38 |
) |
|
|
— |
|
|
Other |
|
|
(23 |
) |
|
|
(20 |
) |
|
|
(54 |
) |
|
|
(75 |
) |
|
Net cash provided by (used in) financing activities |
|
|
(1,330 |
) |
|
|
(103 |
) |
|
|
4,134 |
|
|
|
(3,311 |
) |
|
Effect of foreign currency on
cash, cash equivalents and restricted cash |
|
|
24 |
|
|
|
(6 |
) |
|
|
20 |
|
|
|
(2 |
) |
|
Change in cash, cash equivalents and restricted cash |
|
|
5,130 |
|
|
|
2,188 |
|
|
|
15,196 |
|
|
|
(19,125 |
) |
|
Cash, cash equivalents and
restricted cash, beginning of period |
|
|
29,192 |
|
|
|
10,622 |
|
|
|
19,126 |
|
|
|
31,935 |
|
|
Cash, cash equivalents and
restricted cash, end of period |
|
$ |
34,322 |
|
|
$ |
12,810 |
|
|
$ |
34,322 |
|
|
$ |
12,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
cash, cash equivalents and restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
33,038 |
|
|
$ |
11,790 |
|
|
$ |
33,038 |
|
|
$ |
11,790 |
|
|
Restricted cash included in
other current assets |
|
|
136 |
|
|
|
136 |
|
|
|
136 |
|
|
|
136 |
|
|
Restricted cash included in
other long-term assets |
|
|
1,148 |
|
|
|
884 |
|
|
|
1,148 |
|
|
|
884 |
|
|
Total cash, cash equivalents and restricted cash shown in the
statement of cash flows |
|
$ |
34,322 |
|
|
$ |
12,810 |
|
|
$ |
34,322 |
|
|
$ |
12,810 |
|
|
Leaf Group Ltd. and Subsidiaries
Unaudited Reconciliations of Non-GAAP Financial Measures (In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Adjusted
EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)(1) |
|
$ |
3,686 |
|
|
$ |
(4,485 |
) |
|
$ |
(6,187 |
) |
|
$ |
(21,533 |
) |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense, net |
|
|
13 |
|
|
|
(4 |
) |
|
|
75 |
|
|
|
71 |
|
|
Interest (income) expense, net |
|
|
102 |
|
|
|
(39 |
) |
|
|
265 |
|
|
|
(217 |
) |
|
Other expense (income), net |
|
|
(5,537 |
) |
|
|
6 |
|
|
|
(9,384 |
) |
|
|
(6 |
) |
|
Depreciation and amortization(2) |
|
|
2,280 |
|
|
|
2,362 |
|
|
|
7,273 |
|
|
|
7,740 |
|
|
Stock-based compensation(3) |
|
|
2,035 |
|
|
|
2,460 |
|
|
|
7,262 |
|
|
|
6,590 |
|
|
Acquisition, disposition, realignment and contingent payment
costs(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
90 |
|
|
Adjusted EBITDA |
|
$ |
2,579 |
|
|
$ |
300 |
|
|
$ |
(696 |
) |
|
$ |
(7,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash
Flow: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
2,931 |
|
|
$ |
4,103 |
|
|
$ |
6,960 |
|
|
$ |
(8,745 |
) |
|
Purchases of property and
equipment |
|
|
(1,832 |
) |
|
|
(1,806 |
) |
|
|
(5,255 |
) |
|
|
(5,167 |
) |
|
Purchases of intangibles |
|
|
(163 |
) |
|
|
— |
|
|
|
(163 |
) |
|
|
— |
|
|
Acquisition, disposition,
realignment and contingent payments(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
90 |
|
|
Free Cash Flow |
|
$ |
936 |
|
|
$ |
2,297 |
|
|
$ |
1,542 |
|
|
$ |
(13,822 |
) |
|
(1) For the nine months ended September 30, 2020, we had $1.5
million in cost savings, which included temporary salary cuts of
our executive team and salaried direct workforce (whose salaries
were reinstated effective with payroll paid on June 30, 2020) and
compensation cuts and deferrals of compensation of our independent
directors (whose cash retainer compensation was reinstated,
effective July 1, 2020), neither of which is expected to
reoccur.(2) Represents depreciation expense of the Company’s
long-lived tangible assets and amortization expense of its
finite-lived intangible assets, including amortization expense
related to its investment in media content assets as included in
the Company’s GAAP results of operations.(3) Represents the expense
related to stock-based awards granted to employees, as included in
the Company’s GAAP results of operations.(4) Represents such items,
when applicable, as (a) legal, accounting and other professional
service fees directly attributable to acquisition, disposition or
corporate realignment activities, (b) employee severance, (c)
contingent payments to certain key employees/equity holders of
acquired businesses, and (d) other payments attributable to
acquisition, disposition or corporate realignment
activities.
