Demand Media Reports Fourth Quarter And Fiscal 2010 Financial Results

Demand Media, Inc. (NYSE: DMD), a leading content and social media company, today reported financial results for the fourth quarter and fiscal year ended December 31, 2010.

Q410 Financial Summary:

GAAP
  • Revenue was $73.6 million, an increase of 33% compared to $55.5 million in Q409.
  • Income from operations was $2.8 million compared to a net loss from operations of ($3.2) million in Q409.
  • Net income was $1.0 million compared to a net loss of ($3.9) million in Q409.
  • Cash flows from operations was $20.9 million, up 95% compared to $10.7 million in Q409.

Non-GAAP 1
  • Revenue ex-TAC was $70.3 million, an increase of 35% compared to $51.9 million in Q409.
  • Adjusted OIBDA grew 88% to $20.1 million, or 28.6% of Revenue ex-TAC, compared to $10.7 million, or 20.6% of Revenue ex-TAC in Q409.
  • Adjusted Net Income was $5.6 million, an increase of 174% compared to $2.0 million in Q409.
  • Discretionary Free Cash Flow was $16.1 million, up 116% compared to $7.4 million in Q409.
  • Free Cash Flow was $3.3 million compared to ($0.6) million in Q409.

“We are pleased to report strong financial results in our first earnings release as a public company,” said Richard Rosenblatt, Chairman and CEO of Demand Media. “Our record performance in the fourth quarter was driven by our ability to attract and engage consumers while delivering great results for our growing base of advertisers. In the fourth quarter, new brand advertisers helped fuel 36% year-over-year growth in revenue per thousand page views, or RPM, on our owned and operated properties, while our audience grew organically to more than 100 million unique monthly visitors worldwide (as measured by comScore). Increased engagement and audience growth during the quarter from emerging channels, particularly Facebook and mobile, highlight just some of the large opportunities for our business model.”
1   Non-GAAP measures are described below and are reconciled to the corresponding GAAP measures in the accompanying tables.

Q410 Financial Highlights:
  • Content & Media Revenue was $46.8 million, up 46% compared to $32.1 million in Q409.
  • Traffic acquisition costs (TAC), which represent the portion of Content & Media revenue shared with Demand Media partners, was $3.3 million, or 7.1% of Content & Media revenue, compared to $3.6 million, or 11.2% of Content & Media revenue in Q409.
  • Content & Media Revenue ex-TAC was $43.5 million, up 53% compared to $28.5 million in Q409.
  • Registrar Revenue was $26.8 million, up 14% compared to $23.4 million in Q409.
  • Investment in Intangible Assets was $12.8 million, up 58% compared to $8.1 million in Q409.

“Strong continued growth from our evergreen content library published prior to 2010 helped drive two major achievements in the fourth quarter - Content & Media revenue ex-TAC accelerated to 53% year-over-year growth and cash flows from operations grew 95% year-over-year, surpassing the $20 million milestone for the first time,” said Demand Media’s President and CFO Charles Hilliard. “Ongoing revenue growth from high-quality, long-lived content published in prior years, compounded with new discretionary content investments, positions Demand Media for significant growth in 2011.”

Q410 Business Highlights:

  • During the quarter, the Company continued to attract new brand advertisers.
  • Cracked became the most visited humor web property in the United States, according to comScore, and was highlighted by Facebook for achieving 450% growth in visits year-over-year from the social network.
  • LIVESTRONG.COM’s calorie-tracking mobile application became the all-time top grossing Health & Fitness application in the iTunes store. LIVESTRONG.COM also released MyQuit Coach, an innovative application to help users stop smoking and live healthier.

Fiscal 2010 Financial Summary:

GAAP
  • Revenue was $252.9 million, an increase of 27% compared to $198.5 million in 2009.
  • Loss from operations was ($0.5) million compared to a loss from operations of ($18.4) million in 2009.
  • Net loss was ($5.3) million compared to a net loss of ($22.5) million in 2009.
  • Cash flows from operations was $61.6 million, up 57% compared to $39.2 million in 2009.

