8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 25, 2018

 

 

Endurance International Group Holdings, Inc.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware   001- 36131   46-3044956

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

10 Corporate Drive, Suite 300

Burlington, MA

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

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

 

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

 

 

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

 

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

 

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

 

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

 

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

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

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02.

Results of Operations and Financial Condition

On October 25, 2018, Endurance International Group Holdings, Inc. (the “Company”) issued a press release announcing certain financial results and other information for the quarter ended September 30, 2018. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

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

 

Item 9.01.

Financial Statements and Exhibits

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

 

99.1    Press release issued by Endurance International Group Holdings, Inc. on October 25, 2018


SIGNATURE

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

 

    ENDURANCE INTERNATIONAL GROUP HOLDINGS, INC.
Date: October 25, 2018      
   

/s/ Marc Montagner

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

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2018 Third Quarter Results

 

   

GAAP revenue of $283.8 million

 

   

Net loss of $6.3 million

 

   

Adjusted EBITDA of $87.5 million

 

   

Cash flow from operations of $51.3 million

 

   

Free cash flow of $40.7 million

 

   

Total subscribers on platform were approximately 4.852 million at September 30, 2018

BURLINGTON, MA (October 25, 2018) — Endurance International Group Holdings, Inc. (NASDAQ: EIGI), a leading provider of cloud-based platform solutions designed to help small and medium-sized businesses succeed online, today reported financial results for its third quarter ended September 30, 2018.

“We are pleased with our third quarter results and the operational progress we have made year to date,” commented Jeffrey H. Fox, president and chief executive officer of Endurance International Group. “Our investment plans for 2018 were designed to simplify the business and deliver increased value to our customers. We believe we are positioned to transition back to revenue growth in 2019 as we deliver expanded solution value to customers of our key strategic brands.”

Third Quarter 2018 Financial Highlights

 

   

Revenue for the third quarter of 2018 was $283.8 million, a decrease of 3.9 percent compared to $295.2 million for the third quarter of 2017.

 

   

Net loss for the third quarter of 2018 was $6.3 million compared to net loss of $40.3 million for the third quarter of 2017.

 

   

Net loss attributable to Endurance International Group Holdings, Inc. for the third quarter of 2018 was $6.3 million, or $(0.04) per diluted share, compared to net loss of $40.3 million, or $(0.29) per diluted share, for the third quarter of 2017.

 

   

Adjusted EBITDA for the third quarter of 2018 was $87.5 million, a decrease of 6.7 percent compared to $93.8 million for the third quarter of 2017.

 

   

Cash flow from operations for the third quarter of 2018 was $51.3 million, an increase of 10.5 percent compared to $46.4 million for the third quarter of 2017.


   

Free cash flow, defined as cash flow from operations less capital expenditures and capital lease obligations, for the third quarter of 2018 was $40.7 million, an increase of 27.6 percent compared to $31.9 million for the third quarter of 2017.

Third Quarter Operating Highlights

 

   

Total subscribers on platform at September 30, 2018 were approximately 4.852 million, compared to approximately 5.122 million subscribers at September 30, 2017 and approximately 4.918 million subscribers at June 30, 2018. See “Total Subscribers” below.

 

   

Average revenue per subscriber, or ARPS, for the third quarter of 2018 was $19.36, compared to $19.03 for the third quarter of 2017 and $19.32 for the second quarter of 2018. See “Average Revenue Per Subscriber” below.

Fiscal 2018 Guidance

The Company is updating its guidance for the full year ending December 31, 2018. As of the date of this release, October 25, 2018, the Company expects:

 

     2017 Actual
as Reported
     Prior Guidance      Revised Guidance
(as of October 25, 2018)
 

GAAP revenue

     $1.177 billion        $1.140 to $1.160 billion        $1.140 to $1.150 billion  

Adjusted EBITDA

     $351 million        $310 to $330 million        $330 to $335 million  

Free cash flow

     $151 million        ~$120 million        ~$120 million  

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

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

First and Second Quarter 2018 Income Tax Expense Revision

The Company has revised its deferred income tax provision for the first and second quarter of 2018 to reflect a revision that favorably impacted net income (loss) for these periods. This revision does not impact the previously reported figures for Adjusted EBITDA, Cash Flow from Operations or Free Cash Flow. During fiscal year 2017, the Company began a process to reorganize, and in some instances, eliminate legal entities associated with certain products introduced in 2015 and 2016. This reorganization is expected to provide tax benefits, as the Company can deduct losses on the investments in these entities in its U.S. income tax filings. After further

