Leaf Group Ltd.
Q1 2016 Earnings Call Transcript

Published: 10 May 2016

[Operator:]

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Demand Media First Quarter 2016 Earnings Call. [Operator Instructions]. I will now turn the call over to Jeff Misthal, SVP of Finance, Investor Relations. You may begin your conference.

[Jeff Misthal:]

Good afternoon, everyone. On behalf of Demand Media, welcome to our first quarter 2016 conference call. You will find a related release along with supplemental materials posted on the investor relations section of our website, located at ir.demandmedia.com. I am pleased to have Sean Moriarty, our Chief Executive Officer and Rachel Glaser, our Chief Financial Officer, on the call with me today. Following the Safe Harbor statement that I will make, Sean will update you on our business and then Rachel will provide details on our first quarter and key operating metric. After the prepared remarks, we will open up the lines for Q&A. Before we get started, we need to make the following Safe Harbor statement. We would like to remind everyone that during today's conference call, management will makes certain forward-looking statements which are subject to the various risks and uncertainties that could cause actual results to differ materially from our current expectations discussed in such forward-looking statements. In particular, comments about our anticipated future revenue, earnings, operating expenses, operating metrics and growth rates, as well as statements regarding our business strategy and objectives, plans, intentions, operating outlook and planned investments are considered forward-looking statements. Factors that could cause actual results to differ materially from our anticipated results are detailed in our press release furnished with the SEC. I would like to point out that during this call, we will discuss certain non-GAAP financial measures while talking about the Company's financial and operating performance, including adjusted EBITDA and free cash flow. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures can be found in the financial tables included at the end of our press release. Lastly, before we begin, I would like to remind everyone that today's conference call is being recorded and that it is also available via webcast on the internet through the investor relations section of our corporate website. A replay will be available on our website. With that, I will now turn the call over to Sean Moriarty, our CEO.

[Sean Moriarty:]

