LEAF GROUP LTD. (Form: 10-Q, Received: 05/08/2019 16:15:08)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35048

LEAF GROUP LTD.

(Exact name of registrant as specified in its charter)


Delaware		20-4731239
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1655 26th Street Santa Monica, CA		90404
(Address of principal executive offices)		(Zip Code)

(310) 656-6253

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	LEAF	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒
			
Emerging growth company	☐		
			

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2019, there were 25,853,923 shares of the registrant’s common stock, $0.0001 par value, outstanding.

LEAF GROUP LTD.

INDEX TO FORM 10-Q


			Page
Part I	Financial Information
	Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Comprehensive Income (Loss)	3
		Condensed Consolidated Statements of Stockholders’ Equity	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to the Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
	Item 4.	Controls and Procedures	33

Part II	Other Information
	Item 1.	Legal Proceedings	34
	Item 1A.	Risk Factors	34
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
	Item 3.	Defaults Upon Senior Securities	35
	Item 4.	Mine Safety Disclosures	35
	Item 5.	Other Information	35
	Item 6.	Exhibits	35
		Signatures	37

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Part I. FINANCIAL INFORMATIO N

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED )

Leaf Group Ltd. and Subsidiaries

Condensed Consolidated Balance Sheet s

(In thousands)

(Unaudited)


	March 31,		December 31,
	2019		2018
Assets
Current assets
Cash and cash equivalents	$	19,665	$	31,081
Accounts receivable, net		10,836		12,627
Prepaid expenses and other current assets		3,871		3,932
Total current assets		34,372		47,640
Property and equipment, net		13,087		13,126
Operating lease right-of-use assets		8,709		—
Intangible assets, net		15,023		13,933
Goodwill		19,454		19,435
Other assets		793		988
Total assets	$	91,438	$	95,122

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	3,483	$	1,519
Accrued expenses and other current liabilities		17,667		22,149
Deferred revenue		3,470		2,115
Total current liabilities		24,620		25,783
Deferred tax liability		102		86
Operating lease liabilities		8,029		—
Other liabilities		1,266		2,566
Total liabilities		34,017		28,435
Commitments and contingencies (Note 8)
Stockholders’ equity
Common stock, $0.0001 par value. Authorized 100,000 shares; 27,457 and 25,802 shares issued and outstanding at March 31, 2019 and 27,138 and 25,483 shares issued and outstanding at December 31, 2018		3		3
Additional paid-in capital		555,396		554,403
Treasury stock at cost, 1,655 shares at March 31, 2019 and December 31, 2018		(35,706)		(35,706)
Accumulated other comprehensive loss		(25)		(52)
Accumulated deficit		(462,247)		(451,961)
Total stockholders’ equity		57,421		66,687
Total liabilities and stockholders’ equity	$	91,438	$	95,122

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Leaf Group Ltd. and Subsidiaries

Condensed Consolidated Statements of Operation s

(In thousands, except per share amounts)

(Unaudited)


	Three months ended March 31,
	2019		2018
Revenue:
Product revenue	$	17,541	$	18,451
Service revenue		16,497		15,296
Total revenue		34,038		33,747
Operating expenses:
Product costs (exclusive of amortization of intangible assets shown separately below)		13,818		13,337
Service costs (exclusive of amortization of intangible assets shown separately below)		7,912		6,287
Sales and marketing		7,638		6,989
Product development		5,569		4,710
General and administrative		8,540		7,308
Amortization of intangible assets		917		1,026
Total operating expenses		44,394		39,657
Loss from operations		(10,356)		(5,910)
Interest income		122		18
Interest expense		(4)		(1)
Other expense, net		(7)		(8)
Loss before income taxes		(10,245)		(5,901)
Income tax expense		(41)		(24)
Net loss	$	(10,286)	$	(5,925)

Net loss per share - basic and diluted	$	(0.40)	$	(0.26)
Weighted average number of shares - basic and diluted		25,601		22,957

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Leaf Group Ltd. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three months ended March 31,
	2019		2018
Net loss	$	(10,286)	$	(5,925)
Other comprehensive loss, net of tax:
Change in foreign currency translation adjustment		27		52
Comprehensive loss	$	(10,259)	$	(5,873)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Leaf Group Ltd. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equit y

(In thousands)

(Unaudited)


	Three months ended March 31, 2019
								Accumulated
				Additional				other
				paid-in				comprehensive				Total
	Common stock			capital		Treasury		income		Accumulated		stockholders’
	Shares	Amount		amount		stock		(loss)		deficit		equity
Balance at December 31, 2018	25,483	$	3	$	554,403	$	(35,706)	$	(52)	$	(451,961)	$	66,687
Issuance of stock under employee stock awards and other, net	319		—		270		—		—		—		270
Tax withholdings related to vesting of share-based payments	—		—		(1,322)		—		—		—		(1,322)
Stock-based compensation expense	—		—		2,045		—		—		—		2,045
Foreign currency translation adjustment	—		—		—		—		27		—		27
Net loss	—		—		—		—		—		(10,286)		(10,286)
Balance at March 31, 2019	25,802	$	3	$	555,396	$	(35,706)	$	(25)	$	(462,247)	$	57,421


	Three months ended March 31, 2018
								Accumulated
				Additional				other
				paid-in				comprehensive				Total
	Common stock			capital		Treasury		income		Accumulated		stockholders’
	Shares	Amount		amount		stock		(loss)		deficit		equity
Balance at December 31, 2017	21,031	$	2	$	523,012	$	(35,706)	$	(17)	$	(428,771)	$	58,520
Issuance of stock under employee stock awards and other, net	326		—		148		—		—		—		148
Tax withholdings related to vesting of share-based payments	—		—		(1,402)		—		—		—		(1,402)
Stock-based compensation expense	—		—		2,320		—		—		—		2,320
Issuance of common stock in connection with follow-on public offering, net of offering costs	3,373		—		23,367		—		—		—		23,367
Foreign currency translation adjustment	—		—		—		—		52		—		52
Net loss	—		—		—		—		—		(5,925)		(5,925)
Balance at March 31, 2018	24,730	$	2	$	547,445	$	(35,706)	$	35	$	(434,696)	$	77,080

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Leaf Group Ltd. and Subsidiaries

Condensed Consolidated Statements of Cash Flow s

(In thousands)

(Unaudited)


	Three months ended March 31,
	2019		2018
Cash flows from operating activities
Net loss	$	(10,286)	$	(5,925)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,716		2,455
Non-cash lease expense		475		—
Deferred income taxes		16		11
Stock-based compensation		1,921		2,208
Other		23		100
Change in operating assets and liabilities, net of effect of acquisitions and disposals:
Accounts receivable, net		1,767		(323)
Prepaid expenses and other current assets		61		(479)
Other long-term assets		60		55
Operating lease ROU assets and liabilities		(796)		—
Accounts payable		1,881		(387)
Accrued expenses and other liabilities		(6,156)		(2,886)
Deferred revenue		1,355		(128)
Net cash used in operating activities		(6,963)		(5,299)
Cash flows from investing activities
Purchases of property and equipment		(1,607)		(1,673)
Purchases of intangible assets		—		(29)
Cash paid for acquisitions, net of cash acquired		(1,900)		—
Net cash used in investing activities		(3,507)		(1,702)
Cash flows from financing activities
Proceeds from exercises of stock options and purchases under ESPP		270		148
Proceeds from issuance of common stock		—		23,367
Taxes paid on net share settlements of restricted stock units		(1,322)		(1,402)
Other		(30)		(17)
Net cash (used in) provided by financing activities		(1,082)		22,096
Effect of foreign currency on cash, cash equivalents and restricted cash		—		(18)
Change in cash, cash equivalents and restricted cash		(11,552)		15,077
Cash, cash equivalents and restricted cash, beginning of period		31,935		32,300
Cash, cash equivalents and restricted cash, end of period	$	20,383	$	47,377

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	19,665	$	46,523
Restricted cash included in other current assets		136		136
Restricted cash included in other long-term assets		582		718
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	20,383	$	47,377

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Leaf Group Ltd. and Subsidiaries

Notes to Condensed Consolidated Financial Statement s

(Unaudited)

1. Company Background and Overview

Leaf Group Ltd. (“Leaf Group” and, together with its consolidated subsidiaries, the “Company,” “our,” “we,” or “us”) is a Delaware corporation headquartered in Santa Monica, California. We are a diversified consumer internet company that builds enduring, digital-first brands that reach passionate audiences in large and growing lifestyle categories, including fitness and wellness and art and design.

Our business is comprised of two segments: Marketplaces and Media.

Marketplaces

Through our Marketplaces segment, we operate leading art and design marketplaces where large communities of artists and designers can market and sell their original art and designs printed on a wide variety of products. Our made-to-order marketplaces, consisting of Society6.com (“Society6”) and our wholesale channel, Deny Designs (collectively “Society6 Group”), provide artists and designers with an online commerce platform to feature and sell their original art and designs on an array of consumer products primarily in the home décor category. Saatchi Art, inclusive of SaatchiArt.com (“Saatchi Art”) and its art fair event brand, The Other Art Fair (collectively, “Saatchi Art Group”), is a leading online art gallery where a global community of artists exhibit and sell their original artwork directly to consumers through a curated online gallery or in-person at art fairs hosted in the United Kingdom, Australia, and the United States. Saatchi Art’s online art gallery features a wide selection of original paintings, drawings, sculptures and photography .

Media

Our Media segment brands educate and entertain consumers across a wide variety of life topics, including the popular fitness and wellness and home and design verticals. In the fitness and wellness vertical our leading brands include Well+Good and Livestrong.com which help people lead healthier lives. In the home and design vertical, Hunker is our leading brand inspiring people to improve the space around them. These brands are the leaders in our catalog of over 50 other brands focused on specific categories or interests that we either own and operate or host and operate for our partners.

2. Basis of Presentation

The accompanying interim condensed consolidated balance sheet as of March 31, 2019, the condensed consolidated statements of operations and condensed consolidated statements of comprehensive (loss) income for the three months ended March 31, 2019 and 2018, the condensed consolidated statements of cash flows for the three months ended March 31, 2019 and 2018 and the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2019 and 2018 are unaudited.

In the opinion of management, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair statement of our statement of financial position as of March 31, 2019, our results of operations for the three months ended March 31, 2019 and 2018, and our cash flows for the three months ended March 31, 2019 and 2018. The results for the three months ended March 31, 2019 are not necessarily indicative of the results expected for the full year. The consolidated balance sheet as of December 31, 2018 has been derived from our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.

The interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), for interim financial information and with the instructions from the U.S. Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.

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Principles of Consolidation

The consolidated financial statements include the accounts of Leaf Group and its wholly owned subsidiaries. Acquisitions are included in our consolidated financial statements from the date of the acquisition. Our purchase accounting resulted in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. All intercompany transactions and balances have been eliminated in consolidation .

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue, allowance for doubtful accounts, the assigned value of acquired assets and assumed liabilities in business combinations, useful lives and impairment of property and equipment, intangible assets, goodwill and other assets, the fair value of equity-based compensation awards, and deferred income tax assets and liabilities. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of our assets and liabilities.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires lease assets and lease liabilities to be recognized on the balance sheet and disclosure of key information about leasing arrangements. This guidance is effective for us commencing in the first quarter of fiscal year 2019. In July 2018, the FASB issued ASU 2018-11, which provides entities with an additional transition method to adopt Topic 842. Under the new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We have adopted Topic 842 as of January 1, 2019 using the new transition method, utilizing certain practical expedients allowable with the adoption of ASU 2016-02. Substantially all of our operating lease commitments with terms greater than 12 months are subject to the new guidance and are recognized as operating lease liabilities and right-of-use assets upon adoption. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $9.2 million and $10.3 million respectively, as of January 1, 2019. The standard did not have a material impact on the recognition, measurement or presentation of lease expenses within our consolidated statements of operations or cash flows.

3. Revenue Recognition

Revenue

Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate the transaction price to each performance obligation based on the estimated standalone selling price of the promised good or service. We allocate any arrangement fee or other incentive or promotional offers to each of the elements based on their relative selling prices.

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts where we recognize revenue in the amount which we have the right to invoice for services performed. We do not capitalize costs incurred to fulfill a contract when the contract term is one year or less.

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Our revenue is principally derived from the following products and services:

Product Revenue

Marketplaces

We recognize product revenue from sales of products when we transfer control of promised goods to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods. In determining the amount of consideration we expect to be entitled to, we take into account sales allowances, estimated returns based on historical experience and any incentive offers provided to customers to encourage purchases, including percentage discounts off current purchases, free shipping and other promotional offers. Because we are the principal in a transaction and obtain control of the goods before they are transferred to the customer, we record product revenue at the gross amount. Value-added taxes (“VAT”), sales tax and other taxes are not included in product revenue because we are a pass-through conduit for collecting and remitting any such taxes .

Service Revenue

Marketplaces

We generate Marketplaces service revenue from commissions we receive from facilitating the sale of original art by artists to customers through Saatchi Art. We also generate Marketplaces service revenue from various sources relating to Saatchi Art’s The Other Art Fair, including commissions from the sale of original art, fees paid by artists for stands at fairs and through sponsorship opportunities with third-party brands and advertisers. We recognize fair-related service revenue upon completion of each fair. We recognize service revenue arising from the sale of original art net of amounts paid to the artist because we are not the principal in the transaction and we do not obtain control over the original art. Revenue is recognized when we transfer control of the promised service, which is after the original art has been delivered and the return period has expired. We provide incentive offers to Saatchi Art customers to encourage purchases, including percentage discounts off current purchases, free shipping and other promotional offers. VAT, sales tax and other taxes are not included in Marketplaces service revenue because we are a pass-through conduit for collecting and remitting any such taxes.

Media

Advertising Revenue . We generate Media service revenue primarily from advertisements displayed on our online media properties and on certain webpages of our partners’ media properties that are hosted by our content services. Articles, videos and other forms of content generate advertising revenue from a diverse mix of advertising methods including display advertisements, where revenue is dependent upon the number of advertising impressions delivered; performance-based cost-per-click advertising, in which an advertiser pays only when a visitor clicks on an advertisement; sponsored content; or advertising links . Performance obligations pursuant to our advertising revenue arrangements typically include a minimum number of impressions or the satisfaction of other performance criteria. Revenue from performance-based arrangements is recognized as the related performance criteria are met. We assess whether performance criteria have been met based on a reconciliation of the performance criteria. The reconciliation of the performance criteria generally includes a comparison of third-party performance data to the contractual performance obligation and to internal or partner performance data in circumstances where that data is available.

Where we enter into revenue-sharing arrangements with our partners, such as those relating to our advertiser network, we report revenue on a gross or net basis depending on whether we are considered the principal in the transaction. In addition, we consider which party controls the service, including which party is primarily responsible for fulfilling the promise to provide the service. We also consider which party has the latitude to establish the sales prices to advertisers. When we are considered the principal, we report the underlying revenue on a gross basis in our consolidated statements of operations, and record these revenue-sharing payments to our partners in service costs.

Content Sales and Licensing Revenue . We generate revenue from the sale or license of media content, including the creation and distribution of content for third-party brands and publishers through our content studio . Revenue from the sale or perpetual license of media content is recognized when the control of content is transferred or when the right to use is transferred and the contractual performance obligations have been fulfilled. Revenue from the non-perpetual license of media content is recognized over the period of the license as the right to access content is delivered or when other related performance criteria are fulfilled. In circumstances where we distribute our content on third-party properties and the customer acts as the principal, we recognize revenue on a net basis.

