Endurance International Group
Endurance International Group Holdings, Inc. (Form: 10-Q, Received: 08/04/2017 16:25:22)
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-36131
 
Endurance International Group Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
46-3044956
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
10 Corporate Drive, Suite 300
Burlington, Massachusetts
 
01803
(Address of Principal Executive Offices)
 
(Zip Code)
(781) 852-3200
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
  
Accelerated filer
 
Non-accelerated filer
☐  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Table of Contents

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of August 1, 2017, there were 143,117,504 shares of the issuer’s common stock, $0.0001 par value per share, outstanding.
 


Table of Contents

TABLE OF CONTENTS
 
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements (unaudited)
 
 


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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
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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

See accompanying notes to consolidated financial statements.

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Endurance International Group Holdings, Inc.
Consolidated Statements of Operations and Comprehensive 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

See accompanying notes to consolidated financial statements.

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Endurance International Group Holdings, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
 
Six Months Ended June 30,
 
 
2016

2017
Cash flows from operating activities:
 



Net loss
 
$
(19,349
)

$
(66,993
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 



Depreciation of property and equipment
 
29,932


27,162

Amortization of other intangible assets
 
67,697


69,207

Impairment of long lived assets
 
8,285



Amortization of deferred financing costs
 
2,562


3,530

Amortization of net present value of deferred consideration
 
1,582


377

Dividend from minority interest
 
50


50

Amortization of original issue discounts
 
1,272


1,732

Stock-based compensation
 
33,412


29,169

Deferred tax (benefit) expense
 
(117,462
)

4,346

(Gain) loss on sale of assets
 
(225
)

(128
)
(Gain) loss from unconsolidated entities
 
(10,386
)

(39
)
Financing costs expensed
 

 
5,487

Loss on early extinguishment of debt
 

 
992

(Gain) loss from change in deferred consideration
 
21



Changes in operating assets and liabilities, net of acquisitions:
 



Accounts receivable
 
1,546


1,359

Prepaid expenses and other current assets
 
(14,886
)

(1,343
)
Accounts payable and accrued expenses
 
26,517


(9,004
)
Deferred revenue
 
55,047


16,518

Net cash provided by operating activities
 
65,615


82,422

Cash flows from investing activities:
 



Businesses acquired in purchase transactions, net of cash acquired
 
(899,889
)


Cash paid for minority investment
 
(5,600
)


Purchases of property and equipment
 
(20,961
)

(19,295
)
Proceeds from sale of assets
 
252


287

Purchases of intangible assets
 
(27
)

(1,680
)
Withdrawals of principal balances in restricted cash accounts
 
(768
)

(100
)
Net cash used in investing activities
 
(926,993
)

(20,788
)
Cash flows from financing activities:
 



Proceeds from issuance of term loan and notes, net of original issue discounts
 
1,056,178


1,693,007

Repayments of term loans
 
(33,850
)

(1,714,661
)
Proceeds from borrowing of revolver
 
16,000



Repayment of revolver
 
(83,000
)


Payment of financing costs
 
(51,727
)

(6,060
)
Payment of deferred consideration
 
(707
)

(5,408
)
Principal payments on capital lease obligations
 
(2,896
)

(3,908
)
Capital investment from minority partner
 
1,000



Proceeds from exercise of stock options
 
1,328


1,132

Net cash provided by (used in) financing activities
 
902,326


(35,898
)
Net effect of exchange rate on cash and cash equivalents
 
1,614


2,077

Net increase in cash and cash equivalents
 
42,562


27,813

Cash and cash equivalents:
 



Beginning of period
 
33,030


53,596

End of period
 
$
75,592


$
81,409

Supplemental cash flow information:
 



Interest paid
 
$
44,171


$
80,122

Income taxes paid
 
$
2,448


$
2,459

See accompanying notes to consolidated financial statements.

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Endurance International Group Holdings, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Nature of Business
Formation and Nature of Business
Endurance International Group Holdings, Inc. (“Holdings”) is a Delaware corporation, which, together with its wholly owned subsidiary company, EIG Investors Corp. (“EIG Investors”), its primary operating subsidiary company, The Endurance International Group, Inc. (“EIG”), and other subsidiary companies of EIG, collectively form the “Company.” The Company is a leading provider of cloud-based platform solutions designed to help small- and medium-sized businesses succeed online.
EIG and EIG Investors were incorporated in April 1997 and May 2007, respectively, and Holdings was originally formed as a limited liability company in October 2011 in connection with the acquisition by investment funds and entities affiliated with Warburg Pincus and Goldman, Sachs & Co. on December 22, 2011 of a controlling interest in EIG Investors, EIG and EIG’s subsidiary companies. On November 7, 2012, Holdings reorganized as a Delaware limited partnership and on June 25, 2013, Holdings converted into a Delaware C-corporation and changed its name to Endurance International Group Holdings, Inc.

2 . Summary of Significant Accounting Policies

Basis of Preparation

The accompanying consolidated financial statements, which include the accounts of the Company and its subsidiaries, have been prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions were eliminated on consolidation.

Segment Information

The Company has reviewed the criteria of the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 280-10, Segment Reporting , and determined that the Company is comprised of two segments for reporting purposes: web presence and email marketing.

The web presence segment consists predominantly of the Company's web hosting brands and related products such as domain names, website security tools, website design tools and services, ecommerce tools and other services designed to grow the online presence of a small business. The email marketing segment consists of Constant Contact email marketing tools and the SinglePlatform digital storefront product, both of which the Company acquired in the February 2016 acquisition of Constant Contact, Inc. ("Constant Contact").
Use of Estimates
U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates, judgments and assumptions used in preparing the accompanying consolidated financial statements are based on the relevant facts and circumstances as of the date of the consolidated financial statements. Although the Company regularly assesses these estimates, judgments and assumptions used in preparing the consolidated financial statements, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known. The more significant estimates reflected in these consolidated financial statements include estimates of fair value of assets acquired and liabilities assumed under purchase accounting related to the Company’s acquisitions and when evaluating goodwill and long-lived assets for potential impairment, the estimated useful lives of intangible and depreciable assets, revenue recognition for multiple-element arrangements, stock-based compensation, contingent consideration, derivative instruments, certain accruals, reserves and deferred taxes.
Unaudited Interim Financial Information
The accompanying interim consolidated balance sheet as of June 30, 2017 , and the related consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2016 and 2017 , cash flows for the six months ended June 30, 2016 and 2017 , and the notes to consolidated financial statements are unaudited. These unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. The unaudited

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consolidated financial statements include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of the Company’s financial position at June 30, 2017 , results of operations for the three and six months ended June 30, 2016 and 2017 and cash flows for the six months ended June 30, 2016 and 2017 . The consolidated results in the consolidated statements of operations and comprehensive loss are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2017 .
Accounts Receivable
Accounts receivable is primarily composed of cash due from credit card companies for unsettled transactions charged to subscribers’ credit cards. As these amounts reflect authenticated transactions that are fully collectible, the Company does not maintain an allowance for doubtful accounts. The Company also accrues for earned referral fees and commissions, which are governed by reseller or affiliate agreements, when the amount is reasonably estimable.
Prepaid Domain Name Registry Fees
Prepaid domain name registry fees represent amounts that are paid in full at the time a domain is registered by one of the Company’s registrars on behalf of a customer. The registry fees are recognized on a straight-line basis over the term of the domain registration period.
Derivative Instruments and Hedging Activities
FASB ASC 815, Derivatives and Hedging, or ASC 815, provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
In accordance with the FASB’s fair value measurement guidance in FASB Accounting Standards Update ("ASU") 2011-4, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Property and Equipment
Property and equipment is recorded at cost or fair value if acquired in an acquisition. The Company also capitalizes the direct costs of constructing additional computer equipment for internal use, as well as upgrades to existing computer equipment which extend the useful life, capacity or operating efficiency of the equipment. Capitalized costs include the cost of materials, shipping and taxes. Materials used for repairs and maintenance of computer equipment are expensed and recorded as a cost of revenue. Materials on hand and construction-in-process are recorded as property and equipment. Assets recorded under capital lease are depreciated over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows:  

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Building
 
Thirty-five years
Software
 
Two to three years
Computers and office equipment
 
Three years
Furniture and fixtures
 
Five years
Leasehold improvements
 
Shorter of useful life or remaining term of the lease
Software Development Costs
The Company accounts for software development costs for internal-use software under the provisions of ASC 350-40, Internal-Use Software. Accordingly, certain costs to develop internal-use computer software are capitalized, provided these costs are expected to be recoverable. The Company capitalized internal-use software development costs of $3.8 million and $6.4 million , respectively, during the three and six months ended June 30, 2016, and $3.3 million and $6.2 million , respectively, during the three and six months ended June 30, 2017 .
Goodwill
Goodwill relates to amounts that arose in connection with the Company’s various business combinations and represents the difference between the purchase price and the fair value of the identifiable intangible and tangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but is subject to periodic review for impairment. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in the equity value of the business, a significant adverse change in certain agreements that would materially affect reported operating results, business climate or operational performance of the business and an adverse action or assessment by a regulator. Additionally, the reorganization or change in the number of reporting units could result in the reassignment of goodwill between reporting units and may trigger an impairment assessment.
In accordance with ASC 350, Intangibles—Goodwill and Other , or ASC 350, the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. Under U.S. GAAP, a reporting unit is either the equivalent of, or one level below, an operating segment. As of December 31, 2016, the Company determined it operates in two segments and that each segment is its own reporting unit, and as such, the Company has two reporting units, email marketing and web presence. The provisions of ASC 350 require that a two-step impairment test be performed for goodwill. In the first step, the Company compares the fair value of its reporting unit to which goodwill has been allocated to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.

As of December 31, 2016, the Company determined fair values for each of the reporting units based on consideration of the income approach, the market comparable approach and the market transaction approach. For purposes of the income approach, fair value is determined based on the present value of estimated future after-tax cash flows, discounted at an appropriate risk adjusted rate. The Company uses its internal forecasts to estimate future after-tax cash flows and include an estimate of long-term future growth rates based on its most recent views of the long-term outlook for each reporting unit. Actual results may differ from those assumed in our forecasts. The Company derived its discount rates using the weighted average cost of capital, using betas observed in its industry and published rates for industries relevant to our reporting units. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective business and its internally developed forecasts. Discount rates used in the Company's reporting unit valuations ranged from 11.0% to 12.0% . For purposes of the market approach, the Company uses a valuation technique in which values are derived based on market prices of comparable publicly traded companies. The Company also uses a market based valuation technique in which values are determined based on relevant observable information generated by market transactions involving comparable businesses. The Company assesses each valuation methodology based upon the relevance and availability of the data at the time it performs the valuation and weights the methodologies appropriately.