 

2


review of these losses, the Company has determined that a significant portion of these losses should have been reflected in its 2017 income tax provision calculations. This change in position does not impact the actual income tax provision recorded in 2017; however, due to the changes enacted in the 2017 Tax Cuts and Jobs Act, the manner in which net operating loss carryforwards are handled does impact the Company’s 2018 provision for non-cash deferred income taxes. The details of the first and second quarter revision are shown in the tables at the end of this press release.

Conference Call and Webcast Information

Endurance International Group’s third quarter 2018 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Thursday, October 25, 2018. To participate on the live call, analysts and investors should dial (888) 734-0328 at least ten minutes prior to the call. Endurance International Group will also offer a live and archived webcast of the conference call, accessible from the Investor Relations section of the company’s website at http://ir.endurance.com.

Non-GAAP Financial Measures

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

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

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net (loss) income, excluding the impact of interest expense (net), income tax expense (benefit), depreciation, amortization of other intangible assets, stock-based compensation, restructuring expenses, transaction expenses and charges, (gain) loss of unconsolidated entities, impairment of other long-lived assets, SEC investigations reserve (with respect to fiscal year and third quarter 2017), and shareholder litigation reserve. We view adjusted EBITDA as a performance measure and believe it helps investors evaluate and compare our core operating performance from period to period.

 

3


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

Key Operating Metrics

Total Subscribers - We define total subscribers as the approximate number of subscribers that, as of the end of a period, are identified as subscribing directly to our products on a paid basis, excluding accounts that access our solutions via resellers or that purchase only domain names from us. Subscribers of more than one brand, and subscribers with more than one distinct billing relationship or subscription with us, are counted as separate subscribers. Total subscribers for a period reflects adjustments to add or subtract subscribers as we integrate acquisitions and/or are otherwise able to identify subscribers that meet, or do not meet, this definition of total subscribers. In the third quarter of 2018, these adjustments had a negligible impact on our total subscriber count.

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

Forward-Looking Statements

This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements concerning our financial guidance for fiscal year 2018, our belief that we are positioned to transition back to revenue growth in 2019, our investment and operational plans, including our ability to execute these plans and expectations that these plans will simplify our business and deliver increased customer value, our expectation that our reorganization or elimination of certain of our legal entities will provide us with tax benefits, and our expectations of future growth and financial and operational performance in general. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts, and statements identified by words such as “expects,” “believes,” “estimates,” “may,” “continue,” “positions,” “confident,” and variations of such words or words of similar meaning and the use of future dates. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that these plans, intentions, expectations, strategies or prospects will be attained or achieved. Furthermore, actual

 

4


results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation: the possibility that our financial guidance may differ from expectations; the possibility that we may not be able to executive our investment or operational plans or that these plans will not result in the anticipated benefits to our business; the possibility that we will continue to experience decreases in our subscriber base; an adverse impact on our business from litigation or regulatory proceedings; an adverse impact on our business from our substantial indebtedness and the cost of servicing our debt; the rate of growth of the Small and Medium Business (“SMB”) market for our solutions; our inability to increase sales to our existing subscribers, or retain our existing subscribers; data breaches; system or Internet failures; our inability to maintain or improve our competitive position or market share; and other risks and uncertainties discussed in our filings with the SEC, including those set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the three months ended June 30, 2018 filed with the SEC on August 2, 2018 and other reports we file with the SEC.

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

About Endurance International Group

Endurance International Group Holdings, Inc. (NASDAQ:EIGI) helps millions of small businesses worldwide with products and technology to enhance their online web presence, email marketing, business solutions, and more. The Endurance family of brands includes: Constant Contact, Bluehost, HostGator, Domain.com and SiteBuilder, among others. Headquartered in Burlington, Massachusetts, Endurance employs over 3,700 people across the United States, Brazil, India and the Netherlands. For more information, visit: www.endurance.com.

