Form 8-K

 

 

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): July 26, 2018

 

 

Endurance International Group Holdings, Inc.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware   001- 36131   46-3044956
(State or Other Jurisdiction   (Commission   (IRS Employer
of Incorporation)   File Number)   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 July 26, 2018, Endurance International Group Holdings, Inc. (the “Company”) issued a press release announcing certain financial results and other information for the quarter ended June 30, 2018. 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 July 26, 2018


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: July 26, 2018       /s/ Marc Montagner
      (Signature)
     

Name:   Marc Montagner

     

Title:   Chief Financial Officer

EX-99.1

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2018 Second Quarter Results

 

    GAAP revenue of $287.8 million

 

    Net loss of $2.0 million

 

    Adjusted EBITDA of $85.0 million

 

    Cash flow from operations of $29.9 million

 

    Free cash flow of $20.1 million

 

    Total subscribers on platform were approximately 4.918 million at June 30, 2018

BURLINGTON, MA (July 26, 2018) — 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 second quarter ended June 30, 2018.

“We are pleased with our year to date results, and the team remains focused on executing our 2018 integrated operating plan,” commented Jeffrey H. Fox, president and chief executive officer of Endurance International Group. “Our second quarter results reflect our focus on meeting our financial and operating goals while simplifying our business and investing to deliver increased value to our customers.”

Second Quarter 2018 Financial Highlights

 

    Revenue for the second quarter of 2018 was $287.8 million, a decrease of 2 percent compared to $292.3 million for the second quarter of 2017.

 

    Net loss for the second quarter of 2018 was $2.0 million compared to net loss of $35.4 million for the second quarter of 2017.

 

    Net loss attributable to Endurance International Group Holdings, Inc. for the second quarter of 2018 was $2.0 million, or $(0.01) per diluted share, compared to net loss of $39.1 million, or $(0.29) per diluted share, for the second quarter of 2017.

 

    Adjusted EBITDA for the second quarter of 2018 was $85.0 million, an increase of 3 percent compared to $82.5 million for the second quarter of 2017.

 

    Cash flow from operations for the second quarter of 2018 was $29.9 million, a decrease of 39 percent compared to $48.7 million for the second quarter of 2017.


    Free cash flow, defined as cash flow from operations less capital expenditures and capital lease obligations, for the second quarter of 2018 was $20.1 million, a decrease of 45 percent compared to $36.8 million for the second quarter of 2017.

Second Quarter Operating Highlights

 

    Total subscribers on platform at June 30, 2018 were approximately 4.918 million, compared to approximately 5.217 million subscribers at June 30, 2017 and approximately 5.011 million subscribers at March 31, 2018. See “Total Subscribers” below.

 

    Average revenue per subscriber, or ARPS, for the second quarter of 2018 was $19.32, compared to $18.52 for the second quarter of 2017 and $19.30 for the first quarter of 2018. See “Average Revenue Per Subscriber” below.

Fiscal 2018 Guidance

As of the date of this release, July 26, 2018, for the full year ending December 31, 2018, the company expects:

 

     2017 Actual
as Reported
     Guidance
(as of July 26, 2018)
 

GAAP revenue

   $ 1.177 billion        $1.140 to $1.160 billion  

Adjusted EBITDA

   $ 351 million        $310 to $330 million  

Free cash flow

   $ 151 million        ~$120 million  

As previously disclosed, the Company’s free cash flow guidance does not reflect the impact of payments made pursuant to its settlement with the U.S. Securities & Exchange Commission or the potential securities class action lawsuit settlements described in the Company’s Form 8-K filed on May 18, 2018, both of which will impact the Company’s actual free cash flow for 2018. The potential securities class action lawsuit settlements remain subject to court approval.

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.

Conference Call and Webcast Information

Endurance International Group’s second quarter 2018 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Thursday, July 26, 2018. 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.

 

2


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, (gain) loss of unconsolidated entities, impairment of other long-lived assets, SEC investigations reserve (with respect to fiscal year and third quarter 2017), and shareholder litigation reserve. 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).

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. In the second quarter of 2018, these adjustments had a net negative impact of approximately 800 subscribers on our total subscriber count.

 

3


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. 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 financial guidance for fiscal year 2018, the anticipated results of our efforts to simplify our business, deliver increased customer value, and operate more effectively, 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, strategies or prospects 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 financial guidance may differ from expectations; the possibility that our planned investment and operational initiatives will not result in the anticipated benefits to our business; the possibility 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; data breaches; system or Internet failures; our inability to maintain or improve our competitive position or market share; and other risks and uncertainties discussed in our filings with the SEC, including those set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the three months ended March 31, 2018 filed with the SEC on May 4, 2018 and other reports we file with the SEC.

