LEAF GROUP LTD. - FORM 10-Q - November 7, 2016

LEAF GROUP LTD. - FORM 10-Q - November 7, 2016

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Attached files

LEAF GROUP LTD. Reports

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EX-10.1 - EX-10.1 - LEAF GROUP LTD.	dmd-20160930ex101d3ed32.htm
EX-32.2 - EX-32.2 - LEAF GROUP LTD.	dmd-20160930ex32251bb72.htm
EX-32.1 - EX-32.1 - LEAF GROUP LTD.	dmd-20160930ex3213752a7.htm
EX-31.2 - EX-31.2 - LEAF GROUP LTD.	dmd-20160930ex3125c53ee.htm
EX-31.1 - EX-31.1 - LEAF GROUP LTD.	dmd-20160930ex311fe4690.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

◻TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35048

DEMAND MEDIA, INC.

(Exact name of registrant as specified in its charter)


Delaware		20-4731239
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1655 26th Street Santa Monica, CA		90404
(Address of principal executive offices)		(Zip Code)

(310) 656-6253

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company’ in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 31, 2016, there were 19,761,455 shares of the registrant’s common stock, $0.0001 par value, outstanding.

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DEMAND MEDIA, INC.

INDEX TO FORM 10-Q


			Page
Part I	Financial Information
	Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations	4
		Condensed Consolidated Statements of Comprehensive Income (Loss)	5
		Condensed Consolidated Statements of Stockholders’ Equity	6
		Condensed Consolidated Statements of Cash Flows	7
		Notes to the Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 4.	Controls and Procedures	34

Part II	Other Information
	Item 1.	Legal Proceedings	35
	Item 1A.	Risk Factors	35
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
	Item 3.	Defaults Upon Senior Securities	36
	Item 4.	Mine Safety Disclosures	36
	Item 5.	Other Information	36
	Item 6.	Exhibits	36
		Signatures	37

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Part I. FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Demand Media, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)


	September 30,		December 31,
	2016		2015
Assets
Current assets
Cash and cash equivalents	$	51,692	$	38,570
Accounts receivable, net		7,206		10,469
Prepaid expenses and other current assets		8,180		4,989
Total current assets		67,078		54,028
Property and equipment, net		11,929		14,568
Intangible assets, net		12,970		21,332
Goodwill		11,180		10,358
Other assets		1,043		1,173
Total assets	$	104,200	$	101,459

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	1,496	$	1,973
Accrued expenses and other current liabilities		12,397		15,169
Deferred revenue		3,034		2,933
Total current liabilities		16,927		20,075
Deferred tax liability		123		551
Other liabilities		1,781		1,713
Commitments and contingencies (Note 7)
Stockholders’ equity
Common stock, $0.0001 par value. Authorized 100,000 shares; 21,309 issued and 19,890 shares outstanding at September 30, 2016 and 20,956 issued and 20,154 shares outstanding at December 31, 2015		2		2
Additional paid-in capital		511,157		505,603
Accumulated other comprehensive loss		(90)		(91)
Treasury stock at cost, 1,419 at September 30, 2016 and 802 at December 31, 2015		(34,282)		(30,767)
Accumulated deficit		(391,418)		(395,627)
Total stockholders’ equity		85,369		79,120
Total liabilities and stockholders’ equity	$	104,200	$	101,459

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Demand Media, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Revenue:
Service revenue	$	12,688	$	16,755	$	39,623	$	60,047
Product revenue		15,371		11,750		39,840		31,436
Total revenue		28,059		28,505		79,463		91,483
Operating expenses:
Service costs (exclusive of amortization of intangible assets shown separately below)		5,370		9,597		19,887		29,296
Product costs		9,791		7,638		26,588		21,240
Sales and marketing		6,031		5,602		19,610		15,343
Product development		4,652		6,936		15,614		20,543
General and administrative		7,498		9,258		23,450		27,841
Amortization of intangible assets		3,100		3,441		9,246		15,377
Total operating expenses		36,442		42,472		114,395		129,640
Loss from operations		(8,383)		(13,967)		(34,932)		(38,157)
Interest income		35		—		60		359
Interest expense		(2)		(3)		(2)		(143)
Other (expense) income, net		(31)		178		39,131		3,024
(Loss) income before income taxes		(8,381)		(13,792)		4,257		(34,917)
Income tax benefit (expense)		32		(13)		(48)		(45)
Net (loss) income	$	(8,349)	$	(13,805)	$	4,209	$	(34,962)

Net (loss) income per share
Basic	$	(0.41)	$	(0.69)	$	0.21	$	(1.76)
Diluted	$	(0.41)	$	(0.69)	$	0.21	$	(1.76)

Weighted average number of shares
Basic		20,236		20,021		20,279		19,879
Diluted		20,236		20,021		20,511		19,879

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Demand Media, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Net income (loss)	$	(8,349)	$	(13,805)	$	4,209	$	(34,962)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		3		11		1		2
Comprehensive income (loss)	$	(8,346)	$	(13,794)	$	4,210	$	(34,960)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Demand Media, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


								Accumulated
				Additional				other
				paid-in				comprehensive				Total
	Common stock			capital		Treasury		income		Accumulated		stockholders’
	Shares	Amount		amount		Stock		(loss)		deficit		equity
Balance at December 31, 2015	20,154	$	2	$	505,603	$	(30,767)	$	(91)	$	(395,627)	$	79,120
Issuance of stock under employee stock awards and other	354		—		226		—		—		—		226
Repurchases of common stock to be held in treasury	(618)		—		—		(3,515)		—		—		(3,515)
Tax withholdings related to vesting of share-based payments	—		—		(1,132)		—		—		—		(1,132)
Stock-based compensation expense	—		—		6,460		—		—		—		6,460
Foreign currency translation adjustment	—		—		—		—		1		—		1
Net income	—		—		—		—		—		4,209		4,209
Balance at September 30, 2016	19,890	$	2	$	511,157	$	(34,282)	$	(90)	$	(391,418)	$	85,369

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Demand Media, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine months ended September 30,
	2016		2015
Cash flows from operating activities
Net income (loss)	$	4,209	$	(34,962)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		15,035		24,364
Deferred income taxes		(33)		—
Stock-based compensation		6,118		5,683
Gain on disposal of businesses and online properties		(39,149)		(3,105)
Other		10		(76)
Change in operating assets and liabilities, net of effect of acquisitions and disposals:
Accounts receivable, net		3,231		4,712
Prepaid expenses and other current assets		(180)		550
Other long-term assets		48		(140)
Accounts payable		(372)		(3,572)
Accrued expenses and other liabilities		(2,730)		(3,367)
Deferred revenue		335		164
Net cash used in operating activities		(13,478)		(9,749)
Cash flows from investing activities
Purchases of property and equipment		(3,743)		(3,590)
Purchases of intangible assets		(120)		(64)
Cash received from disposal of businesses and online properties, net of cash disposed		36,100		4,766
Cash received from early repayment of promissory note		—		5,100
Cash received from disposition holdback		—		998
Cash paid for acquisitions, net of cash acquired		(1,413)		(58)
Restricted deposits		136		671
Other		78		76
Net cash provided by investing activities		31,038		7,899
Cash flows from financing activities
Proceeds from exercises of stock options and purchases under ESPP		226		215
Repurchases of common stock		(3,515)		—
Net taxes paid on restricted stock units and options exercised		(1,132)		(563)
Cash paid for acquisition holdback		—		(7,561)
Other		(15)		(121)
Net cash used in financing activities		(4,436)		(8,030)
Effect of foreign currency on cash and cash equivalents		(2)		2
Change in cash and cash equivalents		13,122		(9,878)
Cash and cash equivalents, beginning of period		38,570		47,820
Cash and cash equivalents, end of period	$	51,692	$	37,942

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Demand Media, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Company Background and Overview

Demand Media, Inc. (“Demand Media” and, together with its consolidated subsidiaries, the “Company,” “our,” “we,” or “us”) is a Delaware corporation headquartered in Santa Monica, California. We are a diversified Internet company that builds platforms across our marketplaces and media properties to enable communities of creators to reach passionate audiences in large and growing lifestyle categories. Our business is comprised of two service offerings: Marketplaces and Content & Media.

Marketplaces

Through our Marketplaces service offering, we operate two leading art and design marketplaces where large communities of artists can market and sell their original artwork or their original designs printed on a wide variety of products. Society6.com (“Society6”) provides artists with an online commerce platform to feature and sell their original designs on an array of consumer and home décor products such as art prints, phone and tablet cases, t-shirts, and throw pillows. SaatchiArt.com (“Saatchi Art”) is an online art gallery featuring a wide selection of original paintings, drawings, sculptures and photography that provides a global community of artists with a curated environment in which to exhibit and sell their work directly to consumers around the world. In addition, our Marketplaces service offering includes The Other Art Fair, a leading London-based art fair for discovering emerging artists that we acquired in July 2016.

Content & Media

Our Content & Media service offering includes our leading owned and operated online properties that publish media content, including text articles, videos, photographs and designed visual formats. This content is published across several key categories on Livestrong.com, a health and healthy living destination; eHow, a do-it-yourself reference destination; and certain other online properties focused on specific categories or interests. During the third quarter of 2016, we launched several category-specific properties utilizing topics and content from eHow, while eHow.com continues to focus on do-it-yourself and home content. Our Content & Media service offering also includes our content publishing studio, through which we create content for third-party publishers and brands.

2. Basis of Presentation

The accompanying interim condensed consolidated balance sheet as of September 30, 2016, the condensed consolidated statements of operations and condensed consolidated statements of comprehensive income (loss) for the three and nine month periods ended September 30, 2016 and 2015, the condensed consolidated statements of cash flows for the nine month periods ended September 30, 2016 and 2015 and the condensed consolidated statement of stockholders’ equity for the nine month period ended September 30, 2016 are unaudited.

In the opinion of management, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair statement of our statement of financial position as of September 30, 2016, our results of operations for the three and nine month periods ended September 30, 2016 and 2015, and our cash flows for the nine month periods ended September 30, 2016 and 2015. The results for the three and nine month periods ended September 30, 2016 are not necessarily indicative of the results expected for the full year. The consolidated balance sheet as of December 31, 2015 has been derived from our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

The interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States, for interim financial information and with the instructions from the U.S. Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.

