8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 5, 2019

 

 

Endurance International Group Holdings, Inc.

(Exact Name of Registrant as Specified in Charter)

 

Delaware   001- 36131   46-3044956
(State or Other Jurisdiction   (Commission   (IRS Employer
of Incorporation)   File Number)   Identification No.)

 

10 Corporate Drive, Suite 300

Burlington, MA

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

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

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

 

 

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

 

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

 

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

 

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

 

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

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

Emerging growth company    ☐

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


Item 2.02.

Results of Operations and Financial Condition

On February 7, 2019, Endurance International Group Holdings, Inc. (the “Company”) issued a press release announcing certain financial results and other information for the quarter and full year ended December 31, 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 reported under Item 2.02 in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Exchange Act or the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.

 

Item 5.02.

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Election of Director

On February 6, 2019, the Board of Directors (the “Board”) of the Company, acting on the recommendation of the Nominating and Corporate Governance Committee of the Board, elected Andrea J. Ayers to the Board. Ms. Ayers brings extensive leadership and operating experience and expertise in customer management from nearly 30 years at Convergys Corporation, most recently as president and chief executive officer, a position she held from October 2012 until SYNNEX Corporation’s acquisition of Convergys in October 2018. Prior to that role, Ms. Ayers was the president of Convergys Customer Management Group Inc. from 2008 to 2012 and the chief operating officer of Convergys Management Group Inc. from 2010 to 2012. Ms. Ayers also serves on the board of directors of Stanley Black & Decker, Inc.

In order to elect Ms. Ayers, the Board increased the size of the Board from nine members to ten, and elected Ms. Ayers to fill the newly created vacancy. In connection with her appointment to the Board, Ms. Ayers entered into the Company’s standard form of indemnification agreement. Ms. Ayers has not been appointed to any committee of the Board.

2019 Management Incentive Plan

On February 5, 2019, the Compensation Committee of the Board (the “Compensation Committee”) of the Company adopted the 2019 Management Incentive Plan (the “2019 MIP”), a cash-based incentive compensation plan pursuant to which eligible Company employees, including named executive officers, are eligible for an annual bonus.

Eligible employees may earn annual bonuses under the 2019 MIP based on the achievement by the Company of pre-established targets for GAAP Revenue (weighted 50%) and Adjusted EBITDA (weighted 50%) for the year ending December 31, 2019. GAAP Revenue and Adjusted EBITDA are as reported and defined in the Company’s public filings.

The Company’s percentage achievement of the target for each of the GAAP Revenue and Adjusted EBITDA metrics will be evaluated separately, weighted, and then added together, and the bonus pool will be funded at the resulting combined percentage. In order for the GAAP Revenue metric to contribute to the bonus pool funding, the Company must achieve approximately 98% of the GAAP Revenue target, and in order for the Adjusted EBITDA metric to contribute to the bonus pool funding, the Company must achieve approximately 94% of the Adjusted EBITDA target. Achievement of 100% of the target for each metric will equate to 100% funding of the bonus pool. If the Company exceeds one or both metric targets, the bonus pool may be funded at a level up to 125%, depending upon the level of overachievement.

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

All payments and bonus pool funding are at the discretion of the Board of Directors. The Board of Directors or the Compensation Committee may make adjustments to achievement of performance metrics and payout levels under the 2019 MIP to address the impact of any mergers, acquisitions or other unexpected activities, developments, trends or events. In addition, achievement of the performance metrics may include or exclude any of the following events that occur during the performance year: any reorganization or restructuring transactions; extraordinary nonrecurring items; and significant acquisitions or divestitures.

The foregoing summary of the terms of the 2019 MIP is qualified in its entirety by reference to the 2019 MIP, which the Company plans to file as an exhibit to its Form 10-Q for the quarter ending March 31, 2019.


Item 9.01.

