false--12-31FY20190001237746P39MP24M0.08750.06750.06680.05140.06440.05460.06440.05450.100P3YP3YP3YP4YP4YP3YP3Y0.33325000000025000000000.000150000000014344451514625986814344417814625986807000000213490001685900031992000256900001873100025207000110001370001020000.00010.00015000000000P3YP2Y0500000P1YP1YP1YP1YP3YP3YP3YP4YP3Y 0001237746 2019-01-01 2019-12-31 0001237746 2019-06-28 0001237746 2020-02-10 0001237746 2018-12-31 0001237746 2019-12-31 0001237746 2018-01-01 2018-12-31 0001237746 2017-01-01 2017-12-31 0001237746 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2016-12-31 0001237746 us-gaap:CommonStockMember 2018-01-01 2018-12-31 0001237746 us-gaap:CommonStockMember 2017-12-31 0001237746 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001237746 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001237746 2018-01-01 0001237746 us-gaap:AdditionalPaidInCapitalMember 2017-01-01 2017-12-31 0001237746 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-12-31 0001237746 us-gaap:CommonStockMember 2016-12-31 0001237746 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001237746 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001237746 us-gaap:CommonStockMember 2019-01-01 2019-12-31 0001237746 us-gaap:RetainedEarningsMember 2016-12-31 0001237746 us-gaap:CommonStockMember 2017-01-01 2017-12-31 0001237746 2016-12-31 0001237746 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-12-31 0001237746 us-gaap:RetainedEarningsMember 2019-01-01 2019-12-31 0001237746 us-gaap:AdditionalPaidInCapitalMember 2016-12-31 0001237746 us-gaap:CommonStockMember 2018-12-31 0001237746 us-gaap:CommonStockMember 2019-12-31 0001237746 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-12-31 0001237746 us-gaap:RetainedEarningsMember 2017-12-31 0001237746 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-01-01 2017-12-31 0001237746 2017-12-31 0001237746 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001237746 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001237746 us-gaap:RetainedEarningsMember 2019-12-31 0001237746 us-gaap:RetainedEarningsMember 2018-12-31 0001237746 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-12-31 0001237746 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-31 0001237746 us-gaap:RetainedEarningsMember 2017-01-01 2017-12-31 0001237746 us-gaap:AccountingStandardsUpdate201409Member 2018-01-01 2018-01-01 0001237746 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2019-01-01 2019-12-31 0001237746 us-gaap:RestrictedStockMember 2017-01-01 2017-12-31 0001237746 us-gaap:OptionMember 2017-01-01 2017-12-31 0001237746 us-gaap:OptionMember 2019-01-01 2019-12-31 0001237746 us-gaap:RestrictedStockMember 2018-01-01 2018-12-31 0001237746 us-gaap:OptionMember 2018-01-01 2018-12-31 0001237746 us-gaap:RestrictedStockMember 2019-01-01 2019-12-31 0001237746 eigi:ReportingUnitsRepresenting2OfGoodwillMember 2019-01-01 2019-12-31 0001237746 eigi:ReportingUnitsRepresenting3OfGoodwillMember 2019-01-01 2019-12-31 0001237746 eigi:DomainNameIntangibleAssetsMember 2017-01-01 2017-12-31 0001237746 eigi:ReportingUnitsWhoseFairValueDoesNotExceedCarryingValueBy20Unit1Member 2019-12-31 0001237746 us-gaap:MeasurementInputDiscountRateMember 2017-12-31 0001237746 eigi:DomainNameBusinessMember 2019-06-30 0001237746 eigi:WebpresenceMember 2019-01-01 2019-12-31 0001237746 eigi:WebHostingMember srt:WeightedAverageMember 2019-01-01 2019-12-31 0001237746 eigi:DomainNameBusinessMember eigi:DomainMonetizationMember 2017-10-31 2017-10-31 0001237746 2019-10-31 2019-10-31 0001237746 eigi:DomainNameBusinessMember 2019-12-31 0001237746 us-gaap:MeasurementInputDiscountRateMember eigi:ReportingUnit1UsingOtherDiscountRateMember 2019-12-31 0001237746 eigi:ReportingUnitsRepresenting3OfGoodwillMember 2018-12-31 0001237746 us-gaap:MeasurementInputDiscountRateMember eigi:ReportingUnit3UsingOtherDiscountRateMember 2019-12-31 0001237746 eigi:ReportingUnitsWhoseFairValueExceedsCarryingValueBy20Member 2019-01-01 2019-12-31 0001237746 us-gaap:MeasurementInputDiscountRateMember eigi:ReportingUnit2UsingOtherDiscountRateMember 2019-12-31 0001237746 eigi:WebHostingMember srt:MinimumMember 2019-01-01 2019-12-31 0001237746 eigi:CombinationofDifferentLegacyBrandsMember 2019-12-31 0001237746 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001237746 eigi:ReportingUnitsWithGoodwillAndNoImpairmentMember 2017-01-01 2017-12-31 0001237746 us-gaap:MeasurementInputDiscountRateMember eigi:ReportingUnitsRepresenting2OfGoodwillMember 2019-12-31 0001237746 eigi:ReportingUnitsWithGoodwillAllocatedMember 2019-10-31 2019-10-31 0001237746 eigi:DomainNameBusinessMember 2019-10-31 0001237746 eigi:ReportingUnitsRepresenting3OfGoodwillUnit2Member 2019-01-01 2019-12-31 0001237746 eigi:ReportingUnitsRepresenting97OfGoodwillMember 2019-01-01 2019-12-31 0001237746 eigi:ReportingUnitsRepresenting3OfGoodwillUnit1Member 2019-01-01 2019-12-31 0001237746 us-gaap:MeasurementInputDiscountRateMember 2019-12-31 0001237746 2019-04-01 2019-06-30 0001237746 eigi:DomainNameBusinessMember 2019-01-01 2019-12-31 0001237746 eigi:CombinationofDifferentLegacyBrandsMember 2019-01-01 2019-12-31 0001237746 eigi:DomainNameBusinessMember 2019-04-01 2019-06-30 0001237746 eigi:DevelopedTechnologyAndCustomerRelationshipsMember 2017-01-01 2017-12-31 0001237746 eigi:EmailmarketingMember 2019-01-01 2019-12-31 0001237746 eigi:EmailmarketingMember 2019-12-31 0001237746 eigi:WebpresenceMember 2019-12-31 0001237746 eigi:WebHostingMember srt:MaximumMember 2019-01-01 2019-12-31 0001237746 eigi:ReportingUnitsRepresenting95OfGoodwillMember 2019-01-01 2019-12-31 0001237746 eigi:DomainNameBusinessMember 2019-01-01 2019-10-31 0001237746 2019-10-01 2019-12-31 0001237746 eigi:EcomdashMember 2019-12-31 0001237746 us-gaap:BuildingMember 2019-01-01 2019-12-31 0001237746 us-gaap:FurnitureAndFixturesMember 2019-01-01 2019-12-31 0001237746 us-gaap:OfficeEquipmentMember 2019-01-01 2019-12-31 0001237746 2020-01-01 eigi:EmailmarketingMember 2019-12-31 0001237746 eigi:WebpresenceMember 2019-12-31 0001237746 eigi:DomainNameBusinessMember 2019-12-31 0001237746 2020-01-01 eigi:WebpresenceMember 2019-12-31 0001237746 2021-01-01 eigi:WebpresenceMember 2019-12-31 0001237746 2021-01-01 eigi:EmailmarketingMember 2019-12-31 0001237746 eigi:EmailmarketingMember 2019-12-31 0001237746 2020-01-01 2019-12-31 0001237746 2021-01-01 2019-12-31 0001237746 2020-01-01 eigi:DomainNameBusinessMember 2019-12-31 0001237746 2021-01-01 eigi:DomainNameBusinessMember 2019-12-31 0001237746 us-gaap:MeasurementInputDiscountRateMember 2018-12-31 0001237746 srt:MinimumMember us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-01-01 2019-12-31 0001237746 srt:MaximumMember us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-01-01 2019-12-31 0001237746 eigi:EcomdashMember 2019-09-13 0001237746 eigi:EcomdashMember eigi:SubscriberRelationshipsMember 2019-09-13 0001237746 eigi:EcomdashMember eigi:DevelopedTechnologyMember 2019-09-13 0001237746 eigi:EcomdashMember 2019-09-13 2019-09-13 0001237746 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember eigi:SinglePlatformMember 2019-01-01 2019-12-31 0001237746 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember eigi:SinglePlatformMember 2019-10-01 2019-12-31 0001237746 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember eigi:SinglePlatformMember 2018-01-01 2018-12-31 0001237746 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember eigi:SinglePlatformMember 2019-12-05 2019-12-05 0001237746 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001237746 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001237746 us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001237746 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001237746 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001237746 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001237746 us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001237746 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001237746 us-gaap:InterestRateCapMember us-gaap:CashFlowHedgingMember 2019-01-01 2019-12-31 0001237746 eigi:InterestRateCapEnteredIntoJune2018Member us-gaap:CashFlowHedgingMember 2018-06-30 0001237746 eigi:InterestRateCapEnteredIntoJune2018Member us-gaap:CashFlowHedgingMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-01-01 2018-12-31 0001237746 eigi:InterestRateCapEnteredIntoJune2018Member 2018-12-31 0001237746 eigi:InterestRateCapEnteredIntoDecember2015Member us-gaap:CashFlowHedgingMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-01-01 2019-12-31 0001237746 eigi:InterestRateCapEnteredIntoJune2018Member us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001237746 eigi:InterestRateCapEnteredIntoDecember2015Member us-gaap:CashFlowHedgingMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-01-01 2018-12-31 0001237746 eigi:InterestRateCapEnteredIntoDecember2015Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001237746 eigi:InterestRateCapEnteredIntoDecember2015Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001237746 eigi:InterestRateCapEnteredIntoDecember2015Member us-gaap:CashFlowHedgingMember 2018-01-01 2018-12-31 0001237746 eigi:InterestRateCapEnteredIntoJune2018Member us-gaap:CashFlowHedgingMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-01-01 2019-12-31 0001237746 eigi:InterestRateCapEnteredIntoJune2018Member us-gaap:CashFlowHedgingMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-12-31 0001237746 eigi:InterestRateCapEnteredIntoJune2018Member 2019-12-31 0001237746 eigi:InterestRateCapEnteredIntoDecember2015Member us-gaap:CashFlowHedgingMember 2015-12-31 0001237746 eigi:InterestRateCapEnteredIntoDecember2015Member us-gaap:CashFlowHedgingMember 2019-01-01 2019-12-31 0001237746 eigi:InterestRateCapEnteredIntoJune2018Member