During the first quarter of 2016, we reclassified certain personnel costs, including stock-based compensation, primarily relating to individuals serving in management roles for specific businesses, from general and administrative expense to either service costs, sales and marketing or product development, to better reflect the respective functions of these individuals. Certain prior period amounts have been

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reclassified to conform to the current period presentation, resulting in the following changes in our condensed consolidated statement of operations for the three and nine month periods ended September 30, 2015, respectively: (i) decreases of $0.6 million and $2.4 million in general and administrative expense; (ii) increases of $0.4 million and $1.6 million in product development expense; (iii) increases of $0.2 million and $0.5 million in sales and marketing expense; and (iv) increases of less than $0.1 million and $0.2 million in service costs.

During the three months ended September 30, 2015, we identified through our internal processes that our property and equipment, net was overstated because certain capitalized internally developed software costs had not been placed into service and certain write offs were not identified on a timely basis. The adjustment is not considered material to our consolidated financial statements. As such, during the three months ended September 30, 2015, we recorded an out of period adjustment which increased depreciation by $0.6 million, decreased “Other income, net” by $0.5 million and decreased “Property and equipment, net” by $1.1 million. The condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2015, the condensed consolidated balance sheet as of September 30, 2015 and the condensed consolidated statement of cash flows for the nine months ended September 30, 2015 reflect the above adjustments.

Principles of Consolidation

The consolidated financial statements include the accounts of Demand Media and its wholly owned subsidiaries. Acquisitions are included in our consolidated financial statements from the date of the acquisition. Our purchase accounting resulted in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue; allowance for doubtful accounts; the assigned value of acquired assets and assumed liabilities in business combinations; useful lives and impairment of property and equipment, intangible assets, goodwill and other assets; the fair value of equity-based compensation awards; and deferred income tax assets and liabilities. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of our assets and liabilities.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Further, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. The original effective date for ASU 2014-09 would have required the Company to adopt this standard beginning in the first quarter of fiscal 2017. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on the consolidated financial statements and expects to adopt this standard in the first quarter of fiscal 2018 using the modified retrospective method with the cumulative effect recognized as of the date of adoption.

In September 2015, the FASB issued ASU 2015-16, Business Combinations: Simplifying the Accounting Measurement-Period Adjustments. This update simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. Under this update, the adjustments are recognized in the reporting period in which the adjustment amounts are determined. This update is effective for the Company commencing in the first quarter of fiscal 2016 and should be applied prospectively. The Company adopted the standard effective January 1, 2016, and there has been no impact to the consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This amended guidance requires an entity to present deferred tax assets and liabilities as noncurrent in the statement of financial position. The amended guidance is effective for the Company commencing in the first quarter of fiscal 2018. Early adoption is permitted

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and the guidance may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company elected to prospectively adopt the standard effective January 1, 2016 and believes the application of the guidance simplifies and improves the usefulness of deferred tax information for users of the Company’s financial statements. No prior periods were retrospectively adjusted.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update will require lease assets and lease liabilities to be recognized on the balance sheet and disclosure of key information about leasing arrangements. This guidance is effective for the Company commencing in the first quarter of fiscal 2019 and must be adopted using a modified retrospective transition, and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. This standard makes several modifications to Topic 718 related to the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for the Company commencing in the first quarter of fiscal 2017. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

3. Property and Equipment

Property and equipment consisted of the following (in thousands):


	September 30,		December 31,
	2016		2015
Computers and other related equipment	$	8,834	$	16,588
Purchased and internally developed software		26,903		34,868
Furniture and fixtures		1,467		1,423
Leasehold improvements		6,704		7,296
		43,908		60,175
Less accumulated depreciation		(31,979)		(45,607)
Property and equipment, net	$	11,929	$	14,568

Depreciation and software amortization expense, which includes losses on disposal of property and equipment of less than $0.1 million and $1.1 million for the three months ended September 30, 2016 and 2015, respectively, and $1.2 million and $1.7 million for the nine months ended September 30, 2016 and 2015, respectively, is shown by classification below (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Service costs	$	603	$	2,041	$	2,931	$	4,663
Sales and marketing		12		15		38		52
Product development		32		47		105		154
General and administrative		700		1,611		2,715		4,118
Total depreciation	$	1,347	$	3,714	$	5,789	$	8,987

4. Goodwill and Intangible Assets

The following table presents the changes in our goodwill balance (in thousands):


Balance at December 31, 2015	$	10,358
Acquisitions		822
Balance at September 30, 2016	$	11,180

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The change in goodwill in 2016 is attributable to the acquisition of Other Art Fairs Ltd, which operates as The Other Art Fair, in July 2016. See Note 11 for additional information. Goodwill is tested at the reporting unit level and as of September 30, 2016, we have two reporting units: marketplaces and content and media. As of September 30, 2016, our goodwill balance related entirely to our marketplaces reporting unit.

Intangible assets consisted of the following (in thousands):


	September 30, 2016
	Gross carrying		Accumulated		Net carrying
	amount		amortization		amount
Customer relationships	$	1,628	$	(1,347)	$	281
Artist relationships		11,927		(10,278)		1,649
Media content		93,655		(88,553)		5,102
Technology		5,854		(3,603)		2,251
Non-compete agreements		25		(9)		16
Trade names		7,691		(4,020)		3,671
	$	120,780	$	(107,810)	$	12,970


	December 31, 2015
	Gross carrying		Accumulated		Net carrying
	amount		amortization		amount
Customer relationships	$	1,628	$	(1,107)	$	521
Artist relationships		11,719		(8,340)		3,379
Media content		95,785		(85,018)		10,767
Technology		5,854		(2,842)		3,012
Non-compete agreements		217		(160)		57
Trade names		7,150		(3,554)		3,596
	$	122,353	$	(101,021)	$	21,332

Identifiable finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives commencing on the date that the asset is available for its intended use.

Total amortization expense for the periods shown below includes (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Service costs	$	2,424	$	1,969	$	5,910	$	10,683
Sales and marketing		281		949		2,178		2,914
Product development		247		246		740		1,193
General and administrative		148		277		418		587
Total amortization	$	3,100	$	3,441	$	9,246	$	15,377

Service costs include accelerated amortization charges of $1.2 million and $0.1 million for the three months ended September 30, 2016 and 2015, respectively, and $1.7 million and $3.3 million for the nine months ended September 30, 2016 and 2015, respectively, as a result of removing certain assets from service.

5. Other Assets

As of September 30, 2016, prepaid expenses and other current assets include $3.9 million in cash from the sale of our Cracked business that was placed into escrow to secure certain of our post-closing indemnification obligations. Any remaining portion of the escrow amount that is not subject to then-pending claims will be paid to us in July 2017, on the 15-month anniversary of the closing date of the sale. As of September 30, 2016, we had $1.0 million of cash included in long-term assets, collateralizing a standby letter of credit associated with the lease of our headquarters office.

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6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2016		2015
Accrued payroll and related items	$	4,205	$	5,916
Artist payables		2,805		2,816
Other		5,387		6,437
Accrued expenses and other current liabilities	$	12,397	$	15,169

During the nine months ended September 30, 2016, we recognized severance costs of $1.7 million in connection with targeted headcount reductions, primarily as a result of actions taken in June 2016 to streamline our content publishing studio (formerly known as our studioD business) and better integrate this business into our broader Content & Media service offering. These severance costs were recognized in the condensed consolidated statements of operations as follows: $0.7 million in sales and marketing costs, $0.6 million in product development costs, $0.3 million in service costs, and $0.1 million in general and administrative costs. Severance amounts related to these actions were fully paid as of September 30, 2016.

Changes to the severance accrual during the nine months ended September 30, 2016 are as follows (in thousands):


Balance at December 31, 2015	$	485
New charges		1,690
Cash payments		(2,175)
Balance at September 30, 2016	$	—

7. Commitments and Contingencies

Leases

We conduct our operations utilizing leased office facilities in various locations under operating leases, and as of September 30, 2016, these leases have non-cancelable periods ending between February 2018 and February 2020.

Litigation

From time to time, we are a party to various legal matters incidental to the conduct of our business. Certain of our outstanding legal matters include speculative claims for indeterminate amounts of damages. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. Based on our current knowledge, we do not believe that there is a reasonable possibility that the final outcome of the pending or threatened legal proceedings to which we are a party, either individually or in the aggregate, will have a material adverse effect on our future financial results. However, the outcome of such legal matters is subject to significant uncertainties.

Taxes

From time to time, various federal, state and other jurisdictional tax authorities undertake a review of us or our filings. In evaluating the exposure associated with various tax filing positions, we accrue charges for possible exposures.

Indemnification

In the normal course of business, we have provided certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions or contractual commitments. These indemnities include intellectual property indemnities to our customers, indemnities to our directors and officers to the maximum extent permitted under the laws of Delaware, indemnifications related to our lease agreements and indemnifications to sellers or buyers in connection with acquisitions and dispositions, respectively. In addition, our advertiser, content creation and distribution partner agreements contain certain indemnification provisions, which are generally consistent with those prevalent in our industry. We have not incurred significant obligations under indemnification provisions historically, and do not expect to incur significant obligations in the future. Accordingly, we have not recorded any liability for these indemnities.

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8. Income Taxes

Income tax expense for each of the nine month periods ended September 30, 2016 and 2015 was less than $0.1 million.

Our effective tax rate differs from the statutory rate primarily as a result of state taxes, foreign taxes, nondeductible stock option expenses and changes in our valuation allowance. As a result of the sale of the Cracked business, we recognized a book income of $38.1 million, recorded in other income, net, which offsets our current year-to-date operating losses. We expect to utilize our existing federal and state net operating losses, as well as alternative minimum tax losses carryforwards, to offset taxable income, if any. If all or a portion of our net operating loss carryforwards are subject to limitation because it is determined that we had previously experienced an “ownership change” as defined in section 382 of the Internal Revenue Code of 1986, as amended, our future cash flows could be adversely impacted due to increased tax liability.

We reduce our deferred tax assets resulting from future tax benefits by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some portion or all of these deferred taxes will not be realized. The timing of the reversal of deferred tax liabilities associated with tax deductible goodwill is not certain and thus not available to assure the realization of deferred tax assets. Due to the limitation associated with deferred tax liabilities from tax deductible goodwill, we have deferred tax assets in excess of deferred tax liabilities before application of a valuation allowance for the periods presented. As we have insufficient history of generating income, the ultimate future realization of these excess deferred tax assets is not more likely than not and is thus subject to a valuation allowance. Accordingly, we have established a full valuation allowance against our deferred tax assets.

