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): July 31, 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))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.0001 par value   EIGI   The Nasdaq Global Select Market

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

Emerging growth company  ☐

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

 

 

 


Item 2.02.

Results of Operations and Financial Condition

On August 1, 2019, Endurance International Group Holdings, Inc. (the “Company”) issued a press release announcing certain financial results and other information for the quarter ended June 30, 2019. 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

As previously disclosed, the Company’s current chief accounting officer, Timothy S. Mathews, will be leaving the Company to pursue other opportunities. Mr. Mathews’s resignation takes effect on August 7, 2019. At that time, Marc Montagner, the Company’s chief financial officer, will assume the responsibilities of interim principal accounting officer (in addition to his CFO role) until the Company hires a new chief accounting officer.

Mr. Montagner, age 58, has served as the Company’s chief financial officer since September 2015. Mr. Montagner has also served as chief risk officer since April 2018, and from May 2017 to February 2018, he served as interim chief operating officer. Mr. Montagner was previously chief financial officer at LightSquared, Inc., or LightSquared (now Ligado Networks), from January 2012 until August 2015. Previously, he had been executive vice president of sales, marketing and strategy at LightSquared from 2009 to 2010. From June 2010 to December 2011, Mr. Montagner served as managing partner of DuPont Circle Partners LLC. Prior to joining LightSquared in February of 2009, Mr. Montagner was managing director and co-head of the Global Telecom, Media and Technology Merger and Acquisition Group at Banc of America Securities. Until 2006, he was senior vice president, corporate development and M&A with the Sprint Nextel Corporation. Prior to 2002, Mr. Montagner was a managing director in the Media and Telecom Group at Morgan Stanley.

 

Item 9.01.

Financial Statements and Exhibits

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

 

99.1    Press release issued by Endurance International Group Holdings, Inc. on August 1, 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: August 1, 2019    

/s/ Marc Montagner

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

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2019 Second Quarter Results

 

   

GAAP revenue of $278.2 million

 

   

Net loss of $26.2 million

 

   

Adjusted EBITDA of $76.3 million

 

   

Cash flow from operations of $59.7 million

 

   

Free cash flow of $47.6 million

 

   

Total subscribers on platform were approximately 4.769 million at June 30, 2019

BURLINGTON, MA (August 1, 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 second quarter ended June 30, 2019.

“We are pleased with our progress simplifying our operations and executing our 2019 plans across the company,” commented Jeffrey H. Fox, president and chief executive officer of Endurance International Group. “The team is focused on delivering increasing solution value to the customers of our two scale businesses, email marketing and web presence. We are pleased with the progress in our net customer trends and remain focused on executing our transition to revenue growth in the second half of 2019.”

Second Quarter 2019 Financial Highlights

 

   

Revenue for the second quarter of 2019 was $278.2 million, a decrease of 3.3 percent compared to $287.8 million for the second quarter of 2018.

 

   

Net loss for the second quarter of 2019 was $26.2 million, or $(0.18) per diluted share, compared to net income of $0.6 million, or $0.00 per diluted share, for the second quarter of 2018.

 

   

Adjusted EBITDA for the second quarter of 2019 was $76.3 million, a decrease of 10.2 percent compared to $85.0 million for the second quarter of 2018.

 

   

Cash flow from operations for the second quarter of 2019 was $59.7 million, an increase of 99.7 percent compared to $29.9 million for the second quarter of 2018.

 

   

Free cash flow, defined as cash flow from operations less capital expenditures and financed equipment obligations, for the second quarter of 2019 was $47.6 million, an increase of 137.2 percent compared to $20.1 million for the second quarter of 2018.


Second Quarter Operating Highlights

 

   

Total subscribers on platform at June 30, 2019 were approximately 4.769 million, compared to approximately 4.918 million subscribers at June 30, 2018 and approximately 4.802 million subscribers at December 31, 2018. See “Total Subscribers” below.

 

   

Average revenue per subscriber, or ARPS, for the second quarter of 2019 was $19.42, compared to $19.32 for the second quarter of 2018 and $19.50 for the fourth quarter of 2018. See “Average Revenue Per Subscriber” below.