Financial Statements and Exhibits

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

 

99.1    Press release issued by Endurance International Group Holdings, Inc. on February 7, 2019


SIGNATURE

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

 

    ENDURANCE INTERNATIONAL GROUP HOLDINGS, INC.
Date: February 7, 2019       /s/ Marc Montagner
      (Signature)
   

Name: Marc Montagner

Title: Chief Financial Officer

EX-99.1

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2018 Fourth Quarter

and Full Year Results

Fiscal Year 2018

 

   

GAAP revenue of $1.145 billion

 

   

Net income of $4.5 million

 

   

Adjusted EBITDA of $338.1 million

 

   

Cash flow from operations of $182.6 million

 

   

Free cash flow of $129.2 million

 

   

Total subscribers on platform were approximately 4.802 million at December 31, 2018

Fourth Quarter 2018

 

   

GAAP revenue of $282.4 million

 

   

Net income of $12.8 million

 

   

Adjusted EBITDA of $79.3 million

 

   

Cash flow from operations of $49.0 million

 

   

Free cash flow of $23.6 million

BURLINGTON, MA (February 7, 2019) — Endurance International Group Holdings, Inc. (NASDAQ: EIGI), a leading provider of cloud-based platform solutions designed to help small and medium-sized businesses succeed online, today reported financial results for its fourth quarter and fiscal year ended December 31, 2018.

“I am pleased with our financial performance in 2018. The Endurance team made substantial strategic and operational progress while delivering to our 2018 integrated operating plan,” commented Jeffrey H. Fox, president and chief executive officer at Endurance International Group. “In 2019, we will continue to simplify our operations and maintain focus on increasing the value we deliver to customers on our strategic brands, which we believe provides a foundation for growth.”

Full Year and Fourth Quarter 2018 Financial Highlights

 

 

For fiscal year 2018, revenue was $1.145 billion, a decrease of 3 percent compared to $1.177 billion in fiscal 2017. Revenue for the fourth quarter of 2018 was $282.4 million, a decrease of 4 percent compared to $294.2 million in the fourth quarter of 2017.


 

For fiscal year 2018, net income was $4.5 million compared to a net loss of $99.8 million for fiscal 2017. Net income for the fourth quarter of 2018 was $12.8 million compared to net income of $7.5 million for the fourth quarter of 2017.

 

 

For fiscal year 2018, net income attributable to Endurance International Group Holdings, Inc. was $4.5 million, or $0.03 per diluted share, compared to a net loss of $107.3 million, or $(0.78) per diluted share, for fiscal 2017. Net income attributable to Endurance International Group Holdings, Inc. for the fourth quarter of 2018 was $12.8 million, or $0.09 per diluted share, compared to net income of $7.5 million, or $0.05 per diluted share, for the fourth quarter of 2017.

 

 

Adjusted EBITDA for fiscal year 2018 was $338.1 million, a decrease of 4 percent compared to $350.8 million in fiscal 2017. Adjusted EBITDA for the fourth quarter of 2018 was $79.3 million, a decrease of 16 percent compared to $94.4 million in the fourth quarter of 2017.

 

 

Cash flow from operations for fiscal year 2018 was $182.6 million, a decrease of 9 percent compared to $201.3 million for fiscal 2017. Cash flow from operations for the fourth quarter of 2018 was $49.0 million, a decrease of 32 percent compared to $72.4 million for the fourth quarter of 2017.

 

 

Free cash flow, defined as cash flow from operations less capital expenditures and financed equipment, for fiscal year 2018 was $129.2 million, a decrease of 14 percent compared to $150.8 million in fiscal 2017. Free cash flow for the fourth quarter of 2018 was $23.6 million, a decrease of 61 percent compared to $59.7 million for the fourth quarter of 2017.

 

 

During fiscal 2018, the company reduced the balance of its term loan by $100.8 million.

Full Year and Fourth Quarter Operating Highlights

 

 

Total subscribers on platform at December 31, 2018 were approximately 4.802 million, compared to approximately 4.852 million subscribers at September 30, 2018 and 5.051 million subscribers at December 31, 2017. See “Total Subscribers” below.

