| Business Segments | 12. Business Segments
Prior to the second quarter of 2017, we operated in one operating segment. In the second quarter of 2017, as a result of the continued growth of and expanding portfolio within our Marketplaces service offering, including the acquisition of Deny Designs in May 2017, we revised the information used by our chief operating decision maker (the “CODM”) to evaluate financial performance and resource allocation, and determined that we operate in two segments: Marketplaces and Media.
Our Marketplaces segment consists of several leading art and design marketplaces where large communities of artists can market and sell their original artwork or their original designs printed on a wide variety of products.
Our Media segment consists of our leading owned and operated media properties that publish content, including videos, articles and designed visual formats, on various category-specific properties with distinct editorial voices, as well as other media properties focused on specific categories or interests that we either own and operate or host and operate for our partners.
Our CODM uses revenue and non-GAAP operating contribution to evaluate the profitability of our operating segments; all other financial information is reviewed by the CODM on a consolidated basis. Segment operating contribution reflects earnings before corporate and unallocated expenses and also excludes: (a) depreciation expense; (b) amortization of intangible assets; (c) share-based compensation expense; (d) interest and other income (expenses); and (e) income taxes. Our CODM does not evaluate our operating segments using asset information. We do not aggregate our operating segments. The majority of our principal operations and assets are located in the United States.
The financial performance of our operating segments and reconciliation to consolidated operating loss is as follows (in thousands):
Three months ended June 30,
Six months ended June 30,
2017
2016
2017
2016
Segment Revenue:
Marketplaces
$
17,691
$
13,409
$
33,568
$
26,871
Media
10,874
11,026
22,235
24,533
Total revenue
$
28,565
$
24,435
$
55,803
$
51,404
Segment Operating Expenses:
Marketplaces (1)
$
19,434
$
13,611
$
36,716
$
26,934
Media (1)
6,476
10,285
14,222
21,729
Add:
Corporate expenses (2)
6,607
6,832
13,522
14,264
Consolidated operating expenses
$
32,517
$
30,728
$
64,460
$
62,927
Segment Operating Contribution:
Marketplaces (3)
$
(1,743)
$
(202)
$
(3,148)
$
(63)
Media (3)
4,398
741
8,013
2,804
Add (deduct):
Corporate expenses (2)
(6,607)
(6,832)
(13,522)
(14,264)
Acquisition, disposition and realignment costs (4)
19
1,122
299
1,297
Adjusted EBITDA (5)
$
(3,933)
$
(5,171)
$
(8,358)
$
(10,226)
Reconciliation to consolidated pre-tax income (loss):
Adjusted EBITDA (5)
$
(3,933)
$
(5,171)
$
(8,358)
$
(10,226)
Add (deduct):
Interest income (expense), net
38
23
79
25
Other (expense) income, net (6)
(6)
38,182
(3)
39,162
Depreciation and amortization (7)
(2,799)
(4,857)
(6,066)
(10,588)
Stock-based compensation (8)
(2,166)
(2,519)
(4,244)
(4,438)
Acquisition, disposition and realignment costs (4)
(19)
(1,122)
(299)
(1,297)
(Loss) income before income taxes
$
(8,885)
$
24,536
$
(18,891)
$
12,638
(1)
Segment operating expenses reflects operating expenses that are directly attributable to the operating segment, not including corporate and unallocated expenses, and also excluding the following: (a) depreciation expense; (b) amortization of intangible assets; (c) share-based compensation expense; (d) interest and other income (expenses); and (e) income taxes.
(2)
Corporate expenses include operating expenses that are not directly attributable to the operating segments, including: corporate information technology, marketing, and general and administrative support functions and also excludes the following: (a) depreciation expense; (b) amortization of intangible assets; (c) share-based compensation expense; (d) interest and other income (expenses); and (e) income taxes.
(3)
Segment operating contribution reflects segment revenue less segment operating expenses. Operating contribution has certain limitations in that it does not take into account the impact to the statement of operations of certain expenses and is not directly comparable to similar measures used by other companies.
(4)
Represents such items, when applicable, as (a) legal, accounting and other professional service fees directly attributable to acquisition, disposition or corporate realignment activities and (b) employee severance and other payments attributable to acquisition, disposition or corporate realignment activities.
(5)
Adjusted EBITDA reflects 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.
(6)
Primarily consists of income from the disposition of certain businesses and online properties.
(7)
Represents depreciation expense of our long-lived tangible assets and amortization expense of our finite-lived intangible assets, including amortization expense related to our investment in media content assets, included in our GAAP results of operations.
(8)
Represents the expense related to stock-based awards granted to employees as included in our GAAP results of operations.
Revenue by geographic region, as determined based on the location of our customers or anticipated destination of use, is as follows (in thousands):
Three months ended June 30,
Six months ended June 30,
2017
2016
2017
2016
Domestic
$
23,173
$
19,526
$
45,006
$
41,506
International
5,392
4,909
10,797
9,898
Total revenue
$
28,565
$
24,435
$
55,803
$
51,404 |
