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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
 (Mark One)
ý
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2016
OR
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number: 001-36131
 
 
 
Endurance International Group Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
46-3044956
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
10 Corporate Drive, Suite 300
Burlington, Massachusetts
01803
(Address of principal executive offices)
(Zip code)
(781) 852-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common Stock, par value $0.0001 per share
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer
¨
 
Accelerated filer
ý
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The aggregate market value of common stock held by non-affiliates of the registrant based on the closing price of the registrant’s common stock as reported on the NASDAQ Global Select Market on June 30, 2016, was $577,725,323.
As of January 31, 2017 there were 142,140,080 shares of the registrant’s common stock, $0.0001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2017 Annual Meeting of Stockholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of December 31, 2016, are incorporated by reference into Part III of this Annual Report on Form 10-K.
 


Table of Contents

TABLE OF CONTENTS
 
 
Page
PART I.
 
PART II.
 
PART III.
 
PART IV.
 


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical fact, contained in this Annual Report on Form 10-K, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The words “anticipate,” “may,” “believe,” “predict,” “potential,” “continue,” “could,” “should,” “contemplate,” “can” “estimate,” “intend,” “likely,” “would,” “project,” “seek,” “target,” “might,” “plan,” “strategy,” “will,” “expect” and similar expressions or variations are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. This Annual Report on Form 10-K includes, among other things, forward-looking statements regarding our future results, growth and financial position, including, without limitation, statements about: our anticipated focus areas for 2017; our plans to invest in building brand awareness for key brands; our plans to upgrade our products, customer support and user experience in order to improve customer satisfaction and retention; trends in our subscriber count during 2017; our plans for growing our key hosting and brands; the anticipated timing and results of our transfer of our Orem, Utah customer support operations to our Tempe, Arizona customer support facility; our plans to engage in product, pricing and packaging, marketing and international expansion initiatives; our plans for investment in our international business and expansion in international markets; our intended approach to defending certain legal proceedings; and our expectations related to technological change, marketing trends and consumer demand.
These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are subject to a number of risks, uncertainties and assumptions. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make as a result of a number of important factors. These important factors include our “critical accounting policies and estimates” described in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and the factors set forth in Part I, Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, and we expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of any new information, events, circumstances or otherwise.
As used in this Annual Report on Form 10-K, the terms “Endurance,” “the Company,” “we,” “us,” and “our” mean Endurance International Group Holdings, Inc. and its subsidiaries unless the context indicates otherwise.

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Part I
 
Item 1.
Business
We are a leading provider of cloud-based platform solutions designed to help small- and medium-sized businesses, or SMBs, succeed online. We serve approximately 5.37 million subscribers globally with a comprehensive suite of products and services that help SMBs get online, get found and grow their businesses. Historically, our products focused largely on web hosting and other basic web presence solutions such as domains, but over time we have expanded to offer security, site backup, premium domains, search engine optimization (“SEO”) and search engine marketing (“SEM”), Google Adwords, mobile solutions, social media enablement, website analytics, email marketing and productivity and e-commerce tools, among others. More recently, we have launched additional products and services, including website builders, mobile site builders and new hosting brands, both to satisfy existing subscriber needs and to expand the product gateways through which new subscribers initially reach us. We refer to these newer products and services as “gateway products”.
On February 9, 2016, we acquired all of the outstanding shares of common stock of Constant Contact, Inc., or Constant Contact, for $32.00 per share in cash, for a total purchase price of approximately $1.1 billion. Constant Contact is a leading provider of online marketing tools that are designed for small organizations, including small businesses, associations and non-profits. This acquisition combined two leaders in small business online products and services, allowing us to offer a comprehensive suite of online marketing tools and end-to-end solutions for our subscribers.
Market Opportunity
Small and medium businesses represent a large and diverse market, both in the United States and internationally. According to the U.S. Small Business Administration, there were approximately 29 million small businesses in the United States in 2013, of which approximately 23 million were non-employer firms, or companies that do not have paid employees. Worldwide, there were estimated to be approximately 75 million SMBs in 2014.
We believe the growth in global Internet penetration and the proliferation of mobile devices are changing the way in which consumers discover and transact with businesses. As a result, SMBs are increasingly adopting technology to operate and grow their businesses, but the market penetration of web presence and marketing technologies among SMBs remains limited. Studies indicate that of U.S. SMBs with one to ten employees, almost half do not have a website, and that only 40% of U.S. SMBs with 100 or fewer employees use email to advertise or promote their business. Worldwide, many SMBs, particularly in emerging markets, are moving online due to wider availability of Internet infrastructure and mobile connectivity. We believe that these factors result in a significant worldwide market opportunity for us.
Our Products and Services
Many SMBs (particularly those with five or fewer employees, which we believe represent the majority of our SMB subscribers) have limited technological and marketing expertise, time and financial resources. To address these challenges, we offer a comprehensive suite of products and services that help SMBs get online, get found and grow their businesses quickly, easily and affordably. Our offerings, which consist of both proprietary applications and third-party products, can be broadly grouped as follows:
Getting SMBs Online
We provide SMBs an easy and cost-effective way to create an online presence.
Web Hosting. By providing a consolidated set of core products that combine storage, bandwidth and processing power, our entry-level shared hosting services enable subscribers to create an initial web presence quickly and cost-effectively. We also offer a new Cloud Sites offering for customers who are looking for more power and flexibility as their businesses start to scale, but are not yet ready for more advanced Virtual Private Server ("VPS") or dedicated hosting solutions.
Website Builders. We offer website building tools that enable subscribers with varying degrees of technical sophistication to create a customized web presence. We also offer various premium elements that subscribers can purchase separately to enhance their website and provide a more engaging user experience for their customers, including premium themes, mobile optimization, social networking features, customer interaction tools, embedded videos, photo galleries, blogs, maps, polls and community forums.

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Domain Registration, Management and Resale. As an accredited domain registrar with approximately 12 million domains under our management at December 31, 2016, we enable our subscribers to search and purchase available domain names from a wide spectrum of domain registries. We also maintain a portfolio of premium domains that are available for resale to our subscribers.
Security. We offer malware protection solutions to help protect our subscribers’ websites from viruses, malicious code and other threats. Our premium offerings, including a web application firewall, can help prevent attacks on subscriber websites before they affect subscriber data or operations. For subscribers that collect personally identifiable information or other private data from their customers and website visitors, we offer a variety of Secure Socket Layer, or SSL, certificates that encrypt data collected on a subscriber’s website. We also offer products that help subscribers achieve payment card industry compliance for maintaining sensitive information.
Site Back-Up. We offer enhanced backup control solutions that enable subscribers to schedule, maintain, manage and restore backups of their online data and websites to meet their particular business needs.
Mojo Marketplace. Mojo Marketplace is an online marketplace for WordPress themes, plugins and other digital goods. We make Mojo Marketplace available to subscribers of many of our main web presence brands, as well as through MOJOMarketplace.com. We plan to further enhance MOJOMarketplace.com during 2017.
Getting SMBs Found
Our marketing solutions enable subscribers to increase their online visibility, attract more customers to their websites and build customer loyalty.
Mobile. We offer solutions that allow our subscribers to have their websites rendered on mobile devices and target mobile customers for their businesses, among other features and functionality. Our website builder solutions offer mobile-ready templates, which enable small businesses to ensure that their websites render well on desktops, laptops, tablets, and smartphones.
Search Engine Optimization (SEO) and Search Engine Marketing (SEM). We offer a variety of search engine optimization and marketing solutions that can improve a subscriber’s ability to be discovered by potential customers. These services help a subscriber distribute its business profile to online directories and manage links and keywords with on-page diagnostic tools. We also offer fully managed pay-per-click (PPC) services designed to direct traffic to a subscriber’s website, email or phone.
Social Media. We offer tools and services that enable our subscribers to communicate effectively with their customers and potential customers through social networks. Our solutions enable our subscribers to easily integrate their website content and sales and marketing efforts into Facebook, Twitter and other forms of social media, and track the results of their social media campaigns.
Analytics. We offer control panels and dashboards that enable our subscribers to analyze activity on their websites and optimize the impact of their web presence design and marketing campaigns to more effectively reach their customers.
 
Helping SMBs Grow
We offer a wide array of applications and services that can help our subscribers grow their businesses over time by enabling them to have dedicated processing power to drive their websites, consistently get in front of their customers, collaborate more efficiently with their employees, partners and customers, better manage their businesses, and have advanced, secure online payment services.
Advanced Web Hosting. In addition to providing shared hosting services, we also provide VPS hosting and dedicated hosting solutions. As a subscriber’s business expands and the demands on its website increase, these more customizable and higher performance solutions allow our subscribers to build additional functionality into their websites, offer high bandwidth content and drive more commerce and marketing activities while reducing load times and increasing site speeds. Subscribers can start with an advanced web hosting solution or upgrade from an existing shared hosting service.
Email Marketing. Constant Contact’s email marketing product allows small businesses and other small organizations to easily create, send and track professional-looking email campaigns, allowing them to communicate effectively with their customers and potential customers via email. Email marketing services available to subscribers include building and segmenting mailing lists, designing and managing email newsletters, coupons and landing pages, scheduling and sending email messages, and reporting and tracking the results of each campaign.

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We offer our Constant Contact email marketing products on a stand-alone basis and through bundled offerings that combine email marketing with other marketing offerings, including running promotions, managing events online, conducting surveys and getting feedback, and marketing automation capabilities.
Productivity Solutions. We offer our subscribers email capabilities, including custom mailboxes that reflect a subscriber’s domain name, spam filters, email aliases and forwarding functionality. Our communications tools also allow a subscriber to unify its email inbox with other communications streams, such as social media feeds. Through our partnership with Google, we also offer our customers Google Apps for Work, which includes an integrated suite of email, collaboration, and file sharing tools.
E-commerce Enablement. As our subscribers grow their businesses and their demands on e-commerce increase, we offer products that enable secure and encrypted payments, shopping carts, payment processing and related services, mobile payments and other forms of e-commerce to expand the way SMBs conduct business online.
Professional Services. For subscribers who have extensive demands for web design, content aggregation and presentation or have unique requirements for their web presence, we offer professional services with dedicated engineering and web design to help them create their ideal web presence complete with integration with some of the more advanced e-commerce, productivity and marketing products we offer.
SinglePlatform. Our SinglePlatform product provides local businesses the ability to create and manage digital storefront listings through one interface. The digital storefront, which may include menus, photos, services, offers and featured products, is distributed online across over 100 online publishers, including multiple websites and mobile applications such as Yelp, Urbanspoon, Foursquare, YellowPages, WhitePages and TripAdvisor. SinglePlatform increases a merchant’s reach and helps small businesses to be found online and via mobile sites by consumers.
Reportable Segments
Following our acquisition of Constant Contact in the first quarter of 2016, we determined that our business consisted of two operating segments, and that those segments meet the aggregation criteria under the relevant accounting rules to be treated as one reportable segment. In early 2017, however, we determined that Constant Contact is a separate reportable segment from our web presence business, due primarily to economic differences between Constant Contact and our web presence business that had become apparent by the fourth quarter of 2016. We now report two reportable segments: our web presence business, which is predominately our legacy business, and Constant Contact, which we refer to as our email marketing segment. We have reported these two reportable segments for 2016.
Web Presence. Our web presence segment consists of web hosting, domains and the related products and services listed above under “Products and Services” (other than email marketing and SinglePlatform).
Email Marketing. Our email marketing segment consists of the products and services historically offered by Constant Contact, principally email marketing, but also including event marketing, survey tools and SinglePlatform.
Information about our reportable segments is set forth in Note 20 of our Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Sales & Marketing
The SMB market is broad, diverse and fragmented in terms of geography, industry, size and degree of technological sophistication. As a result, we use a multi-brand approach to precisely target the SMB universe, identify the best ways to reach different categories of subscribers and tailor our brands and service offerings specifically toward those audiences. For example, within our web presence segment, our iPage brand targets SMBs who have less technical experience and are looking for a simpler solution; our HostGator brand targets web professionals; and our Bluehost brand targets Wordpress users. This multi-brand approach allows us to provide a diverse base of subscribers with a relevant experience on our platform.
For our web presence segment, the majority of our program marketing expense is associated with targeted PPC-based online marketing and with payments to our large network of referral partners, who drive subscribers to us on a paid referral basis. Payments to our referral partners occur after a subscriber signs up on our platform and therefore allow us to readily determine the returns on our marketing spend. We also attract a significant percentage of our new subscribers through word-of-mouth referrals. In addition to PPC, referral channels and word-of mouth referrals, we have entered into strategic partnerships that help us reach additional subscribers, such as our partnerships with Google and WordPress.

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In the past, we have not invested significantly in television or radio advertising for our web presence segment. In 2017, we plan to modestly increase our expenditures in these areas in order to strengthen brand awareness for certain key web presence brands, particularly our HostGator and Bluehost brands, in order to address a trend among consumers to search for web presence and marketing solutions using brand-related search terms rather than generic search terms such as “shared hosting” or “website builder”.
For our email marketing segment, we market our products and acquire our customers through a variety of sources, including online marketing, such as search engines and advertising with online networks and other websites, offline marketing through television and radio advertising, local seminars, relationships with our partners, outbound sales efforts, referrals from our customer base, general brand awareness and a link to our website in the footer of substantially all of the emails sent by our customers. We have partner relationships with over 10,000 local and national small business service providers. These partners refer customers to us through links on their websites and outbound promotions to their customers or allow us to market to their customers directly. Our television and radio advertising is designed to educate potential customers about our marketing solutions and raise awareness of our brand. Our regional initiatives include local seminars and local online marketing. In addition, a significant number of our new email marketing subscribers come to us from word-of-mouth referrals from our existing subscribers and from the inclusion of a link to our website in the footer of substantially all of the emails sent by our subscribers.
Subscriber Support
Our support agents assist our subscribers via phone, email, chat and social media. We use data analytics and subscriber management software to help us deliver targeted support, which we believe enables us to deepen relationships with our subscribers and help them succeed as they grow. Our support personnel not only assist subscribers with technical issues, but also focus on understanding the business goals of each subscriber to help identify the right products and services to achieve those goals. Our primary support centers are located in Arizona, Colorado, Massachusetts, Texas, Brazil and India. We also currently have a support center for our Bluehost brand in Utah, but are in the process of transferring Bluehost support operations to our Tempe, Arizona facility and expect that process will be completed by the end of 2017. In addition, we have third-party support arrangements in India, China and the Philippines.
Technology Platform and Infrastructure
Web Presence Segment
The technology platform supporting our web presence segment combines open source and proprietary software, and is based on a scalable architecture that allows us to operate with a large number of subscribers per server, which helps keep our capital expenditures relatively low. In addition, we have built subscriber relationship management, billing and subscriber service support systems to on-board, serve and track our web presence subscribers, and to enable them to manage their own service experience.
We employ various techniques to enhance the stability of our systems and preserve the security of information contained on them. Within our web presence segment, our systems are not fully redundant. While the redundancies we do have in place will permit us to respond, at least to some degree, to failures of applications and systems, our data centers are vulnerable in the event of failure. With respect to data security, we utilize monitoring systems and a variety of software components to monitor and protect our infrastructure against attempts to attack or gain unauthorized entry to our internal systems and subscriber websites; however, like other companies generally and Internet-based organizations in particular, we remain vulnerable to targeted attacks aimed at exploiting network and system applications or weaknesses. See "Risk Factors" for additional information on disaster recovery, redundancy and data security risks.
We currently serve most of our web presence subscribers from four U.S.-based data centers, one of which is owned by us and the rest of which are co-located.
Email Marketing Segment
For our email marketing segment, our on-demand products use a central application and a single software code base with unique accounts for each subscriber, except for SinglePlatform, which operates on a separate code base. As a result, we are able to spread the cost of providing our products across our entire customer base. In addition, because we have one central application, we believe we are able to scale our business to meet increases in demand for our products. Scalability is achieved through advanced use of application partitioning to allow for horizontal scaling across multiple sets of applications. This structure enables individual application subsystems to scale independently as required by volume and usage.
We own all of the hardware deployed in support of our platform, except for SinglePlatform, which operates on a third party’s infrastructure. We continuously monitor the performance and availability of our products. We have a highly available,

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scalable infrastructure that utilizes load-balanced web server pools, redundant interconnected network switches and firewalls, replicated databases, and fault-tolerant storage devices. Production data is backed up on a daily basis and stored in multiple locations to ensure transactional integrity and restoration capability.
Our production system hardware and the disaster recovery hardware for our production system, with the exception of SinglePlatform, are co-located in third-party hosting facilities in Massachusetts and Texas.
Engineering and Development
Our engineering and development activity is focused on enhancing our systems, improving and expanding product and service offerings, and developing new features and offerings, as well as integrating technology capabilities from our acquisitions. Our engineering and development expense during 2014, 2015 and 2016 was $19.5 million, $26.7 million and $87.6 million, respectively, or approximately 3.1%, 3.6% and 7.9% of revenues, respectively.
Subscriber Profile
As of December 31, 2016, we had approximately 5.37 million subscribers, of which approximately 0.5 million were Constant Contact subscribers. Based on data from a 2015 survey of subscribers of major brands in our web presence segment, approximately 80% are SMBs, and the majority of SMB subscribers are businesses with five or fewer employees. We estimate that approximately 80% of subscribers of our email marketing segment employ 25 or fewer employees.
The industries in which our subscribers operate are very diverse, including retail, professional services, non-profits, merchandising, media, recreation, education, construction, health, beauty and wellness, and arts and entertainment, among others.
Geographical Information
We currently maintain offices and conduct operations primarily in the United States, Brazil, India, and the Netherlands. We also have third-party support arrangements in India, China and the Philippines.
Information about the geographic location of our long-lived assets and revenue is set forth in Note 22 of our Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Competition
The global cloud-based services market for SMBs is highly competitive and constantly evolving. We expect competition to increase from existing competitors as well as potential new market entrants. Our competitors include providers of:

offerings designed to help SMBs establish an initial web presence, such as domain name registrars and shared hosting providers, including GoDaddy, Web.com and United Internet; website builders, such as Squarespace and Wix; website creation and management companies, e-commerce service providers, security solutions providers and site backup companies;
solutions that help SMBs get found online, such as SEM companies, SEO companies, local directory listing companies and online and offline business directories;
more advanced solutions targeted at growing SMBs, such as companies offering VPS, cloud hosting and dedicated hosting services, advanced e-commerce and security products and productivity tools; and
in the case of our email marketing segment, other email marketing vendors focused on the SMB market, including MailChimp.
We expect continued competition, both domestically and internationally, from competitors in the domain, hosting and website builder markets such as GoDaddy, Wix, Squarespace, Web.com and United Internet, as well as potential increased competition from large companies like Amazon, which offers cloud web hosting through Amazon Web Services; Google, which now offers a website building tool; and Facebook, which offers Facebook Pages for businesses and an Internet marketing platform. For our email marketing segment, we expect continued competition from MailChimp and other SMB-focused vendors. In some instances, we have commercial partnerships with companies with which we also compete.
We believe the principal competitive factors in the cloud-based services market for SMBs include: ease of use and effectiveness; product functionality, performance and reliability; customer service and support; integrated solutions; brand

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awareness and reputation; affordability; and product scalability. With respect to the first four factors, we plan to invest in upgrading our product, customer support and user experience during 2017 to help us compete favorably in these areas in the future. With respect to brand awareness in our web presence segment, a trend among consumers to search for web presence and marketing solutions using brand-related search terms rather than generic search terms has favored competitors who have invested more heavily in brand awareness than we have. To address this, we plan to increase our investment in brand awareness in 2017, although these efforts may not be successful. See "Risk Factors" for additional discussion of competition and brand awareness risks we face.
Seasonality
Our web presence segment has historically experienced increased subscriber billings in the first quarter of our fiscal year as many subscribers start businesses at the beginning of a new year. This segment records a significant portion of these billings as deferred revenue and recognize the deferred revenue throughout the course of the year and beyond based on the term of the applicable subscription. Consequently, our web presence quarterly subscriber billings and net new subscriber additions are typically relatively high in the first quarter of our fiscal year, while revenue under U.S. Generally Accepted Accounting Principles ("GAAP") from new web presence subscriber additions is relatively higher in the fourth quarter of our fiscal year.
Sales within our email marketing segment are also are impacted by seasonality, since SMBs and other small organizations are typically less active during the summer months than at the beginning and end of a year.

Intellectual Property and Proprietary Rights
Our intellectual property and proprietary rights are important to our business. We rely on a combination of trademark, patent, copyright and trade secret laws, and confidentiality and other contractual provisions to protect our proprietary technologies, confidential information, brands and other intellectual property.
We use open source technologies pursuant to applicable licenses as the basis for our technology platform. We have also developed, acquired or licensed proprietary technologies for use in our business. As of January 24, 2017, we have fifteen U.S. patents as well as five pending U.S. patent applications and several pending foreign counterpart applications relating to aspects of our technology platform and offerings, including our shared services architecture, predictive analytics methods, virtualization technologies, subscriber migration technologies, web presence improvement technologies, and email composition and editing technologies. We believe the duration of our patents is adequate relative to the expected lives of the technologies they cover.
We have an ongoing trademark and service mark registration program pursuant to which we register our brand names and product names, taglines and logos in the United States and other countries to the extent we determine appropriate and cost-effective. We also have common law rights in some unregistered trademarks that were established over years of use. In addition, we have a trademark and service mark enforcement program pursuant to which we monitor applications filed by third parties to register trademarks and service marks that may be confusingly similar to ours, as well as the use of our major brand names in social media, domain names and other Internet sites.
We have non-disclosure, confidentiality and license agreements with employees, contractors, subscribers and other third parties, which limit access to and use of our proprietary information; however, unauthorized disclosure of our confidential information or proprietary technologies by our employees or third parties could still occur. In addition, unauthorized third parties may attempt to copy, reverse engineer or otherwise obtain access to our proprietary rights. The risk of unauthorized use of our proprietary and intellectual property rights may increase as we expand outside of the United States.
Third-party infringement claims are also possible in our industry, especially as functionality and features expand, evolve and overlap across industries. Third parties, including non-practicing patent holders, have claimed, and could claim in the future, that our processes, technologies or websites infringe patents they now hold or might obtain or that might be issued in the future. See “Risk Factors" for additional discussion about the substantial costs that we could incur as a result of any claim of infringement of another party’s intellectual property rights.
Employees
As of December 31, 2016, we had 4,005 employees, including 2,228 in support and network operations, 830 in sales and marketing, 520 in engineering and development, and 427 in general and administrative. Excluded from our employee figures are approximately 790 individuals located in India who are directly employed by a third party, but who are devoted to Endurance on a full time basis and perform a range of services, including email- and chat-based customer and technical

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support, billing support, compliance monitoring, domain registrar support, marketing support, network monitoring, engineering and development support and web design and web building services. Most of our employees are based in the United States. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We have never experienced a strike or similar work stoppage, and we consider our relations with our employees to be good.
Corporate Information
Our business was founded in 1997 as a Delaware corporation under the name Innovative Marketing Technologies Incorporated. In December 2011, investment funds and entities affiliated with either Warburg Pincus or Goldman, Sachs & Co. acquired a controlling interest in our company. Prior to our initial public offering, or IPO, in October 2013, we were an indirect wholly owned subsidiary of WP Expedition Topco L.P., a Delaware limited partnership that we refer to as WP Expedition Topco. Pursuant to the terms of a corporate reorganization that we completed prior to our IPO, WP Expedition Topco dissolved and in liquidation distributed the shares of Endurance International Group Holdings, Inc. common stock to its partners in accordance with the limited partnership agreement of WP Expedition Topco.
Our principal executive offices are located at 10 Corporate Drive, Suite 300, Burlington, Massachusetts 01803 and our telephone number at that address is (781) 852-3200.
Information Available on the Internet
We maintain an Internet website at www.endurance.com, and we also operate a number of other websites. The information on, or that can be accessed through, any of our websites is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report on Form 10-K. Our website address is included in this Annual Report on Form 10-K as inactive textual reference only. Our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and amendments to those reports, are accessible through our website, free of charge, as soon as reasonably practicable after these reports are filed electronically with, or otherwise furnished to, the Securities and Exchange Commission, or the SEC. We also make available on our website the charters of our audit committee, compensation committee and nominating and corporate governance committee, as well as our corporate governance guidelines and our code of business conduct and ethics. In addition, we intend to disclose on our website any amendments to, or waivers from, our code of business conduct and ethics that are required to be disclosed pursuant to SEC rules.