 

 

Average revenue per subscriber, or ARPS, for fiscal year 2018 was $19.37, compared to $18.82 for fiscal year 2017. ARPS for the fourth quarter of 2018 was $19.50, compared to $19.28 for the fourth quarter of 2017.

Fiscal 2019 Guidance

The company is providing the following guidance as of the date of this release, February 7, 2019. For the full year ending December 31, 2019, the company expects:

 

     2018 Actual
As reported
     Guidance
(as of February 7, 2019)
 

GAAP revenue

   $ 1.145 billion      $ 1.140 to $1.160 billion  

Adjusted EBITDA

   $ 338 million      $ 310 to $330 million  

Free cash flow

   $ 129 million      $ 115 to $125 million  

 

2


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

Conference Call and Webcast Information

Endurance International Group’s fourth quarter and full year 2018 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EST on Thursday, February 7, 2019. 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, 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 financed equipment. 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 financed equipment).

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. There were no adjustments in the fourth quarter of 2018.

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 2019; our belief that our continuing efforts to simplify our operations and increase the value we deliver to customers will provide a foundation for growth;; and our expected financial and operational performance in general. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts, and statements identified by words such as “expects,” “believes,” “estimates,” “may,” “continue,” “positions,” “confident,” and variations of such words or words of similar meaning and the use of future dates. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that these plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation: the possibility that our financial guidance may differ

 

4


from expectations; the possibility that our planned investment initiatives will not result in the anticipated benefits to our business; the possibility that we will continue to experience decreases in our subscriber base; an adverse impact on our business from litigation or regulatory proceedings; an adverse impact on our business from our substantial indebtedness and the cost of servicing our debt; the rate of growth of the Small and Medium Business (“SMB”) market for our solutions; our inability to grow our subscriber base, increase sales to our existing subscribers, or retain our existing subscribers; system or Internet failures; our inability to maintain or improve our competitive position or market share; and other risks and uncertainties discussed in our filings with the SEC, including the “Risk Factors” section of our most recent Quarterly Report on Form 10-Q for the quarter ended September 30, 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 3,800 people across the United States, Brazil, India and the Netherlands. For more information, visit: www.endurance.com.

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

Investor Contact:

Angela White

Endurance International Group

(781) 852-3450

ir@endurance.com

Press Contact:

Kristen Andrews

Endurance International Group

(781) 482-5809

press@endurance.com

 

5


Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

 

     December 31,
2017
    December 31,
2018
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 66,493     $ 88,644  

Restricted cash

     2,625       1,932  

Accounts receivable

     15,945       12,205  

Prepaid domain name registry fees

     53,805       56,779  

Prepaid commissions

     —         41,458  

Prepaid and refundable taxes

     4,367       7,235  

Prepaid expenses and other current assets

     23,908       27,855  
  

 

 

   

 

 

 

Total current assets

     167,143       236,108  

Property and equipment—net

     95,452       92,275  

Goodwill

     1,850,582       1,849,065  

Other intangible assets—net

     455,440       352,516  

Deferred financing costs

     3,189       2,656  

Investments

     15,267       15,000  

Prepaid domain name registry fees, net of current portion

     10,806       11,207  

Prepaid commissions, net of current portion

     —         42,472  

Other assets

     2,155       5,208  
  

 

 

   

 

 

 

Total assets

   $ 2,600,034     $ 2,606,507  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

     11,058       12,449  

Accrued expenses

     78,601       79,279  

Accrued taxes

     338       2,498  

Accrued interest

     24,457       25,259  

Deferred revenue

     361,940       371,758  

Current portion of notes payable

     33,945       31,606  

Current portion of financed equipment

     7,630       8,379  

Deferred consideration—short term

     4,365       2,425  

Other current liabilities

     4,031       3,147  
  

 

 

   

 

 

 

Total current liabilities

     526,365       536,800  

Long-term deferred revenue

     90,972       96,140  

Notes payable—long term, net of original issue discounts of $25,811 and $21,349, and deferred financing costs of $37,736 and $31,992, respectively

