Endurance International Group
Endurance International Group Holdings, Inc. (Form: 8-K, Received: 08/01/2017 07:13:29)

 

 

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): August 1, 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 August 1, 2017, Endurance International Group Holdings, Inc. (the “Company”) issued a press release announcing certain financial results and other information for the quarter ended June 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 August 1, 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: August 1, 2017      
   

/s/ Marc Montagner

    (Signature)
    Name:   Marc Montagner
    Title:   Chief Financial Officer


EXHIBIT INDEX

 

Exhibit
No.

  

Description

99.1    Press release issued by Endurance International Group Holdings, Inc. on August 1, 2017.

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2017 Second Quarter Results

 

    GAAP revenue of $292.3 million

 

    Net loss of $35.4 million

 

    Adjusted EBITDA of $82.5 million

 

    Cash flow from operations of $48.7 million

 

    Free cash flow of $36.8 million

 

    Total subscribers on platform were approximately 5.217 million at June 30, 2017

BURLINGTON, MA (August 1, 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 second quarter ended June 30, 2017.

“Our second quarter performance reflected our continued drive toward meeting our 2017 operational and strategic goals,” commented Hari Ravichandran, chief executive officer and founder of Endurance International Group. “We are pleased with our overall results. Performance in our web presence segment was in-line with expectations while we focused on targeting high-value hosting subscribers. Constant Contact demonstrated steady revenue growth and margin expansion. Our year to date performance, along with our outlook for the remainder of the year, have reinforced our belief that our plans for 2017 are setting a strong foundation, and positioning us for profitable growth and strong cash flows in future years.”

Second Quarter 2017 Financial Highlights

 

    Revenue for the second quarter of 2017 was $292.3 million, an increase of one percent compared to $290.7 million for the second quarter of 2016. Revenue for the second quarter of 2017 includes a contribution of $99.1 million from Constant Contact, as compared to a contribution of $94.7 million for the second quarter of 2016.

 

    Net loss for the second quarter of 2017 was $35.4 million compared to net loss of $33.4 million for the second quarter of 2016.

 

    Net loss attributable to Endurance International Group Holdings, Inc. for the second quarter of 2017 was $39.1 million, or $(0.29) per diluted share, compared to net loss of $28.0 million, or $(0.21) per diluted share, for the second quarter of 2016.


    Adjusted EBITDA for the second quarter of 2017 was $82.5 million, an increase of 7 percent compared to $76.9 million for the second quarter of 2016.

 

    Cash flow from operations for the second quarter of 2017 was $48.7 million, a decrease of 9 percent compared to $53.8 million for the second quarter of 2016.

 

    Free cash flow, defined as cash flow from operations less capital expenditures and capital lease obligations, for the second quarter of 2017 was $36.8 million compared to $41.6 million for the second quarter of 2016.

Second Quarter Operating Highlights

 

    Total subscribers on platform at June 30, 2017 were approximately 5.217 million, compared to approximately 5.480 million subscribers at June 30, 2016 and 5.304 million subscribers at March 31, 2017. See “Total Subscribers” below.

 

    Average revenue per subscriber, or ARPS, for the second quarter of 2017 was $18.52, compared to $17.74 for the second quarter of 2016 and $18.43 for the first quarter of 2017. Excluding the impact of Constant Contact, ARPS for the second quarter of 2017 was $13.62, compared to $13.32 for the second quarter of 2016 and $13.71 for the first quarter of 2017. See “Average Revenue Per Subscriber” below.

Fiscal 2017 Guidance

The company is updating its guidance for revenue, adjusted EBITDA, and free cash flow. Expectations for revenue and adjusted EBITDA have increased by approximately $8 million and $6 million, respectively, from the midpoint of prior guidance provided on May 2, 2017. In addition, as the company accelerates streamlining of its operations and focuses on a narrower set of strategic brands, it expects restructuring expenses to increase by approximately $10 million as compared to those reflected in prior guidance. As a result, expectations for free cash flow have been reduced by approximately $10 million, reflecting the net impact of higher restructuring costs, lower change in deferred revenue, and lower cash interest expense post refinancing. The streamlining of the company’s cost structure and lower annualized cash interest expense due to the June 2017 refinancing of its term loan is expected to be accretive to free cash flow in 2018.