us-gaap:CashFlowHedgingMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-12-31 0001237746 us-gaap:CashFlowHedgingMember 2019-01-01 2019-12-31 0001237746 eigi:InterestRateCapEnteredIntoJune2018Member 2018-06-01 2018-06-30 0001237746 eigi:InterestRateCapEnteredIntoDecember2015Member 2015-12-01 2015-12-31 0001237746 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2018-12-31 0001237746 us-gaap:LandMember 2018-12-31 0001237746 us-gaap:LeaseholdImprovementsMember 2019-12-31 0001237746 us-gaap:BuildingMember 2019-12-31 0001237746 us-gaap:ConstructionInProgressMember 2019-12-31 0001237746 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-12-31 0001237746 us-gaap:OfficeEquipmentMember 2019-12-31 0001237746 us-gaap:FurnitureAndFixturesMember 2019-12-31 0001237746 us-gaap:FurnitureAndFixturesMember 2018-12-31 0001237746 us-gaap:BuildingMember 2018-12-31 0001237746 us-gaap:ConstructionInProgressMember 2018-12-31 0001237746 us-gaap:OfficeEquipmentMember 2018-12-31 0001237746 us-gaap:LeaseholdImprovementsMember 2018-12-31 0001237746 us-gaap:LandMember 2019-12-31 0001237746 srt:MaximumMember 2018-01-01 2018-12-31 0001237746 srt:MinimumMember 2018-01-01 2018-12-31 0001237746 srt:MinimumMember 2019-01-01 2019-12-31 0001237746 srt:MaximumMember 2019-01-01 2019-12-31 0001237746 us-gaap:DevelopedTechnologyRightsMember 2018-12-31 0001237746 us-gaap:CustomerRelationshipsMember 2018-12-31 0001237746 us-gaap:TradeNamesMember 2018-12-31 0001237746 us-gaap:IntellectualPropertyMember 2018-01-01 2018-12-31 0001237746 us-gaap:IntellectualPropertyMember 2018-12-31 0001237746 eigi:AvailableForSaleMember 2018-12-31 0001237746 us-gaap:TradeNamesMember 2018-01-01 2018-12-31 0001237746 us-gaap:CustomerRelationshipsMember 2018-01-01 2018-12-31 0001237746 us-gaap:DevelopedTechnologyRightsMember 2018-01-01 2018-12-31 0001237746 us-gaap:DevelopedTechnologyRightsMember 2019-12-31 0001237746 us-gaap:TradeNamesMember 2019-12-31 0001237746 us-gaap:IntellectualPropertyMember 2019-12-31 0001237746 us-gaap:CustomerRelationshipsMember 2019-12-31 0001237746 eigi:AvailableForSaleMember 2019-12-31 0001237746 us-gaap:TradeNamesMember 2019-01-01 2019-12-31 0001237746 us-gaap:DevelopedTechnologyRightsMember 2019-01-01 2019-12-31 0001237746 eigi:AvailableForSaleMember 2019-01-01 2019-12-31 0001237746 us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0001237746 us-gaap:IntellectualPropertyMember 2019-01-01 2019-12-31 0001237746 eigi:DomainNameBusinessMember 2018-01-01 2018-12-31 0001237746 eigi:WebpresenceMember 2017-12-31 0001237746 eigi:WebpresenceMember 2018-01-01 2018-12-31 0001237746 eigi:EmailmarketingMember 2018-12-31 0001237746 eigi:EmailmarketingMember 2017-12-31 0001237746 eigi:WebpresenceMember 2018-12-31 0001237746 eigi:EmailmarketingMember 2018-01-01 2018-12-31 0001237746 eigi:DomainNameBusinessMember 2018-12-31 0001237746 eigi:DomainNameBusinessMember 2017-12-31 0001237746 eigi:WebandMoneyManagementSolutionMember 2017-01-01 2017-12-31 0001237746 eigi:AutomatticMember 2014-05-01 2014-05-31 0001237746 srt:MinimumMember eigi:WzUkLtdMember 2019-12-31 0001237746 eigi:WebandMoneyManagementSolutionMember 2016-03-03 0001237746 eigi:FortificoLimitedMember 2016-04-08 0001237746 eigi:FortificoLimitedMember 2016-01-01 2016-12-31 0001237746 eigi:FortificoLimitedMember 2016-12-31 0001237746 eigi:AutomatticMember 2014-05-31 0001237746 srt:MinimumMember 2019-12-31 0001237746 srt:MaximumMember 2019-12-31 0001237746 eigi:LiborRevolverLoanMember 2019-12-31 0001237746 eigi:FirstLienTermLoanMember 2018-12-31 0001237746 eigi:A10.875Notesdue2024Member 2019-12-31 0001237746 eigi:A10.875Notesdue2024Member 2018-12-31 0001237746 eigi:LiborRevolverLoanMember 2018-12-31 0001237746 eigi:FirstLienTermLoanMember 2019-12-31 0001237746 eigi:VoluntaryPrepaymentNumberOneMember eigi:A2018FirstLienTermLoanMember 2019-01-01 2019-12-31 0001237746 eigi:OneMandatoryPaymentMember eigi:A2018FirstLienTermLoanMember 2019-01-01 2019-12-31 0001237746 us-gaap:RevolvingCreditFacilityMember eigi:LiborBasedInterestRateLoanMember 2016-02-09 2016-02-09 0001237746 us-gaap:RevolvingCreditFacilityMember eigi:LiborBasedInterestRateLoanMember 2016-02-09 0001237746 us-gaap:RevolvingCreditFacilityMember eigi:LiborBasedInterestRateLoanMember us-gaap:LondonInterbankOfferedRateLIBORMember 2016-02-09 2016-02-09 0001237746 us-gaap:RevolvingCreditFacilityMember eigi:A2016RevolverCommitmentsMaturingFebruary2021Member 2018-06-30 0001237746 eigi:A2018FirstLienTermLoanMember 2019-01-01 2019-12-31 0001237746 eigi:ExtendedRevolvingLoanMember eigi:AlternateBaseRateLoansMember 2016-02-09 2016-02-09 0001237746 eigi:A10.875Notesdue2024Member 2017-01-30 0001237746 eigi:A2018FirstLienTermLoanMember 2019-12-31 0001237746 eigi:A10.875Notesdue2024Member 2019-01-01 2019-12-31 0001237746 eigi:ExtendedRevolvingLoanMember eigi:LiborBasedInterestRateLoanMember 2016-02-09 0001237746 eigi:FirstLienTermLoanMember 2018-04-01 2018-06-30 0001237746 us-gaap:RevolvingCreditFacilityMember 2016-02-09 0001237746 eigi:FirstLienTermLoanMember 2018-06-30 0001237746 eigi:A10.875Notesdue2024Member 2016-02-09 0001237746 us-gaap:RevolvingCreditFacilityMember 2016-02-09 2016-02-09 0001237746 eigi:A2018FirstLienTermLoanMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-12-31 0001237746 eigi:A2018FirstLienTermLoanMember us-gaap:FederalFundsEffectiveSwapRateMember 2019-01-01 2019-12-31 0001237746 us-gaap:RevolvingCreditFacilityMember eigi:A2016RevolverCommitmentsMaturingJune2023Member 2018-06-30 0001237746 eigi:A10.875Notesdue2024Member 2017-12-31 0001237746 srt:MinimumMember 2017-01-01 2017-12-31 0001237746 srt:MaximumMember 2017-01-01 2017-12-31 0001237746 eigi:TwoThousandAndThirteenStockIncentivePlanMember 2018-01-01 2018-12-31 0001237746 eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-01-01 2019-12-31 0001237746 eigi:TwoThousandAndThirteenStockIncentivePlanMember 2017-01-01 2017-12-31 0001237746 us-gaap:RestrictedStockMember eigi:ConstantContact2011StockPlanMember 2019-01-01 2019-12-31 0001237746 us-gaap:RestrictedStockMember eigi:ConstantContact2011StockPlanMember 2018-12-31 0001237746 us-gaap:RestrictedStockMember eigi:ConstantContact2011StockPlanMember 2019-12-31 0001237746 eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-12-31 0001237746 eigi:TwoThousandAndThirteenStockIncentivePlanMember 2018-12-31 0001237746 us-gaap:RestrictedStockMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-12-31 0001237746 us-gaap:RestrictedStockMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-01-01 2019-12-31 0001237746 us-gaap:RestrictedStockMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2018-12-31 0001237746 eigi:ConstantContact2011StockPlanMember 2019-01-01 2019-12-31 0001237746 eigi:ConstantContact2011StockPlanMember 2019-12-31 0001237746 eigi:ConstantContact2011StockPlanMember 2018-12-31 0001237746 us-gaap:RestrictedStockUnitsRSUMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-01-01 2019-12-31 0001237746 us-gaap:RestrictedStockUnitsRSUMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-12-31 0001237746 us-gaap:RestrictedStockUnitsRSUMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2018-12-31 0001237746 eigi:ConstantContact2011StockPlanMember 2016-02-09 0001237746 srt:ChiefExecutiveOfficerMember eigi:A2015PerformanceBasedAwardMember 2019-01-01 2019-12-31 0001237746 eigi:Combined2016LiabilityAwardsMember 2016-01-01 2016-12-31 0001237746 srt:ChiefExecutiveOfficerMember us-gaap:RestrictedStockMember eigi:A2017CEOAwardMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-12-31 0001237746 eigi:PerformanceBasedVestingStockAwardsMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2016-01-01 2016-12-31 0001237746 eigi:Combined2016LiabilityAwardsMember 2017-01-01 2017-12-31 0001237746 eigi:ConstantContact2011StockPlanMember 2018-01-01 2018-12-31 0001237746 us-gaap:EmployeeStockOptionMember eigi:ConstantContact2011StockPlanMember 2019-01-01 2019-12-31 0001237746 srt:ChiefExecutiveOfficerMember us-gaap:RestrictedStockMember eigi:A2017CEOAwardMember 2017-08-22 2017-08-22 0001237746 eigi:ConstantContactIncMember 2016-02-09 0001237746 eigi:ConstantContact2011StockPlanMember 2016-02-09 2016-02-09 0001237746 srt:ChiefExecutiveOfficerMember eigi:A2015PerformanceBasedAwardMember 2015-01-01 2015-12-31 0001237746 srt:ChiefExecutiveOfficerMember eigi:A2015PerformanceBasedAwardMember 2016-01-01 2016-12-31 0001237746 srt:ChiefFinancialOfficerMember eigi:PerformanceBasedVestingStockAwardsMember 2017-01-01 2017-03-31 0001237746 us-gaap:EmployeeStockOptionMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-01-01 2019-12-31 0001237746 eigi:A2017CEOAwardMember 2017-01-01 2017-12-31 0001237746 eigi:PerformanceBasedVestingStockAwardsMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2017-01-01 2017-12-31 0001237746 us-gaap:GeneralAndAdministrativeExpenseMember eigi:Combined2016LiabilityAwardsMember 2016-01-01 2016-12-31 0001237746 srt:ChiefExecutiveOfficerMember us-gaap:EmployeeStockOptionMember eigi:A2017CEOAwardMember 2017-08-22 2017-08-22 0001237746 srt:ChiefExecutiveOfficerMember us-gaap:RestrictedStockMember eigi:A2017CEOAwardMember 2019-12-31 0001237746 us-gaap:ResearchAndDevelopmentExpenseMember eigi:Combined2016LiabilityAwardsMember 2016-01-01 2016-12-31 0001237746 srt:ChiefExecutiveOfficerMember eigi:PerformanceBasedVestingStockAwardsMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2015-01-01 2015-12-31 0001237746 srt:ChiefExecutiveOfficerMember eigi:A2015PerformanceBasedAwardMember 2019-12-31 0001237746 eigi:ChiefAdministrativeOfficerMember eigi:PerformanceBasedVestingStockAwardsMember 2017-01-01 2017-03-31 0001237746 us-gaap:EmployeeStockOptionMember eigi:ConstantContact2011StockPlanMember 2016-02-09 2016-02-09 0001237746 