Leaf Group Ltd. and Subsidiaries
Unaudited Reconciliation of Segment Disclosure (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Segment
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Society6 Group |
|
$ |
43,631 |
|
|
$ |
19,205 |
|
|
$ |
94,289 |
|
|
$ |
51,406 |
|
|
Saatchi Art Group |
|
|
4,668 |
|
|
|
4,122 |
|
|
|
11,398 |
|
|
|
11,948 |
|
|
Media Group |
|
|
14,956 |
|
|
|
16,703 |
|
|
|
41,401 |
|
|
|
46,503 |
|
|
Total revenue |
|
$ |
63,255 |
|
|
$ |
40,030 |
|
|
$ |
147,088 |
|
|
$ |
109,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating
Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Society6 Group(1) |
|
$ |
3,769 |
|
|
$ |
1,125 |
|
|
$ |
7,276 |
|
|
$ |
(118 |
) |
|
Saatchi Art Group(1) |
|
|
(93 |
) |
|
|
(310 |
) |
|
|
(1,735 |
) |
|
|
(1,722 |
) |
|
Media Group(1) |
|
|
6,123 |
|
|
|
6,664 |
|
|
|
14,642 |
|
|
|
16,918 |
|
|
Deduct: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic shared services and corporate overhead(2)(3) |
|
|
(7,220 |
) |
|
|
(7,179 |
) |
|
|
(20,879 |
) |
|
|
(22,343 |
) |
|
Acquisition, disposition and realignment costs(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Adjusted EBITDA |
|
$ |
2,579 |
|
|
$ |
300 |
|
|
$ |
(696 |
) |
|
$ |
(7,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to
consolidated pre-tax income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
2,579 |
|
|
$ |
300 |
|
|
$ |
(696 |
) |
|
$ |
(7,265 |
) |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net |
|
|
(102 |
) |
|
|
39 |
|
|
|
(265 |
) |
|
|
217 |
|
|
Other income, net |
|
|
5,537 |
|
|
|
(6 |
) |
|
|
9,384 |
|
|
|
6 |
|
|
Depreciation and amortization(5) |
|
|
(2,280 |
) |
|
|
(2,362 |
) |
|
|
(7,273 |
) |
|
|
(7,740 |
) |
|
Stock-based compensation(6) |
|
|
(2,035 |
) |
|
|
(2,460 |
) |
|
|
(7,262 |
) |
|
|
(6,590 |
) |
|
Acquisition, disposition, realignment and contingent payment
costs(7) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(90 |
) |
|
Income (loss) before income taxes(8) |
|
$ |
3,699 |
|
|
$ |
(4,489 |
) |
|
$ |
(6,112 |
) |
|
$ |
(21,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Segment operating contribution reflects earnings before
corporate and unallocated expenses and also excludes: (a)
depreciation expense; (b) amortization of intangible assets; (c)
share-based compensation expense; (d) interest and other income
(expense); (e) income taxes; and (f) contingent payments to certain
key employees/equity holders of acquired businesses.
(2) Strategic shared services include shared operating expenses
that are not directly attributable to the operating segments,
including: network operations center, marketing, business
development, product development, creative, financial systems,
quality assurance, software engineering, and information systems.
Corporate overhead includes general and administrative support
functions that are not directly attributable to the operating
segments, including: executive, accounting, finance, human
resources, legal, and facilities. Strategic shared services and
corporate overhead excludes the following: (a) depreciation
expense; (b) amortization of intangible assets; (c) share-based
compensation expense; (d) interest and other income (expenses); and
(e) income taxes.
(3) Strategic shared services and corporate overhead includes
$2.1 million and $2.0 million in strategic shared services costs
for the three months ended September 30, 2020 and 2019,
respectively, and $5.1 million and $5.2 million in corporate
overhead for the three months ended September 30, 2020 and 2019,
respectively. Strategic shared services and corporate overhead
include $6.0 million and $6.1 million in strategic shared services
for the nine months ended September 30, 2020 and 2019,
respectively, and $14.9 million and $16.2 million in corporate
overhead for the nine months ended September 30, 2020 and 2019,
respectively.
(4) Represents such items, when applicable, as (a) legal,
accounting and other professional service fees directly
attributable to acquisition, disposition or corporate realignment
activities, (b) employee severance, and (c) other payments
attributable to acquisition, disposition or corporate realignment
activities, excluding contingent payments to certain key
employees/equity holders of acquired businesses.
(5) Represents depreciation expense of the Company’s long-lived
tangible assets and amortization expense of its finite-lived
intangible assets, including amortization expense related to its
investment in media content assets, included in the Company’s GAAP
results of operations.
(6) Represents the expense related to stock-based awards granted
to employees as included in the Company’s GAAP results of
operations.
(7) Represents such items, when applicable, as (a) legal,
accounting and other professional service fees directly
attributable to acquisition, disposition or corporate realignment
activities, (b) employee severance, (c) contingent payments to
certain key employees/equity holders of acquired businesses, and
(d) other payments attributable to acquisition, disposition or
corporate realignment activities.
(8)
For the nine months ended September 30, 2020, we had $1.5 million
in cost savings, which included temporary salary cuts of our
executive team and salaried direct workforce (whose salaries were
reinstated effective with payroll paid on June 30, 2020) and
compensation cuts and deferrals of compensation of our independent
directors (whose cash retainer compensation was reinstated,
effective July 1, 2020), neither of which is expected to
reoccur.
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