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 Leaf Group Ltd. Reports Fourth Quarter and Fiscal 2016 Results
   Thursday, February 23, 2017 4:17:00 PM ET

--Q4 and 2016 Marketplaces Revenue Grows 23% and 27% Year-over-Year, Respectively

--Q4 and 2016 Livestrong.com Revenue Grows 20% and 9% Year-over-Year, Respectively

--Total Q4 and 2016 Revenue of $34.0 Million and $113.5 Million, Respectively

Leaf Group Ltd. (LFGR ), a diversified Internet company comprised of several marketplace and media properties, today reported financial results for the fourth quarter and fiscal year ended December 31, 2016.

"Q4 marks our second consecutive quarter of revenue growth - up a solid 9% year-over-year on a pro forma basis," said Sean Moriarty, CEO of Leaf Group. "With continued growth in our Marketplaces business, strong growth for Livestrong.com and renewed growth in our other Media properties, we are very optimistic about 2017."

 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                                     Financial Summary
                                                                                                                                                                                                                                     (In millions, except per share amounts)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                                                                 Three months ended                                                                                                                                                         Year ended
                                                                                                                                                                                             December 31,                                                                                                                                                                                                                    December 31,
                                                                                                                   -----------------------------------------------------------------------------------------------------------------------------------------------------------------                                                               -----------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                         2016                                                   2015                                                                                                            2016                                                   2015
                                                                                                                   -------------------------------------------------                                                               -------------------------------------------------                                                               -------------------------------------------------                                                               -------------------------------------------------
Marketplaces revenue                                                                                                                  $   22.6                                                                                                        $   18.4                                                                                                        $   66.2                                                                                                        $   52.2
Media revenue                                                                                                          11.4                                                                      16.1                                                                      47.3                                                                      73.8  
                                                                                                                   -------------------- ------ --------------------                                                                -------------------- ------ --------------------                                                                -------------------- ------ --------------------                                                                -------------------- ------ --------------------
   Total revenue                                                                                                                      $   34.0                                                                                     $   34.5                                                                                     $  113.5                                                                                     $  126.0  
                                                                                                                   ==================== ====== ====================                                                                ==================== ====== ====================                                                                ==================== ====== ====================                                                                ==================== ====== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
Net loss                                                                                                                              $   (6.2 )                                                                                                      $   (8.5 )                                                                                                      $   (2.0 )                                                                                                      $  (43.5 )
EPS - basic and diluted                                                                                                               $  (0.31 )                                                                                                      $  (0.42 )                                                                                                      $  (0.10 )                                                                                                      $  (2.18 )
Adjusted EBITDA(1)                                                                                                                    $   (2.6 )                                                                                                      $   (0.9 )                                                                                                      $  (15.0 )                                                                                                      $   (6.8 )
                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
Net cash provided by (used in) operating activities                                                                                   $    0.4                                                                                                        $    1.3                                                                                                        $  (13.1 )                                                                                                      $   (8.4 )
Free cash flow(1)                                                                                                                     $   (0.4 )                                                                                                      $    0.7                                                                                                        $  (16.1 )                                                                                                      $  (10.1 )
                                                                                                                                                    
--------------------------------------------------- -------------------- -------------------- -------------------- --------------------------------------------------------------------- -------------------- -------------------- --------------------------------------------------------------------- -------------------- -------------------- --------------------------------------------------------------------- -------------------- -------------------- -------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
(1)     These non-GAAP financial measures are described below and reconciled
                                              to their most directly comparable GAAP measures in the accompanying
                                              tables.
                                               


Q4 2016 Financial Summary:

Leaf Group is comprised of two service offerings: Marketplaces and Media.

"In 2016 we optimized infrastructure and corporate overhead expenses, while also improving unit economics at the business unit level," said Rachel Glaser, Leaf Group’s CFO. "As we enter 2017, we remain focused on balancing our resource and investment needs to grow topline revenue against our long-term commitment to reach profitability."

For the fourth quarter of 2016:

-- Total revenue declined 1% year-over-year due to a 30% decline in Media revenue partially offset by a 23% increase in Marketplaces revenue. On a pro forma basis eliminating the impact of the dispositions of the Cracked business and certain other non-strategic properties, total revenue increased 9% year-over-year.

-- Marketplaces revenue grew 23% year-over-year driven primarily by increased traffic, new product introductions and higher conversion rates.

-- Media revenue declined 30% year-over-year driven primarily by the divestitures of certain online properties including Cracked, traffic declines on eHow and lower ad monetization yields. On a pro forma basis eliminating the impact of the dispositions of the Cracked business and certain other non-strategic properties, Media revenue declined 12% year-over-year.

-- Adjusted EBITDA was $(2.6) million for the quarter, primarily reflecting the decline in higher margin Media advertising revenue, partially offset by growth in Marketplaces and managed reductions in operating expenses other than product and marketing costs.

-- Cash and cash equivalents was $50.9 million at period end with no debt outstanding. During Q4, the company used $1.4 million to repurchase approximately 226,000 shares of its common stock at an average price of $5.98 per share. As of December 31, 2016, approximately $14.4 million of authorized funds remained available for share repurchases under the company’s stock repurchase plan.

Business Highlights:

-- On a consolidated basis, Leaf Group’s properties reached more than 47 million average monthly unique visitors in the U.S. during Q4, including more than 26 million average monthly mobile visitors (source: Oct - Dec 2016 U.S. comScore). On a yearly basis, mobile visitors to our properties increased 20% in 2016 as compared to 2015 (source: US comScore).

