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): February 8, 2018

 

 

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 February 13, 2018, Endurance International Group Holdings, Inc. (the “Company”) issued a press release announcing certain financial results and other information for the quarter and full year ended December 31, 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 reported under Item 2.02 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 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

2018 Management Incentive Plan

On February 8, 2018, the Compensation Committee of the Board of Directors (the “Compensation Committee”) of the Company adopted the 2018 Management Incentive Plan (the “2018 MIP”), a cash-based incentive compensation plan pursuant to which eligible Company employees, including named executive officers, are eligible for an annual bonus.

Eligible employees may earn annual bonuses under the 2018 MIP based on the achievement by the Company of pre-established targets for GAAP Revenue (weighted 50%) and Adjusted EBITDA (weighted 50%) for the year ending December 31, 2018. GAAP Revenue and Adjusted EBITDA are as reported and defined in the Company’s public filings.

The Company’s percentage achievement of the target for each of the GAAP Revenue and Adjusted EBITDA metrics will be evaluated separately, weighted, and added to the weighted percentage achievement of the target for the other metric, and the bonus pool will be funded at the resulting combined percentage. In order for the GAAP Revenue metric to contribute to the bonus pool funding, the Company must achieve approximately 98% of the GAAP Revenue target, and in order for the Adjusted EBITDA metric to contribute to the bonus pool funding, the Company must achieve approximately 95% of the Adjusted EBITDA target. Achievement of 100% of the target for each metric will equate to 100% funding of the bonus pool. If the Company exceeds one or both metric targets, the bonus pool may be funded at a level up to 125%, depending upon the level of overachievement.

If the bonus pool is funded, individual bonuses will be calculated based upon the bonus pool funding percentage and each individual’s eligible earnings, target bonus percentage, and individual performance.

All payments and bonus pool funding are at the discretion of the Board of Directors. The Board of Directors or the Compensation Committee may make adjustments to achievement of performance metrics and payout levels under the 2018 MIP to address the impact of any mergers, acquisitions or other unexpected activities, developments, trends or events. In addition, achievement of the performance metrics may include or exclude any of the following events that occur during the performance year: any reorganization or restructuring transactions; extraordinary nonrecurring items; and significant acquisitions or divestitures.

The foregoing summary of the terms of the 2018 MIP is qualified in its entirety by reference to the 2018 MIP, which the company plans to file as an Exhibit to its Form 10-Q for the quarter ending March 31, 2018.

Interim COO Role Elimination

Effective February 9, 2018, the Company has eliminated the role of interim chief operating officer as part of its organizational streamlining efforts. Accordingly, Marc Montagner, the Company’s chief financial officer, will no longer serve in the interim chief operating officer role, but will continue to serve as chief financial officer.

 

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 February 13, 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: February 13, 2018      
   

/s/ Marc Montagner

    (Signature)
    Name:   Marc Montagner
    Title:   Chief Financial Officer
EX-99.1

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2017 Fourth Quarter

and Full Year Results

Fiscal Year 2017

 

    GAAP revenue of $1.177 billion

 

    Net loss of $99.8 million

 

    Adjusted EBITDA of $350.8 million

 

    Cash flow from operations of $201.3 million

 

    Free cash flow of $150.8 million

 

    Total subscribers on platform were approximately 5.051 million at year end 2017

Fourth Quarter 2017

 

    GAAP revenue of $294.2 million

 

    Net income of $7.5 million

 

    Adjusted EBITDA of $94.4 million

 

    Cash flow from operations of $72.4 million

 

    Free cash flow of $59.7 million

BURLINGTON, MA (February 13, 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 fourth quarter and fiscal year ended December 31, 2017.

“We are pleased with the profit and cash flow we generated in the fourth quarter,” commented Jeffrey H. Fox, president and chief executive officer of Endurance International Group. “We enter 2018 focused on simplifying our operations and increasing investment in our market-leading brands. We are focused on increasing the value we deliver to our customers as we integrate our assets to operate more effectively at scale.”

Full Year and Fourth Quarter 2017 Financial Highlights

 

    For fiscal year 2017, revenue was $1.177 billion, an increase of 6 percent compared to $1.111 billion in fiscal 2016. Revenue for the fourth quarter of 2017 was $294.2 million, an increase of 1 percent compared to $292.1 million in the fourth quarter of 2016.


