Endurance International Group
Endurance International Group Holdings, Inc. (Form: 8-K, Received: 10/31/2017 07:16:05)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 31, 2017

 

 

Endurance International Group Holdings, Inc.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware   001- 36131   46-3044956

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

10 Corporate Drive, Suite 300

Burlington, MA

  01803
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (781) 852-3200

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

 

 

 

 


Item 2.02. Results of Operations and Financial Condition

On October 31, 2017, Endurance International Group Holdings, Inc. (the “Company”) issued a press release announcing certain financial results and other information for the quarter ended September 30, 2017. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Exchange Act or the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits

(d) The following exhibit relating to Item 2.02 shall be deemed to be furnished and not filed:

 

99.1    Press release issued by Endurance International Group Holdings, Inc. on October 31, 2017


SIGNATURE

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

 

    ENDURANCE INTERNATIONAL GROUP HOLDINGS, INC.
Date: October 31, 2017      
   

/s/    Marc Montagner        

    (Signature)
    Name:   Marc Montagner
    Title:  

Chief Financial Officer and

Interim Chief Operating Officer

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2017 Third Quarter Results

 

    GAAP revenue of $295.2 million

 

    Net loss of $40.3 million

 

    Adjusted EBITDA of $93.8 million

 

    Cash flow from operations of $46.4 million

 

    Free cash flow of $31.9 million

 

    Total subscribers on platform were approximately 5.122 million at September 30, 2017

BURLINGTON, MA (October 31, 2017) — Endurance International Group Holdings, Inc. (NASDAQ: EIGI), a leading provider of cloud-based platform solutions designed to help small and medium-sized businesses succeed online, today reported financial results for its third quarter ended September 30, 2017.

“I am pleased to report third quarter results that reflect solid performance in both web presence and email marketing,” commented Jeffrey H. Fox, president and chief executive officer of Endurance International Group. “Our 2017 plan to deliver profitable growth while focusing on higher lifetime revenue customers has been demonstrated in our year to date performance. Our priorities for the rest of the year are to continue to simplify our operations and to invest in initiatives that we believe will drive future growth and long-term value for our customers.”

Third Quarter 2017 Financial Highlights

 

    Revenue for the third quarter of 2017 was $295.2 million, an increase of 1 percent compared to $291.2 million for the third quarter of 2016. Revenue for the third quarter of 2017 includes a contribution of $101.5 million from Constant Contact, as compared to a contribution of $95.9 million for the third quarter of 2016.

 

    Net loss for the third quarter of 2017 was $40.3 million compared to net loss of $29.8 million for the third quarter of 2016.

 

    Net loss attributable to Endurance International Group Holdings, Inc. for the third quarter of 2017 was $40.3 million, or $(0.29) per diluted share, compared to net loss of $31.7 million, or $(0.24) per diluted share, for the third quarter of 2016.

 

   

Adjusted EBITDA for the third quarter of 2017 was $93.8 million, an increase of 10 percent compared to $85.2 million for the third quarter of 2016. Third quarter 2017 adjusted EBITDA


 

excludes the impact of an impairment of $14.4 million related to the reduction in value of certain intangibles, primarily associated with domain name assets, and an additional $8.0 million of accrued expense reserved in connection with ongoing discussions with the staff of the SEC to resolve potential claims arising from the SEC investigations initiated against Endurance and Constant Contact in December 2015.

 

    Cash flow from operations for the third quarter of 2017 was $46.4 million, an increase of 28 percent compared to $36.2 million for the third quarter of 2016.

 

    Free cash flow, defined as cash flow from operations less capital expenditures and capital lease obligations, for the third quarter of 2017 was $31.9 million, an increase of 21 percent compared to $26.4 million for the third quarter of 2016.

Third Quarter Operating Highlights

 

    Total subscribers on platform at September 30, 2017 were approximately 5.122 million, compared to approximately 5.439 million subscribers at September 30, 2016 and 5.217 million subscribers at June 30, 2017. See “Total Subscribers” below.

 

    Average revenue per subscriber, or ARPS, for the third quarter of 2017 was $19.03, compared to $17.78 for the third quarter of 2016 and $18.52 for the second quarter of 2017. Excluding the impact of Constant Contact, ARPS for the third quarter of 2017 was $13.91, compared to $13.25 for the third quarter of 2016 and $13.62 for the second quarter of 2017. See “Average Revenue Per Subscriber” below.