-- Society6 revenue grew 20% year-over-year in Q4 driven by total transactions growth of 28%. Society6 revenue for "Cyber Weekend" (Thanksgiving through Cyber Monday) increased 30% year-over-year, and four new products were introduced during the quarter.

-- Saatchi Art grew revenue, traffic and gross transaction value on both a quarter-over-quarter and year-over-year basis in Q4, with Q4 revenue increasing 28% year-over-year. Both new customers and repeat customers grew more than 30% year-over-year during Q4.

-- The shifts in strategy made to the Media business over the last few quarters continued to produce positive results during Q4. Livestrong.com revenue grew 20% in Q4 on a year-over-year basis, driven primarily by visits increasing 18%. The eHow sites, consisting of eHow, Cuteness, Techwalla, Sapling and LEAFtv, saw both revenue and traffic increase quarter-over-quarter on a combined basis.

-- In recognition of its corporate transformation, Leaf Group’s CEO Sean Moriarty, CFO Rachel Glaser, and members of the Board of Directors and executive leadership will represent the company for the ringing of The Opening Bell(R) at the New York Stock Exchange on Monday, February 27, 2017.

 
Operating Metrics:
 
                                                                                                                       Three months ended                                                                                                                                                                   Year ended
                                                                                                                                                                                   December 31,                                                                                                                                                                                                                              December 31,
                                                                                                           -------------------------------------------------------------------------------------------------------------------------------------------------------------                                                               -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                  %                                                                                                                         %
                                                                                                              2016                                                                       2015                                                                    Change                                                                    2016                                                                         2015                                                                                 Change
                                                                                                           ---------                                                                 ----------                                                                 ------                                                                 -----------                                                                 ------------                                                                 ------------------------------
Marketplaces Metrics:(1)
   Number of Transactions(2)                                                                                  454,581                                                                    355,294                                                                 28 %                                                                     1,182,873                                                                      925,111                                                                        28 %
   Average Revenue per Transaction(3)                                                                       $   48.55                                                                  $   51.61                                                                 (6 )%                                                                  $     55.37                                                                  $     56.38                                                                        (2 )%
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Media Metrics (4):
   Visits(5) (in thousands)                                                                                   647,324                                                                    753,111                                                                (14 )%                                                                    2,729,990                                                                    3,374,385                                                                       (19 )%
   Revenue per Visit (RPV)(6)                                                                               $   17.57                                                                  $   21.44                                                                (18 )%                                                                  $     17.33                                                                  $     21.87                                                                       (21 )%
                                                                                                              136,023                                                                    125,797                                                                  8 %                                                                       638,277                                                                       N/A(8)                                                                                         N/A(8)
   Video Views(7) (in thousands)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Social Metrics (in thousands):
   Social Media Followers(9) - Marketplaces                                                                     2,057                                                                    N/A(10)                                                                N/A(10)                                                                       2,057                                                                      N/A(10)                                                                                        N/A(10)
   Social Media Followers(9) - Media                                                                           12,339                                                                    N/A(10)                                                                N/A(10)                                                                      12,339                                                                      N/A(10)                                                                                        N/A(10)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
(1)      Marketplaces Metrics do not include revenue or transactions related
                                               to The Other Art Fair business.
(2)                                            Number of transactions is defined as the total number of
                                               Marketplaces transactions successfully completed online by a
                                               customer during the applicable period.
(3)                                            Average revenue per transaction is calculated by dividing
                                               Marketplaces revenue for a period by the number of transactions
                                               initiated in that period.
(4)                                            Media Metrics include visits and revenue generated by Cracked.com
                                               and other non-core media properties prior to their respective
                                               disposition dates and are not adjusted to be shown on a pro forma
                                               basis.
(5)                                            Visits are defined as the total number of times users access the
                                               company’s content across (a) one of its owned and operated online
                                               properties and/or (b) one of its partners’ online properties, to the
                                               extent that the visited partner web pages are hosted by the company.
                                               In each case, breaks of access of at least 30 minutes constitute a
                                               unique visit.
(6)                                            RPV is defined as Media revenue per one thousand visits.
(7)                                            Video Views are defined as the total number of views of all of the
                                               company’s Media videos on Facebook and YouTube, or on Leaf Group
                                               properties or third party sites via YouTube or any other embedded
                                               video player, during the applicable period. The company includes in
                                               this metric (i) views of videos published by any of the company’s
                                               Media properties, including Livestrong.com, eHow, category-specific
                                               sites and international sites; and (ii) videos viewed on multiple
                                               YouTube channels affiliated with certain properties.
(8)                                            Video Views for the year ended December 31, 2015 are not available
                                               because the company did not start formally tracking this metric for
                                               all properties until the third quarter of 2015.
(9)                                            Social Media Followers are defined as the sum of all Facebook,
                                               Pinterest, Instagram and Twitter followers, as well as all YouTube
                                               subscribers, across Leaf Group’s Marketplaces or Media properties,
                                               as applicable, as of the last day of the relevant period. Social
                                               Media Followers includes subscribers for multiple YouTube channels
                                               affiliated with certain Leaf Group 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.
(10)                                           The company did not track Social Media Followers across all
                                               platforms prior to the third quarter of 2016. As of December 31,
                                               2015, the company’s Marketplaces properties had 0.8 million total
                                               Social Media Followers on Facebook and YouTube and the company’s
                                               Media properties had 10.3 million total Social Media Followers on
                                               Facebook and YouTube.
                                                

Conference Call and Webcast Information

Leaf Group will host a corresponding conference call and live webcast today at 4:30 p.m. Eastern time (1:30 p.m. Pacific time). To access the conference call, dial 877-201-0168 (U.S./CAN) or 647-788-4901 (International) and reference conference ID 57504550. To participate on the live call, analysts should dial-in at least 10 minutes prior to the commencement of the call. A live webcast also will be available on the Investor Relations section of Leaf Group’s corporate website at http://ir.leafgroup.com and via replay beginning approximately two hours after the completion of the call.