    For fiscal year 2017, net loss was $99.8 million compared to a net loss of $81.2 million for fiscal 2016. Net income for the fourth quarter of 2017 was $7.5 million compared to a net loss of $32.1 million for the fourth quarter of 2016.

 

    For fiscal year 2017, net loss attributable to Endurance International Group Holdings, Inc. was $107.3 million, or $(0.78) per diluted share, compared to a net loss of $72.8 million, or $(0.55) per diluted share, for fiscal 2016. Net income attributable to Endurance International Group Holdings, Inc. for the fourth quarter of 2017 was $7.5 million, or $0.05 per diluted share, compared to a net loss of $34.9 million, or $(0.26) per diluted share, for the fourth quarter of 2016.

 

    Adjusted EBITDA for fiscal year 2017 was $350.8 million, an increase of 22 percent compared to $288.4 million in fiscal 2016. Adjusted EBITDA for the fourth quarter of 2017 was $94.4 million, an increase of 9 percent compared to $87.0 million in the fourth quarter of 2016.

 

    Cash flow from operations for fiscal year 2017 was $201.3 million, an increase of 30 percent compared to $155.0 million for fiscal 2016. Cash flow from operations for the fourth quarter of 2017 was $72.4 million, an increase of 36 percent compared to $53.2 million for the fourth quarter of 2016.

 

    Free cash flow, defined as cash flow from operations less capital expenditures and capital lease obligations, for fiscal year 2017 was $150.8 million, an increase of 35 percent compared to $111.8 million in fiscal 2016. Free cash flow for the fourth quarter of 2017 was $59.7 million, an increase of 37 percent compared to $43.7 million for the fourth quarter of 2016.

 

    During fiscal 2017, the company reduced the balance of its term loan by $100.4 million.

Full Year and Fourth Quarter Operating Highlights

 

    Total subscribers on platform at December 31, 2017 were approximately 5.051 million, compared to approximately 5.122 million subscribers at September 30, 2017 and 5.371 million subscribers at December 31, 2016. See “Total Subscribers” below.

 

    Average revenue per subscriber, or ARPS, for fiscal year 2017 was $18.82, compared to $17.53 for fiscal year 2016. ARPS for the fourth quarter of 2017 was $19.28, compared to $18.02 for the fourth quarter of 2016.

Fiscal 2018 Guidance

The company is providing the following guidance as of the date of this release, February 13, 2018. For the full year ending December 31, 2018, the company expects:

 

     2017 Actual
As reported
     Guidance
(as of February 13, 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  

 

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Free cash flow guidance does not include the impact of potential settlements of pending legal proceedings. 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 fourth quarter and full year 2017 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EST on Tuesday, February 13, 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.

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, and SEC investigations 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.

 

3


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 fourth quarter of 2017, these adjustments had a net negative impact of approximately 700 subscribers on our total subscriber count.

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, our expectations regarding our 2018 priorities and investment plans, the ability of these investments to drive future growth and long-term value, 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

 

4


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 financial guidance may differ from expectations (including due to our payment of any potential settlements of pending legal proceedings); the possibility that our planned investment 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 grow our subscriber base, 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 and uncertainties discussed in our filings with the SEC, including the “Risk Factors” section of our most recent Quarterly Report on Form 10-Q for the quarter ended September 30, 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 enhance their online web presence, email marketing, mobile 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 3,600 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
    December 31,
2017
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 53,596     $ 66,493  

Restricted cash

     3,302       2,625  

Accounts receivable

     13,088       15,945  

Prepaid domain name registry fees

     55,444       53,805  

Prepaid expenses and other current assets

     28,678       29,327  
  

 

 

   

 

 

 

Total current assets

     154,108       168,195  

Property and equipment—net

     95,272       95,452  

Goodwill

     1,859,909       1,850,582  

Other intangible assets—net

     612,057       455,440  

Deferred financing costs

     4,932       3,189  

Investments

     15,857       15,267  

Prepaid domain name registry fees, net of current portion

     10,429       10,806  

Other assets

     3,710       2,155  
  

 

 

   

 

 

 

Total assets

   $ 2,756,274     $ 2,601,086  
  

 

 

   

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

    

Current liabilities:

    

Accounts payable

     16,074       11,058  

Accrued expenses

     67,722       79,991  

Accrued interest

     27,246       24,457  

Deferred revenue

     355,190       361,940  

Current portion of notes payable

     35,700       33,945  

Current portion of capital lease obligations

     6,690       7,630  

Deferred consideration—short term

     5,273       4,365  

Other current liabilities

     2,890       4,031  
  

 