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

Investor Contact:

Angela White

Endurance International Group

(781) 852-3450

ir@endurance.com

Press Contact:

Kristen Andrews

Endurance International Group

(781) 418-6716

press@endurance.com

 

5


Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

     December 31,
2017
    September 30,
2018
 
           (unaudited)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 66,493     $ 89,674  

Restricted cash

     2,625       1,832  

Accounts receivable

     15,945       14,105  

Prepaid domain name registry fees

     53,805       57,114  

Prepaid commissions

     —         41,744  

Prepaid expenses and other current assets

     29,327       27,101  
  

 

 

   

 

 

 

Total current assets

     168,195       231,570  

Property and equipment—net

     95,452       79,315  

Goodwill

     1,850,582       1,849,264  

Other intangible assets—net

     455,440       377,670  

Deferred financing costs

     3,189       2,879  

Investments

     15,267       15,266  

Prepaid domain name registry fees, net of current portion

     10,806       11,337  

Prepaid commissions, net of current portion

     —         42,081  

Other assets

     2,155       9,021  
  

 

 

   

 

 

 

Total assets

   $ 2,601,086     $ 2,618,403  
  

 

 

   

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 11,058     $ 10,812  

Accrued expenses

     79,991       70,204  

Accrued interest

     24,457       15,109  

Deferred revenue

     361,940       380,564  

Current portion of notes payable

     33,945       31,606  

Current portion of capital lease obligations

     7,630       7,595  

Deferred consideration—short term

     4,365       2,386  

Other current liabilities

     4,031       3,753  
  

 

 

   

 

 

 

Total current liabilities

     527,417       522,029  

Long-term deferred revenue

     90,972       96,419  

Notes payable—long term, net of original issue discounts of $25,811 and $22,445 and deferred financing costs of $37,736 and $33,515, respectively

     1,858,300       1,792,436  

Capital lease obligations—long term

     7,719       2,067  

Deferred tax liability

     19,696       36,498  

Deferred consideration—long term

     3,551       1,342  

Other liabilities

     10,426       11,014  
  

 

 

   

 

 

 

Total liabilities

     2,518,081       2,461,805  
  

 

 

   

 

 

 

Stockholders’ equity:

    

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

     —         —    

Common Stock—par value $0.0001; 500,000,000 shares authorized; 140,190,695 and 143,306,748 shares issued at December 31, 2017 and September 30, 2018, respectively; 140,190,695 and 143,306,411 outstanding at December 31, 2017 and September 30, 2018, respectively

     14       14  

Additional paid-in capital

     931,033       953,971  

Accumulated other comprehensive loss

     (541     (1,033

Accumulated deficit

     (847,501     (796,354
  

 

 

   

 

 

 

Total stockholders’ equity

     83,005       156,598  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,601,086     $ 2,618,403  
  

 

 

   

 

 

 

 

6


Endurance International Group Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)

(in thousands, except share and per share amounts)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2017     2018     2017     2018  

Revenue

   $ 295,222     $ 283,770     $ 882,617     $ 862,896  

Cost of revenue

     158,865       128,945       454,197       393,597  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     136,357       154,825       428,420       469,299  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     66,276       63,831       211,154       197,733  

Engineering and development

     19,882       22,683       60,393       64,559  

General and administrative

     51,269       25,693       130,929       95,212  

Transaction expenses

     —            —         773       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     137,427       112,207       403,249       357,504  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from operations

     (1,070     42,618       25,171       111,795  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Other income (expense), net

     (600     —         (600     —    

Interest income

     203       289       506       720  

Interest expense

     (35,848     (37,527     (121,022     (111,923
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (36,245     (37,238     (121,116     (111,203
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes and equity earnings of unconsolidated entities

     (37,315     5,380       (95,945     592  

Income tax expense

     2,982       11,715       11,384       8,826  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of unconsolidated entities

     (40,297     (6,335     (107,329     (8,234

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

     (33     —         (72     2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (40,264   $ (6,335   $ (107,257   $ (8,236
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to non-controlling interest

     —         —         277       —    

Excess accretion of non-controlling interest

     —         —         7,247       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net loss attributable to non-controlling interest

     —         —         7,524       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Endurance International Group Holdings, Inc.