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Disaggregation of Revenue

The following table presents our revenues disaggregated by revenue source (in thousands):


	Three months ended March 31,
	2019		2018
Product
Marketplaces	$	17,541	$	18,451
Service
Marketplaces		3,297		2,516
Media		13,200		12,780
Total revenue	$	34,038	$	33,747

Deferred Revenue

Deferred revenue consists of amounts received from or invoiced to customers in advance of our performance obligations being satisfied, including amounts which are refundable. Deferred revenue includes payments received from sales of our products on Society6 and Deny Designs prior to the transfer of control of such products to the customers; payments made for original art sold via Saatchi Art that are collected prior to the completion of the return period upon which our service is considered completed; and amounts billed to media customers prior to delivery of content; and sales of subscriptions for premium content or services not yet delivered. During the three months ended March 31, 2019, we recognized $1.7 million of revenues that were included in the deferred revenue balance as of December 31, 2018.

Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services, we require payment before the products or services are delivered to the customer.

4. Property and Equipment

Property and equipment consisted of the following (in thousands):


	March 31,		December 31,
	2019		2018
Computers and other related equipment	$	11,173	$	10,859
Purchased and internally developed software		31,163		29,758
Furniture and fixtures		1,472		1,470
Leasehold improvements		6,795		6,795
Machinery and related equipment		581		581
		51,184		49,463
Less accumulated depreciation		(38,097)		(36,337)
Property and equipment, net	$	13,087	$	13,126

Depreciation and software amortization expense, which includes losses on disposal of property and equipment of less than $0.1 million for each of the three months ended March 31, 2019 and 2018, is shown by classification below (in thousands):


	Three months ended March 31,
	2019		2018
Product costs	$	368	$	182
Service costs		936		654
Sales and marketing		7		8
Product development		11		20
General and administrative		477		565
Total depreciation	$	1,799	$	1,429

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5. Goodwill and Intangible Assets

The following table represents the changes in our goodwill balance (in thousands):


Balance at December 31, 2018	$	19,435
Foreign currency impact		19
Balance at March 31, 2019	$	19,454

We have two reporting units, Marketplaces and Media. Goodwill related to our Marketplaces reporting unit was $17.1 million as of March 31, 2019. Goodwill related to our Media reporting unit was $2.3 million and was recorded in connection with the acquisition of Well+Good in June 2018.

Intangible assets consisted of the following (in thousands):


	March 31, 2019
	Gross carrying		Accumulated		Net carrying
	amount		amortization		amount
Customer relationships	$	4,003	$	(2,433)	$	1,570
Artist relationships		12,227		(11,099)		1,128
Media content		91,489		(91,282)		207
Technology		6,204		(5,844)		360
Non-compete agreements		25		(25)		—
Trade names		18,269		(6,511)		11,758
	$	132,217	$	(117,194)	$	15,023


	December 31, 2018
	Gross carrying		Accumulated		Net carrying
	amount		amortization		amount
Customer relationships	$	4,003	$	(2,219)	$	1,784
Artist relationships		12,223		(11,007)		1,216
Media content		91,489		(91,215)		274
Technology		6,204		(5,682)		522
Non-compete agreements		25		(25)		—
Trade names		16,257		(6,120)		10,137
	$	130,201	$	(116,268)	$	13,933

Identifiable finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives commencing on the date that the asset is available for its intended use.

Total amortization expense for the periods shown below includes (in thousands):


	Three months ended March 31,
	2019		2018
Service costs	$	67	$	369
Sales and marketing		302		160
Product development		162		293
General and administrative		386		204
Total amortization	$	917	$	1,026

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6. Accrued Expenses and Other Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	March 31,		December 31,
	2019		2018
Accrued payroll and related items	$	2,463	$	4,769
Artist payables		4,881		5,528
Accrued product costs		1,474		3,008
Operating lease liabilities		1,812		—
Contingent liabilities		1,194		1,082
Accrued post-combination consideration		—		1,819
Other		5,843		5,943
Accrued expenses and other current liabilities	$	17,667	$	22,149

Other long-term liabilities consisted of the following (in thousands):


	March 31,		December 31,
	2019		2018
Accrued rent	$	—	$	1,320
Contingent liabilities		1,038		976
Other		228		270
Other liabilities	$	1,266	$	2,566

As part of the acquisition of Deny Designs in May 2017, contingent consideration of up to $3.6 million is payable to the seller annually in three equal installments on the first through third anniversary of the closing date. The contingent consideration was valued at $2.8 million as of the acquisition date based on time value, discount rate, and the estimated probability of achieving the contingent criteria related to the ongoing development of new products for sale, as specified in the purchase agreement. Such amounts are adjusted at each subsequent period based on probability of achievement until settlement of such liability. Adjustments to the liability are recorded to income or expense in our condensed consolidated statement of operations. The fair value adjustment to the liability for the three months ended March 31, 2019 was not material. In May 2018, the first installment of the contingent consideration, net of post-closing working capital adjustments to the purchase price, was paid to the seller in the amount of $1.1 million. The estimated amount payable upon the second year anniversary is included in accrued expenses and other current liabilities, and estimated amounts payable upon the third anniversary is included in other liabilities in our condensed consolidated balance sheets.

7. Leases

We adopted ASU 2016-02— Leases (Topic 842) as of January 1, 2019, using the new transition method issued under ASU 2018-11, which allows an entity to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and also allows an entity to elect not to recast their comparative periods in transition. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to short-term leases, allowing us to not recognize right-of-use assets and lease liabilities for leases with a lease term of 12 months or less.

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

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We have operating leases primarily for office space facilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Our operating leases have remaining lease terms of one year to six years, some of which include options to extend the leases for up to five years or to terminate the leases within one year. Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of March 31, 2019, finance leases were not material.

As of March 31, 2019, lease expense was comprised of $0.7 million in operating lease cost.

Supplemental cash flow information related to leases was as follows (in thousands):


	Three months ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	737

Supplemental balance sheet information related to leases was as follows (in thousands):


	March 31, 2019
Operating leases:
Operating lease right-of-use assets	$	8,709

Other current liabilities		1,812
Operating lease liabilities		8,029
Total operating lease liabilities	$	9,841

Weighted average remaining lease term:
Operating leases		5 years

Weighted average discount rate:
Operating leases		9%

Maturities of operating lease liabilities as of March 31, 2019 were as follows (in thousands):


	Operating
	Leases
2019	$	2,028
2020		2,275
2021		2,281
2022		2,183
2023		2,236
Thereafter		1,336
Total lease payments		12,339
Less imputed interest		(2,498)
Total operating lease liabilities	$	9,841

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The following is a schedule of future minimum lease payments under operating leases as of December 31, 2018 (in thousands):


	Operating
	leases
Year ending December 31,
2019	$	2,765
2020		2,275
2021		2,281
2022		2,183
2023		2,236
Thereafter		1,336
Total minimum lease payments	$	13,076

8. Commitments and Contingencies

Leases

We conduct our operations utilizing leased office facilities in various locations under operating leases and, as of March 31, 2019, these leases have non-cancelable periods ending between June 2018 and July 2024. The lease for our Santa Monica office facility expires in July 2024.

Litigation

From time to time, we are a party to various legal matters incidental to the conduct of our business. Certain of our outstanding legal matters include speculative claims for indeterminate amounts of damages. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. Based on our current knowledge, we do not believe that there is a reasonable possibility that the final outcome of the pending or threatened legal proceedings to which we are a party, either individually or in the aggregate, will have a material adverse effect on our future financial results. However, the outcome of such legal matters is subject to significant uncertainties.

Taxes

From time to time, various federal, state and other jurisdictional tax authorities undertake reviews of the Company and its filings. In evaluating the exposure associated with various tax filing positions, we accrue charges for possible exposures. We believe any adjustments that may ultimately be required as a result of any of these reviews will not be material to our consolidated financial statements.

Indemnification

In the normal course of business, we have provided certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions or contractual commitments. These indemnities include intellectual property indemnities to our customers and partners, indemnities to our directors and officers to the maximum extent permitted under the laws of the State of Delaware, indemnifications related to our lease agreements and indemnifications to sellers or buyers in connection with acquisitions and dispositions, respectively. In addition, our advertiser, content creation and distribution partner agreements contain certain indemnification provisions which are generally consistent with those prevalent in our industry. We have not incurred significant obligations under indemnification provisions historically, and do not expect to incur significant obligations in the future. Accordingly, we have not recorded any liability for these indemnities.

9. Income Taxes

Income tax expense was less than $0.1 million for each of the three months ended March 31, 2019 and 2018 .

Our effective tax rate differs from the statutory rate primarily as a result of state taxes, foreign taxes, nondeductible stock option expenses and changes in our valuation allowance. If all or a portion of our net operating loss carryforwards are subject to limitation

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because it is determined that we had previously experienced an “ownership change” as defined in section 382 of the Internal Revenue Code of 1986, as amended, our future cash flows could be adversely impacted due to increased tax liability.

We reduce our deferred tax assets resulting from future tax benefits by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some portion or all of these deferred taxes will not be realized. The timing of the reversal of deferred tax liabilities associated with tax deductible goodwill is not certain and thus not available to assure the realization of a portion of the deferred tax assets. However, the reversal of deferred tax liabilities associated with tax deductible goodwill can be a source of taxable income to support the realization of a deductible temporary difference that is scheduled to reverse into net operating losses with an unlimited carryforward period. Except for the deferred tax liabilities resulting from tax deductible goodwill, we have deferred tax assets in excess of deferred tax liabilities before application of a valuation allowance for the periods presented. As we have insufficient history of generating income, the ultimate future realization of these excess deferred tax assets does not meet the more likely than not criteria and is thus subject to a valuation allowance. Accordingly, we have established a full valuation allowance against our deferred tax assets.

We are subject to the accounting guidance for uncertain income tax positions. We believe it is more likely than not that our income tax positions and deductions will be sustained on audit and do not anticipate any adjustments which could result in a material adverse effect on our financial condition, results of operations, or cash flow.

Our policy for recording interest and penalties associated with audits and uncertain tax positions is to record such items as a component of income tax expense, and no interest or penalties were recognized in the three months ended March 31, 2019 or 2018. There are no material uncertain tax positions and no uncertain income tax positions were recorded during the three months ended March 31, 2019 or 2018 , and we do not expect our uncertain tax position to change materially during the next twelve months.

We file tax returns in the United States, at both the federal and state level, and in several foreign jurisdictions. Due to net operating loss carryforwards, our tax returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception.

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Act”) was enacted. As of December 31, 2018, we had completed our analysis on the tax impact relating to the 2017 Act and no material changes were made to the provisional amounts recorded. There was no additional impact on the income tax provision as of March 31, 2019 .

10. Stock-based Compensation Plans and Awards

Stock-based Compensation Expense

Stock-based compensation expense related to all employee and non-employee stock-based awards recognized in the condensed consolidated statements of operations was as follows (in thousands):


	Three months ended March 31,
	2019		2018
Service costs	$	181	$	149
Sales and marketing		80		210
Product development		592		508
General and administrative		1,068		1,341
Total stock-based compensation	$	1,921	$	2,208

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Award Activity

Stock Options

Stock option activity is as follows (in thousands):


		Number of
		options
		outstanding
Outstanding at December 31, 2018		1,853
Options granted		22
Options exercised		(44)
Options forfeited or cancelled		(29)
Outstanding at March 31, 2019		1,802

Restricted Stock Units

Restricted stock unit activity is as follows (in thousands):


		Number of
		shares
Unvested at December 31, 2018		1,921
Granted		1,256
Vested		(438)
Forfeited		(124)
Unvested at March 31, 2019		2,615

11. Stockholders’ Equity

Follow-on Public Offering of Common Stock

Stock Repurchases

Under our stock repurchase plan, as amended in February 2012, we are authorized to repurchase up to $50.0 million of our common stock from time to time. We have not initiated any repurchases of our common stock since December 2016 and are not currently making repurchases. As of March 31, 2019, approximately $14.3 million remained available under the repurchase plan, and we may continue to make stock repurchases from time to time in the future. The timing and actual number of shares repurchased will depend on various factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions.

Shares repurchased by us are accounted for when the transaction is settled. As of March 31, 2019, there were no unsettled share repurchases. The par value of shares repurchased is deducted from common stock and any excess over par value is deducted from additional paid-in capital. Direct costs incurred to repurchase the shares are included in the total cost of the shares.

12. Acquisitions and Dispositions

Acquisitions

On February 1, 2019, pursuant to an Asset Purchase Agreement, we acquired substantially all of the assets of Only In Your State, LLC, including its website that focuses on travel and local tourism for total consideration of $2.0 million in cash, of which $0.1 million was held back to secure post-closing indemnification obligations.

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We evaluated the acquisition of Only In Your State under ASU 2017-01, Business Combinations: Clarifying the Definition of a Business . Based on the results of the analysis performed, we determined that substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. As a result, we concluded that the acquisition of Only In Your State represents an asset acquisition and does not represent a business combination to be accounted for under ASC 805. The total purchase price of $2.0 million was preliminarily allocated entirely to the trademark acquired, which has an estimated useful life of ten years. Our preliminary allocation and valuation of the fair value of individual assets acquired is based on estimates and assumptions and is subject to change pending finalization of the allocation and valuation.

The acquisition is included in our condensed consolidated financial statements as of the closing date of the acquisition, which was February 1, 2019. Acquisition-related transaction costs were not material.

13. 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.

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The financial performance of our operating segments and reconciliation to consolidated operating loss is as follows (in thousands):


	Three months ended March 31,
	2019		2018
Segment Revenue:
Marketplaces	$	20,838	$	20,967
Media		13,200		12,780
Total revenue	$	34,038	$	33,747

Segment Operating Expenses:
Marketplaces (1)	$	22,149	$	20,906
Media (1)		9,591		7,323
Add:
Corporate expenses (2)		7,927		6,765
Consolidated operating expenses	$	39,667	$	34,994

Segment Operating Contribution:
Marketplaces (3)	$	(1,311)	$	61
Media (3)		3,609		5,457
Add (deduct):
Corporate expenses (2)		(7,927)		(6,765)
Acquisition, disposition and realignment costs (4)		—		—
Adjusted EBITDA (5)	$	(5,629)	$	(1,247)

Reconciliation to consolidated pre-tax income (loss):
Adjusted EBITDA (5)	$	(5,629)	$	(1,247)
Add (deduct):
Interest income (expense), net		118		17
Other (expense) income, net		(7)		(8)
Depreciation and amortization (6)		(2,716)		(2,455)
Stock-based compensation (7)		(1,921)		(2,208)
Acquisition, disposition, realignment and contingent payment costs (8)		(90)		—
Loss before income taxes	$	(10,245)	$	(5,901)

(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)

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 (expense); 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, (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.

(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, contingent payments to certain key employees/equity holders of acquired businesses and other payments attributable to acquisition, disposition or corporate realignment activities.

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(6)

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.

(7)

Represents the expense related to stock-based awards granted to employees as included in our GAAP results of operations.

(8)

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.

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 March 31,
	2019		2018
Domestic	$	28,272	$	27,196
International		5,766		6,551
Total revenue	$	34,038	$	33,747

14. Fair Value

As of each of the periods ended March 31, 2019 and 2018, we did not have any Level 1 financial assets measured at fair value. In May 2017, we recorded a contingent consideration liability as a result of the acquisition of Deny Designs for $2.8 million. The minimum and maximum amount payable for each of the three years is $0.3 million and $1.2 million, respectively, based upon satisfaction of the contingent criteria related to the ongoing development of new products for sale, as specified in the purchase agreement. Such amounts are adjusted at each subsequent period based on probability of achievement until settlement of such liability. Adjustments to the liability will be recorded to income or expense in our condensed statement of operations. In May 2018, the first installment of the contingent consideration, net of post-closing working capital adjustments to the purchase price, was paid to the seller in the amount of $1.1 million. The fair value adjustment to the liability for each of the three months ended March 31, 2019 and 2018 was not material. We classify our contingent consideration resulting from acquisitions within Level 3, as the valuation inputs are based on unobservable inputs .

15. Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share of common stock (in thousands, except per share data):


	Three months ended March 31,
	2019		2018
Net loss	$	(10,286)	$	(5,925)
Weighted average common shares outstanding—basic and diluted		25,601		22,957
Net loss per share - basic and diluted	$	(0.40)	$	(0.26)

For the three months ended March 31, 2019 and 2018, we excluded 4.4 million and 4.1 million shares, respectively, from the calculation of diluted weighted average common shares outstanding, as their inclusion would have been antidilutive.

For the three months ended March 31, 2019 and 2018, had we reported net income, approximately 0.6 million and 0.8 million common shares would have been included in the number of shares used to calculate earnings per share, respectively.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION S

As used herein, “Leaf Group,” the “Company,” “our,” “we,” “us” and similar terms include Leaf Group Ltd. and its subsidiaries, unless the context indicates otherwise.

“Leaf Group” and other trademarks of ours appearing in this report, such as “Society6”, “Deny Designs”, “The Other Art Fair”, and “Well+Good” are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us or our business by such companies, or any relationship with any of these companies .

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”).

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) . All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “plan” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements are so identified. You should not rely upon forward-looking statements as guarantees of future performance. We have based these forward-looking statements largely on our current estimates of our financial results and our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, as well as those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”), including our 2018 Annual Report, which was filed with the SEC on March 4, 2019, and the factors described in the section entitled “Risk Factors” in Part I. Item 1A of the 2018 Annual Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we currently expect.

Overview

Leaf Group is a diversified consumer internet company that builds enduring, digital-first brands that reach passionate audiences in large and growing lifestyle categories, including fitness and wellness and art and design.

Our business is comprised of two segments: Marketplaces and Media.

Marketplaces

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consisting of Society6.com (“Society6”) and our wholesale channel, Deny Designs (collectively “Society6 Group”), provide artists and designers with an online commerce platform to feature and sell their original art and designs on an array of consumer products primarily in the home décor category. Saatchi Art, inclusive of SaatchiArt.com (“Saatchi Art”) and its art fair event brand, The Other Art Fair (collectively, “Saatchi Art Group”), is a leading online art gallery where a global community of artists exhibit and sell their original artwork directly to consumers through a curated online gallery or in-person at art fairs hosted in the United Kingdom, Australia, and the United States. Saatchi Art’s online art gallery features a wide selection of original paintings, drawings, sculptures and photography .

Our Marketplaces segment primarily generates revenue from the sale of products and services through our art and design marketplaces. Society6 Group revenue is generated from the sale of made-to-order products. Saatchi Art Group primarily generates revenue through commissions on the final sale price of original works of art and from various sources relating to the hosting of in-person art fairs, including commissions from the sale of original art, fees paid by artists for stands and through sponsorship opportunities with third-party brands and advertisers.

Media

Our Media segment brands educate and entertain consumers across a wide variety of life topics, including the popular fitness and wellness and home and design verticals. In the fitness and wellness vertical, our leading brands include Well+Good and Livestrong.com which help people lead healthier lives. In the home and design vertical, Hunker is our leading brand inspiring people to improve the space around them. These brands are the leaders in our catalog of over 50 other brands focused on specific categories or interests that we either own and operate or host and operate for our partners.

Our brands each develop a distinct voice and create content that connects with their consumers across a wide variety of platforms, devices and formats. In order to improve our engagement with consumers, we continually redesign and update our websites; refine our content library; evaluate and adjust ad unit density; and develop new ways of integrating the messages from our advertising partners. Our revenues are driven by growing the number of consumers and increasing the number of visits through improving the user and content experience, fostering genuine connections between our audience and their brands and providing engaging advertising or sponsorship opportunities to our partners.

Revenue

For the three months ended March 31, 2019 and 2018, we reported revenue of $34.0 million and $33.7 million, respectively. For the three months ended March 31, 2019 and 2018, Marketplaces revenue accounted for 61% and 62% of our total revenue, respectively, and Media revenue accounted for 39% and 38% of our total revenue, respectively.

The revenue generated by our Marketplaces segment has higher costs associated with it as compared to our Media segment due to variable product costs, including outsourced product manufacturing costs, artist royalties, marketing costs, and shipping and handling costs.

Follow-on Public Offering of Common Stock

On February 12, 2018, we completed an underwritten registered public offering of 3,373,332 shares of our common stock, which included full exercise of the underwriter’s option to purchase additional shares of common stock, at a public offering price of $7.50 per share. We received aggregate net proceeds from the offering of $23.4 million, after deducting the underwriting discounts and commissions and offering expenses. The net proceeds from the offering have been and continue to be used for working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products and technologies.

Key Business Metrics

We regularly review a number of business metrics, including the following key metrics, to evaluate our business, measure the performance of our business model, identify trends impacting our business, determine resource allocations, formulate financial projections and make strategic business decisions. The number of transactions, gross transaction value, number of visits and revenue per visit are currently the key metrics for understanding our results of operations.

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Marketplaces Metrics

Number of transactions: We define transactions as the total number of Marketplaces transactions successfully completed by a customer during the applicable period, excluding certain transactions generated by Saatchi Art’s The Other Art Fair, such as sales of stand space to artists at fairs, sponsorship fees and ticket sales.

Gross transaction value: We define gross transaction value as the total dollar value of Marketplaces transactions, excluding the revenue from certain transactions generated by Saatchi Art’s The Other Art Fair, such as sales of stand space to artists at fairs, sponsorship fees and ticket sales. Gross transaction value is the total amount paid by the customer including the total product price inclusive of artist margin, shipping charges, taxes, and is net of any promotional discounts. Gross transaction value does not reflect any subsequent cancellations, refunds or credits and does not represent revenue earned by the Company.

Media Metrics

Visits – Google Analytics: Visits per Google Analytics are defined as the total number of times users access our content across (a) one of our owned and operated properties and/or (b) one of our customers’ properties, to the extent that the visited customer web pages are hosted by our content services. In each case, breaks of access of at least 30 minutes constitute a unique visit. Additionally, a visit is also considered to have ended at midnight or if a user arrives via one campaign, leaves, and then comes back via a different campaign.

Revenue per visit (“RPV”): We define RPV as Media revenue per one thousand visits.

The following table sets forth our key business metrics for the periods presented:


	Three months ended March 31,
	2019		2018		% Change
Marketplaces Metrics (1)(2) :
Number of Transactions		297,245		307,935	(3)	%
Gross Transaction Value (in thousands)	$	27,137	$	26,592	2	%
Media Metrics (2)(3) :
Visits - Google Analytics (in thousands)		701,135		786,314	(11)	%
Revenue per Visit (Google Analytics)	$	18.83	$	16.25	16	%

(1)

Marketplaces Metrics excludes transactions and the associated revenue generated by Saatchi Art’s The Other Art Fair, such as sales of stand space to artists at fairs, sponsorship fees and ticket sales.

(2)

For a discussion of these period-to-period changes in the number of transactions, gross transaction value, number of visits and RPV, and how they impacted our financial results, see “Results of Operations” below.

Basis of Presentation

Revenue

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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Our revenue is principally derived from the following products and services:

Product Revenue

Marketplaces

Service Revenue

Marketplaces

Media

Content Sales and Licensing Revenue . We generate revenue from the sale or license of media content, including the creation and distribution of content for third-party brands and publishers . Revenue from the sale or perpetual license of media content is recognized when the control of content is transferred or when the right to use is transferred and the contractual performance obligations have been fulfilled. Revenue from the non-perpetual license of media content is recognized over the period of the license as the right to access content is delivered or when other related performance criteria are fulfilled. In circumstances where we distribute our content on third-party properties and the customer acts as the principal, we recognize revenue on a net basis.

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Product Costs

Product costs consist of product manufacturing costs, including both in-house and contracted third-party manufacturing costs, artist payments, personnel costs and credit card and other transaction processing fees.

Service Costs

Service costs consist of payments relating to our internet connection and co-location charges and other platform operating expenses, including depreciation of the systems and hardware used to build and operate our content creation and distribution platform; expenses related to creating, rewriting, or auditing certain content units; and personnel costs related to in-house editorial, customer service and information technology. Service costs also include payments to our partners pursuant to revenue-sharing arrangements where we are the principal. In addition, service costs include expenses related to art fairs hosted by Saatchi Art’s The Other Art Fair, such as venue-related costs and fair personnel costs.

Shipping and Handling

Shipping and handling costs charged to customers are recorded in service revenue or product revenue, as applicable. Associated costs are recorded in service costs or product costs.

Sales and Marketing

Sales and marketing expenses consist primarily of sales and marketing personnel costs, sales support, public relations, advertising, marketing and general promotional expenditures. Fluctuations in our sales and marketing expenses are generally the result of our efforts to drive growth in our product and service offerings.

Product Development

Product development expenses consist primarily of expenses incurred in our software engineering, product development and web design activities and related personnel costs. Fluctuations in our product development expenses are generally the result of hiring personnel to support and develop our platforms, including the costs to improve our owned and operated media properties and related mobile applications, as well as the costs to develop future product and service offerings.

General and Administrative

General and administrative expenses consist primarily of personnel costs from our corporate executive, legal, finance, human resources and information technology organizations and facilities-related expenditures, as well as third-party professional service fees and insurance. Professional service fees are largely comprised of outside legal, audit and information technology consulting services.

Amortization of Intangible Assets

We capitalize certain costs (i) allocated to the purchase price of certain identifiable intangible assets acquired in connection with business combinations and (ii) incurred to develop media content that is determined to have a probable economic benefit. We amortize these costs on a straight-line basis over the related expected useful lives of these assets. We determine the appropriate useful life of intangible assets by performing an analysis of expected cash flows based on our historical experience of intangible assets of similar quality and value. In the event of content remediation or removal in future periods, additional accelerated amortization expense may be incurred in the periods such actions occur. We expect amortization expense related to business combinations to increase in the near term due to recent acquisitions. We expect total amortization expense to decrease in the near term due to assets completing their useful lives. Amortization as a percentage of revenue will depend upon a variety of factors, such as the amounts and mix of our investments in content and identifiable intangible assets acquired in business combinations.

Stock-based Compensation

Included in operating expenses are expenses associated with stock-based compensation, which are allocated and included in service costs, sales and marketing, product development and general and administrative expenses. Stock-based compensation expense is largely

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comprised of costs associated with stock options and restricted stock units granted to employees, directors and non-employees, and expenses relating to our Employee Stock Purchase Plan (the “ESPP”). We record the fair value of these equity-based awards and expenses at their cost ratably over related vesting periods.

Interest Income (Expense), Net

Interest income consists primarily of interest earned on cash balances and money market deposits, which are included in cash and cash equivalents.

Other Income (Expense), Net

Other income (expense), net consists primarily of transaction gains and losses on foreign currency-denominated assets and liabilities and gains or losses on sales of businesses. We expect that these gains and losses will vary depending upon movements in underlying currency exchange rates and whether we dispose of any businesses.

Provision for Income Taxes

Since our inception, we have been subject to income taxes principally in the United States and certain other countries where we have or had a legal presence, including the United Kingdom, Australia, Canada and Argentina. We may in the future become subject to taxation in additional countries based on the foreign statutory rates in those countries and our effective tax rate could fluctuate accordingly.

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

We currently believe that based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have taken a full valuation allowance against all of our United States federal and state and certain foreign deferred tax assets. Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended. Currently, we do not expect the utilization of our net operating loss and tax credit carryforwards in the near term to be materially affected as no significant limitations are expected to be placed on these carryforwards as a result of our previous ownership changes. However, if all or a portion of our net operating loss carryforwards are subject to limitation because we experience an ownership change, our future cash flows could be adversely impacted due to increased tax liability.

Critical Accounting Policies and Estimates

Our unaudited interim consolidated financial statements are prepared in accordance with GAAP in the United States. The preparation of our unaudited interim consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the estimates and assumptions associated with our revenue recognition, accounts receivable and allowance for doubtful accounts, goodwill, capitalization and useful lives associated with our intangible assets, the recoverability of our long-lived assets including our media content, income taxes, and stock-based compensation have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates and have discussed these in our 2018 Annual Report. There have been no material changes to our critical accounting policies and estimates since the date of our 2018 Annual Report.

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Results of Operations

The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.


	Three months ended March 31,
	2019		2018
Revenue:
Product revenue	$	17,541	$	18,451
Service revenue		16,497		15,296
Total revenue		34,038		33,747
Operating expenses:
Product costs (exclusive of amortization of intangible assets shown separately below) (1)		13,818		13,337
Service costs (exclusive of amortization of intangible assets shown separately below) (1)(2)		7,912		6,287
Sales and marketing (1)(2)		7,638		6,989
Product development (1)(2)		5,569		4,710
General and administrative (1)(2)		8,540		7,308
Amortization of intangible assets		917		1,026
Total operating expenses		44,394		39,657
Loss from operations		(10,356)		(5,910)
Interest income		122		18
Interest expense		(4)		(1)
Other expense, net		(7)		(8)
Loss before income taxes		(10,245)		(5,901)
Income tax expense		(41)		(24)
Net loss	$	(10,286)	$	(5,925)

(1) Depreciation expense included in the above line items:
Product costs	$	368	$	182
Service costs		936		654
Sales and marketing		7		8
Product development		11		20
General and administrative		477		565
Total depreciation	$	1,799	$	1,429

(2) Stock-based compensation included in the above line items:
Service costs	$	181	$	149
Sales and marketing		80		210
Product development		592		508
General and administrative		1,068		1,341
Total stock-based compensation	$	1,921	$	2,208

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As a percentage of revenue:


	Three months ended March 31,
	2019		2018
Revenue:
Product revenue	51.5	%	54.7	%
Service revenue	48.5	%	45.3	%
Total revenue	100.0	%	100.0	%
Operating expenses:
Product costs (exclusive of amortization of intangible assets shown separately below)	40.6	%	39.5	%
Service costs (exclusive of amortization of intangible assets shown separately below)	23.2	%	18.6	%
Sales and marketing	22.4	%	20.7	%
Product development	16.4	%	14.0	%
General and administrative	25.1	%	21.7	%
Amortization of intangible assets	2.7	%	3.0	%
Total operating expenses	130.4	%	117.5	%
Loss from operations	(30.4)	%	(17.5)	%
Interest income	0.3	%	—	%
Interest expense	—	%	—	%
Other expense, net	—	%	—	%
Loss before income taxes	(30.1)	%	(17.5)	%
Income tax expense	(0.1)	%	(0.1)	%
Net loss	(30.2)	%	(17.6)	%

Segment results (in thousands):


	Three months ended March 31,
	2019		2018		% Change
Segment Revenue:
Marketplaces	$	20,838	$	20,967	(1)	%
Media		13,200		12,780	3	%
Total revenue	$	34,038	$	33,747	1	%

Segment Operating Expenses:
Marketplaces (1)	$	22,149	$	20,906	6	%
Media (1)		9,591		7,323	31	%
Add:
Corporate expenses (2)		7,927		6,765	17	%
Consolidated operating expenses	$	39,667	$	34,994	13	%

Segment Operating Contribution:
Marketplaces (3)	$	(1,311)	$	61	(2,249)	%
Media (3)		3,609		5,457	(34)	%
Add (deduct):
Corporate expenses (2)		(7,927)		(6,765)	(17)	%
Acquisition, disposition and realignment costs (4)		—		—	—	%
Adjusted EBITDA (5)	$	(5,629)	$	(1,247)	(351)	%

(1)

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(2)

(3)

(4)

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.

(5)

See Note 13 of our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and “Non-GAAP Financial Measures” below for more information and reconciliation of segment results to consolidated GAAP operating income (loss).