Use of Non-GAAP Financial Measures

To supplement its consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"), Leaf Group uses certain non-GAAP financial measures, as described below. These non-GAAP financial measures are presented to enhance the user’s overall understanding of Leaf Group’s financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The non-GAAP financial measures presented in this release, together with the GAAP financial results, are the primary measures used by the company’s management and board of directors to understand and evaluate the company’s financial performance and operating trends, including period-to-period comparisons, because they exclude certain expenses and gains that management believes are not indicative of the company’s core operating results. Management also uses these measures to prepare and update the company’s short and long term financial and operational plans, to evaluate investment decisions, and in its discussions with investors, commercial bankers, equity research analysts and other users of the company’s financial statements. Accordingly, the company believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the company’s operating results in the same manner as management and in comparing operating results across periods and to those of Leaf Group’s peer companies.

The use of non-GAAP financial measures has certain limitations because they do not reflect all items of income and expense, or cash flows, that affect the company’s operations. An additional limitation of non-GAAP financial measures is that they do not have standardized meanings, and therefore other companies, including peer companies, may use the same or similarly named measures but exclude different items or use different computations. Management compensates for these limitations by reconciling these non-GAAP financial measures to their most comparable GAAP financial measures in the tables captioned "Reconciliations of Non-GAAP Financial Measures" included at the end of this release. In addition to the non-GAAP financial measures presented in this press release, the company is also providing certain pro forma financial information to reflect the dispositions of the Cracked business and certain other non-strategic properties. Investors and others are encouraged to review the company’s financial information in its entirety and not rely on a single financial measure.

The company defines Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income (loss) excluding interest (income) expense, income tax expense (benefit), and certain other non-cash or non-recurring items impacting net income (loss) from time to time, principally comprised of depreciation and amortization, stock-based compensation and acquisition, disposition and realignment costs. Management believes that the exclusion of certain expenses and gains in calculating Adjusted EBITDA provides a useful measure for period-to-period comparisons of the company’s underlying core revenue and operating costs that is focused more closely on the current costs necessary to operate the company’s businesses and reflects its ongoing business in a manner that allows for meaningful analysis of trends. Management also believes that excluding certain non-cash charges can be useful because the amount of such expenses is the result of long-term investment decisions made in previous periods rather than day-to-day operating decisions.

The company defines Free Cash Flow as net cash provided by (used in) operating activities net of cash outflows from acquisition, disposition and realignment activities; capital expenditures to acquire property and equipment; and purchases of intangible assets. Management believes that Free Cash Flow provides investors with useful information to measure operating liquidity because it reflects the company’s underlying cash flows from recurring operating activities after investing in capital assets and intangible assets. Free Cash Flow is used by management, and may also be useful for investors, to assess the company’s ability to generate cash flow for a variety of strategic opportunities, including reinvesting in the business, pursuing new business opportunities and potential acquisitions, paying dividends and repurchasing shares.

About Leaf Group

Leaf Group Ltd. (LFGR ) is a diversified Internet company that builds platforms across its marketplace (Society6 and Saatchi Art) and media (Livestrong.com and eHow) properties to enable communities of creators to reach passionate audiences in large and growing lifestyle categories. In addition, Leaf Group’s diverse advertising offerings help brands and publishers find innovative ways to engage with their customers. For more information about Leaf Group, visit www.leafgroup.com.

Cautionary Information Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements set forth in this press release include statements regarding our expectations for 2017. In addition, statements containing words such as "guidance," "may," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," and "estimate" or similar expressions constitute forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance. These forward-looking statements involve risks and uncertainties regarding the company’s future financial performance, and are based on current expectations, estimates and projections about the company’s industry, financial condition, operating performance and results of operations, including certain assumptions related thereto. Potential risks and uncertainties that could affect the company’s operating and financial results are described in Leaf Group’s annual report on Form 10-K for the fiscal year ending December 31, 2016 filed with the Securities and Exchange Commission (http://www.sec.gov) on February 23, 2017, as such risks and uncertainties are updated in Leaf Group’s quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, including, without limitation, information under the captions "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations." These risks and uncertainties include, among others: the company’s ability to successfully drive traffic to its media and marketplace properties; the company’s ability to attract new customers to its marketplaces and successfully grow its marketplaces business; the impact of increasing mobile usage on the company’s marketplaces business; changes in the methodologies of internet search engines, including ongoing algorithmic changes made by Google, Bing and Yahoo!; the effects of shifting consumption of media content and online shopping from desktop to mobile devices and/or social media platforms; the potential impact on advertising revenue of lower ad unit rates, a reduction in online advertising spending, a loss of advertisers, lower advertising yields and/or increased availability of ad blocking software, particularly on mobile devices; the impact of certain changes made to the business model for the company’s media properties; the company’s dependence on material agreements with a specific business partner for a significant portion of its revenue; the company’s ability to successfully expand its current lines of business and grow new lines of business; changes in amortization or depreciation expense due to a variety of factors; potential write downs, reserves against or impairment of assets including receivables, goodwill, intangibles (including media content) or other assets; and the company’s ability to retain key personnel. From time to time, the company may consider acquisitions or divestitures that, if consummated, could be material. Any forward-looking statements regarding financial metrics are based upon the assumption that no such acquisition or divestiture is consummated during the relevant periods. If an acquisition or divestiture were consummated, actual results could differ materially from any forward-looking statements. The company does not intend to revise or update the information set forth in this press release, except as required by law, and may not provide this type of information in the future.