We are subject to the accounting guidance for uncertain income tax positions. We believe it is more likely than not that our income tax positions and deductions will be sustained on audit and do not anticipate any adjustments which could result in a material adverse effect on our financial condition, results of operations, or cash flow.

Our policy for recording interest and penalties associated with audits and uncertain tax positions is to record such items as a component of income tax expense, and amounts recognized to date are not material. There are no material uncertain tax positions and no uncertain income tax positions were recorded during the nine months ended September 30, 2016 or 2015, and we do not expect our uncertain tax position to change materially during the next twelve months.

We file tax returns in the United States, at both the federal and state level, and in several foreign jurisdictions. The tax years 2008 to 2015 remain subject to examination by the Internal Revenue Service and most tax years since our incorporation are subject to examination by various state authorities.

9. Stock-based Compensation Plans and Awards

Stock-based Compensation Expense

Stock-based compensation expense related to all employee and non-employee stock-based awards recognized in the condensed consolidated statements of operations was as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2016		2015 (1)		2016		2015 (1)
Service costs	$	142	$	182	$	1,054	$	806
Sales and marketing		145		159		586		511
Product development		290		397		1,206		1,576
General and administrative		1,103		821		3,272		2,790
Total stock-based compensation	$	1,680	$	1,559	$	6,118	$	5,683

(1)

Certain 2015 personnel costs, including stock-based compensation, were reclassified out of general and administrative to service costs, sales and marketing and product development to conform to 2016 presentation. See Note 2 for additional information.

During the nine months ended September 30, 2016, we accelerated the vesting of certain stock awards in connection with the sale of our Cracked business, resulting in approximately $0.8 million in stock-based compensation expense.

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Award Activity

Stock Options

Stock option activity is as follows (in thousands):


		Number of
		options
		outstanding
Outstanding at December 31, 2015		3,199
Options granted		253
Options exercised		(50)
Options forfeited or cancelled		(520)
Outstanding at September 30, 2016		2,882

Restricted Stock Units

Restricted stock unit activity is as follows (in thousands):


		Number of
		shares
Unvested at December 31, 2015		977
Granted		1,885
Vested		(509)
Forfeited		(356)
Unvested at September 30, 2016		1,997

Employee Stock Purchase Plan

In May 2011, we commenced our first offering under the Employee Stock Purchase Plan (“ESPP”), which allows eligible employees to purchase, through payroll deductions, a limited amount of our common stock at a 15% discount to the lower of market price as of the beginning or ending of each six-month purchase period. Participants can authorize payroll deductions for amounts up to the lesser of 15% of their qualifying wages or the statutory limit under the U.S. Internal Revenue Code. We previously suspended the ESPP after the November 2015 purchase after considering the benefits and participation rates in the ESPP. We restarted offerings under the ESPP in May 2016. The ESPP currently provides for a 12-month offering period which is comprised of two consecutive six-month purchase periods, one from May to November and the other from November to May. A maximum of 500 shares of common stock may be purchased by each participant during each six-month purchase period. The fair value of the ESPP options granted is determined using a Black-Scholes-Merton model and is amortized over the remaining life of the 12-month offering period of the ESPP. The Black-Scholes-Merton model included an assumption for expected volatility of between 41% and 48% for each of the two purchase periods in the current offering period. The expense recognized in relation to the ESPP was not material for each of the nine month periods ended September 30, 2016 and 2015. Approximately 1.7 million shares of common stock remained authorized for issuance under the ESPP at September 30, 2016.

10. Stockholders’ Equity

Stock Repurchases

Under our stock repurchase plan, as amended in February 2012, we are authorized to repurchase up to $50.0 million of our common stock from time to time. During the three months ended September 30, 2016, we re-initiated purchases of our common stock under the stock repurchase plan and repurchased approximately 618,000 shares at an average price of $5.65 per share for an aggregate amount of approximately $3.5 million. As of September 30, 2016, approximately $15.7 million remained available under the repurchase plan. The timing and actual number of shares repurchased will depend on various factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions.

Shares repurchased by us are accounted for when the transaction is settled. As of September 30, 2016, there were approximately 22,000 unsettled share repurchases. The par value of shares repurchased and retired is deducted from common stock and any excess over par value is deducted from additional paid-in capital. Direct costs incurred to repurchase the shares are included in the total cost of the shares.

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11. Acquisitions and Dispositions

Acquisitions

On July 7, 2016, we completed the acquisition of the entire issued share capital of Other Art Fairs Ltd, which operates as The Other Art Fair, for consideration of £1.1 million (approximately $1.5 million) in cash, excluding deferred consideration of up to £315,000 in cash, payable over a three year period. The Other Art Fair is a leading London-based art fair for discovering emerging artists that currently presents fairs in London, Bristol and Sydney.

Purchase Price Allocation

The total purchase price of the acquisition was allocated to The Other Art Fair’s tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of July 7, 2016, the closing date of the acquisition. The excess of the purchase price over the net assets and liabilities acquired was recorded as goodwill. Our preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions and are subject to change pending finalization of the valuation.

The acquisition is included in our condensed consolidated financial statements as of the closing date of the acquisition, which was July 7, 2016. Operating income for The Other Art Fair for the three and nine month periods ended September 30, 2016 and 2015 was not material to our financial results.

The following table summarizes the allocation of the purchase price for The Other Art Fair, which is preliminary and subject to change pending finalization of the valuation (in thousands):


Goodwill	$	822
Trademark		556
Artist relationships		207
Other assets and liabilities assumed		(114)
Total	$	1,471

The trademark we acquired has an estimated useful life of five years and the artist relationships we acquired have an estimated useful life of three years. The estimated weighted average useful life of the intangible assets we acquired in total is four years. Goodwill is primarily derived from our ability to generate synergies with its services. The goodwill will be included as part of our marketplaces reporting unit and is not deductible for tax purposes.

Dispositions

On April 12, 2016, we completed the sale of substantially all of the assets relating to our Cracked business, including the Cracked.com humor website, to Scripps Media, Inc. for a cash purchase price of $39.0 million. A portion of the purchase price equal to $3.9 million was placed into escrow at closing to secure certain of our post-closing indemnification obligations. Any remaining portion of the escrow amount that is not subject to then-pending claims will be paid to us in July 2017, on the 15-month anniversary of the closing date of the sale. Revenue for the Cracked business for the nine months ended September 30, 2016 (through the sale date of April 12, 2016) was $1.8 million. The Cracked business had a pre-tax loss of $1.9 million for the nine months ended September 30, 2016 (through the sale date of April 12, 2016), excluding allocations for corporate costs and including stock-based compensation expense incurred in connection with the sale. Revenue for the Cracked business for the three and nine month periods ended September 30, 2015 was $2.8 million and $8.2 million, respectively. The Cracked business had pre-tax income of $0.9 million and $2.5 million for the three and nine month periods ended September 30, 2015, respectively, excluding allocations for corporate costs. The sale did not meet the definition of discontinued operations under ASC 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.

As a result of the sale of the Cracked business, we recognized a gain of $38.1 million, recorded in other income, net, which included $0.6 million in net assets sold and $0.3 million in transaction costs incurred in connection with the sale. We expect to utilize our existing net operating losses to offset the income tax associated with the gain resulting from the sale of the Cracked business. If all or a portion of our net operating loss carryforwards are subject to limitation because it is determined that we had previously experienced an “ownership change” as defined in section 382 of the Internal Revenue Code of 1986, as amended, our future cash flows could be adversely impacted due to increased tax liability.

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In addition, during the nine months ended September 30, 2016, we sold one of our non-core online properties for total consideration of $1.0 million, resulting in a gain of $1.0 million, recorded in other income, net. During the nine months ended September 30, 2015, we sold our Pluck social media business for $3.8 million in cash after working capital adjustments, resulting in a gain of $2.1 million. During the nine months ended September 30, 2015, we also sold certain non-core online properties for a total consideration of $0.9 million.

12. Business Segments

We operate in one operating segment. Our chief operating decision maker (the “CODM”) manages our operations on a consolidated basis for purposes of evaluating financial performance and allocating resources. The CODM reviews separate revenue information for the Marketplaces and Content & Media service offerings. All other financial information is reviewed by the CODM on a consolidated basis. All of our principal operations and assets are located in the United States.

Revenue derived from our Marketplaces and Content & Media service offerings is as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Marketplaces	$	16,650	$	12,624	$	43,521	$	33,816
Content & Media		11,409		15,881		35,942		57,667
Total revenue	$	28,059	$	28,505	$	79,463	$	91,483

Revenue by geographic region, as determined based on the location of our customers or anticipated destination of use, is as follows:


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Domestic	$	22,708	$	24,621	$	64,214	$	79,054
International		5,351		3,884		15,249		12,429
Total revenue	$	28,059	$	28,505	$	79,463	$	91,483

13. Fair Value

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1—valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities or funds.

Level 2—valuations for assets and liabilities traded in less active dealer or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 includes U.S. Treasury, U.S. government and agency debt securities, and certain corporate obligations. Valuations are usually obtained from third-party pricing services for identical or comparable assets or liabilities.

Level 3—valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

We report certain financial assets and liabilities at their carrying amounts. The carrying amounts of our financial instruments, which include cash and cash equivalents, accounts receivable, restricted cash, accounts payable, and accrued liabilities approximate fair value because of their short maturities. Certain assets, including goodwill and intangible assets, are also subject to measurement at fair value on a nonrecurring basis, if they are deemed to be impaired as the result of an impairment review.

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We have Level 1 financial assets measured at fair value consisting of money market funds in the amount of $5.0 million as of September 30, 2016 and December 31, 2015. These assets are included in cash and cash equivalents in the accompanying condensed consolidated balance sheet.

14. Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share of common stock (in thousands, except per share data):


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Net (loss) income	$	(8,349)	$	(13,805)	$	4,209	$	(34,962)

Weighted average common shares outstanding—basic		20,236		20,021		20,279		19,879
Dilutive effect of common stock equivalents		—		—		232		—
Weighted average common shares outstanding—diluted		20,236		20,021		20,511		19,879

Net (loss) income per share
Basic	$	(0.41)	$	(0.69)	$	0.21	$	(1.76)
Diluted	$	(0.41)	$	(0.69)	$	0.21	$	(1.76)

For the three months ended September 30, 2016 and 2015, we excluded 3.6 million and 4.1 million shares, respectively, and for the nine months ended September 30, 2016 and 2015, we excluded 3.4 million and 4.2 million shares, respectively, from the calculation of diluted weighted average common shares outstanding, as their inclusion would have been antidilutive.