The carrying values of the reporting units were determined through specific allocation of assets and liabilities to the reporting units, and an apportionment method relating to our debt, whereby debt that was incurred in order to finance the acquisition of assets or businesses of a reporting unit was allocated to that reporting unit. In prior years, the Company had only one reporting unit. Subsequent to the acquisition of Constant Contact, and as described in Note 19: Segment Information , the

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Company determined that there is a second reporting unit relating to email marketing. The Company has allocated the fair value of the goodwill acquired through its acquisitions to the applicable reporting unit, and allocated the fair value of the goodwill acquired through its acquisition of Constant Contact to its email marketing reporting unit.

As of the Company's assessment date for 2016, the estimated fair values of its reporting units exceeded their carrying
values and the Company concluded, based on the first step of the process, that no impairment existed as of that date in either of
its reporting units.

As of June 30, 2017, the Company did not have a reporting unit for which it is reasonably likely that it will fail step one of a goodwill impairment test in the near term. However, if macroeconomic conditions worsen or the Company's current financial projections are not achieved, it is possible that the Company may experience impairments for some of its intangible assets, which may require it to recognize impairment charges.

As of December 31, 2016 , the carrying value of goodwill that was allocated to the email marketing reporting unit and the web presence reporting unit was $604.3 million and $1,255.6 million , respectively. As of December 31, 2016, the fair value of the web presence segment exceeded the carrying value of its net assets by 67% and the fair value of the email marketing segment exceeded the carrying value of its net assets by 35% .

As of June 30, 2017 , the carrying value of goodwill that was allocated to the email marketing reporting unit and the web presence reporting unit was $604.3 million and $1,257.3 million , respectively.

The Company had goodwill of $1.9 billion as of December 31, 2016 and June 30, 2017 , and no impairment charges have been recorded to date.
Long-Lived Assets
The Company’s long-lived assets consist primarily of intangible assets, including acquired subscriber relationships, trade names, intellectual property, developed technology, domain names available for sale and in-process research and development (“IPR&D”). The Company also has long-lived tangible assets, primarily consisting of property and equipment. The majority of the Company’s intangible assets are recorded in connection with its various acquisitions. The Company’s intangible assets are recorded at fair value at the time of their acquisition. The Company amortizes intangible assets over their estimated useful lives.
Determination of the estimated useful lives of the individual categories of intangible assets is based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with finite lives other than developed technology is recognized in accordance with their estimated projected cash flows. Developed technology is amortized on a straight line basis over the estimated useful economic life which has a weighted average useful life of 7 years .
The Company evaluates long-lived intangible and tangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment are present and undiscounted future cash flows are less than the carrying amount, the fair value of the assets is determined and compared to the carrying value. If the fair value is less than the carrying value, then the carrying value of the asset is reduced to the estimated fair value and an impairment loss is charged to expense in the period the impairment is identified. No such impairment losses have been identified in the three and six months ended June 30, 2016 and 2017 .
Indefinite life intangible assets include domain names that are available for sale which are recorded at cost to acquire. These assets are not being amortized and are being tested for impairment annually and whenever events or changes in circumstance indicate that their carrying value may not be recoverable. When a domain name is sold, the Company records the cost of the domain in cost of revenue.
Acquired In-Process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires in connection with business combinations that have not been completed at the date of acquisition. The acquired IPR&D is capitalized as an intangible asset and reviewed on a quarterly basis to determine future use. Any impairment loss of the acquired IPR&D is charged to expense in the period the impairment is identified. During the six months ended June 30, 2016 , the Company identified that the acquired fair value of the remaining IPR&D acquired in connection with its acquisition of Webzai was impaired as these projects were abandoned during the three months ended March 31, 2016. At that time, the

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Company recorded a $ 1.4 million impairment charge, which is reflected in engineering and development expense in the Company’s consolidated statements of operations and comprehensive loss. No such impairment loss was identified during the six months ended June 30, 2017 .
Revenue Recognition
The Company generates revenue primarily from selling subscriptions for cloud-based products and services. The subscriptions are similar across all of the Company’s brands and are provided under contracts pursuant to which the Company has ongoing obligations to support the subscriber. These contracts are generally for service periods of up to 36 months and typically require payment in advance. The Company recognizes the associated revenue ratably over the service period, whether the associated revenue is derived from a direct subscriber or through a reseller. Deferred revenue represents the liability to subscribers for advance billings for services not yet provided and the fair value of the assumed liability outstanding for subscriber relationships purchased in an acquisition.
The Company sells domain name registrations that provide a subscriber with the exclusive use of a domain name. These domains are primarily obtained by one of the Company’s registrars on the subscriber’s behalf, or to a lesser extent by the Company from third-party registrars on the subscriber’s behalf. Domain registration fees are non-refundable.
Revenue from the sale of a domain name registration by a registrar within the Company is recognized ratably over the subscriber’s service period as the Company has the obligation to provide support over the domain term. Revenue from the sale of a domain name registration purchased by the Company from a third-party registrar is recognized when the subscriber is billed on a gross basis as there are no remaining Company obligations once the sale to the subscriber occurs, and the Company has full discretion on the sales price and bears all credit risk.
Revenue from the sale of premium domains is recognized when persuasive evidence of an arrangement to sell such domains exists, delivery of an authorization key to access the domain name has occurred, the fee for the sale of the premium domain is fixed or determinable, and collection of the fee for the sale of the premium domain is deemed probable.
Revenue from the sale of non-term based applications and services, such as certain online security products and professional technical services, referral fees and commissions, is recognized when the product is purchased, the service is provided or the referral fee or commission is earned, respectively.
A substantial amount of the Company’s revenue is generated from transactions that are multiple-element service arrangements that may include hosting plans, domain name registrations, and other cloud-based products and services.
The Company follows the provisions of FASB ASU No. 2009-13 (“ASU 2009-13”), Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force, and allocates revenue to each deliverable in a multiple-element service arrangement based on its respective relative selling price.
Under ASU 2009-13, to treat deliverables in a multiple-element service arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately. Hosting services, domain name registrations, and other cloud-based products and services have standalone value and are often sold separately.
When multiple deliverables included in a multiple-element service arrangement are separated into different units of accounting, the total transaction amount is allocated to the identified separate units based on a relative selling price hierarchy. The Company determines the relative selling price for a deliverable based on vendor specific objective evidence (“VSOE”) of fair value, if available, or best estimate of selling price (“BESP”), if VSOE is not available. The Company has determined that third-party evidence of selling price (“TPE”) is not a practical alternative due to differences in its multi-brand offerings compared to competitors and the lack of availability of relevant third-party pricing information. The Company has not established VSOE for its offerings due to lack of pricing consistency, the introduction of new products, services and other factors. Accordingly, the Company generally allocates revenue to the deliverables in the arrangement based on the BESP. The Company determines BESP by considering its relative selling prices, competitive prices in the marketplace and management judgment; these selling prices, however, may vary depending upon the particular facts and circumstances related to each deliverable. The Company analyzes the selling prices used in its allocation of transaction amount, at a minimum, on a quarterly basis. Selling prices are analyzed on a more frequent basis if a significant change in the business necessitates a more timely analysis.

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The Company maintains a reserve for refunds and chargebacks related to revenue that has been recognized and is expected to be refunded. The Company had a refund and chargeback reserve of $0.6 million and $0.5 million as of December 31, 2016 and June 30, 2017 , respectively. The portion of deferred revenue that is expected to be refunded at December 31, 2016 and June 30, 2017 was $2.1 million . Based on refund history, approximately 84% of all refunds happen in the same fiscal month that the contract starts or renews, and approximately 95% of all refunds happen within 45 days of the contract start or renewal date.
Income Taxes
Income taxes are accounted for in accordance with ASC 740, Accounting for Income Taxes , or ASC 740. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is more likely than not to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. There were no unrecognized tax benefits in the three or six months ended June 30, 2016 and 2017 .
The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the three and six months ended June 30, 2016 and 2017 , the Company did not recognize any interest or penalties related to unrecognized tax benefits.
Stock-Based Compensation
The Company may issue restricted stock units, restricted stock awards and stock options which vest upon the satisfaction of a performance condition and/or a service condition. The Company follows the provisions of ASC 718, Compensation—Stock Compensation , or ASC 718, which requires employee stock-based payments to be accounted for under the fair value method. Under this method, the Company is required to record compensation cost based on the estimated fair value for stock-based awards granted over the requisite service periods for the individual awards, which generally equals the vesting periods, net of estimated forfeitures. The Company uses the straight-line amortization method for recognizing stock-based compensation expense. In addition, for stock-based awards where vesting is dependent upon achieving certain performance goals, the Company estimates the likelihood of achieving the performance goals against established performance targets.
The Company estimates the fair value of employee stock options on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective estimates and assumptions. For restricted stock awards granted, the Company estimates the fair value of each restricted stock award based on the closing trading price of its common stock on the date of grant.
Net Loss per Share
The Company considered ASC 260-10, Earnings per Share , or ASC 260-10, which requires the presentation of both basic and diluted earnings per share in the consolidated statements of operations and comprehensive loss. The Company’s basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, and, if there are dilutive securities, diluted income per share is computed by including common stock equivalents which includes shares issuable upon the exercise of stock options, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.

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

2017
 
2016
 
2017
 
(unaudited)
(in thousands, except share amounts and per share data)
Net income (loss) attributable to Endurance International Group Holdings, Inc.
$
(28,040
)
 
$
(39,129
)
 
$
(6,229
)
 
$
(74,517
)
Net loss per share attributable to Endurance International Group Holdings, Inc.:
 
 
 
 
 
 
 
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

The following number of weighted average potentially dilutive shares were excluded from the calculation of diluted loss per share because the effect of including such potentially dilutive shares would have been anti-dilutive:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2017
 
2016
 
2017
 
(unaudited)
Restricted stock awards and units
9,014,101

 
2,472,180

 
8,138,075

 
3,212,653

Options
11,194,982

 
10,609,589

 
9,972,490

 
10,831,922

Total
20,209,083

 
13,081,769

 
18,110,565

 
14,044,575

Recent Accounting Pronouncements - Recently Adopted

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting . The guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of excess tax benefits in the consolidated statements of cash flows. The Company elected to early adopt the new guidance in the fourth quarter of fiscal year 2016 which required it to reflect any adjustments as of January 1, 2016, the beginning of the annual period that included the interim period of adoption.