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ITEM 1A.
Risk Factors

Our business, financial condition, results of operations and future growth prospects could be materially and adversely affected by the following risks or uncertainties. The risks and uncertainties described below are those that we have identified as material, but they are not the only risks and uncertainties we face. Our business is also subject to general risks and uncertainties that affect many other companies, including overall economic and industry conditions, as well as other risks not currently known to us or that we currently consider immaterial. If any of such risks and uncertainties actually occurs, our business, financial condition, results of operations and growth prospects could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K and in our other public filings.
Risks Related to Our Business and Our Industry
Our quarterly and annual operating results may be adversely affected due to a variety of factors, which could make our future results difficult to predict and could cause our operating results to fall below investor or analyst expectations.
Our quarterly and annual operating results may be adversely affected due to a variety of factors that could affect our revenue or our expenses in any particular period. You should not rely on quarter-to-quarter comparisons of our operating results as an indication of future performance. Factors that may adversely affect our quarterly and annual operating results may include:
our ability to successfully carry out our strategic and operational initiatives within our planned timeframes and budget constraints, including initiatives to improve customer satisfaction and retention in our web presence segment by upgrading our products and improving the subscriber experience;
our ability to cost-effectively attract and retain subscribers, particularly subscribers with high long-term revenue potential;
our ability to increase revenue from our existing subscribers;
competition in the market for our products and services, as well as competition for referral sources;
rapid technological change, changing consumer preferences, frequent new product and service introductions, and evolving industry standards, including with respect to how our products and services are marketed to consumers, in how consumers find, purchase and use our products and services and in technology intended to block email marketing;
our ability to consolidate and improve customer support operations, including by transferring our Bluehost customer support operations to our Tempe, Arizona customer support center in a way that minimizes disruption to subscribers during the transition and positions us to provide a high level of service going forward;
the amount and timing of capital expenditures, such as investments in our hardware and software systems, as well as extraordinary expenses, such as litigation or other dispute-related settlement payments;
shortcomings or errors in, or misinterpretations of, our metrics, forecasts and data, including those that cause us to fail to anticipate or identify trends in our market;
systems, data center and Internet failures and service interruptions;
network security breaches or sabotage resulting in the unauthorized use or disclosure of, or access to, personally identifiable information or other confidential information;
difficulties and costs arising from our international operations and continued international expansion;
changes in legislation, including changes that affect our collection of sales and use taxes or changes to our business that subject us to taxation in additional jurisdictions;
changes in regulation or to regulatory bodies, such as the Internet Corporation for Assigned Names and Numbers, or ICANN, and U.S. and international regulations governing email marketing and privacy, that could affect our business and our industry, or costs of or our failure to comply with such regulation;
failures to comply with industry standards such as the payment card industry data security standards;
litigation or governmental enforcement actions against us, including due to failures to comply with applicable law or regulation;
terminations of, disputes with, or material changes to our relationships with third-party partners, including referral sources, outsourced service providers, product partners, data center providers, payment processors and landlords;
loss of key employees;
economic conditions negatively affecting the SMB sector and changes in growth rate of SMBs;
costs or liabilities associated with any past or future acquisitions, strategic investments or joint ventures that we may make or enter into; and
difficulties in integrating technologies, products and employees from companies we have acquired or may acquire in the future or in migrating acquired subscribers from an acquired company’s platforms to our platform, which may

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result in subscriber dissatisfaction, an increase in subscriber churn, difficulties cross-selling products and services to subscribers, and our failure to realize the anticipated benefits from our acquisitions.

 Our financial results for 2016 were below our initial expectations as of the beginning of that year due to several factors, including higher than expected subscriber acquisition costs and initial subscriber churn associated with new gateway products, relatively flat growth in our core hosting business, and competitive pressures. It is possible that in one or more future periods, due to any of the factors listed above, a combination of those factors or other reasons, our operating results may again fall below our expectations and the expectations of research analysts and investors. In that event, our stock price could decline substantially.
We may not be able to add new subscribers, retain existing subscribers or increase sales to existing subscribers, which could adversely affect our operating results.
Our growth is dependent on our ability to continue to attract and acquire new subscribers while retaining existing subscribers and expanding the products and services we sell to them. Growth in the demand for our products and services may be inhibited, and we may be unable to grow our subscriber base, for a number of reasons, including, but not limited to:
our failure to develop or offer new or additional products and services in a timely manner that keeps pace with new technologies, competitor offerings and the evolving needs of our subscribers;
difficulties or delays in our plans to improve product, customer support and user experience in order to improve customer satisfaction and retention;
the possibility that our planned improvements to product, customer support and user experience, even if successfully implemented in a timely manner, do not result in the positive impact on customer satisfaction and retention that we expect;
our inability to offer solutions that are adequately integrated and customizable to meet the needs of our subscriber base, including due to our failure to invest adequately in improving our technology platform or successfully integrate acquired companies;
difficulties or delays in our plans to increase the cross-selling of products across our brands due to billing, engineering or other challenges;
increased competition in the SMB market, including greater marketing efforts or investments by our competitors in advertising and promoting their brands, and the inability of our subscribers to differentiate our solutions from those of our competitors or our inability to effectively communicate such distinctions;
subscriber dissatisfaction causing our existing subscribers to cancel their subscriptions or stop referring prospective subscribers to us;
increases in our subscriber churn rates;
perceived or actual security, integrity, reliability, quality or compatibility problems with our solutions, including related to unscheduled downtime, outages or network security breaches;
our inability to maintain awareness of our brands, including due to fragmentation of our marketing efforts due to our historical approach of maintaining a portfolio of multiple brands rather than focusing our resources on a single brand or a few brands;
our inability to maintain a consistent user experience and timely and consistent product upgrade schedule for all of our subscribers due to the fact that not all of our brands, products, or services operate from the same control panel or other systems;
changes in search engine ranking algorithms or in search terms used by potential subscribers, either of which may have the effect of increasing our competitors’ search engine rankings or increasing our marketing costs to offset lower search engine rankings;
changes in, or a failure to manage, technology intended to block email marketing;
our inability to market our solutions in a cost-effective manner to new subscribers or to our existing subscribers and to increase our sales to existing subscribers, including due to changes in regulation, or changes in the enforcement of existing regulation that would impair our marketing practices, require us to change our sign-up processes or require us to increase disclosure designed to provide greater transparency as to how we bill and deliver our services;
our inability to penetrate, or adapt to requirements of, international markets, including our inability to obtain or maintain the required licenses to operate in certain international markets;
our inability to enter into automatically renewing contracts with our subscribers or increase subscription prices; and
the decisions by our subscribers to move the hosting of their Internet sites and web infrastructure to their own IT systems, into co-location facilities or to our competitors if we are unable to effectively market the scalability of our solutions; and
our inability to acquire or retain new subscribers through mergers and acquisitions, joint ventures or strategic investments.

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In 2015, our total subscriber base increased. In 2016, excluding the effect of acquisitions and adjustments, our total subscriber base was essentially flat, and in our web presence segment, ARPS decreased from $14.18 for 2015 to $13.65 for 2016. We expect that our total subscriber base will decrease in 2017. The factors contributing to our lack of growth in total subscribers and decrease in web presence segment ARPS during 2016 and our expected decrease in total subscribers during 2017 are discussed in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations”. If we are not successful in addressing these factors, including by improving subscriber satisfaction and retention, we may not be able to return to or maintain positive subscriber or revenue growth in the future, which could have a material adverse effect on our business and financial results.
We must keep up with rapid and ongoing technological change, marketing trends and shifts in consumer demand to remain competitive in a rapidly evolving industry. We have made, and expect to continue to make, significant investments in initiatives designed to address these challenges, some or all of which may not succeed.
The cloud-based technology and online marketing tool industries are characterized by rapid and ongoing technological change, frequent new product and service introductions and evolving industry standards. The manner in which we market to our subscribers and potential subscribers must keep pace with technological change, legal requirements, market trends, and shifts in how our solutions are found, purchased and used by subscribers. For example, application marketplaces, mobile platforms, advertising and marketing efforts by competitors, and new search engines and search methods are changing the way in which consumers find, purchase and use our solutions. Our future success will depend on our ability to adapt to rapidly changing technologies, to adapt our solutions and marketing practices to evolving industry standards and to anticipate subscriber needs and preferences. If we are not able to offer compelling and innovative solutions, take advantage of new technology, adapt our marketing practices or anticipate changing trends, we may be unable to continue to attract new subscribers or sell additional solutions to our existing subscribers and our competitive position will be impaired. In addition, if existing technologies or systems, such as the domain name system which directs traffic on the Internet, become obsolete, or if we fail to anticipate and manage technologies that prevent or harm our offerings, such as technology intended to block email marketing, our revenue and operating results may be adversely affected.
We have made significant investments to support our strategic and operational initiatives and we may be required to incur additional engineering and development, marketing and other expenses to develop new solutions or enhancements, which may not succeed. For example, during 2016 we made substantial investments in new gateway product offerings, product marketing and other marketing efforts. The cost of attracting subscribers to our new gateway product offerings was higher than we expected, and the subscribers we attracted have to date had higher churn rates than subscribers of our more established products. In response to these results, we significantly reduced our marketing investments on these gateway products during the remainder of 2016, and have since stopped marketing most of these products.
In 2017, we expect to invest in upgrading our product, customer support and user experience, developing new product packages and pricing options, increasing cross-selling products across brands, and building greater brand awareness for certain of our brands. If we encounter delays, difficulties or unanticipated costs in these initiatives, or we abandon them due to poor results or shifting priorities, we may not realize the expected return on our investments, which could have a material adverse effect our financial results. Even if these investments are ultimately successful, we must recognize the costs of the investments earlier than we may be able to recognize the anticipated benefits, which may continue to adversely affect our financial results.
We face significant competition for our solutions in the SMB market, which we expect will continue to intensify. As a result of such competitive pressures, we may not be able to maintain or improve our competitive position or market share.
The SMB market for cloud-based technologies and online marketing tools is highly competitive and constantly evolving. We expect competition to increase from existing competitors, who are also expanding the variety of solution-based services that they offer to SMBs, as well as potential new market entrants and competitors that may form strategic alliances with other competitors. Some of our competitors have greater resources, more brand recognition and consumer awareness, more diversified product offerings, greater international scope or larger subscriber bases than we do, or may partner with large Internet companies that can offer these resources. As a result, we may not be able to compete successfully against them. If these companies decide to devote greater resources to the development, promotion and sale of their brands, products and services, if the brands, products and services offered by these companies are more attractive to or better meet the evolving needs of SMBs, or if these companies respond more quickly to changing technologies, greater numbers of SMBs may choose to use these competitors for creating an online presence and as a general platform for running online business operations.
We have faced and expect to continue to face competition in our web presence segment, both domestically and internationally, from competitors in the domain, hosting and website builder markets such as GoDaddy, Wix, Squarespace, Web.com and United Internet, as well as from large companies like Amazon, which offers cloud web hosting through Amazon

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Web Services; Google, which now offers a website building tool; and Facebook, which offers Facebook Pages for businesses and an Internet marketing platform. For our email marketing segment, we expect continued competition from MailChimp and other SMB-focused lower-cost email marketing vendors.
We believe that our business has been, and may continue to be, affected by changes in the behavior of consumers when searching for web presence and marketing solutions. In particular, consumers have increasingly been searching for these solutions using brand related search terms as opposed to unbranded search terms, such as hosting, website builders or email marketing. We believe this trend assists competitors who have invested more heavily in, and used a broader array of marketing channels in, building consumer awareness of their brand than we have. In addition, searches for specific products such as “cloud hosting”, “social media marketing”, and “ecommerce” are growing, which we believe assists competitors who market more heavily in these and other specific product areas.
There are also relatively few barriers to entry in this market, especially for providers of niche services, which often have low capital and operating expenses and the ability to quickly bring products to market that meet specific subscriber needs. Accordingly, as this market continues to develop, we expect the number of competitors to increase. The continued entry of competitors into the markets for cloud-based technologies and online marketing tools, and the rapid growth of some competitors that have already entered these markets, may make it difficult for us to maintain our market position.
In addition, in an attempt to gain market share, competitors may offer more aggressive price discounts or alternative pricing models, such as so-called “freemium” pricing in which a basic offering is provided for free with advanced features provided for a fee, on the services they offer, bundle several services at reduced prices, or increase commissions paid to their referral sources. These pricing pressures may require us to match these discounts and commissions in order to remain competitive, which would reduce our margins or cause us to fail to attract new subscribers that decide to purchase the discounted service offerings of our competitors. As a result of these factors, it is difficult to predict whether we will be able to maintain our average selling prices, pricing models and commissions paid to our referral sources. If we reduce our selling prices, alter our pricing models or increase commissions paid to our referral sources, it may become increasingly difficult for us to compete successfully, our profitability may be harmed and our operating results could be adversely affected.
 
The rate of growth of the SMB market for our solutions could be significantly lower than our estimates. The success of our products depends on the expansion and reliability of the Internet infrastructure and the continued growth and acceptance of email as a communications tool. If demand for our products and services does not meet expectations, our ability to generate revenue and meet our financial targets could be adversely affected.
The rate of growth of the SMB market may not meet our expectations, or the market may not continue to grow at all, either of which would adversely affect our business. Our expectations for future revenue growth are based in part on assumptions reflecting our industry knowledge and experience serving SMBs, as well as our assumptions regarding demographic shifts, growth in the Internet infrastructure internationally and macroeconomic conditions. If any of these assumptions proves to be inaccurate, then our actual revenue growth could be significantly lower than our expected revenue growth.
Our ability to compete successfully depends on our ability to offer an integrated and comprehensive suite of products and services that enable our diverse base of subscribers to establish, manage and grow their businesses. Our web presence and commerce offerings are predicated on the assumption that an online presence is, and will continue to be, an important factor in our subscribers’ abilities to establish, expand, manage and monetize their businesses quickly, easily and affordably. If we are incorrect in this assumption, for example due to the introduction of a new technology or industry standard (or evolution of existing technology such as social media or mobile messaging and “conversational commerce” applications such as WeChat) that supersedes the importance of an online presence or renders our existing or future solutions obsolete, then our ability to retain existing subscribers and attract new subscribers could be adversely affected, which could harm our ability to generate revenue and meet our financial targets.
The future success of our email marketing product depends on the continued and widespread adoption of email as a primary means of communication. Security problems such as “viruses,” “worms” and other malicious programs, reliability issues arising from outages and damage to the Internet infrastructure, or publicity about leaked emails of high-profile users could create the perception that email is not a safe and reliable means of communication. Use of email by businesses and consumers also depends on the ability of internet service providers, or ISPs to prevent unsolicited bulk email, or “spam,” from overwhelming consumers’ inboxes. If security problems become widespread or frequent or if ISPs cannot effectively control spam, the use of email as a means of communication may decline as consumers find alternative ways to communicate. In addition, if alternative communications tools, such as social media, text messaging or services like WeChat, gain widespread

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acceptance, the need for email may decrease. Any of these events could materially increase our expenses or reduce demand for our email marketing product and harm our business.
Our business and operations have experienced significant growth and organizational change over the past several years, which has placed, and will continue to place, significant demands on our management and infrastructure, especially our billing systems, data analytics systems and operational infrastructure. If we fail to manage our change effectively, we may be unable to execute our business plan, provide high levels of service, produce accurate financial statements and other disclosures on a timely basis or address competitive challenges adequately.
As a result of acquisitions and internal growth, we increased our revenue from $629.8 million in the year ended December 31, 2014 to $741.3 million in the year ended December 31, 2015 to $1.1 billion in the year ended December 31, 2016.
Growth and organizational change has placed, and will continue to place, a significant strain on our managerial, engineering, network operations and security, sales and support, marketing, legal, compliance, finance and other resources. In particular, these factors have placed, and will continue to place, a significant strain on our ability to maintain effective internal financial and accounting controls and procedures. For example, as a result of our acquisitions, we have acquired multiple billing systems many of which remain separate systems, and we may acquire additional billing systems with future acquisitions. Any delays or other challenges associated with having multiple separate billing systems or with billing system build-outs or integrations could lead to inaccurate disclosure, which could prevent us from producing accurate financial statements on a timely basis and harm our operating results, our ability to operate our business and our investors’ view of us. In addition, we have identified in the past, and may in the future identify, errors in our systems, including the business intelligence system, which we use to generate certain operational and performance metrics. Our operational and performance metrics, which we voluntarily disclose, historically have not been subject to the same level of reporting controls as our financial statements and other financial information that we are required to disclose. We are working to improve our controls for these operational and performance metrics, but further errors with respect to these metrics could still occur. Errors of this type could result in inaccurate disclosures, negatively impact our business decisions and harm investors’ view of us.
The increase in our number of subscribers over the past several years due to acquisitions and internal growth has put additional demands on the security, scale and flexibility of our infrastructure and information technology systems, and the increase in the number of payment transactions that we process for our subscribers has increased the amount of customer data that we store. Any loss of data or disruption in our ability to provide our product offerings due to disruptions to, or the inflexibility or lack of scale of, our infrastructure or information technology systems could harm our business or our reputation.
 
Our U.S. and overseas operations and geographically dispersed workforce require substantial management effort, the allocation of significant management resources and significant investment in our infrastructure, including our information technology, operational, financial and administrative infrastructure and systems. We also need to ensure that our operational, financial, compliance, risk and management controls and our reporting procedures are in effect throughout our organization, and make improvements as necessary. As such, we may be unable to manage our expenses effectively in the future, which may adversely affect our gross margins or operating expenses in any particular quarter. If we fail to manage organizational change in an effective manner, the quality of our solutions may suffer or fail to keep up with changes in the industry or technological developments, which could adversely affect our brands and reputation and harm our ability to retain and attract subscribers.
The international nature of our business and our continued international expansion expose us to business risks that could limit the effectiveness of our growth strategy and cause our operating results to suffer.
We currently maintain offices and conduct operations primarily in the United States, Brazil, India and the Netherlands and have third-party support arrangements in India, China and the Philippines. In addition, we have localized versions of our Bluehost and HostGator sites targeted to customers in several countries, including Brazil, Russia, India, China, Turkey and Mexico. We have incurred significant expenses and allocated significant resources, including finance, operational, legal and compliance resources, related to the growth and continued expansion of our international operations and we intend to continue to expand internationally. In 2017, we plan to increase our investment in our international business, particularly in India, in order to take advantage of potentially higher growth rates in certain emerging markets and to better respond to an increasingly competitive environment in the Indian market.
Any international expansion efforts or other initiatives that we undertake may not be successful. In addition, conducting operations in international markets or establishing international locations subjects us to new risks that we have not generally faced in the United States. These risks include:

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localization of the marketing and deployment of our solutions, including translation into foreign languages and adaptation for local practices and regulatory requirements;
lack of familiarity with, burdens of, and increased expense relating to, complying with foreign laws, legal standards, regulatory requirements, tariffs and other barriers, some of which may favor local competitors, including laws related to employment or labor, laws regarding liability of online service providers for activities of subscribers, such as defamation, infringement or other illegal activities, and more stringent laws in foreign jurisdictions relating to the privacy and protection of personal data, as well as potential damage to our reputation as a result of our compliance or non-compliance with such requirements;
difficulties in identifying and managing local staff, systems integrators, technology partners, and other third-party vendors and service providers;
diversion of our management’s attention to staff and manage geographically remote operations and employees;
longer than expected lead times for, or the failure of, an SMB market for our solutions to develop in the countries and regions in which we are opening offices and conducting operations;
our inability to effectively market our solutions to SMBs due to our failure to adapt to local cultural norms, technology standards, billing and collection standards or pricing models;
differing technology practices and needs that we are not able to meet, including an increased demand from our international subscribers that our cloud-based solutions be easily accessible and operational on smartphones and tablets;
difficulties in collecting payments from subscribers or in automatically renewing their contracts with us, especially due to the more limited availability and popularity of credit cards in certain countries;
difficulties in attracting new subscribers, especially in developing countries and regions and those where the Internet infrastructure is still in its early stages;
greater difficulty in enforcing contracts, including our terms of service and other agreements;
management, communication and integration problems resulting from cultural or language differences and geographic dispersion;
sufficiency of qualified labor pools and greater influence of organized labor in various international markets;
competition from companies with international operations, including large international competitors and entrenched local companies;
changes in global currency systems or fluctuations in exchange rates that may increase the volatility of or adversely affect our foreign-based revenue;
compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, economic sanction laws and regulations, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC, export controls including the U.S. Commerce Department’s Export Administration Regulations and other U.S., non-U.S. and local laws and regulations regarding international and multi-national business operations;
potentially adverse tax consequences, including the complexities of foreign value added tax (or sales, use or other tax) systems, our inadvertent failure to comply with all relevant foreign tax rules and regulations due to our lack of familiarity with the jurisdiction’s tax laws, and restrictions and withholdings on the repatriation of earnings;
uncertain political and economic climates; and
reduced or varied protection for intellectual property rights in some countries.
 
These factors have caused our international costs of doing business to exceed our comparable domestic costs and have caused the time and expense required to close our international acquisitions to exceed our comparable domestic costs. A negative impact from our international business efforts could adversely affect our business, operating results and financial condition as a whole.
In addition, our ability to expand internationally and attract and retain non-U.S. subscribers may be adversely affected by concerns about the extent to which U.S. governmental and law enforcement agencies may obtain data under the Foreign Intelligence Surveillance Act and Patriot Act and similar laws and regulations. Such non-U.S. subscribers may decide that the privacy risks of storing data with a U.S.-based company outweigh the benefits and opt to seek solutions from a company based outside of the United States. In addition, certain foreign governments require local storage of their citizens’ data. If we become subject to such requirements, it may require us to increase the number of non-U.S. data centers or servers we maintain, increase our costs or adversely affect our ability to attract, retain or cost-effectively serve non-U.S. subscribers.
 
We have experienced system, software, Internet, data center and customer support center failures and have not yet implemented a complete disaster recovery plan, and any interruptions, delays or failures in our services could harm our reputation, cause our subscribers to seek reimbursement for services paid for and not received, cause our subscribers to stop referring new subscribers to us, or cause our subscribers to seek to replace us as a provider of their cloud-based and online marketing solutions.

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We must be able to maintain and operate our applications and systems without interruption. Since our ability to retain and attract subscribers depends on the performance, reliability and availability of our services, as well as in the delivery of our products and services to subscribers, even minor interruptions in our service or losses of data could harm our reputation. Our applications, network, systems, equipment, power supplies, customer support centers and data centers are subject to various points of failure, including:     
human error or accidents;
power loss;
equipment failure;
Internet connectivity downtime;
improper building maintenance by the landlords of the buildings in which our co-located data centers are located;
physical or electronic security breaches (see also “-Security and privacy breaches may harm our business”);
computer viruses;
fire, hurricane, flood, earthquake, tornado and other natural disasters;
water damage;
terrorism;
intentional bad acts, such as sabotage and vandalism;
pandemics; and
failure by us or our vendors to provide adequate service to our equipment.

We have experienced system failures, delays and periodic interruptions in service, or outages, due to factors including power and network equipment failures; storage system failures; power outages; and network configuration failures. In addition, because our cloud-based platform is complex, we have experienced outages in the course of ongoing maintenance or when new versions, enhancements and updates to applications, software or systems are released by us or third parties. For instance, in December 2016, in the course of a network core upgrade at our Provo data center, a configuration adjustment involving third party equipment resulted in an outage of approximately 16 hours that caused a loss of service to all VPS and dedicated hosting subscribers and some shared hosting subscribers of Bluehost, HostGator and certain other brands. The outage prevented us from processing new signups and affected our internal support and phone systems, impairing our ability to communicate with subscribers during its duration. We will likely experience future outages that disrupt the operation of our solutions and harm our business due to factors such as these or other factors, including the accidental or intentional actions of Internet users, current and former employees and others; cooling equipment failures; other computer failures; or other factors not currently known to us or that we consider immaterial.
Our systems supporting our web presence segment are not fully redundant, and we have not yet implemented a complete disaster recovery plan or business continuity plan. Although the redundancies we do have in place will permit us to respond, at least to some degree, to failures of applications and systems, our data centers are vulnerable in the event of failure. Most of our web presence subscribers are hosted across four U.S.-based data centers, one of which is owned by us and the rest of which are co-located. Our owned data center hosts a significant portion of our subscribers. Accordingly, any failure or downtime in these data center facilities would affect a significant percentage of our subscribers. We do not yet have adequate structures or systems in place to recover from a data center’s severe impairment or total destruction, and recovery from the total destruction or severe impairment of any of these data centers would be extremely difficult and may not be possible at all. Closing any of these data centers without adequate notice could result in lengthy, if not permanent, interruptions in the availability of our solutions and loss of vast amounts of subscriber data.
Our data centers are also susceptible to impairment resulting from electrical power outages due to the amount of power and cooling they require to operate. Since we rely on third parties to provide our data centers with power sufficient to meet our needs, we cannot control whether our data centers will have an adequate amount of electrical resources necessary to meet our subscriber requirements. We attempt to limit exposure to system downtime due to power outages by using backup generators and power supplies. However, these protections may not limit our exposure to power shortages or outages entirely. We also rely on third parties to provide Internet connectivity to our data centers and any discontinuation or disruption to our connectivity could affect our ability to provide services to our subscribers.
Our customer support centers are also vulnerable in the event of failure caused by total destruction or severe impairment. When calling our customer support services, most of our subscribers reach our customer support teams located in one of our six U.S.-based call centers. Our teams in each call center are trained to provide brand-specific support services for a discrete subset of our brands, and they do not currently have complete capability to route calls from one call center to another call center. Accordingly, if any one of these call centers were to become non-operational due to severe impairment or total destruction, our ability to re-route calls to operational call centers or to provide customer support services to any subscribers of the brand or brands that the non-operational call center had formerly managed may be compromised. A significant portion of our email and chat-based customer support is provided by an India-based support team, which is employed by a third-party service provider.