us-gaap:SellingAndMarketingExpenseMember eigi:Combined2016LiabilityAwardsMember 2016-01-01 2016-12-31 0001237746 srt:ChiefExecutiveOfficerMember eigi:A2015PerformanceBasedAwardMember 2017-01-01 2017-12-31 0001237746 us-gaap:RestrictedStockMember 2019-12-31 0001237746 us-gaap:EmployeeStockOptionMember 2019-12-31 0001237746 eigi:A2017CEOAwardMember 2017-08-11 2017-08-11 0001237746 us-gaap:RestrictedStockMember eigi:ConstantContact2011StockPlanMember 2016-02-09 2016-02-09 0001237746 srt:ChiefOperatingOfficerMember eigi:PerformanceBasedVestingStockAwardsMember 2017-01-01 2017-03-31 0001237746 us-gaap:ResearchAndDevelopmentExpenseMember 2017-01-01 2017-12-31 0001237746 us-gaap:GeneralAndAdministrativeExpenseMember 2019-01-01 2019-12-31 0001237746 us-gaap:CostOfSalesMember 2017-01-01 2017-12-31 0001237746 us-gaap:CostOfSalesMember 2019-01-01 2019-12-31 0001237746 us-gaap:GeneralAndAdministrativeExpenseMember 2017-01-01 2017-12-31 0001237746 us-gaap:SellingAndMarketingExpenseMember 2019-01-01 2019-12-31 0001237746 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-12-31 0001237746 us-gaap:SellingAndMarketingExpenseMember 2017-01-01 2017-12-31 0001237746 us-gaap:CostOfSalesMember 2018-01-01 2018-12-31 0001237746 us-gaap:ResearchAndDevelopmentExpenseMember 2018-01-01 2018-12-31 0001237746 us-gaap:SellingAndMarketingExpenseMember 2018-01-01 2018-12-31 0001237746 us-gaap:GeneralAndAdministrativeExpenseMember 2018-01-01 2018-12-31 0001237746 srt:MinimumMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-01-01 2019-12-31 0001237746 srt:MaximumMember us-gaap:RestrictedStockMember eigi:ConstantContact2011StockPlanMember 2019-01-01 2019-12-31 0001237746 srt:MinimumMember us-gaap:RestrictedStockMember eigi:ConstantContact2011StockPlanMember 2019-01-01 2019-12-31 0001237746 srt:MaximumMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-01-01 2019-12-31 0001237746 srt:MaximumMember us-gaap:RestrictedStockMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-01-01 2019-12-31 0001237746 srt:MinimumMember us-gaap:RestrictedStockMember eigi:TwoThousandAndThirteenStockIncentivePlanMember 2019-01-01 2019-12-31 0001237746 srt:ChiefExecutiveOfficerMember us-gaap:RestrictedStockMember eigi:A2017CEOAwardMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2019-12-31 0001237746 srt:ChiefExecutiveOfficerMember us-gaap:RestrictedStockMember eigi:A2017CEOAwardMember us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2019-12-31 0001237746 us-gaap:EmployeeStockOptionMember eigi:A2017CEOAwardMember 2019-12-31 0001237746 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-12-31 0001237746 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-12-31 0001237746 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0001237746 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2017-12-31 0001237746 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-01-01 2018-12-31 0001237746 us-gaap:AccumulatedTranslationAdjustmentMember 2018-01-01 2018-12-31 0001237746 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-01-01 2019-12-31 0001237746 us-gaap:AccumulatedTranslationAdjustmentMember 2017-12-31 0001237746 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-12-31 0001237746 us-gaap:AccumulatedTranslationAdjustmentMember 2019-12-31 0001237746 us-gaap:NonUsMember eigi:EmailmarketingMember 2018-01-01 2018-12-31 0001237746 us-gaap:NonUsMember eigi:DomainNameBusinessMember 2018-01-01 2018-12-31 0001237746 country:US 2018-01-01 2018-12-31 0001237746 country:US eigi:WebpresenceMember 2018-01-01 2018-12-31 0001237746 country:US eigi:EmailmarketingMember 2018-01-01 2018-12-31 0001237746 us-gaap:NonUsMember eigi:WebpresenceMember 2018-01-01 2018-12-31 0001237746 country:US eigi:DomainNameBusinessMember 2018-01-01 2018-12-31 0001237746 us-gaap:NonUsMember 2018-01-01 2018-12-31 0001237746 eigi:ProfessionalServicesMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:PremiumDomainsMember eigi:DomainNameBusinessMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:WebpresenceMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:MDFMember eigi:DomainNameBusinessMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:WebpresenceMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DomainNameBusinessMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DomainParkingMember eigi:WebpresenceMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:MDFMember eigi:WebpresenceMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:ResellerRevenueMember eigi:EmailmarketingMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:ResellerRevenueMember eigi:WebpresenceMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:MDFMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:EmailmarketingMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:PremiumDomainsMember eigi:WebpresenceMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:ProfessionalServicesMember eigi:DomainNameBusinessMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DirectRevenueFromSubscribersMember eigi:DomainNameBusinessMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:ProfessionalServicesMember eigi:EmailmarketingMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DomainParkingMember eigi:EmailmarketingMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:PremiumDomainsMember eigi:EmailmarketingMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DomainParkingMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:EmailmarketingMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DirectRevenueFromSubscribersMember eigi:EmailmarketingMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:PremiumDomainsMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:ProfessionalServicesMember eigi:WebpresenceMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DirectRevenueFromSubscribersMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DirectRevenueFromSubscribersMember eigi:WebpresenceMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DomainNameBusinessMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:ResellerRevenueMember eigi:DomainNameBusinessMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:ResellerRevenueMember us-gaap:TransferredOverTimeMember 2018-01-01 2018-12-31 0001237746 eigi:MDFMember eigi:EmailmarketingMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:DomainParkingMember eigi:DomainNameBusinessMember us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-12-31 0001237746 eigi:ResellerRevenueMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DomainParkingMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:ResellerRevenueMember eigi:WebpresenceMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:MDFMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:MDFMember eigi:DomainNameBusinessMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:WebpresenceMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DirectRevenueFromSubscribersMember eigi:DomainNameBusinessMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:ProfessionalServicesMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DomainParkingMember eigi:DomainNameBusinessMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:ProfessionalServicesMember eigi:DomainNameBusinessMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:WebpresenceMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DirectRevenueFromSubscribersMember eigi:EmailmarketingMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:PremiumDomainsMember eigi:DomainNameBusinessMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DirectRevenueFromSubscribersMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:MDFMember eigi:EmailmarketingMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DirectRevenueFromSubscribersMember eigi:WebpresenceMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:EmailmarketingMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:ProfessionalServicesMember eigi:EmailmarketingMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:ResellerRevenueMember eigi:EmailmarketingMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:PremiumDomainsMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:PremiumDomainsMember eigi:WebpresenceMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:EmailmarketingMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DomainNameBusinessMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DomainNameBusinessMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:ResellerRevenueMember eigi:DomainNameBusinessMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:PremiumDomainsMember eigi:EmailmarketingMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DomainParkingMember eigi:WebpresenceMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:ProfessionalServicesMember eigi:WebpresenceMember us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0001237746 eigi:MDFMember eigi:WebpresenceMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 eigi:DomainParkingMember eigi:EmailmarketingMember us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0001237746 country:US 2019-01-01 2019-12-31 0001237746 country:US eigi:EmailmarketingMember 2019-01-01 2019-12-31 0001237746 country:US eigi:DomainNameBusinessMember 2019-01-01 2019-12-31 0001237746 us-gaap:NonUsMember eigi:WebpresenceMember 2019-01-01 2019-12-31 0001237746 us-gaap:NonUsMember eigi:DomainNameBusinessMember 2019-01-01 2019-12-31 0001237746 country:US eigi:WebpresenceMember 2019-01-01 2019-12-31 0001237746 us-gaap:NonUsMember 2019-01-01 2019-12-31 0001237746 us-gaap:NonUsMember eigi:EmailmarketingMember 2019-01-01 2019-12-31 0001237746 eigi:WZUKLtd.Member 2017-07-01 0001237746 eigi:WZUKLtd.Member 2016-01-07 2016-12-31 0001237746 eigi:WZUKLtd.Member 2016-01-06 0001237746 