The impact of the adoption resulted in the following:

• Due to the Company's net shortfall position upon the time of adoption, the new standard resulted in additional tax expense in our provision for income taxes rather than paid-in capital of $0.9 million for the year ended December 31, 2016. The Company's beginning retained earnings was not impacted by the early adoption as the Company had a full valuation allowance against the U.S. deferred tax assets as of December 31, 2015.

• As a result of prior guidance that required excess tax benefits reduce taxes payable prior to recognition as an increase in paid in capital, the Company had not recognized certain deferred tax assets (loss carry-forwards) that could be attributed to tax deductions related to equity compensation in excess of compensation recognized for financial reporting. As of January 1, 2016, the Company had generated federal and state net operating loss carry-forwards due to excess tax benefits of $1.5 million and $0.7 million , respectively.

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• The Company elected to eliminate the forfeiture rate and adopted the new policy to account for forfeitures in the period that they are incurred, and applied this policy on a modified retrospective basis. The impact of eliminating the forfeiture rate increased the stock compensation recorded in 2016 by $0.9 million , which included an immaterial prior period adjustment that the Company recorded through the consolidated statement of operations and comprehensive loss for the year ended December 31, 2016.

In March 2016, the FASB issued ASU No. 2016-07, Investments—Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting . This new guidance removes the requirement for retroactive adjustment when an increase or decrease in the level of ownership qualifies an investment for the equity method. This amendment is effective for fiscal years beginning after December 15, 2016. The adoption of this standard did not have a material impact on the Company's financial position or results of operations.

Recent Accounting Pronouncements - Recently Issued

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or Accounting Standard Update 2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. Since then, the FASB has also issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principals versus Agent Considerations and ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing , which further elaborate on the original ASU No. 2014-09. The core principle of these updates is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgments and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In July 2015, the FASB approved a one -year deferral of the effective date to January 1, 2018, with early adoption to be permitted as of the original effective date of January 1, 2017. Once this standard becomes effective, companies may use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company has performed an initial assessment of ASU 2014-09, and expects that this new guidance will impact the timing of when certain sales incentive payments, primarily to external parties, are charged to expense as these payments must be deferred over the expected life of the related customer relationship. The Company also expects that a considerable portion of its revenue recognition will not be materially impacted by this new guidance. The Company is currently calculating the impact of all expected changes from this guidance, and expects to have these calculations complete during the second half of fiscal 2017. After completing these calculations, the Company will then determine the transition method to be applied upon adoption.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities . This new standard enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This amendment is effective for annual periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements, but does not believe the adoption of this ASU will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases . The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements, but expects that adoption will increase its assets and liabilities.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments . This new standard clarifies certain statement of cash flow presentation issues. This amendment is effective for annual periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory . This new standard improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This amendment is effective for annual periods beginning after December 15, 2018, and early adoption is

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permitted. The Company does not believe the adoption of this ASU will have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash . This new standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. This amendment is effective for annual periods beginning after December 15, 2017, and early adoption is permitted. The Company does not believe the adoption of this ASU will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment . This new standard eliminates the second step of the goodwill impairment test described in Note 2: Goodwill , and instead requires that the entity perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) . This new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This amendment is effective for annual or interim periods in fiscal years beginning after December 15, 2017, and should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements.

3 . Acquisitions
The Company accounts for the acquisitions of businesses using the purchase method of accounting. The Company allocates the purchase price to the tangible and identifiable intangible assets and liabilities assumed based on their estimated fair values. Purchased identifiable intangible assets typically include subscriber relationships, trade names, domain names held for sale, developed technology and IPR&D. The methodologies used to determine the fair value assigned to subscriber relationships and domain names held for sale are typically based on the excess earnings method that considers the return received from the intangible asset and includes certain expenses and also considers an attrition rate based on the Company’s internal subscriber analysis and an estimate of the average life of the subscribers. The fair value assigned to trade names is typically based on the income approach using a relief from royalty methodology that assumes that the fair value of a trade name can be measured by estimating the cost of licensing and paying a royalty fee for the trade name that the owner of the trade name avoids. The fair value assigned to developed technology typically uses the cost approach. The fair value assigned to IPR&D is based on the cost approach. If applicable, the Company estimates the fair value of contingent consideration payments in determining the purchase price. The contingent consideration is then adjusted to fair value in subsequent periods as an increase or decrease in current earnings in general and administrative expense in the consolidated statements of operations and comprehensive loss.
Constant Contact, Inc.
On February 9, 2016, the Company acquired all of the outstanding shares of common stock of Constant Contact for $ 32.00 per share in cash, for a total purchase price of approximately $ 1.1 billion . Constant Contact is a leading provider of online marketing tools that are designed for small organizations, including small businesses, associations and non-profits.
The aggregate purchase price of $ 1.1 billion , which was paid in cash at the closing, was allocated to intangible assets consisting of subscriber relationships, developed technology and trade names of $ 263.0 million , $ 83.0 million and $ 52.0 million , respectively, goodwill of $ 604.3 million , property and equipment of $ 39.6 million , and working capital of $ 184.2 million , offset by net a net deferred tax liability of $ 125.1 million and deferred revenue of $ 25.2 million . The goodwill reflects the value of expected synergies.
Goodwill related to the acquisition, which is included in the Company’s email marketing reporting unit, is not deductible for tax purposes.
Summary of Deferred Consideration Related to Acquisitions
Components of short-term and long-tern deferred consideration as of December 31, 2016 and June 30, 2017 , consisted of the following:

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December 31, 2016
 
June 30, 2017
 
Short-
term
 
Long-
term
 
Short-
term
 
Long-
term
 
(in thousands)
Mojoness, Inc. (Acquired in 2012)
$
818

 
$

 
$

 

Verio (Acquired in 2015)
50

 

 

 

Social Booster (Acquired in 2016)
40

 
25

 
25

 

AppMachine (Acquired in 2016)
4,365

 
7,419

 
4,225

 
3,437

Total
$
5,273

 
$
7,444

 
$
4,250

 
$
3,437



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4. Property and Equipment and Capital Lease Obligations
Components of property and equipment consisted of the following:
 
December 31, 2016
 
June 30, 2017
 
(in thousands)
Land
$
790

 
$
790

Building
5,517

 
5,610

Software
52,130

 
61,699

Computers and office equipment
143,091

 
156,603

Furniture and fixtures
10,892

 
10,846

Leasehold improvements
21,244

 
21,559

Construction in process
6,691

 
9,121

Property and equipment—at cost
240,355

 
266,228

Less accumulated depreciation
(145,083
)
 
(171,603
)
Property and equipment—net
$
95,272

 
$
94,625


Depreciation expense related to property and equipment for the three months ended June 30, 2016 and 2017 was $16.8 million and $14.1 million , respectively. Depreciation expense related to property and equipment for the six months ended June 30, 2016 and 2017 was $29.9 million and $27.2 million , respectively.
Property under capital lease with a cost basis of $ 24.2 million was included in software as of June 30, 2017 . The net carrying value of property under capital lease as of June 30, 2017 was $ 5.8 million .
5 . Fair Value Measurements
The following valuation hierarchy is used for disclosure of the valuation inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
As of December 31, 2016 and June 30, 2017 , the Company’s financial assets or liabilities required to be measured on a recurring basis are accrued earn-out consideration payable in connection with the 2012 acquisition of certain assets of Mojoness, Inc., or Mojo, and the 2015 interest rate cap. The Company has classified its interest rate cap discussed in Note 6 below within Level 2 of the fair value hierarchy. The Company has classified its liabilities for contingent earn-out consideration related to Mojo within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which include probability weighted cash flows. During the six months ended June 30, 2017 , the Company paid $0.8 million related to the earn-out provisions for the Mojo acquisition, which constituted the final payment for this acquisition.
Basis of Fair Value Measurements

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Balance
 
Quoted Prices
in Active Markets
for Identical Items
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(in thousands)
Balance at December 31, 2016
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
Interest rate cap (included in other assets)
$
979

 

 
$
979

 
$

Total financial assets
$
979

 
$

 
$
979

 
$

Financial liabilities:
 
 
 
 
 
 
 
Contingent earn-out consideration (included in deferred consideration)
$
818

 

 

 
$
818

Total financial liabilities
$
818

 
$

 
$

 
$
818

Balance at June 30, 2017
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
Interest rate cap (included in other assets)
$
234

 

 
$
234

 
$

Total financial assets
$
234

 
$

 
$
234

 
$

The following table summarizes the changes in the financial liabilities measured on a recurring basis using Level 3 inputs as of June 30, 2017 :
 
 
 
Amount
 
(in thousands)
Financial liabilities measured using Level 3 inputs at December 31, 2016
$
818

Payment of contingent earn-outs related to 2012 acquisition
(818
)
Change in fair value of contingent earn-outs

Financial liabilities measured using Level 3 inputs at June 30, 2017
$

6. Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company entered into a three -year interest rate cap on December 9, 2015 as part of its risk management strategy. The objective of the interest rate cap, designated as a cash flow hedge, involves the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Therefore, this derivative limits the Company’s exposure if the rate rises, but also allows the Company to benefit when the rate falls.
The effective portion of changes in the fair value of derivatives that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income ("AOCI"), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Any ineffective portion of the change in fair value

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of the derivatives is recognized directly in earnings. There was no ineffectiveness recorded in earnings for the three and six months ended June 30, 2017 .
As of June 30, 2017 , the Company had one interest rate cap with $500.0 million notional value outstanding that was designated as a cash flow hedge of interest rate risk. The fair value of the interest rate contracts included in other assets on the consolidated balance sheet as of June 30, 2017 was $0.2 million , and the Company recognized $0.1 million of interest expense in the Company’s consolidated statement of operations for the three and six months ended June 30, 2017 . The Company recognized a $0.4 million loss, net of a tax benefit of $(0.2) million , in AOCI for the six months ended June 30, 2017 , of which the Company estimates that $1.3 million will be reclassified as an increase to interest expense in the next twelve months.
7. Goodwill and Other Intangible Assets
The following table summarizes the changes in the Company’s goodwill balances from December 31, 2016 to June 30, 2017 for the Company’s two reporting units:
 
Web Presence Unit
 
Email Marketing Unit
 
Total
 
Amount
 
Amount
 
Amount
 
(in thousands)
 