 
                                                                                                                                                                                                                                     Leaf Group Ltd. and Subsidiaries
                                                                                                                                                                                                                                     Unaudited Condensed Consolidated Statements of Operations
                                                                                                                                                                                                                                     (In thousands, except per share amounts)
 
                                                                                                                                                                                                           Three months ended                                                                                                                                                              Year ended
                                                                                                                                                                                                                                                                       December 31,                                                                                                                                                                                                                         December 31,
                                                                                                                                                                                         -------------------------------------------------------------------------------------------------------------------------------------------------------------------------                                                               -------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                               2016                                                       2015                                                                                                                 2016                                                    2015
                                                                                                                                                                                         -------------------------------------------------                                                               ---------------------------------------------------------                                                               --------------------------------------------------                                                               --------------------------------------------------
Revenue:
   Service revenue                                                                                                                                                                                          $ 13,266                                                                                                        $         17,207                                                                                                        $  52,889                                                                                                        $  77,254
   Product revenue                                                                                                                                                                         20,723                                                                            17,279                                                                     60,563                                                                     48,715  
                                                                                                                                                                                         -------------------- ------ --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
      Total revenue                                                                                                                                                                                           33,989                                                                                                                  34,486                                                                                                          113,452                                                                                                          125,969
Operating expenses:
   Service costs (exclusive of amortization of intangible assets shown                                                                                                                                         5,547                                                                                                                   8,185                                                                                                           25,434                                                                                                           37,481
   separately below)(1)(2)(3)
   Product costs                                                                                                                                                                                              15,493                                                                                                                  12,529                                                                                                           42,081                                                                                                           33,769
   Sales and marketing(1)(2)(3)                                                                                                                                                                                7,044                                                                                                                   5,698                                                                                                           26,654                                                                                                           21,041
   Product development(1)(2)(3)                                                                                                                                                                                4,350                                                                                                                   5,772                                                                                                           19,964                                                                                                           26,315
   General and administrative(1)(2)(3)                                                                                                                                                                         7,254                                                                                                                   7,587                                                                                                           30,704                                                                                                           35,428
   Amortization of intangible assets                                                                                                                                                        1,654                                                                             3,329                                                                     10,900                                                                     18,706  
                                                                                                                                                                                         -------------------- ------ --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
      Total operating expenses                                                                                                                                                             41,342                                                                            43,100                                                                    155,737                                                                    172,740  
                                                                                                                                                                                         -------------------- ------ --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
      Loss from operations                                                                                                                                                                                    (7,353 )                                                                                                                (8,614 )                                                                                                        (42,285 )                                                                                                        (46,771 )
Interest income                                                                                                                                                                                                   36                                                                                                                       2                                                                                                               96                                                                                                              361
Interest expense                                                                                                                                                                                                  (2 )                                                                                                        --                                                                                                               (4 )                                                                                                           (143 )
Other income (expense), net                                                                                                                                                                 1,041                                                                                83                                                                     40,172                                                                      3,107  
                                                                                                                                                                                         -------------------- ------ --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
      Loss before income taxes                                                                                                                                                                                (6,278 )                                                                                                                (8,529 )                                                                                                         (2,021 )                                                                                                        (43,446 )
Income tax benefit (expense)                                                                                                                                                                   58                                                                               (10 )                                                                                          10                                                                        (55 )
                                                                                                                                                                                         -------------------- ------ --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
      Net loss                                                                                                                                                                                              $ (6,220 )                                                                                                      $         (8,539 )                                                                                                      $  (2,011 )                                                                                                      $ (43,501 )
                                                                                                                                                                                         ==================== ====== ====================                                                                ==================== ============== ====================                                                                ==================== ======= ====================                                                                ==================== ======= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
Net loss per share                                                                                                                                                                                          $  (0.31 )                                                                                                      $          (0.42 )                                                                                                      $   (0.10 )                                                                                                      $   (2.18 )
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
Weighted average number of shares - basic and diluted                                                                                                                                                         19,773                                                                                                                  20,114                                                                                                           20,152                                                                                                           19,938
 _________________________
                     