Fiscal 2019 Guidance

For the full year ending December 31, 2019, and as of the date of this release, August 1, 2019, the Company continues to expect:

 

     2018 Actual
as Reported
     Guidance
(as of August 1, 2019)
 

GAAP revenue

   $ 1.145 billion      $ 1.120 to $1.140 billion  

Adjusted EBITDA

   $ 338 million      $ 300 to $320 million  

Free cash flow

   $ 129 million      $ 110 to $120 million  

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

As originally disclosed in third quarter of 2018, the Company 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 did not impact the previously reported figures for Adjusted EBITDA, Cash Flow from Operations or Free Cash Flow.

Conference Call and Webcast Information

Endurance International Group’s second quarter 2019 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Thursday, August 1, 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

 

2


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.

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 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 financed equipment obligations).

Key Operating Metrics

Total Subscribers – We define total subscribers as the approximate number of subscribers that, as of the end of a period, are identified as subscribing directly to our products on a paid basis, excluding accounts that access our solutions via resellers or that purchase only domain names from us. Subscribers of more than one brand, and subscribers with more than one distinct billing relationship or subscription with us, are counted as separate subscribers. Total subscribers for a period reflects adjustments to add or subtract subscribers as we integrate acquisitions and/or are otherwise able to identify subscribers that meet, or do not meet, this definition of total subscribers. In the second quarter of 2019, these adjustments had a negligible impact on our total subscriber count.

 

3


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 addressing or reflecting our expectation of a transition back to revenue growth in the second half of 2019, our financial guidance for fiscal year 2019, the expected outcome of our investment and operational plans, including our focus on simplifying our business and delivering increased customer value, 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,” “anticipates,” “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 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 or our actual financial results may differ from expectations; the possibility that we may not be able to execute 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 Annual Report on Form 10-K for the period ended December 31, 2018 filed with the SEC on February 21, 2019 and other reports we file with the SEC.

 

4


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 and Domain.com, 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) 418-6716

press@endurance.com

 

5


Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

                                         
     December 31,
2018
    June 30,
2019
 
           (unaudited)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 88,644     $ 90,818  

Restricted cash

     1,932       1,832  

Accounts receivable

     12,205       12,989  

Prepaid domain name registry fees

     56,779       57,326  

Prepaid commissions

     41,458       41,704  

Prepaid and refundable taxes

     7,235       6,517  

Prepaid expenses and other current assets

     27,855       26,411  
  

 

 

   

 

 

 

Total current assets

     236,108       237,597  

Property and equipment—net

     92,275       88,700  

Operating lease right-of-use assets

     —         104,210  

Goodwill

     1,849,065       1,848,949  

Other intangible assets—net

     352,516       292,191  

Deferred financing costs—net

     2,656       2,221  

Investments

     15,000       15,000  

Prepaid domain name registry fees, net of current portion

     11,207       11,281  

Prepaid commissions, net of current portion

     42,472       45,160  

Other assets

     5,208       2,778  
  

 

 

   

 

 

 

Total assets

   $ 2,606,507     $ 2,648,087  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 12,449     $ 14,933  

Accrued expenses

     79,279       64,774  

Accrued taxes

     2,498       2,418  

Accrued interest

     25,259       24,483  

Deferred revenue

     371,758       376,046  

Operating lease liabilities—short term

     —         22,483  

Current portion of notes payable

     31,606       31,606  

Current portion of financed equipment

     8,379       4,583  

Deferred consideration—short term

     2,425       1,408  

Other current liabilities

     3,147       2,319  
  

 

 

   

 

 

 

Total current liabilities

     536,800       545,053  

Long-term deferred revenue

     96,140       99,249  

Operating lease liabilities—long term

     —         90,989  

Notes payable—long term, net of original issue discounts of $21,349 and $19,151 and deferred financing costs of $31,992 and $28,919, respectively