Marketplaces Revenue

Marketplaces revenue decreased by $0.1 million, a 1% decrease, to $20.8 million for the three months ended March 31, 2019, as compared to $21.0 million for the same period in 2018, with Society6 revenue decreasing 5% year-over-year, partially offset by a 26% increase in Saatchi Art Group revenue year-over-year. For the three months ended March 31, 2019, Marketplaces gross transaction value was $27.1 million as compared to $26.6 million in the prior year period, reflecting an increase of 2%, driven by higher gross transaction value from Saatchi Art Group and an increase in average order value. Gross transaction value excludes the revenue from certain transactions generated by Saatchi Art’s The Other Art Fair, such as the sales of stand space to artists at fairs, sponsorship fees and ticket sales. The number of transactions decreased 3% to 297,245 in the three months ended March 31, 2019 as compared to 307,935 in the same period in 2018, primarily due to decreases in international sales on Society6 and from our decision to focus on sales generated through our platforms directly rather than selling through third-party marketplaces.

Media Revenue

Media revenue increased by $0.4 million, a 3% increase, to $13.2 million for the three months ended March 31, 2019, as compared to $12.8 million for the same period in 2018 primarily due to the acquisition of Well+Good in June 2018 and an increase in revenue from our premium sites, including Hunker, partially offset by a decrease in revenue from Livestrong.com. Google Analytics data shows that visits decreased by 11% to 701 million visits in the three months ended March 31, 2019 from 786 million visits in the same period in 2018. This decrease was due to an August 1, 2018 Google search engine update that negatively impacted the volume of referral traffic to many health related sites, including Livestrong.com and the removal of content as part of our efforts to refine our content library on Livestrong.com, partially offset by an increase in visits as a result of the acquisitions of Well+Good in June 2018 and Only in Your State in February 2019. RPV, calculated using visits per Google Analytics, increased by 16%, to $18.83 in the three months ended March 31, 2019 from $16.25 in the same period in 2018, as a result of the acquisition of Well+Good in June 2018 and improved ad monetization yields on several of our media properties .

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Consolidated Costs and Expenses

Operating costs and expenses were as follows (in thousands):


	Three months ended March 31,
	2019		2018		% Change
Product costs (exclusive of amortization of intangible assets)	$	13,818	$	13,337	4	%
Service costs (exclusive of amortization of intangible assets)		7,912		6,287	26	%
Sales and marketing		7,638		6,989	9	%
Product development		5,569		4,710	18	%
General and administrative		8,540		7,308	17	%
Amortization of intangible assets		917		1,026	(11)	%

Product Costs

Product costs for the three months ended March 31, 2019 increased by $0.5 million, or 4%, to $13.8 million, as compared to $13.3 million for the same period in 2018. The increase was primarily due to increased shipping costs attributable to increased promotional activity and increased artist commission expense on Society6 due to a shift in product mix.

Service Costs

Service costs for the three months ended March 31, 2019 increased by $1.6 million, or 26%, to $7.9 million, as compared to $6.3 million for the same period in 2018. The increase was primarily due to increases of $0.7 million in personnel and related costs primarily driven by an increase in headcount due to the acquisition of Well+Good in June 2018, $0.4 million related to content development and renovation, $0.3 million in depreciation expense, $0.2 million in cost of services primarily related to higher media event costs due to the acquisition of Well+Good and its offline programming and custom events offerings, and $0.1 million in ad serving costs, partially offset by a decrease of $0.1 million in information technology costs.

Sales and Marketing

Sales and marketing expenses for the three months ended March 31, 2019 increased by $0.6 million, or 9%, to $7.6 million, as compared to $7.0 million for the same period in 2018. The increase was primarily due to increases of $1.2 million in personnel related costs, primarily driven by an increase in headcount resulting from the acquisition of Well+Good in June 2018 and the expansion of our branded direct salesforce, and $0.2 million in license and support costs, partially offset by a decrease of $0.7 million in marketing activities primarily from lower performance marketing spend on Livestrong.com.

Product Development

Product development expenses for the three months ended March 31, 2019 increased by $0.9 million or $18%, to $5.6 million, as compared to $4.7 million in the same period in 2018, primarily due to an increase of $0.8 million in personnel and related costs primarily driven by an increase in headcount.

General and Administrative

General and administrative expenses for the three months ended March 31, 2019 increased by $1.2 million, or 17%, to $8.5 million, as compared to $7.3 million in the same period in 2018. The increase was primarily due to increases of $0.7 million associated with potential proxy contest costs including fees of legal, financial and other advisors, $0.3 million in consulting costs, $0.3 million in taxes and insurance costs and $0.1 million in facilities costs, partially offset by decreases of $0.1 million in depreciation expense and $0.1 million in audit fees.

Amortization of Intangible Assets

Amortization expense for the three months ended March 31, 2019 decreased by $0.1 million, or 11%, to $0.9 million, as compared to $1.0 million in the same period in 2018. The decrease in amortization expense is primarily due to intangible assets completing their useful life.

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Interest Income (Expense), Net

Interest income was $0.1 million and less than $0.1 million for the three months ended March 31, 2019 and 2018, respectively .

Other Expense, Net

Other expense, net was less than $0.1 million for each of the three months ended March 31, 2019 and 2018.

Income Tax Expense

Income tax expense was less than $0.1 million for each of the three months ended March 31, 2019 and 2018 .

Segment Results

Marketplaces Operating Expenses and Operating Contribution

Marketplaces operating expenses for the three months ended March 31, 2019 increased by $1.2 million, or 6%, to $22.1 million, as compared to $20.9 million in the same period in 2018. The change was primarily due to increases of $0.6 million in cost of sales primarily related to increased product costs, $0.4 million in sales and marketing expense related to increased marketing investment, $0.1 million in product development expense and $0.1 million in general and administrative costs. Marketplaces operating contribution was a loss of $(1.3) million for the three months ended March 31, 2019, as compared to $0.1 million in the same period in 2018.

Media Operating Expenses and Operating Contribution

Media operating expenses for the three months ended March 31, 2019 increased by $2.3 million, or 31%, to $9.6 million, as compared to $7.3 million in the same period in 2018. The change was primarily due to increases of $1.0 million in cost of sales, $0.6 million in product development costs, $0.5 million in sales and marketing costs and $0.2 million in general and administrative costs primarily as a result of increased personnel and related costs from the acquisition of Well+Good in June 2018. Media operating contribution was $3.6 million for the three months ended March 31, 2019, as compared to $5.5 million in the same period in 2018.

Corporate Operating Expenses

Corporate operating expenses for the three months ended March 31, 2019 increased by $1.2 million, or 17%, to $7.9 million, as compared to $6.8 million in the same period in 2018. The increase was primarily due to potential proxy contest costs including fees of legal, financial and other advisors, as well as an increase in personnel and related costs as a result of higher headcount.

Non-GAAP Financial Measures

To provide investors and others with additional information regarding our financial results, we have disclosed in the table below adjusted earnings before interest, taxes, depreciation and amortization expense, or Adjusted EBITDA. We have provided a reconciliation of this non-GAAP financial measure to net income (loss), the most directly comparable GAAP financial measure. Our Adjusted EBITDA financial measure differs from GAAP net income (loss) in that it excludes interest expense (income), 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.

Adjusted EBITDA is one of the primary measures used by our management and board of directors to understand and evaluate our financial performance and operating trends, including period-to-period comparisons, because it excludes certain expenses and gains that management believes are not indicative of our core operating results. Management believes that the exclusion of these expenses and gains provides a useful measure for period-to-period comparisons of our underlying core revenue and operating costs that is focused more closely on the current costs necessary to operate our businesses and reflects our ongoing business in a manner that allows for meaningful analysis of trends. In addition, management believes that excluding certain non-cash charges can be useful because the amounts of such expenses is the result of long-term investment decisions made in previous periods rather than day-to-day operating decisions. Adjusted EBITDA is also one of the primary measures management uses to prepare and update our short and long term financial and operational

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plans and to evaluate investment decisions. We also frequently use Adjusted EBITDA in our discussions with investors, commercial bankers, equity research analysts and other users of our financial statements.

Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and in comparing operating results across periods and to those of our peer companies. However, the use of Adjusted EBITDA has certain limitations because it does not reflect all items of income and expense that affect our operations. We compensate for these limitations by reconciling Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure. Further, Adjusted EBITDA does not have a standardized meaning, and therefore other companies, including peer companies, may use the same or similarly named measures but exclude different items or use different computations, so comparability may be limited. Adjusted EBITDA should be considered in addition to, and not as a substitute for, measures prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.

The following table presents a reconciliation of Adjusted EBITDA for each of the periods presented (in thousands):


	Three months ended March 31,
	2019		2018
Net loss	$	(10,286)	$	(5,925)
Add (deduct):
Income tax (benefit) expense		41		24
Interest (income) expense, net		(118)		(17)
Other expense (income), net		7		8
Depreciation and amortization (1)		2,716		2,455
Stock-based compensation (2)		1,921		2,208
Acquisition, disposition, realignment and contingent payment costs (3)		90		—
Adjusted EBITDA	$	(5,629)	$	(1,247)

(1)

(2)

Represents the expense related to stock-based awards granted to employees as included in our GAAP results of operations.

(3)

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.

Liquidity and Capital Resources

As of March 31, 2019, we had $19.7 million of cash and cash equivalents. In February 2019, we acquired substantially all of the assets of Only In Your State, LLC for total consideration of $2.0 million in cash, of which $0.1 million was held back to secure post-closing indemnification obligations. In June 2018, we acquired Well+Good for an initial payment of $12.3 million in cash, comprised of a $10.0 million purchase price and an additional $2.3 million after giving effect to working capital adjustments as of the closing date. Of the aggregate $12.3 million in cash paid at closing, $0.8 million was held back to secure post-closing indemnification obligations of the sellers and/or post-closing adjustments to the purchase price. Any remaining portion of the holdback amount not subject to then-pending claims will be paid on the one year anniversary of the closing of the acquisition. In addition, we agreed to pay certain key employees/equity holders of Well+Good deferred compensation targeted at $9.0 million, payable over a three year period upon the achievement of certain operating targets through the end of the 2020 fiscal year, subject to reduction, increase and acceleration in certain circumstances. In February 2019, deferred compensation of $1.9 million was paid to certain key employees/equity holders of Well+Good in accordance with the purchase agreement. In May 2017, we acquired Deny Designs for total consideration of $12.0 million, including $6.7 million in cash paid at closing, approximately 215,000 shares of Leaf Group common stock valued at approximately $1.7 million and $3.6 million of contingent consideration payable annually in three equal installments on the first through third anniversaries of the closing date, subject to reduction in certain circumstances. In May 2018, the first installment of the contingent consideration, net of post-closing working capital adjustments to the purchase price, was paid to the seller in the amount of $1.1 million.

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and offering expenses. The net proceeds from the offering have been and continue to be used for working capital and general corporate purposes. We have and may continue to also use a portion of the net proceeds to acquire or invest in complementary businesses, products and technologies.

Our principal sources of liquidity are our cash and cash equivalents, cash we generate from our operations and, in recent periods, cash generated from the issuance of stock and the disposition of businesses and certain non-core media properties. We do not currently have an available line of credit. We believe that our existing cash and cash equivalents and our cash generated by operating activities will be sufficient to fund our operations for at least the next 12 months. However, in order to fund our operations, make potential acquisitions, pursue new business opportunities and invest in our existing businesses, platforms and technologies, we may need to raise additional funds by entering into a new credit facility, selling certain assets or issuing equity, equity-related or debt securities.

We currently have a shelf registration statement on file with the SEC that is effective until March 28, 2020, which we may use to offer and sell equity securities with an aggregate offering value not to exceed $100.0 million. Subsequent to the registered public offering in February 2018, the aggregate offering value remaining on our shelf registration statement is $76.7 million.

Since our inception, we have used cash and stock to make strategic acquisitions to grow our business, including the recent acquisitions of Only In Your State in February 2019, Well+Good in June 2018, Deny Designs in May 2017 and The Other Art Fair in July 2016. We have also generated cash by disposing of certain businesses. In April 2016, we completed the sale of our Cracked business for $39.0 million in cash, of which we received $35.1 million on the closing date of the acquisition and $3.9 million the third quarter of 2017. During 2016, we also received approximately $1.7 million of cash from the sales of two of our non-core media properties, with an additional $0.4 million received in the first quarter of 2017. We may make further acquisitions and dispositions in the future.

Under our stock repurchase plan announced in August 2011 and amended in February 2012, we are authorized to repurchase up to $50.0 million of our common stock from time to time in open market purchases or negotiated transactions. We have not initiated any repurchases of our common stock since December 2016 and are not currently making repurchases. Repurchases are made as open market purchases pursuant to a trading plan implemented pursuant to Rule 10b5-1 of the Exchange Act, as well as through certain negotiated transactions. The stock repurchases were funded with available cash balances. As of March 31, 2019, approximately $14.3 million remained available under the stock repurchase plan. Management continues to assess the benefits of repurchasing additional shares of our common stock under the stock repurchase plan, and may elect to repurchase additional shares in the future from time to time. The timing and actual number of additional shares to be repurchased will depend on various factors including price, corporate and regulatory requirements, any applicable debt covenant requirements, alternative investment opportunities and other market conditions.

Our cash flows from operating activities are significantly affected by our cash-based investments in operations, including working capital, and corporate infrastructure to support our ability to generate revenue and conduct operations. Cash used in investing activities has historically been, and is expected to be, impacted by our ongoing investments in our platforms, products, company infrastructure and equipment.

The following table sets forth our major sources and (uses) of cash for each of the periods presented (in thousands):


	Three months ended March 31,
	2019		2018
Net cash used in operating activities	$	(6,963)	$	(5,299)
Net cash used in investing activities	$	(3,507)	$	(1,702)
Net cash (used in) provided by financing activities	$	(1,082)	$	22,096

Cash Flows from Operating Activities

Three months ended March 31, 2019 and March 31, 2018

Net cash used in our operating activities during the three months ended March 31, 2019 was $7.0 million as a result of our net loss during the period of $10.3 million, non-cash charges of $5.2 million related primarily to depreciation, amortization and stock-based compensation, and a net decrease in our working capital of $1.8 million. The change in working capital during the three months ended March 31, 2019 was primarily due to ordinary course variances in the timing of collections and payments, including collections of advance

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payments related to art fairs hosted by Saatchi Art, as well as increased personnel and related costs and service costs, including from the acquisition of Well+Good.

Net cash used in our operating activities during the three months ended March 31, 2018 was $5.3 million as a result of our net loss during the period of $5.9 million, non-cash charges of $4.8 million related primarily to depreciation, amortization and stock-based compensation, and a net decrease in our working capital of $4.1 million. The change in working capital during the three months ended March 31, 2018 was primarily due to the timing of payments associated with increased vendor and artists liabilities related to our Marketplaces segment, which continues to become a larger portion of our results.

Cash Flows from Investing Activities

Three months ended March 31, 2019 and March 31, 2018

Net cash used in investing activities was $3.5 million during the three months ended March 31, 2019. Cash used in investing activities for the three months ended March 31, 2019 primarily related to $1.9 million paid for the acquisition of Only In Your State and $1.6 million related to investments in property and equipment.

Net cash used in investing activities was $1.7 million during the three months ended March 31, 2018. Cash used in investing activities for the three months ended March 31, 2018 primarily related to $1.7 million used in investments in property and equipment.

Cash Flows from Financing Activities

Three months ended March 31, 2019 and March 31, 2018

Net cash used in financing activities was $1.1 million during the three months ended March 31, 2019. Cash used in financing activities for the three months ended March 31, 2019 primarily consists of $1.3 million related to taxes paid on vesting of restricted stock units, partially offset by $0.3 million in proceeds from exercises of stock options and purchases under our ESPP.