2017-07-01 0001237746 eigi:WZUKLtd.Member 2017-12-31 0001237746 eigi:WZUKLtd.Member 2017-07-01 2017-07-01 0001237746 2016-01-01 2016-12-31 0001237746 eigi:WZUKLtd.Member 2017-07-07 2017-07-07 0001237746 us-gaap:ForeignCountryMember 2017-01-01 2017-12-31 0001237746 us-gaap:ForeignCountryMember 2018-01-01 2018-12-31 0001237746 us-gaap:ForeignCountryMember 2019-01-01 2019-12-31 0001237746 us-gaap:DomesticCountryMember 2019-01-01 2019-12-31 0001237746 us-gaap:DomesticCountryMember 2017-01-01 2017-12-31 0001237746 us-gaap:DomesticCountryMember 2018-01-01 2018-12-31 0001237746 srt:SubsidiariesMember us-gaap:NonUsMember 2019-12-31 0001237746 eigi:OtherForeignJurisdictionsMember 2019-01-01 2019-12-31 0001237746 country:NL 2019-01-01 2019-12-31 0001237746 eigi:FederalAndStateMember 2017-01-01 2017-12-31 0001237746 country:BR 2019-01-01 2019-12-31 0001237746 us-gaap:DomesticCountryMember 2019-12-31 0001237746 us-gaap:DomesticCountryMember us-gaap:ResearchMember 2019-12-31 0001237746 us-gaap:ResearchMember 2019-12-31 0001237746 us-gaap:InlandRevenueSingaporeIRASMember 2019-12-31 0001237746 us-gaap:StateAdministrationOfTaxationChinaMember 2019-12-31 0001237746 us-gaap:MinistryOfFinanceIndiaMember 2019-12-31 0001237746 us-gaap:StateAndLocalJurisdictionMember 2019-12-31 0001237746 us-gaap:SecretariatOfTheFederalRevenueBureauOfBrazilMember 2019-12-31 0001237746 us-gaap:TaxAndCustomsAdministrationNetherlandsMember 2019-12-31 0001237746 us-gaap:StateAndLocalJurisdictionMember us-gaap:ResearchMember 2019-12-31 0001237746 us-gaap:FacilityClosingMember 2019-01-01 2019-12-31 0001237746 us-gaap:FacilityClosingMember 2019-12-31 0001237746 us-gaap:AccountingStandardsUpdate201602Member us-gaap:FacilityClosingMember 2019-01-01 2019-12-31 0001237746 us-gaap:FacilityClosingMember 2018-12-31 0001237746 us-gaap:EmployeeSeveranceMember 2018-12-31 0001237746 us-gaap:EmployeeSeveranceMember 2019-01-01 2019-12-31 0001237746 us-gaap:EmployeeSeveranceMember 2019-12-31 0001237746 eigi:A2017RestructuringPlanMember 2017-01-01 2017-01-31 0001237746 us-gaap:EmployeeSeveranceMember eigi:A2018RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 eigi:A2019RestructuringPlanMember 2019-01-01 2019-01-31 0001237746 us-gaap:FacilityClosingMember eigi:A2018RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 us-gaap:FacilityClosingMember eigi:A2016RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 us-gaap:EmployeeSeveranceMember eigi:A2017RestructuringPlanMember 2019-12-31 0001237746 eigi:A2017RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 us-gaap:EmployeeSeveranceMember eigi:A2016RestructuringPlanMember 2019-12-31 0001237746 eigi:A2019RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 us-gaap:FacilityClosingMember eigi:A2016RestructuringPlanMember 2019-12-31 0001237746 us-gaap:EmployeeSeveranceMember eigi:A2019RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 us-gaap:FacilityClosingMember eigi:A2017RestructuringPlanMember 2019-12-31 0001237746 us-gaap:EmployeeSeveranceMember eigi:A2018RestructuringPlanMember 2019-12-31 0001237746 us-gaap:FacilityClosingMember eigi:A2019RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 eigi:A2016RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 eigi:A2018RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 eigi:A2018RestructuringPlanMember 2018-01-01 2018-01-31 0001237746 us-gaap:FacilityClosingMember eigi:A2018RestructuringPlanMember 2019-12-31 0001237746 us-gaap:EmployeeSeveranceMember eigi:A2019RestructuringPlanMember 2019-12-31 0001237746 us-gaap:EmployeeSeveranceMember eigi:A2017RestructuringPlanMember 2019-01-01 2019-12-31 0001237746 eigi:ConstantContactIncMember eigi:A2017RestructuringPlanMember 2017-01-01 2017-01-31 0001237746 eigi:A2018RestructuringPlanMember 2018-02-01 2018-12-31 0001237746 us-gaap:FacilityClosingMember eigi:A2019RestructuringPlanMember 2019-12-31 0001237746 eigi:McGeeVsConstantContactMember eigi:ConstantContactIncMember 2015-08-07 2015-08-07 0001237746 eigi:MachadoMember 2015-05-04 2015-05-04 0001237746 eigi:McGeeVsConstantContactMember 2018-12-31 0001237746 eigi:MachadoMember 2018-12-31 0001237746 eigi:DefinedContributionPlanTrancheTwoMember 2019-01-01 2019-12-31 0001237746 eigi:DefinedContributionPlanTrancheOneMember 2019-01-01 2019-12-31 0001237746 eigi:ChiefExecutiveOfficerAndTwoInvestorsMember 2018-12-31 0001237746 eigi:ChiefExecutiveOfficerAndTwoInvestorsMember 2019-12-31 0001237746 eigi:RelatedPartyLoanLendingCommitmentArrangementFeesMember eigi:GoldmanSachsLendingPartnersLLCMember 2019-01-01 2019-12-31 0001237746 srt:MaximumMember eigi:FormerChiefExecutiveOfficerMember 2018-12-31 0001237746 eigi:FormerChiefExecutiveOfficerMember 2018-12-31 0001237746 us-gaap:ImmediateFamilyMemberOfManagementOrPrincipalOwnerMember 2018-12-31 0001237746 us-gaap:ImmediateFamilyMemberOfManagementOrPrincipalOwnerMember 2017-01-01 2017-12-31 0001237746 us-gaap:ImmediateFamilyMemberOfManagementOrPrincipalOwnerMember 2019-01-01 2019-12-31 0001237746 us-gaap:ImmediateFamilyMemberOfManagementOrPrincipalOwnerMember 2018-01-01 2018-12-31 0001237746 eigi:ChiefExecutiveOfficerAndTwoInvestorsMember 2018-01-01 2018-12-31 0001237746 eigi:ChiefExecutiveOfficerAndTwoInvestorsMember 2017-01-01 2017-12-31 0001237746 eigi:ChiefExecutiveOfficerAndTwoInvestorsMember 2019-01-01 2019-12-31 0001237746 eigi:ExpenseReimbursementMember eigi:GoldmanSachsLendingPartnersLLCMember 2018-01-01 2018-12-31 0001237746 eigi:RelatedPartyLoanLendingCommitmentArrangementFeesMember eigi:GoldmanSachsLendingPartnersLLCMember 2018-01-01 2018-12-31 0001237746 us-gaap:CorporateNoteSecuritiesMember 2017-01-01 2017-12-31 0001237746 eigi:DomainNameBusinessMember 2017-01-01 2017-12-31 0001237746 eigi:DomainNameIntangibleAssetsMember 2019-01-01 2019-12-31 0001237746 eigi:DirectiAndBuyDomainsMember eigi:DevelopedTechnologyAndCustomerRelationshipsMember 2017-01-01 2017-12-31 0001237746 eigi:EmailmarketingMember 2017-01-01 2017-12-31 0001237746 eigi:WebpresenceMember 2017-01-01 2017-12-31 0001237746 eigi:NonsubscriptionRevenueMember 2019-01-01 2019-12-31 0001237746 eigi:NonsubscriptionRevenueMember 2018-01-01 2018-12-31 0001237746 eigi:NonsubscriptionRevenueMember 2017-01-01 2017-12-31 0001237746 eigi:InternationalMember 2018-12-31 0001237746 country:US 2018-12-31 0001237746 eigi:InternationalMember 2019-12-31 0001237746 country:US 2019-12-31 0001237746 country:US 2017-01-01 2017-12-31 0001237746 eigi:InternationalMember 2018-01-01 2018-12-31 0001237746 eigi:InternationalMember 2019-01-01 2019-12-31 0001237746 eigi:InternationalMember 2017-01-01 2017-12-31 0001237746 2018-07-01 2018-09-30 0001237746 2018-04-01 2018-06-30 0001237746 2019-01-01 2019-03-31 0001237746 2019-07-01 2019-09-30 0001237746 2018-01-01 2018-03-31 0001237746 2018-10-01 2018-12-31 0001237746 eigi:DomainNameIntangibleAssetsMember 2019-10-01 2019-12-31 0001237746 srt:ConsolidationEliminationsMember 2019-01-01 2019-12-31 0001237746 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-12-31 0001237746 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-01-01 2019-12-31 0001237746 srt:ConsolidationEliminationsMember 2018-12-31 0001237746 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2019-01-01 2019-12-31 0001237746 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-01-01 2019-12-31 0001237746 srt:SubsidiaryIssuerMember srt:ReportableLegalEntitiesMember 2019-01-01 2019-12-31 0001237746 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2018-12-31 0001237746 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-12-31 0001237746 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-12-31 0001237746 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2019-12-31 0001237746 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-12-31 0001237746 srt:SubsidiaryIssuerMember srt:ReportableLegalEntitiesMember 2019-12-31 0001237746 srt:SubsidiaryIssuerMember srt:ReportableLegalEntitiesMember 2018-12-31 0001237746 srt:ConsolidationEliminationsMember 2019-12-31 0001237746 eigi:A10.875Notesdue2024Member 2016-02-29 0001237746 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-01-01 2017-12-31 0001237746 srt:SubsidiaryIssuerMember srt:ReportableLegalEntitiesMember 2017-01-01 2017-12-31 0001237746 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-01-01 2017-12-31 0001237746 srt:ConsolidationEliminationsMember 2017-01-01 2017-12-31 0001237746 srt:ConsolidationEliminationsMember 2016-12-31 0001237746 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2017-01-01 2017-12-31 0001237746 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-12-31 0001237746 srt:SubsidiaryIssuerMember srt:ReportableLegalEntitiesMember 2016-12-31 0001237746 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2016-12-31 0001237746 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2016-12-31 0001237746 srt:ConsolidationEliminationsMember 2017-12-31 0001237746 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2017-12-31 0001237746 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-12-31 0001237746 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2016-12-31 0001237746 srt:SubsidiaryIssuerMember srt:ReportableLegalEntitiesMember 2017-12-31 0001237746 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-01-01 2018-12-31 0001237746 srt:ConsolidationEliminationsMember 2018-01-01 2018-12-31 0001237746 srt:SubsidiaryIssuerMember srt:ReportableLegalEntitiesMember 2018-01-01 2018-12-31 0001237746 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2018-01-01 2018-12-31 0001237746 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-01-01 2018-12-31 eigi:agreement xbrli:shares eigi:reporting_unit xbrli:pure iso4217:USD xbrli:shares iso4217:USD eigi:segment eigi:repayment eigi:plan eigi:position eigi:vote eigi:defendant