     1,770,055       1,725,326  

Deferred tax liability

     16,457       18,785  

Deferred consideration—long term

     1,364       —    

Other liabilities

     11,237       6,460  
  

 

 

   

 

 

 

Total liabilities

     2,432,053       2,485,862  
  

 

 

   

 

 

 

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; 143,444,515 and 145,741,251 shares issued at December 31, 2018 and June 30, 2019, respectively; 143,444,178 and 145,741,251 outstanding at December 31, 2018 and June 30, 2019, respectively

     14       14  

Additional paid-in capital

     961,235       979,626  

Accumulated other comprehensive loss

     (3,211     (4,115

Accumulated deficit

     (783,584     (813,300
  

 

 

   

 

 

 

Total stockholders’ equity

     174,454       162,225  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,606,507     $ 2,648,087  
  

 

 

   

 

 

 

 

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 June 30,     Six Months Ended June 30,  
     2018     2019     2018     2019  

Revenue

   $ 287,770     $ 278,204     $ 579,126     $ 558,887  

Cost of revenue

     130,746       139,587       264,652       263,441  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     157,024       138,617       314,474       295,446  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     66,546       65,490       133,902       132,078  

Engineering and development

     21,959       25,348       41,876       49,042  

General and administrative

     30,744       31,124       69,519       62,517  
        

Total operating expense

     119,249       121,962       245,297       243,637  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     37,775       16,655       69,177       51,809  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest income

     227       314       431       605  

Interest expense

     (38,346     (37,037     (74,396     (74,251
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (38,119     (36,723     (73,965     (73,646
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes and equity earnings of unconsolidated entities

     (344     (20,068     (4,788     (21,837

Income tax (benefit) expense

     (946     6,160       (2,889     7,879  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity earnings of unconsolidated entities

     602       (26,228     (1,899     (29,716

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

     (25           2        
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 627     $ (26,228   $ (1,901   $ (29,716
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

        

Foreign currency translation adjustments

     (2,425     348       (1,845     (53

Unrealized gain (loss) on cash flow hedge, net of tax (expense) benefit of ($45) and ($370) for the three and six months ended June 30, 2018, respectively, and ($35) and $269 for the three and six months ended June 30, 2019, respectively

     144       110       1,184       (851
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (1,654   $ (25,770   $ (2,562   $ (30,620
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.00     $ (0.18   $ (0.01   $ (0.21
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.00     $ (0.18   $ (0.01   $ (0.21
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic

     142,340,561       145,308,823       141,356,567       144,414,929  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     144,702,002       145,308,823       141,356,567       144,414,929  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

                                                                                   
     Three Months Ended June 30,     Six Months Ended June 30,  
     2018     2019     2018     2019  

Cash flows from operating activities:

        

Net income (loss)

   $ 627     $ (26,228   $ (1,901   $ (29,716

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

        

Depreciation of property and equipment

     12,796       10,899       24,864       22,105  

Amortization of other intangible assets

     25,978       21,349       51,713       42,469  

Impairment of long lived assets

     —         17,892       —         17,892  

Amortization of deferred financing costs

     1,092       1,776       2,986       3,509  

Amortization of net present value of deferred consideration

     123       59       251       120  

Amortization of original issue discounts

     1,068       1,111       2,126       2,198  

Stock-based compensation

     7,390       9,354       14,382       18,370  

Deferred tax expense (benefit)

     (416     3,533       (4,484     2,627  

Loss on sale of assets

     213       110       261       136  

Loss from unconsolidated entities

     (25     —         2       —    

Financing costs expensed

     1,228       —         1,228       —    

Loss on early extinguishment of debt

     331       —         331       —    

Changes in operating assets and liabilities, net of acquisitions:

        

Accounts receivable

     1,292       590       3,740       (793

Prepaid expenses and other current assets

     (5,857     4,620       (8,668     2,328  

Prepaid and refundable taxes

     (1,461     1,316       (1,102     725  

Leases right-of-use asset, net

     —         80       —         653  

Accounts payable and accrued expenses

     (12,020     16,377       (11,670     (15,135

Deferred revenue

     (2,467     (3,158     8,193       7,241  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     29,892       59,680       82,252       74,729  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchases of property and equipment