15. Subsequent Events

On November 9, 2016, our corporate name will change from Demand Media, Inc. to Leaf Group Ltd. as part of our evolution from a pure digital media company to a diversified internet marketplaces and media company. We will also commence trading under the ticker symbol “LFGR” on the New York Stock Exchange as of market open on November 9, 2016.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used herein, “Demand Media,” the “Company,” “our,” “we,” or “us” and similar terms include Demand Media, Inc. and its subsidiaries, unless the context indicates otherwise. “Demand Media” and other trademarks of ours appearing in this report are our property. This report may contain additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Annual Report”).

Forward Looking Statements

This Quarterly Report on Form 10-Q 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. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “plan” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements are so identified. You should not rely upon forward-looking statements as guarantees of future performance. We have based these forward-looking statements largely on our current estimates of our financial results and our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, as well as those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”), including our 2015 Annual Report, which was filed with the SEC on March 1, 2016, and the factors described in the section entitled “Risk Factors” in Part I. Item 1A of the 2015 Annual Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we currently expect.

Overview

We are a diversified Internet company that builds platforms across our marketplaces and media properties to enable communities of creators to reach passionate audiences in large and growing lifestyle categories. In addition, our branded content creation and diverse advertising offerings help advertisers find innovative ways to engage with their customers.

Our business is comprised of two service offerings: Marketplaces and Content & Media.

Marketplaces

Through our Marketplaces service offering, we operate two leading art and design marketplaces where large communities of artists can market and sell their original artwork or their original designs printed on a wide variety of products. Society6.com (“Society6”) provides artists with an online commerce platform to feature and sell their original designs on an array of consumer and home décor products such as art prints, phone and tablet cases, t-shirts and throw pillows. SaatchiArt.com (“Saatchi Art”) is an online art gallery featuring a wide selection of original paintings, drawings, sculptures and photography that provides a global community of artists with a

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curated environment in which to exhibit and sell their work directly to consumers around the world. In addition, our Marketplaces service offering includes The Other Art Fair, a leading London-based art fair for discovering emerging artists that we acquired in July 2016.

Our Marketplaces service offering primarily generates revenue from the sale of products and services through our online art and design marketplaces. On Society6, revenue is generated from the sale of print-on-demand products. Saatchi Art primarily generates revenue through commissions on the final sale price of original works of art. Our Marketplaces service offering is principally dependent on the number of transactions and average revenue per transaction generated by products and services sold through our online marketplaces. We believe there are opportunities to increase the number of transactions and the average revenue per transaction by attracting new visitors to our online marketplaces via diverse online and offline marketing, improving conversion of visitors to purchasing customers, continuing to introduce new products, international expansion and offering product bundling and other promotions.

Content & Media

Our Content & Media service offering includes our leading owned and operated online properties that publish media content including text articles, videos, photographs and designed visual formats. This content is published across several key categories on Livestrong.com, a health and healthy living destination; eHow, a do-it-yourself reference destination; and certain other online properties focused on specific categories or interests. During the third quarter of 2016, we launched several category-specific properties utilizing topics and content from eHow, while eHow.com continues to focus on do-it-yourself and home content. We believe that in the evolving digital media landscape, more narrowly focused media properties resonate better with audiences. Our Content & Media service offering also includes our content publishing studio, through which we create content for third-party publishers and brands.

Our Content & Media service offering derives the majority of its revenue from the sale of advertising on our online properties. Our advertising revenue is principally dependent on the number of visits to our properties and the corresponding ad unit rates. Since 2011, the total number of visits to our properties, particularly eHow, has substantially declined due to lower search engine referrals resulting from ongoing changes to search engine algorithms by Google, Yahoo! and Bing, as well as our decision to remove low quality and duplicative content. We have also experienced lower ad monetization due to industry declines in cost-per-click ad rates and our decision to reduce the number of advertisements per page on certain articles. Visits across our online properties also continue to shift from desktop to mobile, with ad unit rates for mobile generally lower than desktop. In addition, ad unit rates on the new eHow vertical sites are currently lower than the rates on eHow.com because ad inventory on new sites is typically monetized at lower blended rates. Future changes to search engine algorithms that negatively impact the volume of referral traffic, declines in our ad unit rates, increased consumption of our content on other platforms or increased availability of ad blocking software, particularly on mobile devices, could result in a material adverse effect to our business and results of operations.

However, we believe that there are opportunities to increase the number of visits to our online properties from direct visits, social media and search engine referrals by building high-quality products that provide a better user experience and lead to increased engagement, and in the quarter ended September 30, 2016, the total number of visits to our online properties increased on a sequential basis as compared to the number of visits in the quarter ended June 30, 2016. We have also seen promising increases in traffic when we moved content from eHow.com to the new eHow vertical sites. In order to improve the quality of our products, we have redesigned our websites; refined our content library; rationalized ad unit density; and developed a greater variety of content formats, particularly video content and formats better suited for mobile devices and consumption on other platforms. We are also working with a network of contributors and influencers to create more authoritative and engaging content and we are focused on building strong followings on various social media platforms such as Facebook and Pinterest. Although these changes resulted in certain increased operating expenses and lower revenue initially, we believe that by providing consumers with an improved user and content experience, we will be able to continue to increase the number of visits and revenue in a sustained fashion over the long-term. We also believe that there are opportunities to increase our advertising revenue by continuing to optimize our ad product stack, increasing branded ad sales through direct sellers and offering more innovative products such as native advertisements and sponsored content in order to increase the overall ad unit rates we receive. During the quarter ended September 30, 2016, we began to see the positive impact of these efforts as revenue per visit, or RPV, increased slightly as compared to the three months ended June 30, 2016.

Historically, the majority of our advertising revenue has been generated by our relationship with Google. While Google continues to be our primary advertising vendor for advertising monetization, we have been significantly diversifying our monetization partners since 2015 and expect to continue to do so in the future. Google also serves as one of our primary technology platform partners in connection with our programmatic advertising sales offering. Any change in the type of services that Google provides to us, or to the terms of our agreements with Google, could adversely impact our results of operations.

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Revenue

For the three months ended September 30, 2016 and 2015, we reported revenue of $28.1 million and $28.5 million, respectively. For the three months ended September 30, 2016 and 2015, Marketplaces revenue accounted for 59% and 44% of our total revenue, respectively, and Content & Media revenue accounted for 41% and 56% of our total revenue, respectively. For the nine months ended September 30, 2016 and 2015, we reported revenue of $79.5 million and $91.5 million, respectively. For the nine months ended September 30, 2016 and 2015, Marketplaces revenue accounted for 55% and 37% of our total revenue, respectively, and Content & Media revenue accounted for 45% and 63% of our total revenue, respectively.

The revenue generated by our Marketplaces service offering has higher costs associated with it as compared to our Content & Media service offering due to variable product costs, including outsourced product manufacturing costs, artist royalties, marketing costs, and shipping and handling costs. During the nine months ended September 30, 2016, a higher percentage of our total revenue was generated by our Marketplaces service offering as compared to the prior year period. If our revenue sources continue to shift from our Content & Media service offering to our Marketplaces service offering, our total costs relative to our revenue will be negatively impacted.

Sale of Cracked Business

On April 12, 2016, we completed the sale of substantially all of the assets relating to our Cracked business, including the Cracked.com humor website, to Scripps Media, Inc. for a cash purchase price of $39.0 million. A portion of the purchase price equal to $3.9 million was placed into escrow at closing to secure certain of our post-closing indemnification obligations. Any remaining portion of the escrow amount that is not subject to then-pending claims will be paid to us in July 2017, on the 15-month anniversary of the closing date of the sale. Revenue for the Cracked business for the nine months ended September 30, 2016 (through the sale date of April 12, 2016) was $1.8 million. The Cracked business had a pre-tax loss of $1.9 million for the nine months ended September 30, 2016 (through the sale date of April 12, 2016), excluding allocations for corporate costs and including stock-based compensation expense resulting from the sale. Revenue for the Cracked business for the three and nine month periods ended September 30, 2015 was $2.8 million and $8.2 million, respectively. The Cracked business had pre-tax income of $0.9 million and $2.5 million for the three and nine month periods ended September 30, 2015, respectively, excluding allocations for corporate costs.

StudioD Realignment

In June 2016, we took certain actions to streamline our content publishing studio business (formerly known as studioD) and better integrate the business into our broader Content & Media service offering. As part of this realignment, we reduced the staffing within this business by 35 full-time employees and the remaining employees were integrated into our other Content & Media businesses. Following this realignment, we are continuing to create content for third-party publishers and for brands using a more integrated approach. We are currently focused on retaining as many of our existing relationships as possible but our future revenue may be impacted in the near term. We expect these actions to result in annualized savings of approximately $8.0 million.

Rebrand to Leaf Group Ltd.

Key Business Metrics

We regularly review a number of business metrics to evaluate our business, measure the performance of our business model, identify trends impacting our business, determine resource allocations, formulate financial projections and make strategic business decisions. Measures which we believe are the primary indicators of our performance are as follows:

Marketplaces Metrics

Number of transactions: We define transactions as the total number of successfully completed transactions by Society6 and Saatchi Art during the applicable period.

Average revenue per transaction: We calculate average revenue per transaction by dividing Marketplaces revenue for a period (not including revenue generated by The Other Art Fair) by the number of transactions in that period.

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Content & Media Metrics

Visits: We define visits as the total number of times users access our content across (a) one of our owned and operated online properties and/or (b) one of our customers’ online properties, to the extent that the visited customer web pages are hosted by our content services. In each case, breaks of access of at least 30 minutes constitute a unique visit.

Revenue per visit (“RPV”): We define RPV as Content & Media revenue per one thousand visits.

Video Views: We define video views as the total number of views of all of our Content & Media videos on Facebook and YouTube, or on Demand Media or third party sites via YouTube or any other embedded video player, during the applicable period. We include in this metric (i) views of videos published by any of our Content & Media properties, including Livestrong.com, eHow, category specific sites and international sites; and (ii) videos viewed on multiple YouTube channels affiliated with certain of our properties.