(in thousands)
 
(in thousands)
Goodwill balance at December 31, 2016
$
1,255,604

 
$
604,305

 
$
1,859,909

Goodwill related to 2016 acquisitions

 

 

Foreign translation impact
1,699

 

 
1,699

Goodwill balance at June 30, 2017
$
1,257,303

 
$
604,305

 
$
1,861,608

In accordance with ASC 350, the Company reviews goodwill and other indefinite-lived intangible assets for indicators of impairment on an annual basis and between tests if an event occurs or circumstances change that would more likely than not reduce the fair value of goodwill below its carrying amount.
At December 31, 2016 , other intangible assets consisted of the following:
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Weighted
Average
Useful Life
 
(dollars in thousands)
Developed technology
$
284,005

 
$
111,348

 
$
172,657

 
7 years
Subscriber relationships
659,662

 
345,070

 
314,592

 
7 years
Trade-names
133,805

 
57,789

 
76,016

 
8 years
Intellectual property
34,084

 
10,270

 
23,814

 
13 years
Domain names available for sale
29,954

 
4,976

 
24,978

 
Indefinite
Leasehold interests
314

 
314

 

 
1 year
Total December 31, 2016
$
1,141,824

 
$
529,767

 
$
612,057

 
 
During the six months ended June 30, 2016, the Company wrote-off acquired in-process research and development of $ 1.4 million related to its acquisition of Webzai in 2014, as the Company had abandoned certain research and development projects in favor of other projects in the quarter ended March 31, 2016, when these projects were abandoned. Additionally, during the three and six months ended June 30, 2016, the Company recorded an impairment charge of $4.4 million relating to developed technology from the Webzai acquisition, after evaluating it for impairment in accordance with ASC 350. This developed technology is also linked to certain internally developed software that was developed at Webzai after its acquisition by the Company which was also determined to be impaired.
There were no impairment charges of intangible assets during the three and six months ended June 30, 2017 .
At June 30, 2017 , other intangible assets consisted of the following:

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Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Weighted
Average
Useful Life
 
(dollars in thousands)
Developed technology
$
285,748

 
$
128,654

 
$
157,094

 
7 years
Subscriber relationships
659,712

 
387,464

 
272,248

 
7 years
Trade-names
133,804

 
64,807

 
68,997

 
8 years
Intellectual property
34,278

 
11,990

 
22,288

 
13 years
Domain names available for sale
30,258

 
5,895

 
24,363

 
Indefinite
Leasehold interests
314

 
314

 

 
1 year
Total June 30, 2017
$
1,144,114

 
$
599,124

 
$
544,990

 
 
The estimated useful lives of the individual categories of other intangible assets are based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with finite lives is recognized over the period of time the assets are expected to contribute to future cash flows. The Company amortizes finite-lived intangible assets over the period in which the economic benefits are expected to be realized based upon their estimated projected cash flows.
The Company’s amortization expense is included in cost of revenue in the aggregate amounts of $37.8 million and $34.9 million for the three months ended June 30, 2016 and 2017 , respectively. The Company’s amortization expense is included in cost of revenue in the aggregate amounts of $67.7 million and $69.2 million for the six months ended June 30 2016 and 2017 , respectively.
8. Investments
As of December 31, 2016 and June 30, 2017 , the Company’s carrying value of investments in privately-held companies was $15.9 million and $15.8 million , respectively.
In January 2012, the Company made an initial investment of $ 0.3 million to acquire a 25% interest in BlueZone Labs, LLC (“BlueZone”), a provider of “do-it-yourself” tools and managed search engine optimization services.
The Company also has an agreement with BlueZone to purchase products and services. During the three months ended June 30, 2016 and 2017 , the Company purchased $ 0.5 million and $ 0.4 million , respectively, of products and services from BlueZone, which is included in cost of revenue in the Company’s consolidated statements of operations and comprehensive loss. As of December 31, 2016 and June 30, 2017 , $ 0.1 million and $ 0.2 million , respectively, relating to the Company’s investment in BlueZone was included in accounts payable and accrued expense in the Company’s consolidated balance sheet. As of December 31, 2016 and June 30, 2017 , $ 0.0 million and $ 0.9 million , respectively, relating to the Company’s investment in BlueZone was included in prepaid expenses in the Company’s consolidated balance sheet.
In May 2014, the Company made a strategic investment of $ 15.0 million in Automattic, Inc. (“Automattic”), which provides content management systems associated with WordPress. The investment represents less than 5% of the outstanding shares of Automattic and better aligns the Company with an important partner.
In August 2014, the Company made an aggregate investment of $ 3.9 million for a joint venture with a 49% ownership interest in WZ (UK) Ltd ("WZ UK"), which is a provider of technology, sales and marketing services associated with web builder solutions. On January 6, 2016, the Company exercised an option to increase its stake in WZ UK from 49% to 57.5% . Refer to Note 14 : Redeemable Non-controlling Interest , for further details.
In December 2014, the Company made an aggregate investment of $ 15.2 million to acquire a 40% ownership interest in AppMachine B.V. (“AppMachine”), which is a developer of software that allows users to build mobile applications for smart devices such as phones and tablets. The Company acquired the remaining 60% of AppMachine on July 27, 2016.
On March 3, 2016, the Company purchased a $ 0.6 million convertible promissory note from a business that provides web and mobile money management solutions, with the potential for subsequent purchases of additional convertible notes.
On April 8, 2016, the Company made an investment of $ 5.0 million for a 33% equity interest in Fortifico Limited, a company providing a billing, CRM, and affiliate management solution to small and mid-sized businesses. During the year

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ended December 31, 2016, the Company incurred a charge of $4.7 million to impair the Company's 33% equity interest in
Fortifico Limited, after determining that there were diminishing projected future cash flows on this investment.
Investments in which the Company’s interest is less than 20% and which are not classified as available-for-sale securities are carried at the lower of cost or net realizable value unless it is determined that the Company exercises significant influence over the investee company, in which case the equity method of accounting is used. For those investments in which the Company’s voting interest is between 20% and 50% , the equity method of accounting is used. Under this method, the investment balance, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee company, as they occur, limited to the extent of the Company’s investment in, advances to and commitments for the investee. These adjustments are reflected in equity (income) loss of unconsolidated entities, net of tax in the Company’s consolidated statements of operations and comprehensive loss. The Company recognized net losses of $0.3 million and $0.0 million for the three months ended June 30, 2016 and 2017 , respectively.
From time to time, the Company may make new and follow-on investments and may receive distributions from investee companies. As of June 30, 2017 , the Company was not obligated to fund any follow-on investments in these investee companies.
As of June 30, 2017 , the Company did not have an equity method investment in which the Company’s proportionate share of the investees’ net income or loss exceeded 10% of the Company’s consolidated assets or income from continuing operations.
9 . Notes Payable

At December 31, 2016 and June 30, 2017 , notes payable, net of original issuance discount and deferred financing costs, consisted of the following:

 
 
At December 31, 2016
 
At June 30, 2017
 
 
(in thousands)
2017 First Lien Term Loan
 
$

 
$
1,642,321

2013 First Lien Term Loan
 
985,640

 

Incremental First Lien Term Loan
 
674,860

 

Notes
 
326,480

 
327,882

Revolving Credit Facilities
 

 

Total Notes Payable
 
1,986,980

 
1,970,203

Current Portion of Notes Payable
 
35,700

 
33,945

Notes Payable - long term
 
$
1,951,280

 
$
1,936,258

2017 First Lien Term Loan Facility

In connection with the Company's June 14, 2017 refinancing of its then-outstanding term loans (the "2017 Refinancing"), the Company entered into its current first lien term loan facility (the "2017 First Lien") with an original balance of $1,697.3 million and a maturity date of February 9, 2023. As of December 31, 2016 and June 30, 2017 , the 2017 First Lien had an outstanding balance of:

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At June 30, 2017
 
(in thousands)
2017 First Lien Term Loan
 
$
1,688,764

Unamortized deferred financing costs
 
(24,492
)
Unamortized original issue discount
 
(21,951
)
Net 2017 First Lien Term Loan
 
1,642,321

Current portion of 2017 First Lien Term Loan
 
(33,945
)
2017 First Lien Term Loan - long term
 
$
1,608,376


The 2017 First Lien was issued at a price of 99.75% of par and automatically bears interest at the bank’s reference rate unless the Company gives notice to opt for LIBOR-based interest rate term loans. The interest rate for a LIBOR-based interest term loan is 4.00% per annum plus the greater of an adjusted LIBOR and 1.00% , and the interest rate for a reference rate term loan is 3.00% per annum plus the greatest of the prime rate, the federal funds effective rate plus 0.50% , an adjusted LIBOR for a one-month interest period plus 1.00% , and 2.00% .

The 2017 First Lien requires quarterly mandatory repayments of principal. During the six months ended June 30, 2017, the Company made one mandatory repayment of $8.5 million .

Interest is payable on maturity of the elected interest period for a LIBOR-based interest loan, which can be one, two, three or six months. Interest is payable at the end of each fiscal quarter for a reference rate interest 2017 First Lien loan.
2013 First Lien Term Loan Facility

The Company had a prior first lien term loan facility (the “2013 First Lien”) that originated in November 2013 with an original balance of $1,050.0 million and a maturity date of November 9, 2019. As of December 31, 2016 and June 30, 2017 , the 2013 First Lien had an outstanding balance of:
 
 
At December 31, 2016
 
At June 30, 2017
 
 
(in thousands)
2013 First Lien Term Loan
 
$
985,875

 
$

Unamortized deferred financing costs
 
(235
)
 

Net 2013 First Lien Term Loan
 
985,640

 

Current portion of 2013 First Lien Term Loan
 
21,000

 

2013 First Lien Term Loan - long term
 
$
964,640

 
$


The 2013 First Lien automatically bore interest at the bank’s reference rate unless the Company gave notice to opt for LIBOR based interest rate term loans. Prior to February 9, 2016, the interest rate for a LIBOR based interest term loan was 4.00% plus the greater of an adjusted LIBOR and 1.00% , and the interest rate for a reference rate term loan was 3.00% per annum plus the greatest of the prime rate, the federal funds effective rate plus 0.50% , an adjusted LIBOR for a one-month interest period plus 1.00% , and 2.00% . The 2013 First Lien bore interest at a LIBOR-based rate of 5.00% during this period.