As of the date of this release, August 1, 2017, for the full year ending December 31, 2017, the company expects:

 

     2016 Actual
as Reported
    

Previous Guidance

(as of May 2, 2017)

  

Updated Guidance

(as of August 1, 2017)*

GAAP revenue

   $ 1.111 billion      4 - 5% increase    5 - 5.5% increase

Adjusted EBITDA

   $ 288 million      12 - 14% increase    14 - 16% increase

Free cash flow

   $ 112 million      ~35% increase    ~25% increase

 

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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 “Guidance” column represent percentage increases over 2016 figures shown in the “Actual as Reported” column.

Conference Call and Webcast Information

Endurance International Group’s second quarter 2017 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Tuesday, August 1, 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, (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.

 

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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 2017, these adjustments had a net negative impact of approximately 4,438 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. 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 belief that our year to date results and outlook for the remainder of the year position us for profitable growth and strong cash flow in future years, our expectations regarding restructuring expenses, changes in deferred revenue and interest expense for the remainder of the year, our belief that our cost streamlining efforts will be accretive to free cash flow in 2018, 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

 

4


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: that we will be unable to successfully enhance the customer product and service experience and improve customer satisfaction and retention through operational and infrastructure improvements; that the senior management transition we are undergoing (including the transition of our chief executive officer) will have an adverse impact on our business; 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 March 31, 2017 filed with the SEC on May 9, 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 approximately 4,000 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.

 

5


Investor Contact:

Angela White

Endurance International Group

(781) 852-3450

ir@endurance.com

Press Contact:

Kristen Andrews

Endurance International Group

(781) 482-7038

press@endurance.com

 

6


Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

 

     December 31, 2016     June 30, 2017  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 53,596     $ 81,409  

Restricted cash

     3,302       3,401  

Accounts receivable

     13,088       11,664  

Prepaid domain name registry fees

     55,444       56,710  

Prepaid expenses and other current assets

     28,678       28,844  
  

 

 

   

 

 

 

Total current assets

     154,108       182,028  

Property and equipment—net

     95,272       94,625  

Goodwill

     1,859,909       1,861,608  

Other intangible assets—net

     612,057       544,990  

Deferred financing costs

     4,932       4,089  

Investments

     15,857       15,846  

Prepaid domain name registry fees, net of current portion

     10,429       10,789  

Other assets

     3,710       2,504  
  

 

 

   

 

 

 

Total assets

   $ 2,756,274     $ 2,716,479  
  

 

 

   

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 16,074     $ 12,841  

Accrued expenses

     67,722       75,088  

Accrued interest

     27,246       20,088  

Deferred revenue

     355,190       369,825  

Current portion of notes payable

     35,700       33,945  

Current portion of capital lease obligations

     6,690       4,481  

Deferred consideration—short term

     5,273       4,250  

Other current liabilities

     2,890       2,947  
  

 

 

   

 

 

 

Total current liabilities

     516,785       523,465  

Long-term deferred revenue

     89,200       91,256  

Notes payable—long term, net of original issue discounts of $25,853 and $27,939 and deferred financing costs of $43,342 and $40,622 respectively

     1,951,280       1,936,258  

Capital lease obligations—long term

     512       1,537  

Deferred tax liability

     39,943       44,060  

Deferred consideration—long term

     7,444       3,437  

Other liabilities

     8,974       9,862  
  

 

 

   

 

 

 

Total liabilities

     2,614,138       2,609,875  
  

 

 

   

 

 

 

Redeemable non-controlling interest

     17,753       25,000  

Commitments and contingencies (Note 17)

    

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 137,503,270 shares issued at December 31, 2016 and June 30, 2017, respectively; 134,793,857 and 137,503,270 outstanding at December 31, 2016 and June 30, 2017, respectively