Social Media Metrics

Social Media Followers: We define social media followers as the sum of all Facebook, Pinterest, Instagram and Twitter followers, as well as all YouTube subscribers, across our Content & Media or Marketplaces properties, as applicable, as of the end of the relevant period. Social Media Followers includes subscribers for multiple YouTube channels affiliated with certain Demand Media properties. Individuals are counted more than once if they follow multiple properties or the same property on multiple platforms, or if they subscribe to multiple YouTube channels.

The following table sets forth our key business metrics for the periods presented:


	Three months ended						Nine months ended
	September 30,						September 30,
	2016		2015		% Change		2016		2015		% Change
Marketplaces Metrics(1)(2):
Number of Transactions		282,386		203,768	39	%		728,292		569,817	28	%
Average Revenue per Transaction	$	58.61	$	61.95	(5)	%	$	59.62	$	59.35	—	%
Content & Media Metrics(2):
Visits (in thousands)		651,545		780,990	(17)	%		2,082,666		2,621,274	(21)	%
Revenue per Visit	$	17.51	$	20.33	(14)	%	$	17.26	$	22.00	(22)	%
Video Views (in thousands):		176,445		121,874	45	%		501,887		N/A (3)	N/A	(3)
Social Metrics (in thousands):
Social Media Followers - Marketplaces:		1,896		N/A (4)	N/A	(4)		1,896		N/A (4)	N/A	(4)
Social Media Followers - Content & Media:		12,596		N/A (4)	N/A	(4)		12,596		N/A (4)	N/A	(4)

(1)

Marketplaces Metrics do not include revenue or transactions related to The Other Art Fair business acquired in July 2016.

(2)

For a discussion of these period-to-period changes in the number of transactions, average revenue per transaction, number of visits and RPV, and how they impacted our financial results, see “Results of Operations” below.

(3)

Video Views for the nine months ended September 30, 2015 is not available because we did not start formally tracking this metric for all properties until the third quarter of 2015.

(4)

We did not track Social Media Followers across all platforms prior to the third quarter of 2016. As of September 30, 2015, our Marketplaces properties had 0.7 million total Social Media Followers on Facebook and YouTube and our Content & Media properties had 10.0 million total Social Media Followers on Facebook and YouTube.

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Basis of Presentation

Revenue

Our revenue is primarily derived from products and services sold through our online marketplaces and from sales of advertising.

Service Revenue

Marketplaces

We generate Marketplaces service revenue primarily from commissions we receive from facilitating the sale of original art by artists to customers through Saatchi Art. We also generate Marketplaces service revenue from various sources relating to The Other Art Fair, including commissions from the sale of original art and fees paid by artists for stands at the fairs. We recognize service revenue arising from the sale of original art net of amounts paid to the artist because we are not the primary obligor in the transaction, we do not have inventory risk, and we do not establish the prices for the art sold. We also recognize this service revenue net of any sales allowances. Revenue is recognized after the original art has been delivered and the return period has expired. Payments received in advance of delivery and completion of the return period are included in deferred revenue in the accompanying consolidated balance sheets. We periodically provide incentive offers to Saatchi Art customers to encourage purchases, including percentage discounts off current purchases, free shipping and other offers. Value-added taxes (“VAT”), sales tax and other taxes are not included in Marketplaces service revenue because we are a pass-through conduit for collecting and remitting any such taxes.

Content & Media

We generate Content & Media service revenue primarily from advertisements displayed on our online properties and on certain webpages of our content channel customers’ online properties that are hosted by our content services. Articles, videos and other forms of content generate advertising revenue from a diverse mix of advertising methods including performance-based cost-per-click advertising, in which an advertiser pays only when a visitor clicks on an advertisement; display advertisements, where revenue is dependent upon the number of advertising impressions delivered; native advertisements, which are advertisements created to match the form and function of the platform on which they appear; sponsored content; or advertising links. At times, we enter into revenue-sharing arrangements with our customers, and if we are considered the primary obligor, we report the underlying revenue on a gross basis in our consolidated statements of operations and record the revenue-sharing payments to our customers in service costs.

We also generate Content & Media service revenue from the sale or license of media content, including the creation and distribution of content for third-party brands and publishers through our content studio. Revenue from the sale or perpetual license of media content is recognized when the content has been delivered and the contractual performance obligations have been fulfilled. Revenue from the non-perpetual license of media content is recognized over the period of the license as content is delivered or when other related performance criteria are fulfilled. In circumstances where we distribute our content on third-party properties and the customer acts as the primary obligor, we recognize revenue on a net basis.

Product Revenue

The terms with our shipping vendors are FOB destination and we therefore recognize product revenue from sales of Society6 products upon delivery, net of estimated returns based on historical experience. Product revenue for Society6 is recognized net of sales allowances and return allowances. We recognize product revenue from the sale of prints through Saatchi Art when the prints are delivered and the return period has expired. Payments received in advance of delivery and, with respect to the Saatchi Art prints, prior to completion of the return period are included in deferred revenue in the accompanying consolidated balance sheets. Product revenue is recorded at the gross amount due to the following factors: we are the primary obligor in a transaction, we have inventory and credit risk, and we have latitude in establishing prices and selecting suppliers. We periodically provide incentive offers to customers to encourage purchases, including percentage discounts off current purchases, free shipping and other offers. VAT, sales tax and other taxes are not included in product revenue because we are a pass-through conduit for collecting and remitting any such taxes.

Service Costs

Service costs consist of payments relating to our Internet connection and co-location charges and other platform operating expenses, including depreciation of the systems and hardware used to build and operate our content creation and distribution platform; expenses related to creating, rewriting, or auditing certain content units; and personnel costs related to in-house editorial, customer service and

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information technology. Service costs also include payments to our customers pursuant to revenue-sharing arrangements where we are the primary obligor. In the near term, we expect service costs to remain relatively flat as a percentage of revenue.

Product Costs

Product costs consist of outsourced product manufacturing costs, artist royalties, and personnel costs. In the near term, we expect our product costs to increase as a percentage of product revenue as a result of growth in our product activities across our Marketplace offerings.

Shipping and Handling

Shipping and handling charged to customers are recorded in service revenue or product revenue, as applicable. Associated costs are recorded in service costs or product costs.

Sales and Marketing

Sales and marketing expenses consist primarily of sales and marketing personnel costs, sales support, public relations, advertising, marketing and general promotional expenditures. Fluctuations in our sales and marketing expenses are generally the result of our efforts to drive growth in our product and service offerings. We currently anticipate that our sales and marketing expenses will increase in the near term as a percentage of revenue primarily as a result of growth in our marketing activities across our Marketplaces offerings.

Product Development

Product development expenses consist primarily of expenses incurred in our software engineering, product development and web design activities and related personnel costs. Fluctuations in our product development expenses are generally the result of hiring personnel to support and develop our platforms, including the costs to improve our owned and operated online properties and related mobile applications, as well as the costs to develop future product and service offerings. We currently anticipate that our product development expenses will increase slightly in the near term as a percentage of revenue as we continue to invest in product development personnel to support the growth of our business.

General and Administrative

General and administrative expenses consist primarily of personnel costs from our corporate executive, legal, finance, human resources and information technology organizations and facilities-related expenditures, as well as third-party professional fees and insurance. Professional fees are largely comprised of outside legal, audit and information technology consulting. In the first quarter of 2016, we reclassified certain personnel costs, including stock-based compensation, primarily relating to individuals serving in management roles for specific businesses, from general and administrative expense to either service costs, sales and marketing or product development, to better reflect the respective functions of these individuals. We currently anticipate that general and administrative expenses will decrease in the near term as a percentage of revenue due to revenue growth and flat general and administrative expenses.

Severance Costs

During the nine months ended September 30, 2016, we recognized severance costs of $1.7 million in connection with targeted headcount reductions, primarily as a result of actions taken in the second quarter of 2016 to streamline our content studio business and better integrate the related businesses into our broader Content & Media service offering. These severance costs were recognized in the condensed consolidated statements of operations as follows: $0.7 million in sales and marketing costs, $0.6 million in product development costs, $0.3 million in service costs, and $0.1 million in general and administrative costs. Severance amounts related to these actions were fully paid as of September 30, 2016.

Amortization of Intangible Assets

We capitalize certain costs (i) allocated to the purchase price of certain identifiable intangible assets acquired in connection with business combinations and (ii) incurred to develop media content that is determined to have a probable economic benefit. We amortize these costs on a straight-line basis over the related expected useful lives of these assets. We determine the appropriate useful life of intangible assets by performing an analysis of expected cash flows based on our historical experience of intangible assets of similar quality and value. In the event of content remediation in future periods, additional accelerated amortization expense may be incurred in the periods such actions occur. We expect amortization expense related to business combinations to decrease in the near term due to smaller

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acquisitions as compared to prior years. Amortization as a percentage of revenue will depend upon a variety of factors, such as the amounts and mix of our investments in content and identifiable intangible assets acquired in business combinations.

Goodwill

We test goodwill for impairment in the fourth quarter of each year unless there are interim indicators that suggest that it is more likely than not that goodwill may be impaired. Goodwill is tested at the reporting unit level and as of September 30, 2016, we have two reporting units: marketplaces and content and media. As of September 30, 2016, our goodwill balance related entirely to our marketplaces reporting unit.

Stock-based Compensation

Included in operating expenses are expenses associated with stock-based compensation, which are allocated and included in service costs, sales and marketing, product development and general and administrative expenses. Stock-based compensation expense is largely comprised of costs associated with stock options, restricted stock units and restricted stock granted to employees, directors and non-employees, and expenses relating to our Employee Stock Purchase Plan. We record the fair value of these equity-based awards and expenses at their cost ratably over related vesting periods.

Interest Income (Expense), Net

Interest income consists primarily of interest earned on cash balances and short-term investments. We typically invest our available cash balances in money market funds and short-term United States Treasury obligations.

Other Income (Expense), Net

Other income (expense), net consists primarily of gains or losses on sales of businesses and transaction gains and losses on foreign currency-denominated assets and liabilities. We expect these gains and losses will vary depending upon whether we dispose of any businesses and movements in underlying currency exchange rates.

Provision for Income Taxes

Since our inception, we have been subject to income taxes principally in the United States, and certain other countries where we have or had a legal presence, including the United Kingdom, the Netherlands, Australia, Canada and Argentina. We may in the future become subject to taxation in additional countries based on the foreign statutory rates and our effective tax rate could fluctuate accordingly.