In connection with the Company's February 9, 2016 acquisition of Constant Contact and the related financing of that transaction (the "Constant Contact Financing"), the applicable margin for a LIBOR based 2013 First Lien loan increased to 5.23% per annum starting on February 9, 2016 and to 5.48% per annum starting on February 28, 2016. The applicable margin on a reference rate 2013 First Lien loan increased to 4.23% per annum starting on February 9, 2016 and to 4.48% per annum starting on February 28, 2016.

The 2013 First Lien required quarterly mandatory repayments of principal, and as a result of the Constant Contact Financing, the Company was obligated to use commercially reasonable efforts to make voluntary repayments on the 2013 First Lien to effectively double the amount of each scheduled amortization payment under this facility. During the six months ended June 30, 2017, the Company made mandatory repayments of $2.6 million and voluntary prepayments of $2.6 million against

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the 2013 First Lien prior to the 2017 Refinancing. Interest was payable on maturity of the elected interest period for a LIBOR-based 2013 First Lien loan, which could be one, two, three or six months.

Interest was payable at the end of each fiscal quarter for a reference rate 2013 First Lien loan.

As part of the 2017 Refinancing, the Company refinanced the then-outstanding 2013 First Lien balance of $980.6 million .
Incremental First Lien Term Loan Facility

In connection with the Constant Contact Financing, the Company entered into an incremental first lien term loan facility (the “Incremental First Lien”) with an original balance of $735.0 million and a maturity date of February 9, 2023. As of December 31, 2016 and June 30, 2017 , the Incremental First Lien had an outstanding balance of:
 
 
At December 31, 2016
 
At June 30, 2017
 
 
(in thousands)
Incremental First Lien Term Loan
 
$
720,300

 
$

Unamortized deferred financing costs
 
(25,869
)
 

Unamortized original issuance discount
 
(19,571
)
 

Net Incremental First Lien Term Loan
 
674,860

 

Current portion of Incremental First Lien Term Loan
 
14,700

 

Incremental First Lien Term Loan - long term
 
$
660,160

 
$


The Incremental First Lien was issued at a price of 97.0% of par (subject to the payment of an additional upfront fee of 1.0% on February 28, 2016 ) and had scheduled principal payments equal to 0.50% of the original principal per quarter, or $3.7 million , starting September 30, 2016.

The Incremental First Lien automatically bore interest at the bank’s reference rate unless the Company gave notice to opt for LIBOR-based interest rate term loans. Interest was payable on maturity of the elected interest period for a LIBOR-based interest loan, which could be one, two, three or six months. Interest was payable at the end of each fiscal quarter for a reference rate loan term loan. The interest rate for a LIBOR-based interest term loan was 5.00% per annum plus the greater of an adjusted LIBOR and 1.00% , and the interest rate for a reference rate term loan was 4.00% per annum plus the greatest of the prime rate, the federal funds effective rate plus 0.50% , an adjusted LIBOR for a one-month interest period plus 1.00% , and 2.00% .

During the six months ended June 30, 2017, the Company made $3.7 million in mandatory prepayments against the Incremental First Lien prior to the 2017 Refinancing.

As part of the 2017 Refinancing, the Company refinanced the then-outstanding Incremental First Lien balance of $716.6 million .
Revolving Credit Facility

The Company had a revolving credit facility of $125.0 million (the “Prior Revolver”) that originated in November 2013 and had a maturity date of December 22, 2016. The Company could elect to draw down against the Prior Revolver using a LIBOR-rate interest loan or an alternate base rate interest loan. The interest rate for an alternate base rate revolver loan was 5.25% per annum plus the greatest of the prime rate, the federal funds effective rate plus 0.50% , an adjusted LIBOR for a one-month interest period plus 1.00% , and 2.50% . The interest rate for a LIBOR based revolver loan was 6.25% per annum plus the greater of an adjusted LIBOR and 1.50% . There was also a non-refundable fee (the "commitment fee"), equal to 0.50% of the daily unused principal amount of the revolver payable in arrears on the last day of each fiscal quarter.

In connection with the Constant Contact Financing, the Company entered into a new revolving credit facility (the “Current Revolver”), which increased the Company’s available revolving credit to $165.0 million and extended the maturity date to February 9, 2021. The Current Revolver had a "springing" maturity date of August 10, 2019, which is no longer

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applicable as a result of the 2017 Refinancing. As of December 31, 2016 and June 30, 2017, the Company did not have any balances outstanding under the Current Revolver, and the full amount of the facility, or $165.0 million , was unused and available.

The Company has the ability to draw down against the Current Revolver using a LIBOR-based interest loan or an alternate based interest loan. LIBOR-based interest revolver loans bear interest at a rate of 4.0% per annum (subject to a leverage-based step-down) plus the greater of an adjusted LIBOR and 0% Alternate base interest revolver loans bear interest at 3.0% (subject to a leverage-based step down) plus the greatest of the prime rate, the federal funds rate plus 0.50% and an adjusted LIBOR or a one-month interest period plus 1.00% . There is also a non-refundable commitment fee, equal to 0.50% of the daily unused principal amount (subject to a leverage-based step down), which is payable in arrears on the last day of each fiscal quarter. Interest is payable on maturity of the elected interest period for a LIBOR-based interest loan, which can be one, two, three or six months. Interest is payable at the end of each fiscal quarter for a reference rate revolver loan.
Senior Notes
In connection with the Constant Contact Financing, EIG Investors issued $350.0 million aggregate principal amount of senior notes (the "Notes") with a maturity date of February 1, 2024. The Notes were issued at a price of 98.065% of par and bear interest at the rate of 10.875%  per annum. The Notes have been fully and unconditionally guaranteed, on a senior unsecured basis, by the Company and its subsidiaries that guarantee the 2017 First Lien and the Current Revolver (collectively with the Company's previously existing facilities, the "Senior Credit Facilities") (including Constant Contact and certain of its subsidiaries). As of December 31, 2016 and June 30, 2017 , the Notes had an outstanding balance of:

 
 
At December 31, 2016
 
At June 30, 2017
 
 
(in thousands)
Senior Notes
 
$
350,000

 
$
350,000

Unamortized deferred financing costs
 
(17,238
)
 
(16,130
)
Unamortized original issuance discount
 
(6,282
)
 
(5,988
)
Net Senior Notes
 
326,480

 
327,882

Current portion of Senior Notes
 

 

Senior Notes - long term
 
$
326,480

 
$
327,882


Interest on the Notes is payable twice a year, on August 1 and February 1.

On January 30, 2017, the Company completed a registered exchange offer for the Notes, as required under the registration rights agreement it entered into with the initial purchasers of the Notes. All of the $350.0 million aggregate principal amount of the original notes was validly tendered for exchange as part of this exchange offer.

Presentation of Debt Issuance Costs

The Company adopted ASU 2015-03, “ Simplifying the Presentation of Debt Issuance Costs ” beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Unamortized balances of deferred financing costs and original issue discounts relating to the term loans and the Notes are presented as a reduction of the notes payable in the Company's consolidated balance sheets. The unamortized value of deferred financing costs associated with the Company's revolving credit facility were not affected by the ASU and continue to be presented as an asset on the Company’s consolidated balance sheets.
Maturity of Notes Payable

The maturity of the notes payable at June 30, 2017 is as follows:

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Amounts maturing in:
(in thousands)
(Remainder of) 2017
$
16,973

2018
33,945

2019
33,945

2020
33,945

2021
33,945

Thereafter
1,886,011

Total
$
2,038,764

Interest
The Company recorded $41.0 million and $45.7 million in interest expense for the three months ended June 30, 2016 and 2017 , respectively, and $71.4 million and $85.2 million , for the six months ended June 30, 2016 and 2017, respectively.
The following table provides a summary of interest rates and interest expense for the three or six months ended June 30, 2016 and 2017 :
 
Three Months Ended June 30, 2016
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
 
Six Months Ended June 30, 2017
 
(percentage per annum)
Interest rate—LIBOR
6.00%-7.75%

 
5.14%-6.68%

 
6.00%-7.75%

 
5.14%-6.68%

Interest rate—reference
7.50%-8.50%

 
*

 
7.50%-8.50%

 
*

Interest rate—Senior Notes
10.875
%
 
10.875
%
 
10.875
%
 
10.875
%
Non-refundable fee—unused facility
0.50
%
 
0.50
%
 
0.50
%
 
0.50
%
 
(dollars in thousands)
Interest expense and service fees
$
37,512

 
$
36,165

 
$
65,508

 
$
72,820

Loss on extinguishment of debt

 
992

 

 
992

Deferred financing fees immediately expensed

 
5,487

 

 
5,487

Amortization of deferred financing fees
1,651

 
1,786

 
2,562

 
3,530

Amortization of original issue discounts
823

 
886

 
1,272

 
1,732

Amortization of net present value of deferred consideration
799

 
187

 
1,582

 
377

Other interest expense
209

 
155

 
441

 
236

Total interest expense
$
40,994

 
$
45,658

 
$
71,365

 
$
85,174

* The Company did not have debt bearing interest based on the reference rate for the three months and six months ended June 30, 2017.
The Company concluded that the 2017 Refinancing was primarily a debt modification of the existing term loans in accordance with ASC 470-50, with extinguishment relating only to a few existing lenders that did not participate in the 2017 Refinancing. As a result, the Company capitalized $4.2 million of additional original issue discounts ("OID") and $0.9 million of deferred financing costs related to new lenders participating in the 2017 First Lien. These capitalized costs will be amortized over the remaining life of the loan using the effective interest method. Additionally, the Company recorded a charge during the three months ended June 30, 2017, included in interest expense, of $1.0 million to write off OID and deferred financing costs related to the refinanced debt for lenders not participating in the 2017 First Lien. Lastly, the Company recorded a charge of $5.5 million for the three months ended June 30, 2017, included in interest expense, for deferred financing costs incurred for the 2017 First Lien that related to existing lenders that carried over from the refinanced debt.
Debt Covenants


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The Senior Credit Facilities require that the Company complies with a financial covenant to maintain a maximum ratio of consolidated senior secured net indebtedness to an adjusted consolidated EBITDA measure. Please see "Management's Discussion and Analysis" for further discussion of this covenant.

The Senior Credit Facilities also contain covenants that limit the Company's ability to, among other things, incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of capital stock; make other restricted payments; make certain investments; sell or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; and enter into certain transactions with affiliates. These covenants are subject to a number of important limitations and exceptions.

Additionally, the Senior Credit Facilities require the Company to comply with certain negative covenants and specify certain events of default that could result in amounts becoming payable, in whole or in part, prior to their maturity dates.

