8-K
false 0001237746 0001237746 2019-10-31 2019-10-31

 

 

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 31, 2019

 

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))

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 October 31, 2019, Endurance International Group Holdings, Inc. (the “Company”) issued a press release announcing certain financial results and other information for the quarter ended September 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 9.01. Financial Statements and Exhibits

(d) Exhibits

         
 

99.1

   

Press release issued by Endurance International Group Holdings, Inc. on October 31, 2019

         
 

104

   

The cover page from this Current Report on Form 8-K, formatted in Inline XBRL


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 31, 2019

     

         

     

/s/ Marc Montagner

     

(Signature)

     

Name:  Marc Montagner

     

Title:    Chief Financial Officer

EX-99.1

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2019 Third Quarter Results

 

   

GAAP revenue of $277.2 million

 

   

Net income of $7.8 million

 

   

Adjusted EBITDA of $80.6 million

 

   

Cash flow from operations of $41.0 million

 

   

Free cash flow of $27.8 million

 

   

Total subscribers on platform were approximately 4.780 million at September 30, 2019

BURLINGTON, MA (October 31, 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 third quarter ended September 30, 2019.

“We are pleased with the progress we made in the third quarter, which resulted in positive net units as an enterprise. During the quarter we continued to deliver increased solution value to our customers with focused investment on our strategic brands,” commented Jeffrey H. Fox, president and chief executive officer of Endurance International Group. “We believe our net subscriber and revenue trend reflects continued progress toward our goal of returning our multi-brand scale SMB platform to growth.”

Third Quarter 2019 Financial Highlights

 

 

Revenue for the third quarter of 2019 was $277.2 million, a decrease of 2.3 percent compared to $283.8 million for the third quarter of 2018.

 

 

Net income for the third quarter of 2019 was $7.8 million, or $0.05 per diluted share, compared to net loss of $6.3 million, or $(0.04) per diluted share, for the third quarter of 2018.

 

 

Adjusted EBITDA for the third quarter of 2019 was $80.6 million, a decrease of 7.9 percent compared to $87.5 million for the third quarter of 2018.

 

 

Cash flow from operations for the third quarter of 2019 was $41.0 million, a decrease of 20.2 percent compared to $51.3 million for the third quarter of 2018.

 

 

Free cash flow, defined as cash flow from operations less capital expenditures and financed equipment obligations, for the third quarter of 2019 was $27.8 million, a decrease of 31.5 percent compared to $40.7 million for the third quarter of 2018.


Third Quarter 2019 Operating Highlights

 

 

Total subscribers on platform at September 30, 2019 were approximately 4.780 million, compared to approximately 4.852 million subscribers at September 30, 2018 and approximately 4.802 million subscribers at December 31, 2018. Total subscribers at the end of the quarter increased by approximately 10,700 as compared to the second quarter, and included approximately 1,300 subscribers from the September 2019 acquisition of Ecomdash disclosed in our Form 8-K filed on September 16, 2019. See “Total Subscribers” below.

 

 

Average revenue per subscriber, or ARPS, for the third quarter of 2019 was $19.35, compared to $19.36 for the third quarter of 2018 and $19.50 for the fourth quarter of 2018. See “Average Revenue Per Subscriber” below.

Fiscal 2019 Guidance

The Company is revising its guidance for the full year ending December 31, 2019. As of the date of this release, October 31, 2019, the Company expects:

 

     2018 Actual
as Reported
     Prior Guidance      Revised Guidance
(as of October 31, 2019)
 

GAAP revenue

   $ 1.145 billion      $ 1.120 to $1.140 billion      ~$ 1.115 billion  

Adjusted EBITDA

   $ 338 million      $ 300 to $320 million      $ 300 to $310 million  

Free cash flow

   $ 129 million      $ 110 to $120 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.

Conference Call and Webcast Information

Endurance International Group’s third quarter 2019 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Thursday, October 31, 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.

 

2


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 third quarter of 2019, these adjustments had a positive impact of approximately 3,000 to 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

 

3


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 reflecting our belief that our net subscriber and revenue trend reflects continued progress toward our goal of returning to growth , our financial guidance for fiscal year 2019, 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 a return to growth or other anticipated benefits to our business; the possibility that we will experience decreases in, or fail to grow, 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.