Fiscal 2017 Guidance

The company is increasing its adjusted EBITDA expectations for the year by approximately $8 million from the midpoint of prior guidance. As of the date of this release, October 31, 2017, for the full year ending December 31, 2017, the company now expects:

 

     2016 Actual
as Reported
     Prior Guidance
(as of August 1, 2017)*
     Guidance
(as of October 31, 2017)*
 

GAAP revenue

   $ 1.111 billion        5 - 5.5% increase        5 - 5.5% increase  

Adjusted EBITDA

   $ 288 million        14 - 16% increase        ~18% increase  

Free cash flow

   $ 112 million        ~25% increase        ~25% increase  

Adjusted EBITDA and free cash flow are non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to their most comparable measure calculated in accordance with GAAP is provided in the financial statement tables included at the end of this press release.

 

* Percentage increases shown in the “Prior Guidance” and “Guidance” columns represent percentage increases over 2016 figures shown in the “Actual as Reported” column.

 

2


Conference Call and Webcast Information

Endurance International Group’s third quarter 2017 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Tuesday, October 31, 2017. To participate on the live call, analysts and investors should dial (888) 734-0328 at least ten minutes prior to the call. Endurance International Group will also offer a live and archived webcast of the conference call, accessible from the Investor Relations section of the company’s website at http://ir.endurance.com.

Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, we use adjusted EBITDA and free cash flow, which are non-GAAP financial measures, to evaluate the operating and financial performance of our business, identify trends affecting our business, develop projections and make strategic business decisions. A non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flow that excludes amounts that are included in the most directly comparable measure calculated and presented in accordance with GAAP or includes amounts that are excluded from the most directly comparable measure calculated and presented in accordance with GAAP.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. For example, adjusted EBITDA excludes interest expense, which has been and will continue to be for the foreseeable future a significant recurring expense in our business. The presentation of non-GAAP financial information is not meant to be considered in isolation from, or as a substitute for, the most directly comparable financial measures prepared in accordance with GAAP. We urge you to review the additional information about adjusted EBITDA and free cash flow shown below, including the reconciliations of these non-GAAP financial measures to their comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net (loss) income, excluding the impact of interest expense (net), income tax expense (benefit), depreciation, amortization of other intangible assets, stock-based compensation, restructuring expenses, transaction expenses and charges, SEC investigations reserve, (gain) loss of unconsolidated entities, and impairment of other long-lived assets. We view adjusted EBITDA as a performance measure and believe it helps investors evaluate and compare our core operating performance from period to period.

Free Cash Flow, or FCF, is a non-GAAP financial measure that we calculate as cash flow from operations less capital expenditures and capital lease obligations. We believe that FCF provides investors with an indicator of our ability to generate positive cash flows after meeting our obligations with regard to capital expenditures (including capital lease obligations).

 

3


Key Operating Metrics

Total Subscribers - We define total subscribers as the approximate number of subscribers that, as of the end of a period, are identified as subscribing directly to our products on a paid basis, excluding accounts that access our solutions via resellers or that purchase only domain names from us. Subscribers of more than one brand, and subscribers with more than one distinct billing relationship or subscription with us, are counted as separate subscribers. Total subscribers for a period reflects adjustments to add or subtract subscribers as we integrate acquisitions and/or are otherwise able to identify subscribers that meet, or do not meet, this definition of total subscribers. There were no adjustments for the third quarter of 2017.

Average Revenue Per Subscriber (ARPS) - We calculate ARPS as the amount of revenue we recognize in a period, including marketing development funds and other revenue not received from subscribers, divided by the average of the number of total subscribers at the beginning of the period and at the end of the period, which we refer to as average subscribers for the period, divided by the number of months in the period. See definition of “Total Subscribers” above. We believe ARPS is an indicator of our ability to optimize our mix of products and services and pricing and sell products and services to new and existing subscribers. ARPS does not represent an exact measure of the average amount a subscriber spends with us each month, since our calculation of ARPS is impacted by revenues generated by non-subscribers.