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

We currently believe that based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have taken a full valuation allowance against all of our United States federal and certain state and foreign deferred tax assets. Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carry-forwards in the event of an “ownership change,” as defined in Section 382 of the Code. Currently, we do not expect the utilization of our net operating loss and tax credit carry-forwards in the near term to be materially affected as no significant limitations are expected to be placed on these carry-forwards as a result of our previous ownership changes. However, if all or a portion of our net operating loss carryforwards are subject to limitation because we experience an ownership change, our future cash flows could be adversely impacted due to increased tax liability.

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Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the assumptions and estimates associated with our revenue recognition; accounts receivable and allowance for doubtful accounts; goodwill; capitalization and useful lives associated with our intangible assets; income taxes; stock-based compensation; and the recoverability of our long-lived assets, including our media portfolio, have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates and have discussed these in our 2015 Annual Report. There have been no material changes to our critical accounting policies and estimates since the date of our 2015 Annual Report.

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Results of Operations

The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Revenue:
Service revenue	$	12,688	$	16,755	$	39,623	$	60,047
Product revenue		15,371		11,750		39,840		31,436
Total revenue		28,059		28,505		79,463		91,483
Operating expenses:
Service costs (exclusive of amortization of intangible assets shown separately below)(1)(2)(3)		5,370		9,597		19,887		29,296
Product costs		9,791		7,638		26,588		21,240
Sales and marketing(1)(2)(3)		6,031		5,602		19,610		15,343
Product development(1)(2)(3)		4,652		6,936		15,614		20,543
General and administrative(1)(2)(3)		7,498		9,258		23,450		27,841
Amortization of intangible assets		3,100		3,441		9,246		15,377
Total operating expenses		36,442		42,472		114,395		129,640
Loss from operations		(8,383)		(13,967)		(34,932)		(38,157)
Interest income		35		—		60		359
Interest expense		(2)		(3)		(2)		(143)
Other (expense) income, net		(31)		178		39,131		3,024
(Loss) income before income taxes		(8,381)		(13,792)		4,257		(34,917)
Income tax benefit (expense)		32		(13)		(48)		(45)
Net (loss) income	$	(8,349)	$	(13,805)	$	4,209	$	(34,962)

(1) Depreciation expense included in the above line items:
Service costs	$	603	$	2,041	$	2,931	$	4,663
Sales and marketing		12		15		38		52
Product development		32		47		105		154
General and administrative		700		1,611		2,715		4,118
Total depreciation	$	1,347	$	3,714	$	5,789	$	8,987

(2) Stock-based compensation included in the above line items(3):
Service costs	$	142	$	182	$	1,054	$	806
Sales and marketing		145		159		586		511
Product development		290		397		1,206		1,576
General and administrative		1,103		821		3,272		2,790
Total stock-based compensation	$	1,680	$	1,559	$	6,118	$	5,683

(3) During the first quarter of 2016, we reclassified certain personnel costs (including stock-based compensation), primarily relating to individuals serving in management roles for specific businesses, from general and administrative expense to either service costs, sales and marketing or product development, to better reflect the respective functions of these individuals. Certain prior period amounts have been reclassified to conform to the current period presentation, resulting in the following changes in our condensed consolidated statements of operations for the three and nine month periods ended September 30, 2015, respectively: (i) decreases of $0.6 million and $2.4 million in general and administrative expense; (ii) increases of $0.4 million and $1.6 million in product development expense; (iii) increases of $0.2 million and $0.5 million in sales and marketing expense; and (iv) increases of less than $0.1 million and $0.2 million in service costs.

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As a percentage of revenue:


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Revenue:
Service revenue	45.2	%	58.8	%	49.9	%	65.6	%
Product revenue	54.8	%	41.2	%	50.1	%	34.4	%
Total revenue	100.0	%	100.0	%	100.0	%	100.0	%
Operating expenses:
Service costs (exclusive of amortization of intangible assets shown separately below)	19.1	%	33.7	%	25.0	%	32.0	%
Product costs	34.9	%	26.8	%	33.5	%	23.2	%
Sales and marketing	21.5	%	19.7	%	24.7	%	16.8	%
Product development	16.6	%	24.3	%	19.7	%	22.5	%
General and administrative	26.7	%	32.5	%	29.5	%	30.4	%
Amortization of intangible assets	11.1	%	12.0	%	11.6	%	16.8	%
Total operating expenses	129.9	%	149.0	%	144.0	%	141.7	%
Loss from operations	(29.9)	%	(49.0)	%	(44.0)	%	(41.7)	%
Interest income	—	%	—	%	0.1	%	0.4	%
Interest expense	—	%	—	%	—	%	(0.2)	%
Other (expense) income, net	—	%	0.6	%	49.3	%	3.3	%
(Loss) income before income taxes	(29.9)	%	(48.4)	%	5.4	%	(38.2)	%
Income tax benefit (expense)	0.1	%	—	%	(0.1)	%	—	%
Net (loss) income	(29.8)	%	(48.4)	%	5.3	%	(38.2)	%

Revenue

Revenue by service offering was as follows (in thousands):


	Three months ended						Nine months ended
	September 30,						September 30,
	2016		2015		% Change		2016		2015		% Change
Marketplaces	$	16,650	$	12,624	32	%	$	43,521	$	33,816	29	%
Content & Media		11,409		15,881	(28)	%		35,942		57,667	(38)	%
Total revenue	$	28,059	$	28,505	(2)	%	$	79,463	$	91,483	(13)	%

Marketplaces Revenue

Marketplaces revenue increased by $4.0 million, a 32% increase, to $16.7 million for the three months ended September 30, 2016, as compared to $12.6 million for the same period in 2015. The number of transactions increased 39% to 282,386 in the three months ended September 30, 2016 from 203,768 in the same period in 2015, primarily due to increased traffic, new product introductions and higher conversion rates. For the three months ended September 30, 2016, Marketplaces average revenue per transaction was $58.61, which excludes revenue generated through transactions consummated by The Other Art Fair, decreasing from $61.95 in the same period in 2015.

Marketplaces revenue increased by $9.7 million, a 29% increase, to $43.5 million for the nine months ended September 30, 2016, as compared to $33.8 million for the same period in 2015. The number of transactions increased 28% to 728,292 in the nine months ended September 30, 2016 from 569,817 in the same period in 2015, primarily due to increased traffic, new product introductions and higher conversion rates. For the nine months ended September 30, 2016, Marketplaces average revenue per transaction was $59.62, which excludes revenue generated through transactions consummated by The Other Art Fair, increasing from $59.35 in the same period in 2015.

Content & Media Revenue

Content & Media revenue decreased by $4.5 million, a 28% decline, to $11.4 million for the three months ended September 30, 2016, as compared to $15.9 million for the same period in 2015. Visits decreased by 17% to 652 million visits in the three months ended September 30, 2016 from 781 million visits in the same period in 2015 primarily due to the divestitures of certain online properties, including Cracked, as well as continued search and related traffic declines, particularly on eHow. RPV decreased by 14%, to

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$17.51 in the three months ended September 30, 2016 from $20.33 in the same period in 2015, primarily due to lower advertising monetization yields related to our strategic shift to move content from eHow to several category-specific media properties and declining monetization rates for certain forms of advertising.

Content & Media revenue decreased by $21.7 million, a 38% decline, to $35.9 million for the nine months ended September 30, 2016, as compared to $57.7 million for the same period in 2015. Visits decreased by 21% to 2,083 million visits in the nine months ended September 30, 2016 from 2,621 million visits in the same period in 2015 primarily due to the divestitures of certain online properties, including Cracked, as well as continued search and related traffic declines, particularly on eHow. RPV decreased by 22%, to $17.26 in the nine months ended September 30, 2016 from $22.00 in the same period in 2015, primarily due to lower advertising monetization yields related to our strategic shift to move content from eHow to several category-specific media properties and declining monetization rates for certain forms of advertising.

Costs and Expenses

Operating costs and expenses were as follows (in thousands):


	Three months ended						Nine months ended
	September 30,						September 30,
	2016		2015(1)		% Change		2016		2015(1)		% Change
Service costs (exclusive of amortization of intangible assets)	$	5,370	$	9,597	(44)	%	$	19,887	$	29,296	(32)	%
Product costs		9,791		7,638	28	%		26,588		21,240	25	%
Sales and marketing		6,031		5,602	8	%		19,610		15,343	28	%
Product development		4,652		6,936	(33)	%		15,614		20,543	(24)	%
General and administrative		7,498		9,258	(19)	%		23,450		27,841	(16)	%
Amortization of intangible assets		3,100		3,441	(10)	%		9,246		15,377	(40)	%

(1)

During the first quarter of 2016, we reclassified certain personnel costs (including stock-based compensation) primarily relating to individuals serving in management roles for specific businesses, from general and administrative expense to either service costs, sales and marketing or product development, to better reflect the respective functions of these individuals. Certain prior period amounts have been reclassified to conform to the current period presentation, resulting in the following changes in our condensed consolidated statements of operations for the three and nine month periods ended September 30, 2015, respectively: (i) decreases of $0.6 million and $2.4 million in general and administrative expense; (ii) increases of $0.4 million and $1.6 million in product development expense; (iii) increases of $0.2 million and $0.5 million in sales and marketing expense; and (iv) increases of less than $0.1 million and $0.2 million in service costs.

Service Costs

Service costs for the three months ended September 30, 2016 decreased by $4.2 million, or 44%, to $5.4 million as compared to $9.6 million for the same period in 2015. The decrease was primarily due to decreases of $1.6 million in personnel and related costs driven by headcount reductions and the sale of our Cracked business, $1.4 million in depreciation expense, $0.7 million as a result of less content renovation, $0.4 million in information technology expense, $0.2 million in ad serving costs, $0.1 million in traffic acquisition costs, partially offset by an increase of $0.2 million in consulting fees.

Service costs for the nine months ended September 30, 2016 decreased by $9.4 million, or 32%, to $19.9 million as compared to $29.3 million for the same period in 2015. The decrease was primarily due to decreases of $2.7 million in personnel and related costs driven by headcount reductions and the sale of our Cracked business, which is net of stock-based compensation expense related to the acceleration of certain stock awards, $2.3 million as a result of less content renovation, $1.9 million in information technology expense, $1.7 million in depreciation expense, $0.5 million in ad serving costs, and $0.3 million in traffic acquisition costs.