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Although our email and chat-based customer support can be re-routed to our own centers, a disruption at our India customer support center could adversely affect our business.
Any of these events could materially increase our expenses or reduce our revenue, damage our reputation, cause our subscribers to seek reimbursement for services paid for and not received, cause our subscribers to stop referring new subscribers to us, and cause us to lose current and potential subscribers, which would have a material adverse effect on our operating results and financial condition. Moreover, the property and business interruption insurance we carry may not have adequate coverage to compensate us fully for losses that may occur.
If we are unable to maintain a high level of subscriber satisfaction, demand for our solutions could suffer.
We believe that our future revenue growth depends on our ability to provide subscribers with quality service that meets our stated commitments, meets or exceeds our subscribers’ evolving needs and expectations and is conducive to our ability to continue to sell new solutions to existing subscribers. We are not always able to provide our subscribers with this level of service, and our subscribers occasionally encounter interruptions in service and other technical challenges, including as a result of outages, errors or bugs in our software, or human error.
In 2017, we are focused on improving our product, customer support and user experience within our web presence segment in order to improve our levels of customer satisfaction and retention. If this initiative is not successful, and if we are unable to provide subscribers with quality service, this may result in subscriber dissatisfaction, billing disputes and litigation, higher subscriber churn, lower than expected renewal rates and impairments to our efforts to sell additional products and services to our subscribers, and we could face damage to our reputation, claims of loss, negative publicity or social media attention, decreased overall demand for our solutions and loss of revenue, any of which could have a negative effect on our business, financial condition and operating results.
Our planned transfer of our Bluehost customer support operations to our Tempe, Arizona customer support facility presents a risk to our customer satisfaction and retention efforts in 2017. Although we believe that the move to Tempe will ultimately result in better customer support, the transition may have the opposite effect in the short term. We expect that the transition will take place in stages through the fourth quarter of 2017, and until the transition is complete, we may continue to handle some support calls from our current Orem, Utah customer support center. The morale of our customer support agents in Orem may be low due to the pending closure of the Orem office, and agents may decide to leave for other opportunities sooner than their scheduled departure dates. Either or both of these factors could result in a negative impact on Bluehost customer support, which could lead to subscriber cancellations and harm to our reputation, and generally impede our efforts to improve customer satisfaction and retention in the short term. In addition, we are consolidating our Austin, Texas support operation into our Houston, Texas support center, which could also negatively impact customer support provided from those locations during the transition period.
In addition, we may from time to time fail to meet the needs of specific subscribers in order to best meet the service expectations of our overall subscriber base. For example, we may suspend a subscriber’s website when it breaches our terms of service, harms other subscribers’ websites or disrupts servers supporting those websites, such as when a cybercriminal installs malware on a subscriber’s website without that subscriber’s authorization or knowledge. Although such service interruptions are not uncommon in a cloud-based or online environment, we risk subscriber dissatisfaction by interrupting one subscriber’s service to prevent further attacks on or data breaches for other subscribers, and this could damage our reputation and have an adverse effect on our business.
Our business depends on establishing and maintaining strong brands. If we are not able to effectively promote our brands, or if the reputation of our brands is damaged, our ability to expand our subscriber base will be impaired and our business and operating results will be harmed.
We market our solutions through various brands, including Bluehost, HostGator, iPage, Domain.com, A Small Orange, Mojo Marketplace, BigRock, ResellerClub, Constant Contact and SinglePlatform, among others.
We believe that establishing and maintaining our brands is critical to our efforts to expand our subscriber base. If we do not build awareness of our brands, we could be at a competitive disadvantage to companies whose brands are, or become, more recognizable than ours. For instance, we believe that our web presence business has been, and may continue to be, affected by the increasing tendency of consumers to search for web presence and marketing solutions using brand related search terms as opposed to unbranded search terms such as hosting, website builders or email marketing. We believe this trend has assisted competitors who have invested more heavily in, and used a broader array of marketing channels in, building consumer awareness of their brand than we have. To attract and retain subscribers and to promote and maintain our brands in response to

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competitive pressures, we may have to substantially increase our financial commitment to creating and maintaining distinct brand loyalty among subscribers. We plan to focus a portion of our 2017 marketing expenditures on increasing brand awareness for certain of our brands, including through radio advertising, podcasts, and television advertising; however, these efforts may not be successful in counteracting the advantage held by competitors who have invested more heavily in their brands in the past, or who are willing or able to devote more resources than we can to brand awareness going forward.
 
If subscribers, as well as our third-party referral marketing, distribution and reseller partners, do not perceive our existing solutions to be reliable and of high quality, if we introduce new services or enter into new business ventures that are not favorably received by such parties, or if our brands become associated with any fraudulent or deceptive conduct on the part of our subscribers, the value of our brands could be diminished, thereby decreasing the attractiveness of our solutions to such parties. As a result, our operating results may be adversely affected by decreased brand recognition and harm to our reputation.
 
If the delivery of customers’ emails is limited or blocked or its customers’ emails are directed to an alternate or “tabbed” section of the recipient’s inbox, customers may cancel their accounts.
Internet Service Providers, or ISPs, can block emails from reaching the intended recipients. While we continually improve our technology and work closely with ISPs to maintain the deliverability rates of our email marketing product, the implementation of new or more restrictive policies by ISPs may make it more difficult to deliver our customers’ emails. In addition, some ISPs have started to categorize as “promotional” emails that originate from email service providers and, as a result, direct them to an alternate or “tabbed” section of the recipient’s inbox. If ISPs materially limit or halt the delivery of our customers’ emails, or if we fail to deliver our email marketing customers’ emails in a manner compatible with ISPs’ email handling or authentication technologies or other policies, or if the open rates of its customers’ emails are negatively impacted by the actions of ISPs to categorize emails, then our email marketing customers may question the effectiveness of our products and cancel their email marketing accounts. This, in turn, could harm our business and financial performance.
Security and privacy breaches may harm our business.
We collect, handle, store and transmit large amounts of sensitive, confidential, personal and proprietary information, including payment card information. Any physical or electronic security breach, virus, accident, employee error, criminal activity or malfeasance, fraudulent service plan order, impersonation scam perpetrated against us, security events impacting our third party service providers, intentional misconduct by cyber criminals or similar intrusion, breach or disruption could result in unauthorized access to, usage or disclosure of, or loss of, confidential information, damage to our platform, and interruptions, delays or cessation of service to our subscribers, each of which may cause damage to our reputation and result in increased security costs, litigation, regulatory investigations or other liabilities. We have experienced security events such as these in the past and expect they will continue in the future. To date, none of these events have had a material effect on us, but we may experience larger and more serious incidents in the future. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of technology solutions and services that we offer and expand our operations in foreign countries. In addition, we have acquired many other companies and businesses in the past and may continue to do so from time to time in the future, which may increase our risk of security or privacy breaches, including if we encounter challenges in the subscriber migration or integration process, or if we do not successfully identify security and privacy vulnerabilities through the due diligence we conduct on acquisition targets.
In addition, many states and countries in which we have subscribers have enacted regulations requiring us to notify subscribers in the event that certain subscriber information is accessed or acquired, or believed to have been accessed or acquired, without authorization, and in some cases also develop proscriptive policies to protect against such unauthorized access or acquisition. Such notifications can result in private causes of action being filed against us, or government investigations into the adequacy of security controls or handling of any security event. Should we experience a loss of protected data, efforts to enhance controls, assure compliance and address response costs or penalties imposed by such regulatory regimes could increase our costs.
Organizations generally, and Internet-based organizations in particular, remain vulnerable to targeted attacks aimed at exploiting network and system applications or weaknesses. Techniques used to obtain unauthorized access to, or to sabotage, networks and systems often are not recognized until launched against a target. Cyber criminals are increasingly using powerful new tactics including evasive applications, proxies, tunneling, encryption techniques, vulnerability exploits, buffer overflows, distributed denial of service attacks, or DDoS attacks, botnets and port scans. For example, we are frequently the targets of DDoS attacks in which attackers attempt to block subscribers’ access to our websites. If we are unable to avert a DDoS or other attack for any significant period, we could sustain substantial revenue loss from lost sales and subscriber dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Moreover, we may not be able to immediately detect that such an attack has been launched, if, for example, unauthorized

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access to our systems was obtained without our knowledge in preparation for an attack contemplated to commence in the future. Cyber attacks may target us, our subscribers, our partners, banks, credit card processors, delivery services, e-commerce in general or the communication infrastructure on which we depend. We also rely on third parties to provide physical security for most of our data centers and other facilities. Any physical security breach to our data centers or other facilities could result in unauthorized access or damage to our systems.
Our employees, including our employee and contract support agents are often targeted by, and may be vulnerable to, e-mail scams, phishing, social media or similar attacks, as well as social engineering tactics used to perpetrate fraud. We have experienced and may in the future experience security attacks that cause our support agents to divulge confidential information about us or our subscribers, or to introduce viruses, worms or other malicious software programs onto their computers, allowing the perpetrators to, among other things, gain access to our systems or our subscribers’ accounts. Our subscribers have in the past, and may in the future, use weak passwords, accidentally disclose their passwords or store them on a mobile device that is lost or stolen, or otherwise compromise the security of their data, creating the perception that our systems are not secure against third-party access when their accounts are compromised and used maliciously by third parties. In addition, if third parties with which we work, such as vendors, partners or developers, violate applicable laws or our policies, such violations may also put our information and our subscribers’ information at risk and could in turn have an adverse effect on our business and reputation.
If an actual or perceived security breach occurs, the market’s perception of our security measures could be harmed and we could lose sales and current and potential subscribers. We might also be required to expend significant capital and resources to investigate, protect against or address these problems. Any significant violations of data security could result in the loss of business, litigation and regulatory investigations and penalties that could damage our reputation and adversely affect our operating results and financial condition. Furthermore, if a high profile security breach occurs with respect to another provider of cloud-based technologies or online marketing tools, our subscribers and potential subscribers may lose trust in the security of these business models generally, which could harm our ability to retain existing subscribers or attract new ones. We cannot guarantee that our backup systems, regular data backups, security protocols, network protection mechanisms and other procedures currently in place, or that may be in place in the future, will be adequate to prevent network and service interruption, system failure, damage to one or more of our systems or data loss in the event of a security breach or attack on our network.
If we do not maintain a low rate of credit card chargebacks, protect against breach of the credit card information we store and comply with payment card industry standards, we will face the prospect of financial penalties and could lose our ability to accept credit card payments from subscribers, which would have a material adverse effect on our business, financial condition and operating results.
A majority of our revenue is processed through credit card transactions. Under current credit card industry practices, we are liable for fraudulent and disputed credit card transactions because we do not obtain the cardholder’s signature at the time of the transaction, even though the financial institution issuing the credit card may have authorized the transaction. Although we focus on keeping our rate of credit card refunds and chargebacks low, if our refunds or chargebacks increase, our credit card processors could require us to maintain or increase reserves, terminate their contracts with us or decline to serve as credit card processors for new joint ventures or brands, which would have an adverse effect on our financial condition.
We could also incur significant fines or lose our ability to process payments using credit cards if we fail to follow payment card industry data security standards, or PCI DSS, even if there is no compromise of subscriber information. During the course of compliance reviews during 2016, we discovered control gaps in our current adherence to the PCI DSS 3.2 standard within our web presence segment. As a normal part of our compliance programs, we are engaged with the appropriate financial partners, and are currently working on agreed-upon remediation plans to achieve compliance in timeframes acceptable to them. If we are unable to complete the remediation process within the timeframes we have agreed upon with these parties, we may incur financial penalties, our payment networks may increase the processing fees they charge to us, or we may lose our ability to process credit cards, any of which could have a material adverse effect on our financial results.
Our failure to limit fraudulent transactions conducted on our websites, such as through the use of stolen credit card numbers, could also subject us to liability or require us to increase reserves with our credit card processors. Under credit card association rules, penalties may be imposed at the discretion of the association. Any such potential penalties would be imposed on our credit card processors by the association. Under our contracts with our card processors, we are required to reimburse the processors for such penalties. Our current level of fraud protection, based on our fraudulent and disputed credit card transaction history, is within the guidelines established by the credit card associations. However, we face the risk that we may fail to maintain an adequate level of fraud protection or that one or more credit card associations may, at any time, assess penalties

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against us or terminate our ability to accept credit card payments from subscribers, which would have a material adverse effect on our business, financial condition and operating results.
In addition, we could be liable if there is a breach of the credit card or other payment information we store. Online commerce and communications depend on the secure transmission of confidential information over public networks. We rely on encryption and authentication technology that we have developed internally, as well as technology that we license from third parties, to provide security and authentication for the transmission of confidential information, including subscriber credit card numbers. However, we cannot ensure that this technology can prevent breaches of the systems that we use to protect subscriber credit card data. Although we maintain network security insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on reasonable terms, or at all. In addition, some of our third-party partners also collect information from transactions with our customers, and we may be subject to litigation or our reputation may be harmed if our partners fail to protect our subscribers’ information or if they use it in a manner that is inconsistent with our practices.
Data breaches can also occur as a result of non-technical issues. Under our contracts with our card processors, if there is unauthorized access to, or disclosure of, credit card information that we store, we could be liable to the credit card issuing banks for their cost of issuing new cards and related expenses.
Recent or potential future acquisitions, joint ventures and other strategic investments may not achieve the intended benefits or may disrupt our current plans and operations.
Acquisitions have historically been an important component of our growth strategy. In February 2016, we acquired Constant Contact and we have in the past acquired, and in the future may acquire, businesses and assets of other companies to increase our growth, add to our product portfolio, enhance our ability to compete in our core markets or allow us to enter new markets. We have also made strategic investments in, and entered into joint ventures with, third parties, typically with small companies focused on developing products that we believe may serve as effective new gateways to acquire new subscribers or that may appeal to our existing subscriber base. Our ability to execute these acquisitions, strategic investments and joint venture transactions depends on a number of factors, including the availability of target companies at prices and on terms acceptable to us, our ability to obtain the necessary equity, debt or other financing, and regulatory constraints. Our inability to complete anticipated acquisitions, strategic investments or joint ventures for these or other reasons may negatively impact our ability to achieve our long-term growth targets.
In addition, these transactions involve numerous risks, any of which could harm our business, including:
 
difficulties or delays in integrating the technologies, products, operations, billing systems, personnel or operations of an acquired business and realizing the anticipated benefits of the combined businesses, including both cost synergies and revenue synergies from cross-selling products of the acquired company into our subscriber base, or vice versa;
reliance on third parties for transition services prior to subscriber migration or difficulties in supporting and migrating acquired subscribers, if any, to our platform, causing potential loss of such subscribers, unanticipated costs and damage to our reputation;
disruption of our ongoing business and diversion of financial, management, operations and customer support resources from existing operations, including as a result of completing acquisitions and evaluating potential acquisitions;
difficulties in applying our controls and risk management and compliance policies and practices to acquired companies and joint ventures;
integration and support of redundant solutions or solutions that are outside of our core capabilities;
the incurrence of additional debt or the issuance of equity securities, resulting in dilution to existing stockholders, in order to fund an acquisition;
assumption of debt or other actual or contingent liabilities of the acquired company, including litigation risk or risks associated with other unforeseen or undisclosed liabilities, or exposure to successor liability for any legal violations of the acquired company;
differences in the standards, procedures, policies, corporate culture and compensation structure of our company and the acquired company, resulting in difficulty assimilating or integrating the acquired organization and its talent, which could lead to unanticipated costs or inefficiencies, morale issues, increased turnover and lower productivity than anticipated, and could also adversely affect the culture of our existing organization;
the price we pay, or other resources that we devote, may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity, or unanticipated costs associated with pursuing acquisitions;

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potential loss of an acquired business’ key employees, including those employees who depart prior to transferring to us, or without otherwise documenting, knowledge and information that are important to the efficient operation of the acquired business, and costs associated with efforts to retain key employees;    
potential loss of the subscribers or partners of an acquired business due to the actual or perceived impact of the acquisition and related integration activities;
potential deployment by an acquired company of its top talent to other of its business units prior to our acquisition if we do not acquire the entirety of an acquired company’s stock or assets;
difficulties associated with governance, management and control matters in majority or minority investments or joint ventures, and risk of loss of all or a substantial portion of our investment;
disruption of our business due to sellers, former employees, contractors or third-party service providers of an acquired company or business misappropriating our intellectual property, violating non-competition agreements, or otherwise causing harm to our company;
failure to properly conduct due diligence efforts, evaluate acquisitions or investments or identify liabilities or challenges associated with the companies, businesses or technologies we acquire;
obligations to third parties that arise as a result of the change of control of the acquired company;
adverse tax consequences, including exposure of our entire business to taxation in additional jurisdictions, exposure to substantial penalties, fees and costs if an acquired company failed to comply, or is alleged by regulatory authorities to have failed to comply, with relevant tax rules and regulations prior to our acquisition, or substantial depreciation or deferred compensation charges; and
accounting effects, including potential impairment charges related to long-lived assets, in process research and development, goodwill and other intangible assets and requirements that we record deferred revenue at fair value.
A key purpose of many of our smaller acquisitions, typically acquisitions of small hosting companies, has been to achieve subscriber growth, cost synergies and economies of scale by migrating customers of these companies to our platform. However, for several of our most recent acquisitions of this type, migrations to our platform have taken longer and been more disruptive to subscribers than we anticipated. If we are unable to improve upon our recent migration efforts and continue to experience unanticipated delays and subscriber disruption from migrations, we may not be able to achieve the expected benefits from these types of acquisitions.
During 2016, we recorded several impairment charges related to our Webzai and AppMachine acquisitions, totaling $7.1 million, due to changing product development priorities and our revised expectations about the future expected cash flows from certain technology and capitalized software associated with these acquisitions. In addition, in the fourth quarter of 2016, we recorded an impairment charge of $4.7 million related to our investment in Fortifico Limited, a company providing a billing, customer relationship management, and affiliate management solution. It is possible that we will incur additional impairment charges in the future related to our minority investments, joint ventures or acquisitions.
We also rely heavily on the representations and warranties provided to us by the sellers in our acquisitions, including as they relate to creation, ownership and rights in intellectual property, existence of open source software and compliance with laws and contractual requirements. If any of these representations and warranties are inaccurate or breached, we may incur liability for which there may be no recourse, or inadequate recourse, against the sellers, in part due to contractual time limitations and limitations of liability, or we may need to pursue costly litigation against the sellers.
Our growing operations in India, use of an India-based service provider and India-based workforce may expose us to risks that could have an adverse effect on our costs of operations and harm our business.
We currently use an India-based third-party service provider to provide certain outsourced services to support our U.S.-based operations, including email- and chat-based customer and technical support, billing support, network monitoring and engineering and development services. We may increase our use of this provider or other India-based providers in the future. Although there are cost advantages to operating in India, significant growth in the technology sector in India has increased competition to attract and retain skilled employees and has led to a commensurate increase in compensation costs. In the future, we or our third-party service providers may not be able to hire and retain such personnel at compensation levels consistent with the existing compensation and salary structure in India. In addition, we employ our own India-based workforce. Our use of a workforce in India exposes us to disruptions in the business, political and economic environment in that region. Our operations in India require us to comply with local laws and regulatory requirements, which are complex and burdensome and of which we may not always be aware, and expose us to foreign currency exchange rate risk. Our Indian operations may also subject us to trade restrictions, reduced or inadequate protection for intellectual property rights, security breaches and other factors that may adversely affect our business. Negative developments in any of these areas could increase our costs of operations or otherwise harm our business.

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We have a history of losses and may not be able to achieve or maintain profitability.
We have had a net loss in each year since inception. We had a net loss attributable to Endurance International Group Holdings, Inc. of $42.8 million for fiscal year 2014, $25.8 million for fiscal year 2015 and $72.8 million for fiscal year 2016, and we may incur losses in the future. In connection with our acquisitions, we have recorded long-lived assets at fair value. We record amortization expense in each reporting period related to the long-lived assets, which impacts the amount of net loss or income we record in each reporting period.
We have made and expect to continue to make significant expenditures to develop and expand our business. Increases in revenue and number of subscribers that we have experienced over the past several years may not be sustainable, and our revenue may be insufficient to achieve or maintain profitability. As further discussed in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations”, excluding the effect of acquisitions and adjustments, our total subscriber base increased during 2015 but was essentially flat in 2016, and revenue growth in our web presence segment was relatively flat for 2016. If we are not successful in addressing the factors that have contributed to these developments, we may not be able to either return to prior levels of subscriber and revenue growth or maintain current subscriber and revenue levels, which could result in a material adverse effect on our business and financial results. We may incur significant losses in the future for these or a number of other reasons, including interest expense related to our substantial indebtedness, and the other risks described in this report, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown events.
We may need additional equity, debt or other financing in the future, which we may not be able to obtain on acceptable terms, or at all, and any additional financing may result in restrictions on our operations or substantial dilution to our stockholders.
We may need to raise funds in the future, for example, to develop new technologies, expand our business, respond to competitive pressures, acquire businesses, or respond to unanticipated situations. We may try to raise additional funds through public or private financings, strategic relationships or other arrangements. Although our credit agreement and the indenture governing our 10.875% senior notes due 2024 (which we refer to as the "Notes") limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and our credit agreement and indenture may be amended with lender or noteholder consent, as applicable, although we may not be able to obtain this consent when needed.
Our ability to obtain debt or equity funding will depend on a number of factors, including market conditions, interest rates, our operating performance and investor interest. Additional funding may not be available to us on acceptable terms or at all. If adequate funds are not available, we may be required to reduce expenditures, including curtailing our growth strategies, foregoing acquisitions or reducing our product development efforts. If we succeed in raising additional funds through the issuance of equity or convertible securities, then the issuance could result in substantial dilution to existing stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these new securities would have rights, preferences and privileges senior to those of the holders of our common stock. In addition, any preferred equity issuance or debt financing that we may obtain in the future could have restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. To the extent any such new indebtedness is secured and is at higher interest rates than on our existing first lien term loan facility, the interest rates on our existing first lien term loan facility could increase as a result of the “most-favored nation” pricing provision in our existing credit agreement. Further, to the extent that we incur additional indebtedness or such other obligations, the risks associated with our substantial leverage described elsewhere in this report, including our possible inability to service our debt, would increase.
Our success depends in part on our strategic relationships and joint ventures or other alliances with third parties on which we rely to acquire subscribers and to offer solutions to our subscribers and from which we license intellectual property to develop our own solutions.
In order to expand our business, we plan to continue to rely on third-party relationships and alliances, such as with referrers and promoters of our brands and solutions, as well as with our providers of solutions and services that we offer to subscribers. Identifying, negotiating, documenting and managing relationships with third parties in certain cases requires significant time and resources, and it is possible that we may not be able to devote the time and resources we expect to such relationships. Integrating and customizing third parties’ solutions with our platform also requires us to expend significant time and resources to ensure that each respective solution works with our platform, as well as with our other products and services. If any of the third parties on which we rely fails to perform as expected, breaches or terminates their agreement with us, or becomes engaged in a dispute with us, our reputation could be adversely affected and our business could be harmed.

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We rely on third-party referral partners and other marketing partners to acquire subscribers. If these partners fail to promote our brands or to refer new subscribers to us, begin promoting competing brands in addition to or instead of ours, fail to comply with regulations, are forced to change their marketing efforts in response to new or existing regulations or cease to be viewed as credible sources of information by our potential subscribers, we may face decreased demand for our solutions, higher than expected subscriber acquisition costs, and loss of revenue. For instance, we believe that subscriber growth and subscriber acquisition costs at one of our hosting brands was negatively affected during 2016 because an important referral source began featuring several other web hosting options on their website, rather than just our brand. It is possible that in the future, this referral source will continue to add additional web hosting options or even remove us as an option, which could have a negative impact on us. Some of our third-party partners purchase our solutions and resell them to their customer bases. These partners have the direct contractual relationships with our ultimate subscribers and, therefore, we risk the loss of both our third-party partners and their customers if our services fail to meet expectations or if our partners fail to perform their obligations or deliver the level of service to the ultimate subscriber that we expect.
Our ability to offer domain name services to our subscribers depends on certain third-party relationships. For example, certain of our subsidiaries are accredited by ICANN and various other registries as a domain name registrar. If we fail to comply with domain name registry requirements or if domain name registry requirements change, we could lose our accreditation, be required to increase our expenditures, comply with additional requirements or alter our service offerings, any of which could have a material adverse effect on our business, financial condition or results of operations.
We also have relationships with product partners whose solutions, including site builders, shopping carts and security tools, we offer to our subscribers. We may be unable to continue our relationship with any of these partners if, for example, they decline to continue to work with us or are acquired by third parties. In such an event, we may not be able to continue to offer these third-party tools to our subscribers or we may be forced to find an alternative that may be inferior to the solution that we had previously offered, which could harm our business and our operating results.
We also rely on software licensed from or hosted by third parties to offer our solutions to our subscribers. In addition, we may need to obtain future licenses from third parties to use intellectual property associated with the development of our solutions, which might not be available to us on acceptable terms, or at all. Any loss of the right to use any software or other intellectual property required for the development and maintenance of our solutions could result in delays in the provision of our solutions until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated. Any errors or defects in third-party software could result in errors or a failure of our solutions which could harm our business and operating results. Further, we cannot be certain that the owners’ rights in their technologies will not be challenged, invalidated or circumvented.
Constant Contact relies on some of its partners to create integrations with third-party applications and platforms used by Constant Contact’s customers. If we fail to encourage these partners to create such integrations or if we do not adequately facilitate these integrations from a technology perspective, demand for Constant Contact products could decrease, which could harm our business and operating results.
 