Forward-Looking Statements

This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements concerning our updated financial guidance for fiscal year 2017, our expectations regarding our planned investment initiatives, and our expected financial and operational performance in general. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts, and statements identified by words such as “expects,” “believes,” “estimates,” “may,” “continue,” “positions,” “confident,” and variations of such words or words of similar meaning and the use of future dates. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that these plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation: the possibility that our updated financial guidance may differ from expectations; that our planned initiatives will not result in a positive return on investment; that we will be unable to successfully enhance the customer product and service experience and improve customer satisfaction and retention through operational and

 

4


infrastructure improvements; that we will encounter difficulties or delays in our efforts to build brand awareness of our key brands; that we will be unable to drive revenue growth by increasing ARPS through cross-selling and other product-related initiatives; that we will continue to experience decreases in our subscriber base; an adverse impact on our business from litigation or regulatory proceedings; an adverse impact on our business from our substantial indebtedness and the cost of servicing our debt; the rate of growth of the Small and Medium Business (“SMB”) market for our solutions; our inability to increase sales to our existing subscribers, or retain our existing subscribers; system or Internet failures; our inability to maintain or improve our competitive position or market share; and other risks set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended June 30, 2017 filed with the SEC on August 4, 2017 and other reports we file with the SEC.

We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

About Endurance International Group

Endurance International Group Holdings, Inc. (NASDAQ: EIGI) (em)Powers millions of small businesses worldwide with products and technology to vitalize their online web presence, email marketing, mobile business solutions, and more. The Endurance family of brands includes: Constant Contact, Bluehost, HostGator, iPage, Domain.com, BigRock, SiteBuilder and SinglePlatform, among others. Headquartered in Burlington, Massachusetts, Endurance employs over 3,600 people across the United States, Brazil, India and the Netherlands. For more information, visit:  www.endurance.com .

Endurance International Group and the compass logo are trademarks of The Endurance International Group, Inc. Constant Contact, the Constant Contact logo and other brand names of Endurance International Group are trademarks of The Endurance International Group, Inc. or its subsidiaries.

Investor Contact:

Angela White

Endurance International Group

(781) 852-3450

ir@endurance.com

Press Contact:

Kristen Andrews

Endurance International Group

(781) 482-5809

press@endurance.com

 

5


Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

 

     December 31,
2016
     September 30,
2017
 

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 53,596      $ 70,521  

Restricted cash

     3,302        2,647  

Accounts receivable

     13,088        13,984  

Prepaid domain name registry fees

     55,444        55,742  

Prepaid expenses and other current assets

     28,678        29,170  
  

 

 

    

 

 

 

Total current assets

     154,108        172,064  

Property and equipment—net

     95,272        88,557  

Goodwill

     1,859,909        1,862,489  

Other intangible assets—net

     612,057        496,036  

Deferred financing costs

     4,932        3,645  

Investments

     15,857        15,230  

Prepaid domain name registry fees, net of current portion

     10,429        10,874  

Other assets

     3,710        2,204  
  

 

 

    

 

 

 

Total assets

   $ 2,756,274      $ 2,651,099  
  

 

 

    

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

     

Current liabilities:

     

Accounts payable

   $ 16,074      $ 13,397  

Accrued expenses

     67,722        75,573  

Accrued interest

     27,246        14,546  

Deferred revenue

     355,190        368,613  

Current portion of notes payable

     35,700        33,945  

Current portion of capital lease obligations

     6,690        3,166  

Deferred consideration—short term

     5,273        4,319  

Other current liabilities

     2,890        3,605  
  

 

 

    

 

 

 

Total current liabilities

     516,785        517,164  

Long-term deferred revenue

     89,200        90,904  

Notes payable—long term, net of original issue discounts of $25,853 and $26,880 and deferred financing costs of $43,342 and $39,194, respectively

     1,951,280        1,920,258  

Capital lease obligations—long term

     512        1,485  

Deferred tax liability

     39,943        46,203  

Deferred consideration—long term

     7,444        3,493  

Other liabilities

     8,974        9,889  
  

 

 

    

 

 

 

Total liabilities

     2,614,138        2,589,396  
  

 

 

    

 

 

 

Redeemable non-controlling interest

     17,753        —    

Commitments and contingencies

     

Stockholders’ equity:

     

Preferred Stock—par value $0.0001; 5,000,000 shares authorized; no shares issued or outstanding

     —          —    

 

6


Common Stock—par value $0.0001; 500,000,000 shares authorized; 134,793,857 and 138,074,911 shares issued at December 31, 2016 and September 30, 2017, respectively; 134,793,857 and 138,074,911 outstanding at December 31, 2016 and September 30, 2017, respectively

     14       14  

Additional paid-in capital

     868,228       917,655  

Accumulated other comprehensive loss

     (3,666     (991

Accumulated deficit

     (740,193     (854,975
  

 