     (8,127     (10,741     (13,381     (16,164
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (8,127     (10,741     (13,381     (16,164
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

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

     1,580,305       —         1,580,305       —    

Repayments of term loans

     (1,605,207     (25,000     (1,630,693     (50,000

Payment of financing costs

     (1,295     —         (1,295     —    

Payment of deferred consideration

     (4,196     (2,500     (4,196     (2,500

Principal payments on financed equipment

     (1,679     (1,291     (3,909     (3,861

Proceeds from exercise of stock options

     431       17       456       22  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (31,641     (28,774     (59,332     (56,339
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (1,405     470       (1,488     (152
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (11,281     20,635       8,051       2,074  

Cash and cash equivalents and restricted cash:

        

Beginning of period

     88,450       72,015       69,118       90,576  
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 77,169     $ 92,650     $ 77,169     $ 92,650  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 30,370     $ 24,094     $ 72,461     $ 68,353  

Income taxes paid (received)

   $ 1,519     $ (1,142   $ 2,122     $ 724  

 

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 June 30,     Six Months Ended June 30,  
         2018             2019             2018             2019      

Net income (loss)

   $ 627     $ (26,228   $ (1,901   $ (29,716

Interest expense, net(1)

     38,119       36,723       73,965       73,646  

Income tax (benefit) expense

     (946     6,160       (2,889     7,879  

Depreciation

     12,796       10,899       24,864       22,105  

Amortization of other intangible assets

     25,978       21,349       51,713       42,469  

Stock-based compensation

     7,390       9,354       14,382       18,370  

Restructuring expenses

     1,295       183       2,824       2,198  

(Gain) loss from unconsolidated entities

     (25     —         2       —    

Impairment of other long-lived assets

     —         17,892       —         17,892  

Shareholder litigation reserve

     (240     —         8,260       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 84,994     $ 76,332     $ 171,220     $ 154,843  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 June 30,     Six Months Ended June 30,  
         2018             2019             2018             2019      

Cash flows from operations

   $ 29,892     $ 59,680     $ 82,252     $ 74,729  

Less:

        

Capital expenditures and financed equipment(1)

     (9,806     (12,032     (17,290     (20,025
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ 20,086     $ 47,648     $ 64,962     $ 54,704  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Capital expenditures during the three months ended June 30, 2018 and 2019 includes $1.7 million and $1.3 million, respectively, of principal payments under a three year agreement for equipment financing. Capital expenditures during the six months ended June 30, 2018 and 2019 includes $3.9 million and $3.9 million, respectively, of principal payments under a three year agreement for equipment financing. The remaining balance on the equipment financing is $4.6 million as of June 30, 2019.

 

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, including Bluehost and HostGator. This segment also includes related products such as domain names, 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 solution. This segment also generates revenue from sales of our Constant Contact-branded website builder tool.

 

   

Domain. The domain segment consists of domain-focused brands such as Domain.com, ResellerClub and LogicBoxes as well as certain web hosting brands that are under common management 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. It also resells domain names and domain management services to our web presence segment.

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

 

                                                                                   
     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2018      2019      2018      2019  

Consolidated revenue

   $ 287,770      $ 278,204      $ 579,126      $ 558,887  

Consolidated total subscribers

     4,918        4,769        4,918        4,769  

Consolidated average subscribers for the period

     4,965        4,776        4,985        4,786  

Consolidated ARPS

   $ 19.32      $ 19.42      $ 19.36      $ 19.46  

Web presence revenue

   $ 152,715      $ 144,197      $ 307,732      $ 290,157  

Web presence subscribers

     3,737        3,588        3,737        3,588  

Web presence average subscribers for the period

     3,774        3,600        3,793        3,614  

Web presence ARPS

   $ 13.49      $ 13.35      $ 13.52      $ 13.38  

Email marketing revenue

   $ 102,154      $ 102,479      $ 204,601      $ 205,219  

Email marketing subscribers

     504        492        504        492  

Email marketing average subscribers for the period

     511        493        512        494  

Email marketing ARPS

   $ 66.60      $ 69.28      $ 66.64      $ 69.21  

Domain revenue

   $ 32,901      $ 31,528      $ 66,793      $ 63,511  

Domain subscribers

     677        689        677        689  

Domain average subscribers for the period

     680        683        680        678  

Domain ARPS

   $ 16.13      $ 15.39      $ 16.36      $ 15.62  

 