Product Costs

Product costs for the three months ended September 30, 2016 increased by $2.2 million, or 28%, to $9.8 million, as compared to $7.6 million for the same period in 2015. The increase was primarily due to increased costs related to the higher volume of products sold on Society6.

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Product costs for the nine months ended September 30, 2016 increased by $5.3 million, or 25%, to $26.6 million, as compared to $21.2 million for the same period in 2015. The increase was primarily due to increased costs related to the higher volume of products sold on Society6.

Sales and Marketing

Sales and marketing expenses for the three months ended September 30, 2016 increased by $0.4 million, or 8%, to $6.0 million, as compared to $5.6 million for the same period in 2015. The increase was primarily due to increases of $1.0 million related to marketing activities primarily for our marketplaces businesses, and $0.1 million in consulting and software licensing fees, partially offset by a decrease of $0.7 million in personnel and related costs.

Sales and marketing expenses for the nine months ended September 30, 2016 increased by $4.3 million, or 28%, to $19.6 million, as compared to $15.3 million for the same period in 2015. The increase was primarily due to increases of $3.3 million related to marketing activities primarily for our marketplaces businesses, $0.7 million in personnel and related costs, including stock-based compensation expense, $0.2 million in consulting fees, and $0.1 million in software licensing fees.

Product Development

Product development expenses for the three months ended September 30, 2016 decreased by $2.3 million, or 33%, to $4.7 million, as compared to $6.9 million in the same period in 2015, primarily due to decreases of $2.0 million in personnel and related costs driven by headcount reductions and the sale of our Cracked business, $0.2 million in consulting fees, and $0.1 million in license and support costs.

Product development expenses for the nine months ended September 30, 2016 decreased by $4.9 million, or 24%, to $15.6 million, as compared to $20.5 million in the same period in 2015, primarily due to decreases of $4.3 million in personnel and related costs driven by headcount reductions and the sale of our Cracked business, which is net of stock-based compensation expense related to the acceleration of certain stock awards, $0.4 million in consulting fees, and $0.2 million in license and support costs.

General and Administrative

General and administrative expenses for the three months ended September 30, 2016 decreased by $1.8 million, or 19%, to $7.5 million, as compared to $9.3 million in the same period in 2015. The decrease was primarily due to decreases of $0.9 million in depreciation expense, $0.6 million in facilities and related costs, $0.2 million in consulting fees, and $0.1 million in personnel and related costs.

General and administrative expenses for the nine months ended September 30, 2016 decreased by $4.4 million, or 16%, to $23.5 million, as compared to $27.8 million in the same period in 2015. The decrease was primarily due to decreases of $1.4 million in depreciation expense, $1.3 million in facilities and related costs, $1.2 million in legal and audit fees, and $0.5 million in consulting fees.

Amortization of Intangible Assets

Amortization expense for the three months ended September 30, 2016 decreased by $0.3 million, or 10%, to $3.1 million, as compared to $3.4 million in the same period in 2015. The change was primarily due to a decrease in amortization expense from intangible assets completing their useful life, partially offset by additional amortization expense from the removal of certain content units in the third quarter of 2016.

Amortization expense for the nine months ended September 30, 2016 decreased by $6.1 million, or 40%, to $9.2 million, as compared to $15.4 million in the same period in 2015. The decrease was primarily due to the removal of certain content units from our media properties during the second quarter of 2015, the disposition of intangible assets in connection with the sale of our Pluck business in February 2015, and lower amortization expense due to intangible assets completing their useful life.

Interest Income (Expense), Net

Interest income was less than $0.1 million for each of the three and nine month periods ended September 30, 2016, primarily related to interest paid to us on our money market funds which are included in cash and cash equivalents. Interest expense for each of the three and nine month periods ended September 30, 2016 was not material.

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Interest income was not material for the three months ended September 30, 2015. Interest income for the nine months ended September 30, 2015 was $0.4 million, representing interest income on the promissory note we received in July 2014 as part of the consideration for the sale of CoveritLive. Interest expense was not material for the three months ended September 30, 2015. Interest expense was $0.1 million for the nine months ended September 30, 2015, related to an acquisition holdback that was part of the consideration for our purchase of Society6. The holdback amount was fully repaid in July 2015 upon expiration of the holdback period.

Other Income (Expense), Net

Other expense, net for the three months ended September 30, 2016 was less than $0.1 million as compared to other income, net of $0.2 million for the three months ended September 30, 2015, which related to gains recorded for the dispositions of certain non-core online properties during the 2015 period. Other income, net for the nine months ended September 30, 2016 was $39.1 million, as compared to $3.0 million for the same period in 2015. The increase was due to the higher gains recorded for the sales of our Cracked business and one of our non-core online properties during the nine months ended September 30, 2016, as compared to the gains recorded for the dispositions of our Pluck business and certain other non-core online properties during the 2015 period.

Income Tax Benefit (Expense)

Income tax benefit (expense) was less than $0.1 million for each of the three and nine month periods ended September 30, 2016 and 2015. Income tax expense for the three and nine month periods ended September 30, 2016 and 2015 primarily related to minimal state and foreign income tax expenses.

Non-GAAP Financial Measures

To provide investors and others with additional information regarding our financial results, we have disclosed in the table below adjusted earnings before interest, taxes, depreciation and amortization expense, or Adjusted EBITDA. We have provided a reconciliation of this non-GAAP financial measure to net income (loss), the most directly comparable GAAP financial measure. Our Adjusted EBITDA financial measure differs from GAAP net income (loss) in that it excludes 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, and acquisition, disposition and realignment costs.

Adjusted EBITDA is one of the primary measures used by our management and board of directors to understand and evaluate our financial performance and operating trends, including period-to-period comparisons, because it excludes certain expenses and gains that management believes are not indicative of our core operating results. Management believes that the exclusion of these expenses and gains provides a useful measure for period-to-period comparisons of our underlying core revenue and operating costs that is focused more closely on the current costs necessary to operate our businesses and reflects our ongoing business in a manner that allows for meaningful analysis of trends. In addition, management believes that excluding certain non-cash charges can be useful because the amount of such expenses is the result of long-term investment decisions in previous periods rather than day-to-day operating decisions. Adjusted EBITDA is also one of the primary measures management uses to prepare and update our short and long term financial and operational plans and to evaluate investment decisions. We also frequently use Adjusted EBITDA in our discussions with investors, commercial bankers, equity research analysts and other users of our financial statements.

Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and in comparing operating results across periods and to those of our peer companies. However, the use of Adjusted EBITDA has certain limitations because it does not reflect all items of income and expense that affect our operations. We compensate for these limitations by reconciling Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure. Further, Adjusted EBITDA does not have a standardized meaning, and therefore other companies, including peer companies, may use the same or similarly named measures but exclude different items or use different computations, so comparability may be limited. Adjusted EBITDA should be considered in addition to, and not as a substitute for, measures prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.

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The following table presents a reconciliation of Adjusted EBITDA for each of the periods presented (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Net (loss) income	$	(8,349)	$	(13,805)	$	4,209	$	(34,962)
Add (deduct):
Income tax (benefit) expense		(32)		13		48		45
Interest (income) expense, net		(33)		3		(58)		(216)
Other expense (income), net(1)		31		(178)		(39,131)		(3,024)
Depreciation and amortization(2)		4,447		7,155		15,035		24,364
Stock-based compensation(3)		1,680		1,559		6,118		5,683
Acquisition, disposition and realignment costs(4)		99		1,606		1,396		2,162
Adjusted EBITDA	$	(2,157)	$	(3,647)	$	(12,383)	$	(5,948)

(1)

Primarily consists of income from the disposition of certain businesses, including Cracked, and other online properties.

(2)

Represents depreciation expense of our long-lived tangible assets and amortization expense of our finite-lived intangible assets, including amortization expense related to our investment in media content assets, included in our GAAP results of operations.

(3)

Represents the fair value of stock-based awards granted to employees as included in our 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 and (b) employee severance and other payments attributable to acquisition, disposition or corporate realignment activities.

Liquidity and Capital Resources

As of September 30, 2016, we had $51.7 million of cash and cash equivalents. In April 2016, we completed the sale of our Cracked business for $39.0 million in cash. We received cash proceeds of $35.1 million on the closing date and the remaining $3.9 million was placed into escrow to cover certain of our post-closing indemnification obligations for a period of 15 months. In March 2016, we also received $1.0 million from the sale of one of our non-core online properties. In July 2016, we used approximately $1.5 million of cash to fund the acquisition of The Other Art Fair.

Our principal sources of liquidity are our cash and cash equivalents, as well as the cash we generate from our operations and cash received from asset dispositions. Historically, we have also financed our operations from the issuance of stock and borrowings under credit facilities. We believe that our existing cash and cash equivalents and the cash generated by our businesses will be sufficient to fund our operations for at least the next 12 months. However, in order to fund our operations, make potential acquisitions, pursue new business opportunities and invest in our existing businesses, platforms and technologies, we may need to raise additional funds by entering into a credit facility, selling certain assets or issuing equity, equity-related or debt securities. We do not currently have an available line of credit or an effective shelf registration statement on file with the SEC.

Since our inception, we have used significant amounts of cash to make strategic acquisitions to grow our business, including the acquisitions of Society6 in June 2013, Saatchi Art in August 2014 and The Other Art Fair in July 2016. We have also generated cash by disposing of certain businesses. In addition to the dispositions discussed above, we sold (i) our Pluck social media business in February 2015 for $3.8 million in cash after working capital adjustments; (ii) certain non-core online properties during the year ended December 31, 2015 for a total of $1.2 million; and (iii) our Creativebug and CoveritLive businesses in July 2014 for approximately $10.0 million and $10.1 million, respectively. We may make further acquisitions and dispositions in the future.

Under our stock repurchase plan announced in August 2011 and amended in February 2012, we are authorized to repurchase up to $50.0 million of our common stock from time to time in open market purchases or negotiated transactions. In June 2016, we disclosed that the Company’s board of directors and management was considering re-initiating repurchases of up to $5.0 million of our common stock through the end of 2016, and these repurchases were initiated in July 2016. During the three months ended September 30, 2016, we repurchased approximately 618,000 shares at an average price of $5.65 per share for an aggregate amount of $3.5 million. Repurchases were made as open market purchases pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, as well as through certain negotiated transactions. The stock repurchases were financed by available cash balances. As of September 30, 2016, approximately $15.7 million remained available under the stock repurchase plan. Management continues to assess the benefits of repurchasing additional shares of our common stock under the stock repurchase plan, and may elect to repurchase additional shares in the future, which may exceed the previously announced $5.0 million of common stock in 2016. The timing and actual number of additional shares to be repurchased will depend on various factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions.