 

   

 

 

 

Total stockholders’ equity

     124,383       61,703  
  

 

 

   

 

 

 

Total liabilities, redeemable non-controlling interest and stockholders’ equity

   $ 2,756,274     $ 2,651,099  
  

 

 

   

 

 

 

 

7


Endurance International Group Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2016     2017     2016     2017  

Revenue

   $ 291,193     $ 295,222     $ 819,019     $ 882,617  

Cost of revenue

     149,427       158,865       438,980       454,197  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     141,766       136,357       380,039       428,420  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     75,341       66,276       234,944       211,154  

Engineering and development

     23,988       19,882       67,930       60,393  

General and administrative

     33,399       51,269       108,508       130,929  

Transaction expenses

     159       —         32,257       773  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     132,887       137,427       443,639       403,249  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     8,879       (1,070     (63,600     25,171  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Other income (expense), net

     (4,845     (600     6,565       (600

Interest income

     162       203       438       506  

Interest expense

     (41,208     (35,848     (112,573     (121,022
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (45,891     (36,245     (105,570     (121,116
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes and equity earnings of unconsolidated entities

     (37,012     (37,315     (169,170     (95,945

Income tax expense (benefit)

     (7,387     2,982       (121,220     11,384  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of unconsolidated entities

     (29,625     (40,297     (47,950     (107,329

Equity loss (income) of unconsolidated entities, net of tax

     173       (33     1,197       (72
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (29,798   $ (40,264   $ (49,147   $ (107,257
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to non-controlling interest

     (1,206     —         (14,326     277  

Excess accretion of non-controlling interest

     3,145       —         3,145       7,247  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net income (loss) attributable to non-controlling interest

     1,939       —         (11,181     7,524  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Endurance International Group Holdings, Inc.

   $ (31,737   $ (40,264   $ (37,966   $ (114,781
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

        

Foreign currency translation adjustments

     112       1,070       994       2,984  

Unrealized loss on cash flow hedge, net of taxes of $(65) and $48, and $(889) and $(182) for the three and nine months ended September 30, 2016 and 2017, respectively

     72       83       (1,866     (309
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (31,553   $ (39,111   $ (38,838   $ (112,106
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net loss per share attributable to Endurance International Group Holdings, Inc.

   $ (0.24   $ (0.29   $ (0.29   $ (0.84
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net loss per share attributable to Endurance International Group Holdings, Inc.

   $ (0.24   $ (0.29   $ (0.29   $ (0.84
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares used in computing net loss per share attributable to Endurance International Group Holdings, Inc.:

        
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic

     133,550,168       137,793,609       133,038,542       136,688,115  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     133,550,168       137,793,609       133,038,542       136,688,115  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

8


Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2016     2017     2016     2017  

Cash flows from operating activities:

        

Net loss

   $ (29,798   $ (40,264   $ (49,147   $ (107,257

Adjustments to reconcile net loss to net cash provided by operating activities:

        

Depreciation of property and equipment

     17,010       13,571       46,942       40,733  

Amortization of other intangible assets

     37,982       35,347       105,679       104,554  

Impairment of long lived assets

     —         13,848       8,285       13,848  

Impairment of investments

     —         600       —         600  

Amortization of deferred financing costs

     1,760       1,873       4,322       5,403  

Amortization of net present value of deferred consideration

     844       127       2,426       504  

Dividend from minority interest

     —         50       50       100  

Amortization of original issue discounts

     844       1,059       2,116       2,791  

Stock-based compensation

     14,806       19,580       48,218       48,749  

Deferred tax (benefit) expense

     (7,085     2,096       (124,547     6,442  

Loss (gain) on sale of assets

     57       (189     (168     (317

Loss (gain) from unconsolidated entities

     4,845       (33     (6,565     (72

Loss of unconsolidated entities

     173       —         1,197       —    

Gain from change in deferred consideration

     (54     —         (33     —    

Financing costs expensed

     —         —         —         5,487  

Loss on early extinguishment of debt

     —         —         —         992  

Changes in operating assets and liabilities, net of acquisitions:

        

Accounts receivable

     (170     (2,231     1,376       (872

Prepaid expenses and other current assets

     5,680       833       (9,206     (510

Accounts payable and accrued expenses

     (14,223     1,695       12,294       (7,309

Deferred revenue

     3,518       (1,518     58,565       15,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     36,189       46,444       101,804       128,866  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Businesses acquired in purchase transactions, net of cash acquired