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 June 30, 2018  
     Web
presence
    Email
marketing
    Domain     Total  

Revenue

   $ 152,715     $ 102,154     $ 32,901     $ 287,770  

Gross profit

   $ 75,702     $ 71,376     $ 9,946     $ 157,024  

Net (loss) income

   $ (6,876   $ 10,395     $ (2,892   $ 627  

Interest expense, net(1)

     18,385       17,329       2,405       38,119  

Income tax (benefit) expense

     (497     (333     (116     (946

Depreciation

     8,391       3,406       999       12,796  

Amortization of other intangible assets

     11,863       13,239       876       25,978  

Stock-based compensation

     5,424       1,288       678       7,390  

Restructuring expenses

     788       420       87       1,295  

(Gain) loss of unconsolidated entities

     (25     —         —         (25

Impairment of other long-lived assets

     —         —         —         —    

Shareholder litigation reserve

     (197     —         (43     (240
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 37,256     $ 45,744     $ 1,994     $ 84,994  
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended June 30, 2019  
     Web
presence
    Email
marketing
    Domain     Total  

Revenue

   $ 144,197     $ 102,479     $ 31,528     $ 278,204  

Gross profit

   $ 73,217     $ 73,589     $ (8,189   $ 138,617  

Net (loss) income

   $ (10,262   $ 4,164     $ (20,130   $ (26,228

Interest expense, net(1)

     17,093       19,110       520       36,723  

Income tax (benefit) expense

     3,193       2,269       698       6,160  

Depreciation

     7,767       2,229       903       10,899  

Amortization of other intangible assets

     9,210       11,408       731       21,349  

Stock-based compensation

     5,042       3,222       1,090       9,354  

Restructuring expenses

     155       23       5       183  

(Gain) loss of unconsolidated entities

     —         —         —         —    

Impairment of other long-lived assets

     —         —         17,892       17,892  

Shareholder litigation reserve

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 32,198     $ 42,425     $ 1,709     $ 76,332  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

11


                                                                                   
     Six Months Ended June 30, 2018  
     Web
presence
    Email
marketing
     Domain     Total  

Revenue

   $ 307,732     $ 204,601      $ 66,793     $ 579,126  

Gross profit

   $ 150,075     $ 143,553      $ 20,846     $ 314,474  

Net (loss) income

   $ (12,984   $ 15,754      $ (4,671   $ (1,901

Interest expense, net(1)

     35,371       33,738        4,856       73,965  

Income tax (benefit) expense

     (5,176     3,830        (1,543     (2,889

Depreciation

     16,368       6,552        1,944       24,864  

Amortization of other intangible assets

     23,871       26,332        1,510       51,713  

Stock-based compensation

     10,497       2,696        1,189       14,382  

Restructuring expenses

     1,600       582        642       2,824  

(Gain) loss of unconsolidated entities

     2       —          —         2  

Impairment of other long-lived assets

     —         —          —         —    

Shareholder litigation reserve

     5,548       1,500        1,212       8,260  
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 75,097     $ 90,984      $ 5,139     $ 171,220  
  

 

 

   

 

 

    

 

 

   

 

 

 
     Six Months Ended June 30, 2019  
     Web
presence
    Email
marketing
     Domain     Total  

Revenue

   $ 290,157     $ 205,219      $ 63,511     $ 558,887  

Gross profit

   $ 145,458     $ 147,636      $ 2,352     $ 295,446  

Net (loss) income

   $ (16,804   $ 10,102      $ (23,014   $ (29,716

Interest expense, net(1)