(1)                                                         Depreciation expense included in the above line items:
                                                               Service costs                                                                                                                                $    632                                                                                                        $          1,301                                                                                                        $   3,563                                                                                                        $   5,965
                                                               Sales and marketing                                                                                                                                11                                                                                                                      14                                                                                                               49                                                                                                               67
                                                               Product development                                                                                                                                33                                                                                                                      47                                                                                                              138                                                                                                              200
                                                               General and administrative                                                                                                     725                                                                               828                                                                      3,440                                                                      4,946  
                                                                                                                                                                                         -------------------- ------ --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
                                                                  Total depreciation                                                                                                                        $  1,401                                                                                     $          2,190                                                                                     $   7,190                                                                                     $  11,178  
                                                                                                                                                                                         ==================== ====== ====================                                                                ==================== ============== ====================                                                                ==================== ======= ====================                                                                ==================== ======= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
(2)                                                         Stock-based compensation included in the above line items(3):
                                                               Service costs                                                                                                                                $    120                                                                                                        $            278                                                                                                        $   1,174                                                                                                        $   1,084
                                                               Sales and marketing                                                                                                                               139                                                                                                                     180                                                                                                              725                                                                                                              691
                                                               Product development                                                                                                                               296                                                                                                                     615                                                                                                            1,502                                                                                                            2,192
                                                               General and administrative                                                                                                   1,106                                                                               806                                                                      4,378                                                                      3,595  
                                                                                                                                                                                         -------------------- ------ --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
                                                                  Total stock-based compensation                                                                                                            $  1,661                                                                                     $          1,879                                                                                     $   7,779                                                                                     $   7,562  
                                                                                                                                                                                         ==================== ====== ====================                                                                ==================== ============== ====================                                                                ==================== ======= ====================                                                                ==================== ======= ====================
                                                             
(3)                                                         Certain prior period amounts relating to personnel costs
                                                            (including stock-based compensation) have been reclassified to
                                                            conform to the current period presentation, resulting in the
                                                            following changes in our consolidated statements of operations for
                                                            the three and twelve month periods ended December 31, 2015,
                                                            respectively: (i) decreases of $0.6 million and $2.9 million in
                                                            general and administrative expense; (ii) increases of $0.4 million
                                                            and $2.0 million in product development expense; and (iii)
                                                            increases of $0.2 million and $0.7 million in sales and marketing
                                                            expense; as well as an increase of $0.2 million in service costs
                                                            for the twelve month period ended December 31, 2015.
                                                             
 
                                                                                                                                        Leaf Group Ltd. and Subsidiaries
                                                                                                                                 Unaudited Condensed Consolidated Balance Sheets
                                                                                                                                                 (In thousands)
 
                                                                                                     December 31,                                             December 31,
                                                                                                                                                                  2016                                                                                                              2015
                                                                                                                                           ---------------------------------------------------                                                               ---------------------------------------------------
Assets
Current assets
   Cash and cash equivalents                                                                                                                                  $   50,864                                                                                                        $   38,570
   Accounts receivable, net                                                                                                                                        6,849                                                                                                            10,469
   Prepaid expenses and other current assets                                                                                                    8,139                                                                       4,989  
                                                                                                                                           -------------------- -------- --------------------                                                                -------------------- -------- --------------------
      Total current assets                                                                                                                                        65,852                                                                                                            54,028
Property and equipment, net                                                                                                                                       11,503                                                                                                            14,568
Intangible assets, net                                                                                                                                            11,273                                                                                                            21,332
Goodwill                                                                                                                                                          11,167                                                                                                            10,358
Other assets                                                                                                                                    1,457                                                                       1,173  
                                                                                                                                           -------------------- -------- --------------------                                                                -------------------- -------- --------------------
      Total assets                                                                                                                                            $  101,252                                                                                     $  101,459  
                                                                                                                                           ==================== ======== ====================                                                                ==================== ======== ====================
                                                                                                                                                                                                                                                              
Liabilities and Stockholders’ Equity
Current liabilities
   Accounts payable                                                                                                                                           $    2,451                                                                                                        $    1,973
   Accrued expenses and other current liabilities                                                                                                                 15,017                                                                                                            15,169
   Deferred revenue                                                                                                                             2,180                                                                       2,933  
                                                                                                                                           -------------------- -------- --------------------                                                                -------------------- -------- --------------------
      Total current liabilities                                                                                                                                   19,648                                                                                                            20,075
Deferred tax liability                                                                                                                                               108                                                                                                               551
Other liabilities                                                                                                                               1,746                                                                       1,713  
                                                                                                                                           -------------------- -------- --------------------                                                                -------------------- -------- --------------------
      Total liabilities                                                                                                                                           21,502                                                                                                            22,339
Commitments and contingencies
Stockholders’ equity
   Common stock                                                                                                                                                        2                                                                                                                 2
   Additional paid-in capital                                                                                                                                    513,139                                                                                                           505,603
   Treasury stock                                                                                                                                                (35,641 )                                                                                                         (30,767 )
   Accumulated other comprehensive loss                                                                                                                             (112 )                                                                                                             (91 )
   Accumulated deficit                                                                                                                       (397,638 )                                                                                     (395,627 )
                                                                                                                                           -------------------- -------- --------------------                                                                -------------------- -------- --------------------
      Total stockholders’ equity                                                                                    79,750                                                                      79,120  
                                                                                                                                           -------------------- -------- --------------------                                                                -------------------- -------- --------------------
      Total liabilities and stockholders’ equity                                                                                   $  101,252                                                                                     $  101,459  
                                                                                                                                           ==================== ======== ====================                                                                ==================== ======== ====================
                                                                                                                                                                                                                                                              
 
                                                                                                                                                                                                                                     Leaf Group Ltd. and Subsidiaries
                                                                                                                                                                                                                                     Unaudited Condensed Consolidated Statements of Cash Flows
                                                                                                                                                                                                                                     (In thousands)
 