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Our cash flows from operating activities are significantly affected by our cash-based investments in operations, including working capital, and corporate infrastructure to support our ability to generate revenue and conduct operations. Cash used in investing activities has historically been, and is expected to be, impacted by our ongoing investments in our properties, company infrastructure and equipment. The following table sets forth our major sources and (uses) of cash for each of the periods presented (in thousands):


	Nine months ended September 30,
	2016		2015
Net cash used in operating activities	$	(13,478)	$	(9,749)
Net cash provided by investing activities	$	31,038	$	7,899
Net cash used in financing activities	$	(4,436)	$	(8,030)

Cash Flows from Operating Activities

Nine months ended September 30, 2016

Net cash used in our operating activities during the nine months ended September 30, 2016 was $13.5 million. Our net income during the period was $4.2 million, which included gains on disposal of businesses and online properties of $39.1 million, partially offset by non-cash charges of $21.1 million related to depreciation, amortization and stock-based compensation. Cash flow from operating activities was also impacted by changes in our working capital of $0.3 million.

Nine months ended September 30, 2015

Net cash used in our operating activities during the nine months ended September 30, 2015 was $9.8 million. Our net loss during the period was $35.0 million, which included non-cash charges of $30.0 million related to depreciation, amortization and stock-based compensation, partially offset by a gain on disposal of business and online properties of $3.2 million. Cash flow from operating activities was also impacted by changes in our working capital of $1.7 million.

Cash Flows from Investing Activities

Nine months ended September 30, 2016

Net cash provided by investing activities was $31.0 million during the nine months ended September 30, 2016. Cash provided by investing activities for the nine months ended September 30, 2016 included cash inflows of $36.1 million from the sale of our Cracked business and one of our non-core online media properties, partially offset by cash paid for acquisitions, net of cash acquired, of $1.4 million, and investments in property and equipment of $3.7 million.

Nine months ended September 30, 2015

Net cash provided by investing activities was $7.9 million during the nine months ended September 30, 2015. Cash provided by investing activities for the nine months ended September 30, 2015 consisted of cash inflows of $5.1 million from the repayment of a promissory note, $4.8 million from the sales of our Pluck business and certain non-core online media properties, $1.0 million of cash received from a holdback related to a prior year disposition, and $0.7 million from restricted deposits, partially offset by investments in property and equipment of $3.6 million, which included internally developed software.

Cash Flows from Financing Activities

Nine months ended September 30, 2016

Net cash used in financing activities was $4.4 million during the nine months ended September 30, 2016. Cash used in financing activities for the nine months ended September 30, 2016 primarily consists of $3.5 million used to fund repurchases of our common stock, and $1.1 million related to net taxes paid on employee stock option exercises and restricted stock units vesting, partially offset by $0.2 million in proceeds from exercises of stock options and purchases under ESPP.

Nine months ended September 30, 2015

Net cash used in financing activities was $8.0 million during the nine months ended September 30, 2015. Cash used in financing activities for the nine months ended September 30, 2015 primarily consists of $7.6 million of cash paid for acquisition holdbacks from

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prior year acquisitions and $0.6 million of costs related to net taxes paid on exercises of employee stock options and vesting of restricted stock units.

Off Balance Sheet Arrangements

As of September 30, 2016, we did not have any off balance sheet arrangements.

Capital Expenditures

For the nine months ended September 30, 2016 and 2015, we used $3.7 million and $3.6 million, respectively, in cash to fund capital expenditures to create internally developed software and purchase property and equipment. We currently anticipate making capital expenditures of between $1 million and $2 million during the remainder of the year ending December 31, 2016.

Recent Accounting Pronouncements

See Note 2 of our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate, foreign currency exchange, inflation, and concentration of credit risk. To reduce and manage these risks, we assess the financial condition of our large advertising network providers, large direct advertisers and their agencies, and other large customers when we enter into or amend agreements with them and limit credit risk by setting and adjusting credit limits where we deem appropriate. In addition, our recent investment strategy has been to invest in high credit quality financial instruments, which are highly liquid, readily convertible into cash and mature within three months from the date of purchase.

Foreign Currency Exchange Risk

While relatively small, we have operations and generate revenue from sources outside the United States. We have foreign currency exchange risks related to our revenue being denominated in currencies other than the U.S. dollar, principally in the Euro, British Pound Sterling, Australian dollar, and a relatively smaller percentage of our expenses being denominated in such currencies. We do not believe that movements in the foreign currencies in which we transact will significantly affect future net earnings or losses. Foreign currency exchange risk can be quantified by estimating the change in cash flows resulting from a hypothetical 10% adverse change in foreign exchange rates. We do not believe that such a change would currently have a material impact on our results of operations. As our international operations grow, our risks associated with fluctuations in currency rates will become greater, and we intend to continue to assess our approach to managing this risk.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Concentrations of Credit Risk

As of September 30, 2016, our cash and cash equivalents were maintained primarily with five major U.S. financial institutions and five foreign banks. We also maintained cash balances with three Internet payment processors. Deposits with these institutions at times exceed the federally insured limits, which potentially subject us to concentration of credit risk. Historically, we have not experienced any losses related to these balances and believe that there is minimal risk of expected future losses. However, there can be no assurance that there will not be losses on these deposits.

Components of our consolidated accounts receivable balance comprising more than 10% were as follows:



	September 30, 2016		December 31, 2015
Google, Inc.	39	%	26	%

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Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Item 1A.RISK FACTORS

There are certain risks and uncertainties in our business that could materially affect our business, financial condition and/or future results and cause our actual results to differ materially from those anticipated. A detailed discussion of our risk factors was included in Part I, Item 1A, “Risk Factors” of our 2015 Annual Report, which is available at www.sec.gov and at ir.demandmedia.com. We are providing below, in supplemental form, the material changes to our risk factors that occurred during the past quarter. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report on Form 10-Q. The risk factors described in the 2015 Annual Report and the risk factor below are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that are currently deemed to be immaterial, could also materially adversely affect our business, financial condition and/or future results. Except as set forth below, there have been no material changes to the risk factors set forth in the 2015 Annual Report.

We are in the process of changing the corporate name of the company to better align the brand with our businesses and this change may not achieve its anticipated benefits.

On November 9, 2016, we expect that our corporate name will change from Demand Media, Inc. to Leaf Group Ltd. as part of our evolution from a pure digital media company to a diversified internet marketplaces and media company. We will also commence trading under the ticker symbol “LFGR” on the New York Stock Exchange as of market open on November 9, 2016. We have incurred certain costs in connection with these branding changes and these efforts may have limited, or no, positive impact on our business and results of operations. Additionally, changing our name could diminish brand awareness of our holding company among current customers and adversely affect our ability to attract new customers.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None.

Repurchases of our Common Stock

The following table summarizes the stock repurchase activity for the three months ended September 30, 2016 and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program.

In June 2016, we disclosed that our board of directors and management was considering re-initiating repurchases of up to $5.0 million of our common stock under our stock repurchase plan through the end of 2016, and those repurchases were initiated in July 2016. Management continues to assess the benefits of repurchasing additional shares of our common stock under the stock repurchase plan and may elect to repurchase additional shares in the future, which may exceed the previously announced $5.0 million of common stock in 2016.

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	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1, 2016 - July 31, 2016	84,001	$	5.69	84,001	$	18,754,000
August 1, 2016 - August 31, 2016	410,334		5.61	410,334		16,451,000
September 1, 2016 - September 30, 2016	123,880		5.74	123,880		15,740,000
Total	618,215	$	5.65	618,215	$	15,740,000

(1)

As disclosed in our current report on Form 8-K filed on August 22, 2011, our Board of Directors approved a stock repurchase program authorizing us to repurchase up to $25.0 million of our outstanding common stock, effective as of August 19, 2011. Our Board of Directors subsequently approved a $25.0 million increase to this stock repurchase program, for an aggregate authorized repurchase amount of $50.0 million, as disclosed in a current report on Form 8-K filed on February 16, 2012. In total, we have used approximately $34.3 million to repurchase shares of our common stock under the stock repurchase program. The stock repurchase program does not require us to purchase a specific number of shares, and the timing and amount of any shares repurchased are based on market conditions and other factors, including price, regulatory requirements and capital availability. Stock repurchases may be effected through negotiated transactions or open market purchases, including pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The stock repurchase program does not have an expiration date but may be suspended, modified or discontinued at any time without prior notice.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this Quarterly Report on Form 10-Q, which Exhibit Index is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	DEMAND MEDIA, INC.

	By:	/s/ Sean Moriarty
	Name:	Sean Moriarty
	Title:	Chief Executive Officer (Principal Executive Officer)


	By:	/s/ Rachel Glaser
	Name:	Rachel Glaser
	Title:	Chief Financial Officer (Principal Financial Officer)

Date: November 7, 2016

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Exhibit Index


Exhibit No		Description of Exhibit

2.1		Agreement and Plan of Merger, dated as of August 8, 2014, by and among Demand Media, Inc., Gallery Merger Sub, Inc., a Delaware corporation, Saatchi Online, Inc. and Shareholder Representative Services LLC, as the stockholder representative (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2014).

2.2		Asset Purchase Agreement, dated April 8, 2016, by and among Demand Media, Inc., a Delaware corporation, Scripps Media, Inc., a Delaware corporation, and, solely with respect to Section 10.15, The E.W. Scripps Company, an Ohio corporation (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2016).

3.1		Amended and Restated Certificate of Incorporation of Demand Media, Inc., as amended effective August 1, 2014 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 29, 2014).

3.2		Amended and Restated Bylaws of Demand Media, Inc. (incorporated by reference to Exhibit 3.02 to the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2011).

4.1		Form of Demand Media, Inc. Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 10, 2014).

10.1	†	Employment Agreement between Demand Media, Inc. and Dion Camp Sanders, dated as of August 1, 2016.

31.1		Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


	†	Indicates management contract or compensatory plan, contract or arrangement.

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