| Business Segments | 14. Business Segments 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 other content 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 chief operating decision maker (the “CODM”) uses revenue and 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 (expense); (e) income taxes; and (f) contingent payments to certain key employees/equity holders of acquired businesses. 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, 2020 2019 2020 2019 Segment Revenue: Marketplaces Society6 Group $ 34,665 $ 15,203 $ 50,658 $ 32,201 Saatchi Art Group 3,982 3,986 6,730 7,826 Total Marketplaces 38,647 19,189 57,388 40,027 Media 12,321 16,600 26,445 29,800 Total revenue $ 50,968 $ 35,789 $ 83,833 $ 69,827 Segment Operating Expenses: Marketplaces (1) $ 34,990 $ 20,533 $ 55,523 $ 42,682 Media (1) 7,546 9,955 17,926 19,546 Add: Strategic shared services and corporate overhead (2)(3) 6,330 7,237 13,659 15,164 Consolidated operating expenses $ 48,866 $ 37,725 $ 87,108 $ 77,392 Segment Operating Contribution: Marketplaces (4) $ 3,657 $ (1,344) $ 1,865 $ (2,655) Media (4) 4,775 6,645 8,519 10,254 Deduct: Strategic shared services and corporate overhead (2)(3) (6,330) (7,237) (13,659) (15,164) Acquisition, disposition and realignment costs (5) — — — — Adjusted EBITDA (6) $ 2,102 $ (1,936) $ (3,275) $ (7,565) Reconciliation to consolidated pre-tax income (loss): Adjusted EBITDA (6) $ 2,102 $ (1,936) $ (3,275) $ (7,565) Add (deduct): Interest income (expense), net (97) 60 (163) 178 Other income, net 3,837 19 3,847 12 Depreciation and amortization (7) (2,506) (2,662) (4,993) (5,378) Stock-based compensation (8) (2,523) (2,209) (5,227) (4,130) Acquisition, disposition, realignment and contingent payment costs (9) — — — (90) Income (loss) before income taxes (10) $ 813 $ (6,728) $ (9,811) $ (16,973) (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 (expense); (e) income taxes; and (f) contingent payments to certain key employees/equity holders of acquired businesses. (2) Strategic shared services include shared operating expenses that are not directly attributable to the operating segments, including: network operations center, marketing, business development, product development, creative, financial systems, quality assurance, software engineering, and information systems. Corporate overhead includes general and administrative support functions that are not directly attributable to the operating segments, including: executive, accounting, finance, human resources, legal, and facilities. Strategic shared services and corporate overhead 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) Strategic shared services and corporate overhead includes $1.8 million and $2.0 million in strategic shared services costs for the three months ended June 30, 2020 and 2019, respectively, and $4.5 million and $5.2 million in corporate overhead for the three months ended June 30, 2020 and 2019, respectively. Strategic shared services and corporate overhead include $3.9 million and $4.1 million in strategic shared services for the six months ended June 30, 2020 and 2019, respectively, and $9.8 million and $11.1 million in corporate overhead for the six months ended June 30, 2020 and 2019, respectively. (4) 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. (5) Represents such items, when applicable, as (a) legal, accounting and other professional service fees directly attributable to acquisition, disposition or corporate realignment activities, (b) employee severance, and (c) other payments attributable to acquisition, disposition or corporate realignment activities, excluding contingent payments to certain key employees/equity holders of acquired businesses. (6) 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, contingent payments to certain key employees/equity holders of acquired businesses and other payments attributable to acquisition, disposition or corporate realignment activities. (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. (9) Represents such items, when applicable, as (a) legal, accounting and other professional service fees directly attributable to acquisition, disposition or corporate realignment activities, (b) employee severance, (c) contingent payments to certain key employees/equity holders of acquired businesses and (d) other payments attributable to acquisition, disposition or corporate realignment activities. (10) For the three months ended June 30, 2020, we had $1.5 million in cost savings, which included temporary salary cuts of our executive team and salaried direct workforce (whose salaries were reinstated effective with payroll paid on June 30, 2020) and compensation cuts and deferrals of compensation of our independent directors (whose cash retainer compensation was reinstated, effective July 1, 2020), neither of which is expected to reoccur. 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, 2020 2019 2020 2019 Domestic $ 45,327 $ 31,023 $ 74,713 $ 59,295 International 5,641 4,766 9,120 10,532 Total revenue $ 50,968 $ 35,789 $ 83,833 $ 69,827 |
