EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On August 1, 2014, Demand Media, Inc. (the “Company”, “we”, “us”, or “our”) completed the separation of Rightside Group, Ltd. (“Rightside”) from the Company. Rightside will own and operate the domain name services business of the Company following the separation. The separation was completed via a tax-free dividend involving the distribution on August 1, 2014 of all outstanding shares of Rightside common stock to holders of record of our common stock as of the close of business, New York City time, on July 25, 2014 (the “Distribution”). Rightside is now an independently traded company trading under the symbol “NAME” on the Nasdaq Global Select Market. Following the Distribution, we will not beneficially own any shares of Rightside common stock and will no longer consolidate Rightside into our financial results. Beginning in the third quarter of 2014, Rightside’s historical financial results for periods prior to the Distribution will be reflected in our consolidated financial statements as a discontinued operation. Immediately following the Distribution, we also effected a reverse stock split of our common stock at a ratio of 1-for-5.
The accompanying unaudited pro forma condensed consolidated financial statements include adjustments to our historical financial results to reflect the following:
· the distribution by us to Rightside, pursuant to the Distribution, of all the assets and liabilities that comprised our domain name services business;
· costs incurred in connection with the Distribution;
· the 1-for-5 reverse stock split of our common stock immediately following the Distribution on August 1, 2014.
The unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011 and the three months ended March 31, 2014, have been prepared giving effect to the Distribution of Rightside and the reverse stock split as if the transactions had occurred on January 1, 2011. The unaudited pro forma condensed consolidated balance sheet gives effect to the Distribution and the reverse stock split as if the transactions had occurred effective March 31, 2014.
The unaudited pro forma condensed consolidated financial statements are prepared in accordance with Article 11 of Regulation S-X. The pro forma adjustments are described in the accompanying notes and are based upon information and assumptions available at the time of the filing of this report on Form 8-K. The accompanying unaudited pro forma condensed consolidated financial statements should be read in conjunction with our historical consolidated financial statements and the accompanying notes.
The unaudited pro forma condensed consolidated financial statements are based on financial statements prepared in accordance with U.S. generally accepted accounting principles, which are subject to change and interpretation. The pro forma adjustments are based upon available information and assumptions that management considers to be reasonable. The pro forma adjustments may differ from those that will be calculated to report our discontinued operations in our future filings. The unaudited pro forma condensed consolidated financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what our results of operations or balance sheet would have been had the Distribution occurred on the dates indicated. Pro forma adjustments do not include allocations of corporate costs, as those are not directly attributable to the Distribution. The unaudited pro forma condensed consolidated financial information also should not be considered representative of our future results of operations or financial position.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Quarter Ended March 31, 2014
(in thousands, except per share data)
| | As Reported | | Rightside Group,
Ltd. (a) | | Pro Forma
Adjustments | | Pro Forma
Demand
Media, Inc. | |
Service revenue | | $ | 82,960 | | $ | (44,696 | ) | $ | — | | $ | 38,264 | |
Product revenue | | 6,792 | | — | | — | | 6,792 | |
Total Revenue | | 89,752 | | (44,696 | ) | — | | 45,056 | |
Operating expenses: | | | | | | | | | |
Service costs | | 49,137 | | (38,221 | ) | — | | 10,916 | |
Product costs | | 4,955 | | | | — | | 4,955 | |
Sales and marketing | | 8,931 | | (2,770 | ) | — | | 6,161 | |
Product development | | 11,272 | | (3,840 | ) | — | | 7,432 | |
General and administrative | | 17,715 | | (6,013 | ) | (1,599 | )(b) | 10,103 | |