Non-GAAP
  • Revenue ex-TAC was $240.7 million, an increase of 28% compared to $187.9 million in 2009.
  • Adjusted OIBDA grew 68% to $62.0 million, or 25.8% of Revenue ex-TAC, compared to $36.8 million, or 19.6% of Revenue ex-TAC in 2009.
  • Adjusted Net Income was $15.9 million, an increase of 184% compared to $5.6 million in 2009.
  • Discretionary Free Cash Flow was $40.2 million, an increase of 68% compared to $23.9 million in 2009.
  • Free Cash Flow was ($7.0) million compared to $1.2 million in 2009.

Fiscal 2010 Financial Highlights:
  • Content & Media Revenue was $152.9 million, up 42% compared to $107.7 million in 2009.
  • TAC increased by 16% to $12.2 million, or 8.0% of Content & Media revenue, compared to $10.6 million, or 9.8% of Content & Media revenue in 2009.
  • Content & Media Revenue ex-TAC was $140.7 million, up 45% compared to $97.2 million in 2009.
  • Registrar Revenue was $100.0 million, up 10% compared to $90.7 million in 2009.
  • Investment in Intangible Assets was $47.2 million, an increase of 108% compared to $22.7 million in 2009.

Operating Metrics:
  Quarter ended   Year ended
December 31, December 31,
    %     %
2009 2010 Change 2009 2010 Change
Content & Media Metrics:
Owned & operated
Page views(1) (in millions) 1,851 2,201 19% 6,849 8,233 20%
RPM(2) $11.65 $15.81 36% $10.69 $13.45 26%
 
Network of customer websites
Page views(1) (in millions) 2,634 3,866 47% 10,009 13,155 31%
RPM(2) $3.99 $3.11 (22)% $3.45 $3.20 (7)%
RPM ex-TAC(3) $2.64 $2.25 (15)% $2.39 $2.27 (5)%
 
Registrar Metrics:
End of Period # of Domains(4) (in millions) 9.1 11.0 21% 9.1 11.0 21%
Average Revenue per Domain(5) $10.32 $9.94 (4)% $10.11 $9.96 (1)%
 

(1)

Page views represent the total number of web pages viewed across our owned and operated websites and/or our network of customer websites.

(2)

RPM is defined as Content & Media revenue per one thousand page views.

(3)

RPM ex-TAC is defined as Content & Media Revenue ex-TAC per one thousand page views.

(4)

Domain is defined as an individual domain name paid for by a third-party customer where the domain name is managed through our Registrar service offering.

(5)

Average revenue per domain is calculated by dividing Registrar revenue for a period by the average number of domains registered in that period. Average revenue per domain for partial year periods is annualized.

Business Outlook

The following forward-looking information includes certain projections made by management as of the date of this press release. The Company does not intend to revise or update this information, except as required by law, and may not provide this type of information in the future. Due to a variety of factors, actual results may differ significantly from those projected. The factors that may affect results include, without limitation, the factors referenced later in this announcement under the caption “Cautionary Information Regarding Forward-Looking Statements.” These and other factors are discussed in more detail in the Company’s filings with the Securities and Exchange Commission.

Below is the Company’s guidance for the quarter ending March 31, 2011 and fiscal year ending December 31, 2011.

  First Quarter   Fiscal Year
(In millions) 2011 2011
 
Revenue $69.5 - $73.5 $310.0 - $325.0
TAC (traffic acquisition costs) $3.5 $15.0
Revenue ex-TAC $66.0 - $70.0 $295.0 - $310.0
 
Income (loss) from operations ($8.6) – ($7.1) ($7.4) – ($1.4)
Depreciation $5.0 $21.0
Amortization of intangible assets $10.0 $41.0
Stock-based compensation $9.5 $25.0
Non-cash purchase accounting adjustments $0.1 $0.4
Adjusted OIBDA $16.0 - $17.5 $80.0 - $86.0
 
Weighted average diluted shares(1) 89.0 – 90.0 91.0 – 93.0
 
(1) Weighted average diluted shares include the weighted average common stock and restricted stock for the periods presented and all dilutive common stock equivalents in each period. Amounts have been adjusted in both periods to reflect the revised capital structure following the Company’s initial public offering which was completed on January 31, 2011, whereby the Company issued 5.2 million shares of common stock and converted certain warrants and all of its convertible preferred stock into 62.2 million shares of common stock as if those transactions were consummated on January 1, 2011.