Thank you, Jeff and thank you, everyone, for joining us this afternoon. We appreciate the opportunity to update you on our first quarter results, what is planned in upcoming quarters. I will start our call, as I do each quarter, by reminding you of our mission at Demand. We built platforms to enable communities of creators to reach passionate audiences in large and growing lifestyle categories, while helping advertisers find innovative ways to engage with their customers. In Q1, we delivered on that mission in several ways. I will divide my remarks into three sections and then Rachel will follow with more details on our financials. First, I will discuss the recent sale of our Cracked business which is a significant transaction for our balance sheet and emblematic of our operating philosophy at Demand. Second, I will discuss the accomplishments this quarter by our marketplace businesses. Third, I will give an update on our content and media businesses and specifically where eHow and LIVESTRONG are in their turnaround efforts. Starting with Cracked, on April 12, we announced the sale of Cracked to E.W. Scripps for $39 million. This sale was important to Demand in several ways. It leaves us with a more focused portfolio of businesses for our leadership team to operate. The transaction also exemplifies our operating philosophy to build successful businesses, while objectively evaluating if value is maximized in our organization or in the hands of another entity. Finally, the sale significantly strengthens our balance sheet, more than doubling our cash balance and creating additional flexibility to invest for growth and take advantage of market opportunities as they arise. Cracked had revenue of $1.6 million in Q1, a 36% decrease year-over-year, due in large part to the termination of its advertising rep partnership with Electus and its transition to an in-house native selling team that is still in the early stages of building a pipeline. Rachel will provide more color on how the sale of Cracked impacts our full-year financials on a pro forma basis. Turning to our marketplace businesses which had a very successful and productive first quarter, with revenue growing 26% year-over-year. Society6 had a solid start to 2016. In Q1, traffic grew 12%, revenue grew 25% and conversion rates increased 11% on a year-over-year basis. Underlying net growth, mobile business increased 25% and mobile revenue was up 60% in Q1 versus prior-year. During the quarter, Society6 took several steps to improve its mobile experience, including making pay with Amazon available everywhere and introducing a more user-friendly checkout process. This strong mobile performance is a direct result of the steps we took to optimize the mobile web experience and the conversion funnel. Society6 introduced three new products in Q1, rectangular throw pillows, carry-all pouches and new phone cases aligned with the iPhone SC launch. In addition, the site experience was improved by adding filtered and faceted browse and search. Because Society6 is an open marketplace that allows consumers to customize available products, with over 2.5 million designs, we expect these improvements in findability will help drive conversion rates higher. During Q1, home decor products and art prints made up nearly 70% of Society6's total revenue. Society6 is becoming a strong player in the home decor space, participating in a large total addressable market alongside retailers such as Crate and Barrel, West Elm, Wayfair and even Target. What differentiates Society6 is that our customers are able to create products precisely suited to their unique tastes and incorporate art into their everyday lives. Society6 continued to work on internationalization in Q1, launching its first international vendor in the Australia. We believe that bringing distribution and fulfillment of products closer to the point of purchase will speed up the delivery cycle and encourage repeat purchase behavior. Saatchi Art also saw strong growth in Q1, with revenue up 34% year-over-year. The operating metric surrounding this revenue growth are similarly promising. Gross transaction value was $3.8 million in the quarter, up 39% year-over-year. Traffic was up 24% year-over-year, while transactions were up 39%, signifying a higher conversion rate. Visitors who use Saatchi's art advisory service are more likely to convert and have higher average order values and we're focused on funneling more traffic to that service. We accomplished this through our site design as well as through off-line marketing efforts, such as direct mail and events. For instance, Saatchi Art had a significant presence at the Affordable Art Fair in New York last month, an event attended by over 15,000 art buyers over its five-day installment. This event builds grassroots awareness and led to an increased number of art advisory transactions during the period following the fair which makes our presence there very valuable to the business. Let me take a moment to discuss some insights about the online art market from two important market research studies. In March, the European Fine Art Foundation issued its 2016 report on the global art market. They cite global art sales of $64 billion in 2015, with online sales represented approximately 7% of global sales. In April, Hitchcocks issued its annual global online art trade report, the Hitchcocks report cites global online art sales of $3.3 billion in 2015, up 24% versus prior-year and estimates that the global online art market will reach $9.6 billion by 2020. Both studies show that online sales are growing as art purchases continue to migrate to online platforms. We're very well positioned to continue to grow our share of this large attractive online art market. Shifting to our content and media category which includes eHow, LIVESTRONG and studioD. Content and media revenue was $13.5 million in Q1, down 40% year-over-year and 16% quarter-over quarter. Rachel will take you through the details of these numbers, but I will point out that about 57% of that decline comes from eHow and much of that from prior period actions we took with deliberate aim to stabilize the site and improve the overall quality to build on for future growth. There are a number of high water marks in each of these businesses that I will highlight. First, studioD. studioD is comprised of two businesses, our content channels business which creates and hosts Evergreen content for publishers and shares in the ad revenue and our custom content business which develops content marketing strategies and creates custom content for brands and advertisers. Revenue for these two businesses together