Amortization of intangible assets | | 11,629 | | (1,691 | ) | — | | 9,938 | |
Interest (income) expense | | 765 | | 5 | | — | | 770 | |
Other (income) expense, net | | (1,304 | ) | 1,327 | | — | | 23 | |
Gain on other assets, net | | (4,860 | ) | 4,860 | | — | | — | |
Income (loss) before income taxes | | (8,488 | ) | 1,647 | | (1,599 | ) | (5,242 | ) |
Income tax expense | | (2,468 | )(c) | 1,757 | (c) | (4,257 | )(c) | (4,968 | ) |
Net income (loss) | | $ | (10,956 | ) | $ | 3,404 | | $ | (2,658 | ) | $ | (10,210 | ) |
| | | | | | | | | |
Net income (loss) per share - basic | | $ | (0.12 | ) | | | | | $ | (0.56 | ) |
Net income (loss) per share - diluted | | $ | (0.12 | ) | | | | | $ | (0.56 | ) |
| | | | | | | | | |
Weighted average number of shares - basic | | 90,854 | | | | | | 18,171 | (d) |
Weighted average number of shares - diluted | | 90,854 | | | | | | 18,171 | (d) |
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2013
(in thousands, except per share data)
| | As Reported | | Rightside Group,
Ltd. (a) | | Pro Forma
Adjustments | | Pro Forma
Demand Media,
Inc. | |
Service revenue | | $ | 394,598 | | $ | (185,187 | ) | $ | — | | $ | 209,411 | |
Operating expenses: | | | | | | | | | |
Service costs | | 204,763 | | (144,213 | ) | — | | 60,550 | |
Sales and marketing | | 46,445 | | (9,841 | ) | — | | 36,604 | |
Product development | | 44,187 | | (11,496 | ) | — | | 32,691 | |
General and administrative | | 73,277 | | (19,682 | ) | (5,585 | )(b) | 48,010 | |
Amortization if intangible assets | | 44,409 | | (7,890 | ) | — | | 36,519 | |
Interest (income) expense | | 1,621 | | 15 | | — | | 1,636 | |
Other (income) expense, net | | 61 | | (74 | ) | — | | (13 | ) |
Gain on other assets, net | | (4,232 | ) | 4,232 | | — | | — | |
Income (loss) before income taxes | | (15,933 | ) | 3,762 | | 5,585 | | (6,586 | ) |
Income tax expense | | (4,241 | )(c) | 1,785 | (c) | (961 | )(c) | (3,417 | ) |
Net income (loss) | | $ | (20,174 | ) | $ | 5,547 | | $ | 4,624 | | $ | (10,003 | ) |
| | | | | | | | | |
Net income (loss) per share - basic | | $ | (0.23 | ) | | | | | $ | (0.56 | ) |
Net income (loss) per share - diluted | | $ | (0.23 | ) | | | | | $ | (0.56 | ) |
| | | | | | | | | |
Weighted average number of shares - basic | | 88,534 | | | | | | 17,707 | (d) |
Weighted average number of shares - diluted | | 88,534 | | | | | | 17,707 | (d) |
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2012
(in thousands, except per share data)
| | As Reported | | Rightside Group,
Ltd. (a) | | Pro Forma
Adjustments | | Pro Forma
Demand Media,
Inc. | |
Service revenue | | $ | 380,578 | | $ | (172,938 | ) | $ | — | | $ | 207,640 | |
Operating expenses: | | | | | | | | | |
Service costs | | 181,018 | | (126,947 | ) | — | | 54,071 | |
Sales and marketing | | 46,501 | | (8,108 | ) | — | | 38,393 | |
Product development | | 40,708 | | (8,942 | ) | — | | 31,766 | |
General and administrative | | 63,025 | | (13,896 | ) | — | | 49,129 | |
Amortization if intangible assets | | 40,676 | | (8,273 | ) | — | | 32,403 | |
Interest (income) expense | | 580 | | — | | — | | 580 | |
Other (income) expense, net | | 111 | | (64 | ) | — | | 47 | |
Income (loss) before income taxes | | 7,959 | | (6,708 | ) | — | | 1,251 | |
Income tax expense | | (1,783 | )(c) | 2,671 | (c) | (3,390 | )(c) | (2,502 | ) |
Net income (loss) | | $ | 6,176 | | $ | (4,037 | ) | $ | (3,390 | ) | $ | (1,251 | ) |
| | | | | | | | | |
Net income (loss) per share - basic | | $ | 0.07 | | | | | | $ | (0.07 | ) |
Net income (loss) per share - diluted | | $ | 0.07 | | | | | | $ | (0.07 | ) |
| | | | | | | | | |
Weighted average number of shares - basic | | 84,553 | | | | | | 16,911 | (d) |
Weighted average number of shares - diluted | | 87,237 | | | | | | 16,911 | (d) |
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2011
(in thousands, except per share data)
| | As Reported | | Rightside Group,
Ltd. (a) | | Pro Forma
Adjustments | | Pro Forma
Demand Media,
Inc. | |
Service revenue | | $ | 324,866 | | $ | (160,559 | ) | $ | — | | $ | 164,307 | |
Operating expenses: | | | | | | | | | |
Service costs | | 155,830 | | (110,888 | ) | — | | 44,942 | |
Sales and marketing | | 37,394 | | (5,653 | ) | — | | 31,741 | |
Product development | | 38,146 | | (8,269 | ) | — | | 29,877 | |
General and administrative | | 59,451 | | (13,316 | ) | — | | 46,135 | |