With the exception of certain equity interests and other excluded assets under the terms of the Senior Credit Facilities, substantially all of the Company's assets are pledged as collateral for the obligations under the Senior Credit Facilities. The indenture with respect to the Notes contains covenants that limit the Company's ability to, among other things, incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of capital stock; make other restricted payments; make certain investments; sell or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge sell or otherwise dispose of all or substantially all of its assets; and enter into certain transactions with affiliates. Upon a change of control as defined in the indenture, the Company must offer to repurchase the Notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, up to, but not including, the repurchase date. These covenants are subject to a number of important limitations and exceptions.

The indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately.

The Company was in compliance with all covenants at June 30, 2017.

10. Stockholders’ Equity
Voting Rights
All holders of common stock are entitled to one vote per share.
The following table presents the changes in total stockholders’ equity:
 
Total
Stockholders’
Equity
 
(in thousands)
Balance at December 31, 2016
$
124,383

Stock-based compensation
28,357

Reclassification of stock-compensation liability award
450

Stock option exercises
1,132

Foreign currency translation adjustment
1,914

Unrealized loss on derivative
(392
)
Net loss attributable to non-controlling interest
277

Net loss attributable to Endurance International Group
(74,517
)
Balance at June 30, 2017
$
81,604


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11 . Stock-Based Compensation
2013 Stock Incentive Plan
The Amended and Restated 2013 Stock Incentive Plan (the “2013 Plan”) of the Company became effective upon the closing of its Initial Public Offering ("IPO"). The 2013 Plan provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to employees, officers, directors, consultants and advisors of the Company. Under the 2013 Plan, the Company may issue up to 38,000,000 shares of the Company’s common stock. At June 30, 2017 , there were 14,728,500 shares available for grant under the 2013 Plan.
2011 Stock Incentive Plan
As of February 9, 2016, the effective date of the acquisition of Constant Contact, the Company assumed and converted certain outstanding equity awards granted by Constant Contact under the Constant Contact 2011 Stock Incentive Plan (“2011 Plan”) prior to the effective date of the acquisition (the “Assumed Awards”) into corresponding equity awards with respect to shares of the Company’s common stock. In addition, the Company assumed certain shares of Constant Contact common stock, par value $0.01 per share, available for issuance under the 2011 Plan (the “Available Shares”), which will be available for future issuance under the 2011 Plan in satisfaction of the vesting, exercise or other settlement of options and other equity awards that may be granted by the Company following the effective date of the acquisition of Constant Contact in reliance on the prior approval of the 2011 Plan by the stockholders of Constant Contact. The Assumed Awards were converted into 2,143,987 stock options and 2,202,846 restricted stock units with respect to the Company’s common stock and the Available Shares were converted into 10,000,000 shares of the Company’s common stock reserved for future awards under the 2011 Plan. At June 30, 2017 , there were 8,859,580 shares available for grant under the 2011 Plan.
The Company calculated the fair value of the exchanged awards in accordance with the provisions of ASC 718 as of the acquisition date. The Company allocated the fair value of these awards between the pre-acquisition and post-acquisition stock-based compensation expense. The Company determined that the value of the awards under this plan was $22.3 million , of which $5.4 million was attributed to the pre-acquisition period and recognized as part of the purchase consideration for Constant Contact. The balance of $16.9 million has been attributed to the post-acquisition period, and will be recognized in the
Company’s consolidated statements of operations and comprehensive loss over the vesting period of the awards.
The following table presents total stock-based compensation expense recorded in the consolidated statement of operations and comprehensive loss for all 2012 restricted stock awards and units issued prior to the IPO, and all awards granted under the Company’s 2013 Plan and the 2011 Plan:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2017
 
2016
 
2017
 
(in thousands)
Cost of revenue
$
1,703

 
$
1,661

 
$
2,473

 
$
3,167

Sales and marketing
2,677

 
2,911

 
4,399

 
4,764

Engineering and development
1,441

 
1,728

 
2,205

 
2,899

General and administrative
9,203

 
9,945

 
24,335

 
18,339

Total stock-based compensation expense
$
15,024

 
$
16,245

 
$
33,412

 
$
29,169

2013 Stock Incentive Plan
The following table provides a summary of the Company’s stock options as of June 30, 2017 and the stock option activity for all stock options granted under the 2013 Plan during the six months ended June 30, 2017 :

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Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
(In Years)
 
Aggregate
Intrinsic
Value(3)
(in thousands)
Outstanding at December 31, 2016
9,607,431

 
$
12.79

 
 
 
 
Granted
110,433

 
$
8.15

 
 
 
 
Exercised

 
$

 
 
 
 
Forfeited
(179,758
)
 
$
13.24

 
 
 
 
Expired
(209,074
)
 
$
13.68

 
 
 
 
Outstanding at June 30, 2017
9,329,032

 
$
12.71

 
7.4
 
$
63

Exercisable at June 30, 2017
5,875,021

 
$
12.90

 
6.8
 
$

Expected to vest after June 30, 2017 (1)
3,454,011

 
$
12.38

 
8.2
 
$

Exercisable as of June 30, 2017 and expected to vest (2)
9,329,032

 
$
12.71

 
7.4
 
$
63

(1)
This represents the number of unvested options outstanding as of June 30, 2017 that are expected to vest in the future.
(2)
This represents the number of vested options as of June 30, 2017 plus the number of unvested options outstanding as of June 30, 2017 that are expected to vest in the future.
(3)
The aggregate intrinsic value was calculated based on the positive difference, if any, between the estimated fair value of the Company’s common stock on June 30, 2017 of $8.35 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options.
Restricted stock units granted under the 2013 Plan generally vest monthly over a four -year period, unless otherwise determined by the Company’s board of directors. The following table provides a summary of the Company’s restricted stock unit activity for the 2013 Plan during the six months ended June 30, 2017 :
 
Restricted Stock
Units
 
Weighted
Average
Grant Date
Fair Value
Non-vested at December 31, 2016
100,369

 
$
12.00

Granted
2,496,646

 
$
7.84

Vested and unissued
(188,511
)
 
$
7.85

Cancelled
(45,464
)
 
$
7.85

Non-vested at June 30, 2017
2,363,040

 
$
7.91

Restricted stock awards granted under the 2013 Plan generally vest annually over a four -year period, unless otherwise determined by the Company’s board of directors. Performance-based restricted stock awards are earned based on the achievement of performance criteria established by the Company’s compensation committee and board of directors. The following table provides a summary of the Company’s restricted stock award activity for the 2013 Plan during the six months ended June 30, 2017 :
 
Restricted Stock
Awards
 
Weighted
Average
Grant Date
Fair Value
Non-vested at December 31, 2016
7,332,537

 
$
13.21

Granted
160,428

 
$
8.15

Vested
(1,867,736
)
 
$
10.58

Canceled
(87,421
)
 
$
12.78

Non-vested at June 30, 2017
5,537,808

 
$
13.95

2015 Performance Based Award
The performance-based restricted stock award granted to the Company’s chief executive officer ("CEO") Hari Ravichandran during 2015 provides an opportunity for the participant to earn a fully vested right to up to 3,693,754 shares of the Company’s common stock (the “Award Shares”) over a three -year period beginning July 1, 2015 and ending on June 30,

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2018 (the “Performance Period”). Award Shares may be earned based on the Company achieving pre-established, threshold, target and maximum performance metrics.
Award Shares may be earned during each calendar quarter during the Performance Period (each, a “Performance Quarter”) if the Company achieves a threshold, target or maximum level of the performance metric for the Performance Quarter. If the performance metric is less than the threshold level for a Performance Quarter, no Award Shares will be earned during the Performance Quarter. Award Shares that were not earned during a Performance Quarter may be earned later during the then current twelve-month period from July 1st to June 30th during the Performance Period (each, a “Performance Year”), at a threshold, target or maximum level of the performance metric for the Performance Year. For the second quarter of 2017, 154,146 Award Shares were earned for the Performance Quarter ending June 30, 2017 because a performance level between the threshold and target for the quarterly performance metric was met, and no additional shares were earned for the Performance Year ending June 30, 2017 because the threshold level for the annual performance metric was not met.
Any Award Shares that are earned during the Performance Period will vest on June 30, 2018, provided the chief executive officer is employed by the Company on such date. The requirement that the chief executive officer be employed by the Company on June 30, 2018 is waived in the event the executive’s employment is terminated due to death, disability or by the Company without cause, if the executive terminates employment with the Company for good reason, or if the executive is employed by the Company on the date of a change in control (as such terms are defined in the executive’s employment agreement). Upon the occurrence of any of the foregoing events, additional Award Shares may be earned, as provided for in the performance-based restricted stock agreement.
This performance-based award is evaluated quarterly to determine the probability of its vesting and determine the amount of stock-based compensation to be recognized. During the three and six months ended June 30, 2017 , the Company recognized $3.5 million and $5.6 million , respectively, of stock-based compensation expense related to this performance-based award.
In April 2017, the Company announced that its board of directors and its CEO adopted a CEO transition plan whereby Mr. Ravichandran will remain CEO and serve as a board member while the Company conducts a search to identify his successor. Depending on the timing of identifying a successor, the CEO transition plan may affect the outstanding awards held by Mr. Ravichandran. In accordance with the terms of the 2015 Performance Based Award, upon separation Mr. Ravichandran will receive the Award Shares earned with respect to Performance Quarters completed prior to the separation, plus the greater of (a) the target number of Award Shares eligible to be earned in the Performance Quarter in which the separation occurs and (b) the number of Award Shares that would have been earned in the Performance Quarter in which the separation occurs as if Mr. Ravichandran had remained employed through the end of the Performance Quarter. In addition, it is expected that the attribution period used to estimate the stock compensation cost associated with the 2015 Performance Based Award will shorten. The Company is currently using an attribution period of 2.75 years for that purpose.
2016 Performance Based Awards
On February 16, 2016, the compensation committee of the board of directors of the Company approved the grant of performance-based restricted stock awards to the Company’s chief financial officer (“CFO”), chief operating officer (“COO”) and chief administrative officer (“CAO”). Based on the Company's achievement of Constant Contact revenue, adjusted EBITDA and cash flow metrics, these shares vested on March 31, 2017 and each executive earned the maximum number of shares subject to his or her award. The CFO earned 223,214 shares of the Company’s stock, the COO earned 260,416 shares of the Company’s stock, and the CAO earned 148,810 shares of the Company’s stock. These earned shares vested on March 31, 2017.
These performance-based awards were evaluated quarterly to determine the probability of vesting and determine the amount of stock-based compensation to be recognized. During the three and six months ended June 30, 2017 , the Company recognized $0.0 million and $1.2 million , respectively, of stock-based compensation expense related to these performance-based awards.
2011 Stock Incentive Plan
The following table provides a summary of the Company’s stock options as of June 30, 2017 and the stock option activity for all stock options granted under the 2011 Plan during the six months ended June 30, 2017 :