Conference Call and Webcast Information

Demand Media will host a corresponding conference call and live webcast at 5:00 p.m. Eastern time today. To access the conference call, dial 866-788-0541 (for the U.S. and Canada) or 857-350-1679 (for international callers). To participate on the live call, analysts and investors 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 the Company’s corporate website at http://ir.demandmedia.com and via replay beginning approximately two hours after the completion of the call. An audio replay of the call will also be available to investors beginning at approximately 7:00 p.m. Eastern time on February 22, 2011 until 11:59 p.m. Eastern time on March 1, 2011, by dialing 888-286-8010 (for the U.S. and Canada) or 617-801-6888 (for international callers) and entering passcode 20268187#.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we use certain non-GAAP financial measures described below. The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliation of Non-GAAP Measures to Unaudited Consolidated Statements of Operations” and “Reconciliation of Unaudited GAAP Net Income (Loss) to Non-GAAP Adjusted Net Income” included at the end of this release.

The non-GAAP financial measures presented are the primary measures used by the Company’s management and board of directors to understand and evaluate its financial performance and operating trends, including period to period comparisons, to prepare and approve its annual budget and to develop short and long term operational plans. Additionally, Adjusted OIBDA is the primary measure used by the compensation committee of the Company’s board of directors to establish the target for and fund its annual employee bonus pool. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) management frequently uses them in its discussions with investors, commercial bankers, securities analysts and other users of its financial statements.

Revenue ex-TAC is defined by the Company as GAAP revenue less traffic acquisition costs (TAC). TAC comprises the portion of Content & Media GAAP revenue shared with the Company’s network customers. Management believes that Revenue ex-TAC is a meaningful measure of operating performance because it is frequently used for internal managerial purposes and helps facilitate a more complete period to period understanding of factors and trends affecting the Company’s underlying revenue performance.

Adjusted operating income before depreciation and amortization (“Adjusted OIBDA”) is defined by the Company as operating income (loss) before depreciation, amortization, stock-based compensation and certain non-cash purchase accounting adjustments, as well as the financial impact of gains or losses on certain asset sales or dispositions. Management believes that this non-GAAP measure reflects the Company’s business in a manner that allows for meaningful period to period comparisons and analysis of trends. In particular, the exclusion of certain expenses in calculating Adjusted OIBDA can provide a useful measure for period to period comparisons of the Company’s underlying recurring revenue and operating costs which is focused more closely on the current costs necessary to utilize previously acquired long-lived assets. In addition, management believes that it can be useful to exclude certain non-cash charges because the amount of such expenses is the result of long-term investment decisions in previous periods rather than day-to-day operating decisions. For example, due to the long-lived nature of a majority of its media content, the revenue generated by the Company’s content assets in a given period bears little relationship to the amount of its investment in content in that same period. Accordingly, management believes that content acquisition costs represent a discretionary long-term capital investment decision undertaken at a point in time. This investment decision is clearly distinguishable from other ongoing business activities, and its discretionary nature and long-term impact differentiate it from specific period transactions, decisions regarding day-to-day operations, and activities that would have an immediate impact on operating or financial performance if materially changed, deferred or terminated.

Adjusted Net Income is defined by the Company as net income (loss) before the effect of amortization of intangible assets acquired via business combinations, other non-cash purchase accounting adjustments and stock-based compensation, and is calculated using the application of a normalized effective tax rate. Management believes that Adjusted Net Income and Adjusted Net Income per share provide investors with additional useful information to measure the Company’s underlying financial performance, particularly from period to period, because these measures are exclusive of certain non-cash expenses not directly related to the operation of its ongoing business (such as amortization of intangible assets acquired via business combinations, as well as certain other non-cash expenses such as purchase accounting adjustments and stock-based compensation) and include a normalized effective tax rate based on the Company’s statutory tax rate.

Discretionary Free Cash Flow is defined by the Company as net cash provided by operating activities, less capital expenditures to acquire property and equipment. Free Cash Flow is defined by the Company as net cash provided by operating activities, less capital expenditures to acquire property and equipment and less investments in intangible assets. Management believes that Discretionary Free Cash Flow and Free Cash Flow provide investors with additional useful information to measure operating liquidity because they reflect the Company’s operating cash flows after investing in capital assets and intangible assets. These measures are 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 reinvestment in the business, potential acquisitions, payment of dividends and share repurchases.