Amortization if intangible assets | | 47,174 | | (9,510 | ) | — | | 37,664 | |
Interest (income) expense | | 802 | | — | | — | | 802 | |
Other (income) expense, net | | 413 | | (20 | ) | — | | 393 | |
Income (loss) before income taxes | | (14,344 | ) | (12,903 | ) | — | | (27,247 | ) |
Income tax expense | | (4,177 | )(c) | 5,266 | (c) | (3,533 | )(c) | (2,444 | ) |
Net income (loss) | | (18,521 | ) | (7,637 | ) | (3,533 | ) | (29,691 | ) |
Cumulative preferred stock dividends | | (2,477 | ) | — | | — | | (2,477 | ) |
Net income (loss) | | $ | (20,998 | ) | $ | (7,637 | ) | $ | (3,533 | ) | $ | (32,168 | ) |
| | | | | | | | | |
Net income (loss) per share - basic | | $ | (0.27 | ) | | | | | $ | (2.05 | ) |
Net income (loss) per share - diluted | | $ | (0.27 | ) | | | | | $ | (2.05 | ) |
| | | | | | | | | |
Weighted average number of shares - basic | | 78,646 | | | | | | 15,730 | (d) |
Weighted average number of shares - diluted | | 78,646 | | | | | | 15,730 | (d) |
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Balance Sheet
For the Quarter Ended March 31, 2014
(in thousands, except per share data)
| | As Reported | | Rightside Group,
Ltd. (a) | | Pro Forma
Adjustments | | Pro Forma
Demand Media,
Inc. | |
Assets | | | | | | | | | |
Current assets | | | | | | | | | |
Cash and cash equivalents | | $ | 153,963 | | $ | (25,000 | ) | $ | — | | $ | 128,963 | |
Accounts receivable, net | | 31,977 | | (10,851 | ) | — | | 21,126 | |
Prepaid expenses and other current assets | | 8,598 | | (3,944 | ) | 794 | (c) | 5,448 | |
Deferred registrations costs | | 71,665 | | (71,665 | ) | — | | — | |
Total current assets | | 266,203 | | (111,460 | ) | 794 | | 155,537 | |
Deferred registrations costs, less current portion | | 13,547 | | (13,547 | ) | — | | — | |
Property plant and equipment, net | | 39,490 | | (14,787 | ) | — | | 24,703 | |
Intangible assets, net | | 83,156 | | (16,887 | ) | — | | 66,269 | |
Goodwill | | 347,382 | | (103,042 | ) | — | | 244,340 | |
Other assets | | 22,800 | | (21,316 | ) | 886 | (c) | 2,370 | |
Total assets | | $ | 772,578 | | $ | (281,039 | ) | $ | 1,680 | | $ | 493,219 | |
Liabilities and Stockholders’ Equity | | | | | | | | | |
Current liabilities | | | | | | | | | |
Accounts Payable | | $ | 12,321 | | $ | (8,364 | ) | $ | — | | $ | 3,957 | |
Accrued expenses and other current liabilities | | 31,654 | | (18,665 | ) | — | | 12,989 | |
| | | | | | — | | | |
Deferred tax liabilities | | 22,431 | | (24,157 | ) | 1,726 | (c) | — | |
Current portion of long-term debt | | 15,000 | | — | | — | | 15,000 | |
Deferred revenue | | 91,570 | | (87,157 | ) | — | | 4,413 | |
Total current liabilities | | 172,976 | | (138,343 | ) | 1,726 | | 36,359 | |
Deferred revenue, less current portion | | 18,205 | | (17,817 | ) | — | | 388 | |
Other liabilities | | 14,416 | | (611 | ) | 12,842 | (c) | 26,647 | |
Long-term debt | | 77,500 | | — | | — | | 77,500 | |
Stockholders’ equity | | 489,481 | | (124,268 | ) | (12,888 | ) | 352,325 | |
Total liabilities and stockholders’ equity | | $ | 772,578 | | $ | (281,039 | ) | $ | 1,680 | | $ | 493,219 | |
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the pro forma adjustments reflected in the unaudited pro forma condensed consolidated financial statements based on preliminary estimates, which may change as additional information is obtained:
(a) — Adjustments reflect the operations, assets, liabilities and equity of Rightside. Excluded from these amounts are certain general corporate overhead expenses that were allocated to Rightside in its historical financial statements but that do not specifically relate to Rightside. Such general corporate expenses do not meet the requirements to be presented in discontinued operations and thus will be presented as part of our continuing operations.
(b) — Adjustments reflect the removal of non-recurring transaction costs which were directly related to the Distribution. These costs relate primarily to accounting, professional and legal fees.
(c) — The tax expense shown in the Pro forma schedule approximates what Demand Media and Rightside would look like on a stand-alone basis. Similarly, income tax expense and deferred tax balances for Rightside are also on a stand-alone basis.
(d) — Adjustments reflects the reverse stock split of our common stock at a ratio of 1-for-5, which became effective immediately following the Distribution on August 1, 2014.