     1,858,300       1,770,055  

Financed equipment—long term

     7,719       —    

Deferred tax liability

     19,696       16,457  

Deferred consideration—long term

     3,551       1,364  

Other liabilities

     10,426       11,237  
  

 

 

   

 

 

 

Total liabilities

     2,517,029       2,432,053  
  

 

 

   

 

 

 

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 143,444,515 shares issued at December 31, 2017 and December 31, 2018, respectively; 140,190,695 and 143,444,178 outstanding at December 31, 2017 and December 31, 2018, respectively

     14       14  

Additional paid-in capital

     931,033       961,235  

Accumulated other comprehensive loss

     (541     (3,211

Accumulated deficit

     (847,501     (783,584
  

 

 

   

 

 

 

Total stockholders’ equity

     83,005       174,454  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,600,034     $ 2,606,507  
  

 

 

   

 

 

 

 

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
December 31,
    Twelve Months Ended
December 31,
 
     2017     2018     2017     2018  

Revenue

   $ 294,250     $ 282,395     $ 1,176,867     $ 1,145,291  

Cost of revenue

     149,733       127,140       603,930       520,737  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     144,517       155,255       572,937       624,554  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     66,306       67,691       277,460       265,424  

Engineering and development

     18,379       23,421       78,772       87,980  

General and administrative

     33,043       28,992       163,972       124,204  

Impairment of goodwill

     12,129       —         12,129       —    

Transaction expenses

     —         —         773       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     129,857       120,104       533,106       477,608  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     14,660       35,151       39,831       146,946  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Other income (loss), net

     —         —         (600     —    

Interest income

     230       369       736       1,089  

Interest expense

     (36,120     (37,557     (157,142     (149,480
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (35,890     (37,188     (157,006     (148,391
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes and equity earnings of unconsolidated entities

     (21,230     (2,037     (117,175     (1,445

Income tax benefit

     (28,665     (15,072     (17,281     (6,246
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity earnings of unconsolidated entities

     7,435       13,035       (99,894     4,801  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (38     265       (110     267  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 7,473     $ 12,770     $ (99,784   $ 4,534  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 7,473     $ 12,770     $ (107,308   $ 4,534  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

        

Foreign currency translation adjustments

     107       256       3,091       (2,233

Unrealized gain (loss) on cash flow hedge, net of taxes of $192 and ($763) and $11 and ($137) for the three and twelve months ended December 31, 2017 and 2018, respectively

     343       (2,433     34       (437
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   $ 7,923     $ 10,593     $ (104,183   $ 1,864  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.05     $ 0.09     $ (0.78   $ 0.03  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.05     $ 0.09     $ (0.78   $ 0.03  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     138,921,118       143,415,944       137,322,201       142,316,993  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     141,307,988       145,228,986       137,322,201       145,669,760  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2017     2018     2017     2018  

Cash flows from operating activities:

        

Net income (loss)

   $ 7,473     $ 12,770     $ (99,784   $ 4,534  

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

        

Depreciation of property and equipment

     14,452       11,454       55,185       48,207  

Amortization of other intangible assets from acquisitions

     35,800       25,258       140,354       103,148  

Amortization of deferred financing costs

     1,913       1,746       7,316       6,454  

Amortization of net present value of deferred consideration

     128       62       632       373  

Amortization of original issuance discount

     1,069       1,096       3,860       4,305  

Impairment of long-lived assets

     4,883       —         18,731       —    

Impairment of investments

     —         —         600       —    

Impairment of goodwill

     12,129       —         12,129       —    

Stock-based compensation

     11,252       7,132       60,001       29,064  

Deferred tax benefit

     (26,700     (19,277     (22,807     (10,438

(Gain) loss on sale of assets

     2       7       (315     198  

Gain from unconsolidated entities

     (38     —         (110     —    

Loss of unconsolidated entities

     —         265       —         267  

Financing costs expensed

     —         —         5,487       1,228  

Loss on early extinguishment of debt

     —         —         992       331  

Dividend from minority interest

     —         —         100       —    

Changes in operating assets and liabilities:

        

Accounts receivable

     (2,230     1,929       (3,102     3,616  

Prepaid expenses and other current assets

     3,396       (8,726     5,435       (11,759

Accounts payable and accrued expenses

     15,643       25,060       8,334       9,339  

Deferred revenue

     (6,765     (9,817     8,235       (6,315
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     72,407       48,959       201,273       182,552  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchases of property and equipment

     (10,967     (23,537     (43,062     (45,880

Proceeds from sale of assets

     238       —         530       6  

Purchases of intangible assets

     —         (8     (1,966     (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (10,729     (23,545     (44,498     (45,882
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from issuance of term loan

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

Repayment of term loan

     (64,487     (25,000     (1,797,634     (1,681,094

Payment of financing costs

     —         —         (6,304     (1,580

Payment of deferred consideration

     (25     —         (5,433     (4,500

Payment of redeemable non-controlling interest liability

     —         —         (25,000     —    

Principal payments on financed equipment

     (1,711     (1,830     (7,390     (7,439

Proceeds from exercise of stock options

     501       131       2,049       887  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (65,722     (26,699     (146,705     (113,421
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (6     355       2,150       (1,791
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents and restricted cash

     (4,050     (930     12,220       21,458  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents and restricted cash:

        

Beginning of period

     73,168       91,506       56,898       69,118  
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 69,118     $ 90,576     $ 69,118     $ 90,576  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 22,281     $ 24,006     $ 141,157     $ 134,145  

Income taxes paid

   $ (589   $ 416     $ 3,369     $ 4,141  

Supplemental disclosure of non-cash financing activities:

        

Assets acquired under equipment financing

   $ 12,408     $ 1,179     $ 15,536     $ 1,179  

 

8


GAAP to Non-GAAP reconciliation - Adjusted EBITDA

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

 

     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 
     2017      2018      2017      2018  

Net income (loss)

   $ 7,473      $ 12,770      $ (99,784    $ 4,534  

Interest expense, net(1)

     35,890        37,188        156,406        148,391  

Income tax expense (benefit)

     (28,665      (15,072      (17,281      (6,246

Depreciation

     14,452        11,454        55,185        48,207  

Amortization of other intangible assets

     35,800        25,258        140,354        103,148  

Stock-based compensation

     11,252        7,132        60,001        29,064  

Restructuring expenses

     1,226        347        15,810        3,368  

Transaction expenses and charges

     —          —          773        —    

(Gain) loss of unconsolidated entities

     (38      265        (110      267  

Impairment of other long-lived assets

     17,012        —          31,460        —    

SEC investigations reserve

     —          —          8,000        —    

Shareholder litigation reserve

     —          —          —          7,325  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 94,402      $ 79,342      $ 350,814      $ 338,058  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Interest expense includes impact of amortization of deferred financing costs, original issue 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
December 31,
     Twelve Months Ended
December 31,
 
     2017      2018      2017      2018  

Cash flow from operations

   $ 72,407      $ 48,959      $ 201,273      $ 182,552  

Less:

           

Capital expenditures and financed equipment(1)

     (12,678      (25,367      (50,452      (53,319
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 59,729      $ 23,592      $ 150,821      $ 129,233  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Capital expenditures during the three and twelve months ended December 31, 2017 includes $1.7 million and $7.4 million of principal payments under a three year agreement for equipment financing. Capital expenditures during the three and twelve months ended December 31, 2018 includes $1.8 million and $7.4 million of principal payments under a two year agreement for equipment financing. The remaining balance on the equipment financing is $8.4 million as of December 31, 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
December 31,
     Twelve Months Ended
December 31,
 
     2017      2018      2017      2018  

Consolidated revenue

   $ 294,250      $ 282,395      $ 1,176,867      $ 1,145,291  

Consolidated total subscribers

     5,051        4,802        5,051        4,802  

Consolidated average subscribers

     5,087        4,827        5,211        4,927  

Consolidated average revenue per subscriber (ARPS)