 

4


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) helps millions of small businesses worldwide with products and technology to enhance their online web presence, email marketing, business solutions, and more. The Endurance family of brands includes: Constant Contact, Bluehost, HostGator, Domain.com and SiteBuilder, among others. Headquartered in Burlington, Massachusetts, Endurance employs over 3,500 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) 418-6716

press@endurance.com

 

5


Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

 

     December 31,
2017
    June 30, 2018  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 66,493     $ 75,499  

Restricted cash

     2,625       1,670  

Accounts receivable

     15,945       12,085  

Prepaid domain name registry fees

     53,805       58,944  

Prepaid commissions

     —         41,842  

Prepaid expenses and other current assets

     29,327       30,328  
  

 

 

   

 

 

 

Total current assets

     168,195       220,368  

Property and equipment—net

     95,452       82,758  

Goodwill

     1,850,582       1,849,529  

Other intangible assets—net

     455,440       403,835  

Deferred financing costs

     3,189       3,099  

Investments

     15,267       15,266  

Prepaid domain name registry fees, net of current portion

     10,806       11,680  

Prepaid commissions, net of current portion

     —         42,034  

Other assets

     2,155       9,296  
  

 

 

   

 

 

 

Total assets

   $ 2,601,086     $ 2,637,865  
  

 

 

   

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 11,058     $ 7,871  

Accrued expenses

     79,991       74,033  

Accrued interest

     24,457       18,751  

Deferred revenue

     361,940       385,676  

Current portion of notes payable

     33,945       31,606  

Current portion of capital lease obligations

     7,630       7,427  

Deferred consideration—short term

     4,365       2,651  

Other current liabilities

     4,031       3,842  
  

 

 

   

 

 

 

Total current liabilities

     527,417       531,857  

Long-term deferred revenue

     90,972       96,828  

Notes payable—long term, net of original issue discounts of $25,811 and $23,527 and deferred financing costs of $37,736 and $35,049, respectively

     1,858,300       1,815,221  

Capital lease obligations—long term

     7,719       4,013  

Deferred tax liability

     19,696       29,897  

Deferred consideration—long term

     3,551       1,320  

Other liabilities

     10,426       10,970  
  

 

 

   

 

 

 

Total liabilities

     2,518,081       2,490,106  
  

 

 

   

 

 

 

Stockholders’ equity:

    

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

     —         —    

Common Stock—par value $0.0001; 500,000,000 shares authorized; 140,190,695 and 142,868,329 shares issued at December 31, 2017 and June 30, 2018, respectively; 140,190,695 and 142,867,992 outstanding at December 31, 2017 and June 30, 2018, respectively

     14       14  

Additional paid-in capital

     931,033       946,122  

Accumulated other comprehensive loss

     (541     (1,202

Accumulated deficit

     (847,501     (797,175
  

 

 

   

 

 

 

Total stockholders’ equity

     83,005       147,759  
  

 

 

   

 

 

 

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

   $ 2,601,086     $ 2,637,865  
  

 

 

   

 

 

 

 

6


Endurance International Group Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)

(in thousands, except share and per share amounts)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2017     2018     2017     2018  

Revenue

   $ 292,258     $ 287,770     $ 587,395     $ 579,126  

Cost of revenue

     146,583       130,746       295,332       264,652  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     145,675       157,024       292,063       314,474  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     72,106       66,546       144,878       133,902  

Engineering and development

     20,149       21,959       40,511       41,876  

General and administrative

     40,580       30,744       79,660       69,519  

Transaction expenses

     193       —         773       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     133,028       119,249       265,822       245,297  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     12,647       37,775       26,241       69,177  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest income

     185       227       303       431  

Interest expense

     (45,658     (38,346     (85,174     (74,396
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (45,473     (38,119     (84,871     (73,965
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes and equity earnings of unconsolidated entities

     (32,826     (344     (58,630     (4,788

Income tax expense (benefit)

     2,628       1,650       8,402       4,267  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity earnings of unconsolidated entities

     (35,454     (1,994     (67,032     (9,055

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

     (39     (25     (39     2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (35,415   $ (1,969   $ (66,993   $ (9,057
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to non-controlling interest

     51       —         277       —    

Excess accretion of non-controlling interest

     3,663       —         7,247       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net loss attributable to non-controlling interest

     3,714       —         7,524       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Endurance International Group Holdings, Inc.