 

   

 

 

 

Total current liabilities

     516,785       527,417  

Long-term deferred revenue

     89,200       90,972  

Notes payable—long term, net of original issue discounts of $25,853 and $25,811, and deferred financing costs of $43,342 and $37,736, respectively

     1,951,280       1,858,300  

Capital lease obligations—long term

     512       7,719  

Deferred tax liability

     39,943       19,696  

Deferred consideration—long term

     7,444       3,551  

Other liabilities

     8,974       10,426  
  

 

 

   

 

 

 

Total liabilities

     2,614,138       2,518,081  
  

 

 

   

 

 

 

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

     —         —    

Common Stock—par value $0.0001; 500,000,000 shares authorized; 134,793,857 and 140,190,695 shares issued at December 31, 2016 and December 31, 2017, respectively; 134,793,857 and 140,190,695 outstanding at December 31, 2016 and December 31, 2017, respectively

     14       14  

Additional paid-in capital

     868,228       931,033  

Accumulated other comprehensive loss

     (3,666     (541

Accumulated deficit

     (740,193     (847,501
  

 

 

   

 

 

 

Total stockholders’ equity

     124,383       83,005  
  

 

 

   

 

 

 

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

   $ 2,756,274     $ 2,601,086  
  

 

 

   

 

 

 

 

6


Endurance International Group Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2016     2017     2016     2017  

Revenue

   $ 292,123     $ 294,250     $ 1,111,142     $ 1,176,867  

Cost of revenue

     145,011       149,733       583,991       603,930  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     147,112       144,517       527,151       572,937  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     68,567       66,306       303,511       277,460  

Engineering and development

     19,671       18,379       87,601       78,772  

General and administrative

     34,587       33,043       143,095       163,972  

Impairment of goodwill

     —         12,129       —         12,129  

Transaction expenses

     27       —         32,284       773  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     122,852       129,857       566,491       533,106  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     24,260       14,660       (39,340     39,831  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Other income (loss), net

     (4,703     —         1,862       (600

Interest income

     138       230       576       736  

Interest expense

     (40,315     (36,120     (152,888     (157,142
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (44,880     (35,890     (150,450     (157,006
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes and equity earnings of unconsolidated entities

     (20,620     (21,230     (189,790     (117,175

Income tax expense (benefit)

     11,362       (28,665     (109,858     (17,281
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity earnings of unconsolidated entities

     (31,982     7,435       (79,932     (99,894
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     100       (38     1,297       (110
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (32,082   $ 7,473     $ (81,229   $ (99,784
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to non-controlling interest

     (841     —         (15,167     277  

Excess accretion of non-controlling interest

     3,624       —         6,769       7,247  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     2,783       —         (8,398     7,524  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (34,865   $ 7,473     $ (72,831   $ (107,308
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss:

        

Foreign currency translation adjustments

     (1,591     106       (597     3,091  

Unrealized gain (loss) on cash flow hedge, net of taxes of $97 and $192, and $(792) and $11 for the three and twelve months ended December 31, 2016 and 2017, respectively

     515       343       (1,351     34  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income

   $ (35,941   $ 7,923     $ (74,779   $ (104,183
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per share attributable to Endurance International Group Holdings, Inc.—basic

   $ (0.26   $ 0.05     $ (0.55   $ (0.78
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per share attributable to Endurance International Group Holdings, Inc.—diluted

     (0.26   $ 0.05     $ (0.55     (0.78
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     134,453,029       138,921,118       133,415,732       137,322,201  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     134,453,029       141,307,988       133,415,732       137,322,201  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2016     2017     2016     2017  

Cash flows from operating activities:

        

Net (loss) income

   $ (32,082   $ 7,473     $ (81,229   $ (99,784

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

        

Depreciation of property and equipment

     13,418       14,452       60,360       55,185  

Amortization of other intangible assets from acquisitions

     37,883       35,800       143,562       140,354  

Amortization of deferred financing costs

     1,751       1,913       6,073       7,316  

Amortization of net present value of deferred consideration

     191       128       2,617       632  

Amortization of original issuance discount

     854       1,069       2,970       3,860  

Impairment of long-lived assets

     754       4,883       9,039       18,731  

Impairment of investments

     —         —         —         600  

Impairment of goodwill

     —         12,129       —         12,129  

Stock-based compensation

     10,049       11,252       58,267       60,001  

Deferred tax expense (benefit)