The use of these 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 these non-GAAP financial measures is that they do not have standardized meanings, and therefore other 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 the most comparable GAAP financial measures within its financial press releases. These non-GAAP financial measures should be considered in addition to, not as a substitute for, measures prepared in accordance with GAAP. Further, these non-GAAP financial measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure. The accompanying tables have more details on the GAAP financial measures and the related reconciliations.

About Demand Media

Demand Media, Inc. (NYSE: DMD) is a leading content and social media company. Through its owned and operated web properties reaching more than 100 million monthly visitors, global network of digital partners, and innovative content studio, Demand Media publishes what the world wants to know and share. Founded in 2006, Demand Media is headquartered in Santa Monica, CA with offices in Bellevue, WA, Austin, TX, Chicago, IL, New York, NY and London, UK. For more information about Demand Media visit http://www.demandmedia.com.

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 our 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 include, among others: our ability to compete with new or existing competitors; our ability to maintain or increase our advertising revenue; our ability to continue to drive and grow traffic to our owned and operated websites and the websites of our network customers; our ability to effectively monetize our portfolio of content; our dependence on material agreements with a specific business partner for a significant portion of our revenue; future internal rates of return on content investment and our decision to invest in different types of content in the future; changes in the methodologies of Internet search engines and the impact such changes may have on driving search related traffic to our owned and operated websites and the websites of our network customers; our ability to attract and retain freelance content creators; the effects of changes in marketing expenditures or shifts in marketing expenditures; the effects of seasonality on traffic to our owned and operated websites and the websites of our network customers; changes in stock-based compensation; 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 or other assets; changes in tax laws, our business or other factors that would impact anticipated tax benefits or expenses; our ability to successfully identify, consummate and integrate acquisitions; our ability to retain key customers and key personnel; risks associated with litigation; governmental regulation; and the effects of discontinuing or discontinued business operations. From time to time, we 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. More information about potential risk factors that could affect our operating and financial results are contained in our final Prospectus related to our initial public offering filed pursuant to Rule 424(b) under the Securities Act with the Securities and Exchange Commission on January 26, 2011 and will be included in our annual and quarterly reports filed with the Securities and Exchange Commission ( http://www.sec.gov ), including, without limitation, information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Demand Media, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)
 
  Quarter ended   Year ended
December 31, December 31,
  2009       2010     2009       2010  
 
Revenue $ 55,487 $ 73,579 $ 198,452 $ 252,936
Operating expenses
Service costs (exclusive of amortization of intangible assets shown separately below) (1) (2) 31,541 36,123 114,536 131,332
Sales and marketing (1) (2) 5,670 7,619 20,044 24,424
Product development (1) (2) 6,249 7,402 21,657 26,538
General and administrative (1) (2) 7,282 10,336 28,479 37,371
Amortization of intangible assets   7,898     9,268     32,152     33,750  
Total operating expenses   58,640     70,748     216,868     253,415  
Income (loss) from operations   (3,153 )   2,831     (18,416 )   (479 )
Other income (expense)
Interest income 209 6 494 25
Interest expense (251 ) (171 ) (1,759 ) (688 )
Other income (expense), net   (17 )   (122 )   (19 )   (286 )
Total other expense   (59 )   (287 )   (1,284 )   (949 )
Income (loss) before income taxes (3,212 ) 2,544 (19,700 ) (1,428 )
Income tax (expense)   (723 )   (1,515 )   (2,771 )   (3,897 )
Net income (loss) $ (3,935 ) $ 1,029   $ (22,471 ) $ (5,325 )
 
 
(1) Stock-based compensation expense included in the line items above:
Service costs $ 146 $ 205 $ 527 $ 868
Sales and marketing 505 758 1,611 2,379
Product development 358 476 1,504 1,692
General and administrative   986     1,107     4,094     4,750  
Total stock-based compensation expense $ 1,995   $ 2,546   $ 7,736   $ 9,689  
 
(2) Depreciation included in the line items above:
Service costs $ 3,447 $ 4,359 $ 11,882 $ 14,783
Sales and marketing 47 59 184 187
Product development 401 350 1,434 1,346
General and administrative   431     535     1,463     1,950  
Total depreciation $ 4,326   $ 5,303   $ 14,963   $ 18,266  
 
 
Earnings (loss) per common share:
 
Net income (loss) $ (3,935 ) $ 1,029 $ (22,471 ) $ (5,325 )
Cumulative preferred stock dividends (3)   (7,990 )   (8,602 )   (30,848 )   (33,251 )
Net loss attributable to common stockholders $ (11,925 ) $ (7,573 ) $ (53,319 ) $ (38,576 )
 
Basic and diluted net loss per share $ (0.98 ) $ (0.54 ) $ (4.78 ) $ (2.86 )
 
Weighted average number of shares   12,155     13,966     11,159     13,508  
 
(3) As a result of the Company’s initial public offering which was completed on January 31, 2011, all shares of the Company’s preferred stock, including associated accrued cumulative preferred stock dividends, were converted to common stock.
 