Net cash provided by financing activities was $22.1 million during the three months ended March 31, 2018. Cash provided by financing activities for the three months ended March 31, 2018 primarily consists of $23.4 million in proceeds from the issuance of our common stock in connection with our follow-on public offering in February 2018 and $0.1 million in proceeds from exercises of stock options and purchases under ESPP, partially offset by $1.4 million related to taxes paid on vesting of restricted stock units.

Off Balance Sheet Arrangements

As of March 31, 2019, we did not have any off balance sheet arrangements.

Capital Expenditures

For the three months ended March 31, 2019 and 2018, we used $1.6 million and $1.7 million, respectively, in cash to fund capital expenditures to create internally developed software and purchase property and equipment. We currently anticipate making capital expenditures of between $4.0 million and $6.0 million during the remainder of the year ending December 31, 2019.

Recent Accounting Pronouncements

See Note 2 of our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RIS K

We are exposed to market risks in the ordinary course of our business. These risks primarily include foreign currency exchange, inflation, concentration of credit and interest rate risk. To reduce and manage these risks, we assess the financial condition of our large advertising network providers, large direct advertisers and their agencies, and other large customers when we enter into or amend agreements with them and limit credit risk by setting and adjusting credit limits where we deem appropriate. In addition, our recent

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investment strategy has been to invest in high credit quality financial instruments, which are highly liquid, readily convertible into cash and mature within three months from the date of purchase.

Foreign Currency Exchange Risk

While relatively small, we have operations and generate revenue from sources outside the United States. We have foreign currency exchange risks related to our revenue being denominated in currencies other than the U.S. dollar, principally in the Euro, British Pound Sterling, Australian dollar, and a relatively smaller percentage of our expenses being denominated in such currencies. We do not believe that movements in the foreign currencies in which we transact will significantly affect future net earnings or losses. Foreign currency exchange risk can be quantified by estimating the change in cash flows resulting from a hypothetical 10% adverse change in foreign exchange rates. We do not believe that such a change would currently have a material impact on our results of operations. As our international operations grow, our risks associated with fluctuations in currency rates will become greater, and we intend to continue to assess our approach to managing this risk.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Concentrations of Credit Risk

As of March 31, 2019, our cash and cash equivalents were maintained primarily with two major U.S. financial institutions and three foreign banks. We also maintained cash balances with three internet payment processors. Deposits with these institutions at times exceed the federally insured limits, which potentially subject us to concentration of credit risk. Historically, we have not experienced any losses related to these balances and believe that there is minimal risk of expected future losses. However, there can be no assurance that there will not be losses on these deposits.

Customers comprising more than 10% of our consolidated accounts receivable balance were as follows:



	March 31, 2019		December 31, 2018
Google Inc.	29	%	25	%

Item 4. CONTROLS AND PROCEDURE S

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART I I

OTHER INFORMATIO N

Item 1. LEGAL PRO CEEDINGS

Item 1A. RISK FACTO RS

There are certain risks and uncertainties in our business that could materially affect our business, financial condition and/or future results and cause our actual results to differ materially from those anticipated. A detailed discussion of our risk factors was included in Part I, Item 1A, “Risk Factors” of our 2018 Annual Report, which is available at www.sec.gov and at ir.leafgroup.com. The risk factors described in the 2018 Annual Report and the risk factors below are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that are currently deemed to be immaterial, could also materially adversely affect our business, financial condition and/or future results. There have been no material changes to the risk factors set forth in the 2018 Annual Report other than as set forth below.

There can be no assurance that our review of strategic alternatives will enhance stockholder value or result in any transaction being consummated, and speculation and uncertainty regarding the outcome of our review of strategic alternatives may adversely impact our business, financial condition and results of operations.

On April 15, 2019, we announced that we commenced a comprehensive review of our strategic alternatives, including a possible sale of the Company. There can be no assurance of the terms, timing or structure of any transaction, or whether any such transaction will take place at all, and any such transaction is subject to risks and uncertainties. The process of reviewing strategic alternatives may involve significant resources and costs. In addition, the announced review of strategic alternatives may cause or result in:


•	disruption of our business;
•	difficulty in maintaining or negotiating and consummating new business or strategic relationships or transactions;
•	diversion of the attention of management;
•	increased stock price volatility;
•	increased costs and advisory fees; and
•	challenges in hiring and retaining key employees.

If we are unable to mitigate these or other potential risks related to the uncertainty caused by our exploration of strategic alternatives, it may disrupt our business or could have a material adverse effect on our financial condition and results of operations in future periods.

Our ability to complete a transaction, if our board of directors decides to pursue one, will depend on numerous factors, some of which are outside of our control, including market conditions, interest of third parties in our business or parts of our business, industry trends, and the availability of financing to potential buyers on commercially acceptable terms. Even if a transaction is completed, there can be no assurance that it will be successful or have a positive effect on stockholder value. Our board of directors may also determine that no transaction is in the best interests of stockholders. Further, it is not certain what impact any potential transaction, or a decision not to pursue any potential transaction, may have on our stock price, business, financial condition, and results of operations.

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Actions of activist stockholders could cause us to incur substantial costs, divert management’s and the board’s attention and resources, and have an adverse effect on our business and stock price.

From time to time, we may be subject to proposals by stockholders urging us to take certain corporate actions or to nominate certain individuals to our board of directors. For example, in March 2019, we received notice from Osmium Partners, LLC (“Osmium”) of its intent to nominate three directors for election to our board of directors at our 2019 Annual Meeting. Osmium subsequently withdrew its director nominations in April 2019. If activist stockholder activities, such as those by Osmium or other stockholders, ensue, our business could be adversely affected, as responding to proxy contests and reacting to other actions by activist stockholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our board of directors. For example, we may be required to retain the services of various professionals to advise us on activist stockholder matters, including legal, financial, and communications advisors, the costs of which may negatively impact our future financial results. In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist stockholder initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, and employees, and cause our stock price to experience periods of volatility or stagnation.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEED S

Unregistered Sales of Equity Securities

None.

Repurchases of our Common Stock

We did not repurchase any of our common stock during the three months ended March 31, 2019.

Item 3. DEFAULTS UPON SENIOR SECURITIE S

None.

Item 4. MINE SAFETY DISCLOSURE S

Not applicable.

Item 5. OTHER INFORMATIO N

None.

Item 6 . EXHIBIT S

See the Exhibit Index for a list of exhibits filed as part of this Quarterly Report on Form 10-Q, which Exhibit Index is incorporated herein by reference.

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Exhibit Index


Exhibit No		Description of Exhibit

10.1	†	Second Amended and Restated Employment Agreement, dated as of March 22, 2019, by and between the Company and Brian Pike (filed herewith).

10.2	†	Amended and Restated Employment Agreement, dated as of March 22, 2019, by and between the Company and Jantoon Reigersman (filed herewith).

10.3	†	Amended and Restated Employment Agreement, dated as of March 22, 2019, by and between the Company and Adam Wergeles (filed herewith).

31.1		Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


		† Indicates management contract or compensatory plan, contract or arrangement.

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SIGNATURE S

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	LEAF GROUP LTD.

	By:	/s/ Sean Moriarty
	Name:	Sean Moriarty
	Title:	Chief Executive Officer ( Principal Executive Officer )


	By:	/s/ Jantoon Reigersman
	Name:	Jantoon Reigersman
	Title:	Chief Financial Officer ( Principal Financial Officer )

Date: May 8, 2019

Exhibit 10.1

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “ Agreement ”), dated as of March 22, 2019 (the “Effective Date”), is entered into by and between Leaf Group Ltd., a Delaware corporation (the “ Company ”), and Brian Pike (the “ Executive ”).

WHEREAS , the Executive and the Company previously entered into that certain Amended and Restated Employment Agreement, dated as of May 21, 2015 (the “ Prior Agreement ”), pursuant to which Executive currently serves as the Company’s Chief Operating Officer (“ COO ”) and Chief Technology Officer (“ CTO ”);

WHEREAS , the Company desires to continue to employ the Executive as the Company’s COO and CTO; and

WHEREAS , the Executive and the Company agree that the Prior Agreement is amended and restated in its entirety as set forth in this Agreement.

NOW, THEREFORE , IT IS HEREBY AGREED AS FOLLOWS:

1. Employment Period . Subject to the provisions for earlier termination hereinafter provided, the Executive’s employment hereunder shall be for a term commencing on the Original Effective Date and ending on the fourth (4th) anniversary of the Original Effective Date (the “ Employment Period ”). For purposes of this Agreement, “ Original Effective Date ” shall mean May 21, 2015. The Executive’s employment hereunder is terminable at will by the Company or by the Executive at any time (for any reason or for no reason), subject to the provisions of Section 4 hereof. This Second Amended and Restated Agreement is effective as of the Effective Date.

2. Terms of Employment .

(a) Position and Duties .

(i) During the Employment Period, the Executive shall serve as the Company’s COO and CTO, reporting to the Chief Executive Officer or his or her designee, and shall perform such duties as are usual and customary for such position. At the Company’s request, the Executive shall serve the Company and/or its subsidiaries and affiliates in other capacities in addition to the foregoing consistent with the Executive’s role as COO and CTO of the Company. In the event that the Executive, during the Employment Period, serves in any one or more of such additional capacities, the Executive’s compensation shall not be increased beyond that specified in Section 2(b) hereof. In addition, in the event the Executive’s service in one or more of such additional capacities is terminated, the Executive’s compensation, as specified in Section 2(b) hereof, shall not be diminished or reduced in any manner as a result of such termination provided that the Executive otherwise remains employed under the terms of this Agreement.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive may be entitled, the Executive agrees to devote the Executive’s full business time and attention to the business and affairs of the Company. Notwithstanding the foregoing, during the Employment Period, it shall not be a violation of this Agreement for the Executive to engage in any of the following activities: (A) serve on boards, committees or similar bodies of charitable or nonprofit organizations, (B) fulfill limited teaching, speaking and writing engagements on a volunteer basis, and/or (C) holding economic interests in companies in which the Executive does not take an operating role (not to exceed a 5% interest in any company), in each case, so long as such activities do not, individually or in the aggregate, materially interfere or conflict with the performance of the Executive’s duties and responsibilities under this Agreement.

(iii) During the Employment Period, the Executive shall perform the services required by this Agreement at the Company’s principal offices located in Santa Monica, California (the “ Principal

Location ”), except for travel to other locations as may be necessary to fulfill the Executive’s duties and responsibilities hereunder.

(b) Compensation, Benefits, Etc .

(i) Base Salary . During the Employment Period, the Executive shall receive a base salary equal to $350,000 per annum (the “ Base Salary ”). The Base Salary shall be reviewed annually by the Compensation Committee (the “ Compensation Committee ”) of the Board (the “ Board ”) and may be increased from time to time by the Compensation Committee in its sole discretion. The Base Salary shall be paid in installments in accordance with the Company’s applicable payroll practices, as in effect from time to time, but no less often than monthly.

(ii) Annual Bonus . In addition to the Base Salary, the Executive shall be eligible to receive, for each fiscal year of the Company ending during the Employment Period, a discretionary cash performance bonus (an “ Annual Bonus ”) under the Company’s bonus plan or program applicable to senior executives. The Executive’s target Annual Bonus (the “ Target Bonus ”) shall be set at fifty percent (50%) of the Base Salary actually paid for such year. The actual amount of the Annual Bonus shall be determined on the basis of the attainment of Company performance metrics and/or individual performance objectives, in each case, as established and approved by the Board or the Compensation Committee (or their designee) in its sole discretion. Payment of any Annual Bonus(es), to the extent any Annual Bonus(es) become payable, will be contingent upon the Executive’s continued employment through the applicable payment date, which shall occur on the date on which annual bonuses are paid generally to the Company’s similarly situated executives.

(iii) Equity Awards . In addition to any previous grants granted to the Executive prior to the date hereof, the Executive shall be eligible for the grant of additional equity awards under the Plan from time to time as determined by the Compensation Committee in its sole discretion.

(iv) Incentive, Savings and Retirement Plans . During the Employment Period, the Executive shall be eligible to participate in all other incentive plans, practices, policies and programs, and all savings and retirement plans, practices, policies and programs, in each case that are available generally to similarly situated executives of the Company. In addition, during the Employment Period the Executive shall be eligible, at the Company’s discretion, to receive periodic equity incentive awards from the Company, including under any annual equity incentive program that may be established by the Company for its senior executives, as may be in effect from time to time.

(v) Welfare Benefit Plans . During the Employment Period, the Executive and the Executive’s dependents shall be eligible to participate in the welfare benefit plans, practices, policies and programs (including, as applicable, medical, dental, disability, employee life, group life and accidental death insurance plans and programs) maintained by the Company for its similarly situated executives.

(vi) Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company provided to similarly situated executives of the Company.

(vii) Fringe Benefits . During the Employment Period, the Executive shall be entitled to such fringe benefits and perquisites as are provided by the Company to its similarly situated executives from time to time, in accordance with the policies, practices and procedures of the Company, and shall receive such additional fringe benefits and perquisites as the Company may, in its discretion, from time-to-time provide. Nothing contained in Sections 2(b)(iv) - (v) hereof or this Section 2(b)(vii) shall, or shall be construed to, obligate the Company to adopt or maintain any incentive, savings, retirement, welfare, fringe benefit or other plan(s) or program(s) at any time.

personal time in a manner consistent with getting the Executive’s work done in a timely fashion, providing excellent service to the Company’s customers and partners and avoiding inconveniencing the Executive’s co-workers.

3. Termination of Employment .

(a) Death or Disability . The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. Either the Company or the Executive may terminate the Executive’s employment in the event of the Executive’s Disability during the Employment Period. For purposes of this Agreement, “ Disability ” shall mean a disability as determined under the Company’s applicable long-term disability plan that prevents the Executive from performing the Executive’s duties under this Agreement (even with a reasonable accommodation by the Company) for a period of six (6) months or more. If any question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the Executive’s then existing position or positions with or without reasonable accommodation, the Executive may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom the Executive or the Executive’s guardian has no reasonable objection as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Executive shall fail to submit such certification, the Company’s determination of such issue shall be binding on the Executive. Nothing in this Section shall be construed to waive the Executive’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq . and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.

(b) Cause . The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, “ Cause ” shall have the meaning set forth in the Plan.

(c) Termination by the Executive . The Executive’s employment may be terminated by the Executive for any reason, including with Good Reason. For purposes of this Agreement, “ Good Reason ” shall mean the occurrence of any one or more of the following events, in any case, without the Executive’s prior written consent, unless the Company fully corrects the circumstances constituting Good Reason (provided such circumstances are capable of correction) as provided below:

(i) a demotion or material diminution of the Executive’s position, authority, duties or responsibilities as COO (other than any insubstantial action not taken in bad faith and which is promptly remedied by the Company upon notice by the Executive); provided that “Good Reason” does not include either (x) a change in title, authority, duties and/or responsibilities relating to the Executive’s role as CTO, or (y) a change in title, authority, duties and/or responsibilities following a Change in Control (as defined in the Plan) if (A) the Executive’s new title is that of a senior officer of the entity surviving such Change in Control (or, if applicable, its parent company if such entity has a parent company) reporting directly to an executive officer of the entity surviving such Change in Control (or, if applicable, its parent company, if such entity has a parent company), and the Executive’s authority, duties and responsibilities are commensurate with such title or (B) (1) the entity surviving such Change in Control (or, if applicable, its parent company if such entity has a parent company) continues to operate the Company’s principal businesses as a separate unit, division or subsidiary or combines the Company’s principal businesses with one of its existing units, divisions or subsidiaries and (2) the Executive’s new title is that of a senior officer of such unit, division or subsidiary reporting directly to an executive officer of such unit, division or subsidiary (or to an executive officer of the entity surviving the Change in Control or parent company thereof) and (in either case), the Executive’s authority, duties and responsibilities are commensurate with such title and similar in scope (with respect to such unit, division or subsidiary) to the authority, duties and responsibilities of the Executive prior to the Change in Control;

(ii) a requirement that the Executive report to work more than twenty (20) miles from the Company’s Principal Location (not including normal business travel required of the Executive’s position) or, to the extent such requirement would not constitute a material change in the geographic location at which the Executive must perform services under this Agreement within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), such higher number of miles from the Company’s Principal Location as

would constitute a material change in the geographic location at which the Executive must perform services under this Agreement within the meaning of Section 409A of the Code;

(iii) a material reduction in the Executive’s base salary; or

(iv) a material breach by the Company of its obligations hereunder.