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Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual Term
(In Years)
 
Aggregate
Intrinsic
Value(3)
(in thousands)
Outstanding at December 31, 2016
1,931,830

 
$
8.73

 
 
 
 
Granted/ Exchanged
14,724

 
$
8.15

 
 
 
 
Exercised
(196,167
)
 
$
5.77

 
 
 
 
Forfeited
(333,361
)
 
$
9.99

 
 
 
 
Expired
(17,097
)
 
$
8.69

 
 
 
 
Outstanding at June 30, 2017
1,399,929

 
$
8.83

 
4.5
 
$
1,087

Exercisable at June 30, 2017
697,592

 
$
8.31

 
3.6
 
$
823

Expected to vest after June 30, 2017 (1)
702,337

 
$
9.35

 
5.4
 
$
264

Exercisable as of June, 2017 and expected to vest (2)
1,399,929

 
$
8.83

 
4.5
 
$
1,087

(1)
This represents the number of unvested options outstanding as of June 30, 2017 that are expected to vest in the future.
(2)
This represents the number of vested options as of June 30, 2017 plus the number of unvested options outstanding as of June 30, 2017 that are expected to vest in the future.
(3)
The aggregate intrinsic value was calculated based on the positive difference, if any, between the estimated fair value of the Company’s common stock on June 30, 2017 of $8.35 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options.
Unless otherwise determined by the Company’s board of directors, restricted stock units granted under the 2011 Plan generally vest annually over a four -year period. The following table provides a summary of the Company’s restricted stock unit activity for the 2011 Plan during the six months ended June 30, 2017 :
 
Restricted Stock
Units
 
Weighted
Average
Grant Date
Fair Value
Non-vested at December 31, 2016
1,473,655

 
$
9.25

Granted/ Exchanged
1,114,191

 
$
7.85

Vested
(536,126
)
 
$
7.30

Canceled
(350,377
)
 
$
8.94

Non-vested at June 30, 2017
1,701,343

 
$
8.21


12. Accumulated Other Comprehensive Income

The following table presents the components of accumulated other comprehensive loss (in thousands):
 
 
Foreign Currency Translation Adjustments
 
Unrealized Gains (Losses) on Cash Flow Hedges
 
Total
 
 
(in thousands)
Balance at December 31, 2016
 
$
(2,395
)
 
$
(1,271
)
 
$
(3,666
)
Other comprehensive income (loss)
 
1,914

 
(392
)
 
1,522

Balance at June 30, 2017
 
$
(481
)
 
$
(1,663
)
 
$
(2,144
)


13. Variable Interest Entity
The Company, through a subsidiary formed in China, has entered into various agreements with Shanghai Xiao Lan Network Technology Co., Ltd (“Shanghai Xiao”) and its shareholders that allow the Company to effectively control Shanghai

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Xiao, making it a variable interest entity (“VIE”). Shanghai Xiao has a technology license that allows it to provide local hosting services to customers located in China.
The shareholders of Shanghai Xiao cannot transfer their equity interests without the approval of the Company, and as a result, are considered de facto agents of the Company in accordance with ASC 810-10-25-43. The Company and its de facto agents acting together have the power to direct the activities that most significantly impact the entity’s economic performance and they have the obligation to absorb losses and the right to receive benefits from the entity. In situations where a de facto agency relationship is present, one party is required to be identified as the primary beneficiary. The factors considered include the presence of a principal/agent relationship, the relationship and significance of activities to the reporting entity, the variability associated with the VIE’s anticipated economics and the design of the VIE. The analysis is qualitative in nature and is based on weighting the relative importance on each of the factors in relation to the specifics of the VIE arrangement. Upon the execution of the agreements with Shanghai Xiao and its shareholders, the Company performed an analysis and concluded that the Company is the party that is most closely associated with Shanghai Xiao, as it is the most exposed to the variability of the VIE’s economics and therefore is the primary beneficiary of the VIE.
As of June 30, 2017 , the financial position and results of operations of Shanghai Xiao are consolidated within, but are not material to, the Company’s consolidated financial position or results of operations.
14 . Redeemable Non-controlling Interest
In connection with a 2014 equity investment in WZ UK, on January 6, 2016, the Company exercised its option to increase its stake in WZ UK from 49% to 57.5% , thereby acquiring a controlling interest, in exchange for a payment of approximately $2.1 million to the other shareholders of WZ UK. The agreement related to the transaction provides for a put option for the then NCI shareholders to put the remaining equity interest to the Company within pre-specified put periods. As the NCI is subject to a put option that is outside the control of the Company, it is deemed a redeemable non-controlling interest and is not recorded in permanent equity, and is presented as mezzanine redeemable non-controlling interest on the consolidated balance sheet, and is subject to the guidance of the Securities and Exchange Commission (“SEC”) under ASC 480-10-S99, Accounting for Redeemable Equity Securities. The difference between the $10.8 million fair value of the redeemable NCI and the $30.0 million value that is expected to be paid upon exercise of the put option was being accreted over the period commencing January 6, 2016 and up to the first put option period, which commenced on the 24 -month anniversary of the acquisition date, August 14, 2016. Adjustments to the carrying amount of the redeemable non-controlling interest were charged to additional paid-in capital.
In January 2016, the Company obtained a controlling interest in Resume Labs Limited for $1.5 million and Pseudio Limited for $1.5 million .
The agreements related to these transactions provided for put options for the NCI shareholders of each company to put the remaining equity interest to the Company within pre-specified put periods. As the NCI for these entities were subject to put options that were outside the control of the Company, they are deemed redeemable non-controlling interests and were also not recorded in permanent equity, and were presented as part of the mezzanine redeemable non-controlling interest on the consolidated balance sheet.
On May 16, 2016, the Company amended the put option with respect to WZ UK to allow it to acquire an additional equity interest in WZ UK earlier than August 2016. Pursuant to this amended option, on the same date the Company acquired an additional 20% stake in WZ UK for $15.4 million , thus increasing its ownership interest from 57.5% to 77.5% .
On July 13, 2016, WZ UK completed a restructuring pursuant to which Pseudio Limited and Resume Labs became wholly-owned subsidiaries of WZ UK. As a result of the restructuring, WZ UK became the 100% owner of Pseudio Limited and Resume Labs Limited. Immediately subsequent to the restructuring, the Company acquired additional equity in WZ UK for $18.0 million , bringing the Company’s aggregate stake in WZ UK to 86.4% . The restructuring significantly reduced the amount of the potential redemption amount payable to the minority shareholders of WZ UK, and gave the Company the flexibility to reduce investments in this business. Based on these reduced investments, the estimated value of the non-controlling interest is below the expected redemption amount of $25.0 million , which will result in $14.2 million of excess accretion that will reduce income available to common shareholders for the period starting on the date of the restructuring through the redemption date of July 1, 2017. The Company recognized excess accretion of $3.7 million and $7.2 million for the three and six months ended June 30, 2017 , respectively, which is reflected in net loss attributable to accretion of non-controlling interest in the Company’s consolidated statements of operations and comprehensive loss. Prior to the third quarter of 2016, the Company did not have any accretion amounts in excess of fair value. On July 7, 2017, the Company redeemed the remaining redeemable non-controlling interest for $25.0 million . See Note 20: Subsequent Events .

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The following table presents changes in this redeemable non-controlling interest:
 
Redeemable noncontrolling
Interest
 
(in thousands)
Balance as of December 31, 2016
$
17,753

Accretion in excess of fair value
7,247

Balance as of June 30, 2017
$
25,000

The Company starts accreting non-controlling interest to its redeemable value from the date the redemption of the non-controlling interest becomes probable through the earliest redemption date. If the non-controlling interest is redeemable at an amount higher than its fair value, the excess accretion is taken into consideration in the calculation of loss per share.
15. Income Taxes
The Company files income tax returns in the United States for federal income taxes and in various state jurisdictions. The Company also files in several foreign jurisdictions. In the normal course of business, the Company is subject to examination by tax authorities throughout the world. Since the Company is in a loss carry-forward position, it is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carry-forward is utilized. The Company is currently under audit in India for fiscal years ended March 31, 2014, 2015 and 2016 and Israel for the fiscal years ended December 31, 2012, 2013, 2014 and 2015.
The statutes of limitations in the Company’s other tax jurisdictions, United Kingdom, Netherlands and Brazil, remain open for various periods between 2012 and the present. However, carryforward attributes from prior years may still be adjusted upon examination by tax authorities if they are used in an open period. The Company does not expect material changes as a result of the India and Israel audits.
The Company recognizes, in its consolidated financial statements, the effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company has no unrecognized tax positions at December 31, 2016 and June 30, 2017 that would affect its effective tax rate. The Company does not expect a significant change in the liability for unrecognized tax benefits in the next 12 months.
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence the Company considered included:
 
Net Operating Losses (“NOL”) incurred from the Company’s inception to June 30, 2017 ;
Expiration of various federal, state and foreign tax attributes;
Reversals of existing temporary differences;
Composition and cumulative amounts of existing temporary differences; and
Forecasted profit before tax.
Prior to the February 2016 acquisition of Constant Contact, the Company maintained a valuation allowance against certain deferred tax assets. The acquisition of Constant Contacted resulted in a significant increase in deferred tax liabilities, which far exceeded pre-acquisition deferred tax assets. The Company, with the significant deferred tax liabilities resulting from Constant Contact acquisition, scheduled out the reversal of the consolidated US deferred tax assets and liabilities, and determined that these reversals would be sufficient to realize a significant portion of deferred tax assets that existed at the date of acquisition, and provided a valuation allowance against those deferred tax assets that were not likely to be realized. The deferred tax liabilities supporting the realizability of these deferred tax assets in the acquisition will reverse in the same period, are in the same jurisdiction and are of the same character as the temporary differences that gave rise to these deferred tax assets. After completing the scheduling analysis, the Company determined that it should maintain valuation allowances on several of the legacy state net operating loss carryforwards expected to expire unused. The reversal of valuation allowances following this scheduling analysis resulted in the recording of a tax benefit of $73.6 million during the quarter ended March 31, 2016.
For the year ended December 31, 2016, the Company updated the scheduling of the reversal of the consolidated US deferred tax assets and liabilities. Following the acquisition, deferred tax liabilities have decreased and the Company generated additional pre-tax losses. As of December 31, 2016, the scheduling of the reversal of the consolidated US deferred tax assets and liabilities generated sufficient income to utilize US deferred tax assets with the exception of certain Federal credits and