Demand Media, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands)
 

 
  December 31,
  2009       2010       2010  
Pro Forma
Assets

(1)
Current assets
Cash and cash equivalents $ 47,608 $ 32,338 $ 114,155
Marketable securities 2,300
Accounts receivable, net 18,641 26,843 26,843
Prepaid expenses and other current assets 6,371 7,360 7,360
Deferred registration costs   36,563     44,213     44,213  
Total current assets 111,483 110,754 192,571
 
Property and equipment, net 30,642 34,975 34,975
Intangible assets, net 88,834 102,114 102,114
Goodwill 224,920 224,920 224,920
Deferred registration costs and other long-term assets   11,911     15,704     12,012  
Total assets $ 467,790   $ 488,467   $ 566,592  
 
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable, accrued expenses and other liabilities $ 40,183 $ 53,148 $ 53,148
Deferred revenue   52,339     61,832     61,832  
Total current liabilities 92,522 114,980 114,980
Revolving line of credit 10,000
Deferred revenue and other long-term liabilities   14,593     15,149     14,672  
Total liabilities   117,115     130,129     129,652  
 
Convertible preferred stock
Total convertible preferred stock   373,754     373,754      
Stockholders’ equity (deficit)
Common stock and additional paid-in capital 23,674 36,723 489,079
Accumulated other comprehensive income 169 108 108
Accumulated deficit   (46,922 )   (52,247 )   (52,247 )
Total stockholders’ equity (deficit)   (23,079 )   (15,416 )   436,940  
Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 467,790   $ 488,467   $ 566,592  
 
(1) The pro forma balance sheet gives effect to the conversion of the convertible preferred stock into 61,672 shares of common stock, the conversion of warrants to purchase common stock or convertible preferred stock which automatically net exercised to 483 shares of common stock, the gross proceeds, net of commissions, received of $81,817 from the issuance of 5,175 shares of common stock and the reclassification of $3,692 of deferred offering costs from other long-term assets into additional paid-in capital as if the initial public offering was consummated on December 31, 2010.
 
Demand Media, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)
 
  Quarter ended   Year ended
December 31, December 31,
  2009       2010     2009       2010  
 
Cash flows from operating activities:
Net income (loss) $ (3,935 ) $ 1,029 $ (22,471 ) $ (5,325 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 12,224 14,571 47,115 52,016
Stock-based compensation 1,880 2,470 7,171 9,329
Other (258 ) 3,230 1,897 5,489
Net change in operating assets and liabilities, net of effect of acquisitions   828     (368 )   5,519     115  
Net cash provided by operating activities   10,739     20,932     39,231     61,624  
 
Cash flows from investing activities:
Purchases of property and equipment (3,291 ) (4,864 ) (15,327 ) (21,404 )
Purchases of intangibles (8,090 ) (12,791 ) (22,701 ) (47,192 )
Proceeds from maturities and sales of marketable securities, net 21,929 15,153 2,300
Other   1,009         84      
Net cash provided by (used in) investing activities   11,557     (17,655 )   (22,791 )   (66,296 )
 
Cash flows from financing activities:
Proceeds (payment) of debt, net (40,000 ) (55,000 ) (10,000 )
Proceeds from issuance of common stock, restricted common stock and exercises of stock options 277 524 591 1,552
Other   (144 )   (694 )   (581 )   (2,089 )
Net cash used in financing activities   (39,867 )   (170 )   (54,990 )   (10,537 )
 
Effect of foreign currency on cash and cash equivalents 138 1 169 (61 )
 
Change in cash and cash equivalents (17,433 ) 3,108 (38,381 ) (15,270 )
Cash and cash equivalents, beginning of period   65,041     29,230     85,989     47,608  
Cash and cash equivalents, end of period $ 47,608   $ 32,338   $ 47,608   $ 32,338  
 