Notwithstanding the foregoing, the Executive will not be deemed to have resigned for Good Reason unless (1) the Executive provides the Company with written notice setting forth in reasonable detail the facts and circumstances claimed by the Executive to constitute Good Reason within sixty (60) days after the date of the occurrence of any event that the Executive knows or should reasonably have known to constitute Good Reason, (2) the Company fails to cure such acts or omissions within thirty (30) days following its receipt of such notice, and (3) the effective date of the Executive’s termination for Good Reason occurs no later than sixty (60) days after the expiration of the Company’s cure period.

(d) Notice of Termination . Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by a Notice of Termination to the other parties hereto given in accordance with Section 10(b) hereof. For purposes of this Agreement, a “ Notice of Termination ” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than sixty (60) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e) Termination of Offices and Directorships . Upon termination of the Executive’s employment for any reason, unless otherwise specified in a written agreement between the Executive and the Company, the Executive shall be deemed to have resigned from all offices, directorships, and other employment positions if any, then held with the Company, and shall take all actions reasonably requested by the Company to effectuate the foregoing.

4. Obligations of the Company upon Termination .

(a) Without Cause, For Good Reason, Death or Disability . Subject to Section 4(d) hereof, if the Executive incurs a “separation from service” from the Company (within the meaning of Section 409A(a)(2)(A)(i) of the Code, and Treasury Regulation Section 1.409A-1(h)) (a “ Separation from Service ”) during the Employment Period (such date, the “ Date of Termination ”) by reason of (1) a termination of the Executive’s employment by the Company without Cause; (2) a termination of the Executive’s employment by the Executive for Good Reason; or (3) a termination of the Executive’s employment by reason of the Executive’s death or Disability (each of (1), (2) and (3), a “ Qualifying Termination ”):

(i) The Executive (or the Executive’s estate or beneficiaries, if applicable) shall be paid, in a single lump-sum payment on the date of the Executive’s termination of employment, the aggregate amount of the Executive’s earned but unpaid Base Salary and accrued but unpaid vacation pay (if any) through the date of such termination (the “ Accrued Obligations ”), in each case, to the extent not previously paid.

(ii) In addition, subject to Section 4(d) hereof and the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) timely execution and non-revocation of a Release (as described below), the Executive (or the Executive’s estate or beneficiaries, if applicable) shall be paid:

(A) an amount equal to twelve (12) months’ of the Base Salary in effect on the Date of Termination (the “ Continuation Amount ”), payable on the 60th day following the Date of Termination ; and

(B) any unpaid Annual Bonus to which the Executive would have become entitled for any fiscal year of the Company that ends on or before the Date of Termination had the Executive remained employed through the payment date, payable in a single lump-sum payment on the date on which annual bonuses are paid to the Company’s senior executives generally for such calendar year, but in no event later than March 15th of the calendar year immediately following the calendar year in which the Date of Termination occurs, with the actual date within such period determined by the Company in its sole discretion.

(iii) In addition, subject to Section 4(d) hereof and conditioned upon the Executive’s timely execution and non-revocation of a Release, during the period commencing on the Date of Termination and ending on the twelve (12)-month anniversary of the Date of Termination or, if earlier, the date on which the Executive becomes eligible for coverage under the group health plan of a subsequent employer (of which eligibility the Executive hereby agrees to give prompt notice to the Company) (in any case, the “ COBRA Period ”), subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Code and the regulations thereunder, the Company shall continue to provide the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels and the same cost to the Executive as would have applied if the Executive’s employment had not been terminated based on the Executive’s elections in effect on the Date of Termination), provided, however , that (1) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A of the Code under Treasury Regulation Section 1.409A-1(a)(5), or (2) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to each remaining Company subsidy shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(iv) In addition, subject to Section 4(d) hereof and conditioned upon the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) timely execution and non-revocation of a Release, any portion of the Executive’s outstanding compensatory equity awards that vest solely based on continued service that would have vested during the 12 months following the Date of Termination had the Executive remained employed for such period shall vest and become immediately exercisable.

The payments and benefits described in the preceding Sections 4(a)(ii) through (iv) are referred to herein as the “ Severance .” Notwithstanding the foregoing, it shall be a condition to the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) right to receive the Severance that the Executive (or the Executive’s estate or beneficiaries, if applicable) execute and deliver to the Company an effective release of claims in a form and manner satisfactory to the Company (the “ Release ”) within any legally-required review period, if any, following the Date of Termination and that the Executive (or the Executive’s estate or beneficiaries, if applicable) not revoke such Release during any applicable revocation period.

(b) For Cause, Without Good Reason or Other Terminations . If the Company terminates the Executive’s employment for Cause, the Executive terminates the Executive’s employment without Good Reason, or the Executive’s employment terminates for any other reason not enumerated in this Section 4 , in any case, during the Employment Period, the Company shall pay to the Executive the Accrued Obligations in cash within thirty (30) days after the Date of Termination (or by such earlier date as may be required by applicable law).

(c) In Connection with a Change in Control . In addition to any payments or benefits due to the Executive under Section 4(a) above (if any), subject to and conditioned upon the Executive’s timely execution and non-revocation of a Release, if the Executive’s employment is terminated by reason of a Qualifying Termination and a Change in Control (A) occurs on or within ninety (90) days after the Date of Termination or (B) has occurred within one (1) year before the Date of Termination;

(i) All outstanding compensatory equity awards that have not yet vested shall conditionally vest and, as applicable, become exercisable on the later of the Date of Termination and the date of such Change in Control (and such vesting shall become unconditional upon such execution and non-revocation of a Release); provided , however , that if the Executive fails to timely execute or revokes the Release, all such conditionally vested awards (and any shares received in respect of such awards) shall be forfeited upon such failure or revocation (subject to repayment by the Company to the Executive of any amounts (if any) paid by the Executive

with respect to shares underlying such conditionally vested awards). For the avoidance of doubt, if a Qualifying Termination occurs prior to a Change in Control, all outstanding, unvested compensatory equity awards that would otherwise terminate on the Date of Termination shall remain outstanding and eligible to vest solely upon a Change in Control occurring within ninety (90) days after the Date of Termination (but shall not otherwise vest following the Date of Termination) and shall terminate on the ninetieth (90th) day following the Date of Termination if a Change in Control has not occurred on or prior to such ninetieth (90th) day (or such earlier expiration date applicable to the award (other than due to a termination of employment)).

(ii) In addition, subject to Section 4(d) hereof and conditioned upon the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) timely execution and non-revocation of a Release, the Executive (or the Executive’s estate or beneficiaries, if applicable) shall be paid, in a single lump-sum payment, an amount equal to a pro rata portion of the Executive’s Annual Bonus earned in the fiscal year prior to the fiscal year in which the Date of Termination occurs, with such pro-ration determined based on the number of days elapsed in the calendar year through the Date of Termination relative to the total number of days in the fiscal year of termination.

(d) Six-Month Delay . Notwithstanding anything to the contrary in this Agreement, no compensation or benefits, including without limitation any severance payments or benefits payable under Section 4 hereof, shall be paid to the Executive during the six (6)-month period following the Executive’s “separation from service” (within the meaning of Section 409A(a)(2)(A)(i) of the Code) if the Company determines that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code. If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such six (6)-month period (or such earlier date upon which such amount can be paid under Section 409A of the Code without resulting in a prohibited distribution, including as a result of the Executive’s death), the Company shall pay the Executive a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such period.

(d) Exclusive Benefits . Except as expressly provided in this Section 4 and subject to Section 5 hereof, the Executive shall not be entitled to any additional payments or benefits upon or in connection with the Executive’s termination of employment.

(e) Equity Award Agreements . For the avoidance of doubt, nothing contained in this Agreement is intended to result in any vesting terms that are less favorable to the Executive than those contained in any applicable equity award agreement and, to the extent that the vesting terms contained in any such award agreement are more favorable to the Executive than those provided herein, including, without limitation, this Section 4 , the terms of such award agreement shall control.

5. Non-Exclusivity of Rights . Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

6. Excess Parachute Payments, Limitations on Payments .

(a) Best Pay Cap . Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive (including any payment or benefit received in connection with a termination of the Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 4 hereof, being hereinafter referred to as the “ Total Payments ”) would be subject (in whole or part), to excise tax imposed under Section 4999 of the Code (the “ Excise Tax ”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the cash severance payments under this Agreement shall first be reduced, and the noncash severance payments hereunder shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (A) the net amount of such Total Payments, as so reduced (and after subtracting

the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (B) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments). The Total Payments shall be reduced in the following order: (A) reduction of any cash severance payments otherwise payable to the Executive that are exempt from Section 409A of the Code; (B) reduction of any other cash payments or benefits otherwise payable to the Executive that are exempt from Section 409A of the Code, but excluding any payments attributable to any acceleration of vesting or payments with respect to any equity award that are exempt from Section 409A of the Code; (C) reduction of any other payments or benefits otherwise payable to the Executive on a pro-rata basis or such other manner that complies with Section 409A of the Code, but excluding any payments attributable to any acceleration of vesting and payments with respect to any equity award that are exempt from Section 409A of the Code; and (D) reduction of any payments attributable to any acceleration of vesting or payments with respect to any equity award that are exempt from Section 409A of the Code, in each case beginning with payments that would otherwise be made last in time.

(b) Certain Exclusions . For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (A) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account; (B) no portion of the Total Payments shall be taken into account which, in the written opinion of an independent, nationally recognized accounting firm (the “ Accounting Firm ”), does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the Accounting Firm, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (iii) the value of any non cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Accounting Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

7. Confidential Information and Non-Solicitation . The Executive hereby acknowledges that the Executive has previously entered into an agreement with the Company containing confidentiality and other protective covenants (the “ Confidentiality Agreement ”) and that the Executive remains bound by the terms and conditions of the Confidentiality Agreement.

8. Representations . The Executive hereby represents and warrants to the Company that (a) the Executive is entering into this Agreement voluntarily and that the performance of the Executive’s obligations hereunder will not violate any agreement between the Executive and any other person, firm, organization or other entity, and (b) the Executive is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or indirectly, with the business of such previous employer or other party that would be violated by the Executive’s entering into this Agreement and/or providing services to the Company pursuant to the terms of this Agreement.

9. Successors .

(a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

10. Miscellaneous .

(a) Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.

(b) Notices . All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive : at the Executive’s most recent address on the records of the Company.

If to the Company :

Leaf Group Ltd.
1655 26th Street
Santa Monica, CA 90404
Attn: General Counsel

with a copy to:

Goodwin Procter LLP

601 Marshall Street

Redwood City, CA 94063

Attn: Anthony McCusker

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) Sarbanes-Oxley Act of 2002 . Notwithstanding anything herein to the contrary, if the Company determines, in its good faith judgment, that any transfer or deemed transfer of funds hereunder is likely to be construed as a personal loan prohibited by Section 13(k) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) and the rules and regulations promulgated thereunder, then such transfer or deemed transfer shall not be made to the extent necessary or appropriate so as not to violate the Exchange Act and the rules and regulations promulgated thereunder.

(d) Section 409A of the Code .

(i) To the extent applicable, this Agreement shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder. Notwithstanding any provision of this Agreement to the contrary, if the Company determines that any compensation or benefits payable under this Agreement may be subject to Section 409A of the Code and related Department of Treasury guidance, the Company shall work in good faith with the Executive to adopt such amendments to this Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Company determines are necessary or appropriate to avoid the imposition of taxes under Section 409A of the Code, including without limitation, actions intended to (i) exempt the compensation and benefits payable under this Agreement from Section 409A of the Code, and/or (ii) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance; provided , however , that this Section 10(d) shall not create an obligation on the part of the Company to adopt any such amendment, policy or procedure or take any such other action, nor shall the Company have any liability for failing to do so.

(ii) Any right to a series of installment payments pursuant to this Agreement is to be treated as a right to a series of separate payments. To the extent permitted under Section 409A of the Code, any separate payment or benefit under this Agreement or otherwise shall not be deemed “nonqualified deferred compensation” subject to Section 409A of the Code and Section 4(d) hereof to the extent provided in the exceptions in Treasury Regulation Section 1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable exception or provision of Section 409A of the Code.

(iii) To the extent that any payments or reimbursements provided to the Executive under this Agreement, including, without limitation, pursuant to Section 2(b)(vi) hereof, are deemed to constitute compensation to the Executive to which Treasury Regulation Section 1.409A-3(i)(1)(iv) would apply, such amounts shall be paid or reimbursed reasonably promptly, but not later than December 31 of the year following the year in which the expense was incurred. The amount of any such payments eligible for reimbursement in one year shall not affect the payments or expenses that are eligible for payment or reimbursement in any other taxable year, and the Executive’s right to such payments or reimbursement of any such expenses shall not be subject to liquidation or exchange for any other benefit.

(e) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(f) Withholding . The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(g) No Waiver . The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3(c) hereof, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(h) Entire Agreement . As of the Effective Date, this Agreement, together with the Confidentiality Agreement, any equity award agreements, and any arbitration agreement, constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, by any member of the Company and its subsidiaries and affiliates, or representative thereof.

(i) Amendment . No amendment or other modification of this Agreement shall be effective unless made in writing and signed by the parties hereto.

(j) Counterparts . This Agreement and any agreement referenced herein may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.

[ SIGNATURE PAGE FOLLOWS ]

IN WITNESS WHEREOF , the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.


LEAF GROUP LTD.,
a Delaware corporation


By:	/s/ Sean Moriarty
	Name:	Sean Moriarty
	Title:	Chief Executive Officer


“EXECUTIVE”


	/s/ Brian Pike
	Brian Pike

Exhibit 10.2

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “ Agreement ”), dated as of March 22, 2019 (the “ Effective Date ”), is entered into by and between Leaf Group Ltd., a Delaware corporation (the “ Company ”) and Jantoon Reigersman (the “ Executive ”).

WHEREAS , the Executive and the Company previously entered into that certain Employment Agreement, dated as of November 28, 2017 (the “ Prior Agreement ”), pursuant to which the Executive currently serves as the Company’s Chief Financial Officer (“ CFO ”);

WHEREAS , the Company desires to continue to employ the Executive as the Company’s CFO; and

WHEREAS , the Executive and the Company agree that the Prior Agreement is amended and restated in its entirety as set forth in this Agreement.

NOW , THEREFORE , IT IS HEREBY AGREED AS FOLLOWS:

1. Employment Period . Subject to the provisions for earlier termination hereinafter provided, the Executive’s employment hereunder shall be for a term commencing on the Original Effective Date and ending on the fourth (4th) anniversary of the Original Effective Date (the “ Employment Period ”). For purposes of this Agreement, “ Original Effective Date ” shall mean the date on which Executive commenced employment with the Company ( i.e., December 11, 2017). The Executive’s employment hereunder is terminable at will by the Company or by the Executive at any time (for any reason or for no reason), subject to the provisions of Section 4 hereof. This Amended and Restated Agreement is effective as of the Effective Date.

2. Terms of Employment .

(a) Position and Duties .