     14       14  

Additional paid-in capital

     868,228       898,445  

Accumulated other comprehensive loss

     (3,666     (2,144

Accumulated deficit

     (740,193     (814,711
  

 

 

   

 

 

 

Total stockholders’ equity

     124,383       81,604  
  

 

 

   

 

 

 

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

   $ 2,756,274     $ 2,716,479  
  

 

 

   

 

 

 

 

7


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,  
     2016     2017     2016     2017  

Revenue

   $ 290,713     $ 292,258     $ 527,826     $ 587,395  

Cost of revenue

     153,077       146,583       289,553       295,332  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     137,636       145,675       238,273       292,063  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     80,309       72,106       159,603       144,878  

Engineering and development

     27,687       20,149       43,942       40,511  

General and administrative

     34,830       40,580       75,109       79,660  

Transactions expenses

     978       193       32,098       773  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     143,804       133,028       310,752       265,822  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (6,168     12,647       (72,479     26,241  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Other income

     —         —         11,410       —    

Interest income

     142       185       276       303  

Interest expense

     (40,994     (45,658     (71,365     (85,174
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (40,852     (45,473     (59,679     (84,871
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes and equity earnings of unconsolidated entities

     (47,020     (32,826     (132,158     (58,630

Income tax expense (benefit)

     (13,931     2,628       (113,833     8,402  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of unconsolidated entities

     (33,089     (35,454     (18,325     (67,032

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

     341       (39     1,024       (39
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (33,430   $ (35,415   $ (19,349   $ (66,993
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to non-controlling interest

     (5,390     51       (13,120     277  

Excess accretion of non-controlling interest

     —         3,663       —         7,247  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (5,390     3,714       (13,120     7,524  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Endurance International Group Holdings, Inc.

   $ (28,040   $ (39,129   $ (6,229   $ (74,517
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

        

Foreign currency translation adjustments

     540       1,228       882       1,914  

Unrealized loss on cash flow hedge, net of taxes of $(218) and $(192), and $(824) and $(230) for the three and six months ended June 30, 2016 and 2017, respectively

     (427     (176     (1,938     (392
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (27,927   $ (38,077   $ (7,285   $ (72,995
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.21   $ (0.29   $ (0.05   $ (0.55
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.21   $ (0.29   $ (0.05   $ (0.55
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

     132,566,622       137,295,120       132,736,382       136,124,347  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     132,566,622       137,295,120       132,736,382       136,124,347  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2016     2017     2016     2017  

Cash flows from operating activities:

        

Net loss

   $ (33,430   $ (35,415   $ (19,349   $ (66,993

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

        

Depreciation of property and equipment

     16,760       14,051       29,932       27,162  

Amortization of other intangible assets

     37,823       34,940       67,697       69,207  

Impairment of long lived assets

     6,848       —         8,285       —    

Amortization of deferred financing costs

     1,651       1,786       2,562       3,530  

Amortization of net present value of deferred consideration

     799       187       1,582       377  

Dividend from minority interest

     50       50       50       50  

Amortization of original issue discounts

     823       886       1,272       1,732  

Stock-based compensation

     15,024       16,245       33,412       29,169  

Deferred tax (benefit) expense

     (14,259     906       (117,462     4,346  

(Gain) loss on sale of assets

     (224     97       (225     (128

(Gain) loss from unconsolidated entities

     341       (39     (10,386     (39

(Gain) loss from change in deferred consideration

     —         —         21       —    

Financing costs expensed

     —         5,487       —         5,487  

Loss on early extinguishment of debt

     —         992       —         992  

Changes in operating assets and liabilities, net of acquisitions:

        

Accounts receivable

     (598     (1,034     1,546       1,359  

Prepaid expenses and other current assets

     787       4,374       (14,886     (1,343

Accounts payable and accrued expenses

     9,544       4,463       26,517       (9,004

Deferred revenue

     11,904       771       55,047       16,518  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     53,843       48,747       65,615       82,422  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Businesses acquired in purchase transactions, net of cash acquired