   $ (39,129   $ (1,969   $ (74,517   $ (9,057
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

        

Foreign currency translation adjustments

     1,228       (2,425     1,914       (1,845

Unrealized (loss) gain on cash flow hedge, net of taxes of $(192) and $45, and $(230) and $370 for the three months and six months ended June 30, 2017 and 2018, respectively

     (176     144       (392     1,184  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income

   $ (38,077   $ (4,250   $ (72,995   $ (9,718
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.29   $ (0.01   $ (0.55   $ (0.06
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.29   $ (0.01   $ (0.55   $ (0.06
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic

     137,295,120       142,340,561       136,124,347       141,356,567  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     137,295,120       142,340,561       136,124,347       141,356,567  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2017     2018     2017     2018  

Cash flows from operating activities:

        

Net (loss) income

   $ (35,415   $ (1,969   $ (66,993   $ (9,057

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

        

Depreciation of property and equipment

     14,051       12,796       27,162       24,864  

Amortization of other intangible assets

     34,940       25,978       69,207       51,713  

Amortization of deferred financing costs

     1,786       1,092       3,530       2,986  

Amortization of net present value of deferred consideration

     187       123       377       251  

Dividend from minority interest

     50       —         50       —    

Amortization of original issue discounts

     886       1,068       1,732       2,126  

Stock-based compensation

     16,245       7,390       29,169       14,382  

Deferred tax expense (benefit)

     906       2,180       4,346       2,672  

Loss (gain) on sale of assets

     97       213       (128     261  

Loss (gain) of unconsolidated entities

     (39     (25     (39     2  

Financing costs expensed

     5,487       1,228       5,487       1,228  

Loss on early extinguishment of debt

     992       331       992       331  

Changes in operating assets and liabilities, net of acquisitions:

        

Accounts receivable

     (1,033     1,292       1,359       3,740  

Prepaid expenses and other current assets

     4,374       (5,863     (1,343     (8,560

Accounts payable and accrued expenses

     4,463       (13,475     (9,004     (12,880

Deferred revenue

     771       (2,467     16,518       8,193  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     48,748       29,892       82,422       82,252  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchases of property and equipment

     (10,037     (8,127     (19,295     (13,381

Proceeds from sale of assets

     36       —         287       —    

Purchases of intangible assets

     (1,647     —         (1,680     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (11,648     (8,127     (20,688     (13,381
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

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

     1,693,007       1,580,305       1,693,007       1,580,305  

Repayments of term loans

     (1,705,736     (1,605,207     (1,714,661     (1,630,693

Payment of financing costs

     (5,968     (1,295     (6,060     (1,295

Payment of deferred consideration

     (4,590     (4,196     (5,408     (4,196

Principal payments on capital lease obligations

     (1,871     (1,679     (3,908     (3,909

Proceeds from exercise of stock options

     504       431       1,132       456  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (24,654     (31,641     (35,898     (59,332
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of exchange rate on cash and cash equivalents and restricted cash

     (251     (1,405     2,076       (1,488
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents and restricted cash

     12,195       (11,281     27,912       8,051  

Cash and cash equivalents and restricted cash:

        

Beginning of period

     72,615       88,450       56,898       69,118  
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 84,810     $ 77,169     $ 84,810     $ 77,169  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 33,576     $ 30,370     $ 80,122     $ 72,461  

Income taxes paid

   $ 1,507     $ 1,519     $ 2,459     $ 2,122  

 

8


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 June 30,      Six Months Ended June 30,  
     2017      2018      2017      2018  

Net (loss) income

   $ (35,415    $ (1,969    $ (66,993    $ (9,057

Interest expense, net(1)

     45,473        38,119        84,871        73,965  

Income tax expense (benefit)

     2,628        1,650        8,402        4,267  

Depreciation

     14,051        12,796        27,162        24,864  

Amortization of other intangible assets

     34,940        25,978        69,207        51,713  

Stock-based compensation

     16,245        7,390        29,169        14,382  

Restructuring expenses

     4,468        1,295        10,095        2,824  

Transaction expenses and charges

     193        —          773        —    

(Income) loss of unconsolidated entities

     (39      (25      (39      2  

Impairment of other long-lived assets

     —          —          —          —    

Shareholder litigation reserve

     —          (240      —          8,260  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 82,544      $ 84,994      $ 162,647      $ 171,220  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income.

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 June 30,      Six Months Ended June 30,  
     2017      2018      2017      2018  

Cash flow from operations

   $ 48,748      $ 29,892      $ 82,422      $ 82,252  

Less:

           

Capital expenditures and capital lease obligations(1)

     (11,908      (9,806      (23,203      (17,290
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 36,840      $ 20,086      $ 59,219      $ 64,962  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Capital expenditures during the three and six months ended June 30, 2017 and 2018 includes $1.9 million and $1.7 million, and $3.9 million and $3.9 million, respectively, of principal payments under a three year capital lease for software. The remaining balance on the capital lease is $11.4 million as of June 30, 2018.