     34,188       36,504        2,954       73,646  

Income tax (benefit) expense

     4,088       2,897        894       7,879  

Depreciation

     15,716       4,553        1,836       22,105  

Amortization of other intangible assets

     18,289       22,691        1,489       42,469  

Stock-based compensation

     9,935       6,305        2,130       18,370  

Restructuring expenses

     789       1,377        32       2,198  

(Gain) loss of unconsolidated entities

     —         —          —         —    

Impairment of other long-lived assets

     —         —          17,892       17,892  

Shareholder litigation reserve

     —         —          —         —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 66,201     $ 84,429      $ 4,213     $ 154,843  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

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

 

12


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

 

                                                                                                                             
     Three Months Ended June 30, 2018     Six Months Ended June 30, 2018  
     Originally
Filed
    Adjustment     Revised     Originally
Filed
    Adjustment     Revised  

Loss before income taxes and equity earnings of unconsolidated subsidiaries

   $ (344   $ —       $ (344   $ (4,788   $ —       $ (4,788

Income tax expense (benefit)

     1,650       (2,596     (946     4,267       (7,156     (2,889
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity earnings of unconsolidated subsidiaries

     (1,994     2,596       602       (9,055     7,156       (1,899

Equity (income) loss of unconsolidated subsidiaries

     (25     —         (25     2       —         2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (1,969   $ 2,596     $ 627     $ (9,057   $ 7,156     $ (1,901
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

            

Foreign currency translation

     (2,425     —         (2,425     (1,845     —         (1,845

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

     144       —         144       1,184       —         1,184  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (4,250   $ 2,596     $ (1,654   $ (9,718   $ 7,156     $ (2,562
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) per share

   $ (0.01   $ 0.01     $ —       $ (0.06   $ 0.05     $ (0.01
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income (loss) per share

   $ (0.01   $ 0.01     $ —       $ (0.06   $ 0.05     $ (0.01
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

            
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic

     142,340,561       —         142,340,561       141,356,567       —         141,356,567  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     142,340,561       2,361,441       144,702,002       141,356,567       —         141,356,567  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

                                                              
     June 30, 2018  
     Originally
Filed
    Adjustment     Revised  

Deferred tax liability

   $ 29,897     $ (7,156   $ 22,741  

Total liabilities

     2,490,106       (7,156     2,482,950  

Accumulated deficit

     (797,175     7,156       (790,019

Total stockholders’ equity

     147,759       7,156       154,915  

Total liabilities and stockholders’ equity

     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 June 30, 2018     Six Months Ended June 30, 2018  
     Originally
Filed
    Adjustment     Revised     Originally
Filed
    Adjustment     Revised  

Net income (loss)

   $ (1,969   $ 2,596     $ 627     $ (9,057   $ 7,156     $ (1,901

Deferred tax expense

     2,180       (2,596     (416     2,672       (7,156     (4,484

Net cash provided by operating activities

     29,892       —         29,892       82,252       —         82,252  

 

13


GAAP to Non-GAAP Reconciliation of Fiscal Year 2019 Guidance (as of August 1, 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

   $ (39    $ (32

Estimated interest expense (net)

     146        148  

Estimated income tax expense (benefit)

     6        8  

Estimated depreciation

     44        48  

Estimated amortization of acquired intangible assets

     85        87  

Estimated stock-based compensation

     36        38  

Estimated restructuring expenses

     4        5  

Estimated transaction expenses and charges

     —          —    

Estimated (gain) loss of unconsolidated entities

     —          —    

Estimated impairment of other long-lived assets

     18        18  
  

 

 

    

 

 

 

Adjusted EBITDA guidance

   $ 300      $ 320  
  

 

 

    

 

 

 

GAAP to Non-GAAP Reconciliation of Fiscal Year 2019 Guidance (as of August 1, 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

   $ 160      $ 175  

Estimated capital expenditures and financed equipment obligations

     (50      (55
  

 

 

    

 

 

 

Free cash flow guidance

   $ 110      $ 120  
  

 

 

    

 

 

 

 

14