   $ (40,264   $ (6,335   $ (114,781   $ (8,236
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

        

Foreign currency translation adjustments

     1,070       (644     2,984       (2,489

Unrealized gain (loss) on cash flow hedge, net of taxes of $48 and $256, and $(182) and $626 for the three and nine months ended September 30, 2017 and 2018, respectively

     83       812       (309     1,996  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (39,111   $ (6,167   $ (112,106   $ (8,729
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.29   $ (0.04   $ (0.84   $ (0.06
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.29   $ (0.04   $ (0.84   $ (0.06
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

     137,793,609       143,107,122       136,688,115       141,946,574  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     137,793,609       143,107,122       136,688,115       141,946,574  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2017     2018     2017     2018  

Cash flows from operating activities:

        

Net loss

   $ (40,264   $ (6,335   $ (107,257   $ (8,236

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

        

Depreciation of property and equipment

     13,571       11,889       40,733       36,753  

Amortization of other intangible assets

     35,347       26,177       104,554       77,890  

Impairment of long lived assets

     13,848       —         13,848       —    

Impairment of investments

     600       —         600       —    

Amortization of deferred financing costs

     1,873       1,722       5,403       4,708  

Amortization of net present value of deferred consideration

     127       60       504       311  

Dividend from minority interest

     50       —         100       —    

Amortization of original issue discounts

     1,059       1,083       2,791       3,209  

Stock-based compensation

     19,580       7,550       48,749       21,932  

Deferred tax expense (benefit)

     2,096       13,323       6,442       8,839  

Loss (gain) on sale of assets

     (189     (70     (317     191  

(Gain) loss of unconsolidated entities

     (33     —         (72     2  

Financing costs expensed

     —         —         5,487       1,228  

Loss on early extinguishment of debt

     —         —         992       331  

Changes in operating assets and liabilities, net of acquisitions:

        

Accounts receivable

     (2,231     (2,053     (872     1,687  

Prepaid expenses and other current assets

     833       5,527       (510     (3,033

Accounts payable and accrued expenses

     1,695       (2,841     (7,309     (15,721

Deferred revenue

     (1,518     (4,691     15,000       3,502  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     46,444       51,341       128,866       133,593  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchases of property and equipment

     (12,800     (8,962     (32,095     (22,343

Proceeds from sale of assets

     5       6       292       6  

Purchases of intangible assets

     (286     —         (1,966     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (13,081     (8,956     (33,769     (22,337
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

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

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

Repayments of term loans

     (18,486     (25,401     (1,733,147     (1,656,094

Payment of financing costs

     (244     (285     (6,304     (1,580

Payment of deferred consideration

     —         (304     (5,408     (4,500

Payment of redeemable non-controlling interest

     (25,000     —         (25,000     —    

Principal payments on capital lease obligations

     (1,771     (1,700     (5,679     (5,609

Proceeds from exercise of stock options

     416       300       1,548       756  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (45,085     (27,390     (80,983     (86,722
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     80       (658     2,156       (2,146
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (11,642     14,337       16,270       22,388  

Cash and cash equivalents and restricted cash:

        

Beginning of period

     84,810       77,169       56,898       69,118  
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 73,168     $ 91,506     $ 73,168     $ 91,506  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 38,154     $ 37,678     $ 118,276     $ 110,139  

Income taxes paid

   $ 1,499     $ 1,603     $ 3,958     $ 3,725  

 

8


GAAP to Non-GAAP Reconciliation—Adjusted EBITDA

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

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2017      2018      2017      2018  

Net loss

   $ (40,264    $ (6,335    $ (107,257    $ (8,236

Interest expense, net(1)

     35,645        37,238        120,516        111,203  

Income tax expense (benefit)