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-K
 
 (Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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
 
01803
Burlington,
Massachusetts
 
(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
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 par value
EIGI
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 every Interactive Data File required to be submitted 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 such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer
¨
 
Accelerated filer
ý

Non-accelerated filer
¨
 
Smaller reporting company
☐
Emerging growth company
☐
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
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 28, 2019, was $354,539,270.
As of February 10, 2020, there were 147,690,582 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 2020 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, 2019, are incorporated by reference into Part III of this Annual Report on Form 10-K.
 


TABLE OF CONTENTS
 
 
Page
PART I.
 
2
9
28
28
29
29
PART II.
 
29
30
32
62
64
119
119
122
PART III.
 
123
123
123
123
123
PART IV.
 
124
131
132


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,” “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 2020 operating plan, including our plans to deliver increased valued to customers and to simplify our operations;
•
our plans to invest during 2020 in engineering and development and marketing efforts for our strategic brands, and the anticipated impact or results of such investments;
•
trends in our cost of revenue and gross profit;
•
our expectations regarding impairments of goodwill and other intangible assets;
•
our expectations regarding cash flow from operations, adjusted EBITDA and free cash flow;
•
the impact of laws and regulations that affect our business; and
•
the impact of competition.
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.

1

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 4.8 million subscribers globally with a range of products and services that help SMBs get online, get found and grow their businesses. In addition to for-profit businesses, our subscribers include non-profit organizations, community groups, bloggers, and hobbyists. Although we provide our solutions through a number of brands, we are focusing our marketing, engineering and product development efforts on a small number of strategic assets, including our Constant Contact, Bluehost, HostGator, and Domain.com brands.
From fiscal year 2017 through the end of fiscal year 2019, we have reported our business results in three reportable segments, as follows:
Web Presence. Our web presence segment consists primarily of our web hosting brands, including Bluehost and HostGator. This segment also includes related products such as domain names, website security, website design tools and services, and e-commerce products.
Email Marketing. Our email marketing segment consists of Constant Contact email marketing tools and related products. This segment also generates revenue from sales of our Constant Contact-branded website builder tool and our Ecomdash inventory management and marketplace listing solution, or Ecomdash, which we acquired in the third quarter of 2019. For most of 2019, the email marketing segment also included the SinglePlatform digital storefront business, which we sold on December 5, 2019.
Domain. Our domain segment consists of domain-focused brands such as Domain.com, ResellerClub and LogicBoxes as well as certain web hosting brands that are under common management with our domain-focused brands. This segment sells domain names and domain management services to resellers and end users, as well as premium domain names, and also generates advertising revenue from domain name parking. It also resells domain names and domain management services to our web presence segment.
In the second half of 2019, we started the process of simplifying our organization to support our two key strategic platforms, web presence (including our web hosting and domain offerings) and email marketing. In 2020, we plan to modify our internal reporting structure to reflect these changes in our structure and leadership, and also to change the name of the email marketing segment to the "digital marketing" segment. This will result in consolidation of our current domain segment into our web presence segment, such that we expect to report our financial results in two segments - web presence (including domains) and digital marketing - beginning with the first quarter of 2020.
You can find more information about our reportable segments in Note 21, Segment Information, to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Our Market, Products and Services
SMBs represent a large and diverse market, both in the United States and internationally. According to the U.S. Small Business Administration, there were approximately 30.7 million small businesses in the United States in 2016. Of these small businesses, approximately 24.8 million were non-employer firms, or companies that do not have paid employees. In addition, in 2015, the International Labour Organization of the United Nations estimated that there were between 420 and 510 million small and medium-sized enterprises (defined as one to 250 employees) worldwide.
Many SMBs have limited technological and marketing expertise, time and financial resources. However, we believe SMBs understand that the Internet and the proliferation of mobile devices are changing the way consumers discover and transact with businesses, making an effective online presence critical.
We provide our products and services through two strategic platforms: web presence (which consists of the web presence and domain segments) and email marketing (which corresponds to our email marketing segment). Our offerings, which consist of both proprietary applications and third-party products, are designed to help SMBs succeed online at every stage of their business.
Web Hosting. By providing a 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. Our shared hosting packages offer several options for building a website, including our website builder (discussed below) and a variety of Wordpress hosting packages.
In addition to providing shared hosting services, we also provide virtual private server, or VPS, hosting and dedicated hosting solutions. As a subscriber’s business expands and the demands on its website increase, these more customizable

2

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.
Website Builder. Our website builder tool allows customers to quickly create a customized, professional-looking website. Users of our website builder can also take advantage of our logomaker tool, which generates a range of customizable business logos that can be automatically integrated into websites and email marketing templates, and a range of other products to promote their business, such as an email marketing tool powered by Constant Contact, search engine marketing, search engine optimization, and Google My Business.
Domain Registration, Management and Resale. As an accredited domain registrar with approximately 11.3 million domains under management at December 31, 2019, we enable our subscribers to search and purchase available domain names from a wide spectrum of domain registries. We also offer domain privacy, which allows customers to register a domain name without publicly listing their name and contact information, and domain protection, which helps customers avoid inadvertently failing to renew a domain name due to outdated credit card or contact information. In addition, we maintain a portfolio of premium domains that are available for resale.
Email Marketing. Our Constant Contact email marketing solutions allow small businesses and other 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, scheduling and sending email messages, and reporting and tracking the results of each campaign. We also provide a library of third party integrations that allow subscribers to easily import, sync, and manage their contacts from external databases, manage events online, and conduct surveys. Our subscribers can also take advantage of our website builder tool and Constant Contact Marketing Advisor, which allows them to speak live by phone or online chat with a marketing advisor to get the guidance they need.
E-commerce Enablement. We offer products that enable our subscribers to sell their products and services online, including secure and encrypted payments, shopping carts, inventory management, online marketplace listing solutions, payment processing and related services and mobile payments. We also feature products that help our subscribers maximize their sales opportunities, including segmentation tools that allow email marketing campaigns to target specific categories of shoppers, and customized “buy now” pages that can be embedded into an email newsletter.
Security. We offer malware protection solutions to help our subscribers safeguard their websites from viruses, malicious code and other threats, as well as web application firewalls, which can help prevent attacks on subscriber websites before they affect subscriber data or operations. We also offer Secure Socket Layer, or SSL, certificates that encrypt data collected on a website, for subscribers that collect personally identifiable information or other private data from their customers and website visitors. We provide a free basic SSL certificate to substantially all of our web hosting, domain and website builder customers, and we offer premium SSL packages for customers seeking additional features.
Site Back-Up. We offer backup control solutions that enable subscribers to schedule, maintain, manage and restore backups of their online data and websites.
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 pay-per-click (PPC) services designed to direct traffic to a subscriber’s website.
Mobile. We offer solutions that allow our subscribers to have their websites and email marketing campaigns 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. Subscribers can also manage their websites and email marketing campaigns while on the go, both through mobile browsers and native apps.
Social Media. We offer tools and services that help our subscribers to communicate effectively with their customers and potential customers through social networks and to coordinate their website and email marketing efforts with their social media presence.
Productivity Solutions. We offer our subscribers a range of leading business productivity tools, including Microsoft Office 365 and G Suite by Google Cloud. These tools include, among others, professional email, word processing and presentation software, online storage, shared calendars, and video meetings.
Analytics. We offer control panels and dashboards that provide our subscribers with tools to analyze activity on their websites.

3

Professional Services. We offer professional services for subscribers who want additional assistance establishing and growing their online presence, including website design, marketing services (including assistance with search engine optimization and search engine marketing), social media management services, and website migration services.
Sales & Marketing
Although we operate through numerous brands, we are focusing our marketing expenditures on our strategic brands, which include Constant Contact, Bluehost, HostGator and Domain.com.
For our web presence segment, the majority of our program marketing expense has historically been associated with targeted online search marketing, including for inclusion of our brands in online directories, 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 primarily 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 new subscribers through word-of-mouth referrals and through partnerships that help us reach additional subscribers, such as our partnerships with Google and WordPress.
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 on social media, YouTube, and other websites, offline marketing through television and radio advertising, partner relationships, 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 online, television, and radio advertising is designed to educate potential customers about our email marketing solutions and raise awareness of our brand.
For our domain segment, we use a combination of online search marketing and a network of referral partners, as well as joint marketing efforts with registries of various generic top level domain names, such as ".com", aimed at increasing subscribers.
Subscriber Support
Our support agents assist our subscribers via phone, email, chat and social media. 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. In addition, we have third-party support arrangements in India, the Philippines and China.
Technology Platform and Infrastructure
The primary technology platforms supporting our web presence and domain segments combine open source and proprietary software, and are based on a scalable architecture that allows us to operate with a large number of subscribers per server. In addition, we use subscriber relationship management, billing and subscriber service support systems to on-board, serve and track our subscribers, and to enable them to manage their own service experience. We currently serve most of our web presence and domain subscribers from five U.S.-based data centers, one of which is owned by us and the rest of which are co-located.
For our most of email marketing segment, we use a central application and a single software code base with unique accounts for each subscriber. As a result, we are able to spread the cost of providing our products across our email marketing 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. We own all of the hardware deployed in support of our platform. Our production system hardware and the disaster recovery hardware for our production system are co-located in third-party hosting facilities in Massachusetts and Texas.
Our website builder and our Ecomdash inventory management and marketplace listing solution are hosted on public cloud services.
Subscriber Profile
As of December 31, 2019, we had approximately 4.8 million subscribers, of which approximately 3.6 million were web presence subscribers, 0.5 million were email marketing segment subscribers and 0.7 million were domain segment subscribers. Based on data from a 2018 survey of subscribers of our major web presence brands, we believe a majority of our web presence subscribers are SMBs, most of whom are businesses with five or fewer employees. We estimate that over 70% of subscribers of our email marketing segment employ 25 or fewer employees.
The industries in which our subscribers operate are very diverse, including retail, restaurants, professional services, non-profits, merchandising, media, recreation, education, construction, health, beauty and wellness, and arts and entertainment,

4

among others. In addition to for-profit businesses, our subscribers include non-profit organizations, community groups, bloggers, and hobbyists.
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, the Philippines, and China. For additional information about our geographic areas, see Note 22, Geographic and Other Information, to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Competition
The global cloud-based services market for SMBs is highly competitive and constantly evolving. For our web presence and domain segments, we expect continued competition, both domestically and internationally, from a number of sources, including the following:
•
competitors in the domain, hosting and website builder markets such as GoDaddy, Ionos by 1&1, Wix, Squarespace, Weebly (now owned by Square), and Web.com;
•
Wordpress.com and Wordpress-focused hosting companies such as WPEngine and SiteGround;
•
e-commerce, payments, email marketing, and marketing automation companies that are expanding their offerings to include website builders or other web presence offerings;
•
cloud hosting providers; and
•
large companies like Amazon, Microsoft and Google, which offer web hosting or website builders, domain registration and other cloud-based services, and Facebook, which offers an Internet marketing platform.
For our email marketing segment, we expect continued competition from MailChimp and other SMB-focused email marketing vendors, as well as additional competition from providers of marketing automation software and web presence competitors who are expanding their offerings to include email marketing functionality.
Competitors in each of our segments are expanding their offerings into adjacent products and services in order to provide a more comprehensive set of business solutions for SMBs, and in some cases, companies that previously competed with us in one of our segments are now competing with us in most or all of them. In addition, marketing automation, ecommerce, payments and other online services companies that have not competed with us in the past are expanding into our market by providing website builder and email marketing tools, and by enhancing offerings tailored for SMBs.
We believe the principal competitive factors in the cloud-based services market for SMBs include: ease of use and effectiveness; availability of integrated, comprehensive solutions; product functionality, performance and reliability; customer service and support; brand awareness and reputation; affordability; and product scalability. In some instances, we have commercial partnerships with companies with which we also compete.
See Part I, Item IA, Risk Factors for additional discussion of competition as it pertains to our business.
Seasonality
Our web presence and domain segments have historically experienced moderately increased subscriber billings in the first quarter of our fiscal year as many subscribers start businesses at the beginning of a new year. These segments record 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. This slight seasonality has a favorable impact on our operating cash flows in the early part of each fiscal year, and an unfavorable impact in the latter part of each fiscal year. We expect that this seasonality will continue.
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 15, 2020, we have eighteen U.S. patents as well as one pending U.S. patent application 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.

5

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 through 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.
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 Part I, Item 1A, 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.
Laws and Regulations
Advertising and promotional information presented on our websites, in our products, and in our other marketing and promotional activities are subject to federal and state consumer protection laws regulating unfair and deceptive acts or practices. U.S. federal, state, and foreign legislatures have also adopted laws and regulations regulating numerous other aspects of our business. Regulations relating to the Internet, including laws governing user privacy and data protection, unsolicited commercial email (spam), and online content and liability for third-party online activities, are particularly relevant to our business. Such laws and regulations are discussed below and in Part I, Item 1A, Risk Factors.
Consumer Protection Laws. We are subject to consumer protection laws and regulations that regulate our marketing practices and/or prohibit unfair or deceptive acts or practices, including under the auspices of the U.S. Federal Trade Commission, or FTC; the Telephone Consumer Protection Act, or TCPA; the Telemarketing Sales Rule; and state consumer protection statutes. These laws and regulations require, among other things, certain disclosures or functionality in our brand websites, customer communications, and the ordering process for our products; obtaining customer consent prior to placing sales calls or sending text messages to wireless numbers; and compliance with “do not call” or “do not contact” laws or requests from individuals. We are also subject to consumer protection laws outside of the United States, which may include privacy and data protection laws, telemarketing laws, regulation of cloud services, e-commerce and distance selling regulation, advertising regulation, unfair competition rules or similar legislation.
Privacy and Data Protection. We collect personally identifiable information and other data from our subscribers and prospective subscribers, as well as from their customers and contacts. 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, or their customers' or contacts', right to decline or opt out) we may use this information to market other products and services to them or to assist our subscribers in marketing their own products and services to their customers and contacts. We may also share subscribers’ personally identifiable information with certain third parties as directed by the subscriber or as described in our privacy notice. In addition, the data we collect from or about our employees as part of our standard human resources procedures is also subject to various laws and regulations in the jurisdictions where we operate, including evolving California laws and EU laws on data export.
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. The FTC and various U.S. state and local governments and agencies regularly use their authority under laws prohibiting unfair or deceptive marketing and trade practices to investigate and penalize companies for practices related to the collection, use, handling, disclosure, dissemination and security of personal data of U.S. consumers. For example, California recently adopted the California Consumer Privacy Act, or CCPA, which became effective on January 2, 2020 and can be enforced by the Attorney General as of July 1, 2020. The CCPA, among other things, requires covered companies to provide new disclosures to California consumers and offer them new abilities to opt-out of certain sales of personal information, as well as to request access to or deletion of their personal information. The law also affords consumers qualified rights to seek liquidated penalties if unauthorized parties gain access to their unredacted, unencrypted personally identifiable information by reason of our failure to adopt and maintain reasonable security measures. Further legislative changes in California, or in other U.S. states, are under consideration. In this highly dynamic legislative, regulatory, and litigation environment, we cannot yet predict the impact of the CCPA on our business or operations, but it may require us to modify our data processing practices and policies in varying ways across our business and brands, and to incur substantial costs and expenses in an effort to comply, or if we become subject to governmental enforcement or private party litigation.