We rely on a limited number of data centers to deliver most of our services. If we are unable to renew our data center agreements on favorable terms, or at all, our operating margins and profitability could be adversely affected and our business could be harmed. In addition, our ownership of our largest data center subjects us to potential costs and risks associated with real property ownership.
We currently serve most of our subscribers from five data center facilities located in Massachusetts (three), Texas, and Utah. We own the Utah data center and occupy the remaining data centers pursuant to co-location service agreements with third-party data center facilities which have built and maintain the co-located data centers for us and other parties. Although we own the servers in these data centers and engineer and architect the systems upon which our platform runs, we do not control the operation of the facilities we do not own.
The terms of our existing co-located data center agreements vary in length and expire over a period ranging from 2017 through 2021. The owners of these or our other co-located data centers have no obligation to continue such arrangements beyond their current terms, nor are they obligated to renew their agreements with us on terms acceptable to us, or at all.
Our existing co-located data center agreements may not provide us with adequate time to transfer operations to a new facility in the event of early termination or if we were unable to negotiate a short-term transition arrangement or renew these agreements on terms acceptable to us. If we were required to move our equipment to a new facility without adequate time to plan and prepare for such migration, we would face significant challenges due to the technical complexity, risk and high costs of the relocation. Any such migration would result in significant costs for us and significant downtime for large numbers of our

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subscribers. This could damage our reputation and cause us to lose current and potential subscribers, which would harm our operating results and financial condition.
If we are able to renew the agreements on our existing co-located data center facilities, we expect that the lease rates will be higher than those we pay under our existing agreements. If we fail to increase our revenue by amounts sufficient to offset any increases in lease rates for these facilities, our operating results may be materially and adversely affected.
We currently intend to continue to contract with third-party data center operators, but we could be forced to re-evaluate those plans depending on the availability and cost of data center facilities, the ability to influence and control certain design aspects of the data center, and economic conditions affecting the data center operator’s ability to add additional facilities.
With respect to the data center facility that we own, we are subject to risks, and may incur significant costs, related to our ownership of the facility and the land on which it is located, including costs or risks related to building repairs or upgrades and compliance with various federal, state and local laws applicable to real property owners, including environmental laws.
If our solutions and software contain serious errors or defects, or if human error on our part results in damage to our subscribers’ businesses, then we may lose revenue and market acceptance and may incur costs to defend or settle claims.
Complex technology platforms, software applications and systems such as ours often contain errors or defects, such as errors in computer code or other systems errors, particularly when first introduced or when new versions, enhancements or updates are released. Because we also rely on third parties to develop many of our solutions, our products and services may contain additional errors or defects as a result of the integration of the third party’s product. Despite quality assurance measures, internal testing and beta testing by our subscribers, we cannot guarantee that our current and future solutions will not be free of serious defects, which could result in lost revenue or a delay in market acceptance.
Since our subscribers use our solutions to, among other things, maintain an online presence for their business, it is not uncommon for subscribers to allege that errors, defects, or other performance problems result in damage to their businesses. They could elect to cancel or not to renew their agreements, delay or withhold payments to us, or bring claims or file suit seeking significant compensation from us for the losses they or their businesses allege to have suffered. For instance, from time to time, our customer support personnel have inadvertently deleted subscriber data due to human error, technical problems or miscommunication with customers. These lost data cases have sometimes led to subscribers commencing litigation against us, settlement payments to subscribers, subscription cancellations, and negative social media attention. Although our subscriber agreements typically contain provisions designed to limit our exposure to specified claims, including data loss claims, existing or future laws or unfavorable judicial decisions could negate or diminish these limitations. Even if not successful, defending against claims brought against us can be time-consuming and costly and could seriously damage our reputation in the marketplace, making it harder for us to acquire and retain subscribers.
 
Because we are required to recognize revenue for our subscription-based services over the term of the applicable subscriber agreement, changes in our sales may not be immediately reflected in our operating results. In addition, we may not have adequate reserves in the event that our historical levels of refunds increase, which could adversely affect our liquidity and profitability.
We recognize revenue from our subscribers ratably over the respective terms of their agreements with us in accordance with U.S. generally accepted accounting principles. These contracts are generally for service periods of up to 36 months. Accordingly, increases in sales during a particular period do not translate into corresponding increases in revenue during that same period, and a substantial portion of the revenue that we recognize during a quarter is derived from deferred revenue from our agreements with subscribers that we entered into during previous quarters. As a result, we may not generate net earnings despite substantial sales activity during a particular period, since we are not allowed under applicable accounting rules to recognize all of the revenue from these sales immediately, and because we are required to record a significant portion of our related operating expenses during that period. Conversely, the existence of substantial deferred revenue may prevent deteriorating sales activity from becoming immediately apparent in our reported operating results.
In connection with our domain registration services, as a registrar, we are required under our agreements with domain registries to prepay the domain registry for the term for which a domain is registered. We recognize this prepayment as an asset on our consolidated balance sheet and record domain revenue and the domain registration expense ratably over the term that a domain is registered. This cash payment to the domain registry may lead to fluctuations in our liquidity that is not immediately reflected in our operating results.

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In addition, our standard terms of service permit our subscribers to seek refunds from us in certain instances, and we maintain reserves to provide such refunds. The amount of such reserves is based on the amount of refunds that we have provided in the past. If our actual level of refund claims exceeds our estimates and our refund reserves are not adequate to cover such claims, our liquidity or profitability could be adversely affected. Furthermore, if we experience an unexpected decline in our revenue, we may not be able to adjust spending in a timely manner to compensate for such shortfall, and any significant shortfall in revenue relative to planned expenditures could adversely affect our business and operating results.
We depend on the experience and expertise of our senior management team, and the loss of any member of our senior management team could have an adverse effect on our business, financial condition and operating results.
Our success and future performance depends in significant part upon the continued service of our senior management team, particularly Hari Ravichandran, our founder and chief executive officer. The members of our senior management team are not contractually obligated to remain employed by us. Accordingly, and in spite of our efforts to retain our senior management team with long-term equity incentives, any member of our senior management team could terminate his or her employment with us at any time and go to work for one of our competitors after the expiration of his or her non-compete period. The replacement of members of our senior management team likely would involve significant time and expense, and the loss of any member of our senior management team could significantly delay, prevent the achievement of or make it more difficult for us to pursue and execute on our business objectives, and could have an adverse effect on our business, financial condition and operating results.
Our growth will be adversely affected if we cannot continue to successfully retain, hire, train and manage our key employees, particularly engineering, development and other technical employees, who are often in high demand.
Our ability to successfully pursue our growth strategy will depend on our ability to attract, retain and motivate key employees across our business. In particular, we are dependent on our platform and software engineers. Our engineering, development and technology teams have undergone several management transitions and a significant amount of organizational change in recent years. This, combined with high demand from other technology companies for skilled engineering and technical employees, is likely to make it challenging to retain these employees or hire replacements if they leave. Difficulties retaining, hiring or motivating these employees may jeopardize our engineering, development initiatives, some of which are integral to achieving our financial and operational goals for 2017, and could impact our ability to effectively maintain and upgrade our platforms.
We also depend upon employees who manage our sales and service employees, and, as we grow internationally, those employees managing our operations outside of the United States. We face intense competition for employees from numerous technology, software and manufacturing companies, and we cannot ensure that we will be able to attract, integrate or retain additional qualified employees in the future or at compensation levels consistent with our existing compensation and salary structure. In particular, candidates making employment decisions, particularly in high-technology industries, often consider the value of any equity they may receive in connection with their employment. As a result, any significant volatility in the market price of our common stock or concerns by potential employees about the performance of our stock may adversely affect our ability to attract or retain highly skilled engineers and marketing personnel.
If we are unable to attract new employees and retain our current employees, we may not be able to develop and maintain our services at the same levels as our competitors, and we may therefore lose subscribers and market share. Our failure to attract and retain qualified individuals could have an adverse effect on our ability to execute on our business objectives and, as a result, our ability to compete could decrease, our operating results could suffer and our revenue could decrease. In particular, if we are unable to recruit an adequate number of qualified employees in a timely manner at our Tempe, Arizona call center facility to cover the customer service and support activities that we intend to transfer from our Orem, Utah customer support center, the move may be more disruptive to subscribers or more costly to us than we expect, and we may not realize the anticipated benefits of the move.
 
We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and we are subject to consumer protection laws that regulate our marketing practices and prohibit unfair or deceptive acts and practices. Our actual or perceived failure to comply with such obligations could harm our business. Compliance with such laws could also impair our efforts to maintain and expand our subscriber base and provide certain of our product offerings, and thereby decrease our revenue.
The U.S. Federal Trade Commission, or FTC, and various state and local governments and agencies regularly use their authority under laws prohibiting unfair and deceptive marketing and trade practices to investigate and penalize companies for practices related to the collection, use, handling, disclosure, and security of personal data of U.S. consumers. In addition, in

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connection with the marketing and advertisement of our products and services by us or our affiliates, we could be the target of claims relating to false or deceptive advertising or marketing practices, including under the auspices of the FTC and state consumer protection statutes.
In the European Union, or EU, and in other jurisdictions outside of the United States, we could be the target of similar claims under consumer protection laws, regulation of cloud services, ecommerce and distance selling regulation, advertising regulation, unfair competition rules or similar legislation. Online digital services may be subject to increased scrutiny in the near future given their rapid growth in recent years. For example, since December 1, 2015, the UK Competition and Markets Authority, or the CMA, has been conducting a review of compliance with UK consumer protection laws in the cloud storage sector. As part of that effort, the CMA contacted a number of cloud storage companies, including our UK subsidiary, JDI Backup Ltd, or JDI, requesting that information be provided on a voluntary basis. JDI provided the CMA with the requested information and has changed its terms of service and disclosures to comply with undertakings it gave to the CMA.
If we are found to have breached any consumer protection, ecommerce and distance selling, advertising, unfair competition laws or similar legislation in any country or any laws regulating cloud services, we may be subject to enforcement actions that require us to change our business practices in a manner which may negatively impact revenue, as well as litigation, fines, penalties and adverse publicity that could cause our subscribers to lose trust in us, which could have an adverse effect on our reputation and business in a manner that harms our financial position. Among other things, our failure to implement any required consumer protection or regulatory disclosures on our various brand websites could subject us to adverse regulatory action, litigation or other adverse consequences. We also rely on third parties to provide marketing and advertising of our products and services, and we could be liable for, or face reputational harm as a result of, their marketing practices if, for example, they fail to comply with applicable statutory and regulatory requirements.
We collect personally identifiable information and other data from our subscribers and prospective subscribers. We use this information to provide services to our subscribers, to support, expand and improve our business and, subject to each subscriber’s or prospective subscriber’s right to decline or opt out, we may use this information to market other products and services to them. We may also share subscribers’ personally identifiable information with certain third parties as authorized by the subscriber or as described in the applicable privacy policy.
The U.S. federal and various state and foreign governments have adopted or proposed guidelines or rules for the collection, distribution, use and storage of information collected from or about consumers or their devices, and the FTC and many state attorneys general are applying federal and state consumer protection laws, including in novel ways, to impose standards for the online collection, use and dissemination of data. Furthermore, these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other requirements or our practices. Any failure or perceived failure by us to comply with rapidly evolving privacy or security laws, policies (including our own stated privacy policies), legal obligations or industry standards or any security incident that results in the unauthorized release or transfer of personally identifiable information or other subscriber data may result in governmental enforcement actions, litigation, fines and penalties and/or adverse publicity and could cause our subscribers to lose trust in us, which could have an adverse effect on our reputation and business.
In addition, several foreign countries and governmental bodies, including the countries of the EU and Canada, have laws and regulations dealing with the collection and use of personal data obtained from their residents, which are often more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of personal information that identifies or may be used to identify an individual, such as names, contact information, and, in some jurisdictions, certain unique identifiers. These laws and regulations are subject to frequent revisions and differing interpretations, and have generally become more stringent over time.
The data privacy regime in the EU includes certain directives which, among other things, require EU member states to regulate the processing and movement of personal data, marketing and the use of cookies. Each EU member state has transposed the requirements of these directives into its own national data privacy regime, and therefore the laws differ from jurisdiction to jurisdiction. We are also subject to the supervision of local data protection authorities in those jurisdictions where we are established or otherwise subject to applicable law, as well as to evolving EU laws on data export, as we may transfer personal data from the EU to other jurisdictions.
Future laws or regulations, or modifications to existing laws or regulations, could impair our ability to collect, transfer and/or use user information that we use to provide targeted advertising to our users, thereby impairing our ability to maintain and grow our subscriber base and increase revenue. Future restrictions on the collection, use, transfer, sharing or disclosure of our subscribers’ data or additional requirements for obtaining the consent of subscribers for the use and disclosure of such information could require us to modify our solutions and features, possibly in a material manner, and could limit our ability to

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develop new services and features. For example, the new EU-wide General Data Protection Regulation, or GDPR, entered into force in May 2016 will become applicable on May 25, 2018, replacing the data protection laws of each EU member state. The GDPR will implement more stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, increased requirements to erase an individual’s information upon request, mandatory data breach notification requirements and higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. It also significantly increases penalties for non-compliance, including where we act as a service provider (e.g. data processor). If our privacy or data security measures fail to comply with applicable current or future laws and regulations, we may be subject to litigation, regulatory investigations, or enforcement actions (including enforcement notices requiring us to change the way we use personal data or our marketing practices, fines, or other liabilities), as well as negative publicity and a potential loss of business. Under the GDPR, fines of up to 20,000,000 Euros or up to 4% of the total worldwide annual turnover of the preceding financial year may be assessed. Moreover, if future laws and regulations limit our subscribers’ or prospective subscribers’ ability to use and share personal data or our ability to store, process and share personal data, demand for our solutions could decrease, our costs could increase, and our business, results of operations and financial condition could be harmed.
In recent years, U.S. and European lawmakers and regulators have expressed concern over the use of third-party cookies, web beacons and similar technology for online behavioral advertising. In the EU, informed consent is required for the placement of a cookie on a user’s device. The current European laws that cover the use of cookies and similar technology and marketing online or by electronic means are under reform. These laws are expected when implemented to alter rules on third-party cookies, web beacons and similar technology for online behavioral advertising and to impose stricter requirements on companies using these tools. Regulation of cookies and web beacons may lead to broader restrictions on our research activities, including efforts to understand users’ Internet usage. Such regulations may have a chilling effect on businesses, such as ours, that collect and use online usage information in order to attract and retain customers and may increase the cost of maintaining a business that collects or uses online usage information, increase regulatory scrutiny and increase the potential for civil liability under consumer protection laws. In response to marketplace concerns about the usage of third-party cookies and web beacons to track user behaviors, providers of major browsers have included features that allow users to limit the collection of certain data in general or from specified websites, and some regulatory authorities have been advocating the development of browsers that block cookies by default. These developments could impair our ability to collect user information that helps us provide more targeted advertising to our users. If such technology is widely adopted, it could adversely affect our business, given our use of cookies and similar technologies to target our marketing.
Furthermore, the U.S. Controlling the Assault of Non Solicited Pornography and Marketing Act of 2003, or CAN SPAM Act, establishes certain requirements for commercial email messages and specifies penalties for the transmission of commercial email messages that are intended to deceive the recipient as to source or content. The CAN SPAM Act, among other things, obligates the sender of commercial emails to provide recipients with the ability to opt out of receiving future emails from the sender. In addition, some states and countries have passed laws regulating commercial email practices that are significantly more punitive and difficult to comply with than the CAN SPAM Act, such as Canada’s Anti-Spam Legislation, or CASL. Some portions of state laws of this type may not be pre-empted by the CAN SPAM Act. The ability of our subscribers’ customers to opt out of receiving commercial emails may minimize the effectiveness of our products, particularly Constant Contact’s email marketing product. Moreover, non-compliance with the CAN SPAM Act carries significant financial penalties. If we were found to be in violation of the CAN SPAM Act, applicable state laws not pre-empted by the CAN SPAM Act, or similar foreign laws regulating the distribution of commercial email, whether as a result of violations by our subscribers or if we were deemed to be directly subject to and in violation of these requirements, we could be required to pay penalties, which would adversely affect our financial performance and significantly harm our business, and our reputation would suffer. We also may be required to change one or more aspects of the way we operate our business, which could impair our ability to attract and retain subscribers or could increase our operating costs.
We rely on third parties to carry out a number of services for us, including processing personal data on our behalf, and while we enter into contractual arrangements to ensure that they only process such data according to our instructions and have sufficient security measures in place, any security breach or non-compliance with our contractual terms or breach of applicable law by such third parties could result in governmental enforcement actions, litigation, fines and penalties or adverse publicity and could cause our subscribers to lose trust in us, which could have an adverse impact on our reputation and business.
New laws, regulations or standards or new interpretations of existing laws, regulations or standards, including those in the areas of data security, data privacy, consumer protection and regulation of ISPs, could require us to incur additional costs and restrict our business operations. In addition, there is a risk that we could be held subject to legislation in countries where we reasonably thought the laws did not apply to us. Failure by us to comply with applicable requirements may result in

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governmental enforcement actions, litigation, fines and penalties or adverse publicity, which could have an adverse effect on our reputation and business.
Failure to adequately protect and enforce our intellectual property rights could substantially harm our business and operating results.
We have devoted substantial resources to the development of our intellectual property, proprietary technologies and related processes. In order to protect our intellectual property, proprietary technologies and processes, we rely upon a combination of trademark, patent and trade secret law, as well as confidentiality procedures and contractual restrictions. These afford only limited protection, may not prevent disclosure of confidential information, may not provide an adequate remedy in the event of misappropriation or unauthorized disclosure, and may not now or in the future provide us with a competitive advantage. Despite our efforts to protect our intellectual property rights, unauthorized parties, including employees, subscribers and third parties, may make unauthorized or infringing use of our products, services, software and other functionality, in whole or in part, or obtain and use information that we consider proprietary.
Policing our proprietary rights and protecting our brands and domain names is difficult and costly and may not always be effective. In addition, we may need to enforce our rights under the laws of countries that do not protect proprietary rights to as great an extent as do the laws of the United States and any changes in, or unexpected interpretations of, the intellectual property laws in any country in which we operate may compromise our ability to enforce our intellectual property rights. To the extent we expand our international activities, our exposure to unauthorized copying and use of our trademarks, products and proprietary information may increase.
We have registered, or applied to register, the trademarks associated with several of our leading brands in the United States and in certain other countries. Competitors may have adopted, and in the future may adopt, service or product names similar to ours, which could impede our ability to build our brands’ identities and possibly lead to confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the terms or designs of one of our trademarks.
Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the United States and abroad may be necessary to enforce our intellectual property rights or to defend against claims of infringement or invalidity. Such litigation or proceedings could be costly, time-consuming and distracting to our management, result in a diversion of resources, the impairment or loss of portions of our intellectual property, and have a material adverse effect on our business and operating results. There can be no assurance that our efforts to enforce or protect our proprietary rights will be adequate or that our competitors will not independently develop similar technology. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights on the Internet are uncertain and still evolving. Our failure to meaningfully establish and protect our intellectual property could result in substantial costs and diversion of resources and could substantially harm our business and operating results.
We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.
In recent years, there has been significant litigation in the United States and abroad involving patents and other intellectual property rights. Companies providing Internet-based products and services are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, and to the extent we face increasing competition, or if we become more visible or successful, the possibility of intellectual property infringement claims may increase. In addition, our exposure to risks associated with the use of intellectual property may increase as a result of acquisitions that we make or our use of software licensed from or hosted by third parties, as we have less visibility into the development process with respect to such technology or the care taken to safeguard against infringement risks. Third parties may make infringement and similar or related claims after we have acquired or licensed technology that had not been asserted prior to our acquisition or license.
Many companies are devoting significant resources to obtaining patents that could affect many aspects of our business. Since we do not have a significant patent portfolio, this may prevent us from deterring patent infringement claims, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have.
We have filed several patent applications in the United States and foreign counterpart filings for some of those applications. Although some of these applications have issued to registration, we cannot assure you that patents will issue from every patent application, or that we will prosecute every application to registration, that patents that issue from our applications will give us the protection that we seek, or that any such patents will not be challenged, invalidated or circumvented. Any

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patents that may issue in the future from our pending or future patent applications may not provide sufficiently broad protection and may not be enforceable in actions against alleged infringers.
The risk of patent litigation has been amplified by the increase in certain third parties, so-called “non-practicing entities,” whose sole business is to assert patent claims and against which our own intellectual property portfolio may provide little deterrent value. We could incur substantial costs in prosecuting or defending any intellectual property litigation and we have incurred such costs in the past. If we sue to enforce our rights or are sued by a third party that claims that our solutions infringe its rights, the litigation could be expensive and could divert our management’s time and attention. Even a threat of litigation could result in substantial expense and time.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure. In addition, during the course of any such litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:

cease selling or using solutions that incorporate the intellectual property that our solutions allegedly infringe;
make substantial payments for legal fees, settlement payments or other costs or damages;
obtain a license or enter into a royalty agreement, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or redesign the allegedly infringing solutions to avoid infringement, which could be costly, time-consuming or impossible. If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against us, our business or operating results could be harmed.
In addition, some of our agreements with partners and others require us to indemnify those parties for third-party intellectual property infringement claims, which would increase the cost to us resulting from an adverse ruling on any such claim.
Our use of “open source” software could adversely affect our ability to sell our services and subject us to possible litigation.
We use open source software, such as MySQL and Apache, in providing a substantial portion of our solutions, and we may incorporate additional open source software in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses. If we fail to comply with these licenses, we may be subject to certain conditions, including requirements that we offer our solutions that incorporate the open source software for no cost; that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software; and/or that we license such modifications or derivative works under the terms of the particular open source license. In addition, if a third-party software provider has incorporated open source software into software that we license from such provider, we could be required to disclose any of our source code that incorporates or is a modification of such licensed software. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending such allegations and could be subject to significant damages, enjoined from the sale of our solutions that contained the open source software, and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our solutions. In addition, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Such litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our products.
We could face liability, or our reputation might be harmed, as a result of the activities of our subscribers, the content of their websites, the data they store on our servers or the emails that they send.
Our role as a provider of cloud-based solutions, including website hosting services, domain registration services and email marketing, may subject us to potential liability for the activities of our subscribers on or in connection with their websites or domain names or for the data they store on or send using our servers. Although our subscriber terms of use prohibit illegal use of our services by our subscribers and permit us to take down websites or take other appropriate actions for illegal use, subscribers may nonetheless engage in prohibited activities or upload or store content with us in violation of applicable law or the subscriber’s own policies, which could subject us to liability.