declined 2% in Q1 versus the prior year and prior quarter, primarily driven by CPC softness in its content channel business which is down approximately 11% year-over-year. However, year-over-year revenue was up 37% in Q1 for the custom content business and total bookings were up 149%, making Q1 studioD's biggest quarter to date with 45 total deals, 32 of them coming from renewing customers. In addition to the many client wins studioD has had with Fortune 1,000 brands, they have also begin to structure partnerships with agencies as a preferred content provider. For example, studioD is partnered with NewsCred, the leading content and marketing platform provider, to co-market studioD's original content creation services to NewsCred's customers. We expect these partnerships to help studioD gain scale economies and accelerate its growth. eHow continues in its transformation, with positive progress in audience and engagement, but some softness in monetization. Revenue was down 17% versus prior quarter, primarily due to typical Q1 seasonality for direct brand sales and remnant inventory, leading to lower CPMs in the quarter. Overall, traffic was down slightly versus prior quarter, while mobile traffic was up 2%. As more and more content is consumed directly on social platforms, it becomes increasingly meaningful to look at total reach for eHow rather than simply comScore unique users. eHow content reached over 109 million Facebook users in Q1, up nearly four times versus the previous quarter. Over 6.7 million users engaged with eHow content on Facebook on Q1, also up nearly four times versus the prior quarter. At the end of March, eHow had nearly 7,000 Facebook followers, up nearly 22% quarter-over quarter. Pinterest also keeps delivering, both as a traffic source and as a partner. At the end of March, eHow had 173,000 Pinterest followers, up over 300% from the prior quarter. Overall, traffic coming to eHow from social channels was up 26% over last quarter which is a very positive trend for this business. In addition, eHow added the ability for users to save articles and follow its contributors and we have seen a steady increase in traffic coming from email as a result. During Q1, email visits were up 13% versus prior quarter, with open rates at approximately 28%, up 57% over Q4. While traffic from social and email is growing nicely, eHow has seen recent traffic losses from search. This is in spite of material substantive changes we have made to the eHow site over the past six quarters. These improvements have been well received by our users, as indicated by significant growth in video views and engagement and by our advertisers, as indicated by the strength of our brand and direct sales pipeline. eHow continued to produce innovative and engaging video content at an accelerating rate in Q1, posting 48 original videos and adding nearly 200 videos to existing articles. How to Make Roses Out of Jolly Ranchers Candy reached 11 million people, with 5.3 million views and was eHow's fastest-growing video to date on Facebook. Overall, eHow videos had nearly 47 million average monthly views in Q1, up 32% sequentially and up 34% versus last year and we expect this number to continue to grow. LIVESTRONG's Q1 was marked by strong growth in traffic and a number of improvements to the site. Visits to LIVESTRONG increased 30% versus prior quarter, up 19% on desktop and 37% on mobile. In March, LIVESTRONG averaged 1.7 million daily visits from Google which is higher than it has been since 2012, with 20% less content on the site. Social traffic grew 65% for Q1 versus prior-year, with strong growth coming from Facebook, up over 200% versus prior-year. LIVESTRONG has over 400,000 Facebook followers and a reach of 32 million users on Facebook. During Q1, nearly 1.9 million users engaged with LIVESTRONG on Facebook. LIVESTRONG launched a new series on Facebook called Simple Healthy Eats, one minute videos demonstrating easy healthy recipes. Last month, one of these videos reached over 3 million people and had over 1 million views. In addition, the popular women's site, Bustle organically included links to two LIVESTRONG articles which is testimony to the authority LIVESTRONG is building in the woman's lifestyle category. Traffic growth was further fueled by growth in email visits, up 129% in Q1 versus the prior year. The LIVESTRONG newsletter drove 4.5 million sessions in the quarter, a record for this business. In January, LIVESTRONG launched a new home page that includes persistent navigation and significantly improves the ability to share content socially. This improves the user experience and helps the editorial team become much more agile moving forward. The team has also narrowed the focus of content creation to four of its categories, down from nine. These four, fitness, health, nutrition and lifestyle, are progressively becoming much richer and deeper as topics are developed by editors rather than algorithms and articles are written by authoritative contributors and augmented by more video content than ever before. Mobile monetization is a priority for the LIVESTRONG team, as a significant portion of LIVESTRONG visits are on mobile. This quarter, they launched the native ad unit on mobile which will be followed by a native ad placement on desktop in Q2. In addition, we added two brand sellers that are dedicated to LIVESTRONG and the pipeline is developing nicely. Finally, our media monetization and operations team continues to make positive strides in yield improvement across our media sites. In Q1, we continued to integrate header bidding into our desktop and mobile sites. Header bidding allows new partners to access our best inventory dynamically while allowing us to get a better premium and margin on a higher percentage of our total available impressions. Through this integration, we have more transparency into how our inventory is valued in real-time exchange environments and because we see upward pressure on CPM, we know our audience is in demand. Moving forward, we will continue to expand on this initiative, both by optimizing existing partners and adding new ones. To summarize, in Q1, we had solid growth in our marketplace businesses, strong audience growth in LIVESTRONG and all channels and promising signs of growth for eHow in social, mobile and video. We have strengthened our balance sheet and created significant flexibility to build and invest from an increasingly stable foundation. We remain focused on building products that we're proud of and that consumers love, use regularly and share with others. I will now turn the call over to Rachel for prepared remarks regarding the financials.