(i) During the Employment Period, the Executive shall serve as the Company’s Chief Financial Officer, reporting to the Chief Executive Officer or his or her designee, and shall perform such duties as are usual and customary for such position. At the Company’s request, the Executive shall serve the Company and/or its subsidiaries and affiliates in other capacities in addition to the foregoing consistent with the Executive’s role as Chief Financial Officer of the Company. In the event that the Executive, during the Employment Period, serves in any one or more of such additional capacities, the Executive’s compensation shall not be increased beyond that specified in Section 2(b) hereof. In addition, in the event the Executive’s service in one or more of such additional capacities is terminated, the Executive’s compensation, as specified in Section 2(b) hereof, shall not be diminished or reduced in any manner as a result of such termination provided that the Executive otherwise remains employed under the terms of this Agreement.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive may be entitled, the Executive agrees to devote the Executive’s full business time and attention to the business and affairs of the Company. Notwithstanding the foregoing, during the Employment Period, it shall not be a violation of this Agreement for the Executive to engage in any of the following activities: (A) serve on boards, committees or similar bodies of charitable or nonprofit organizations, (B) fulfill limited teaching, speaking and writing engagements, and/or (C) holding economic interests in companies in which the Executive does not take an operating role (not to exceed a 5% interest in any company), in each case, so long as such activities do not, individually or in the aggregate, materially interfere or conflict with the performance of the Executive’s duties and responsibilities under this Agreement.

(iii) During the Employment Period, the Executive shall perform the services required by this Agreement at the Company’s principal offices located in Santa Monica, California (the “ Principal

Location ”), except for travel to other locations as may be necessary to fulfill the Executive’s duties and responsibilities hereunder.

(b) Compensation, Benefits, Etc .

(i) Base Salary . During the Employment Period, the Executive shall receive a base salary equal to three hundred fifty thousand dollars ($350,000) per annum (the “ Base Salary ”). The Base Salary shall be reviewed annually by the Compensation Committee (the “ Compensation Committee ”) of the Company’s Board of Directors (the “ Board ”) and may be increased from time to time by the Compensation Committee in its sole discretion. The Base Salary shall be paid in installments in accordance with the Company’s applicable payroll practices, as in effect from time to time, but no less often than monthly.

(ii) Annual Bonus . In addition to the Base Salary, the Executive shall be eligible to receive, for each fiscal year of the Company ending during the Employment Period, a discretionary cash performance bonus (an “ Annual Bonus ”) under the Company’s bonus plan or program applicable to senior executives. The Executive’s target Annual Bonus shall initially be set at fifty percent (50%) of the Base Salary actually paid for such year. The actual amount of the Annual Bonus shall be determined on the basis of the attainment of Company performance metrics and/or individual performance objectives, in each case, as established and approved by the Board or the Compensation Committee (or their designee) in its sole discretion after consultation with the Company’s Chief Executive Officer. Payment of any Annual Bonus(es), to the extent any Annual Bonus(es) become payable, will be contingent upon the Executive’s continued employment through the applicable payment date, which shall occur on the date on which annual bonuses are paid generally to the Company’s similarly situated executives.

(iv) Incentive, Savings and Retirement Plans . During the Employment Period, the Executive shall be eligible to participate in all other incentive plans, practices, policies and programs, and all savings and retirement plans, practices, policies and programs, in each case that are available generally to similarly situated executives of the Company, subject in all cases to the terms and conditions (including eligibility requirements) of such plans, practices, policies and programs.

(v) Welfare Benefit Plans . During the Employment Period, the Executive and the Executive’s dependents shall be eligible to participate in such welfare benefit plans, practices, policies and programs (including, as applicable, medical, dental, disability, employee life, group life and accidental death insurance plans and programs) maintained by the Company for its similarly situated executives, subject in all cases to the terms and conditions (including eligibility requirements) of such plans, practices, policies and programs.

(vi) Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Executive in accordance with the terms and conditions of the Company’s expense reimbursements policies in effect from time to time for similarly situated executives of the Company.

(vii) Fringe Benefits . During the Employment Period, the Executive shall be entitled to such fringe benefits and perquisites as are provided by the Company to its similarly situated executives from time to time, in accordance with the policies, practices and procedures of the Company, and shall receive such additional fringe benefits and perquisites as the Company may, in its discretion, from time-to-time provide. Nothing contained in Sections 2(b)(iv)-(v) hereof or this Section 2(b)(vii) shall, or shall be construed to, obligate the Company to adopt or maintain any incentive, savings, retirement, welfare, fringe benefit or other plan(s) or program(s) at any time.

personal time in a manner consistent with completing the Executive’s work in a timely fashion, providing excellent service to the Company’s customers and partners and avoiding inconveniencing the Executive’s co-workers.

3. Termination of Employment .

(a) Death or Disability . The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. Either the Company or the Executive may terminate the Executive’s employment in the event of the Executive’s Disability during the Employment Period. For purposes of this Agreement, “ Disability ” shall mean a disability as determined under the Company’s applicable long-term disability plan that prevents the Executive from performing the Executive’s duties under this Agreement (even with a reasonable accommodation by the Company) for a period of six (6) months or more. If any question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the Executive’s then existing position or positions with or without reasonable accommodation, the Executive may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom the Executive or the Executive’s guardian has no reasonable objection as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Executive shall fail to submit such certification, the Company’s determination of such issue shall be binding on the Executive. Nothing in this Section Error! Reference source not found. shall be construed to waive the Executive’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq . and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.

(i) a demotion or material diminution of the Executive’s position, authority, duties or responsibilities (other than any insubstantial action not taken in bad faith and which is promptly remedied by the Company upon notice by the Executive); provided that “Good Reason” does not include a change in title, authority, duties and/or responsibilities following a Change in Control (as defined in the Plan) if (A) the Executive’s new title is that of a senior officer of the entity surviving such Change in Control (or, if applicable, its parent company if such entity has a parent company) reporting directly to an executive officer of the entity surviving such Change in Control (or, if applicable, its parent company, if such entity has a parent company), and the Executive’s authority, duties and responsibilities are commensurate with such title or (B) (1) the entity surviving such Change in Control (or, if applicable, its parent company if such entity has a parent company) continues to operate the Company’s principal businesses as a separate unit, division or subsidiary or combines the Company’s principal businesses with one of its existing units, divisions or subsidiaries and (2) the Executive’s new title is that of a senior officer of such unit, division or subsidiary reporting directly to an executive officer of such unit, division or subsidiary (or to an executive officer of the entity surviving the Change in Control or parent company thereof) and (in either case), the Executive’s authority, duties and responsibilities are commensurate with such title and similar in scope (with respect to such unit, division or subsidiary) to the authority, duties and responsibilities of the Executive prior to the Change in Control;

(ii) a requirement that the Executive report to work more than thirty (30) miles from the Company’s Principal Location (not including normal business travel required of the Executive’s position) or, to the extent such requirement would not constitute a material change in the geographic location at which the Executive must perform services under this Agreement within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), such higher number of miles from the Company’s Principal Location as

would constitute a material change in the geographic location at which the Executive must perform services under this Agreement within the meaning of Section 409A of the Code;

(iii) a material reduction in the Executive’s base salary; or

(iv) a material breach by the Company of its material obligations hereunder.

(e) Termination of Offices and Directorships . Upon termination of the Executive’s employment for any reason, unless otherwise specified in a written agreement between the Executive and the Company, the Executive shall be deemed to have resigned from all offices, directorships, and other employment positions if any, then held with the Company or any of its subsidiaries, and shall take all actions reasonably requested by the Company to effectuate the foregoing.

4. Obligations of the Company upon Termination .

(a) Without Cause, For Good Reason, Death or Disability . Subject to Section 4(d) hereof, if the Executive incurs a “separation from service” from the Company (within the meaning of Section 409A(a)(2)(A)(i) of the Code, and Treasury Regulation Section 1.409A-1(h)) (a “ Separation from Service ”) during the Employment Period (the date of such Separation from Service, the “ Date of Termination ”) by reason of (1) a termination of the Executive’s employment by the Company without Cause; (2) a termination of the Executive’s employment by the Executive for Good Reason; or (3) a termination of the Executive’s employment by reason of the Executive’s death or Disability (each of (1), (2) and (3), a “ Qualifying Termination ”):

(i) The Executive (or the Executive’s estate or beneficiaries, if applicable) shall be paid, in a single lump-sum payment on the Date of Termination, the aggregate amount of the Executive’s earned but unpaid Base Salary through the Date of Termination (the “ Accrued Obligations ”), to the extent not previously paid.

(ii) In addition, subject to Section 4(d) hereof and the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) timely execution and non-revocation of a Release (as defined below), the Executive (or the Executive’s estate or beneficiaries, if applicable) shall be paid:

(A) an amount equal to twelve (12) months’ of the Base Salary in effect on the Date of Termination, payable in a single lump-sum payment on the sixtieth (60th) day following the Date of Termination; and

(B) any unpaid Annual Bonus to which the Executive would have become entitled for any fiscal year of the Company that ends on or before the Date of Termination had the Executive remained employed through the payment date, payable in a single lump-sum payment on the date on which annual bonuses are paid to the Company’s senior executives generally for such calendar year, but in no event later than March 15th of the calendar year following the calendar year in which the Date of Termination occurs, with the actual date within such period determined by the Company in its sole discretion.

(iii) In addition, subject to Section 4(d) hereof and conditioned upon the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) timely execution and non-revocation of a Release, during the period commencing on the Date of Termination and ending on the twelve (12)-month anniversary of the Date of Termination or, if earlier, the date on which the Executive becomes eligible for coverage under the group health plan of a subsequent employer (of which eligibility the Executive hereby agrees to give prompt notice to the Company) (in any case, the “ COBRA Period ”), subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Code and the regulations thereunder, the Company shall continue to provide the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels and the same cost to the Executive as would have applied if the Executive’s employment had not been terminated based on the Executive’s elections in effect on the Date of Termination), provided , however , that (1) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A of the Code under Treasury Regulation Section 1.409A-1(a)(5), or (2) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to each remaining Company subsidy shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(c) In Connection with a Change in Control . In addition to any payments or benefits due to the Executive under Section 4(a) above (if any), subject to and conditioned upon the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) timely execution and non-revocation of a Release, if the Executive’s employment is terminated by the Company without Cause or by the Executive with Good Reason and, in either case, a Change in Control (A) occurs on or within ninety (90) days after the Date of Termination or (B) has occurred within one (1) year before the Date of Termination:

(i) All outstanding compensatory equity awards that vest solely based on continued service that have not yet vested shall conditionally vest and, as applicable, become exercisable on the later of the Date of Termination and the date of such Change in Control (and such vesting shall become unconditional upon such execution and non-revocation of a Release); provided , however , that if the Executive fails to timely execute or

revokes the Release, all such conditionally vested awards (and any shares received in respect of such awards) shall be forfeited upon such failure or revocation (subject to repayment by the Company to the Executive of any amounts (if any) paid by the Executive with respect to shares underlying such conditionally vested awards). For the avoidance of doubt, if a Qualifying Termination occurs prior to a Change in Control, all outstanding, unvested compensatory equity awards that would otherwise terminate on the Date of Termination shall remain outstanding and eligible to vest solely upon a Change in Control occurring within ninety (90) days after the Date of Termination (but shall not otherwise vest following the Date of Termination) and shall terminate on the ninetieth (90th) day following the Date of Termination if a Change in Control has not occurred on or prior to such ninetieth (90th) day (or such earlier expiration date applicable to the award (other than due to a termination of employment)).

(d) Six-Month Delay . Notwithstanding anything to the contrary in this Agreement, no compensation or benefits, including without limitation any severance payments or benefits payable under this Section 4 , shall be paid to the Executive during the six (6)-month period following the Executive’s Separation from Service if the Company determines that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code. If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such six (6)-month period (or such earlier date upon which such amount can be paid under Section 409A of the Code without resulting in a prohibited distribution, including as a result of the Executive’s death), the Company shall pay the Executive (or the Executive’s estate or beneficiaries, if applicable) a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such period.

(e) Exclusive Benefits . Except as expressly provided in this Section 4 and subject to Section 5 hereof, the Executive shall not be entitled to any additional payments or benefits upon or in connection with the Executive’s termination of employment.

(f) Equity Award Agreements . For the avoidance of doubt, nothing contained in this Agreement is intended to result in any vesting terms that are less favorable to the Executive than those contained in any applicable Equity Award Agreement and, to the extent that the vesting terms contained in any such Equity Award Agreement are more favorable to the Executive than those provided herein, including, without limitation, this Section 4 , the terms of such Equity Award Agreement shall control.

6. Excess Parachute Payments, Limitations on Payments .

(a) Best Pay Cap . Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive (including any payment or benefit received in connection with a termination of the Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 4 hereof, being hereinafter referred to as the “ Total Payments ”) would be subject (in whole or part), to excise tax imposed under Section 4999 of the Code (the “ Excise Tax ”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the cash severance payments under this Agreement shall first be reduced, and the noncash severance payments hereunder shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (1) the net amount of such Total Payments, as so reduced (and after subtracting

the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (2) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments). The Total Payments shall be reduced in the following order: (A) reduction of any cash severance payments otherwise payable to the Executive that are exempt from Section 409A of the Code; (B) reduction of any other cash payments or benefits otherwise payable to the Executive that are exempt from Section 409A of the Code, but excluding any payments attributable to any acceleration of vesting or payments with respect to any equity award that are exempt from Section 409A of the Code; (C) reduction of any other payments or benefits otherwise payable to the Executive on a pro-rata basis or such other manner that complies with Section 409A of the Code, but excluding any payments attributable to any acceleration of vesting and payments with respect to any equity award that are exempt from Section 409A of the Code; and (D) reduction of any payments attributable to any acceleration of vesting or payments with respect to any equity award that are exempt from Section 409A of the Code, in each case beginning with payments that would otherwise be made last in time.

(b) Certain Exclusions . For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (1) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account; (2) no portion of the Total Payments shall be taken into account which, in the written opinion of an independent, nationally recognized accounting firm (the “ Accounting Firm ”), does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the Accounting Firm, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (3) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Accounting Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

7. Confidential Information and Non-Solicitation . The Executive hereby acknowledges that, as a condition of employment with the Company, Executive must, concurrently herewith, enter into the Company’s standard Confidential Information and Development Agreement, containing confidentiality, non-solicitation and other protective covenants (the “ Confidentiality Agreement ”).

9. Successors .

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

10. Miscellaneous .

If to the Executive : at the Executive’s most recent address on the records of the Company.

If to the Company:

Leaf Group Ltd.
1655 26th Street
Santa Monica, CA 90404
Attn: General Counsel

with a copy to:

Goodwin Procter LLP
601 Marshall Street
Redwood City, CA 94063
Attn: Anthony McCusker

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(d) Section 409A of the Code .

such amendment, policy or procedure or take any such other action, nor shall the Company have any liability for failing to do so.

(ii) Any right to a series of installment payments pursuant to this Agreement is to be treated as a right to a series of separate payments. To the extent permitted under Section 409A of the Code, any separate payment or benefit under this Agreement or otherwise shall not be deemed “nonqualified deferred compensation” subject to Section 409A of the Code and Section 4(d) hereof to the extent provided in the exceptions in Treasury Regulation Section 1.409A‑1(b)(4), Section 1.409A-1(b)(9) or any other applicable exception or provision of Section 409A of the Code.

(e) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(f) Withholding . The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(h) Entire Agreement . As of the Effective Date, this Agreement, together with the Confidentiality Agreement and the Equity Award Agreements, constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, by any member of the Company and its subsidiaries and affiliates, or representative thereof.

(i) Amendment . No amendment or other modification of this Agreement shall be effective unless made in writing and signed by the parties hereto.