     (18,180     —         (899,889     —    

Cash paid for minority investment

     (5,000     —         (5,600     —    

Purchases of property and equipment

     (10,821     (10,037     (20,961     (19,295

Proceeds from sale of assets

     252       36       252       287  

Purchases of intangible assets

     (27     (1,647     (27     (1,680

(Withdrawals) deposits of principal balances in restricted cash accounts

     (31     244       (768     (100
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (33,807     (11,404     (926,993     (20,788
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

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

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

Repayments of term loans

     (24,925     (1,705,736     (33,850     (1,714,661

Proceeds from borrowing of revolver

     —         —         16,000       —    

Repayment of revolver

     —         —         (83,000     —    

Payment of financing costs

     (122     (5,968     (51,727     (6,060

Payment of deferred consideration

     —         (4,590     (707     (5,408

Principal payments on capital lease obligations

     (1,457     (1,871     (2,896     (3,908

Capital investment from minority partner

     1,000       —         1,000       —    

Proceeds from exercise of stock options

     735       504       1,328       1,132  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (24,769     (24,654     902,326       (35,898
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of exchange rate on cash and cash equivalents

     1,048       (250     1,614       2,077  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

     (3,685     12,439       42,562       27,813  

Cash and cash equivalents:

        

Beginning of period

     79,277       68,970       33,030       53,596  
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 75,592     $ 81,409     $ 75,592     $ 81,409  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 27,512     $ 33,576     $ 44,171     $ 80,122  

Income taxes paid

   $ 1,480     $ 1,507     $ 2,448     $ 2,459  

 

9


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,  
     2016      2017      2016      2017  

Net income (loss)

   $ (33,430    $ (35,415    $ (19,349    $ (66,993

Interest expense, net (1)

     40,852        45,473        71,089        84,871  

Income tax expense (benefit)

     (13,931      2,628        (113,833      8,402  

Depreciation

     16,760        14,051        29,932        27,162  

Amortization of other intangible assets

     37,823        34,940        67,697        69,207  

Stock-based compensation

     15,024        16,245        33,412        29,169  

Restructuring expenses

     5,663        4,468        17,265        10,096  

Transaction expenses and charges

     978        193        32,098        773  

Loss (gain) of unconsolidated entities (2)

     341        (39      (10,386      (39

Impairment of other long-lived assets

     6,848        —          8,285        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 76,928      $ 82,544      $ 116,210      $ 162,648  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income. For the three and six months ended June 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 six months ended June 30, 2016. The six months ended June 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% 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 $1.0 million.

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,  
     2016      2017      2016      2017  

Cash flow from operations

   $ 53,843      $ 48,747      $ 65,615      $ 82,422  

Less:

           

Capital expenditures and capital lease obligations (1)

     (12,278      (11,908      (23,857      (23,203
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 41,565      $ 36,839      $ 41,758      $ 59,219  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Capital expenditures during the three and six months ended June 30, 2016 includes $1.5 million and $2.9 million, respectively, of principal payments under a three year capital lease for software. Capital expenditures during the three and six months ended June 30, 2017 includes $1.9 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 $6.0 million as of June 30, 2017.

 

10


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 June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Consolidated revenue

   $ 290,713      $ 292,258      $ 527,826      $ 587,395  

Consolidated total subscribers

     5,480        5,217        5,480        5,217  

Consolidated average subscribers for the period

     5,463        5,261        5,274        5,294  

Consolidated average revenue per subscriber (ARPS)

   $ 17.74      $ 18.52      $ 16.68      $ 18.49  

Web presence revenue

     196,041        193,172        394,089        390,520  

Web presence subscribers

     4,929        4,687        4,929        4,687  

Web presence average subscribers for the period

     4,906        4,727        4,838        4,757  

Web presence average revenue per subscriber (ARPS)