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Several U.S. federal statutes may apply to us with respect to various subscriber activities:
the Digital Millennium Copyright Act of 1998, or DMCA, provides recourse for owners of copyrighted material who believe that their rights under U.S. copyright law have been infringed on the Internet. Under the DMCA, based on our current business activity as an online service provider that does not monitor, own or control website content posted by our subscribers, we generally are not liable for infringing content posted by our subscribers or other third parties, provided that we follow the procedures for handling copyright infringement claims set forth in the DMCA. Generally, if we receive a proper notice from, or on behalf of, a copyright owner alleging infringement of copyrighted material located on websites we host, and we fail to expeditiously remove or disable access to the allegedly infringing material or otherwise fail to meet the requirements of the safe harbor provided by the DMCA, the copyright owner may seek to impose liability on us. Technical mistakes in complying with the detailed DMCA take-down procedures could subject us to liability for copyright infringement.
the Communications Decency Act of 1996, or CDA, generally protects interactive computer service providers such as us, from liability for certain online activities of their customers, such as the publication of defamatory or other objectionable content. As an interactive computer services provider, we do not monitor hosted websites or prescreen the content placed by our subscribers on their sites. Accordingly, under the CDA, we are generally not responsible for the subscriber-created content hosted on our servers. However, the CDA does not apply in foreign jurisdictions and we may nonetheless be brought into disputes between our subscribers and third parties which would require us to devote management time and resources to resolve such matters and any publicity from such matters could also have an adverse effect on our reputation and therefore our business.
in addition to the CDA, the Securing the Protection of our Enduring and Established Constitutional Heritage Act, or the SPEECH Act, provides a statutory exception to the enforcement by a U.S. court of a foreign judgment that is less protective of free speech than the United States. Generally, the exception applies if the law applied in the foreign court did not provide at least as much protection for freedom of speech and press as would be provided by the First Amendment of the U.S. Constitution or by the constitution and law of the state in which the U.S. court is located, or if no finding of a violation would be supported under the First Amendment of the U.S. Constitution or under the constitution and law of the state in which the U.S. court is located. Although the SPEECH Act may protect us from the enforcement of foreign judgments in the United States, it does not affect the enforceability of the judgment in the foreign country that issued the judgment. Given our international presence, we may therefore, nonetheless, have to defend against or comply with any foreign judgments made against us, which could take up substantial management time and resources and damage our reputation.   
Although these statutes and case law in the United States have generally shielded us from liability for subscriber activities to date, court rulings in pending or future litigation, or future legislative or regulatory actions, may narrow the scope of protection afforded us under these laws. Several court decisions arguably have already narrowed the scope of the immunity provided to interactive computer services in the United States under the CDA. In addition, laws governing these activities are unsettled in many international jurisdictions, or may prove difficult or impossible for us to comply with in some international jurisdictions. Also, notwithstanding the exculpatory language of these bodies of law, we may be embroiled in complaints and lawsuits which, even if ultimately resolved in our favor, add cost to our doing business and may divert management’s time and attention. Finally, other existing bodies of law, including the criminal laws of various states, may be deemed to apply or new statutes or regulations may be adopted in the future, any of which could expose us to further liability and increase our costs of doing business.
In addition, our email marketing subscribers could also use our email marketing products or website to transmit negative messages or website links to harmful applications, reproduce and distribute copyrighted material or the trademarks of others without permission, or report inaccurate or fraudulent data or information. Any such use of our email marketing products could damage our reputation and we could face claims for damages, copyright or trademark infringement, defamation, negligence or fraud. Moreover, our email marketing customers’ promotion of their products and services through our email marketing products may not comply with federal, state and foreign laws.
We cannot predict whether our role in facilitating these activities would expose us to liability under these laws. Even if claims asserted against us do not result in liability, we may incur substantial costs in investigating and defending such claims. If we are found liable for our customers’ activities, we could be required to pay fines or penalties, redesign business methods or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability.
We may face liability for disputes in connection with ownership or control of subscriber accounts, domain names or email contact lists or in connection with domain names we own, or for their misappropriation by third parties.

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As a provider of cloud-based solutions, including as a registrar of domain names and related services, we from time to time become aware of disputes over ownership or control of subscriber accounts, websites, domain names or email contact lists. For example, disputes may arise as a result of a subscriber engaging a webmaster or other third party to help set up a web hosting account, register or renew a domain name, build a website, upload content, or set up email or other services.
We could face potential claims of tort law liability for our failure to renew a subscriber’s domain, and we have faced such liability in the past. We could also face potential tort law liability for our role in the wrongful transfer of control or ownership of accounts, websites or domain names. The safeguards and procedures we have adopted may not be successful in insulating us against liability from such claims in the future. In addition, we face potential liability for other forms of account, website or domain name “hijacking,” including misappropriation by third parties of subscriber accounts, websites or domain names and attempts by third parties to operate accounts, websites or domain names or to extort the subscriber whose accounts, websites or domain names were misappropriated. Furthermore, our risk of incurring liability for a security breach on or in connection with a subscriber account, website or domain name would increase if the security breach were to occur following our sale to a subscriber of security products that proved ineffectual in preventing it. Finally, we are exposed to potential liability as a result of our domain privacy service, wherein the identity and contact details for the domain name registrant are masked. Although our terms of service reserve the right to provide the underlying WHOIS information and/or to cancel privacy services on domain names giving rise to domain name disputes, including when we receive reasonable evidence of an actionable harm, the safeguards we have in place may not be sufficient to avoid liability, which could increase our costs of doing business.
Occasionally a subscriber may register a domain name that is identical or similar to another party’s trademark or the name of a living person. Disputes involving registration or control of domain names are often resolved through the Uniform Domain Name Dispute Resolution Policy, or UDRP, ICANN’s administrative process for domain name dispute resolution, or through litigation under the Anticybersquatting Consumer Protection Act, or ACPA, or under general theories of trademark infringement or dilution. The UDRP generally does not impose liability on registrars, and the ACPA provides that registrars may not be held liable for registering or maintaining a domain name absent a showing of bad faith, intent to profit or reckless disregard of a court order by the registrar. However, we may face liability if we fail to comply in a timely manner with procedural requirements under these rules. In addition, these processes typically require at least limited involvement by us and, therefore, increase our costs of doing business. Moreover, as the owner of domain name portfolios containing domains that we are providing for resale, we may face liability if one or more domain names in our portfolios is alleged to violate another party’s trademark. While we screen the domains we acquire to mitigate the risk of third-party claims of trademark infringement, we may nonetheless inadvertently register or acquire domains that infringe or allegedly infringe third-party rights. Moreover, advertisements displayed on websites associated with domains registered by us may contain allegedly infringing content placed by third parties. As a result, our involvement in domain name disputes may increase in the future.
We are subject to export controls and economic sanctions laws that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our business activities are subject to various restrictions under U.S. export controls and trade and economic sanctions laws, including the U.S. Commerce Department’s Export Administration Regulations and economic and trade sanctions regulations maintained by OFAC. Failure to comply with these laws and regulations could subject us to civil or criminal penalties, government investigations, and reputational harm. In addition, if our third-party resellers fail to comply with these laws and regulations in their dealings, we could face potential liability or penalties for violations. Furthermore, U.S. export control laws and economic sanctions laws prohibit certain transactions with U.S. embargoed or sanctioned countries, governments, persons and entities.
Although we take precautions and have implemented, and continue to seek to enhance, compliance measures to prevent transactions with U.S. sanction targets, from time to time we have identified, and we expect to continue to identify, instances of non-compliance with these laws, rules and regulations and transactions which we are required to block and report to OFAC. In addition, as a result of our acquisition activities, we have acquired, and we may acquire in the future, companies for which we could face potential liability or penalties for violations if they have not implemented sufficient compliance measures to prevent transactions with U.S. sanction targets. Until we are able to fully integrate our compliance processes into the operations of such acquired companies, we are at an increased risk of transacting business with U.S. sanction targets. Our failure to comply with these laws, rules and regulations could result in negative consequences to us, including government investigations, penalties and reputational harm.
Changes in our solutions or changes in export and import regulations may create delays in the introduction and sale of our solutions in international markets, prevent our subscribers with international operations from deploying our solutions or, in some cases, prevent the export or import of our solutions to certain countries, governments or persons altogether. Any change in export or import regulations, shift in the enforcement or scope of existing regulations, or change in the countries,

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governments, persons or technologies targeted by such regulations, could result in decreased use of our solutions or decreased ability to export or sell our solutions to existing or potential subscribers with international operations. Any decreased use of our solutions or limitation on our ability to export or sell our solutions could adversely affect our business, financial condition and operating results.
Due to the global nature of our business, we could be adversely affected by violations of anti-bribery laws.
The global nature of our business requires us (including our employees and business partners or agents acting on our behalf) to comply with laws and regulations that prohibit bribery and corruption anywhere in the world. The FCPA, the U.K. Bribery Act 2010, or the Bribery Act, and similar anti-bribery laws in India, Brazil or other jurisdictions where we do business generally prohibit companies and their intermediaries from making improper payments to government officials and other persons for the purpose of obtaining or retaining business or an improper business advantage. In addition, the FCPA requires public companies to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. We currently operate, and plan to expand our operations, in areas of the world that have a reputation for heightened risks of corruption and, in certain circumstances, compliance with anti-bribery laws may conflict with local customs and practices. In addition, changes in laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition and results of operations. We cannot assure that our employees, business partners or other agents will not engage in prohibited conduct and expose us to the risk of liability under the FCPA, the Bribery Act, or other anti-bribery laws. If we are found to be in violation of the FCPA, the Bribery Act or other anti-bribery laws, we could suffer criminal and civil penalties, other sanctions, and reputational damage, which could have a material adverse effect on our business.
Adverse economic conditions in the United States and international economies could harm our operating results.
Unfavorable general economic conditions, such as a recession or economic slowdown in the United States or in one or more of our other major markets, could adversely affect the affordability of, and demand for, our solutions due to factors such as declines in overall economic growth, consumer and corporate confidence and spending; increases in unemployment rates; and uncertainty about economic stability. Changing macroeconomic conditions may affect our business in a number of ways, making it difficult to accurately forecast and plan our future business activities. In particular, SMB spending patterns are difficult to predict and are sensitive to the general economic climate, the economic outlook specific to the SMB industry, the SMB’s level of profitability and debt and overall consumer confidence. Our solutions may be considered discretionary by many of our current and potential subscribers and may be dependent upon levels of consumer spending. As a result, resellers and consumers considering whether to purchase our solutions may be influenced by macroeconomic factors that affect SMB and consumer spending.
To the extent conditions in the economy deteriorate, our business could be harmed as subscribers may reduce or postpone spending and choose to discontinue our solutions, decrease their service level, delay subscribing for our solutions or stop purchasing our solutions all together. In addition, our efforts to attract new subscribers may be adversely affected. Weakening economic conditions may also adversely affect third parties with which we have entered into relationships and upon which we depend in order to grow our business, which could detract from the quality or timeliness of the products or services such parties provide to us and could adversely affect our reputation and relationships with our subscribers.
In uncertain and adverse economic conditions, decreased consumer spending is likely to result in a variety of negative effects such as reduction in revenue, increased costs, lower gross margin percentages and recognition of impairments of assets, including goodwill and other intangible assets. Uncertainty and adverse economic conditions may also lead to a decreased ability to collect payment for our solutions and services due primarily to a decline in the ability of our subscribers to use or access credit, including through credit cards and PayPal, which is how most of our subscribers pay for our services. We also expect to continue to experience volatility in foreign exchange rates, which could adversely affect the amount of expenses we incur and the revenue we record in future periods. If any of the above risks are realized, we may experience a material adverse effect on our business, financial condition and operating results.
Impairment of goodwill and other intangible assets would result in a decrease in earnings.
Current accounting rules provide that goodwill and other intangible assets with indefinite useful lives may not be amortized, but instead must be tested for impairment at least annually. These rules also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We have substantial goodwill and other intangible assets, and we would be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or intangible assets is

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determined. Any impairment charges or changes to the estimated amortization periods could have a material adverse effect on our financial results. During 2016, we recorded impairment charges related to in-process research and development, developed technology assets, internally developed software and our minority investment in Fortifico Limited, and it is possible we will record additional impairment charges in the future.
Risks Related to Our Substantial Indebtedness
Our substantial level of indebtedness could materially and adversely affect our financial condition.
We now have, and expect to continue to have, significant indebtedness that could result in a material and adverse effect on our business. As of December 31, 2016, we had approximately $2.0 billion of aggregate indebtedness, net of original issue discounts of $25.9 million and deferred financing costs of $43.3 million. Under our first lien term loan facility and our incremental first lien term loan facility entered into in connection with the acquisition of Constant Contact, we are required to repay approximately $5.3 million and $3.7 million, respectively, of principal at the end of each quarter and are required to pay accrued interest upon the maturity of each interest accrual period, which was $63.6 million and $34.7 million, respectively, for the year ended December 31, 2016. We estimate that our interest payments on our first lien term loan facility and our incremental first lien term loan facility will be $64.0 million and $43.2 million, respectively, in 2017. The interest accrual periods under our first lien term loan, incremental first lien term loan and revolving credit facility (which we refer to collectively as our Senior Credit Facilities) are typically three months in duration, except for LIBOR based revolver loans, which are generally one month in duration. The actual amounts of our debt servicing payments vary based on the amounts of indebtedness outstanding, whether we borrow on a LIBOR or base rate basis, the applicable interest accrual periods and the applicable interest rates, which vary based on prescribed formulas. We are also required to pay accrued interest on the Notes on a semi-annual basis. Approximately $18.2 million of interest was paid on the Notes during 2016. We estimate that our interest payments on the Notes will be $38.1 million in 2017.
We may be able to incur substantial additional debt in the future. The terms of the Senior Credit Facilities and the indenture governing the Notes permit us to incur additional debt subject to certain conditions. This high level of debt could have important consequences, including:

making it more difficult for us to make payments on our indebtedness;
increasing our vulnerability to general adverse financial, business, economic and industry conditions, as well as other factors that are beyond our control;
requiring us to refinance, or resulting in our inability to refinance, all or a portion of our indebtedness at or before maturity, on favorable terms or at all, whether due to uncertain credit markets, our business performance, or other factors;
requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, research and development efforts and other general corporate purposes;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and placing us at a disadvantage compared to our competitors that are less highly leveraged;
restricting our ability to pay dividends on our capital stock or redeem, repurchase or retire our capital stock or indebtedness;
limiting our ability to borrow additional funds;
exposing us to the risk of increased interest rates as certain of our borrowings are, and may in the future be, at variable interest rates;
requiring us to sell assets or incur additional indebtedness if we are not able to generate sufficient cash flow from operations to fund our liquidity needs; and
making it more difficult for us to fund other liquidity needs.  
The occurrence of any one of these events or our failure to generate sufficient cash flow from operations could have a material adverse effect on our business, financial condition, results of operations and ability to satisfy our obligations under our indebtedness. If new debt is added to our current debt levels, the related risks that we now face, as described further herein, could intensify and we may not be able to meet all our debt obligations.
The terms of our Senior Credit Facilities and the indenture governing our outstanding Notes impose restrictions on our business, reducing our operational flexibility and creating default risks. Failure to comply with these restrictions, or other events, could result in default under the relevant agreements that could trigger an acceleration of our indebtedness that we may not be able to repay.

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Our Senior Credit Facilities and the Notes require compliance with a set of financial and non-financial covenants. These covenants contain numerous restrictions on our ability to among other things:
incur additional debt;
make restricted payments (including any dividends or other distributions in respect of our capital stock and any investments);
sell or transfer assets;
enter into affiliate transactions;
create liens;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and
take other actions.
 
As a result, we may be restricted from engaging in business activities that may otherwise improve our business or from financing future operations or capital needs. Failure to comply with the covenants, if not cured or waived, could result in an event of default that could trigger acceleration of our indebtedness, which would require us to repay all amounts owing under the Senior Credit Facilities and the Notes and could have a material adverse impact on our business. Our Senior Credit Facilities and the indenture governing the Notes also contain provisions that trigger repayment obligations, including in some cases upon a change of control, as well as various representations and warranties which, if breached, could lead to events of default. We cannot be certain that our future operating results will be sufficient to ensure compliance with the covenants in our Senior Credit Facilities or the indenture governing the Notes or to remedy any defaults under our Senior Credit Facilities or the indenture governing the Notes. In addition, in the event of any event of default and related acceleration, we may not have or be able to obtain sufficient funds to make any accelerated payments.
EIG Investors, the borrower under our Senior Credit Facilities and the Issuer of the Notes, is a holding company, and may not be able to generate sufficient cash to service all of its indebtedness.
EIG Investors Corp, or EIG Investors, the borrower under our Senior Credit Facilities and the issuer of the Notes, has no direct operations and no significant assets other than the stock of its subsidiaries. Because it conducts its operations through its operating subsidiaries, EIG Investors depends on those entities to generate the funds necessary to meet its financial obligations, including its required obligations under our Senior Credit Facilities and the Notes. The ability of our subsidiaries to make transfers and other distributions to EIG Investors are subject to, among other things, the terms of any debt instruments of those subsidiaries then in effect, applicable law, prevailing economic and competitive conditions and certain financial, business and other factors beyond our control. If transfers or other distributions from our subsidiaries to EIG Investors were eliminated, delayed, reduced or otherwise impaired, its ability to make payments on its obligations would be substantially impaired.
Furthermore, if EIG Investors’ cash flows and capital resources are insufficient to fund its debt service obligations, we may be forced to reduce or delay investments and capital expenditures, seek additional capital, restructure or refinance EIG Investors’ or our indebtedness, or sell assets. We may not be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all, which would limit EIG Investors’ ability to meet its scheduled debt service obligations (including in respect of the Senior Credit Facilities or the Notes). Our ability to restructure or refinance debt will depend on the condition of the capital markets and the financial condition of EIG Investors and us at the time. Any refinancing of EIG Investors’ debt could be at higher interest rates and may require EIG Investors to comply with more onerous covenants, which could further restrict our business operations. The Senior Credit Facilities and the indenture governing the Notes will restrict our ability to use the proceeds from asset sales. We may not be able to consummate those asset sales to raise capital or sell assets at prices that we believe are fair, and any proceeds that we receive may not be adequate to meet any debt service obligations then due. In addition, any failure to make payments of interest and principal on EIG Investors’ outstanding indebtedness on a timely basis would likely result in a reduction of its credit rating, which could harm our ability to incur additional indebtedness.
EIG Investors may not be able to repurchase the Notes upon a change of control or pursuant to an asset sale offer, which would cause a default under the indenture governing the Notes and the Senior Credit Facilities.
Upon the occurrence of specific kinds of change of control events, EIG Investors will be required under the indenture governing the Notes to offer to repurchase all outstanding Notes at 101% of their principal amount plus accrued and unpaid interest, if any, unless the Notes have been previously called for redemption. The source of funds for any such purchase of the Notes will be EIG Investors’ available cash or cash generated from its subsidiaries’ operations or other sources, including borrowings, sales of assets or sales of equity. EIG Investors may not be able to repurchase the Notes upon a change of control because it may not have sufficient financial resources to purchase all of the Notes that are tendered upon a change of control. Further, EIG Investors may be contractually restricted under the terms of the Senior Credit Facilities from repurchasing all of the Notes tendered by holders upon a change of control. Accordingly, EIG Investors may not be able to satisfy its obligations to

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purchase the Notes unless it is able to refinance or obtain waivers under the Senior Credit Facilities. EIG Investors’ failure to repurchase the Notes upon a change of control would cause a default under the indenture governing the Notes and a cross default under the Senior Credit Facilities. The Senior Credit Facilities also provide that a change of control is a default that permits lenders to accelerate the maturity of borrowings thereunder. Any of EIG Investors’ future debt agreements may contain similar provisions.
In addition, in certain circumstances specified in the indenture governing the Notes, EIG Investors will be required to commence an asset sale offer, as defined under the indenture governing the Notes, pursuant to which it will be obligated to offer to purchase the applicable Notes at a price equal to 100% of their principal amount plus accrued and unpaid interest. EIG Investors’ other debt may contain restrictions that would limit or prohibit EIG Investors from completing any such asset sale offer. EIG Investors’ failure to purchase any such Notes when required under the indenture would be an event of default.
Risks Related to Ownership of Our Common Stock
Our stock price has been and may in the future be volatile, which could cause holders of our common stock to incur substantial losses.
The trading price of our common stock has been and may in the future be subject to substantial price volatility. As a result of this volatility, our stockholders could incur substantial losses. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this “Risk Factors” section:
low trading volume, which could cause even a small number of purchases or sales of our stock to have an impact on the trading price of our common stock;
price and volume fluctuations in the overall stock market from time to time;
significant volatility in the market price and trading volume of comparable companies;
actual or anticipated changes in our earnings or any financial projections we may provide to the public, or fluctuations in our operating results or in the expectations of securities analysts;
ratings changes by debt ratings agencies;
short sales, hedging and other derivative transactions involving our capital stock;
announcements of technological innovations, new products, strategic alliances, or significant agreements by us or by our competitors;
litigation or regulatory proceedings involving us;
investors’ general perception of us;
changes in general economic, industry and market conditions and trends; and
recruitment or departure of key personnel.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. In May 2015, a class action securities lawsuit was filed against us, and in August 2015, a separate class action securities lawsuit was filed against Constant Contact. In the future we may be the target of additional securities litigation. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.
If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they publish negative evaluations of our stock, the price of our stock and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts or other parties may publish about us, our business, our market or our competitors. We do not have any control over these parties. If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
Future sales of shares of our common stock could cause the market price of our common stock to drop significantly, even if our business is doing well.
A substantial portion of our issued and outstanding common stock can be traded without restriction at any time, and the remaining shares of our issued and outstanding common stock can be sold subject to volume limitations and other requirements applicable to affiliate sales under the federal securities laws. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. In addition, we have registered

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38,000,000 shares of common stock that have been issued or reserved for future issuance under our Amended and Restated 2013 Stock Incentive Plan and 14,346,830 shares of common stock that have been issued or reserved for future issuance under our Constant Contact, Inc. Second Amended and Restated 2011 Stock Incentive Plan. Of these shares, as of December 31, 2016, a total of 23,576,872 shares of our common stock are subject to outstanding options, restricted stock units and restricted stock awards, of which 8,095,783 shares are exercisable or have vested. The exercise of these options or the vesting of restricted stock units and shares of restricted stock and the subsequent sale of the common stock underlying such options or upon the vesting of such restricted stock units and restricted stock awards could cause a decline in our stock price. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. We cannot predict the size of future issuances or the effect, if any, that any future issuances may have on the market price for our common stock.
In addition, holders of an aggregate of 72,183,096 shares of our common stock have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Once we register these shares, they can be freely sold in the public market upon issuance, subject to any applicable vesting requirements.
 
Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.
As of December 31, 2016, our directors, executive officers and their affiliates beneficially own, in the aggregate, 58.7% of our issued and outstanding common stock. Specifically, investment funds and entities affiliated with Warburg Pincus own, in the aggregate, 37.0% of our issued and outstanding common stock, and investment funds and entities affiliated with Goldman Sachs own, in the aggregate, approximately 10.8% of our issued and outstanding common stock. As a result, these stockholders, if they act together, could have significant influence over the outcome of matters submitted to our stockholders for approval. Our stockholders’ agreement contains agreements among the parties with respect to certain matters, including the election of directors, and certain restrictions on our ability to effect specified corporate transactions. If these stockholders were to act together, they could have significant influence over the management and affairs of our company. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock. In particular, the significant ownership interest of investment funds and entities affiliated with Warburg Pincus and Goldman Sachs in our common stock could adversely affect investors’ perceptions of our corporate governance practices.
 