6

In addition, several foreign countries and governmental bodies, including the countries of the European Union, or EU, Canada, and Brazil, have adopted data protection laws and regulations different from and more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, export, disclosure and security of personal data 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 revisions and differing interpretations, and have generally become more stringent over time. Furthermore, additional countries and other jurisdictions are considering the adoption of similar laws and regulations.
In May 2018, the EU-wide General Data Protection Regulation, or GDPR, took effect. The GDPR implemented more stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, increased requirements to erase an individual’s information upon request and comply with other requests from individuals, mandatory data breach notification requirements, restrictions on automated decision-making and profiling, and higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. The GDPR has also imposed more stringent consent requirements related to cookies and similar technologies. Penalties under the GDPR are significant: fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, may be imposed. Moreover, under certain circumstances, we may be considered liable for non-compliance by our third-party partners with the GDPR or other privacy laws and regulations.
Anti-SPAM Laws. We are subject to the U.S. Controlling the Assault of Non Solicited Pornography and Marketing Act of 2003, or CAN-SPAM Act, which 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, and carries significant penalties for violations. 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, and the GDPR. These types of laws are particularly significant for our email marketing segment.
Laws Relating to Online Content and Liability for Third Party Activities. 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, transmit or store content with us in violation of applicable law, third-party rights, or the subscriber’s own policies, which could subject us to liability. Several U.S. federal statutes 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 copyright 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.
•
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 legislation such as the Allow States and Victims to Fight Online Sex Trafficking Act of 2017, or FOSTA, as well as new legislation that may be enacted in the future, may reduce the immunity provided to us by the CDA.
•
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

7

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.
See Part I, Item 1A, Risk Factors for more information about our legal and regulatory risks.
Employees
As of December 31, 2019, we had 3,762 employees, including 1,786 in support and network operations, 766 in sales and marketing, 747 in engineering and development, and 463 in general and administrative. Excluded from our employee figures are approximately 1,500 individuals primarily located in India and the Philippines who are directly employed by third parties and perform a range of services for us, including email-, phone- and chat-based customer and technical support, billing support, network monitoring and engineering and development 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 Warburg Pincus and 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 common stock of Endurance International Group Holdings, Inc. to its partners in accordance with the limited partnership agreement of WP Expedition Topco. We have completed numerous acquisitions since inception, including the acquisition of Constant Contact, Inc. in February 2016.
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.

8

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
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 enhanced products and services in a timely manner that keeps pace with new technologies, competitor offerings, the current industry trend toward comprehensive, integrated web presence and marketing automation solutions, and the evolving needs of our subscribers;
•
difficulties providing or maintaining a high level of subscriber satisfaction, which could cause our existing subscribers to cancel their subscriptions or stop referring prospective subscribers to us;
•
increases in our subscriber churn rates or our failure to convert subscribers from introductory, discounted products to full priced solutions;
•
perceived or actual security, availability, integrity, privacy, 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;
•
continued or increased competition in the SMB market, including greater marketing efforts or investments by our competitors in advertising and promoting their brands or in product development;
•
changes in search engine ranking algorithms or in search terms used by potential subscribers; or
•
our inability to market our solutions in a cost-effective manner to new subscribers or to our existing subscribers due to changes in regulation, or changes in the enforcement of existing regulation, that would affect our marketing or pricing practices.
Due to these or other reasons, we may not be able to maintain positive subscriber 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.
The cloud-based technology and online marketing solution industries are characterized by rapid and ongoing technological change, frequent new product and service introductions and new market entrants, and evolving industry standards. Our methods for marketing 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, ecommerce tools, voice-activated technology, and greater availability of web presence and email marketing tools from ecommerce, payments and marketing automation companies are changing the way consumers find, purchase and use our solutions. Our future success will depend on our ability to adapt to rapidly changing technologies and evolving industry standards and to anticipate subscriber needs and preferences. If we are not able to offer innovative and comprehensive 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. In addition, if existing technologies or systems, such as the domain name system that directs traffic on the Internet, become less relevant due to changing technologies, or if we fail to anticipate and manage technologies that harm or reduce consumer demand for our offerings, our revenue and operating results may be adversely affected.
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. Some of our competitors have greater marketing, engineering, product development and other resources, more brand

9

recognition and consumer awareness, more scalable, more comprehensive or better integrated 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. Our competitive position may also be challenged by new market entrants (both new companies and established companies expanding their product offerings or target customers), since there are relatively few barriers to entry in our market.
We have faced and expect to continue to face intense competition in our web presence and domain segments, both domestically and internationally, from a number of sources, including the following:
•
competitors in the domain, hosting and website builder markets such as GoDaddy, Ionos by 1&1, Wix, Squarespace, Weebly (now owned by Square), and Web.com;
•
Wordpress.com and Wordpress-focused hosting companies such as WPEngine and SiteGround;
•
e-commerce, payments, email marketing, and marketing automation companies that are expanding their offerings to include website builders or other web presence offerings;
•
cloud hosting providers; and
•
large companies like Amazon, Microsoft and Google, which offer web hosting or website builders, domain registration and other cloud-based services, and Facebook, which offers an Internet marketing platform.
For our email marketing segment, we expect continued competition from MailChimp and other SMB-focused email marketing vendors, as well as additional competition from providers of marketing automation software and web presence competitors who are expanding their offerings to include email marketing functionality.
Competitors in each of our segments are expanding their offerings into adjacent products and services in order to provide a more comprehensive set of business solutions for SMBs. In some cases, companies that previously competed with us in one of our segments are now competing with us in most or all of them, as email marketing providers begin to offer website builders, and vice versa. In addition, marketing automation, ecommerce, payments and other online services companies that have not competed with us in the past are expanding into our market by providing website builder and email marketing tools, and by enhancing offerings tailored for SMBs. As a result of these changes, SMBs now have a broader range of “entry points” for establishing an online presence, and may choose to do so through an e-commerce, payments, or marketing solutions provider that provides a website builder, hosting or email marketing as part of a “bundled” solution, rather than starting with a domain name or hosting account.
In addition, our competitors have and may continue to offer price discounts or alternative pricing models for the products and services they offer, such as "freemium" pricing in which a basic offering is provided for free with advanced features provided for a fee. Some of our competitors have used the freemium model successfully to drive both free and paid subscriber growth. Although we do have freemium offerings, they are not extensive, which could put us at a disadvantage relative to these competitors with respect to subscriber growth. In addition, we sometimes need to match our competitors' discounts or the commissions they pay to referral sources in order for our products to remain competitive, which could reduce our margins.
Our business and operations are complex due to our history of acquisitions and organizational change, which has and may continue to result in operational and other challenges.
As a result of acquisitions and internal growth, we increased our revenue from $741.3 million in the year ended December 31, 2015 to $1.1 billion in the year ended December 31, 2019. During this time period, we completed numerous acquisitions, including the acquisition of the Directi web presence business in January 2014, which expanded our international operations, and the acquisition of Constant Contact in February 2016.
Due to our history of acquisitions, we offer our products and services through numerous brands that operate from different websites, control panels, billing systems, information technology and other systems. As a result, compliance assessments, compliance-related changes, roll-outs of new products and platform, product and technology upgrades, and changes in business processes often need to be implemented more than once. This level of complexity has sometimes resulted and may continue to result in difficulties maintaining effective internal controls, reliance on manual controls, challenges in maintaining and upgrading our technology platforms, additional compliance costs and risks, product roll-out inefficiencies, and other operational challenges.
In particular, differences across our multiple billing systems have at times made it challenging for us to accurately and consistently determine certain enterprise-wide operational metrics, such as total subscribers. Total subscribers and other operational 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 we are required to disclose. Also, we have identified in the past, and may in the future identify, errors or bugs in the systems we use to generate operational metrics. We work on an ongoing basis to improve our controls and processes for total subscribers and other operational metrics, but errors and inconsistencies with respect to these metrics could still occur, which could negatively impact our business decisions and lead to inaccurate disclosures.

10

In addition, as a public company, we are required by the Sarbanes-Oxley Act of 2002 to maintain, evaluate, test and document internal controls over financial reporting, and our multiple brands and systems make this process more complicated and costly than it would be otherwise. Any failure in the effectiveness of our system of internal control over financial reporting could have a material adverse impact on our ability to report our financial statements and/or key financial metrics in an accurate and timely manner and undermine investor confidence in the reliability of our financial statements, key financial metrics, or other public disclosures. Inaccurate and/or untimely financial statements or other disclosures could also subject us to regulatory actions, civil or criminal penalties or stockholder litigation.
Our growth may be adversely affected if we cannot continue to successfully attract, retain and motivate key employees.
Our ability to successfully pursue our growth strategy depends on our ability to attract, retain and motivate key employees across our business, particularly engineering and development employees and our senior executive team. High demand from other technology companies for skilled engineering and technical employees has made and may continue to make it challenging to retain key employees or hire replacements if they leave. In addition, candidates making employment decisions, particularly in high-technology industries, often consider the value of any equity they may receive from prospective employers. As a result, volatility or poor performance in the market price of our common stock, or concerns by potential or current employees about the performance of our stock, has and may continue to contribute to hiring and retention challenges.
We are also limited in our ability to recruit global talent for our U.S. offices by U.S. immigration laws. Work visa restrictions in the U.S. have become tighter in recent years, making it more difficult to source qualified personnel from other countries, and changes in U.S. immigration policies under the current presidential administration may further limit our ability to recruit globally.
Our current executives are not contractually obligated to remain employed by us and may leave at any time. The loss of any of these individuals could significantly delay or prevent the achievement of, or make it more difficult for us to pursue and execute on, our business objectives.
Our inability to attract and retain qualified individuals could have an adverse effect on our ability to carry out our business plans and objectives and, as a result, our ability to compete could decrease and our operating results could suffer.
We have experienced system, software, Internet, data center, network, and customer support center failures in the past. We do not yet have a disaster recovery plan that covers all of our brands, and we do not yet have a complete business continuity program. Any interruptions, delays or failures in our services could harm our reputation, cause us to lose subscribers, or result in unanticipated costs.
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 on the delivery of our products and services to subscribers, even minor interruptions in our service or losses of data could harm our reputation, particularly if they frequently reoccur. 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; improper maintenance and change control; Internet connectivity downtime or disruptions in connectivity between and among systems; computer viruses; physical or electronic security breaches; inadequate systems monitoring; intentional bad acts such as sabotage, hacking, ransomware, vandalism or terrorism; pandemics; and natural disasters.
We have experienced system failures, delays and periodic interruptions in service, or outages, due to factors such as power outages and network equipment, storage system, and network configuration failures. In addition, we have experienced outages or other disruptions 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. We may experience future outages that disrupt the operation of our solutions due to these or other factors.
Our systems supporting our web presence and domain segments are not fully redundant. In 2019, we built out and tested additional redundancies for a significant portion of our hosting subscribers, but we have not yet implemented equivalent redundancies across all of our web presence and domain brands. 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, and a significant portion of our domain subscribers, are hosted across five U.S.-based data centers, one of which is owned by us and the rest of which are co-located, and accordingly, any failure or downtime in these data center facilities would affect a significant percentage of our subscribers. While we have a disaster recovery system that covers most of our email marketing subscribers, it is nonetheless likely to be difficult and time-consuming to recover data and services in the event of a significant outage. 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 our major 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.

