Demand Media's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Demand Media, Inc. (DMD)

Q2 2012 Earnings Call

August 7, 2012; 05:00 pm ET

Executives

Richard Rosenblatt - Chairman & Chief Executive Officer

Mel Tang - Senior Vice President, Finance & Incoming Chief Financial Officer

Julie MacMedan - Investor Relations

Analysts

Neil Doshi - CitiGroup

Pat Walravens - JMP Securities

Heath Terry - Goldman Sachs

Nat Brogadir - Stifel Nicolaus

Sean Kim - RBC Capital Markets

Rory Meyer (ph) - Core Capital Investments

Peter Stabler - Wells Fargo

Anil Gupta - Imperial Capital

Jordan Monahan - Morgan Stanley

Presentation

Operator

Good afternoon. My name is Jay and I will be your conference operator today. At this time I would like to welcome everyone to Demand Media’s second quarter 2012 financial results call.

Today’s speakers will include Julie MacMedan, Richard Rosenblatt and Mel Tang. A question-and-answer session will be made available to all attendees at the end of the call when prompted.

Ms. MacMedan, you may begin your conference call.

Julie MacMedan

Thank you Jay and good afternoon everyone. One behalf of Demand Media, welcome to our second quarter 2012 conference call. Thanks everyone for joining us today. You can find our Q2 release along with supplemental material posted on the Investor Relations section of our corporate website located at ir.demandmedia.com.

On the call with me today are Richard Rosenblatt, our Chairman and Chief Executive Officer and Mel Tang, our Incoming Chief Financial Officer.

Following the safe harbor statements that I will make, Rich will update you on our business. Mel will then provide details on our second quarter financial performance and key operating metrics and to finish with guidance for the third quarter ending September 30, 2012 and fiscal year ending December 31, 2012. Following the prepared remarks we will open up the line for Q&A.

Before we get started we need to make the following safe harbor statement. We would like to remind everyone that during today’s conference call management will make certain forward-looking statements, which are subject to various risks and uncertainties that could cause actually results to differ materially from our current exceptions discussed in such forward-looking statements.

In particular, comments about our anticipated future revenue, earnings, operating expenses, page views and growth rate, as well as statements regarding our business strategy and objectives, plans, intentions, operating outlook and planed investment are considered forward-looking statements. Factors that could cause actually results to different material from anticipated results are detailed in our press release furnished to the SEC.

I would also like to point out that during this call we will discuss certain non-GAAP financial measures, while talking about the company’s financial and operating performance, including revenue ex-TAC, adjusted EBITDA, adjusted EPS and certain free cash flow metrics. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures can be found in the financial tables included in our press release.

Lastly, before we begin I would like to remind everyone that today’s conference call is being recorded and that it’s also available via webcast on the internet through the Investor Relations section of the cooperate website. A replay will be available on the website.

With that, I will now turn the call over to Richard Rosenblatt, our Chairman and Chief Executive Officer. Rich.

Richard Rosenblatt

Thank you Julie and welcome everyone to our 2012, second quarter results call. On today’s call I’ll discuss the momentum in our core business, driving our Q2 out performance, as well as talk about some of the exciting new thing happening here at Demand Media.

We had another strong quarter with double-digit revenue growth in both our Content & Media registrar business. As forecasted we have returned to accelerating revenue growth, led by growth in our Content & Media business. Our approach of using proprietary data to understand and then meet the consumers’ need is driving this momentum.

Traffic growth continues as we executive on the improvements we have discussed on the prior calls. These included continued innovation to our content creation platform and progress, increasing engagement across our vast library content and diversify into new formats such as premium video, ebooks and image rich articles. These improvements combined with continued product innovation have led to a better user experience and new unique monetization opportunities.

One such example of these new monetization opportunities is our new social add formats, which offer bands new and excited ways to connect with our audience. We are pleased with the early test results. Social ad campaigns saw dramatically higher results. Engagement was up to 10-times higher than the industry average for generic right media ad units and the click through rate was up to seven times higher than the industry average for standard banner ad.

We believe that these new socialized formats will be enable brands to build stronger connections and engagements with our customers. We’ve got a strong pipeline of an innovative ad format and more will be rolling out over the next several months.

Now on to our core media properties; eHow, LiveStrong and Cracked. eHow has tremendous scale. In June eHow was ranked as the number 16 th largest web domain in the US according to comScore. The site has sustained over a 100 million unique visitors worldwide for each of the past eight months based on our internal data.

But beyond the audience size, we are pleased with the improvement in eHow’s key engagement metrics with comScore reporting average minutes per visitor growing 11% in June 2012 as compared to June 2011. We believe that this growth is due in part to our focus on diversifying our content and better engaging the consumer. We even proved the user interface and how we package content, the topic areas for advertisers.

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