 

9


Average Revenue Per Subscriber - Calculation and Segment Detail

We present our financial results in the following three segments.

 

    Web presence. The web presence segment consists primarily of our web hosting brands and related products such as website security, website design tools and services, and e-commerce products.

 

    Email marketing. The email marketing segment consists of Constant Contact email marketing tools and related products and the SinglePlatform digital storefront product.

 

    Domain. The domain segment consists of domain-focused brands and certain web hosting brands that are aligned with our domain-focused brands. This segment sells domain names and domain management services to resellers and end users, as well as premium domain names, and also generates advertising revenue from domain name parking.

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 June 30,      Six Months Ended June 30,  
     2017      2018      2017      2018  

Consolidated revenue

   $ 292,258      $ 287,770      $ 587,395      $ 579,126  

Consolidated total subscribers

     5,217        4,918        5,217        4,918  

Consolidated average subscribers for the period

     5,261        4,965        5,294        4,985  

Consolidated ARPS

   $ 18.52      $ 19.32      $ 18.49      $ 19.36  

Web presence revenue

   $ 160,122      $ 152,715      $ 324,131      $ 307,732  

Web presence subscribers

     4,041        3,737        4,041        3,737  

Web presence average subscribers for the period

     4,088        3,774        4,120        3,793  

Web presence ARPS

   $ 13.06      $ 13.49      $ 13.11      $ 13.52  

Email marketing revenue

   $ 99,086      $ 102,154      $ 196,875      $ 204,601  

Email marketing subscribers(1)

     530        504        530        504  

Email marketing average subscribers for the period

     534        511        537        512  

Email marketing ARPS

   $ 61.88      $ 66.60      $ 61.10      $ 66.64  

Domain revenue

   $ 33,050      $ 32,901      $ 66,389      $ 66,793  

Domain subscribers

     646        677        646        677  

Domain average subscribers for the period

     639        680        637        680  

Domain ARPS

   $ 17.23      $ 16.13      $ 17.36      $ 16.36  

 

(1) Total email marketing subscriber count for the three and six month periods ending June 30, 2018 was impacted by a loss of approximately 10,500 subscribers, which resulted from changes made to Constant Contact’s account cancellation policy. Excluding this impact, the total subscribers at period end would have been approximately 514,000.

 

10


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 June 30, 2017  
     Web presence      Email
marketing
     Domain      Total  
     Revised(2)  

Revenue

   $ 160,122      $ 99,086      $ 33,050      $ 292,258  

Gross profit

   $ 74,284      $ 63,123      $ 8,268      $ 145,675  

Net (loss) income

   $ (27,805    $ (2,276    $ (5,334    $ (35,415

Interest expense, net(1)

     19,801        25,179        493        45,473  

Income tax expense (benefit)

     3,354        (1,367      641        2,628  

Depreciation

     9,583        3,526        942        14,051  

Amortization of other intangible assets

     14,996        18,565        1,379        34,940  

Stock-based compensation

     12,723        1,900        1,622        16,245  

Restructuring expenses

     3,348        769        351        4,468  

Transaction expenses and charges

     —          193        —          193  

(Gain) loss of unconsolidated entities

     (39      —          —          (39

Impairment of other long-lived assets

     —          —          —          —    

SEC investigations reserve

     —          —          —          —    

Shareholder litigation reserve

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 35,961      $ 46,489      $ 94      $ 82,544  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended June 30, 2018  
     Web presence      Email
marketing
     Domain      Total  

Revenue

   $ 152,715      $ 102,154      $ 32,901      $ 287,770  

Gross profit

   $ 75,702      $ 71,376      $ 9,946      $ 157,024  

Net (loss) income

   $ (8,243    $ 9,481      $ (3,207    $ (1,969

Interest expense, net(1)

     18,385        17,329        2,405        38,119  

Income tax expense (benefit)

     870        581        199        1,650  

Depreciation

     8,391        3,406        999        12,796  

Amortization of other intangible assets

     11,863        13,239        876        25,978  

Stock-based compensation

     5,424        1,288        678        7,390  

Restructuring expenses

     788        420        87        1,295  

Transaction expenses and charges

     —          —          —          —    

(Gain) loss of unconsolidated entities

     (25      —          —          (25

Impairment of other long-lived assets

     —          —          —          —    

SEC investigations reserve

     —          —          —          —    

Shareholder litigation reserve

     (197      —          (43      (240
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 37,256      $ 45,744      $ 1,994      $ 84,994  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