Anti-takeover provisions in our restated certificate of incorporation, our amended and restated bylaws and our stockholders agreement, as well as provisions of Delaware law, might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.
Our restated certificate of incorporation, our amended and restated bylaws, our stockholders agreement and Delaware law contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Our corporate governance documents include provisions:
authorizing blank check preferred stock, which could be issued without stockholder approval and with voting, liquidation, dividend and other rights superior to our common stock;
limiting the liability of, and providing indemnification to, our directors and officers;
limiting the ability of our stockholders to call and bring business before special meetings; provided that for so long as investment funds and entities affiliated with Warburg Pincus or Goldman Sachs, collectively, own a majority of our issued and outstanding capital stock, special meetings of our stockholders may be called by the affirmative vote of the holders of a majority of our issued and outstanding voting stock;
providing that any action required or permitted to be taken by our stockholders must be taken at a duly called annual or special meeting of such stockholders and may not be taken by any consent in writing by such stockholders; provided that for so long as investment funds and entities affiliated with either Warburg Pincus or Goldman Sachs, collectively, own a majority of our issued and outstanding capital stock, a meeting and vote of stockholders may be dispensed with, and the action may be taken without prior notice and without such meeting and vote if a written consent is signed by the holders of issued and outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at the meeting of stockholders;
requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; provided that no advance notice shall be required for nominations of candidates for election to our board of directors pursuant to our stockholders agreement;
controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings;

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providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings;
establishing a classified board of directors so that not all members of our board are elected at one time;
establishing Delaware as the exclusive jurisdiction for specified types of stockholder litigation involving us or our directors;
providing that for so long as investment funds and entities affiliated with Warburg Pincus have the right to designate at least three directors for election to our board of directors, certain actions required or permitted to be taken by our stockholders, including amendments to our restated certificate of incorporation or amended and restated bylaws and certain specified corporate transactions, may be effected only with the affirmative vote of 75% of our board of directors, in addition to any other vote required by applicable law;
providing that for so long as investment funds and entities affiliated with Warburg Pincus have the right to designate at least one director for election to our board of directors and for so long as investment funds and entities affiliated with Goldman Sachs have the right to designate one director for election to our board of directors, in each case, a quorum of our board of directors will not exist without at least one director designee of each of Warburg Pincus and Goldman Sachs present at such meeting; provided that if a meeting of our board of directors fails to achieve a quorum due to the absence of a director designee of Warburg Pincus or Goldman Sachs, as applicable, the presence of a director designee of Warburg Pincus or Goldman Sachs, as applicable, will not be required in order for a quorum to exist at the next meeting of our board of directors;
limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on the board to our board of directors then in office; provided that for so long as investment funds and entities affiliated with either Warburg Pincus or Goldman Sachs have the right to designate at least one director for election to our board of directors, any vacancies will be filled in accordance with the designation provisions set forth in our stockholders agreement; and
providing that directors may be removed by stockholders only for cause by the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors; provided that any director designated by investment funds and entities affiliated with either Warburg Pincus or Goldman Sachs may be removed with or without cause only by Warburg Pincus or Goldman Sachs, respectively, and for so long as investment funds and entities affiliated with either Warburg Pincus or Goldman Sachs, collectively, hold at least a majority of our issued and outstanding capital stock, our directors, other than a director designated by investment funds and entities affiliated with either Warburg Pincus or Goldman Sachs, respectively, may be removed with or without cause by the affirmative vote of the holders of a majority of our issued and outstanding capital stock.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents some stockholders holding more than 15% of our issued and outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our issued and outstanding common stock. Since the investment funds and entities affiliated with Warburg Pincus and Goldman Sachs became holders of more than 15% of our issued and outstanding common stock in a transaction that was approved by our board of directors, the restrictions of Section 203 of the Delaware General Corporation law would not apply to a business combination transaction with any investment funds or entities affiliated with either Warburg Pincus or Goldman Sachs. In addition, our restated certificate of incorporation expressly exempts investment funds and entities affiliated with either Warburg Pincus or Goldman Sachs from the applicability of Section 203 of the Delaware General Corporation Law. Any provision of our restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
We have incurred and expect to continue to incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance with our public company responsibilities and corporate governance practices. We also need to ensure that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis. Failure to maintain proper and effective internal controls could impair our ability to produce accurate and timely financial statements, which could harm our operating results, our ability to operate our business, and our investors’ view of us.
As a public company, we have incurred and expect to continue to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Select Market and other applicable securities rules

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and regulations impose various requirements on public companies. Our management and other personnel need to devote a substantial amount of time to comply with these requirements. Moreover, these rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. These rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors.
One aspect of complying with these rules and regulations as a public company is that we are required to ensure that we have adequate financial and accounting controls and procedures in place. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. This is a costly and time-consuming effort that needs to be re-evaluated periodically.
Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires that we evaluate, test and document our internal controls and, as a part of that evaluation, documentation and testing, identify areas for further attention and improvement. In order to comply with Section 404, we will need to continue to dedicate internal resources, and potentially recruit additional finance and accounting personnel or engage outside consultants, to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement and maintain a continuous reporting and improvement process for internal control over financial reporting. Implementing and maintaining any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls. Thus, despite our efforts, there is a risk that in the future we will not be able to conclude that our internal control over financial reporting is effective as required by Section 404. Any failure to maintain the adequacy of our internal controls, consequent inability to produce accurate financial statements on a timely basis, or identification and failure to remediate one or more material weaknesses could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements and make it more difficult for us to market and sell our solutions to new and existing subscribers.
 
Certain of our stockholders have the right to engage or invest in the same or similar businesses as us.
Investment funds and entities affiliated with either Warburg Pincus or Goldman Sachs, together, hold a controlling interest in our company. Warburg Pincus, Goldman Sachs and their respective affiliates have other investments and business activities in addition to their ownership of our company. Warburg Pincus, Goldman Sachs and their respective affiliates have the right, and have no duty to abstain from exercising the right, to engage or invest in the same or similar businesses as us. To the fullest extent permitted by law, we have, on behalf of ourselves, our subsidiaries and our and their respective stockholders, renounced any interest or expectancy in, or in being offered an opportunity to participate in, any business opportunity that may be presented to Warburg Pincus, Goldman Sachs or any of their respective affiliates, partners, principals, directors, officers, members, managers, employees or other representatives, and no such person has any duty to communicate or offer such business opportunity to us or any of our subsidiaries or shall be liable to us or any of our subsidiaries or any of our or its stockholders for breach of any duty, as a director or officer or otherwise, by reason of the fact that such person pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to us or our subsidiaries, unless, in the case of any such person who is a director or officer of ours, such business opportunity is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer of ours.
We may not pay any dividends on our common stock for the foreseeable future.
We do not currently anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Instead, we expect to retain any earnings to maintain and expand our existing operations, including through mergers and acquisitions, and to invest in our business. In addition, our ability to pay cash dividends is currently limited by the terms of our Senior Credit Facilities and the indenture governing the Notes, and any future credit agreement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, to realize any return on their investment.

ITEM 1B.
Unresolved Staff Comments
None.

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ITEM 2.
Properties
As of December 31, 2016, we leased approximately 77,000 square feet of office space located in Burlington, Massachusetts, which serves as our corporate headquarters, under a lease that expires in March 2026.  In January 2017, we amended the lease to expand our headquarters by approximately 20,000 square feet in 2017 and approximately 17,000 square feet in 2018.
Our web presence segment used additional offices and data centers, including:
approximately 278,000 square feet of additional leased office space in the United States located primarily in Arizona, Texas, Utah and Washington;
approximately 154,000 square feet of leased office space outside of the United States located primarily in Brazil, China, India, the United Kingdom and the Netherlands;
approximately 57,000 square feet of office and data center space we own in Utah, and
leased and co-located data center space located primarily in Massachusetts and Texas, with approximately 2,800 kilowatts of power under contract.
Our email marketing segment used additional offices and data centers, including:
approximately 226,000 square feet of additional leased office space in the United States located primarily in Massachusetts, Colorado and New York; and
leased and co-located data center space located primarily in Massachusetts and Texas, with approximately 750 kilowatts of power under contract.
We believe that our facilities are adequate for our current needs and that suitable additional or substitute space will be available as needed to accommodate planned expansion of our operations.
 
ITEM 3.
Legal Proceedings
From time to time we are involved in legal proceedings or subject to claims arising in the ordinary course of our business. We are not presently involved in any such legal proceeding or subject to any such claim that, in the opinion of our management, would have a material adverse effect on our business, operating results or financial condition. However, the results of such legal proceedings or claims cannot be predicted with certainty, and regardless of the outcome, can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Neither the ultimate outcome of the matters listed below nor an estimate of any probable losses or any reasonably possible losses can be assessed at this time.
Endurance
We received a subpoena dated December 10, 2015 from the Boston Regional Office of the SEC, requiring the production of certain documents, including, among other things, documents related to our financial reporting, including operating and non-GAAP metrics, refund, sales and marketing practices and transactions with related parties. We are fully cooperating with the SEC’s investigation. We can make no assurances as to the time or resources that will need to be devoted to this investigation or its final outcome, or the impact, if any, of this investigation or any related legal or regulatory proceedings on our business, financial condition, results of operations and cash flows.
On May 4, 2015, Christopher Machado, a purported holder of our common stock, filed a civil action in the United States District Court for the District of Massachusetts against us and our chief executive officer and our former chief financial officer, Machado v. Endurance International Group Holdings, Inc., et al., Civil Action No. 1:15-cv-11775-GAO. In a second amended complaint, filed on March 18, 2016, the plaintiff alleged claims for violations of Section 10(b) and 20(a) of the Exchange Act, on behalf of a purported class of purchasers of our securities between February 25, 2014 and February 29, 2016. Those claims challenged as false or misleading certain of our disclosures about our total number of subscribers, average revenue per subscriber, the number of customers paying over $500 per year for our products and services, the average number of products sold per subscriber, and our customer churn. The plaintiff seeks, on behalf of himself and the purported class, compensatory damages and his costs and expenses of litigation. We filed a motion to dismiss on May 16, 2016, which remains pending. In August 2016, the parties in the Machado action and another potential claimant, who asserts that he purchased common stock in our initial public offering, agreed to toll, as of July 1, 2016, the statutes of limitation and repose for all claims under the

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Securities Act of 1933 that the plaintiff and claimant might bring, individually or in a representative capacity, arising from alleged actions or omissions between September 9, 2013 and February 29, 2016. We and the individual defendants intend to deny any liability or wrongdoing and to vigorously defend all claims asserted. We cannot, however, make any assurances as to the outcome of the current proceeding or any additional claims if they are brought.
Constant Contact
On December 10, 2015, Constant Contact received a subpoena from the Boston Regional Office of the SEC, requiring the production of documents pertaining to Constant Contact’s sales, marketing, and customer retention practices, as well as periodic public disclosure of financial and operating metrics. We are fully cooperating with the SEC’s investigation. We can make no assurances as to the time or resources that will need to be devoted to this investigation or its final outcome, or the impact, if any, of this investigation or any related legal or regulatory proceedings on our business, financial condition, results of operations and cash flows.
On August 7, 2015, a purported class action lawsuit, William McGee v. Constant Contact, Inc., et al, was filed in the United States District Court for the District of Massachusetts against Constant Contact and two of its former officers. An amended complaint, which named an additional former officer as a defendant, was filed December 19, 2016. The lawsuit asserts claims under Sections 10(b) and 20(a) of the Exchange Act, and is premised on allegedly false and/or misleading statements, and non-disclosure of material facts, regarding Constant Contact’s business, operations, prospects and performance during the proposed class period of October 23, 2014 to July 23, 2015. This litigation remains in its early stages. We and the individual defendants intend to vigorously defend all claims asserted. We cannot, however, make any assurances as to the outcome of this proceeding.
In August 2012, RPost Holdings, Inc., RPost Communications Limited and RMail Limited, or collectively, RPost, filed a complaint in the United States District Court for the Eastern District of Texas that named Constant Contact as a defendant in a lawsuit. The complaint alleged that certain elements of Constant Contact’s email marketing technology infringe five patents held by RPost. RPost seeks an award for damages in an unspecified amount and injunctive relief. In February 2013, RPost amended its complaint to name five of Constant Contact’s marketing partners as defendants. Under Constant Contact’s contractual agreements with these marketing partners, it is obligated to indemnify them for claims related to patent infringement. Constant Contact filed a motion to sever and stay the claims against its partners and multiple motions to dismiss the claims against it. In January 2014, the case was stayed pending the resolution of certain state court and bankruptcy actions involving RPost, to which Constant Contact is not a party. The case continues to be stayed pending the state court and bankruptcy actions. Meanwhile, RPost asserted the same patents asserted against Constant Contact in litigation against Go Daddy. In June 2016, Go Daddy succeeded in invalidating all of those RPost patents. RPost has appealed, and the appellate court is expected to hear oral argument on the appeal in the spring of 2017. The litigation against Constant Contact remains stayed, and is in its early stages. We believe we have meritorious defenses to any claim of infringement and intend to defend against the lawsuit vigorously.
Legal Proceedings Related to the Constant Contact acquisition
On December 11, 2015, a putative class action lawsuit relating to the Constant Contact acquisition, captioned Irfan Chawdry, Individually and On Behalf of All Others Similarly Situated v. Gail Goodman, et al. Case No. 11797, and on December 21, 2015, a putative class action lawsuit relating to the acquisition captioned David V. Myers, Individually and On Behalf of All Others Similarly Situated v. Gail Goodman, et al. Case No. 11828 (together, the Complaints) were filed in the Court of Chancery of the State of Delaware naming Constant Contact, each of Constant Contact’s directors, Endurance and Paintbrush Acquisition Corporation as defendants. The Complaints generally alleged, among other things, that in connection with the acquisition the directors of Constant Contact breached their fiduciary duties owed to the stockholders of Constant Contact by agreeing to sell Constant Contact for purportedly inadequate consideration, engaging in a flawed sales process, omitting material information necessary for stockholders to make an informed vote, and agreeing to a number of purportedly preclusive deal protection devices. The Complaints sought, among other things, to rescind the acquisition, as well as award of plaintiffs’ attorneys’ fees and costs in the action. The Complaints were consolidated on January 12, 2016. On December 5, 2016, plaintiff Myers filed a consolidated amended complaint, or the Amended Complaint, naming as defendants the former Constant Contact directors and Morgan Stanley & Co. LLC, or Morgan Stanley, Constant Contact’s financial adviser for the acquisition, alleging breach of fiduciary duty by the former directors, and aiding and abetting the alleged breach by Morgan Stanley. On December 15, 2016, the Constant Contact defendants filed a motion to dismiss. On February 14, 2017, the court approved a briefing schedule for the motion, with defendants' opening brief due March 17, 2017. The defendants believe the claims asserted in the Amended Complaint are without merit and intend to defend against them vigorously.

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ITEM 4.
Mine Safety Disclosures
Not applicable.

Part II
 
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Our Common Stock and Related Stockholder Matters
Our common stock is listed on The NASDAQ Global Select Market under the symbol “EIGI”. The following table shows the high and low sales price per share of our common stock as reported on the NASDAQ Global Select Market for the periods indicated:
 
 
High
 
Low
Year Ended December 31, 2015
 
 
 
First Quarter
$
20.45

 
$
15.92

Second Quarter
$
23.49

 
$
15.82

Third Quarter
$
22.37

 
$
12.11

Fourth Quarter
$
15.48

 
$
10.29

Year Ended December 31, 2016
 
 
 
First Quarter
$
11.86

 
$
7.45

Second Quarter
$
11.55

 
$
8.37

Third Quarter
$
9.29

 
$
6.55

Fourth Quarter
$
9.75

 
$
6.60

Stockholders
As of January 31, 2017 there were approximately 41 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Dividend Policy
We currently intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare dividends will be subject to the discretion of our board of directors and applicable law and will depend on various factors, including our results of operations, financial condition, prospects and any other factors deemed relevant by our board of directors. Our credit agreement and the indenture governing our senior notes limit our ability to pay cash dividends on our common stock, and the terms of any future loan agreement into which we may enter or any additional debt securities we may issue are likely to contain similar restrictions on the payment of dividends.
Securities Authorized for Issuance Under Equity Compensation Plan
The information concerning our equity compensation plan is incorporated by reference from the information in our Proxy Statement for our 2017 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates.

Stock Performance Graph
The following performance graph and related information shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act nor shall such information be incorporated by reference into any filing of Endurance International Group Holdings, Inc. under the Exchange Act or the Securities Act, except to the extent that we specifically incorporate it by reference in such filing.

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The graph set forth below compares the cumulative total return on our common stock to the cumulative total return of the NASDAQ Composite Index and the RDG Internet Composite Index from October 25, 2013 (the first date that shares of our common stock were publicly traded) through December 31, 2016. The comparison assumes $100 was invested after the market closed on October 25, 2013 in our common stock, and each of the foregoing indices, and it assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11422696&doc=19
 
*$100 invested on 10/25/13 in stock or 9/30/13 in index, including investment dividends.
 
 
Fiscal year ending December 31.
 
 
10/25/2013
 
12/31/2013
 
3/31/2014
 
6/30/2014
 
9/30/2014
 
12/31/2014
 
3/31/2015
 
6/30/2015
 
9/30/2015
 
12/31/2015
 
3/31/2016
 
6/30/2016
 
9/30/2016
 
12/31/2016
Endurance International Group Holdings, Inc.
$
100.00

 
$
126.04

 
$
115.64

 
$
135.91

 
$
144.62

 
$
163.82

 
$
169.42

 
$
183.64

 
$
118.76

 
$
97.16

 
$
93.60

 
$
79.91

 
$
77.78

 
$
82.67

NASDAQ Composite Index
$
100.00

 
$
111.08

 
$
112.01

 
$
117.49

 
$
119.85

 
$
126.27

 
$
130.54

 
$
133.26

 
$
123.28

 
$
133.90

 
$
131.53

 
$
130.96

 
$
143.75

 
$
145.60

RDG Internet Composite Index
$
100.00

 
$
118.06

 
$
112.86

 
$
116.34

 
$
120.15

 
$
115.51

 
$
122.96

 
$
127.23

 
$
131.07

 
$
158.34

 
$
154.14

 
$
155.90

 
$
178.39

 
$
168.16

Item 6. Selected Consolidated Financial Data
The consolidated statements of operations data for the years ended December 31, 2014, 2015 and 2016, and the consolidated balance sheet data as of December 31, 2015 and 2016, are derived from our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data for the year ended December 31, 2012 and 2013, and the consolidated balance sheet data as of December 31, 2012, 2013 and 2014, are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to be expected in any future period. The comparability of the information in the table below is affected by acquisitions we completed during the periods shown, particularly the acquisition of Constant Contact in February 2016 and the related increase in our indebtedness to finance that acquisition. You should read the following selected consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K.

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Year Ended
December 31,
2012
 
Year Ended
December 31,
2013
 
Year Ended
December 31,
2014
 
Year Ended
December 31,
2015
 
Year Ended
December 31,
2016
 
 
(in thousands)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
292,156

 
$
520,296

 
$
629,845

 
$
741,315

 
$
1,111,142

Cost of revenue (1)
 
237,179

 
350,103

 
381,488

 
425,035

 
583,991

Gross profit
 
54,977

 
170,193

 
248,357

 
316,280

 
527,151

Operating expense:
 
 
 
 
 
 
 
 
 
 
Sales and marketing
 
83,110

 
117,689

 
146,797

 
145,419

 
303,511

Engineering and development
 
13,803

 
23,205

 
19,549

 
26,707

 
87,601

General and administrative (3)
 
48,411

 
92,347

 
69,533

 
90,968

 
175,379

Total operating expense (2)
 
145,324

 
233,241

 
235,879

 
263,094

 
566,491

Income (loss) from operations
 
(90,347
)
 
(63,048
)
 
12,478

 
53,186

 
(39,340
)
Total other expense, net
 
(126,131
)
 
(98,327
)
 
(57,083
)
 
(52,974
)
 
(150,450
)
Income (loss) before income taxes and equity earnings of unconsolidated entities
 
(216,478
)
 
(161,375
)
 
(44,605
)
 
212

 
(189,790
)
Income tax expense (benefit)
 
(77,203
)
 
(3,596
)
 
6,186

 
11,342

 
(109,858
)
Loss before equity earnings of unconsolidated entities
 
(139,275
)
 
(157,779
)
 
(50,791
)
 
(11,130
)
 
(79,932
)
Equity loss of unconsolidated entities, net of tax
 
23

 
2,067

 
61

 
14,640

 
1,297

Net loss
 
$
(139,298
)
 
$
(159,846
)
 
$
(50,852
)
 
$
(25,770
)
 
$
(81,229
)
Net loss attributable to non-controlling interest
 

 
(659
)
 
(8,017
)
 

 
(8,398
)
Net loss attributable to Endurance International Group Holdings, Inc.
 
$
(139,298
)
 
$
(159,187
)
 
$
(42,835
)
 
$
(25,770
)
 
$
(72,831
)
Net loss per share attributable to Endurance International Group Holdings, Inc. basic and diluted
 
$
(1.44
)
 
$
(1.55
)
 
$
(0.34
)
 
$
(0.20
)
 
$
(0.55
)
Weighted average shares used to compute net loss per share attributable to Endurance International Group Holdings, Inc. basic and diluted
 
96,562,674

 
102,698,773

 
127,512,346

 
131,340,557

 
133,415,732

 
 
(1)
Includes stock-based compensation expense of $26,000, $126,000, $0.5 million, $2.0 million and $5.9 million, for the years ended December 31, 2012, 2013, 2014, 2015, and 2016, respectively. Also includes amortization expense of $88.1 million, $105.9 million, $102.7 million, $91.1 million and $143.6 million for the years ended December 2012, 2013, 2014, 2015 and 2016, respectively.
(2)
Includes stock-based compensation expense of $2.3 million, $10.6 million, $15.5 million, $27.9 million and $52.4 million for the years ended December 31, 2012, 2013, 2014, 2015 and 2016, respectively.
(3)
Includes transaction expenses of $21.9 million, $38.7 million, $4.8 million, $9.6 million, and $32.3 million for the years ended December 31, 2012, 2013, 2014, 2015, and 2016, respectively.

 
 
 
 
 
2012
 
2013
 
2014
 
2015
 
2016
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
23,245

 
$
66,815

 
$
32,379

 
$
33,030

 
$
53,596

Property and equipment, net
34,604

 
49,715

 
56,837

 
75,762

 
95,272

Working capital (deficit)
(203,853
)
 
(160,511
)
 
(274,726
)
 
(370,335
)
 
(362,677
)
Total assets
1,538,136

 
1,580,938

 
1,746,043

 
1,802,500

 
2,756,274

Current and long-term debt, net of original issuance discounts and deferred financing costs (1)
1,128,519

 
1,046,945

 
1,086,475

 
1,092,385

 
1,986,980

Current and long-term capital lease obligations

 

 
8,095

 
13,081

 
7,202

Total stockholders’ equity
70,155

 
155,262

 
174,496

 
179,674

 
124,383



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(1) Net of deferred financing costs of $1.5 million, $0.4 million, $0.4 million, $1.0 million and $43.3 million for the years ended December 31, 2012, 2013, 2014, 2015 and 2016, respectively, for the Company's retrospective adoption of ASU 2015-03: Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The year ended December 31, 2016 is also net of original issuance discount of $25.9 million.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview

We are a leading provider of cloud-based platform solutions designed to help small- and medium-sized businesses, or SMBs, succeed online. We serve approximately 5.37 million subscribers globally with a comprehensive suite of products and services that help SMBs get online, get found and grow their businesses. Historically, our products focused largely on web hosting and other basic web presence solutions such as domains, but over time we have expanded to offer security, site backup, premium domains, SEO and SEM, Google Adwords, mobile solutions, social media enablement, website analytics, email marketing and productivity and e-commerce tools, among others. More recently, we have launched additional products and services, including website builders, mobile site builders and new hosting brands, both to satisfy existing subscriber needs and to expand the product gateways through which new subscribers initially reach us. We refer to these newer products and services as “gateway products”.

On February 9, 2016, we acquired Constant Contact, Inc., or Constant Contact, a leading provider of online marketing tools that are designed for small organizations, for a total purchase price of approximately $1.1 billion.

Beginning with the fourth quarter and full year 2016, we are reporting our financial results in two reportable segments, web presence and email marketing. The web presence segment generally consists of the products we historically sold prior to the acquisition of Constant Contact, including web hosting, domains, and related web presence products and services, and the email marketing segment consists of the products and services historically offered by Constant Contact, principally email marketing solutions, but also including event marketing, survey tools and our SinglePlatform digital storefront product.

Our 2016 financial results reflected solid free cash flow and better than expected cost synergies from the Constant Contact acquisition, resulting in healthy performance by our email marketing segment, but were below our expectations as of the beginning of 2016 due to the underperformance of our web presence segment. Our web presence segment financial results for 2016 were negatively affected by new gateway products we introduced early in the year, which had higher subscriber acquisition costs and subscriber churn than we originally anticipated. In response to these results, we significantly reduced our marketing investments on gateway products during the second half of the year and have now stopped marketing most of these products altogether. Our web presence segment was also negatively impacted by relatively flat revenue and subscriber growth within our core hosting business, which resulted from several factors, including: flat marketing expenditures relative to 2015 in the first half of 2016 as a result of our focus on gateway products during that period; operational challenges that negatively impacted product, customer support and user experience for some of our key web hosting brands; and trends in the competitive landscape, including an increasing trend among consumers to search for web presence and marketing solutions using brand-related search terms rather than generic search terms such as “shared hosting” or “website builder”, which we believe has benefited competitors who have invested more heavily than we have on building consumer awareness of their brands.

In order to address the challenges we encountered in 2016, we plan to focus on the following areas for 2017:

strengthening our brands that generally attract subscribers with high long-term revenue potential, specifically Constant Contact, HostGator, iPage and Bluehost;
upgrading the product, customer support and user experience for our key web hosting brands and our website builder product, which we believe will improve customer satisfaction and retention;
consolidating and improving customer support, including by moving customer support for Bluehost from Utah to our customer support center in Tempe, Arizona;
growing our brand awareness for key brands, including through radio, podcasts and television marketing; and
various initiatives to expand revenue streams through expansion of our international business, cross-selling products between our two segments and other product initiatives.

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The success of these initiatives depends on a number of factors, including our ability to: successfully improve customer satisfaction and retention in our web presence segment by upgrading our products, customer support and user experience; transfer our Bluehost customer support operations to Tempe in a way that minimizes disruption to subscribers during the transition and positions us to provide a high level of service going forward; and make the engineering and product development changes necessary to facilitate increased cross-selling and other product initiatives. If we are unable to make the necessary upgrades and changes on our currently anticipated timeframe, if these upgrades and changes do not result in the anticipated improvements in customer satisfaction or retention, or if we encounter difficulties or delays in the transfer of Bluehost support to Tempe or in our efforts to consolidate and improve customer support generally, we may not see the results we expect from these initiatives or we may incur greater than expected costs or disruption to our subscribers, which could adversely affect our financial and operating results for the year. See “Risk Factors” for further discussion of the risks facing our business.