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state net operating loss and credit carryforwards. Accordingly, the Company increased its valuation allowance by $10.0 million during the last three quarters of fiscal year 2016.
The Company updated the scheduling of the reversal of the consolidated US deferred tax assets and liabilities for the period ended June 30, 2017, as the deferred tax liabilities have continued to decrease and the Company generated additional pre-tax losses. As of June 30, 2017, the Company has determined that the reversal of temporary differences will no longer generate sufficient income to utilize certain of its consolidated deferred tax assets in the US. Accordingly, the Company recorded an increase of $14.4 million to its valuation allowance during the quarter ended June 30, 2017, mostly related to the different book and tax treatment of goodwill.
For the three months ended June 30, 2016 and 2017 , the Company recognized tax benefit of $13.9 million and a tax expense of $2.6 million , respectively, in the consolidated statements of operations and comprehensive loss. The income tax expense for the three months ended June 30, 2017 was primarily attributable to a federal and state deferred tax expense of $1.7 million due primarily to the different book and tax treatment of goodwill, federal and state current income taxes of $0.9 million , a foreign current tax expense of $0.8 million , offset by a foreign deferred tax benefit of $0.8 million . The income tax benefit for the three months ended June 30, 2016 was primarily attributable to a $0.9 million reversal of the valuation allowance, a federal and state deferred tax benefit of $11.6 million , a foreign deferred tax benefit of $1.5 million , and a benefit for federal and state current income taxes of $0.6 million , partially offset by a foreign current tax expense of $0.7 million .
For the six months ended June 30, 2016 and 2017, the Company recognized tax benefit of $113.8 million and a tax expense of $8.4 million , respectively, in the consolidated statements of operations and comprehensive loss. The income tax expense for the six months ended June 30, 2017 was primarily attributable to a federal and state deferred tax expense of $5.3 million related to the differences in accounting treatment of goodwill under U.S. GAAP and tax accounting for goodwill, federal and state current income taxes of $2.4 million , a foreign current tax expense of $1.7 million , offset by a foreign deferred tax benefit of $1.0 million . The income tax benefit for the six months ended June 30, 2016 was primarily attributable to a $74.4 million reversal of the valuation allowance, a federal and state deferred tax benefit of $40.6 million , which includes the identification and recognition of $7.3 million of U.S. federal research and development credits, and a foreign deferred tax benefit of $2.2 million , partially offset by a provision for federal and state current income taxes of $1.5 million and foreign current tax expense of $1.8 million .
The provision for income taxes shown on the consolidated statements of operations and comprehensive loss differs from amounts that would result from applying the statutory tax rates to income before taxes primarily because of the application of valuation allowances against U.S. and foreign assets, as well as state income taxes and certain expenses that were non-deductible.
As of December 31, 2016 , the Company had NOL carry-forwards available to offset future U.S. federal taxable income of approximately $142.7 million and future state taxable income of approximately $125.6 million . These NOL carry-forwards expire on various dates through 2036 .
As of December 31, 2016, the Company had NOL carry-forwards in foreign jurisdictions available to offset future foreign taxable income by approximately  $96.8 million . The Company has loss carry-forwards that begin to expire in 2021 in India totaling  $2.5 million  and in China totaling  $0.3 million . The Company has loss carry-forwards that begin to expire in 2020 in the Netherlands totaling  $10.7 million . The Company also has loss carry-forwards in the United Kingdom, Israel and Singapore of  $81.1 million $1.9 million , and  $0.3 million , respectively, which have an indefinite carry-forward period.
In addition, the Company has  $3.4 million  of U.S. federal capital loss carry-forwards and  $1.4 million  in state capital loss-forwards, generally expiring through 2021. As of December 31, 2016, the Company had U.S. tax credit carryforwards available to offset future U.S. federal and state taxes of approximately  $20.3 million  and  $12.2 million , respectively. These credit carryforwards expire on various dates through 2036.
Utilization of the NOL carry-forwards may be subject to an annual limitation due to the ownership percentage change limitations under Section 382 of the Internal Revenue Code (“Section 382 limitation”). Ownership changes can limit the amount of net operating loss and other tax attributes that a company can use each year to offset future taxable income and taxes payable. In connection with a change in control in 2011 the Company was subject to Section 382 limitations of $77.1 million against the balance of NOL carry-forwards generated prior to the change in control in 2011. Through December 31, 2014 , the Company accumulated the unused amount of Section 382 limitations in excess of the amount of NOL carry-forwards that were originally subject to limitation. Therefore, these unused NOL carry-forwards are available for future use to offset taxable income. The Company has completed an analysis of changes in its ownership from 2011, through its IPO, to December 31,

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2014 . The Company concluded that there was not a Section 382 ownership change during this period and therefore any NOLs generated through December 31, 2014 , are not subject to any new Section 382 limitations on NOL carry-forwards. On November 20, 2014, the Company completed a follow-on offering of 13,000,000 shares of common stock. The underwriters also exercised their overallotment option to purchase an additional 1,950,000 shares of common stock from the selling stockholders. The Company performed an analysis of the impact of this offering and determined that no Section 382 change in ownership had occurred.
On March 11, 2015, the Company completed a follow-on offering of its common stock, in which selling stockholders sold 12,000,000 shares of common stock at a public offering price of $19.00 per share. The underwriter also exercised its overallotment option to purchase an additional 1,800,000 shares of common stock from the selling stockholders. The Company completed an analysis of its ownership changes in the first half of 2016, which resulted in no ownership-change for tax purposes within the meaning of the Internal Revenue Code Section 382(g).

16. Severance and Other Exit Costs
In connection with acquisitions, the Company may evaluate its data center, sales and marketing, support and engineering operations and the general and administrative function in an effort to eliminate redundant costs. As a result, the Company may incur charges for employee severance, exiting facilities and restructuring data center commitments and other related costs.
2017 Restructuring Plan
In January 2017, the Company announced plans to close certain offices as part of a plan to consolidate certain web presence customer support operations, resulting in severance costs (the “2017 Restructuring Plan”). These severance charges were associated with eliminating approximately 660 positions, primarily in customer support. Additionally, the Company implemented additional restructuring plans to create operational efficiencies and synergies related to the Constant Contact acquisition, which resulted in additional severance charges for the elimination of approximately 50 positions. In connection with these plans, the Company incurred severance costs of $4.4 million and $8.9 million , and paid $3.0 million and $3.7 million , during the three and six months ended June 30, 2017 , respectively. The Company had a remaining accrued severance liability of $5.2 million as of June 30, 2017 .
In connection with the 2017 Restructuring Plan, the Company closed offices in Orem, Utah and relocated certain employees to our Tempe, Arizona office. During the three and six months ended June 30, 2017 , the Company incurred facility charges of $0.6 million and $0.6 million , respectively. The Company made immaterial payments during the three and six months ended June 30, 2017 , and had a remaining accrued facility liability of $0.6 million as of June 30, 2017 .
The Company expects to incur severance charges through December 31, 2017 regarding this plan, and expects severance payments related to this plan to be completed during the year ended December 31, 2018.
2016 Restructuring Plan
In connection with the Company’s acquisition of Constant Contact on February 9, 2016, the Company implemented a plan to create operational efficiencies and synergies resulting in severance costs and facility exit costs (the “2016 Restructuring Plan”).
The severance charges were associated with eliminating approximately 265 positions across the business. The Company did not incur additional severance costs during the three and six months ended June 30, 2017 . The Company paid $0.4 million and $1.4 million of severance costs during the three and six months ended June 30, 2017 , respectively, and had a remaining accrued severance liability of $0.2 million as of June 30, 2017 .
The Company’s 2016 Restructuring Plan included a plan to close offices in San Francisco, California, Delray Beach, Florida, New York, New York, Miami, Florida, the United Kingdom and Brazil, and a plan to relocate certain employees to our Austin, Texas office. The Company also closed a portion of the Constant Contact offices in Waltham, Massachusetts. During the three and six months ended June 30, 2017 , the Company recorded an adjustment to the Waltham facilities charge for future lease payments of $(0.6) million and $0.5 million , respectively, due to a change in estimated sublease income. The Company paid $1.2 million and $2.4 million of facility costs related to the 2016 Restructuring Plan during the three and six months ended June 30, 2017 , respectively, and had a remaining accrued facility liability of $6.8 million as of June 30, 2017 .

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The Company incurred all employee-related charges associated with the 2016 Restructuring Plan during the year ended December 31, 2016, and expects severance payments related to the 2016 Restructuring Plan to be completed during the year ended December 31, 2017.
Other than the adjustment mentioned above, the Company completed facility-related charges associated with the 2016 Restructuring Plan during the year ended December 31, 2016, and expects to complete facility exit cost payments related to the plan during the year ended December 31, 2022.
Activity of Combined Restructuring Plans
The following table provides a summary of the aggregate activity for the six months ended June 30, 2017 related to the Company’s combined Restructuring Plans severance accrual:
 
Employee Severance
 
(in thousands)
 
Web presence segment
 
Email marketing segment
 
Total
Balance at December 31, 2016
$
633

 
$
926

 
$
1,559

Severance charges
5,340

 
3,686

 
9,026

Cash paid
(2,765
)
 
(2,463
)
 
(5,228
)
Balance at June 30, 2017
$
3,208

 
$
2,149

 
$
5,357

The following table provides a summary of the aggregate activity for the six months ended June 30, 2017 related to the Company’s combined Restructuring Plans facilities exit accrual:
 
Facilities
 
(in thousands)
 
Web presence segment
 
Email marketing segment
 
Total
Balance at December 31, 2016
$
273

 
$
8,747

 
$
9,020

Facility adjustments
573

 
498

 
1,071

Sublease income received
352

 

 
352

Cash paid
(451
)
 
(2,404
)
 
(2,855
)
Balance at June 30, 2017
$
747

 
$
6,841

 
$
7,588

The following table presents restructuring charges recorded in the consolidated statements of operations and comprehensive loss for the periods presented:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2017
 
2016
 
2017
 
(in thousands)
Cost of revenue
$
2,137

 
$
700

 
$
5,602

 
$
3,443