[Rachel Glaser:]

Thank you, Sean. I am pleased to take you through our first quarter results. I will start with the headline financials. First, total revenue in Q1 was $27 million, down 19% year-over-year. Our marketplace businesses grew 26% year-over-year, while content and media declined 40% year-over-year. Sequentially, content and media revenue was down 16% in Q1 versus Q4 2015. Second, adjusted EBITDA was negative $5.1 million in Q1, reflecting the downtrend in parts of our content and media business, offset by reductions in certain back office operating expenses. Third, free cash flow was negative $8 million, reflecting lower EBITDA in the quarter, normal quarterly capital expenditures, Society6 vendor and artist payments and payouts of annual discretionary compensation. Let me dive a little deeper on the moving parts behind each of these three financial tent poles. We saw revenue growth in three of our businesses in Q1. Our marketplace businesses grew revenue 26% year-over-year to $13.5 million. This was driven by 25% year-over-year growth in Society6 and 34% top-line growth for Saatchi Art. Visits to Society6 grew 12% versus prior-year, a respectable number, but not what we expect from that business in the future. The three priorities for achieving growth in this business are performance and conversion and average order values through product and category expansion and improved site experience and international expansion through localization of content and product sourcing. There are many initiatives on the road map and we're optimistic about growth in this business. Growth and visits to Saatchi Art were stronger, up 24%, while gross transaction value, number of transactions and conversion were all accelerating, up 39%, 39% and 12% respectively versus prior-year. Multidimensional marketing efforts are raising awareness through direct mail of catalogs to the home, digital performance marketing and live events where consumers can see and experience the art in person. The third business that experienced growth in Q1 was the custom content business within studioD, up 37% in recognized revenue year-over-year. In Q1, total bookings were up 149% year-over-year and up 19% versus the prior quarter. Total bookings is a new metric we're introducing this quarter to provide insight into the annualized contract value of the business which is growing each quarter. Bookings are defined as total revenue recognized for the current quarter plus the current-period deferred revenue balance minus the prior-period deferred revenue balance. Average deal size in Q1 grew 71% year-over-year. In Q4 2015, the year-over-year increase in total bookings was up 54%. Overall, studioD revenue, including content channels, declined 2%, primarily because of CPC softness for the content channels portion of this business. While the other businesses in content and media did not have positive revenue growth, there were signs of growth in audience for LIVESTRONG across all channels and for eHow on mobile, social and video. In March, eHow reached nearly 23 million unique visitors in the U.S. across desktop and mobile platforms, according to comScore. In Q1, eHow traffic was relatively flat versus the prior quarter, down 2% overall, but it was up 2% on mobile. In addition, growth and audience from social sources has been increasing significantly, up 40% in Q1 versus prior-year. As Sean mentioned, we continued to face challenges from search engines, leading to more traffic volatility than we expected at the start of the year. We continue to optimize the site, with a primary goal of improving the user experience and engagement and a secondary goal of improving search rankings. LIVESTRONG had a nice lift in U.S. average monthly unique visitors in Q1, up 5% versus prior-year and 22% versus the prior quarter, according to comScore. Even more compelling is that mobile traffic was up 25% versus prior-year. In March, LIVESTRONG reached nearly 27 million unique visitors in the U.S. across desktop and mobile platforms, according to comScore. On the monetization side, the LIVESTRONG team implemented a native mobile ad unit in Q1 that should yield improvements in RPV in coming months. For both LIVESTRONG and eHow, there are signs of gathering strength. With our header bidding initiative, we have more transparency into audience demand as the inventory is made available to dynamic, real-time bidding and as demand increases, the CPMs also rise. Another testament to the value of our intent-driven and engaged audience is the win rates with high-quality branded advertisers and their media agencies. During Q1, we worked with Citibank, Straight Talk Wireless, Bank of America and others to create integrated ad campaigns with our site content. With dedicated brand sellers for each of our content sites, we see the pipeline building and are encouraged about improving RPVs in future quarters. Cracked, the humor property that we sold last month, saw revenue decrease 36% in Q1 versus prior-year and accounted for approximately $900,000 or 10% of the content and media revenue decline as compared to Q1 2015. As provided in our press release, Cracked revenue was $10.9 million in 2015 and $1.9 million in Q1 of 2016. We will record approximately two weeks of Cracked revenue in Q2, but the full-year revenue will be reduced proportionally with Cracked no longer part of the portfolio. Our teams are working hard to drive both revenue and audience growth in our content and media businesses and though they are not where we would like them to be right now, there are many aspects of these businesses that are headed in the right direction. The second financial ten pole to cover is EBITDA. The primary reason for the EBITDA decline in the quarter was the year-over-year revenue declines in some of our businesses. Increased marketing investment also had a small impact on EBITDA declines which I will explain in a moment. These revenue declines and marketing expense increases