Summary of 2016 Results

The acquisition of Constant Contact, our increase in debt service related to the Constant Contact acquisition, our investments in our gateway products, and increases in stock-based compensation and impairment charges have had a material effect on our recent financial results. Changes in several key financial metrics are summarized below (in thousands):

 
Year Ended December 31, 2015
 
Year Ended December 31, 2016
Revenue
$
741,315

 
$
1,111,142

Net loss
$
(25,770
)
 
$
(81,229
)
Net cash provided by operating activities
$
177,228

 
$
154,961


Our revenue grew from $741.3 million for the year ended December 31, 2015 to $1.1 billion for the year ended December 31, 2016. Substantially all of this this revenue growth was due to the Constant Contact acquisition and to other acquisitions that closed after December 31, 2015. Revenue attributable to our business, excluding the effect of Constant Contact and other acquisitions, was negatively impacted by a number of factors, including those discussed in the "Overview" section above.

Our net loss grew from $25.8 million for the year ended December 31, 2015 to $81.2 million for the year ended December 31, 2016. This increase was primarily the result of increased costs incurred in connection with the acquisition of Constant Contact, including interest expense, transaction costs, amortization of intangible assets, and restructuring costs; increased stock-based compensation expense, including expense related to performance based grants of restricted stock; and increased marketing expenses, primarily related to new gateway product launches.

On July 13, 2016, we completed a restructuring of several of our majority-owned entities that were formed to promote our gateway products. The restructuring significantly reduced the potential redemption amount that would be payable to the minority shareholders of these entities in order for us to obtain 100% control of the entities, and gave us the flexibility to reduce investments in our gateway products. Based on these reduced investments, the estimated value of the non-controlling interest held by the minority shareholders is below the expected redemption amount of $25.0 million, which will result in $14.2 million of excess accretion that will reduce income available to common shareholders for the period starting on the date of the restructuring through the redemption date of July 1, 2017. We recognized excess accretion of $6.8 million for the year ended December 31, 2016, which is reflected in net income (loss) attributable to accretion of non-controlling interest in our consolidated statements of operations and comprehensive loss.

Cash provided by operations decreased by $22.3 million for the year ended December 31, 2016 compared to the year ended December 31, 2015. The decrease for the year is primarily due to transaction and restructuring costs incurred to acquire Constant Contact, higher marketing costs to promote gateway products and increased interest expense due to the debt incurred in connection with the acquisition of Constant Contact, which exceeded the operating cash flows contributed by Constant Contact.

Recent Developments

In January 2017, we announced plans to close certain facilities as part of a plan to consolidate web presence customer support operations, principally our Orem, Utah customer support center, which will be closed due to our planned transfer of

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Table of Contents

customer support operations for our Bluehost brand from Utah to our consolidated Tempe, Arizona customer support facility. As a result of this plan, we expect to incur approximately $8.0 million in charges during fiscal year 2017, mostly related to severance. This action is intended to result in an improved customer support experience. We do not expect a meaningful reduction in support costs from this move.

On January 30, 2017, we completed a registered exchange offer for our 10.875% senior notes due 2024, as required under the registration rights agreement we entered into in connection with our initial issuance of the notes in February 2016 as part of the financing arrangements for our acquisition of Constant Contact. All of the $350.0 million aggregate principal amount of the original notes was validly tendered for exchange.
Key Metrics
We use a number of metrics, including the following key metrics, to evaluate the operating and financial performance of our business, identify trends affecting our business, develop projections and make strategic business decisions:
 
total subscribers;
average revenue per subscriber ("ARPS");
adjusted EBITDA; and
free cash flow.

Adjusted EBITDA and free cash flow are non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flow that includes or excludes amounts that are included or 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 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.
The following table summarizes these key metrics by segment for the periods presented (in thousands, except ARPS):
 
 
Year Ended December 31,
 
2014
 
2015
 
2016
Consolidated metrics:
 
 
 
 
 
Total subscribers
4,087

 
4,669

 
5,371

Average subscribers
3,753

 
4,358

 
5,283

Average revenue per subscriber
$
13.98

 
$
14.18

 
$
17.53

Adjusted EBITDA
$
171,447

 
$
219,249

 
$
288,396

 
 
 
 
 
 
Web presence segment metrics:
 
 
 
 
 
Total subscribers
 
 
 
 
4,827

Average subscribers
 
 
 
 
4,789

Average revenue per subscriber
 
 
 
 
$
13.65

Adjusted EBITDA
 
 
 
 
$
172,135

 
 
 
 
 
 
Email marketing segment metrics:
 
 
 
 
 
Total subscribers
 
 
 
 
544

Average subscribers
 
 
 
 
494

Average revenue per subscriber
 
 
 
 
$
55.11

Adjusted EBITDA
 
 
 
 
$
116,261


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Figures for the year ended December 31, 2016 include the impact of Constant Contact since February 10, 2016, the day after the closing of the acquisition.

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. We refer to these adjustments in this discussion of total subscribers as “Adjustments”. For the fourth quarter of 2016, Adjustments had a net negative impact on our total subscriber count of approximately 33,000 subscribers. For 2016 as a whole, Adjustments had a net positive impact of approximately 59,000 subscribers, as shown in the table below.
Over time, we have expanded our marketing strategy globally to better target customers who are primarily seeking domain names, but who may have the potential to purchase a wider range of additional products and services from us once they are on our platform. As part of this effort, we offer to domain name customers a bundle that includes email, basic hosting, or other products and services in addition to a domain name. We include these customers in our total subscriber count as "light web presence" subscribers, which are further discussed below. As is customary in the industry, these packages are often significantly discounted for the initial term, with price increases applying on renewal. Although our goal with programs designed to attract domain focused subscribers is to expand our marketing funnel and achieve positive marketing yields through renewal at full price and sales of additional products, we may not be successful in achieving these outcomes. We continue to evaluate the results of these programs.

Our subscriber base also includes customers who subscribe to email service, domain privacy or certain other non-hosting subscription services which are generally lower-priced than our hosting packages. In the discussion below, we refer to these subscribers and subscribers on-boarded through the domain-focused programs described above as “light web presence” subscribers. As of December 31, 2016, light web presence subscribers accounted for approximately 506,000 of our total subscribers.

The table below shows the approximate sources of our subscriber growth by segment during 2015 and 2016 (all numbers in thousands). “Acquisitions” refers to the number of total subscribers we acquired due to acquisitions that we completed during the relevant year, as measured at the time of the acquisition.
 
Web Presence
Email Marketing
Total
 
# subscribers
% of growth (1)
# subscribers
% of growth (1)
# subscribers
% of growth (1)
Total Subscribers - December 31, 2014
4,087

 %

 %
4,087

 %
Acquisitions
158

27.1
 %

 %
158

27.1
 %
Light web presence subscribers
279

47.9
 %

 %
279

47.9
 %
Adjustments
90

15.5
 %

 %
90

15.5
 %
Core subscriber growth
55

9.5
 %

 %
55

9.5
 %
Total Subscribers - December 31, 2015
4,669

100.0
 %

 %
4,669

100.0
 %
Acquisitions
86

54.4
 %
566

104.0
 %
652

92.9
 %
Light web presence subscribers
62

39.2
 %

 %
62

8.8
 %
Adjustments
59

37.3
 %

 %
59

8.4
 %
Core subscriber growth
(49
)
(31.0
)%
(22
)
(4.0
)%
(71
)
(10.1
)%
Total Subscribers - December 31, 2016
4,827

100.0
 %
544

100
 %
5,371

100.0
 %
(1) Figures in this column show the approximate percentage contribution of each source of subscriber growth shown in the far left column (Acquisitions; Light web presence subscribers; Adjustments; and Core subscriber growth) to aggregate year over year growth in total subscribers.
2016 total subscriber growth was impacted by the factors noted in the "Overview" section above. Taken together, the portfolio of key brands that we plan to target for investment during 2017 (including, among others, Constant Contact,

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HostGator, iPage, Bluehost, and our site builder brand) showed positive net subscriber adds in the aggregate during 2016, but these positive net adds were outweighed by the negative impact of subscriber losses in non-strategic hosting brands, our cloud storage and backup solution, and discontinued gateway products such as our VPN product. We expect total subscribers to decrease overall and in our web presence segment during 2017, due primarily to the impact of subscriber churn in these non-strategic and discontinued brands. We expect total subscribers to remain flat to slightly down in our email marketing segment.
If we are not successful in addressing the factors that have contributed to our low growth in total subscribers during 2016 and our expected decrease in total subscribers during 2017, we may not be able to return to or maintain positive subscriber growth in the future, which could result in a material adverse effect on our business and financial results.
Average Revenue per Subscriber

Average revenue per subscriber, or ARPS, is a non-GAAP financial measure that we calculate 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. We believe ARPS is an indicator of our ability to optimize our mix of products and services and pricing and sell products and services to new and existing subscribers.
The following table reflects the calculation of ARPS (all data in thousands, except ARPS data):

 
Year Ended December 31,
 
2014
 
2015
 
2016
Consolidated revenue
$
629,845

 
$
741,315

 
$
1,111,142

Consolidated total subscribers
4,087

 
4,669

 
5,371

Consolidated average subscribers for the period
3,753

 
4,358

 
5,283

Consolidated average revenue per subscriber (ARPS)
$
13.98

 
$
14.18

 
$
17.53

 
 
 
 
 
 
Web presence revenue
 
 
 
 
$
784,334

Web presence subscribers
 
 
 
 
4,827

Web presence average subscribers
 
 
 
 
4,789

Web presence ARPS
 
 
 
 
$
13.65

 
 
 
 
 
 
Email marketing revenue
 
 
 
 
$
326,808

Email marketing subscribers
 
 
 
 
544

Email marketing average subscribers
 
 
 
 
494

Email marketing ARPS
 
 
 
 
$
55.11


ARPS does not represent an exact measure of the average amount a subscriber spends with us each month, because our calculation of ARPS includes all of our revenue, including revenue generated by non-subscribers, in the numerator. We have three principal sources of non-subscriber revenue:
Revenue from domain-only customers. We cannot separately quantify revenue attributable to domain-only customers, who are customers that only purchase a domain name from us. Our subscriber definition does not include domain-only customers, which results in generally higher overall ARPS as our revenue used to compute ARPS includes revenue from domain-only customers. Although we cannot separately quantify revenue attributable to domain-only customers, we can measure the total amount of our revenue from domains. Our total revenue from domains, all of which was in our web presence segment, was $91.3 million, $125.2 million, and $127.4 million for the years ended December 31, 2014, 2015 and 2016, respectively.
Domain monetization revenue. This consists principally of revenue from our BuyDomains brand, which provides premium domain name products and services, and, to a lesser extent, revenue from advertisements placed on unused domains (often referred to as “parked” pages) owned by us or our customers.
Revenue from marketing development funds. Marketing development funds are the amounts that certain of our partners pay us to assist in and incentivize our marketing of their products.

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A portion of our revenue is generated from customers that resell our services. We refer to these customers as “resellers.” We consider these resellers (rather than the end user customers of these resellers) to be subscribers under our total subscribers definition, because we do not have a billing relationship with the end users and cannot determine the number of end users acquiring our services through a reseller. A majority of our reseller revenues is for the purchase of domains and is included in the figures shown above for total revenue from domains. Our reseller revenues, excluding the portion included in total revenue from domains, were $23.5 million, $25.4 million and $28.1 million for 2014, 2015 and 2016, respectively. All of our reseller revenues are in our web presence segment.
The table below quantifies, on a consolidated basis and by segment, 2016 domain monetization and marketing development fund revenue (all data in thousands, except ARPS data):
 
 
Year Ended December 31,
 
 
2014
 
2015
 
2016
Consolidated
 
 
 
 
 
 
Marketing development fund revenue
 
$
9,112

 
$
12,958

 
$
10,150

Marketing development funds - contribution to ARPS
 
$
0.20

 
$
0.25

 
$
0.16

Domain monetization revenue
 
$
19,147

 
$
39,588

 
$
29,282

Domain monetization revenue - contribution to ARPS
 
$
0.43

 
$
0.76

 
$
0.46

 
 
 
 
 
 
 
Web presence
 
 
 
 
 
 
Marketing development fund revenue
 
 
 
 
 
$
9,901

Marketing development funds - contribution to ARPS
 
 
 
 
 
$
0.17

Domain monetization revenue
 
 
 
 
 
$
29,282

Domain monetization revenue - contribution to ARPS
 
 
 
 
 
$
0.51

 
 
 
 
 
 
 
Email marketing
 
 
 
 
 
 
Marketing development fund revenue
 
 
 
 
 
$
249

Marketing development funds - contribution to ARPS
 
 
 
 
 
$
0.04

For the years ended December 31, 2015 and 2016, consolidated ARPS increased from $14.18 to $17.53, respectively. This increase in ARPS was driven by our email marketing segment due to the acquisition of Constant Contact, which has higher ARPS than the rest of our business, partially offset by lower ARPS from our web presence segment.

Web presence ARPS decreased from $14.18 to $13.65 for the year ended December 31, 2016, due to decreases in domain monetization and marketing development fund revenue, light web presence subscribers and subscribers coming to our platform through lower priced gateway products. Domain monetization revenue decreased in 2016 primarily because there were fewer high-value domains available for sale in our BuyDomains portfolio as compared to 2015.

Email marketing APRS was $55.11 for the period ended December 31, 2016, and was adversely impacted by the application of purchase accounting, which reduced revenue and negatively impacted recognized revenue for this segment by $15.2 million during the year ended December 31, 2016, resulting in a reduction in ARPS of $2.56. Our definition of total subscribers is different from the pre-acquisition subscriber definition previously used by Constant Contact because our definition only counts customers who have a direct billing relationship with us. As a result, the total subscriber count for the email marketing segment is approximately 15% lower than the count that would have resulted from using Constant Contact's pre-acquisition subscriber definition, which resulted in a corresponding increase in ARPS.

Consolidated ARPS increased from $13.98 for the year ended December 31, 2014 to $14.18 for the year ended December 31, 2015. The primarily factors in this increase were increased revenue from non-subscribers, which added $0.38 to ARPS, and the impact of purchase accounting on deferred revenues related to acquisitions. Purchase accounting contributed $0.39 to the year over year increase in ARPS because it reduced ARPS more significantly in 2014 than it did in 2015. These increases in ARPS were partially offset by an increase in light web presence subscribers.

  Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), excluding the impact of

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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, and impairment of other long-lived assets. We view adjusted EBITDA as a performance measure and believe it helps investors evaluate and compare our core operating performance from period to period.
The following table reflects the reconciliation of adjusted EBITDA to net loss calculated in accordance with GAAP for the periods presented.

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Year Ended December 31,
 
2014
 
2015
 
2016
Consolidated
(in thousands)
Net loss
$
(50,852
)
 
$
(25,770
)
 
$
(81,229
)
Interest expense, net (including impact of amortization of deferred financing costs and original issuance discount)
57,083

 
58,414

 
152,312

Income tax expense (benefit)
6,186

 
11,342

 
(109,858
)
Depreciation
30,956

 
34,010

 
60,360

Amortization of other intangible assets
102,723

 
91,057

 
143,562

Stock-based compensation
16,043

 
29,925

 
58,267

Restructuring expenses
4,460

 
1,489

 
24,224

Transaction expenses and charges
4,787

 
9,582

 
32,284

(Gain) loss of unconsolidated entities(1)
61

 
9,200

 
(565
)
Impairment of other long lived assets

 

 
9,039

Adjusted EBITDA
$
171,447

 
$
219,249

 
$
288,396

 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 


 


 
2016
Web presence
 
 
 
 
(in thousands)
Net loss
 
 
 
 
$
(25,372
)
Interest expense, net (including impact of amortization of deferred financing costs and original issuance discount)
 
 
 
 
70,843

Income tax expense (benefit)
 
 
 
 
(76,315
)
Depreciation
 
 
 
 
36,613

Amortization of other intangible assets
 
 
 
 
78,883

Stock-based compensation
 
 
 
 
45,864

Restructuring expenses
 
 
 
 
1,845

Transaction expenses and charges
 
 
 
 
31,300

(Gain) loss of unconsolidated entities(1)
 
 
 
 
(565
)
Impairment of other long lived assets
 
 
 
 
9,039

Adjusted EBITDA


 



$
172,135

 
 
 
 
 
 
 

 
 
 
Year Ended December 31,
 

 

 
2016
 

 
 
 
(in thousands)
Email marketing
 
 
 
 
 
Net loss


 


 
$
(55,857
)
Interest expense, net (including impact of amortization of deferred financing costs and original issuance discount)


 


 
81,469

Income tax expense (benefit)


 


 
(33,543
)
Depreciation


 


 
23,747

Amortization of other intangible assets


 


 
64,679

Stock-based compensation


 


 
12,403

Restructuring expenses


 


 
22,379

Transaction expenses and charges


 


 
984

Adjusted EBITDA


 


 
$
116,261





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(1)
The (gain) loss of unconsolidated entities is reported on a net basis for the years ended December 31, 2015 and 2016. The year ended December 31, 2015 includes our proportionate share of net losses from unconsolidated entities of $14.6 million, partially offset by the $5.4 million gain for the redemption of our equity interest in World Wide Web Hosting (Site5). The year ended December 31, 2016 includes a loss of $4.8 million on our investment in AppMachine. This loss was generated on July 27, 2016, when we increased our ownership stake in AppMachine from 40% to 100%, which required a revaluation of our existing investment to its implied fair value. The year ended December 31, 2016 also includes an $11.4 million gain on our investment in WZ UK. This gain was generated on January 6, 2016, when we increased our ownership stake in WZ UK from 49% to 57.5%, which required a revaluation of our existing investment to its implied fair value. The year ended December 31, 2016 also includes a loss of $4.7 million on the impairment of our 33% equity investment in Fortifico Limited. Finally, the year ended December 31, 2016 also includes a net loss of $1.3 million from our proportionate share of net losses from unconsolidated entities.

Net loss on a consolidated basis, and from the web presence segment, decreased from $50.9 million for the year ended December 31, 2014 to $25.8 million for the year ended December 31, 2015 primarily as a result of our revenue growth, including revenue growth associated with acquisitions and a reduction in amortization of intangible assets. The impact of these factors was partially offset by increased investments in engineering and development and higher stock-based compensation expense, which primarily impacted general and administrative expenses.

Net loss on a consolidated basis increased from $25.8 million for the year ended December 31, 2015 to $81.2 million for the year ended December 31, 2016. Most of this increase was the result of increased costs incurred primarily in connection with our acquisition of Constant Contact, including increased interest expense of $93.9 million, increased transaction costs of $22.7 million, increased amortization of intangible assets of $52.5 million and restructuring expenses of $22.7 million to integrate operations. Additionally, we incurred higher stock-based compensation expenses of $28.3 million due to increased equity awards, including a $5.1 million increase related to grants of performance-based restricted stock to executive officers, and new awards due to our Constant Contact acquisition of $12.4 million. We also increased our marketing expenses to launch our new gateway products, which increased net loss by $59.0 million, and incurred impairment charges totaling $9.0 million. These increases in our costs were partially offset by an income tax benefit of $109.9 million and by increased operating profit due primarily to the acquisition of Constant Contact, and to a lesser extent to growth in other parts of our business.

Net loss for our web presence segment decreased slightly from $25.8 million for the year ended December 31, 2015 to $25.4 million for the year ended December 31, 2016. This decrease was primarily due an income tax benefit of $76.3 million, lower amortization expense of $12.2 million, reduced losses from unconsolidated entities of $9.8 million and improved profitability from certain web presence products, which was partially offset by $59.0 million in net losses incurred to launch our new gateway products, $21.7 million of higher transaction costs to acquire Constant Contact, higher stock-based compensation expense of$15.9 million, mainly due to increased grants of awards, increased interest expense of $12.4 million and impairment charges of $9.0 million.

Net loss for our email marketing segment for the year ended December 31, 2016 was $55.9 million, all of which pertained to the acquisition of Constant Contact.

Adjusted EBITDA on a consolidated basis, and for the web presence segment, increased from $171.4 million for the year ended December 31, 2014 to $219.2 million for the year ended December 31, 2015. This increase in adjusted EBITDA was primarily a result of the factors resulting in our reduced net loss during this period, as described above.

Adjusted EBITDA on a consolidated basis increased from $219.2 million for the year ended December 31, 2015 to $288.4 million for the year ended December 31, 2016. Substantially all of this increase is attributable to our email marketing segment due to the acquisition of Constant Contact, which was partially offset by losses incurred by our web presence segment to launch new gateway products.

Adjusted EBITDA for our email marketing segment for the year ended December 31, 2016 was $116.3 million, and is entirely attributable to our acquisition of Constant Contact. Email marketing adjusted EBITDA was adversely impacted by the purchase accounting write-down of acquired deferred revenues, which decreased revenue by $15.2 million for the year ended December 31, 2016. Email marketing adjusted EBITDA for the pre-acquisition period from January 1, 2016 through February 9, 2016 was $7.9 million. Email marketing adjusted EBITDA separately reported by Constant Contact (adjusted to conform to our definition of adjusted EBITDA) for the year ended December 31, 2015 was $72.4 million. The increase in email marketing adjusted EBITDA is primarily the result of cost reduction actions undertaken following the acquisition. The following table reflects the reconciliation of adjusted EBITDA to net loss calculated in accordance with GAAP for the periods presented for Constant Contact for the pre-acquisition periods from January 1, 2016 through February 9, 2016 and for the year ended December 31, 2015:

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Email marketing segment
 
For the pre-acquisition period from January 1, 2016 through February 9, 2016
 
For the pre-acquisition year ended December 31, 2015
 
 
(in thousands)
Net income (loss)
$
(8,038
)
 
$
19,190

 
Interest expense (income), net

 
(317
)
 
Income tax expense (benefit)
(6,023
)
 
7,998

 
Depreciation
2,721

 
23,313

 
Amortization of other intangible assets
138

 
1,583

 
Stock-based compensation
1,809

 
18,040

 
Transaction expenses and charges
17,281

 
2,561

 
Adjusted EBITDA
$
7,888

 
$
72,368

 

Adjusted EBITDA for our web presence segment decreased from $219.2 million for the year ended December 31, 2015 to $172.1 million for the year ended December 31, 2016. This decrease is the result of higher marketing investments in our gateway products, which negatively impacted adjusted EBITDA by $55.8 million, and lower non-subscriber revenues of $13.1 million, primarily because there were fewer high-value domains available for sale in our BuyDomains portfolio as compared to 2015. These decreases were partially offset by increased adjusted EBITDA from our other web presence brands.

Free Cash Flow

For a discussion of free cash flow, see "Liquidity and Capital Resources".
Components of Operating Results
Revenue
We generate revenue primarily from selling subscriptions for our cloud-based products and services. The subscriptions we offer are similar across all of our brands and are provided under contracts pursuant to which we have ongoing obligations to support the subscriber. These contracts are generally for service periods of up to 36 months and typically require payment in advance at the time of initiating the subscription for the entire subscription period. Typically, we also have arrangements in place to auto renew a subscription at the end of the subscription period. Due to factors such as introductory pricing, our renewal fees may be higher than our initial subscription. Our web presence segment sells more subscriptions with 12 month terms than with any other term length, while our email marketing segment sells subscriptions that are mostly one-month terms. We also earn revenue from the sale of domain name registrations, premium domains and non-term based products and services, such as certain online security products and professional technical services as well as through referral fees and commissions. We expect our revenue to increase modestly in future periods.