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

 

4


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 3,700 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,
2018
    September 30,
2019
 
           (unaudited)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 88,644     $ 84,465  

Restricted cash

     1,932       1,832  

Accounts receivable

     12,205       12,139  

Prepaid domain name registry fees

     56,779       56,555  

Prepaid commissions

     41,458       40,528  

Prepaid and refundable taxes

     7,235       13,070  

Prepaid expenses and other current assets

     27,855       23,137  
  

 

 

   

 

 

 

Total current assets

     236,108       231,726  

Property and equipment—net

     92,275       86,318  

Operating lease right-of-use assets

     —         98,064  

Goodwill

     1,849,065       1,854,829  

Other intangible assets—net

     352,516       273,329  

Deferred financing costs—net

     2,656       2,000  

Investments

     15,000       15,000  

Prepaid domain name registry fees, net of current portion

     11,207       11,139  

Prepaid commissions, net of current portion

     42,472       47,776  

Other assets

     5,208       2,292  
  

 

 

   

 

 

 

Total assets

   $ 2,606,507     $ 2,622,473  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 12,449     $ 10,171  

Accrued expenses

     79,279       67,267  

Accrued taxes

     2,498       1,783  

Accrued interest

     25,259       14,526  

Deferred revenue

     371,758       375,729  

Operating lease liabilities—short term

     —         22,474  

Current portion of notes payable

     31,606       31,606  

Current portion of financed equipment

     8,379       2,637  

Deferred consideration—short term

     2,425       2,181  

Other current liabilities

     3,147       2,216  
  

 

 

   

 

 

 

Total current liabilities

     536,800       530,590  

Long-term deferred revenue

     96,140       99,257  

Operating lease liabilities—long term

     —         84,594  

Notes payable—long term, net of original issue discounts of $21,349 and $18,013 and deferred financing costs of $31,992 and $27,318, respectively

     1,770,055       1,703,065  

Deferred tax liability

     16,457       20,231  

Deferred consideration—long term

     1,364       —    

Other liabilities

     11,237       6,308  
  

 

 

   

 

 

 

Total liabilities

     2,432,053       2,444,045  
  

 

 

   

 

 

 

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 146,140,876 shares issued at December 31, 2018 and September 30, 2019, respectively; 143,444,178 and 146,140,876 outstanding at December 31, 2018 and September 30, 2019, respectively

     14       15  

Additional paid-in capital

     961,235       988,773  

Accumulated other comprehensive loss

     (3,211     (4,876

Accumulated deficit

     (783,584     (805,484
  

 

 

   

 

 

 

Total stockholders’ equity

     174,454       178,428  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,606,507     $ 2,622,473  
  

 

 

   

 

 

 

 

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,  
     2018     2019     2018     2019  

Revenue

   $ 283,770     $ 277,193     $ 862,896     $ 836,080  

Cost of revenue (including impairment of $0 and $17,892, respectively, for the three and nine months ended September 30, 2019)

     128,945       120,755       393,597       384,196  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     154,825       156,438       469,299       451,884  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     63,831       59,143       197,733       191,221  

Engineering and development

     22,683       28,257       64,559       77,299  

General and administrative

     25,693       30,309       95,212       92,826  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     112,207       117,709       357,504       361,346  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     42,618       38,729       111,795       90,538  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest income

     289       305       720       910  

Interest expense

     (37,527     (36,057     (111,923     (110,308
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (37,238     (35,752     (111,203     (109,398
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and equity earnings of unconsolidated entities

     5,380       2,977       592       (18,860

Income tax expense (benefit)

     11,715       (4,839     8,826       3,040  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity earnings of unconsolidated entities

     (6,335     7,816       (8,234     (21,900

Equity loss of unconsolidated entities, net of tax

     —         —         2       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (6,335   $ 7,816     $ (8,236   $ (21,900
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income:

        

Foreign currency translation adjustments

     (644     (1,001     (2,489     (1,054

Unrealized gain (loss) on cash flow hedge, net of tax (expense) benefit of ($182) and $626 for the three and nine months ended September 30, 2018, respectively, and ($70) and $200 for the three and nine months ended September 30, 2019, respectively

     812       240       1,996       (611
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income

   $ (6,167   $ 7,055     $ (8,729   $ (23,565
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net (loss) income per share

   $ (0.04   $ 0.05     $ (0.06   $ (0.15
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net (loss) income per share

   $ (0.04   $ 0.05     $ (0.06   $ (0.15
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic

     143,107,122       145,951,755       141,946,574       144,932,834  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     143,107,122       146,301,595       141,946,574       144,932,834  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited) (in thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2018     2019     2018     2019  

Cash flows from operating activities:

        

Net (loss) income

   $ (6,335   $ 7,816     $ (8,236   $ (21,900

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

        