were partially offset by G&A and IT infrastructure savings. Overall, our Q1 GAAP operating expenses were $39.8 million, down 7% year-over-year and down 8% sequentially from Q4 GAAP operating expenses of $43.1 million. Excluding depreciation, amortization and stock-based compensation, total non-GAAP operating expenses were $32.2 million, down 3% year-over-year and down 10% sequentially from Q4 2015. Non-GAAP operating expenses, excluding product costs were $23.5 million in Q1, down $2.7 million or 10% versus prior-year. As discussed last quarter, in 2015, we closed two offices, consolidated multiple data centers, eliminated approximately 10% of our G&A headcount and reduced overall G&A costs by approximate $4 million on an annualized basis. These savings were reflected in the G&A and service cost lines on our GAAP P&L which together saw a $2.8 million reduction in Q1 year-over-year. Partially offsetting these savings are seasonally higher payroll taxes as FICA taxes build and hit their caps in the first quarter of the year. Marketing expense in Q1 increased by $1.4 million year-over-year. We have several marketing initiatives that are worthy of a brief discussion. First is performance marketing, a measurable investment in which we can find the right combination of creative application and cost to drive higher ROI. This is an area where we have arguably under spent in the past and we're in the early stages of testing channels, keywords and creative, along with cost and yield. We have been successful in growing social for eHow, LIVESTRONG and our marketplace businesses and in Q1, there was a small ramp in that spend. Second, we know we need to improve brand awareness, most importantly in our two marketplace businesses. For Saatchi Art, we expanded our catalog distribution to twice as many households in Q1 and will ship that many new catalogs again in Q2. The investment to design and produce these catalogs was incurred in Q1, but the return on that investment is expected through Q2 and beyond. For Society6, we're conducting market research in advance of launching a brand strategy for that business. A large portion of the investment in that research was incurred in Q1 and will inform our marketing investment which we're confident will yield positive results. As described in our 10-Q filing in the first quarter of 2016, we classified certain personnel costs, including stock-based compensation that primarily related to individuals serving in direct management roles for certain of our businesses. The costs were moved from general and administrative expense to either service costs, sales and marketing or product development to better reflect the respective functions of these individuals. Certain prior-period amounts were also reclassified to conform to the current-period presentation, resulting in the following changes in our condensed consolidated statement of operations for the three months ended March 31, 2015. A decrease of $1 million in general and administrative expense and increases of $0.7 million in product development expense, $0.2 million in sales and marketing expense and $0.1 million in service costs. Free cash flow, the final financial tent pole was negative $8 million, down from negative $3 million in prior-year. In addition to reductions in operating cash flow already described in our annual discretionary bonuses, we spent approximately $1.5 million on capital expenditures and $3 million for vendor and artist payments for Society6 related to prior quarter sales. As our marketplace businesses continue to generate an increasing percentage of our overall revenue, we become much more seasonally weighted toward the second half of our year. In shorthand, in Q1, expenses are seasonally higher and revenue is seasonably lower, making the quarter more challenging. Before I close, let me briefly cover how the sale of Cracked impacted our balance sheet. As you know, we sold the Cracked business for $39 million in April which increased our cash position by approximately $35.1 million on the closing date, less approximately $1 million for transaction-related costs. $3.9 million of the sale price was placed into escrow for a 15-month period to cover certain post-closing indemnification obligations. We estimate a gain on sale of approximately $38 million. We expect to be able to utilize our existing net operating loss carry-forwards to offset taxable gains from this transaction. As of December 31, 2015, we had federal net operating loss carry-forwards of approximately $143 million which expire between 2021 and 2035 and state net operating loss carry-forwards of approximately $73 million which expire between 2016 and 2035. Though the first point to highlight here is that we have an even healthier balance sheet than we did before, giving us greater flexibility to allocate those resources in ways that will increase shareholder value. The second point is to review what that sale means in the context of the Company's total valuation. Cracked's revenue in 2015 was $10.9 million, giving that transaction approximately a 3.6 times multiple on 2015 revenue. Cracked revenue represented approximately 9% of Demand Media's total revenue in 2015. This means we sold a business that was 9% of our total revenue for 37% of our total market cap and we paid less than $1 million for those assets in 2007. We're pleased to have made meaningful progress in Q1. Our marketplace businesses are in large addressable markets and they are both growing strongly in their categories. Our efforts to improve the site experience on LIVESTRONG and eHow are having an impact on audience growth and engagement and each is growing in significant ways across mobile, social and video. And finally, as we focus the portfolio on fewer businesses, we have ample capital to invest to maximize future growth and shareholder value. That concludes the financial summary and we will now turn the call back over to the operator to open the lines for your questions.