     11,305       (26,700     (113,242     (20,258

Gain on sale of assets

     (75     2       (243     (315

(Gain) loss from unconsolidated entities

     4,703       (38     (1,862     (110

(Gain) loss of unconsolidated entities

     100       (110     1,297       —    

Financing costs expensed

     —         —         —         5,487  

Loss on early extinguishment of debt

     —         —         —         992  

Dividend from minority interest

     50       —         100       100  

(Gain) loss from change in deferred consideration

     13       —         (20     —    

Changes in operating assets and liabilities:

        

Accounts receivable

     (2,996     (2,230     (1,620     (3,102

Prepaid expenses and other current assets

     4,274       2,344       (4,932     1,834  

Accounts payable and accrued expenses

     7,164       16,695       19,458       9,386  

Deferred revenue

     (4,199     (6,765     54,366       8,235  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     53,157       72,297       154,961       201,273  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Businesses acquired in purchase transaction, net of cash acquired

     —         —         (889,634     —    

Purchases of property and equipment

     (7,942     (10,967     (37,259     (43,062

Cash paid for minority investment

     —         —         (5,600     —    

Proceeds from sale of assets

     —         238       676       530  

Proceeds from note receivable

     434       —         —         —    

Purchases of intangible assets

     —         —         (27     (1,966

Net (deposits) and withdrawals of principal balances in restricted cash accounts

     181       22       (557     677  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (7,327     (10,707     (932,401     (43,821
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from issuance of term loan

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

Repayment of term loan

     (12,425     (64,487     (55,200     (1,797,634

Proceeds from borrowing of revolver

     5,000       —         54,500       —    

Repayment of revolver

     (38,500     —         (121,500     —    

Payment of financing costs

     —         —         (52,561     (6,304

Payment of deferred consideration

     (7,964     (25     (51,044     (5,433

Payment of redeemable non-controlling interest liability

     —         —         (33,425     (25,000

Principal payments on capital lease obligations

     (1,520     (1,711     (5,892     (7,390

Proceeds from exercise of stock options

     260       501       2,564       2,049  

Capital investment from minority interest partner

     —         —         2,776       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (55,149     (65,722     796,396       (146,705
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of exchange rate on cash and cash equivalents

     (233     (6     1,610       2,150  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

     (9,552     (4,138     20,566       12,897  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents:

        

Beginning of period

     63,148       70,521       33,030       53,596  
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 53,596     $ 66,383     $ 53,596     $ 66,493  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 27,882     $ 22,881     $ 119,063     $ 141,157  

Income taxes paid

   $ 879     $ (589   $ 4,278     $ 3,369  

Supplemental disclosure of non-cash financing activities:

        

Shares or awards issued in connection with acquisitions

   $ —       $ —       $ 5,395     $ —    

Assets acquired under capital lease

     $ 12,408     $ —       $ 15,536  

 

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
December 31,
     Twelve Months Ended
December 31,
 
     2016      2017      2016      2017  

Net (loss) income

   $ (32,082    $ 7,473      $ (81,229    $ (99,784

Interest expense, net(1)

     40,177        35,890        152,312        156,406  

Income tax expense (benefit)

     11,362        (28,665      (109,858      (17,281

Depreciation

     13,418        14,452        60,360        55,185  

Amortization of other intangible assets

     37,883        35,800        143,562        140,354  

Stock-based compensation

     10,049        11,252        58,267        60,001  

Restructuring expenses

     582        1,226        24,224        15,810  

Transaction expenses and charges

     27        —          32,284        773  

(Gain) loss of unconsolidated entities(2)

     4,803        (38      (565      (110

Impairment of other long-lived assets

     754        17,012        9,039        31,460  

SEC investigations reserve

     —          —          —          8,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 86,973      $ 94,402      $ 288,396      $ 350,814  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest expense includes impact of amortization of deferred financing costs, original issue discounts and interest income.
(2) The (gain) loss of unconsolidated entities includes our proportionate share of net (gains) losses from unconsolidated entities, (gains) losses from revaluation of our existing investments to their implied fair values if and when we obtain control of the equity investee, and impairment charges, if any.