     10,255       —         (889,634     —    

Cash paid for minority investment

     —         —         (5,600     —    

Purchases of property and equipment

     (8,356     (12,800     (29,317     (32,095

Proceeds from sale of assets

     (10     5       242       292  

Purchases of intangible assets

     —         (286     (27     (1,966

Deposits (withdrawals) of principal balances in restricted cash accounts

     30       755       (738     655  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     1,919       (12,326     (925,074     (33,114
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from issuance of term loan and notes, net of original issue discounts

     —         —         1,056,178       1,693,007  

Repayments of term loans

     (8,925     (18,486     (42,775     (1,733,147

Proceeds from borrowing of revolver

     33,500       —         49,500       —    

 

9


Repayment of revolver

     —         —         (83,000     —    

Payment of financing costs

     (834     (244     (52,561     (6,304

Payment of deferred consideration

     (42,373     —         (43,080     (5,408

Payment of redeemable non-controlling interest

     (33,425     (25,000     (33,425     (25,000

Principal payments on capital lease obligations

     (1,476     (1,771     (4,372     (5,679

Capital investment from minority partner

     1,776       —         2,776       —    

Proceeds from exercise of stock options

     976       416       2,304       1,548  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (50,781     (45,085     851,545       (80,983
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of exchange rate on cash and cash equivalents

     229       79       1,843       2,156  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (12,444     (10,888     30,118       16,925  

Cash and cash equivalents:

        

Beginning of period

     75,592       81,409       33,030       53,596  
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 63,148     $ 70,521     $ 63,148     $ 70,521  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 47,010     $ 38,154     $ 91,181     $ 118,276  

Income taxes paid

   $ 951     $ 1,499     $ 3,399     $ 3,958  

 

10


GAAP to Non-GAAP reconciliation – Adjusted EBITDA

The following table presents a reconciliation of net income (loss) calculated in accordance with GAAP to adjusted EBITDA (all data in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2016      2017      2016      2017  

Net income (loss)

   $ (29,798    $ (40,264    $ (49,147    $ (107,257

Interest expense, net (1)

     41,046        35,645        112,135        120,516  

Income tax expense (benefit)

     (7,387      2,982        (121,220      11,384  

Depreciation

     17,010        13,571        46,942        40,733  

Amortization of other intangible assets

     37,982        35,347        105,679        104,554  

Stock-based compensation

     14,806        19,580        48,218        48,749  

Restructuring expenses

     6,377        4,488        23,642        14,584  

Transaction expenses and charges

     159        —          32,257        773  

SEC investigations reserve

     —          8,000        —          8,000  

Loss (gain) of unconsolidated entities (2)

     5,018        (33      (5,368      (72

Impairment of other long-lived assets (3)

     —          14,448        8,285        14,448  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 85,213      $ 93,764      $ 201,423      $ 256,412  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income. For the nine months ended September 30, 2017, it also includes $6.5 million of deferred financing costs and OID immediately expensed upon refinancing of our term loan in June 2017.
(2) The loss (gain) of unconsolidated entities is reported on a net basis for the three and nine months ended September 30, 2016. The three months ended September 30, 2016 includes a loss of $4.8 million on our investment in AppMachine. This loss was generated on July 27, 2016, when we increased our ownership stake in AppMachine from 40.0% to 100.0%, which required a revaluation of our existing investment to its implied fair value. The three months ended September 30, 2016 also includes a net loss of $0.2 million from our proportionate share of net losses from unconsolidated entities. The nine months ended September 30, 2016 includes a gain of $11.4 million on our investment in WZ UK Ltd. This gain was generated on January 6, 2016, when we increased our ownership stake in WZ UK Ltd. from 49.0% to 57.5%, which required a revaluation of our existing investment to its implied fair value. This $11.4 million gain was partially offset by our proportionate shares of net losses from unconsolidated entities of $1.2 million.
(3) The impairment of other long-lived assets for the three and nine months ended September 30, 2016 includes $6.3 million of impairment charges related to developed and in-process technology related to the Webzai acquisition, and $2.0 million of internally developed software that was abandoned. The impairment of other long-lived assets for the three and nine months ended September 30, 3017 includes $13.8 million related to certain domain name intangible assets, and $0.6 million to write off a debt investment in a privately held entity.