Depreciation of property and equipment

     11,889       11,280       36,753       33,385  

Amortization of other intangible assets

     26,177       21,668       77,890       64,137  

Impairment of long-lived assets

     —         —         —         17,892  

Amortization of deferred financing costs

     1,722       1,822       4,708       5,331  

Amortization of net present value of deferred consideration

     60       23       311       143  

Amortization of original issue discounts

     1,083       1,138       3,209       3,336  

Stock-based compensation

     7,550       9,143       21,932       27,513  

Deferred tax expense

     13,323       (685     8,839       1,942  

(Gain) loss on sale of assets

     (70     (8     191       128  

Loss from unconsolidated entities

     —         —         2       —    

Financing costs expensed

     —         —         1,228       —    

Loss on early extinguishment of debt

     —         —         331       —    

Changes in operating assets and liabilities, net of acquisitions:

        

Accounts receivable

     (2,053     827       1,687       34  

Prepaid and refundable taxes

     (2,344     (6,633     (3,446     (5,908

Prepaid expenses and other current assets

     11,371       2,780       2,703       5,108  

Leases right-of-use asset, net

     —         (258     —         395  

Accounts payable and accrued expenses

     (6,341     (8,357     (18,011     (23,492

Deferred revenue

     (4,691     395       3,502       7,636  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     51,341       40,951       133,593       115,680  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Businesses acquired in purchase transactions, net of cash acquired

     —         (8,875     —         (8,875

Purchases of property and equipment

     (8,962     (10,632     (22,343     (26,796

Proceeds from sale of assets

     6       1       6       1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (8,956     (19,506     (22,337     (35,670
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

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

     —         —         1,580,305       —    

Repayments of term loans

     (25,401     (25,000     (1,656,094     (75,000

Payment of financing costs

     (285     —         (1,580     —    

Payment of deferred consideration

     (304     —         (4,500     (2,500

Principal payments on financed equipment

     (1,700     (2,471     (5,609     (6,332

Proceeds from exercise of stock options

     300       4       756       26  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (27,390     (27,467     (86,722     (83,806
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (658     (331     (2,146     (483
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     14,337       (6,353     22,388       (4,279

Cash and cash equivalents and restricted cash:

        

Beginning of period

     77,169       92,650       69,118       90,576  
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 91,506     $ 86,297     $ 91,506     $ 86,297  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 37,678     $ 42,533     $ 110,139     $ 110,886  

Income taxes paid

   $ 1,603     $ 991     $ 3,725     $ 1,715  

 

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 September 30,      Nine Months Ended September 30,  
     2018      2019      2018     2019  

Net (loss) income

   $ (6,335    $ 7,816      $ (8,236   $ (21,900

Interest expense, net(1)

     37,238        35,752        111,203       109,398  

Income tax expense (benefit)

     11,715        (4,839      8,826       3,040  

Depreciation

     11,889        11,280        36,753       33,385  

Amortization of other intangible assets

     26,177        21,668        77,890       64,137  

Stock-based compensation

     7,550        9,143        21,932       27,513  

Restructuring expenses

     197        (193      3,021       2,005  

Loss from unconsolidated entities

     —          —          2       —    

Impairment of other long-lived assets

     —          —          —         17,892  

Shareholder litigation reserve

     (935      —          7,325       —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 87,496      $ 80,627      $ 258,716     $ 235,470  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(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,  
     2018      2019      2018     2019  

Cash flows from operations

   $ 51,341      $ 40,951      $ 133,593     $ 115,680  

Less:

          

Capital expenditures and financed equipment(1)

     (10,662      (13,103      (27,952     (33,128
  

 

 

    

 

 

    

 

 

   

 

 

 

Free cash flow

   $ 40,679      $ 27,848      $ 105,641     $ 82,552  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)

Capital expenditures during the three months ended September 30, 2018 and 2019 includes $1.7 million and $2.5 million, respectively, of principal payments under a three year agreement for equipment financing. Capital expenditures during the nine months ended September 30, 2018 and 2019 includes $5.6 million and $6.3 million, respectively, of principal payments under a three year agreement for equipment financing. The remaining balance on the equipment financing is $2.6 million as of September 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 and our Ecomdash inventory management and marketplace listing solution.