(j) Counterparts; Electronic Signatures . This Agreement and any agreement referenced herein may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. Any signature page delivery by any means of electronic communication ( i.e. scanned pdf copy or DocuSign) shall be binding to the same extent as an original signature page attached hereto.

[ SIGNATURE PAGE FOLLOWS ]

IN WITNESS WHEREOF , the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board (as such authority may be delegated to the Compensation Committee), the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.


LEAF GROUP LTD.,
a Delaware corporation


By:	/s/ Sean Moriarty
	Name:	Sean Moriarty
	Title:	Chief Executive Officer


“EXECUTIVE”


	/s/ Jantoon Reigersman
	Jantoon Reigersman

Exhibit 10.3

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “ Agreement ”), dated as of March 22, 2019, (the “ Effective Date ”) is entered into by and between Leaf Group Ltd., a Delaware corporation (the “ Company ”) and Adam Wergeles (the “ Executive ”).

WHEREAS, the Executive and the Company previously entered into that certain Employment Agreement, dated as of March 27, 2018 (the “ Prior Agreement ”), pursuant to which the Executive currently serves as the Company’s Executive Vice President and General Counsel;

WHEREAS , the Company desires to continue to employ the Executive as the Company’s Executive Vice President and General Counsel; and

WHEREAS , the Executive and the Company agree that the Prior Agreement is amended and restated in its entirety as set forth in this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Employment Period . Subject to the provisions for earlier termination hereinafter provided, the Executive’s employment hereunder shall be for a term commencing on the Original Effective Date and ending on the fourth (4 th ) anniversary of the Original Effective Date (the “ Employment Period ”). For purposes of this Agreement, “ Original Effective Date ” shall mean the date on which Executive commenced employment with the Company ( i.e. , April 16, 2018). The Executive’s employment hereunder is terminable at will by the Company or by the Executive at any time (for any reason or for no reason), subject to the provisions of Section 4 hereof. This Amended and Restated Agreement is effective as of the Effective Date.

2. Terms of Employment.

(a) Position and Duties .

(i) During the Employment Period, the Executive shall serve as the Company’s Executive Vice President and General Counsel, reporting to the Chief Executive Officer or his or her designee, and shall perform such duties as are usual and customary for such position. At the Company’s request, the Executive shall serve the Company and/or its subsidiaries and affiliates in other capacities in addition to the foregoing consistent with the Executive’s role as Executive Vice President and General Counsel of the Company. In the event that the Executive, during the Employment Period, serves in any one or more of such additional capacities, the Executive’s compensation shall not be increased beyond that specified in Section 2(b) hereof. In addition, in the event the Executive’s service in one or more of such additional capacities is terminated, the Executive’s compensation, as specified in Section 2(b) hereof, shall not be diminished or reduced in any manner as a result of such termination provided that the Executive otherwise remains employed under the terms of this Agreement.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive may be entitled, the Executive agrees to devote the Executive’s full business time and attention to the business and affairs of the Company. Notwithstanding the foregoing, during the Employment Period, it shall not be a violation of this Agreement for the Executive to engage in any of the following activities: (A) serve on boards, committees or similar bodies of charitable or nonprofit organizations, (B) fulfill limited teaching, speaking and writing engagements on a volunteer basis, and/or (C) holding economic interests in companies in which the Executive does not take an operating role (not to exceed a five percent (5%) interest in any company), in each case, so long as such activities do not, individually or in the aggregate, materially interfere or conflict with the performance of the Executive’s duties and responsibilities under this Agreement.

(iii) During the Employment Period, the Executive shall perform the services required by this Agreement at the Company’s principal offices located in Santa Monica, California (the “ Principal Location ”), except for travel to other locations as may be necessary to fulfill the Executive’s duties and responsibilities hereunder.

(b) Compensation, Benefits, Etc .

(i) Base Salary . During the Employment Period, the Executive shall receive a base salary equal to three hundred twenty-five thousand dollars ($325,000) per annum (the “ Base Salary ”). The Base Salary shall be reviewed annually by the Compensation Committee (the “ Compensation Committee ”) of the Company’s Board of Directors (the “ Board ”) and may be increased from time to time by the Compensation Committee in its sole discretion. The Base Salary shall be paid in installments in accordance with the Company’s applicable payroll practices, as in effect from time to time, but no less often than monthly.

(ii) Annual Bonus . In addition to the Base Salary, the Executive shall be eligible to earn, for each fiscal year of the Company ending during the Employment Period, a discretionary cash performance bonus (an “ Annual Bonus ”) under the Company’s bonus plan or program applicable to senior executives. The Executive’s target Annual Bonus (the “ Target Bonus ”) shall initially be set at fifty percent (50%) of the Base Salary actually paid for such year. The actual amount of the Annual Bonus shall be determined on the basis of the attainment of Company performance metrics and/or individual performance objectives, in each case, as established and approved by the Board or the Compensation Committee (or their designee) in its sole discretion after consultation with the Company’s Chief Executive Officer. Payment of any Annual Bonus(es), to the extent any Annual Bonus(es) become payable, will be contingent upon the Executive’s continued employment through the applicable payment date, which shall occur on the date on which annual bonuses are paid generally to the Company’s similarly situated executives.

(iv) Incentive, Savings and Retirement Plans . During the Employment Period, the Executive shall be eligible to participate in all other incentive plans, practices, policies and programs, and all savings and retirement plans, practices, policies and programs, in each case that are available generally to similarly situated executives of the Company, subject in all cases to the terms and conditions (including eligibility requirements) of such plans, practices, policies and programs.

(vi) Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Executive in accordance with the terms and conditions of the Company’s expense reimbursements policies in effect from time to time for similarly situated executives of the Company.

(viii) Vacation, Personal or Sick Days . During the Employment Period, the Executive shall not be entitled to a fixed number of paid vacation, personal or sick days per year. As a salaried employee, the Company expects the Executive to use the Executive’s judgment to take time off from work for vacation or other personal time in a manner consistent with completing the Executive’s work in a timely fashion, providing excellent service to the Company’s customers and partners and avoiding inconveniencing the Executive’s co-workers.

3. Termination of Employment.

(a) Death or Disability . The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. Either the Company or the Executive may terminate the Executive’s employment in the event of the Executive’s Disability during the Employment Period. For purposes of this Agreement, “ Disability ” shall mean a disability as determined under the Company’s applicable long-term disability plan that prevents the Executive from performing the Executive’s duties under this Agreement (even with a reasonable accommodation by the Company) for a period of six (6) months or more. If any question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the Executive’s then existing position or positions with or without reasonable accommodation, the Executive may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom the Executive or the Executive’s guardian has no reasonable objection as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Executive shall fail to submit such certification, the Company’s determination of such issue shall be binding on the Executive. Nothing in this Section Error! Reference source not found. shall be construed to waive the Executive’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq . and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.

Executive must perform services under this Agreement within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), such higher number of miles from the Company’s Principal Location as would constitute a material change in the geographic location at which the Executive must perform services under this Agreement within the meaning of Section 409A of the Code;

(iii) a material reduction in the Executive’s base salary; or

(iv) a material breach by the Company of its material obligations hereunder.

Notwithstanding the foregoing, the Executive will not be deemed to have resigned for Good Reason unless (1) the Executive provides the Company with written notice setting forth in reasonable detail the facts and circumstances claimed by the Executive to constitute Good Reason within sixty (60) days after the date of the occurrence of any event that the Executive knows or should reasonably have known to constitute Good Reason , (2) the Company fails to cure such acts or omissions within thirty (30) days following its receipt of such notice, and (3) the effective date of the Executive’s termination for Good Reason occurs no later than sixty (60) days after the expiration of the Company’s cure period.

(e) Termination of Offices and Directorships . Upon termination of the Executive’s employment for any reason, unless otherwise specified in a written agreement between the Executive and the Company, the Executive shall be deemed to have resigned from all offices, directorships, and other employment positions if any, then held with the Company or any of its subsidiaries, and shall take all actions reasonably requested by the Company to effectuate the foregoing.

4. Obligations of the Company upon Termination.

(a) Without Cause, For Good Reason, Death or Disability . Subject to Section 4(d) hereof, if the Executive incurs a “separation from service” from the Company (within the meaning of Section 409A(a)(2)(A)(i) of the Code, and Treasury Regulation Section 1.409A-1(h)) (a “ Separation from Service ”) during the Employment Period (the date of such Separation from Service, the “ Date of Termination ”) by reason of (1) a termination of the Executive’s employment by the Company without Cause; (2) a termination of the Executive’s employment by the Executive for Good Reason; or (3) a termination of the Executive’s employment by reason of the Executive’s death or Disability (each of (1), (2) and (3), a “ Qualifying Termination ”):

(ii) In addition, subject to Section 4(d) hereof and the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) timely execution and non-revocation of a Release (as defined below), the Executive (or the Executive’s estate or beneficiaries, if applicable) shall be paid:

(A) an amount equal to twelve (12) months’ of the Base Salary in effect on the Date of Termination, payable in a single lump-sum payment on the sixtieth (60th) day following the

Date of Termination; and

(B) any unpaid Annual Bonus to which the Executive would have become entitled for any fiscal year of the Company that ends on or before the Date of Termination had the Executive remained employed through the payment date, payable in a single lump-sum payment on the date on which annual bonuses are paid to the Company’s senior executives generally for such calendar year, but in no event later than March 15th of the calendar year following the calendar year in which the Date of Termination occurs, with the actual date within such period determined by the Company in its sole discretion.

(iii) In addition, subject to Section 4(d) hereof and conditioned upon the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) timely execution and non-revocation of a Release, during the period commencing on the Date of Termination and ending on the twelve (12)-month anniversary of the Date of Termination or, if earlier, the date on which the Executive becomes eligible for coverage under the group health plan of a subsequent employer (of which eligibility the Executive hereby agrees to give prompt notice to the Company) (in any case, the “ COBRA Period ”), subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Code and the regulations thereunder, the Company shall continue to provide the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels and the same cost to the Executive as would have applied if the Executive’s employment had not been terminated based on the Executive’s elections in effect on the Date of Termination), provided, however , that (1) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A of the Code under Treasury Regulation Section 1.409A-1(a)(5), or (2) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to each remaining Company subsidy shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

(c) In Connection with a Change in Control . In addition to any payments or benefits due to the Executive under Section 4(a) above (if any), subject to and conditioned upon the Executive’s (or the Executive’s estate’s or beneficiaries’, if applicable) timely execution and non-revocation of a Release, if the Executive’s employment is terminated by the Company without Cause or by the Executive with Good Reason and, in either case, a Change in Control (A) occurs on or within ninety (90) days after the Date of Termination or (B) has occurred within one (1) year before the Date of Termination:

(i) All outstanding compensatory equity awards that vest solely based on continued service that have not yet vested shall conditionally vest and, as applicable, become exercisable on the later of the

Date of Termination and the date of such Change in Control (and such vesting shall become unconditional upon such execution and non-revocation of a Release); provided , however , that if the Executive fails to timely execute or revokes the Release, all such conditionally vested awards (and any shares received in respect of such awards) shall be forfeited upon such failure or revocation (subject to repayment by the Company to the Executive of any amounts (if any) paid by the Executive with respect to shares underlying such conditionally vested awards). For the avoidance of doubt, if a Qualifying Termination occurs prior to a Change in Control, all outstanding, unvested compensatory equity awards that would otherwise terminate on the Date of Termination shall remain outstanding and eligible to vest solely upon a Change in Control occurring within ninety (90) days after the Date of Termination (but shall not otherwise vest following the Date of Termination) and shall terminate on the ninetieth (90 th ) day following the Date of Termination if a Change in Control has not occurred on or prior to such ninetieth (90 th ) day (or such earlier expiration date applicable to the award (other than due to a termination of employment)).

(d) Six-Month Delay . Notwithstanding anything to the contrary in this Agreement, no compensation or benefits, including without limitation any severance payments or benefits payable under this Section 4 , shall be paid to the Executive during the six (6)-month period following the Executive’s Separation from Service if the Company determines that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code. If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such six (6)-month period (or such earlier date upon which such amount can be paid under Section 409A of the Code without resulting in a prohibited distribution, including as a result of the Executive’s death), the Company shall pay the Executive (or the Executive’s estate or beneficiaries, if applicable) a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such period.

6. Excess Parachute Payments, Limitations on Payments.

payments hereunder shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (1) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (2) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments). The Total Payments shall be reduced in the following order: (A) reduction of any cash severance payments otherwise payable to the Executive that are exempt from Section 409A of the Code; (B) reduction of any other cash payments or benefits otherwise payable to the Executive that are exempt from Section 409A of the Code, but excluding any payments attributable to any acceleration of vesting or payments with respect to any equity award that are exempt from Section 409A of the Code; (C) reduction of any other payments or benefits otherwise payable to the Executive on a pro-rata basis or such other manner that complies with Section 409A of the Code, but excluding any payments attributable to any acceleration of vesting and payments with respect to any equity award that are exempt from Section 409A of the Code; and (D) reduction of any payments attributable to any acceleration of vesting or payments with respect to any equity award that are exempt from Section 409A of the Code, in each case beginning with payments that would otherwise be made last in time.

7. Confidential Information and Non-Solicitation. The Executive hereby acknowledges that, as a condition of employment with the Company, Executive must, concurrently herewith, enter into the Company’s standard Confidential Information and Development Agreement, containing confidentiality, non-solicitation and other protective covenants (the “ Confidentiality Agreement ”).

8. Representations. The Executive hereby represents and warrants to the Company that (a) the Executive is entering into this Agreement voluntarily and that the performance of the Executive’s obligations hereunder will not violate any agreement between the Executive and any other person, firm, organization or other entity, and (b) the Executive is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or indirectly, with the business of such previous employer or other party that would be violated by the Executive’s entering into this Agreement and/or providing services to the Company pursuant to the terms of this Agreement.

9. Successors.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “ Company ” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

10. Miscellaneous.

If to the Executive : at the Executive’s most recent address on the records of the Company.

If to the Company :

Leaf Group Ltd.
1655 26 th Street
Santa Monica, CA 90404
Attn: General Counsel

with a copy to:

Goodwin Procter LLP
601 Marshall Street
Redwood City, CA 94063
Attn: Anthony McCusker

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(d) Section 409A of the Code .

provided, however, that this Section 10(d) shall not create an obligation on the part of the Company to adopt any such amendment, policy or procedure or take any such other action, nor shall the Company have any liability for failing to do so.

(e) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(i) Amendment . No amendment or other modification of this Agreement shall be effective unless made in writing and signed by the parties hereto.

[ SIGNATURE PAGE FOLLOWS ]


LEAF GROUP LTD. ,
a Delaware corporation


By:	/s/ Sean Moriarty
	Name:	Sean Moriarty
	Title:	Chief Executive Officer


EXECUTIVE:


/s/ Adam Wergeles
Adam Wergeles

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Sean Moriarty, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Leaf Group Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


/s/ Sean Moriarty
Sean Moriarty
Chief Executive Officer
( Principal Executive Officer )

Date: May 8, 2019

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Jantoon Reigersman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Leaf Group Ltd.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


/s/ Jantoon Reigersman
Jantoon Reigersman
Chief Financial Officer
( Principal Financial Officer )

Date: May 8, 2019

Exhibit 32. 1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31 , 2019 of Leaf Group Ltd. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sean Moriarty, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Sean Moriarty
Sean Moriarty
Chief Executive Officer
( Principal Executive Officer )

Date: May 8, 2019

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (the “SEC”) or its staff upon request.

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

Exhibit 32. 2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019 of Leaf Group Ltd. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jantoon Reigersman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Jantoon Reigersman
Jantoon Reigersman
Chief Financial Officer
( Principal Financial Officer )

Date: May 8, 2019