GAAP to Non-GAAP reconciliation – Free Cash Flow

The following table reflects the reconciliation of cash flow from operations to free cash flow (“FCF”) (all data in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2016      2017      2016      2017  

Cash flow from operations

   $ 36,189      $ 46,444      $ 101,804      $ 128,866  

Less:

           

Capital expenditures and capital lease obligations (1)

     (9,832      (14,571      (33,689      (37,774
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 26,357      $ 31,873      $ 68,115      $ 91,092  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Capital expenditures during the three and nine months ended September 30, 2016 includes $1.5 million and $4.4 million, respectively, of principal payments under a two year capital lease for software. Capital expenditures during the three and nine months ended September 30, 2017 includes $1.8 million and $5.7 million, respectively, of principal payments under a three year capital lease for software. The remaining balance on the capital lease is $4.7 million as of September 30, 2017.

 

11


Average Revenue Per Subscriber – Calculation and Segment Detail

We present our financial results in two segments. Our web presence segment is our historical business before the acquisition of Constant Contact, and includes primarily our web hosting products, domains, website builders and related add-on products. Our email marketing segment consists of the Constant Contact business, including email marketing, event management, survey tools and the SinglePlatform digital storefront service.

The following table presents the calculation of ARPS, on a consolidated basis and by segment (all data in thousands, except ARPS data):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2016      2017      2016      2017  

Consolidated revenue

   $ 291,193      $ 295,222      $ 819,019      $ 882,617  

Consolidated total subscribers

     5,439        5,122        5,439        5,122  

Consolidated average subscribers for the period

     5,460        5,170        5,296        5,247  

Consolidated average revenue per subscriber (ARPS)

   $ 17.78      $ 19.03      $ 17.18      $ 18.69  

Web presence revenue

   $ 195,275      $ 193,696      $ 589,364      $ 584,217  

Web presence subscribers

     4,893        4,599        4,893        4,599  

Web presence average subscribers for the period

     4,911        4,643        4,821        4,714  

Web presence average revenue per subscriber (ARPS)

   $ 13.25      $ 13.91      $ 13.58      $ 13.77  

Email marketing revenue

   $ 95,918      $ 101,526      $ 229,655      $ 298,400  

Email marketing subscribers

     546        523        546        523  

Email marketing average subscribers for the period

     549        527        475        533  

Email marketing average revenue per subscriber (ARPS)

   $ 58.27      $ 64.26      $ 53.75      $ 62.16  

 

12


The following table presents revenue, gross profit, and a reconciliation by segment of net income (loss) calculated in accordance with GAAP to adjusted EBITDA (all data in thousands):

 

     Three Months Ended
September 30, 2016
    Three Months Ended
September 30, 2017
 
     Web
presence
    Email
marketing
    Total     Web
presence
    Email
marketing
     Total  

Revenue

   $ 195,275     $ 95,918     $ 291,193     $ 193,696     $ 101,526      $ 295,222  

Gross profit

     89,059       52,707       141,766       71,071       65,286        136,357  

Net income (loss)

   $ (19,886   $ (9,912   $ (29,798   $ (42,466   $ 2,202      $ (40,264

Interest expense, net (1)

     18,244       22,802       41,046       15,131       20,514        35,645  

Income tax expense (benefit)

     (1,435     (5,952     (7,387     1,659       1,323        2,982  

Depreciation

     9,173       7,837       17,010       10,338       3,233        13,571  

Amortization of other intangible assets

     19,729       18,253       37,982       16,577       18,770        35,347  

Stock-based compensation

     12,703       2,103       14,806       17,912       1,668        19,580  

Restructuring expenses

     541       5,836       6,377       3,806       682        4,488  

Transaction expenses and charges

     159       —         159       —         —          —    

SEC investigations reserve

     —         —         —         5,249       2,751        8,000  

(Gain) loss of unconsolidated entities (2)

     5,018       —         5,018       (33     —          (33

Impairment of other long-lived assets (3)

     —         —         —         14,448       —          14,448  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted EBITDA

   $ 44,246     $ 40,967     $ 85,213     $ 42,621     $ 51,143      $ 93,764  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

     Nine Months Ended
September 30, 2016
    Nine Months Ended
September 30, 2017
 
     Web
presence
    Email
marketing
    Total     Web
presence
    Email
marketing
    Total  