                                                                                                                                                          Three months ended                                                                                                                                                                         Year ended
                                                                                                                                                                                                                      December 31,                                                                                                                                                                                                                                    December 31,
                                                                                                                                    ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------                                                               ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                              2016                                                           2015                                                                                                                    2016                                                           2015
                                                                                                                                    ---------------------------------------------------------                                                               ---------------------------------------------------------                                                               ---------------------------------------------------------                                                               ---------------------------------------------------------
Cash flows from operating activities
Net (loss) income                                                                                                                                      $         (6,220 )                                                                                                      $         (8,539 )                                                                                                      $         (2,011 )                                                                                                      $        (43,501 )
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
   Depreciation and amortization                                                                                                                                  3,055                                                                                                                   5,520                                                                                                                  18,090                                                                                                                  29,884
   Deferred income taxes                                                                                                                                            (12 )                                                                                                        --                                                                                                                     (45 )                                                                                                        --
   Stock-based compensation                                                                                                                                       1,661                                                                                                                   1,879                                                                                                                   7,779                                                                                                                   7,562
   Gain on disposal of businesses and online properties                                                                                                          (1,081 )                                                                                                                   (51 )                                                                                                               (40,230 )                                                                                                                (3,156 )
   Other                                                                                                                                                            101                                                                                                                     (29 )                                                                                                                   111                                                                                                                    (105 )
   Change in operating assets and liabilities, net of effect of
   acquisitions and disposals:
      Accounts receivable, net                                                                                                                                      271                                                                                                                    (872 )                                                                                                                 3,502                                                                                                                   3,840
      Prepaid expenses and other current assets                                                                                                                     418                                                                                                                     367                                                                                                                     238                                                                                                                     917
      Other long-term assets                                                                                                                                       (419 )                                                                                                                     9                                                                                                                    (371 )                                                                                                                  (131 )
      Accounts payable                                                                                                                                              901                                                                                                                     778                                                                                                                     529                                                                                                                  (2,794 )
      Accrued expenses and other liabilities                                                                                                                      2,564                                                                                                                   2,190                                                                                                                    (166 )                                                                                                                (1,177 )
      Deferred revenue                                                                                                                          (854 )                                                                                                 59                                                                              (519 )                                                                                                223  
                                                                                                                                    -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------
         Net cash provided by (used in) operating activities                                                                                     385                                                                             1,311                                                                           (13,093 )                                                                                             (8,438 )
                                                                                                                                    -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------
Cash flows from investing activities
Purchases of property and equipment                                                                                                                                (839 )                                                                                                                (1,142 )                                                                                                                (4,582 )                                                                                                                (4,732 )
Purchases of intangible assets                                                                                                                                      (27 )                                                                                                                   (23 )                                                                                                                  (147 )                                                                                                                   (87 )
Cash received from disposal of businesses and online properties, net                                                                                                715                                                                                                                     305                                                                                                                  36,815                                                                                                                   5,071
of cash disposed
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                                                                                                                                             20                                                                                50                                                                                98                                                                               126  
                                                                                                                                    -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------
         Net cash (used in) provided by investing activities                                                                                    (131 )                                                                                               (810 )                                                                                             30,907                                                                             7,089  
                                                                                                                                    -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------
Cash flows from financing activities
Proceeds from exercises of stock options and purchases under ESPP                                                                                                   353                                                                                                                     249                                                                                                                     579                                                                                                                     464
Repurchases of common stock                                                                                                                                      (1,359 )                                                                                                        --                                                                                                                  (4,874 )                                                                                                        --
Taxes paid on net share settlements of restricted stock units                                                                                                      (114 )                                                                                                                  (105 )                                                                                                                (1,246 )                                                                                                                  (668 )
Cash paid for acquisition holdback                                                                                                                       --                                                                                                          --                                                                                                          --                                                                                                                  (7,561 )
Other                                                                                                                                            (17 )                                                                                     --                                                                               (32 )                                                                                               (121 )
                                                                                                                                    -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------
         Net cash (used in) provided by financing activities                                                                                  (1,137 )                                                                                                144                                                                            (5,573 )                                                                                             (7,886 )
                                                                                                                                    -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------
Effect of foreign currency on cash and cash equivalents                                                                                                              55                                                                                                                     (17 )                                                                                                                    53                                                                                                                     (15 )
         Change in cash and cash equivalents                                                                                                                       (828 )                                                                                                                   628                                                                                                                  12,294                                                                                                                  (9,250 )
Cash and cash equivalents, beginning of period                                                                                                51,692                                                                            37,942                                                                            38,570                                                                            47,820  
                                                                                                                                    -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------                                                                -------------------- -------------- --------------------
Cash and cash equivalents, end of period                                                                                                               $         50,864                                                                                     $         38,570                                                                                     $         50,864                                                                                     $         38,570  
                                                                                                                                    ==================== ============== ====================                                                                ==================== ============== ====================                                                                ==================== ============== ====================                                                                ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
 
                                                                                                                                                                                                                                     Leaf Group Ltd. and Subsidiaries
                                                                                                                                                                                                                                     Reconciliations of Non-GAAP Financial Measures
                                                                                                                                                                                                                                     (In thousands, except per share amounts)
 