     Six Months Ended June 30, 2017  
     Web presence      Email
marketing
     Domain      Total  
     Revised(2)  

Revenue

   $ 324,131      $ 196,875      $ 66,389      $ 587,395  

Gross profit

   $ 152,154      $ 122,895      $ 17,014      $ 292,063  

Net (loss) income

   $ (46,823    $ (10,228    $ (9,942    $ (66,993

Interest expense, net(1)

     36,191        47,698        982        84,871  

Income tax expense (benefit)

     11,847        (6,144      2,699        8,402  

Depreciation

     18,002        7,399        1,761        27,162  

Amortization of other intangible assets

     29,547        36,927        2,733        69,207  

Stock-based compensation

     22,513        3,724        2,932        29,169  

Restructuring expenses

     5,476        4,061        558        10,095  

Transaction expenses and charges

     —          773        —          773  

(Gain) loss of unconsolidated entities

     (39      —          —          (39

Impairment of other long-lived assets

     —          —          —          —    

SEC investigations reserve

     —          —          —          —    

Shareholder litigation reserve

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 76,714      $ 84,210      $ 1,723      $ 162,647  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Six Months Ended June 30, 2018  
     Web presence      Email
marketing
     Domain      Total  

Revenue

   $ 307,732      $ 204,601      $ 66,793      $ 579,126  

Gross profit

   $ 150,075      $ 143,553      $ 20,846      $ 314,474  

Net (loss) income

   $ (25,351    $ 24,610      $ (8,316    $ (9,057

Interest expense, net(1)

     35,371        33,738        4,856        73,965  

Income tax expense (benefit)

     7,191        (5,026      2,102        4,267  

Depreciation

     16,368        6,552        1,944        24,864  

Amortization of other intangible assets

     23,871        26,332        1,510        51,713  

Stock-based compensation

     10,497        2,696        1,189        14,382  

Restructuring expenses

     1,600        582        642        2,824  

Transaction expenses and charges

     —          —          —          —    

Loss of unconsolidated entities

     2        —          —          2  

Impairment of other long-lived assets

     —          —          —          —    

SEC investigations reserve

     —          —          —          —    

Shareholder litigation reserve

     5,548        1,500        1,212        8,260  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 75,097      $ 90,984      $ 5,139      $ 171,220  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income.
(2) As disclosed in the first quarter of 2018, we revised the allocation of our 2017 adjusted EBITDA between our web presence and domain segment to correct a misallocation of domain registration costs in our previously reported segment figures. This correction resulted in the reallocation of adjusted EBITDA from the domain segment to the web presence segment of $1.8 million and $3.0 million for the three and six months ending June 30, 2017, respectively. Consolidated adjusted EBITDA figures for these periods were not affected by this correction.

 

12


GAAP to Non-GAAP Reconciliation of Fiscal Year 2018 Guidance (as of July 26, 2018) - Adjusted EBITDA

The following table reflects the reconciliation of fiscal year 2018 estimated net loss calculated in accordance with GAAP to fiscal year 2018 guidance for adjusted EBITDA. All figures shown are approximate.

 

($ in millions)

   Twelve Months Ending
December 31, 2018
 

Estimated net loss

   $ (35    $ (21

Estimated interest expense (net)

     149        150  

Estimated income tax expense (benefit)

     5        6  

Estimated depreciation

     50        50  

Estimated amortization of acquired intangible assets

     100        100  

Estimated stock-based compensation

     30        32  

Estimated restructuring expenses

     3        5  

Estimated transaction expenses and charges

     —          —    

Estimated (gain) loss of unconsolidated entities

     —          —    

Estimated impairment of other long-lived assets

     —          —    

Estimated shareholder litigation reserve

     8.25        8.25  
  

 

 

    

 

 

 

Adjusted EBITDA guidance

   $ 310      $ 330  
  

 

 

    

 

 

 

GAAP to Non-GAAP Reconciliation of Fiscal Year 2018 Guidance (as of July 26, 2018) - Free Cash Flow

The following table reflects the reconciliation of fiscal year 2018 estimated cash flow from operations calculated in accordance with GAAP to fiscal year 2018 guidance for free cash flow. All figures shown are approximate.

 

($ in millions)

  Twelve Months
Ending
December 31, 2018
 

Estimated cash flow from operations

  $ 178  

Estimated capital expenditures and capital lease obligations

    (58
 

 

 

 

Free cash flow guidance

  $ 120  
 

 

 

 

 

13