11

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. If the connectivity these parties provide is discontinued, disrupted, or does not provide adequate data transmission capacity, our ability to provide services to our subscribers could be compromised.
Our customer support centers are also vulnerable in the event of failure caused by total destruction or severe impairment. The teams in each customer support center are trained to provide brand-specific support services for a discrete subset of our brands, which, along with staffing constraints and differences in software systems between our brands, limits our ability to effectively re-route calls, email and chat from one customer support center to another customer support center. Accordingly, if any of our customer support centers were to be impaired or destroyed, our ability to re-route calls, email and chat to operational customer support centers or to provide the type of customer support services that the non-operational customer support center had provided to subscribers of a particular brand or brands may be limited.
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 cyber, 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 achieve or 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 challenges, including as a result of outages, errors or bugs in our software or third-party software, human error, or migrations of subscribers as part of internal platform consolidation efforts. If we are unable to achieve or maintain a high level of subscriber satisfaction, we could experience higher subscriber churn, lower than expected renewal rates, disputes and litigation, or negative publicity, any of which could have a negative effect on our business, financial condition and operating results.
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.
Security incidents, privacy breaches or fraud may harm our business.
We collect, handle, store and transmit large amounts of sensitive, confidential, personal and proprietary information, including payment card information and information we receive from or maintain on behalf of our subscribers. Unauthorized access to, use of, or loss of this type of information and any compromise of our networks, systems, or applications may cause damage to our platforms, service interruptions to our subscribers, loss of subscriber websites and data, or harm to our reputation and may result in increased security costs, distraction of our management team, litigation, regulatory investigations or other direct or indirect expense or liabilities. These types of incidents can result from numerous sources, including: physical or electronic security breaches; viruses, ransomware or other malware; hardware vulnerabilities; accident or human error by our own personnel or those of our partners; criminal activity or malfeasance (including by our own personnel); fraud or impersonation scams perpetrated against us; or security events impacting our third-party service providers. We have experienced security events such as these in the past and expect they will continue in the future. To date, we do not believe that any of these events has had a material effect on us, but we may experience larger and more serious incidents in the future.
In addition, many states and countries in which we have subscribers have enacted regulations requiring us to notify governmental authorities, regulators and subscribers in the event that certain systems are compromised, or 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 or a disruption in the availability or integrity of our

12

services or data we store for subscribers, efforts to respond to the incident and enhance our controls, as well as potential penalties imposed by regulators or damages awarded to private plaintiffs, could increase our costs.
Organizations generally, and Internet-based organizations in particular, are vulnerable to targeted attacks aimed at exploiting network and system applications or weaknesses, causing damage or disruption, or obtaining ransom payments. Techniques used to obtain unauthorized access to, or to sabotage, networks and systems often are not recognized until launched against a target. Cyber criminals use advanced and quickly-evolving tactics, including evasive applications, proxies, tunneling, encryption techniques, vulnerability exploits, buffer overflows, distributed denial of service attacks, or DDoS attacks, and botnets. For example, from time to time we are targeted by DDoS attacks in which attackers attempt to block access to our websites or our subscribers' websites, as well as attempts to place illegal or abusive content on our or our subscribers' 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.
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. As security threats evolve and become more sophisticated and more difficult to detect and defend against, a hacker or thief may defeat our security measures, or those of our third-party service providers, partners, or vendors, and obtain confidential or personal information. We or the third party may not discover the security breach and theft of information for a significant period of time after the breach occurs. We may need to expend significant resources to protect against security breaches and thefts of data or to address problems caused by breaches or thefts, and we may not be able to, or may fail to, anticipate cyber-attacks or implement adequate preventative measures. In addition, we rely on third parties to provide physical security for our facilities, including data centers. Any physical breach of security 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 a variety of social engineering attacks, such as e-mail scams, phishing, and/or similar attack 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 or fail to ensure 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 or disclose our confidential information due to human error or technical issues, such violations or incidents 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. In addition, in the past, security specialists or "white hat" hackers have found and publicized security vulnerabilities in our platforms, and this may occur again in the future. This type of publicity could harm our reputation, even if we correct the vulnerabilities before they have actually been exploited. We might also be required to expend significant capital and resources to investigate, protect against or address breaches and remediate vulnerabilities. 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 any 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 attempt to keep our rate of credit card refunds and chargebacks low, our credit card processors have in the past and could in the future impose fines on us as a result of increased refunds and chargebacks. In addition, if our refunds or chargebacks increase in the future, our credit card processors could require us to maintain or increase reserves, increase our processing fees, terminate

13

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. In the past, we have identified control gaps in our adherence to PCI DSS in certain of our brands, and any failure to achieve or maintain compliance with PCI DSS across our various brands could have negative consequences. In this event, 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. In addition, we may have difficulty negotiating competitive rates with payment networks for as long as the noncompliance persists.
From time to time, fraudulent transactions conducted on our websites (such as through the use of stolen credit card numbers) have been above levels consistent with credit card association guidelines. This has sometimes resulted, and may in the future result, in third-party audit requirements and additional expense to change our processes to reduce fraud. It 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 credit card association. Under our contracts with our credit card processors, we are required to reimburse the credit card processors for such penalties. Although we believe that our current level of fraud monitoring is adequate, we face the risk that we may fail to maintain an adequate level of fraud monitoring in the future, or that one or more credit card associations may, at any time, assess penalties 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 cover, in whole or in part, 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.
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 and key metrics have varied from period to period in the past, and we expect they may continue to fluctuate as a result of a number of factors, a number of which are outside of our control, including:
•
our ability to cost-effectively attract, retain, and increase sales to subscribers;
•
the impact of competition;
•
the timing and success of introductions of new products or product enhancements;
•
the amount and timing of our marketing expenditures;
•
the amount and timing of capital expenditures or extraordinary expenses, such as litigation, regulatory or other dispute-related settlement payments;
•
the mix of products we sell;
•
higher than expected refunds to our subscribers;
•
systems, data center and Internet failures, breaches and service interruptions;
•
negative publicity about us or our brands;
•
loss of key employees or difficulties recruiting new employees;
•
the impact of changes in legislation or regulations, or to interpretations of existing legislation and regulations;
•
litigation or governmental enforcement actions against us due to actual or alleged failures to comply with applicable laws or regulations;
•
failures to comply with industry standards such as the payment card industry data security standards;
•
changes in our effective tax rate, our misinterpretation of domestic and international tax laws and regulations, or adverse outcomes from regulatory examinations of our income tax and other tax returns;
•
interest rate fluctuations;
•
goodwill and other intangible asset impairments;

14

•
terminations of, disputes with, or material changes to our relationships with third-party partners; and
•
costs, integration problems, or other liabilities associated with past or future acquisitions, strategic investments or joint ventures.
Our financial or operating results in future reporting periods may fall below the expectations of the public market, investors, or analysts due to one or more of the factors above or for other reasons, which could cause our stock price to decline substantially.
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 our key brands Bluehost, HostGator, Domain.com, and Constant Contact.
We believe that establishing and maintaining our key brands is critical to our efforts to expand our subscriber base. If we do not build awareness of our key 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 business has been, and may continue to be, affected by the increasing tendency of consumers to search for web presence and online 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 benefited competitors who have invested more heavily than we have in building brand awareness, and who have used a broader array of marketing channels to do so, in contrast to our historical focus on marketing through online advertising, online directories, and referral partners.
To attract and retain subscribers and to promote and maintain our brands in response to competitive pressures, we may have to substantially increase our financial commitment to creating and maintaining brand loyalty among subscribers. Improving our brand awareness may be challenging because we have multiple key brands rather than a single flagship brand, and because a number of our competitors have invested heavily in their brands in the past and may be able to devote more resources than we can to brand awareness going forward.
In addition, 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.
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, which would adversely affect our business. Our expectations for future revenue trends 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. However, SMB spending patterns are difficult to predict and are sensitive to the general economic climate, the economic outlook specific to SMBs and overall consumer confidence, which makes it difficult to forecast market trends accurately. If any of our assumptions regarding the SMB market proves to be inaccurate, our revenue could be significantly lower than expected.
Our ability to compete depends on our ability to offer products and services that enable our subscribers to establish, manage and grow their businesses. Our web presence and commerce offerings are predicated on the assumption that an online presence will continue to be an important factor in our subscribers’ abilities to establish, expand, manage and monetize their businesses 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 voice assistant software) 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 solution depends on the continued widespread use 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 email providers to prevent unsolicited bulk email, or “spam,” from overwhelming consumers’