[Operator:]

[Operator Instructions]. Your first question is from Brian Fitzgerald from Jefferies.

[Brian Fitzgerald:]

I had a couple questions on your prepared remarks, I think you said studioD saw the average deal size increase 71% year-over-year. I want to know what the main drivers were for those again and then likewise the reach was expanding very nicely I think that was on I didn't catch which reach that was. It was up 4% strong Facebook followers social channels up 26%. Can you go over that point again please?

[Rachel Glaser:]

Sure, I will take the second one first, we talked about reach growing for both eHow and LIVESTRONG and some of the metrics we quoted were Facebook users reached over 109 million, four times greater than prior quarter. We also talked about there is over 6.7 million engaged Facebook users which is also four times greater than prior quarter and that’s 700,000 Facebook followers. Now, LIVESTRONG we said that they had 65% year-over-year increase in social traffic, Facebook traffic itself was up 200% year-over-year and they have over 400,000 Facebook followers. So those are a few I think we listed more metrics that give you a flavor for how much we're extending our reach onto social platforms off of the. com sites. To answer your first question, we did say studioD custom content business had a 71% increase in new deals and that I use the new metric this time it grew 149% in bookings, so we're trying to give you the sense of that book of business is growing and then they often have one-year terms that take us a while to recognize the revenue so as each quarter the book of business grows you will see deferred revenue balance grow but you will also see more recognized revenue in every quarter. And that it's a really a typical agency business where they are calling on both creative agencies and in some case media agencies and working with those advertisers to build custom creative campaigns, but they are all custom content rather than you know media placements. So, it's been a slower build but we're seeing significant yield in the efforts that they are putting into it.

[Brian Fitzgerald:]

And while it is agency like in terms of the target customer advertisers and agencies that rep them, our focus is to really scale this business so that it is more like sazz [ph] like in its performance i.e. increasing deal sizes and you are seeing progress there and higher renewal rates and you know we feel that while it's early, we have made some very, very good progress in the business in those key indicators are trending in the right direction for us.

[Operator:]

Your next question is from Sameet Sinha from B. Riley.

[Sameet Sinha:]

So, Rachel I guess from the perspective now that Cracked is sold, can you update us on your revenue and profitability objectives, understanding that Cracked was a growing business while Q1 was not withstanding but it was profitable you left with that overhead and in that context I if you could update what sort of incremental flow through you would expect through the rest of the year. Second question is, okay go ahead then.