   $ 19.28      $ 19.50      $ 18.82      $ 19.37  
  

 

 

    

 

 

    

 

 

    

 

 

 

Web presence revenue

   $ 158,332      $ 147,712      $ 641,993      $ 605,315  

Web presence subscribers

     3,849        3,639        3,849        3,639  

Web presence average subscribers

     3,903        3,661        4,024        3,744  

Web presence ARPS

   $ 13.52      $ 13.45      $ 13.29      $ 13.47  
  

 

 

    

 

 

    

 

 

    

 

 

 

Email marketing revenue

   $ 102,849      $ 103,340      $ 401,250      $ 410,052  

Email marketing subscribers

     519        497        519        497  

Email marketing average subscribers

     521        498        531        508  

Email marketing ARPS

   $ 65.79      $ 69.22      $ 62.92      $ 67.28  
  

 

 

    

 

 

    

 

 

    

 

 

 

Domain revenue

   $ 33,069      $ 31,343      $ 133,624      $ 129,924  

Domain subscribers

     683        666        683        666  

Domain average subscribers

     663        668        656        675  

Domain ARPS

   $ 16.63      $ 15.63      $ 16.98      $ 16.05  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


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

 

     Three Months Ended December 31, 2018  
     Web
presence
     Email
marketing
     Domain      Total  

Revenue(1)

   $ 147,712      $ 103,340      $ 31,343      $ 282,395  

Gross profit

   $ 72,441      $ 73,114      $ 9,700      $ 155,255  

Net income (loss)

   $ (1,985    $ 16,278      $ (1,523    $ 12,770  

Interest expense, net(2)

   $ 17,453      $ 17,451      $ 2,284      $ 37,188  

Income tax benefit

   $ (5,921    $ (7,894    $ (1,257    $ (15,072

Depreciation

   $ 8,146      $ 2,407      $ 901      $ 11,454  

Amortization of other intangible assets

   $ 11,208      $ 13,384      $ 666      $ 25,258  

Stock-based compensation

   $ 3,934      $ 2,470      $ 728      $ 7,132  

Restructuring expenses

   $ 481      $ (134    $ —        $ 347  

Transaction expenses and charges

   $ —        $ —        $ —        $ —    

(Gain) loss of unconsolidated entities

   $ 265      $ —        $ —        $ 265  

Impairment of other long-lived assets

   $ —        $ —        $ —        $ —    

SEC investigations reserve

   $ —        $ —        $ —        $ —    

Shareholder litigation reserve

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 33,581      $ 43,962      $ 1,799      $ 79,342  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Twelve Months Ended December 31, 2018  
     Web
presence
     Email
marketing
     Domain      Total  

Revenue(1)

   $ 605,315      $ 410,052      $ 129,924      $ 1,145,291  

Gross profit

   $ 297,590      $ 288,023      $ 38,941      $ 624,554  

Net income (loss)

   $ (22,534    $ 38,628      $ (11,560    $ 4,534  

Interest expense, net(2)

   $ 70,956      $ 68,317      $ 9,118      $ 148,391  

Income tax benefit

   $ (4,961    $ 115      $ (1,400    $ (6,246

Depreciation

   $ 32,915      $ 11,497      $ 3,795      $ 48,207  

Amortization of other intangible assets

   $ 47,020      $ 53,100      $ 3,028      $ 103,148  

Stock-based compensation

   $ 16,000      $ 9,638      $ 3,426      $ 29,064  

Restructuring expenses

   $ 2,135      $ 589      $ 644      $ 3,368  

Transaction expenses and charges

   $ —        $ —        $ —        $ —    

(Gain) loss of unconsolidated entities

   $ 267      $ —        $ —        $ 267  

Impairment of other long-lived assets

   $ —        $ —        $ —        $ —    

SEC investigations reserve

   $ —        $ —        $ —        $ —    

Shareholder litigation reserve

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

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 146,578      $ 183,384      $ 8,096      $ 338,058  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