     2,982        11,715        11,384        8,826  

Depreciation

     13,571        11,889        40,733        36,753  

Amortization of other intangible assets

     35,347        26,177        104,554        77,890  

Stock-based compensation

     19,580        7,550        48,749        21,932  

Restructuring expenses

     4,489        197        14,584        3,021  

Transaction expenses and charges

     —          —          773        —    

(Income) loss of unconsolidated entities

     (33      —          (72      2  

Impairment of other long-lived assets

     14,448        —          14,448        —    

SEC investigations reserve

     8,000        —          8,000        —    

Shareholder litigation reserve

     —          (935      —          7,325  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 93,765      $ 87,496      $ 256,412      $ 258,716  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

GAAP to Non-GAAP Reconciliation – Free Cash Flow

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

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2017      2018      2017      2018  

Cash flow from operations

   $ 46,444      $ 51,341      $ 128,866      $ 133,593  

Less:

           

Capital expenditures and capital lease obligations(1)

     (14,571      (10,662      (37,774      (27,952
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 31,873      $ 40,679      $ 91,092      $ 105,641  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Capital expenditures during the three and nine months ended September 30, 2017 and 2018 includes $1.8 million and $1.7 million, and $5.7 million and $5.6 million, respectively, of principal payments under a three year capital lease for software. The remaining balance on the capital lease is $9.7 million as of September 30, 2018.

 

9


Average Revenue Per Subscriber—Calculation and Segment Detail

We present our financial results in the following three segments.

 

   

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

 

   

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

 

   

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

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

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2017      2018      2017      2018  

Consolidated revenue

   $ 295,222      $ 283,770      $ 882,617      $ 862,896  

Consolidated total subscribers

     5,122        4,852        5,122        4,852  

Consolidated average subscribers for the period

     5,170        4,885        5,247        4,951  

Consolidated ARPS

   $ 19.03      $ 19.36      $ 18.69      $ 19.36  

Web presence revenue

   $ 159,530      $ 149,871      $ 483,661      $ 457,603  

Web presence subscribers

     3,957        3,682        3,957        3,682  

Web presence average subscribers for the period

     3,999        3,709        4,079        3,765  

Web presence ARPS

   $ 13.30      $ 13.47      $ 13.18      $ 13.50  

Email marketing revenue

   $ 101,526      $ 102,111      $ 298,401      $ 306,712  

Email marketing subscribers(1)

     523        499        523        499  

Email marketing average subscribers for the period

     527        502        533        509  

Email marketing ARPS

   $ 64.26      $ 67.88      $ 62.16      $ 66.97  

Domain revenue

   $ 34,166      $ 31,788      $ 100,555      $ 98,581  

Domain subscribers

     642        671        642        671  

Domain average subscribers for the period

     644        674        635        677  

Domain ARPS

   $ 17.68      $ 15.71      $ 17.59      $ 16.18  

 

(1)

Total email marketing subscriber count as of September 30, 2018 was impacted by a loss of approximately 10,500 subscribers, which resulted from changes made to Constant Contact’s account cancellation policy. These changes took place in the three months ended June 30, 2018, as previously disclosed.

 

10


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

 

     Three Months Ended September 30, 2017  
     Web presence      Email
marketing
     Domain      Total  
     Revised(2)  

Revenue

   $ 159,530      $ 101,526      $ 34,166      $ 295,222  

Gross profit

   $ 77,032      $ 65,286      $ (5,961    $ 136,357  

Net (loss) income

   $ (20,403    $ 2,202      $ (22,063    $ (40,264

Interest expense, net(1)

     14,686        20,514        445        35,645  

Income tax expense (benefit)

     798        1,323        861        2,982  

Depreciation

     9,399        3,233        939        13,571  

Amortization of other intangible assets

     14,884        18,770        1,693        35,347  

Stock-based compensation

     15,510        1,668        2,402        19,580  

Restructuring expenses

     3,468        682        339        4,489  

Transaction expenses and charges

     —          —          —          —    

(Gain) loss of unconsolidated entities

     (33      —          —          (33

Impairment of other long-lived assets

     600        —          13,848        14,448  

SEC investigations reserve

     4,323        2,751        926        8,000  

Shareholder litigation reserve

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 43,232      $ 51,143      $ (610    $ 93,765  
  