Revenue

   $ 589,364     $ 229,655     $ 819,019     $ 584,217     $ 298,400     $ 882,617  

Gross profit

     265,610       114,429       380,039       240,239       188,181       428,420  

Net income (loss)

   $ 2,787     $ (51,934   $ (49,147   $ (99,232   $ (8,025   $ (107,257

Interest expense, net (1)

     53,337       58,798       112,135       52,304       68,212       120,516  

Income tax expense (benefit)

     (90,033     (31,187     (121,220     16,203       (4,819     11,384  

Depreciation

     27,248       19,694       46,942       30,101       10,632       40,733  

Amortization of other intangible assets

     59,252       46,427       105,679       48,857       55,697       104,554  

Stock-based compensation

     37,778       10,440       48,218       43,357       5,392       48,749  

Restructuring expenses

     1,501       22,141       23,642       9,842       4,742       14,584  

Transaction expenses and charges

     31,273       984       32,257       —         773       773  

SEC investigations reserve

     —         —         —         5,249       2,751       8,000  

(Gain) loss of unconsolidated entities (2)

     (5,368     —         (5,368     (72     —         (72

Impairment of other long-lived assets (3)

     8,285       —         8,285       14,448       —         14,448  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 126,060     $ 75,363     $ 201,423     $ 121,057     $ 135,355     $ 256,412  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income. For the nine months ended September 30, 2017, it also includes $6.5 million of deferred financing costs and original issuance discounts immediately expensed upon refinancing of our term loan in June 2017.
(2) The loss (gain) of unconsolidated entities is reported on a net basis for the three and nine months ended September 30, 2016. The three months ended September 30, 2016 includes a loss of $4.8 million on our investment in AppMachine. This loss was generated on July 27, 2016, when we increased our ownership stake in AppMachine from 40.0% to 100.0%, which required a revaluation of our existing investment to its implied fair value. The three months ended September 30, 2016 also includes a net loss of $0.2 million from our proportionate share of net losses from unconsolidated entities. The nine months ended September 30, 2016 includes a gain of $11.4 million on our investment in WZ UK Ltd. This gain was generated on January 6, 2016, when we increased our ownership stake in WZ UK Ltd. from 49.0% to 57.5%, which required a revaluation of our existing investment to its implied fair value. This $11.4 million gain was partially offset by our proportionate shares of net losses from unconsolidated entities of $1.2 million.
(3) The impairment of other long-lived assets for the three and nine months ended September 30, 2016 includes $6.3 million of impairment charges related to developed and in-process technology related to the Webzai acquisition, and $2.0 million of internally developed software that was abandoned. The impairment of other long-lived assets for the three and nine months ended September 30, 3017 includes $13.8 million related to certain domain name intangible assets, and $0.6 million to write off a debt investment in a privately held entity.

 

13


GAAP to Non-GAAP Reconciliation of Fiscal Year 2017 Guidance (as of October 31, 2017) – Adjusted EBITDA

The following table reflects the reconciliation of fiscal year 2017 estimated net loss calculated in accordance with GAAP to fiscal year 2017 guidance for adjusted EBITDA (i.e. assuming an increase of approximately 18% from 2016 adjusted EBITDA as reported). All figures shown are approximate.

 

($ in millions)

   Twelve Months
Ending
December 31,
2017
        

Estimated net loss

   $ (121   

Estimated interest expense (net)

     156     

Estimated income tax expense (benefit)

     12     

Estimated depreciation

     55     

Estimated amortization of acquired intangible assets

     139     

Estimated stock-based compensation

     60     

Estimated restructuring expenses

     16     

Estimated transaction expenses and charges

     1     

Estimated SEC investigations reserve

     8     

Estimated (gain) loss of unconsolidated entities

     —       

Estimated impairment of other long-lived assets

     14     
  

 

 

    

Adjusted EBITDA guidance

      $ 340  

GAAP to Non-GAAP Reconciliation of Fiscal Year 2017 Guidance (as of October 31, 2017) – Free Cash Flow

The following table reflects the reconciliation of fiscal year 2017 estimated cash flow from operations calculated in accordance with GAAP to fiscal year 2017 guidance for free cash flow. All figures shown are approximate.

 

($ in millions)

   Twelve
Months
Ending
December 31,
2017
        

Estimated cash flow from operations

   $ 190     

Estimated capital expenditures and capital lease obligations

     (50   
  

 

 

    

Free cash flow guidance

      $ 140  

 

14