     Three months ended December 31, 2017  
     Web
presence
     Email
marketing
     Domain      Total  

Revenue(1)

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

Gross profit

   $ 76,402      $ 66,760      $ 1,355      $ 144,517  

Net income (loss)

   $ 2,264      $ (2,589    $ 7,798      $ 7,473  

Interest expense, net(2)

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

Income tax expense (benefit)

   $ (8,582    $ 9,973      $ (30,056    $ (28,665

Depreciation

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

Amortization of other intangible assets

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

Stock-based compensation

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

Restructuring expenses

   $ 187      $ 838      $ 201      $ 1,226  

Transaction expenses and charges

   $ —        $ —        $ —        $ —    

(Gain) loss of unconsolidated entities

   $ (38    $ —        $ —        $ (38

Impairment of other long-lived assets

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

SEC investigations reserve

   $ —        $ —        $ —        $ —    

Shareholder litigation reserve

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 45,142      $ 50,516      $ (1,256    $ 94,402  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Twelve months ended December 31, 2017  
     Web
presence
     Email
marketing
     Domain      Total  

Revenue(1)

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

Gross profit

   $ 305,588      $ 254,941      $ 12,408      $ 572,937  

Net income (loss)

   $ (64,962    $ (10,615    $ (24,207    $ (99,784

Interest expense, net(2)

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

Income tax expense (benefit)

   $ 4,063      $ 5,152      $ (26,496    $ (17,281

Depreciation

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

Amortization of other intangible assets

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

Stock-based compensation

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

Restructuring expenses

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

Transaction expenses and charges

   $ —        $ 773      $ —        $ 773  

(Gain) loss of unconsolidated entities

   $ (110    $ —        $ —        $ (110

Impairment of other long-lived assets

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

SEC investigations reserve

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

Shareholder litigation reserve

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 165,088      $ 185,869      $ (143    $ 350,814  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Revenue excludes intercompany transactions relating to domain sales and domain services from the domain segment to the web presence segment of $2.2 million and $2.4 million for the three months ended December 31, 2017 and 2018, respectively, and $10.3 million and $10.0 million for the twelve months ended December 31, 2017 and 2018, respectively.

(2)

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

 

12


GAAP to Non-GAAP Reconciliation of Fiscal Year 2019 Guidance (as of February 7, 2019) - Adjusted EBITDA

The following table reflects the reconciliation of fiscal year 2019 estimated net loss calculated in accordance with GAAP to fiscal year 2019 guidance for adjusted EBITDA. All figures shown are approximate.

 

($ in millions)

   Twelve
Months
Ending
December 31,
2019
 

Estimated net loss

   $ 2      $ 11  

Estimated interest expense (net)

     145        147  

Estimated income tax expense (benefit)

     (2      (4

Estimated depreciation

     46        50  

Estimated amortization of acquired intangible assets

     83        85  

Estimated stock-based compensation

     33        37  

Estimated restructuring expenses

     3        4  

Estimated transaction expenses and charges

     —          —    

Estimated (gain) loss of unconsolidated entities

     —          —    

Estimated impairment of other long-lived assets

     —          —    
  

 

 

    

 

 

 

Adjusted EBITDA guidance

   $ 310      $ 330  

GAAP to Non-GAAP Reconciliation of Fiscal Year 2019 Guidance (as of February 7, 2019) - Free Cash Flow

The following table reflects the reconciliation of fiscal year 2019 estimated cash flow from operations calculated in accordance with GAAP to fiscal year 2019 guidance for free cash flow. All figures shown are approximate.

 

($ in millions)

   Twelve
Months
Ending
December 31,
2019
 

Estimated cash flow from operations

   $ 165      $ 180  

Estimated capital expenditures and financed equipment

     (50      (55
  

 

 

    

 

 

 

Free cash flow guidance

   $ 115      $ 125  

 

13