Demand Media, Inc. and Subsidiaries

Reconciliations of Non-GAAP Measures to Unaudited Consolidated Statements of Operations

(In thousands, except per share amounts)
 
  Quarter ended   Year ended
December 31, December 31,
  2009       2010     2009       2010  
Revenue ex-TAC:
Content & Media revenue $ 32,076 $ 46,802 $ 107,717 $ 152,910
Less: traffic acquisition costs (TAC)   (3,580 )   (3,302 )   (10,554 )   (12,213 )
Content & Media Revenue ex-TAC 28,496 43,500 97,163 140,697
Registrar revenue   23,411     26,777     90,735     100,026  
Total Revenue ex-TAC $ 51,907   $ 70,277   $ 187,898   $ 240,723  
 
 
Adjusted OIBDA:
Income (loss) from operations $ (3,153 ) $ 2,831 $ (18,416 ) $ (479 )
Depreciation 4,326 5,303 14,963 18,266
Amortization of intangible assets 7,898 9,268 32,152 33,750
Stock-based compensation 1,995 2,546 7,736 9,689
Non-cash purchase accounting adjustments 220 164 960 779
Gain on sale of asset   (582 )       (582 )    
Adjusted OIBDA $ 10,704   $ 20,112   $ 36,813   $ 62,005  
 
 
Discretionary and Total Free Cash Flow:
Net cash provided by operating activities $ 10,739 $ 20,932 $ 39,231 $ 61,624
Purchases of property and equipment   (3,291 )   (4,864 )   (15,327 )   (21,404 )
Discretionary Free Cash Flow 7,448 16,068 23,904 40,220
Purchases of intangible assets   (8,090 )   (12,791 )   (22,701 )   (47,192 )
Free Cash Flow $ (642 ) $ 3,277   $ 1,203   $ (6,972 )
 
 
Adjusted Net Income:
GAAP net income (loss) $ (3,935 ) $ 1,029 $ (22,471 ) $ (5,325 )
(a) Stock-based compensation 1,995 2,546 7,736 9,689
(b) Amortization of intangible assets – M&A 4,863 3,758 20,598 16,576
(c) Non-cash purchase accounting adjustments 220 164 960 779
(d) Gain on sale of asset (582 ) (582 )
(e) Income tax effect of items (a) - (d) & application of 38% statutory tax rate to pre-tax income  

(525

)
  (1,910 )  

(654

)
 

(5,837

)
Adjusted Net Income $ 2,036   $ 5,587   $ 5,587   $ 15,882  
Non-GAAP Adjusted Net Income per share - diluted $ 0.02   $ 0.06   $ 0.07   $ 0.18  
Shares used to calculate non-GAAP Adjusted Net Income per share – diluted (1)   83,730     87,885     83,164     86,422  
 
(1) Shares used to calculate non-GAAP Adjusted Net Income per share - diluted include the weighted average common stock and restricted stock for the periods presented and all dilutive common stock equivalents at each period. Amounts have been adjusted in all periods to reflect the revised capital structure following the Company’s initial public offering which was completed on January 31, 2011, whereby the Company issued 5,175 shares of common stock and converted certain warrants and all of the convertible preferred stock into 62,155 shares of common stock as if those transactions were consummated on January 1, 2009.
 
Demand Media, Inc. and Subsidiaries

Unaudited GAAP Revenue, by Revenue Source

(In thousands)
 
  Quarter ended   Year ended
December 31, December 31,
2009   2010 2009   2010
Content & Media:

Owned and operated websites
$ 21,555 $ 34,787 $ 73,204 $ 110,770
Network of customer websites   10,521   12,015   34,513   42,140
Total revenue – Content & Media 32,076 46,802 107,717 152,910
Registrar   23,411   26,777   90,735   100,026
Total revenue $ 55,487 $ 73,579 $ 198,452 $ 252,936
 
 
Quarter ended Year ended
December 31, December 31,
2009 2010 2009 2010
Content & Media:

Owned and operated websites
39% 47% 37% 44%
Network of customer websites   19%   16%   17%   17%
Total revenue – Content & Media 58% 63% 54% 61%
Registrar   42%   37%   46%   39%
Total revenue   100%   100%   100%   100%

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