Demand Reports: Revenue Up 17%; Registrar Revenue Up 13% & Swings to A Profit

After the market closed today Demand Media, Inc, (NYSE: DMD) reported earnings for the quarter ending June 30, 2012.

Revenues were up and the company swung to a profit.

Shares after hours are trading at $12 a share up around 3%.

More importantly they up their guidance for the third quarter and 2012 in general.

For the quarter ending June 30th, Revenue Grew 17% and Revenue ex-TAC (Traffic Acquisition Cost) was Up 16% Year-over-Year

Adjusted EBITDA Increased 20% Year-over-Year

Cash Flow from Operations Grows 30% Year-over-Year

Demand closed the quarter with 42 million in the bank after investing $18 million in new gTLD’s

Q2 2012 Financial Summary:

Content & Media revenue ex-TAC grew 18% year-over-year, and increased 9% compared to the first quarter of 2012, with sequential growth drive primarily by accelerating revenue and traffic in our core Owned & Operated properties.

Registrar revenue grew 13% year-over-year, and increased 3% compared to the first quarter of 2012. Revenue growth was driven by an increase in number of domains on our platform, due primarily to growth from new partners. Free Cash Flow increased by $21.4 million year-over-year.

The increase was driven by 30% growth in cash flow from operations and an 84% decline in investment in intangible assets to $2.5 million. The decrease in intangible assets investment was the result of a managed reduction in content spend, primarily on eHow, as the Company continues to make improvements to its content creation and distribution platform.

“In addition to accelerating revenue growth, expanding our EBITDA margin and growing our cash flow from operations, we delivered our first quarter of positive net income as a public company in Q2,” said Senior Vice President, Finance and incoming CFO Mel Tang. “Based on our strong first half performance and outlook for the remainder of 2012, we are increasing guidance for fiscal year 2012.”

Q2 2012 Business Highlights:

During the quarter, Demand Media invested $18.1 million in gTLD applications, 26 individually, and an additional 107 through a strategic arrangement with Donuts Inc., as previously disclosed on June 11, 2012.

Demand Media is the only applicant for 16 of its 26 stand-alone applications for new gTLDs. In addition, Demand Media has been selected as the technical registry operator for gTLD strings awarded to Donuts.

Demand Media beat earnings expectations today earning one cent in net income, its first quarter of positive net income as a company which compares to a loss of 2.4 cents last year in the same period, on revenue of $93.1 million.

Cash flow from operations was also up 30%.

On a standalone basis, eHow.com ranked as the #16 website in the US in June 2012.

LIVESTRONG.COM/eHow Health improved its ranking to the #2 Health property in the US, based on unique visits, throughout the second quarter of 2012(1).
Cracked.com continued its ranking as the most visited humor site in the US throughout the first half of 2012, with more time spent on the site than any other humor website.
During the second quarter of 2012, Demand Media repurchased 111,000 shares of common stock for $1 million under its Board-authorized $50 million share repurchase program. Since the program’s inception, the Company has repurchased nearly 2.9 million shares of common stock for $21 million.

Q2 2012 Operating Metrics:

Owned & Operated page views increased 30% year-over-year, driven by strong traffic growth on LIVESTRONG.COM and Cracked.com as well as continued growth on eHow.com. This mix shift in page views to relatively lower RPM properties in Q2 2012 resulted in an 11% year-over-year decline in RPM.
Network page views grew 29% year-over-year, primarily due to the acquisition of IndieClick in August 2011, which generated nearly 1.8 billion page views during the quarter ended June 30, 2012, offset partly by a decline in page views associated with certain social media customers. Network RPM ex-TAC was flat year-over-year, reflecting higher RPMs ex-TAC from YouTube Channels offset by lower RPMs ex-TAC from IndieClick.
End of period domains increased 14% to 13.5 million year-over-year, driven by the addition of higher volume customers and continued growth from existing resellers, with average revenue per domain decreasing by 2%, due to a mix shift to higher volume resellers.

Business Outlook

The following forward-looking information includes certain projections made by management as of the date of this press release. The Company does not intend to revise or update this information, except as required by law, and may not provide this type of information in the future. Due to a variety of factors, actual results may differ significantly from those projected. The factors that may affect results include, without limitation, the factors referenced later in this announcement under the caption “Cautionary Information Regarding Forward-Looking Statements.” These and other factors are discussed in more detail in the Company’s filings with the Securities and Exchange Commission.

Excluding up to $4 million of 2012 expenses that the Company expects to incur related to the formation of its generic Top Level Domain (“gTLD”) initiative, the Company’s guidance for the third quarter ending September 30, 2012 and fiscal year ending December 31, 2012 is as follows:

Third Quarter 2012

Revenue in the range of $94.5 – $96.5 million
Revenue ex-TAC in the range of $90.0 – $92.0 million
Adjusted EBITDA in the range of $25.0 – $26.0 million
Adjusted EPS in the range of $0.09 – $0.10 per share
Weighted average diluted shares of 87.5 – 88.5 million

Full Year 2012

Revenue in the range of $373.0 – $377.0 million
Revenue ex-TAC in the range of $355.5 – $359.5 million
Adjusted EBITDA in the range of $98.5 – $100.5 million
Adjusted EPS in the range of $0.35 – $0.37 per share
Weighted average diluted shares of 87.0 – 88.0 million

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