 

 

    

 

 

    

 

 

    

 

 

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

Revenue

   $ 149,871      $ 102,111      $ 31,788      $ 283,770  

Gross profit

   $ 75,074      $ 71,356      $ 8,395      $ 154,825  

Net (loss) income

   $ (7,565    $ 6,596      $ (5,366    $ (6,335

Interest expense, net(1)

     18,132        17,128        1,978        37,238  

Income tax expense (benefit)

     6,136        4,179        1,400        11,715  

Depreciation

     8,401        2,538        950        11,889  

Amortization of other intangible assets

     11,941        13,384        852        26,177  

Stock-based compensation

     1,569        4,472        1,509        7,550  

Restructuring expenses

     54        141        2        197  

Transaction expenses and charges

     —          —          —          —    

(Gain) loss of unconsolidated entities

     —          —          —          —    

Impairment of other long-lived assets

     —          —          —          —    

SEC investigations reserve

     —          —          —          —    

Shareholder litigation reserve

     (768      —          (167      (935
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 37,900      $ 48,438      $ 1,158      $ 87,496  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


     Nine Months Ended September 30, 2017  
     Web presence      Email
marketing
     Domain      Total  
     Revised(2)  

Revenue

   $ 483,661      $ 298,401      $ 100,555      $ 882,617  

Gross profit

   $ 229,186      $ 188,181      $ 11,053      $ 428,420  

Net loss

   $ (67,226    $ (8,026    $ (32,005    $ (107,257

Interest expense, net(1)

     50,877        68,212        1,427        120,516  

Income tax expense (benefit)

     12,645        (4,821      3,560        11,384  

Depreciation

     27,401        10,632        2,700        40,733  

Amortization of other intangible assets

     44,431        55,697        4,426        104,554  

Stock-based compensation

     38,023        5,392        5,334        48,749  

Restructuring expenses

     8,944        4,743        897        14,584  

Transaction expenses and charges

     —          773        —          773  

(Gain) loss of unconsolidated entities

     (72      —          —          (72

Impairment of other long-lived assets

     600        —          13,848        14,448  

SEC investigations reserve

     4,323        2,751        926        8,000  

Shareholder litigation reserve

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 119,946      $ 135,353      $ 1,113      $ 256,412  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended September 30, 2018  
     Web presence      Email
marketing
     Domain      Total  

Revenue

   $ 457,603      $ 306,712      $ 98,581      $ 862,896  

Gross profit

   $ 225,149      $ 214,909      $ 29,241      $ 469,299  

Net (loss) income

   $ (20,549    $ 22,350      $ (10,037    $ (8,236

Interest expense, net(1)

     53,503        50,866        6,834        111,203  

Income tax expense (benefit)

     960        8,009        (143      8,826  

Depreciation

     24,769        9,090        2,894        36,753  

Amortization of other intangible assets

     35,812        39,716        2,362        77,890  

Stock-based compensation

     12,066        7,168        2,698        21,932  

Restructuring expenses

     1,654        723        644        3,021  

Transaction expenses and charges

     —          —          —          —    

Loss of unconsolidated entities

     2        —          —          2  

Impairment of other long-lived assets

     —          —          —          —    

SEC investigations reserve

     —          —          —          —    

Shareholder litigation reserve

     4,780        1,500        1,045        7,325  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 112,997      $ 139,422      $ 6,297      $ 258,716  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

(2)

As disclosed in the first quarter of 2018, we revised the allocation of our 2017 adjusted EBITDA between our web presence and domain segment to correct a misallocation of domain registration costs in our previously reported segment figures. This correction resulted in the reallocation of adjusted EBITDA from the domain segment to the web presence segment of $1.9 million and $4.9 million for the three and nine months ending September 30, 2017, respectively. Consolidated adjusted EBITDA figures for these periods were not affected by this correction.