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
December 31,
     Twelve Months Ended
December 31,
 
     2016      2017      2016      2017  

Cash flow from operations

   $ 53,157      $ 72,407      $ 154,961      $ 201,273  

Less:

           

Capital expenditures and capital lease obligations (1)

     (9,462      (12,678      (43,151      (50,452
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 43,695      $ 59,729      $ 111,810      $ 150,821  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Capital expenditures during the three and twelve months ended December 31, 2016 includes $1.5 million and $5.9 million of principal payments under a three year capital lease for software. Capital expenditures during the three and twelve months ended December 31, 2017 includes $1.7 million and $7.4 million of principal payments under a two year capital lease for software. The remaining balance on the capital lease is $15.3 million as of December 31, 2017.

 

9


Average Revenue Per Subscriber - Calculation and Segment Detail

Starting with the fourth quarter of 2017, we will 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 the 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
December 31,
     Twelve Months Ended
December 31,
 
     2016      2017      2016      2017  

Consolidated revenue

   $ 292,123      $ 294,250      $ 1,111,142      $ 1,176,867  

Consolidated total subscribers

     5,371        5,051        5,371        5,051  

Consolidated average subscribers

     5,405        5,087        5,283        5,211  

Consolidated average revenue per subscriber (ARPS)

   $ 18.02      $ 19.28      $ 17.53      $ 18.82  
  

 

 

    

 

 

    

 

 

    

 

 

 

Web presence revenue

     161,878      $ 158,332        648,732      $ 641,993  

Web presence subscribers

     4,198        3,849        4,198        3,849  

Web presence average subscribers

     4,240        3,903        4,233        4,024  

Web presence ARPS

   $ 12.73      $ 13.52      $ 12.77      $ 13.29  
  

 

 

    

 

 

    

 

 

    

 

 

 

Email marketing revenue

     97,153      $ 102,849        326,808      $ 401,250  

Email marketing subscribers

     544        519        544        519  

Email marketing average subscribers

     545        521        494        531  

Email marketing ARPS

   $ 59.43      $ 65.79      $ 55.11      $ 62.92  
  

 

 

    

 

 

    

 

 

    

 

 

 

Domain revenue

     33,092      $ 33,069        135,602      $ 133,624  

Domain subscribers

     629        683        629        683  

Domain average subscribers

     621        663        556        656  

Domain ARPS

   $ 17.77      $ 16.63      $ 20.34      $ 16.98  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


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

 

     Three Months Ended
December 31, 2017
 
     Web
presence
     Email
marketing
     Domain      Total  

Revenue

   $ 158,332      $ 102,849      $ 33,069      $ 294,250  

Gross profit

   $ 74,387      $ 66,760      $ 3,370      $ 144,517  

Net income (loss)

   $ 2,971      $ (2,589    $ 7,091      $ 7,473  

Less:

           

Interest expense, net(1)

   $ 16,614      $ 18,702      $ 574      $ 35,890  

Income tax expense (benefit)

   $ (11,304    $ 9,973      $ (27,334    $ (28,665

Depreciation

   $ 10,233      $ 3,280      $ 939      $ 14,452  

Amortization of other intangible assets

   $ 15,846      $ 18,770      $ 1,184      $ 35,800  

Stock-based compensation

   $ 8,618      $ 1,542      $ 1,092      $ 11,252  

Restructuring expenses

   $ 187      $ 838      $ 201      $ 1,226  

Transaction expenses and charges

   $ —        $ —        $ —        $ —    

Gain of unconsolidated entities(2)

   $ (38    $ —        $ —        $ (38

Impairment of other long-lived assets

   $ —        $ —        $ 17,012      $ 17,012  

SEC investigations reserve

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 43,127      $ 50,516      $ 759      $ 94,402  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Twelve Months Ended
December 31, 2017
 
     Web
presence
     Email
marketing
     Domain      Total  

Revenue

   $ 641,993      $ 401,250      $ 133,624      $ 1,176,867  

Gross profit

   $ 298,687      $ 254,941      $ 19,309      $ 572,937  

Net loss

   $ (70,375    $ (10,615    $ (18,794    $ (99,784

Plus:

           

Interest expense, net(1)

   $ 67,491      $ 86,914      $ 2,001      $ 156,406  

Income tax expense (benefit)