Cost of Revenue
Cost of revenue includes costs of operating our subscriber support organization, fees we pay to register domain names for our subscribers, costs of operating our data center infrastructure, such as technical personnel costs associated with monitoring and maintaining our network operations, fees we pay to third-party product and service providers, and merchant fees we pay as part of our billing processes. We also allocate to cost of revenue the depreciation and amortization related to these activities and the intangible assets we have acquired, as well as a portion of our overhead costs attributable to our employees engaged in subscriber support activities. In addition, cost of revenue includes stock-based compensation expense for employees engaged in support and network operations. We expect cost of revenue to increase in absolute dollars in future periods as we increase our revenue, particularly in the near term during 2017, since we will incur overlapping customer support costs as we transition our Utah customer support location to Tempe, Arizona. We generally expect cost of revenue to decrease as a percentage of revenue due to decreasing amortization expense on our intangible assets.
Gross Profit
Gross profit is the difference between revenue and cost of revenue. Gross profit has fluctuated from period to period in large part as a result of revenue and cost of revenue adjustments from purchase accounting impacts related to acquisitions, as

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well as revenue and cost of revenue impacts from growth in our business. With respect to revenue, the application of purchase accounting requires us to record purchase accounting adjustments for acquired deferred revenue, which reduces the revenue recorded from acquisitions for a period of time after the acquisition. The impact generally normalizes within a year following the acquisition. With respect to cost of revenue, the application of purchase accounting requires us to defer domain registration costs, which reduces cost of revenue, and record long-lived assets at fair value, which increases cost of revenue through an increase in amortization expense over the estimated useful life of the long-lived assets. In addition, our revenue and our cost of revenue have increased in recent years as our subscriber base has expanded. For a new subscriber that we bring on to our platform, we typically recognize revenue over the term of the subscription, even though we collect the subscription fee at the initial billing. As a result, our gross profit may be affected by the prices we charge for our subscriptions, as well as by the number of new subscribers and the terms of their subscriptions. We expect our gross profit to increase in absolute dollars in future periods, and that our gross profit margin will also increase as amortization expense related to our intangible assets declines.
Operating Expense
We classify our operating expense into three categories: sales and marketing, engineering and development, and general and administrative. In 2016, we started breaking out transaction expenses due to the significance of the costs incurred to acquire Constant Contact. Although our operating expenses will increase as a result of the Constant Contact acquisition, we achieved approximately $70.0 million in cost synergies for the combined business, with a majority of those cost reductions impacting operating expenses. In connection with these cost reduction plans, we incurred approximately $22.2 million of restructuring charges through the year ended December 31, 2016, consisting of severance and facility exit related charges.
Sales and Marketing
Sales and marketing expense primarily consists of costs associated with bounty payments to our network of online partners, SEM and SEO, general awareness and brand building activities, as well as the cost of employees engaged in sales and marketing activities. Sales and marketing expense also includes costs associated with sales of products as well as stock-based compensation expense for employees engaged in sales and marketing activities. Sales and marketing expense as a percentage of revenue may increase or decrease in a given period, depending on the cost of attracting new subscribers to our solutions, changes in how we invest in different subscriber acquisition channels, changes in how we approach SEM and SEO and the extent of general awareness and brand building activities we may undertake, as well as the efficiency of our sales and support personnel and our ability to sell more products and services to our subscribers and drive favorable returns on invested marketing dollars. We expect our sales and marketing in 2017 to remain relatively flat relative to 2016 as we decrease our spend on our gateway products and incur a full year of sales and marketing expense from Constant Contact.
Engineering and Development
Engineering and development expense includes the cost of employees engaged in enhancing our technology platform and our systems, developing and expanding product and service offerings, and integrating technology capabilities from our acquisitions. Engineering and development expense includes stock-based compensation expense for employees engaged in engineering and development activities. Our engineering and development expense does not include costs of leasing and operating our data center infrastructure, such as technical personnel costs associated with monitoring and maintaining our network operations and fees we pay to third-party product and service providers, which are included in cost of revenue. We expect that our engineering and development spend will grow moderately in 2017 in absolute dollars relative to 2016 as we incur a full year of engineering and development expense from Constant Contact.
General and Administrative
General and administrative expense includes the cost of employees engaged in corporate functions, such as finance and accounting, human resources, legal and executive management. General and administrative expense also includes all facility and related overhead costs not allocated to cost of revenue, as well as insurance premiums, professional service fees, and costs incurred related to regulatory and litigation matters. General and administrative expense also includes stock-based compensation expense for employees engaged in general and administrative activities. We expect that our general and administrative expenses will grow moderately in 2017 relative to 2016 because we will have a full year of general and administrative expenses from Constant Contact.
Other Income (Expense)
Other income (expense) consists primarily of costs related to, and interest paid on, our indebtedness. We include in our calculation of interest expense the cash cost of interest payments and loan financing fees, the amortization of deferred financing

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costs and the amortization of the net present value adjustment which we may apply to some deferred consideration payments related to our acquisitions. Interest income consists primarily of interest income earned on our cash and cash equivalents balances. We expect our interest expense to increase in 2017 as we will have a full year of the new debt that we incurred in connection with our acquisition of Constant Contact. Other income (expense) also includes gains or losses recognized on investments in unconsolidated entities.
Income Tax Expense (Benefit)
We estimate our income taxes in accordance with the asset and liability method, under which deferred tax assets and liabilities are recognized based on temporary differences between the assets and liabilities in our consolidated financial statements and the financial statements that are prepared in accordance with tax regulations for the purpose of filing our income tax returns, using statutory tax rates. This methodology requires us to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the reported periods. We base our estimates, judgments and assumptions on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from the estimates, judgments and assumptions made by our management. To the extent that there are differences between our estimates, judgments and assumptions and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows may be affected.
We believe that the following significant accounting policies, which are more fully described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. We believe that our critical accounting policies and estimates are the assumptions and estimates associated with the following:
 
revenue recognition,
goodwill,
long-lived assets,
business combinations,
derivative instruments,
depreciation and amortization,
income taxes
stock-based compensation arrangements, and
segment information.
Revenue Recognition
We generate revenue primarily from selling subscriptions to our cloud-based products and services. The subscriptions we offer are similar across all of our brands and are provided under contracts pursuant to which we have ongoing obligations to support the subscriber. These contracts are generally for service periods of up to 36 months and typically require payment in advance. We recognize the associated revenue ratably over the service period, whether the associated revenue is derived from a direct subscriber or through a reseller. Deferred revenue represents the liability to subscribers for advance billings for services not yet provided and the fair value of the assumed liability outstanding for subscriber relationships purchased in an acquisition.
We sell domain name registrations that provide a subscriber with the exclusive use of a domain name. These domains are obtained either by one of our registrars on the subscriber’s behalf, or by us from third-party registrars on the subscriber’s behalf. Domain registration fees are non-refundable.

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Revenue from the sale of a domain name registration by one of our registrars is recognized ratably over the subscriber’s service period as we have the obligation to provide support over the domain term. Revenue from the sale of a domain name registration purchased by us from a third-party registrar is recognized when the subscriber is billed on a gross basis as we have no remaining obligations once the sale to the subscriber occurs, and we have full discretion on the sales price and bear all credit risk.
Revenue from the sale of premium domains is recognized when persuasive evidence of an arrangement to sell such domains exists, delivery of an authorization key to access the domain name has occurred, the fee for the sale of the premium domain is fixed or determinable, and collection of the fee for the sale of the premium domain is deemed probable.

We also earn revenue from the sale of non-term based products and services, such as online security products and professional technical services, referral fees and commissions. We recognize such revenue when the product is purchased, the service is provided or the referral fee or commission is earned.
A substantial amount of our revenue is generated from transactions that are multiple-element service arrangements that may include hosting plans, domain name registrations, and other cloud-based products and services.
We follow the provisions of the Financial Accounting Standards Board, or FASB, Accounting Standards Update No. 2009-13, or ASU 2009-13, Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force, and allocate revenue to each deliverable in a multiple- element service arrangement based on its respective relative selling price.
Under ASU 2009-13, to treat deliverables in a multiple-element service arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, we account for each deliverable separately. Hosting services, domain name registrations, cloud-based products and services have standalone value and are often sold separately.
When multiple deliverables included in a multiple-element service arrangement are separated into different units of accounting, the total transaction amount is allocated to the identified separate units based on a relative selling price hierarchy. We determine the relative selling price for a deliverable based on vendor specific objective evidence, or VSOE, of fair value, if available, or best estimate of selling price, or BESP, if VSOE is not available. We have determined that third-party evidence of selling price, or TPE, is not a practical alternative due to differences in our multi-brand offerings compared to competitors and the availability of relevant third-party pricing information. We have not established VSOE for our offerings due to lack of pricing consistency, the introduction of new products, services and other factors. Accordingly, we generally allocate revenue to the deliverables in the arrangement based on the BESP. We determine BESP by considering our relative selling prices, competitive prices in the marketplace and management judgment; these selling prices, however, may vary depending upon the particular facts and circumstances related to each deliverable. We analyze the selling prices used in our allocation of transaction amount, at a minimum, on a quarterly basis. Selling prices will be analyzed on a more frequent basis if a significant change in our business necessitates a more timely analysis.
We maintain a reserve for refunds and chargebacks related to revenue that has been recognized and is expected to be refunded. We had a refund and chargeback reserve of $0.5 million and $0.6 million as of December 31, 2015 and 2016, respectively. The portion of deferred revenue that is expected to be refunded at December 31, 2015 and 2016 was $1.8 million and $2.1 million, respectively. Based on refund history, approximately 81% of all refunds happen in the same fiscal month that the customer contract starts or renews, and approximately 94% of all refunds happen within 45 days of the contract start or renewal date.
Goodwill
Goodwill relates to amounts that arose in connection with our various acquisitions and represents the difference between the purchase price and the fair value of the identifiable intangible and tangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but is subject to periodic review for impairment. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, a decline in the equity value of the business, a significant adverse change in certain agreements that would materially affect reported operating results, business climate or operational performance of the business and an adverse action or assessment by a regulator.
In accordance with Accounting Standards Update No. 2011-08, or ASU 2011-08, Intangibles—Goodwill and Other (Topic 350) Testing Goodwill for Impairment, we are required to review goodwill by reporting unit for impairment at least

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annually or more often if there are indicators of impairment present. Under U.S. GAAP, a reporting unit is either the equivalent of, or one level below, an operating segment. During 2016, we determined that we have two reporting units, and each unit is its own reporting segment. Changes in operations may cause us to evaluate our conclusion on operating segments and reporting units. We perform our annual impairment analysis as of December 31 each year. The provisions of ASU 2011-08 require us to perform a two-step impairment test for goodwill. In the first step, we compare the fair value of each reporting unit to which goodwill has been allocated to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we record an impairment loss equal to the difference. We have assessed fair value based on current market capitalization. As of December 31, 2015 and 2016, the fair value of both of our reporting units exceeded the carrying value of the reporting unit’s net assets and, therefore, no impairment existed as of these dates.
As of December 31, 2016, we had goodwill of $1.3 billion in our web presence reporting unit and $604.3 million in our email marketing unit, for a total goodwill of $1.9 billion. We did not recognize any impairment of goodwill in either of our reporting units for the years ended December 31, 2014, 2015 or 2016.
Long-Lived Assets
Our long-lived assets consist primarily of intangible assets, including acquired subscriber relationships, trade names, intellectual property, developed technology, domain names available for sale and in-process research and development ("IPR&D"). We also have long-lived tangible assets, primarily consisting of property and equipment. The majority of our intangible assets have been recorded in connection with our acquisitions, including the acquisition of a controlling interest in our company by investment funds and entities affiliated with Warburg Pincus and Goldman, Sachs & Co, which we refer to as the Sponsor Acquisition. We record intangible assets at fair value at the time of their acquisition. We amortize intangible assets over their estimated useful lives.
Our determination of the estimated useful lives of the individual categories of intangible assets is based on the nature of the applicable intangible asset and the expected future cash flow to be derived from the intangible asset. We amortize intangible assets with finite lives in accordance with their estimated projected cash flows.
We evaluate long-lived intangible and tangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment are present and undiscounted future cash flows is less than the carrying amount, then we determine the fair value of the assets and compare it to the carrying value. If the fair value is less than the carrying value, then we reduce the carrying value to the estimated fair value and record an impairment loss in the period it is identified.
We did not recognize any impairments of long-lived intangible and tangible assets in the years ended December 31, 2014 and 2015.

During the year ended December 31, 2016, we determined that a portion of an internally developed software tool would not meet our needs following the acquisition of Constant Contact, resulting in an impairment charge of $2.0 million which was recorded in engineering and development expense in the consolidated statements of operations and comprehensive loss in our web presence segment.

Additionally, we recognized an impairment charge of $4.9 million for technology assets related to Webzai, which was recorded in engineering and development expense in the consolidated statements of operations and comprehensive loss in our web presence segment.
Indefinite life intangibles include domain names that are available for sale which are recorded at cost to acquire. These assets are not being amortized and are being tested for impairment annually and whenever events or changes in circumstance indicate that their carrying value may not be recoverable. When a domain name is sold, we record the cost of the domain in cost of revenue.
Acquired IPR&D represents the fair value assigned to research and development that we acquire that has not been completed at the date of acquisition. Acquired IPR&D is capitalized as an intangible asset and reviewed on a quarterly basis to determine future use. Any impairment loss of acquired IPR&D is charged to expense in the period the impairment is identified.

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Upon commercialization, the acquired fair value of the IPR&D will be reclassified to developed technology and amortized over its useful life. No such impairment losses were identified during the years ended December 31, 2014 or 2015.

During the year ended December 31, 2016, we incurred total charges of $2.2 million to impair certain acquired IPR&D relating to projects that were abandoned in favor of other projects. This consisted of a charge of $1.4 million and $0.8 million to impair certain acquired IPR&D projects from the Webzai and AppMachine acquisitions, respectively.

Derivative Instruments
Accounting Standards Codification 815, or ASC 815, Derivatives and Hedging, provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain our objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, we record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.
In accordance with the FASB’s fair value measurement guidance in Accounting Standards Update No. 2011-04, or ASU 2011-04, Fair Value Measurement (Topic 820), we made an accounting policy election to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Business Combinations
We account for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
Significant judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within our operating results.
Changes in the fair value of a contingent consideration resulting from a change in the underlying inputs are recognized in results of operations until the arrangement is settled.
Depreciation and Amortization
We purchase or build the servers we place in our data centers, one of which we own and the remainder of which we occupy pursuant to various lease or co-location arrangements. We also purchase the computer equipment that is used by our support and sales teams and employees in our offices. We capitalize the build-out of our facilities as leasehold improvements.

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Cost of revenue includes depreciation on data center equipment and support infrastructure. We also include depreciation in general and administrative expense, which includes depreciation on office equipment and leasehold improvements.
Amortization expense consists of expense related to the amortization of intangible long-lived assets. In connection with our acquisitions, we allocate fair value to acquired long-lived intangible assets, which include subscriber relationships, trade names and developed technology. We use estimates and valuation techniques to determine the estimated useful lives of our intangible assets and amortize them to cost of revenue.
Income Taxes
We provide for income taxes in accordance with Accounting Standards Codification 740, or ASC 740, Accounting for Income Taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates that we expect to apply to taxable income in the years in which we expect those temporary differences to be recovered or settled. We recognize the effect of changes in tax rates on deferred tax assets and liabilities in the period that includes the enactment date.
ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. We recognize the effect of income tax positions only if those positions are more likely than not to be sustained. We measure recognized income tax positions at the largest amount that is more likely than not to be realized. We reflect changes in recognition or measurement in the period in which the change in judgment occurs. There were no unrecognized tax benefits in the years ended December 31, 2014, 2015 or 2016.
We record interest related to unrecognized tax benefits in interest expense and penalties in operating expense. We did not recognize any interest or penalties related to unrecognized tax benefits during the years ended December 31, 2014, 2015 or 2016.

In 2014, a significant amount of our GAAP foreign losses were generated by our subsidiaries organized in the United Kingdom and the United Arab Emirates (the "U.A.E."). In 2014, the foreign rate differential predominantly relates to these jurisdictions. Our foreign rate differential in 2014 has a negative impact on our expected benefit since the majority of the foreign losses are generated in jurisdictions where the statutory tax rate is lower than the U.S. statutory rate – specifically the United Kingdom, which had a statutory tax rate of 20% and represents $22.5 million of our foreign losses, and the U.A.E., which has a statutory tax rate of 0% and represents $6.2 million of our foreign losses.
 
In 2015, a significant amount of our GAAP foreign losses were generated by our subsidiaries in the U.A.E. and Israel. The foreign rate differential in 2015 predominantly related to these jurisdictions. Our foreign rate differential in 2015 had a negative impact on our expected tax expense since the majority of the foreign losses are generated in jurisdictions where the statutory tax rate is lower than the U.S. statutory rate – specifically the U.A.E., which has a statutory tax rate of 0% and represents $2.4 million of our foreign losses, and Israel, which had a statutory tax rate of 26.5% and represents $2.5 million of our foreign losses.
 
In 2016, a significant amount of our GAAP foreign losses were generated by our subsidiaries in the United Kingdom, U.A.E. and Israel. The foreign rate differential in 2016 predominantly related to these jurisdictions. Our foreign rate differential in 2016 had a negative impact on our expected tax expense since the majority of the foreign losses are generated in jurisdictions where the statutory tax rate is lower than the U.S. statutory rate – specifically the United Kingdom, which has a statutory tax rate of 18% and represents $43.8 million of our foreign losses, the U.A.E., which has a statutory tax rate of 0% and represents $2.1 million of our foreign losses, and Israel, which has a statutory tax rate of 25% and represents $8.3 million of our foreign losses.
We describe our accounting treatment of taxes more fully in Note 14 of the notes to the consolidated financial statements in this Annual Report on Form 10-K.
Stock-Based Compensation Arrangements
Accounting Standards Codification 718, or ASC 718, Compensation—Stock Compensation, requires employee stock-based payments to be accounted for under the fair value method. Under this method, we are required to record compensation cost based on the estimated fair value for stock-based awards granted over the requisite service periods for the individual awards, which generally equals the vesting periods. We use the straight-line amortization method for recognizing stock-based compensation expense.

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We estimate the fair value of employee stock options on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective estimates and assumptions. For restricted stock awards granted by us we estimate the fair value of each restricted stock award based on the closing trading price of our common stock as reported on the NASDAQ Global Select Market on the date of grant. There was no public market for our common stock prior to October 25, 2013, the date our common stock began trading on the NASDAQ Global Select Market, and as a result, the trading history of our common stock was limited through December 31, 2016. Therefore, we determined the volatility for options granted by us based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted by us has been determined using an average of the historical volatility measures of this peer group of companies. The expected life assumption is based on the “simplified method” for estimating expected term as we do not have sufficient historical option exercises to support a reasonable estimate of the expected term. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. We use an expected dividend rate of zero as we currently have no history or expectation of paying dividends on our common stock.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of excess tax benefits in the consolidated statements of cash flows. This amendment is effective for annual periods beginning after December 15, 2016, and early adoption is permitted.

We elected to early adopt the new guidance in the fourth quarter of fiscal year 2016 which requires us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. We elected to eliminate the forfeiture rate estimate and adopted the new policy to account for forfeitures in the period that they are incurred, and applied this policy on a modified retrospective basis. The impact of eliminating the forfeiture rate estimate increased stock compensation expense recorded in 2016 by $0.9 million, which included an immaterial adjustment to beginning retained earnings that we recorded through the consolidated statement of operations and comprehensive loss.

Prior to January 1, 2016, we recognized the excess tax benefits of stock-based compensation expense as additional paid-in capital (“APIC”), and tax deficiencies of stock-based compensation expense in the income tax provision or as APIC to the extent that there were sufficient recognized excess tax benefits previously recognized. As a result of the prior guidance that excess tax benefits reduce taxes payable prior to being recognized as an increase in paid in capital, we had not recognized certain deferred tax assets (all tax attributes such as loss or credit carryforwards) that could be attributed to tax deductions related to equity compensation in excess of compensation recognized for financial reporting.

Effective as of January 1, 2016, we early adopted a change in accounting policy in accordance with ASU 2016-09 to account for excess tax benefits and tax deficiencies as income tax expense or benefit, treated as discrete items in the reporting period in which they occur, and to recognize previously unrecognized deferred tax assets that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized for financial reporting. No prior periods were restated as a result of this change in accounting policy as we previously maintained a valuation allowance against our deferred tax assets that could be attributed to equity compensation in excess of compensation recognized for financial reporting.

Due to our net shortfall position at the time of adoption, the new standard resulted in the recognition of income tax expense in our provision for income taxes of $0.9 million rather than paid-in capital for the year ended December 31, 2016.  The adoption of ASU 2016-09 could create volatility in our future effective tax rate.

Segment Information

In February 2016, we acquired Constant Contact. At the time of the acquisition, we anticipated that the gross margins of Constant Contact would become more aligned with our other brands; however, through review of Constant Contact's performance during 2016, we noted that Constant Contact continued to return higher margins than originally anticipated, and therefore determined that Constant Contact should be its own reporting segment. As such, we determined that we have two reportable segments: the web presence segment, which consists primarily of our web hosting brands and related products such as domain names, website security tools, website design tools and services, ecommerce tools and other services designed to grow the online presence of a small business; and the email marketing segment, which consists of the Constant Contact email marketing tools and the SinglePlatform marketing tool, both of which were acquired in the February 2016 acquisition of Constant Contact.

Results of Operations

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The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.
 
 
Year Ended December 31,
 
2014
 
2015
 
2016
 
(in thousands)
Revenue
$
629,845

 
$
741,315

 
$
1,111,142

Cost of revenue
381,488

 
425,035

 
583,991

Gross profit
248,357

 
316,280

 
527,151

Operating expense:
 
 
 
 
 
Sales and marketing
146,797

 
145,419

 
303,511

Engineering and development
19,549

 
26,707

 
87,601

General and administrative
64,746

 
81,386

 
143,095

Transaction expenses
4,787

 
9,582

 
32,284

Total operating expense
235,879

 
263,094

 
566,491

Income (loss) from operations
12,478

 
53,186

 
(39,340
)
Other income (expense)
(57,083
)
 
(52,974
)
 
(150,450
)
Income (loss) before income taxes and equity earnings of unconsolidated entities
(44,605
)
 
212

 
(189,790
)
Income tax expense (benefit)
6,186

 
11,342

 
(109,858
)
Loss before equity earnings of unconsolidated entities
(50,791
)
 
(11,130
)
 
(79,932
)
Equity loss of unconsolidated entities, net of tax
61

 
14,640

 
1,297

Net loss
$
(50,852
)
 
$
(25,770
)
 
$
(81,229
)
Net loss attributable to non-controlling interest
(8,017
)
 

 
(8,398
)
Net loss attributable to Endurance International Group Holdings, Inc.
$
(42,835
)
 
$
(25,770
)
 
$
(72,831
)
Comparison of the Years Ended December 31, 2015 and 2016
Revenue
 
 
Year Ended December 31,
 
Change
 
2015
 
2016
 
Amount
 
%
 
(dollars in thousands)
Revenue
$
741,315

 
$
1,111,142

 
$
369,827

 
50
%
Revenue increased by $369.8 million, or 50%, from $741.3 million for the year ended December 31, 2015 to $1.1 billion for the year ended December 31, 2016. Almost all of this increase, or $359.9 million, is attributable to revenues, including growth and synergies, from the acquisitions of businesses that were not part of our business for all or most of the year ended December 31, 2015, principally Constant Contact. The remaining balance of the increase is attributable primarily to revenue generated from our gateway products.
Our revenues are generated primarily from our products and services delivered on a subscription basis, which include web hosting, domains, website builders, search engine marketing and other similar services. We also generate non-subscription revenues through domain monetization and marketing development funds. Non-subscription revenues decreased from $52.5 million, or 7% of total revenue for the year ended December 31, 2015 to $39.4 million, or 4% of revenue for the year ended December 31, 2016, primarily because there were fewer high-value domains available for sale in our BuyDomains portfolio as compared to 2015.

Our web presence segment revenue increased by $43.0 million, or 6%, from $741.3 million for the year ended December 31, 2015 to $784.3 million for the year ended December 31, 2016. This increase includes $33.1 million from the acquisitions of

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businesses that were not part of our business for all or most of the year ended December 31, 2015, and the balance of $9.9 million is attributable to other growth within this segment.

Our email marketing segment revenue was $326.8 million for the year ended December 31, 2016 and is entirely attributable to the acquisition of Constant Contact. Email marketing revenues were adversely impacted by the purchase accounting write-down of acquired deferred revenues, which decreased revenue by $15.2 million for the year ended December 31, 2016. Revenues earned by this segment for the pre-acquisition period from January 1, 2016 up to the acquisition date of February 9, 2016 were $41.1 million and are not included in our results of operations. Revenues separately reported by Constant Contact (as a standalone company) for the year ended December 31, 2015 were $367.4 million. Including the $41.1 million in revenues for the 2016 pre-acquisition period and disregarding the negative $15.2 million impact of purchase accounting, the Constant Contact business grew by $15.7 million, or 4%, for the year ended December 2016 as compared to the prior year.

Cost of Revenue
 
 
Year Ended December 31,
 
 
 
 
 
2015
 
2016
 
Change
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
Amount
 
%
 
(dollars in thousands)
Cost of revenue
$
425,035

 
57
%
 
$
583,991

 
53
%
 
$
158,956

 
37
%
Cost of revenue increased by $159.0 million, or 37%, from $425.0 million for the year ended December 31, 2015 to $584.0 million for the year ended December 31, 2016. Of this increase, $153.6 million was due to increased cost of revenue attributable to Constant Contact, including amortization expense of $64.7 million. The remaining increase was primarily due to increases in costs of $25.6 million associated with other acquisitions that were not part of the business for the year ended December 31, 2015 and expansion of our gateway products, and $3.9 million in additional stock based compensation. These increases were partially offset by a $12.2 million net decrease in amortization expense related primarily to acquisitions before January 1, 2016, and a decrease of $5.4 million in integration costs for acquisitions that were migrated in 2016.
Our cost of revenue contains a significant portion of non-cash expenses, in particular amortization expense for the intangible assets we have acquired through our acquisitions and the Sponsor Acquisition. The following table sets forth the significant non-cash components of cost of revenue.
 
 
Year Ended December 31,
 
2015
 
2016
 
(in thousands)
Amortization expense
$
91,057

 
$
143,562

Depreciation expense
31,170

 
48,120

Stock-based compensation expense