   $ 13.32      $ 13.62      $ 13.58      $ 13.68  

Email marketing revenue

     94,672        99,086        133,737        196,875  

Email marketing subscribers

     551        530        551        530  

Email marketing average subscribers for the period

     557        534        436        537  

Email marketing average revenue per subscriber (ARPS)

   $ 56.68      $ 61.88      $ 51.15      $ 61.10  

 

11


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

Revenue

   $ 196,041     $ 94,672     $ 290,713     $ 193,172     $ 99,086     $ 292,258  

Gross profit

     86,666       50,970       137,636       82,552       63,123       145,675  

Net income (loss)

     (17,461     (15,969     (33,430   $ (33,139   $ (2,276   $ (35,415

Interest expense, net (1)

     18,077       22,775       40,852       20,294       25,179       45,473  

Income tax expense (benefit)

     (4,341     (9,590     (13,931     3,995       (1,367     2,628  

Depreciation

     9,098       7,662       16,760       10,525       3,526       14,051  

Amortization of other intangible assets

     19,768       18,055       37,823       16,375       18,565       34,940  

Stock-based compensation

     10,429       4,595       15,024       14,345       1,900       16,245  

Restructuring expenses

     789       4,874       5,663       3,699       769       4,468  

Transaction expenses and charges

     757       221       978       —         193       193  

(Gain) loss of unconsolidated entities (2)

     341       —         341       (39     —         (39

Impairment of other long-lived assets

     6,848       —         6,848       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 44,305     $ 32,623     $ 76,928     $ 36,055     $ 46,489     $ 82,544  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended
June 30, 2016
    Six Months Ended
June 30, 2017
 
     Web
presence
    Email
marketing
    Total     Web
presence
    Email
marketing
    Total  

Revenue

   $ 394,089     $ 133,737     $ 527,826     $ 390,522     $ 196,875     $ 587,397  

Gross profit

     176,551       61,722       238,273       169,168       122,895       292,063  

Net income (loss)

   $ 22,673     $ (42,022   $ (19,349   $ (56,766   $ (10,227   $ (66,993

Interest expense, net (1)

     35,093       35,996       71,089       37,173       47,698       84,871  

Income tax expense (benefit)

     (88,598     (25,235     (113,833     14,544       (6,142     8,402  

Depreciation

     18,075       11,857       29,932       19,763       7,399       27,162  

Amortization of other intangible assets

     39,523       28,174       67,697       32,280       36,927       69,207  

Stock-based compensation

     25,075       8,337       33,412       25,445       3,724       29,169  

Restructuring expenses

     960       16,305       17,265       6,036       4,060       10,096  

Transaction expenses and charges

     31,114       984       32,098       —         773       773  

(Gain) loss of unconsolidated entities (2)

     (10,386     —         (10,386     (39     —         (39

Impairment of other long-lived assets

     8,285       —         8,285       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 81,814     $ 34,396     $ 116,210     $ 78,436     $ 84,212     $ 162,648  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income. For the three and six months ended June 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 (gain) loss of unconsolidated entities is reported on a net basis for the three and six months ended June 30, 2016. The six months ended June 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% 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 $1.0 million.

 

12


GAAP to Non-GAAP Reconciliation of Fiscal Year 2017 Guidance (as of August 1, 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 at the midpoint of the guidance range (i.e. assuming a 15% increase over 2016 adjusted EBITDA as reported). All figures shown are approximate.

 

($ in millions)

   Twelve Months Ending
December 31, 2017
 

Estimated net loss

   $ (103   

Estimated interest expense (net)

     156     

Estimated income tax expense (benefit)

     10     

Estimated depreciation

     58     

Estimated amortization of acquired intangible assets

     137     

Estimated stock-based compensation

     59     

Estimated restructuring expenses

     15     

Estimated transaction expenses and charges

     —       

Estimated (gain) loss of unconsolidated entities

     —       

Estimated impairment of other long-lived assets

     —       
  

 

 

    

Adjusted EBITDA guidance

      $ 332  

GAAP to Non-GAAP Reconciliation of Fiscal Year 2017 Guidance (as of August 1, 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  

 

13