   $ 2,575      $ 5,152      $ (25,008    $ (17,281

Depreciation

   $ 37,634      $ 13,912      $ 3,639      $ 55,185  

Amortization of other intangible assets

   $ 60,277      $ 74,467      $ 5,610      $ 140,354  

Stock-based compensation

   $ 46,641      $ 6,934      $ 6,426      $ 60,001  

Restructuring expenses

   $ 9,131      $ 5,581      $ 1,098      $ 15,810  

Transaction expenses and charges

   $ —        $ 773      $ —        $ 773  

Gain of unconsolidated entities(2)

   $ (110    $ —        $ —        $ (110

Impairment of other long-lived assets

   $ 600      $ —        $ 30,860      $ 31,460  

SEC investigations reserve

   $ 4,323      $ 2,751      $ 926      $ 8,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 158,187      $ 185,869      $ 6,758      $ 350,814  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


     Three months ended December 31, 2016  
     Web
presence
     Email
marketing
     Domain      Total  

Revenue

   $ 161,877      $ 97,153      $ 33,093      $ 292,123  

Gross profit

   $ 77,622      $ 58,734      $ 10,756      $ 147,112  

Net loss

   $ (27,825    $ (3,923    $ (334    $ (32,082

Plus:

           

Interest expense, net(1)

   $ 16,866      $ 22,671      $ 640      $ 40,177  

Income tax expense (benefit)

   $ 13,555      $ (2,357    $ 164      $ 11,362  

Depreciation

   $ 8,580      $ 4,053      $ 785      $ 13,418  

Amortization of other intangible assets

   $ 18,057      $ 18,252      $ 1,574      $ 37,883  

Stock-based compensation

   $ 7,411      $ 1,964      $ 674      $ 10,049  

Restructuring expenses

   $ 344      $ 238      $ —        $ 582  

Transaction expenses and charges

   $ 27      $ —        $ —        $ 27  

Loss of unconsolidated entities(2)

   $ 4,803      $ —        $ —        $ 4,803  

Impairment of other long-lived assets

   $ 754      $ —        $ —        $ 754  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 42,572      $ 40,898      $ 3,503      $ 86,973  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Twelve months ended December 31, 2016  
     Web
presence
     Email
marketing
     Domain      Total  

Revenue

   $ 648,732      $ 326,808      $ 135,602      $ 1,111,142  

Gross profit

   $ 309,116      $ 173,163      $ 44,872      $ 527,151  

Net loss

   $ (24,382    $ (55,857    $ (990    $ (81,229

Plus:

           

Interest expense, net(1)

   $ 68,617      $ 81,469      $ 2,226      $ 152,312  

Income tax expense (benefit)

   $ (79,632    $ (33,543    $ 3,317      $ (109,858

Depreciation

   $ 33,590      $ 23,747      $ 3,023      $ 60,360  

Amortization of other intangible assets

   $ 72,733      $ 64,679      $ 6,150      $ 143,562  

Stock-based compensation

   $ 41,481      $ 12,403      $ 4,383      $ 58,267  

Restructuring expenses

   $ 1,625      $ 22,379      $ 220      $ 24,224  

Transaction expenses and charges

   $ 31,260      $ 984      $ 40      $ 32,284  

Gain of unconsolidated entities(2)

   $ (565    $ —        $ —        $ (565

Impairment of other long-lived assets

   $ 9,039      $ —        $ —        $ 9,039  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 153,766      $ 116,261      $ 18,369      $ 288,396  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest expense includes impact of amortization of deferred financing costs, original issue discounts and interest income.
(2) The (gain) loss of unconsolidated entities includes our proportionate share of net (gains) losses from unconsolidated entities, (gains) losses from revaluation of our existing investments to their implied fair values if and when we obtain control of the equity investee, and impairment charges, if any.

 

12


GAAP to Non-GAAP Reconciliation of Fiscal Year 2018 Guidance (as of February 13, 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

   $ (27    $ (7

Estimated interest expense (net)

     135        135  

Estimated income tax expense (benefit)

     8        8  

Estimated depreciation

     55        55  

Estimated amortization of acquired intangible assets

     100        100  

Estimated stock-based compensation

     35        35  

Estimated restructuring expenses

     4        4  

Estimated transaction expenses and charges

     —          —    

Estimated (gain) loss of unconsolidated entities

     —          —    

Estimated impairment of other long-lived assets

     —          —    
  

 

 

    

 

 

 

Adjusted EBITDA guidance

   $ 310      $ 330  

GAAP to Non-GAAP Reconciliation of Fiscal Year 2018 Guidance (as of February 13, 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