                                                                                                                                        Three months ended                                                                                                                                                              Year ended
                                                                                                                                                                                                    December 31,                                                                                                                                                                                                                         December 31,
                                                                                                                      -------------------------------------------------------------------------------------------------------------------------------------------------------------------------                                                               -------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                2016                                                       2015                                                                                                             2016                                                    2015
                                                                                                                      ---------------------------------------------------------                                                               -------------------------------------------------                                                               --------------------------------------------------                                                               --------------------------------------------------
Adjusted EBITDA:
------------------------------------------------------
Net (loss) income                                                                                                                        $         (6,220 )                                                                                                      $ (8,539 )                                                                                                      $  (2,011 )                                                                                                      $ (43,501 )
Add (deduct):
Income tax (benefit) expense                                                                                                                          (58 )                                                                                                            10                                                                                                              (10 )                                                                                                             55
Interest (income) expense, net                                                                                                                        (34 )                                                                                                            (2 )                                                                                                            (92 )                                                                                                           (218 )
Other (income) expense, net(1)                                                                                                                     (1,041 )                                                                                                           (83 )                                                                                                        (40,172 )                                                                                                         (3,107 )
Depreciation and amortization(2)                                                                                                                    3,055                                                                                                           5,520                                                                                                           18,090                                                                                                           29,884
Stock-based compensation(3)                                                                                                                         1,661                                                                                                           1,879                                                                                                            7,779                                                                                                            7,562
Acquisition, disposition and realignment costs(4)                                                                       --                                                                       326                                                                      1,396                                                                      2,488  
                                                                                                                      -------------------- -------------- --------------------                                                                -------------------- ------ --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
   Adjusted EBITDA                                                                                                                       $         (2,637 )                                                                                                      $   (889 )                                                                                                      $ (15,020 )                                                                                                      $  (6,837 )
                                                                                                                      ==================== ============== ====================                                                                ==================== ====== ====================                                                                ==================== ======= ====================                                                                ==================== ======= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
Free Cash Flow:
------------------------------------------------------
Net cash provided by (used in) operating activities                                                                                      $            385                                                                                                        $  1,311                                                                                                        $ (13,093 )                                                                                                      $  (8,438 )
Purchases of property and equipment                                                                                                                  (839 )                                                                                                        (1,142 )                                                                                                         (4,582 )                                                                                                         (4,732 )
Purchases of intangible assets                                                                                                                        (27 )                                                                                                           (23 )                                                                                                           (147 )                                                                                                            (87 )
Acquisition, disposition and realignment cash flows(4)                                                                              36                                                                       520                                                                      1,740                                                                      3,138  
                                                                                                                      -------------------- -------------- --------------------                                                                -------------------- ------ --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
   Free Cash Flow                                                                                                                        $           (445 )                                                                                                      $    666                                                                                     $ (16,082 )                                                                                                      $ (10,119 )
                                                                                                                      ==================== ============== ====================                                                                ==================== ====== ====================                                                                ==================== ======= ====================                                                                ==================== ======= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
(1)     Primarily consists of income from the disposition of certain
                                              businesses, including Cracked, and online properties.
(2)                                           Represents depreciation expense of the company’s long-lived tangible
                                              assets and amortization expense of its finite-lived intangible
                                              assets, including amortization expense related to its investment in
                                              media content assets as included in the company’s GAAP results of
                                              operations.
(3)                                           Represents the fair value of stock-based awards granted to
                                              employees, as included in the company’s GAAP results of operations.
(4)                                           Represents such items, when applicable, as (a) legal, accounting and
                                              other professional 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.
                                               
 
                                                                                                                                                                                                                                     Leaf Group Ltd. and Subsidiaries
                                                                                                                                                                                                                                     Reconciliations of Pro Forma Financial Measures
                                                                                                                                                                                                                                     (In thousands)
 
                                                                                                                        Three months ended December 31, 2016                                                                                                                                                                                                        Year ended December 31, 2016
                                                                                    -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------                                                               ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                 
                                                                                                                                                                                               Pro Forma                                                                                         Pro Forma                                                                                                                                                                                    Pro Forma                                                                                           Pro Forma
                                                                                               Revenue                                                                                      Adjustments(1)                                                                                        Revenue                                                                                    Revenue                                                                                       Adjustments(1)                                                                                          Revenue
                                                                                    --------------------------                                                                 --------------------------------------                                                                  --------------------------                                                                 ---------------------------                                                                 --------------------------------------                                                                  ------------------------------
Revenue - Pro Forma:
--------------------
Marketplaces                                                                                           $ 22,618                                                                                   $ --                                                                                        $ 22,618                                                                                   $  66,139                                                                                   $ --                                                                                        $     66,139
Media                                                                                 11,371                                                                            (106 )                                                                     11,265                                                                   47,313                                                                          (2,765 )                                                                         44,548
                                                                                    -------------------- ------                                                                -------------------- -------------- ----                                                                -------------------- ------                                                                -------------------- -------                                                                -------------------- -------------- ----                                                                -------------------- ----------
   Total Revenue                                                                                       $ 33,989                                                                                   $           (106 )                                                                                      $ 33,883                                                                                   $ 113,452                                                                                   $         (2,765 )                                                                                      $    110,687
                                                                                    ==================== ======                                                                ==================== ============== ====                                                                ==================== ======                                                                ==================== =======                                                                ==================== ============== ====                                                                ==================== ==========
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
                                                                                                                                                                                 Three months ended December 31, 2015                                                                                                                                                                                                                                                                 Year ended December 31, 2015
                                                                                    -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------                                                               ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
                                                                                                                                                                                               Pro Forma                                                                                         Pro Forma                                                                                                                                                                                    Pro Forma                                                                                           Pro Forma
                                                                                               Revenue                                                                                      Adjustments(1)                                                                                        Revenue                                                                                    Revenue                                                                                       Adjustments(1)                                                                                          Revenue
                                                                                    --------------------------                                                                 --------------------------------------                                                                  --------------------------                                                                 ---------------------------                                                                 --------------------------------------                                                                  ------------------------------
Marketplaces                                                                                           $ 18,339                                                                                   $ --                                                                                        $ 18,339                                                                                   $  52,155                                                                                   $ --                                                                                        $     52,155
Media                                                                                 16,147                                                                          (3,300 )                                                                     12,847                                                                   73,814                                                                         (15,253 )                                                                         58,561
                                                                                    -------------------- ------                                                                -------------------- -------------- ----                                                                -------------------- ------                                                                -------------------- -------                                                                -------------------- -------------- ----                                                                -------------------- ----------
   Total Revenue                                                                                       $ 34,486                                                                                   $         (3,300 )                                                                                      $ 31,186                                                                                   $ 125,969                                                                                   $        (15,253 )                                                                                      $    110,716
                                                                                    ==================== ======                                                                ==================== ============== ====                                                                ==================== ======                                                                ==================== =======                                                                ==================== ============== ====                                                                ==================== ==========
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
(1)     Represents revenue associated with the divested Cracked business and
                                              certain other divested non-strategic properties.
                                               