[Rachel Glaser:]

Okay I will answer that one and then give you the floor again. So we obviously we have not given any kind of specific revenue or profitability guidance for the company, we did talk about you know we're striving toward profitability as we exit 2016, the numbers we disclosed with Cracked when we sold it that it was contributing $3 million but those numbers didn’t reflect any of the overhead cost that would be associated with Cracked and now as we have been doing each quarter we have been working down our overhead where we can to be as lean as we can. And so I hope -- I think without committing to a specific number I think we will continue to be looking at managing our overhead as a percentage of revenue as we move through the year. You saw that part of the revenue declined in Q1 was actually coming from Cracked because it's building up its in-house sales business as well and so now that Cracked is gone we're significantly up the learning curve and up the pipeline lifecycle on our LIVESTRONG and eHow businesses we expect that that will help our growth rates for revenue going forward.

[Sameet Sinha:]

Would you say that you still expect revenue growth this year and profitable by the end of fourth quarter? Or that is off the books now?

[Rachel Glaser:]

You know, the one caveat that we did bring it to the script is that what we didn't expect to see when we talked about revenue growth was any continued impact from search algorithm changes and so we have seen some very recent in the past couple of weeks search declines coming from both Google and Yahoo. So it's a little too soon to tell, we’re seeing more volatility from search and we’re seeing much more significant growth on social sources. So it's little too soon to tell whether that’s going to impact revenue growth predictions for the rest of the year. Do you want to add anything Sean?

[Sean Moriarty:]

We will continue to push to drive year-over-year revenue growth, Rachel pointed out the volatility of search. I should also point out you know we have seen you know meaningful growth in what our newer channels for us particularly in the area of social and I would say as we’re building there, there is some lag as we build revenue but what I am heartened by is the fact that we're able to provide engaging content in these channels and boost audience and if we're able to do that then down the road we should be able to monetize, you know the goal to grow this business year-over-year from a revenue perspective remained and Rachel's caveat is an important one because so much of that revenue is exist within a very volatile channel, you know that in some ways it is yesterday's channel -- make sure that while we still reap maximal benefits from search we extend not only audience but monetization to social and direct where we already have some substantial positive traction from the audience side.

[Sameet Sinha:]

So that was going to be my next question. So what do you think is the reason for these incremental changes? What are the incremental changes that you think Google or Yahoo have made which is causing this traffic decline? Have you heard from them or have you read anything about that specific driver?

[Sean Moriarty:]

Yes, Sameet as you probably know there is a bit of a firewall between the search groups and these companies and you know the relationship you have on the ground with the client service team or folks on the business side, even senior business leaders and that’s by design. That said, we talk with as many folks at those respective companies as we can and no one really has an answer. This is an algorithmic volatility, we’ve certainly seen more takes than puts in terms of what it done to our business. I do think in the vertilization of web, more focused vertical brands as opposed to broad horizontal reference sites, is part of it. But quite frankly I can't give you a specific reason beyond that, I do know when we produce high-quality content you know in verticals, there is lesser volatility within search and certainly more uptake on the social side and what really matters most to me is not over indexing against anyone channel as the company did in the past, but do we believe as a branded publisher across all channels we can have a sustainable growing business, you know first several quarters of our efforts have been very hard and you know I would say certainly to a certain extent, disappointed but on a go forward basis we fundamentally believe that this investment in content quality and diversification of traffic will bear fruit not just from an audience side but from a revenue perspective and ultimately profitability, but there is certainly more work to do their.

[Sameet Sinha:]

If you can address one final question. Any impact from the increase of ad blocking, any evidence that you have seen across your site if you can provide some data as to what percentage of traffic do you think is impacted? That would be appreciated.

[Rachel Glaser:]

We really haven't seen much or any impact from ad blocking, we do subscribe to a service that gets us white listed and that helps us a lot but the other thing that helps us is that it was really Cracked and I think well before ad blocking became the topic of the day that Cracked was -- because of it's younger audience had more ad blocking on it and Cracked is no longer in the portfolio and eHow and LIVESTRONG both have a slightly older demographic and particularly with LIVESTRONG so much of the traffic is on mobile where you don't see the ad blocking being an issue that it really hasn't been a significant factor for us.

[Operator:]

And that was our last question. At this time I would like to thank everyone for joining the call. This concludes today's conference. You may now disconnect.