 

   

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 September 30,      Nine Months Ended September 30,  
     2018      2019      2018      2019  

Consolidated revenue

   $ 283,770      $ 277,193      $ 862,896      $ 836,080  

Consolidated total subscribers

     4,852        4,780        4,852        4,780  

Consolidated average subscribers for the period

     4,885        4,774        4,951        4,791  

Consolidated ARPS

   $ 19.36      $ 19.35      $ 19.36      $ 19.39  

Web presence revenue

   $ 149,871      $ 143,196      $ 457,603      $ 433,353  

Web presence subscribers

     3,682        3,579        3,682        3,579  

Web presence average subscribers for the period

     3,709        3,584        3,765        3,610  

Web presence ARPS

   $ 13.47      $ 13.32      $ 13.50      $ 13.34  

Email marketing revenue

   $ 102,111      $ 102,765      $ 306,712      $ 307,984  

Email marketing subscribers(1)

     499        491        499        491  

Email marketing average subscribers for the period

     502        491        509        493  

Email marketing ARPS

   $ 67.88      $ 69.79      $ 66.97      $ 69.40  

Domain revenue

   $ 31,788      $ 31,232      $ 98,581      $ 94,743  

Domain subscribers

     671        710        671        710  

Domain average subscribers for the period

     674        699        677        688  

Domain ARPS

   $ 15.71      $ 14.88      $ 16.18      $ 15.30  

 

(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 to make it more consistent with the rest of our business. These changes took place in the three months ended June 30, 2018, as previously disclosed. In addition, the total email marketing subscriber count as of September 30, 2019 includes approximately 1,300 subscribers added as part of our September 2019 acquisition of Ecomdash.

 

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, 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  

Loss of unconsolidated entities

     —          —          —         —    

Impairment of other long-lived assets

     —          —          —         —    

Shareholder litigation reserve

     (768      —          (167     (935
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

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

 

 

    

 

 

    

 

 

   

 

 

 
     Three Months Ended September 30, 2019  
     Web presence     

Email

marketing

     Domain     Total  

Revenue

   $ 143,196      $ 102,765      $ 31,232     $ 277,193  

Gross profit

   $ 73,592      $ 73,763      $ 9,083     $ 156,438  

Net (loss) income

   $ (3,477    $ 12,546      $ (1,253   $ 7,816  

Interest expense, net(1)

     16,665        18,599        488       35,752  

Income tax expense (benefit)

     (2,499      (1,795      (545     (4,839

Depreciation

     8,302        2,114        864       11,280  

Amortization of other intangible assets

     9,311        11,553        804       21,668  

Stock-based compensation

     4,751        3,301        1,091       9,143  

Restructuring expenses

     (37      (157      1       (193

Loss of unconsolidated entities

     —          —          —         —    

Impairment of other long-lived assets

     —          —          —         —    

Shareholder litigation reserve

     —          —          —         —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 33,016      $ 46,161      $ 1,450     $ 80,627  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

11


     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  

Loss of unconsolidated entities

     2        —          —         2  

Impairment of other long-lived assets

     —          —          —         —    

Shareholder litigation reserve

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

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

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

 

 

    

 

 

    

 

 

   

 

 

 
     Nine Months Ended September 30, 2019  
     Web presence      Email
marketing
     Domain     Total  

Revenue

   $ 433,353      $ 307,984      $ 94,743     $ 836,080  

Gross profit

   $ 219,050      $ 221,399      $ 11,435     $ 451,884  

Net (loss) income

   $ (20,281    $ 22,648      $ (24,267   $ (21,900

Interest expense, net(1)

     50,853        55,103        3,442       109,398  

Income tax expense (benefit)

     1,589        1,102        349       3,040  

Depreciation

     24,018        6,667        2,700       33,385  

Amortization of other intangible assets

     27,600        34,244        2,293       64,137  

Stock-based compensation

     14,686        9,606        3,221       27,513  

Restructuring expenses

     752        1,220        33       2,005  

Loss of unconsolidated entities

     —          —          —         —    

Impairment of other long-lived assets

     —          —          17,892       17,892  

Shareholder litigation reserve

     —          —          —         —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 99,217      $ 130,590      $ 5,663     $ 235,470  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)

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 October 31, 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

   $ (37    $ (40

Estimated interest expense (net)

     145        147  

Estimated income tax expense (benefit)

     7        9  

Estimated depreciation

     44        48  

Estimated amortization of acquired intangible assets

     85        87  

Estimated stock-based compensation

     36        38  

Estimated restructuring expenses

     2        3  

Estimated (gain) loss of unconsolidated entities

     —          —    

Estimated impairment of other long-lived assets

     18        18  

Shareholder litigation reserve

     —          —    
  

 

 

    

 

 

 

Adjusted EBITDA guidance

   $ 300      $ 310  
  

 

 

    

 

 

 

GAAP to Non-GAAP Reconciliation of Fiscal Year 2019 Guidance (as of October 31, 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  
  

 

 

    

 

 

 

 

13