 
                                                                                                                                                    Three months ended                                                                                                                                                              Year ended
                                                                                                                                                                                                                December 31,                                                                                                                                                                                                                         December 31,
                                                                                                                                  -------------------------------------------------------------------------------------------------------------------------------------------------------------------------                                                               -------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                            2016                                                       2015                                                                                                             2016                                                    2015
                                                                                                                                  ---------------------------------------------------------                                                               -------------------------------------------------                                                               --------------------------------------------------                                                               --------------------------------------------------
Adjusted EBITDA - Pro Forma:
------------------------------------------------------------------
Net (loss) income                                                                                                                                    $         (6,220 )                                                                                                      $ (8,539 )                                                                                                      $  (2,011 )                                                                                                      $ (43,501 )
Add (deduct):
Income tax (benefit) expense                                                                                                                                      (58 )                                                                                                            10                                                                                                              (10 )                                                                                                             55
Interest (income) expense, net                                                                                                                                    (34 )                                                                                                            (2 )                                                                                                            (92 )                                                                                                           (218 )
Other expense (income), net(1)                                                                                                                                 (1,041 )                                                                                                           (83 )                                                                                                        (40,172 )                                                                                                         (3,107 )
Depreciation and amortization(2)                                                                                                                                3,055                                                                                                           5,520                                                                                                           18,090                                                                                                           29,884
Stock-based compensation(3)                                                                                                                                     1,661                                                                                                           1,879                                                                                                            7,779                                                                                                            7,562
Acquisition, disposition and realignment costs(4)                                                                                   --                                                                       326                                                                      1,396                                                                      2,488  
                                                                                                                                  -------------------- -------------- --------------------                                                                -------------------- ------ --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
   Adjusted EBITDA                                                                                                                                   $         (2,637 )                                                                                                      $   (889 )                                                                                                      $ (15,020 )                                                                                                      $  (6,837 )
   Loss (income) from disposed businesses and online properties(5)                                                                               1                                                                      (812 )                                                                                         974                                                                     (5,198 )
                                                                                                                                  -------------------- -------------- --------------------                                                                -------------------- ------ --------------------                                                                -------------------- ------- --------------------                                                                -------------------- ------- --------------------
   Adjusted EBITDA - Pro Forma                                                                                                                       $         (2,636 )                                                                                                      $ (1,701 )                                                                                                      $ (14,046 )                                                                                                      $ (12,035 )
                                                                                                                                  ==================== ============== ====================                                                                ==================== ====== ====================                                                                ==================== ======= ====================                                                                ==================== ======= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
(1)     Primarily consists of income from the disposition of certain
                                              businesses, including Cracked, and online properties.
(2)                                           Represents depreciation expense of the company’s long-lived tangible
                                              assets and amortization expense of its finite-lived intangible
                                              assets, including amortization expense related to its investment in
                                              media content assets as included in the company’s GAAP results of
                                              operations.
(3)                                           Represents the fair value of stock-based awards granted to
                                              employees, as included in the company’s GAAP results of operations.
(4)                                           Represents such items, when applicable, as (a) legal, accounting and
                                              other professional 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.
(5)                                           Consists of the following pro forma adjustments associated with the
                                              divested Cracked business and certain other divested non-strategic
                                              properties (amounts in thousands): (i) for the three months ended
                                              December 31, 2016, net loss of $1; (ii) for the three months ended
                                              December 31, 2015, (a) net income of $620; (b) stock-based
                                              compensation of $125; and (c) depreciation and amortization of $67;
                                              (iii) for the year ended December 31, 2016, (a) net loss of $1,971;
                                              (b) stock-based compensation of $917;and (c) depreciation and
                                              amortization of $80; and (iv) for the year ended December 31, 2015,
                                              (a) net income of $4,327; (b) stock-based compensation of $489; and
                                              (c) depreciation and amortization of $382.
                                               

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170223006660r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20170223006660/en/

SOURCE: Leaf Group Ltd."> <Property FormalName="PrimaryTwitterHandle" Value="@Leaf_grp

Leaf Group Ltd. 
Investor and Media Contact: 
Jeff Misthal, (310) 656-6253 
SVP, Finance 
IR@leafgroup.com 
or 
Shawn Milne, (415) 264-3419 
Investor Relations 
shawn.milne@leafgroup.com


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