 

12


The following table represents the impact of the income statement revision to the first and second quarters of 2018 due to the revised deferred income tax provision (in thousands, except per share data):

 

     Three Months Ended March 31, 2018     Three Months Ended June 30, 2018  
     Originally
Filed
    Adjustment     Revised     Originally
Filed
    Adjustment     Revised  

Loss before income taxes and equity earnings of unconsolidated subsidiaries

   $ (4,444   $ —       $ (4,444   $ (344   $ —       $ (344

Income tax expense (benefit)

     2,617       (4,560     (1,943     1,650       (2,596     (946
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of unconsolidated subsidiaries

     (7,061   $ 4,560     $ (2,501     (1,994   $ 2,596     $ 602  

Equity (income) loss of unconsolidated subsidiaries

     27       —         27     $ (25       (25
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (7,088   $ 4,560     $ (2,528   $ (1,969   $ 2,596     $ 627  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

            

Foreign currency translation

     580       —         580       (2,425     —         (2,425

Unrealized (gain) loss on cash flow hedge, net of tax

     1,041       —         1,041       144       —         144  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (5,467   $ 4,560     $ (907   $ (4,250   $ 2,596     $ (1,654
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) per share

   $ (0.05   $ 0.03     $ (0.02   $ (0.01   $ 0.01     $ 0.00  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income (loss) per share

   $ (0.05   $ 0.03     $ (0.02   $ (0.01   $ 0.01     $ 0.00  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares used in computing net income (loss) per share

            

Basic

     140,361,982       —         140,361,982       142,340,561       —         142,340,561  

Diluted

     140,361,982       —         140,361,982       142,340,561       2,361,441       144,702,002  

The following table represents the impact of the revised deferred income tax provision on the impacted balance sheet accounts as of the dates shown (in thousands):

 

     March 31, 2018     June 30, 2018  
     Originally
Filed
    Adjustment     Revised     Originally
Filed
    Adjustment     Revised  

Deferred tax liability

     27,679       (4,560     23,119       29,897       (7,156     22,741  

Total liabilities

     2,533,619       (4,560     2,529,059       2,490,106       (7,156     2,482,950  

Accumulated deficit

     (795,206     4,560       (790,646     (797,175     7,156       (790,019

Total stockholders’ equity

     144,189       4,560       148,749       147,759       7,156       154,915  

Total liabilities and stockholders’ equity

     2,677,808       —         2,677,808       2,637,865       —         2,637,865  

The following table represents the impact of the revised deferred income tax provision on the impacted lines of the statement of cash flows for the periods shown (in thousands):

 

     Three Months Ended March 31, 2018     Three Months Ended June 30, 2018  
     Originally
Filed
    Adjustment     Revised     Originally
Filed
    Adjustment     Revised  

Net income (loss)

     (7,088     4,560       (2,528     (9,057     7,156       (1,901

Deferred tax expense

     492       (4,560     (4,068     2,672       (7,156     (4,484

Net cash provided by operating activities

     52,360       —         52,360       82,252       —         82,252  

 

13


GAAP to Non-GAAP Reconciliation of Fiscal Year 2018 Guidance (as of October 25, 2018)—Adjusted EBITDA

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

 

($ in millions)

   Twelve Months Ending
December 31, 2018
 

Estimated net loss

   $ (8    $ (3

Estimated interest expense (net)

     150        150  

Estimated income tax expense (benefit)

     (6      (6

Estimated depreciation

     50        50  

Estimated amortization of acquired intangible assets

     104        104  

Estimated stock-based compensation

     30        30  

Estimated restructuring expenses

     3        3  

Estimated transaction expenses and charges

     —          —    

Estimated (gain) loss of unconsolidated entities

     —          —    

Estimated impairment of other long-lived assets

     —          —    

Estimated shareholder litigation reserve

     7.3        7.3  
  

 

 

    

 

 

 

Adjusted EBITDA guidance

   $ 330      $ 335  
  

 

 

    

 

 

 

GAAP to Non-GAAP Reconciliation of Fiscal Year 2018 Guidance (as of October 25, 2018) - Free Cash Flow

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

 

($ in millions)

   Twelve Months
Ending
December 31, 2018
 

Estimated cash flow from operations

   $ 178  

Estimated capital expenditures and capital lease obligations

     (58
  

 

 

 

Free cash flow guidance

   $ 120  
  

 

 

 

 

14