15

inboxes. If security problems become widespread or frequent or if email providers cannot effectively control spam, the use of email as a means of communication may decline as consumers find alternative ways to communicate. We could also be harmed if, in an attempt to limit unsolicited email, email providers restrict or limit emails sent by our customers using our email marketing solution. In addition, if alternative communications tools, such as social media, or ephemeral or text messaging, continue to gain widespread acceptance, the need for email may decrease. Any of these events could materially increase our expenses or reduce demand for our email marketing solution and harm our business.
Our success depends in part on our strategic relationships and partnerships or other alliances with third parties.
We 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. 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.
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 practices 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, in the past, we were impacted when an important referral source began featuring competing web hosting brands on their website, rather than just our brand. It is possible that in the future, this referral source or another, similar referral source will continue to add competing web hosting options or even remove us as an option, which could have a negative impact on us.
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 domain name 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. In addition, the requirements of ICANN and other domain registries are not consistent with some aspects of the GDPR or other privacy laws, which could make compliance with these requirements infeasible or more costly and complicated than they would be otherwise.
We rely on software licensed from or hosted by third parties to offer certain of our solutions to our subscribers. We also have relationships with product partners whose solutions, including shopping carts and security tools, we integrate with our products and offer to our subscribers. In our web presence segment, we use third party web hosting control panels, which allow our hosting customers to manage their websites, for several of our strategic brands. In our email marketing segment, we rely on some of our partners to create integrations with third-party applications and platforms used by our subscribers. We may be unable to continue our relationship with any of these partners or third parties if, for example, they decline to continue to work with us or are acquired. 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 or more costly than the solution that we had previously offered. We currently face, and expect to face from time to time in the future, pricing or other disputes with our third party partners and licensors, which may disrupt our operations and reduce our revenues, and resolution of disputes may increase our costs and/or costs to our customers.  Although the results of any such disputes, whether current or future, cannot be predicted with certainty, the final outcome could adversely affect our business, financial condition, and operations.   
We may also 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, which could harm our business and operating results.
The international nature of our business exposes 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 workforces, and conduct operations, primarily in the United States, Brazil, India and the Netherlands and have third-party support arrangements in India, the Philippines and China. Conducting operations in international markets or establishing international locations subjects us to challenges that we have not generally faced in the United States, including:
•
adapting our solutions and marketing practices to international markets, including translation into foreign languages;
•
compliance with foreign laws, including more stringent laws in foreign jurisdictions relating to consumer privacy and protection, collection and use of data obtained from individuals and other third parties;

16

•
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;
•
greater difficulty in enforcing contracts, including our terms of service and other agreements;
•
management, communication, compliance 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;
•
compliance by our employees, business partners and other agents with anti-bribery laws (including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and similar anti-bribery laws in India, Brazil and other jurisdictions where we do business), economic sanction laws and regulations, export controls, and other U.S., foreign 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, service, use or other tax) systems, and our failure to comply with all relevant foreign tax rules and regulations due to our lack of familiarity with the jurisdiction’s tax laws or unexpected or aggressive tax positions taken by foreign tax authorities;
•
restrictions and withholdings on the repatriation of earnings;
•
foreign currency exchange risk;
•
uncertain political, regulatory and economic climates in some countries, which could result in unpredictable or frequent changes in applicable regulations or in the general business environment that could negatively impact us; and
•
reduced protection for intellectual property rights in some countries.
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 about our subscribers, and by privacy laws in other jurisdictions (such as the GDPR) that are generally more protective of subscriber data than U.S. law. 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.
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. We have acquired the businesses and assets of numerous other companies, including the acquisition of Constant Contact in February 2016. We have also made strategic investments in and entered into joint ventures with third parties, typically with small companies focused on developing or marketing products that may complement our own. We may complete transactions of this type in the future. These transactions involve numerous risks, including the following:
•
difficulties or delays in integrating the acquired businesses, which could prevent us from realizing the anticipated benefits of acquisitions;
•
reliance on third parties for transition services prior to subscriber migration;
•
difficulties in supporting and migrating acquired subscribers, if any, to our platforms, which could cause subscriber churn, unanticipated costs, and damage to our reputation;
•
disruption of our ongoing business and diversion of management and other resources from existing operations;
•
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;
•
differences in corporate culture, compliance protocols, and risk management practices between us and acquired companies;
•
potential loss of the key employees of an acquired business;
•
potential loss of the subscribers or partners of an acquired business due to the actual or perceived impact of the acquisition;
•
difficulties associated with governance, management and control matters in majority or minority investments or joint ventures;
•
unforeseen or undisclosed liabilities or challenges associated with the companies, businesses or technologies we acquire;
•
adverse tax consequences, including exposure of our entire business to taxation in additional jurisdictions; and
•
accounting effects, including potential impairment charges and requirements that we record deferred revenue at fair value.

17

Any of these risks could result in our acquisitions disrupting our business and/or failing to achieve their intended objectives.
We have a history of losses and may not be able to achieve or maintain profitability.
We had a net loss in each year since inception through 2017. Although we reported net income for fiscal year 2018, we reported a net loss for fiscal year 2019 and we may not be able to achieve or maintain profitability in the future. We had a net loss attributable to Endurance International Group Holdings, Inc. of $107.3 million for fiscal year 2017, net income of $4.5 million for fiscal year 2018, and net loss of $12.3 million for fiscal year 2019.
We have made and expect to continue to make significant expenditures to maintain, develop, improve and expand our business, and we may not be able to maintain profitability in light of our expenditure levels. We may incur significant losses in the future if we are unable to increase subscriber and revenue growth to cover these expenditures or for a number of other reasons, including interest expense related to our substantial indebtedness, amortization expense associated with past or potential future acquisitions, and the other risks described in this report.
We are a multinational organization faced with increasingly complex tax issues in many jurisdictions, and if our tax positions are examined by tax authorities, we could be obligated to pay additional taxes in various jurisdictions.
As a multinational organization with a digital and Internet-based business, we may be subject to direct and indirect taxation in multiple jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we collect or pay in these jurisdictions could increase substantially with changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and operating results.
Governments are increasingly focused on ways to increase tax revenues, which has contributed to an increase in audit activity and more aggressive positions taken by tax authorities. Any additional taxes or other assessments by tax authorities may be in excess of our current tax provisions or may require us to modify our business practices in order to reduce our exposure to additional taxes going forward, any of which could have a material adverse effect on our business, results of operations and financial condition.
Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to levy additional or new sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in e-commerce. Changes in tax laws, such as tax reform in the United States or changes in tax laws resulting from the Organization for Economic Co-operation and Development’s multi-jurisdictional plan of action to address base erosion and profit shifting, could impact our effective tax rate.
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. 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. In addition, incurring additional debt may not be permitted under our credit agreement or indenture governing our 10.875% senior notes due 2024 (which we refer to as the "Senior Notes"), or may require lender or noteholder consent. As such, 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.

18

We rely on data centers to deliver our services. If we are unable to renew our data center agreements on favorable terms, or at all, our business could be adversely affected. 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 six data center facilities located in Massachusetts (three), Texas (two), and Utah (one). 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 platforms run, 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 on various dates through 2026. 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. These agreements may not provide us with adequate time to transfer operations to a new facility in the event of early termination. 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 could result in downtime or other disruptions to our services, which could damage our reputation, cause subscriber losses and harm our operating results and financial condition.
If we are able to renew the agreements on our existing co-located data center facilities, the lease rates may be higher than those we pay under our existing agreements. In addition, the complexities and risks of data center migrations, even when we have adequate time to plan for them, can sometimes make it impractical to leave our current data center facilities, even when we may be able to obtain economic or other terms with a new data center provider that would be better for us over the long term. If we fail to increase our revenue by amounts sufficient to offset any increases in lease rates for our existing data center facilities, or cannot take advantage of potentially better terms with new data center providers because of migration challenges, our operating results may be materially and adversely affected.
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, vulnerabilities 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 be free of serious defects, which could result in lost revenue or a delay in market acceptance. Such errors in computer code, vulnerabilities or other system errors have in the past and may in the future result in performance issues, loss of data, loss or fraudulent transfers of customer domain names, data breaches, malware outbreaks, DDoS attacks staged by using our resources, and other issues. To date, we do not believe that any of these errors has had a material effect on us, but we may experience larger and more serious incidents in the future.
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, we 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.

19

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. 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 are not immediately reflected in our operating results.
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 are subject to numerous laws and regulations, including those described in Part I, Item 1, Business under the heading “Laws and Regulations.” Our actual or perceived failure to comply with laws and regulations could harm our business, and new or modified laws or regulations could reduce demand for our products or require us to change our products, our operations or our marketing, market research and advertising practices in ways that negatively affect us.
Any failure by us to comply with applicable laws or regulations, including (among others) those described in Part I, Item 1, Business may result in a range of negative consequences, including: regulatory investigations; governmental enforcement actions; requirements that we change our marketing or other business practices in a manner unfavorable to us; litigation (including potential class action litigation); fines and penalties; or negative publicity. Any of these consequences could have an adverse effect on our reputation and business.
In addition, compliance with new laws or regulations, or modifications to existing laws or regulations, could impair our ability to retain or attract subscribers, reduce demand for our products, or increase our cost of doing business. For example:
•
Anti-spam laws that require that our subscribers’ customers have the ability to opt out of receiving commercial emails, or "opt-in" rules that require them to affirmatively elect to receive commercial emails, may reduce the effectiveness of our products and marketing efforts, particularly Constant Contact’s email marketing solution.
•
Consumer protection laws or regulations requiring us to obtain additional consents from subscribers or to provide them with additional disclosures in order to be permitted to automatically renew their subscriptions, or to automatically enroll them into paid subscriptions after a free trial period, could impair our ability to retain or attract subscribers and increase the potential for civil liability under consumer protection laws.
•
Further regulation of cookies, web beacons and similar technology for online behavioral advertising (such as the consent requirements for cookies and similar technologies established by the GDPR or the opt-out requirements established by the CCPA) may lead to broader restrictions on our collection and use of online usage information in order to attract and retain customers. Such regulation may also restrict collection of the data from our subscribers' customers and contacts as well as how we may use this data. This could impair our ability to collect, transfer and/or use information that we use to provide targeted advertising to our subscribers or to assist our subscribers in marketing to their own customers, which could negatively affect our ability to maintain and grow our subscriber base.
•
Privacy laws requiring that certain data associated with domain name registration be kept private (including, for example, requirements that prohibit publishing the identity of a party registering a domain name) could reduce our revenue from sales of domain privacy products, since consumers in the jurisdictions where these laws apply would no longer need to purchase these products to maintain the privacy of their data.
•
The adoption of any laws or regulations adversely affecting the growth, popularity, accessibility or use of the Internet, including laws impacting Internet neutrality (such as the 2015 repeal of U.S. Internet neutrality regulations) or new tax regulations or court decisions concerning the taxation of online commerce, could decrease the demand for our products, require us to make modifications to our products, or 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. While we enter into contractual arrangements to help ensure that these parties 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

20

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. In particular, under certain circumstances, we may be considered liable for non-compliance by our third-party partners under the GDPR, the CCPA or other privacy laws and regulations. We also use 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. These or similar instances of noncompliance by our third-party partners could have an adverse impact on our reputation and business.
Failure to adequately protect and enforce our intellectual property rights could substantially harm our business and operating results.
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, and may not provide an adequate remedy in the event of misappropriation or unauthorized disclosure. Despite our efforts to protect our intellectual property rights, unauthorized parties, including employees, subscribers and third parties, have made, and in the future may make, unauthorized or infringing use of our brand names, 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.
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.
We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.
There is 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. 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. 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.
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, many companies are devoting significant resources to obtaining patents that could affect many aspects of our business, and our competitors and others may have significantly larger and more mature patent portfolios than we have. Since we do not have, and are not attempting to develop, a significant patent portfolio, this may prevent us from deterring patent infringement claims as well as limit our ability to develop product enhancements that are similar to patented third-party technology.
Our use of “open source” software could adversely affect our ability to sell our services and subject us to possible litigation.

21

We use open source software 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.
We could face liability or incur other costs as a result of the activities of our subscribers. Although the statutes discussed in Part I, Item 1, Business (including the DMCA and the CDA) 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 and the enactment of FOSTA 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 an Internet service provider's role in monitoring subscriber 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.
We may face liability in connection with ownership or control of subscriber accounts, domain names or email contact lists or in connection with domain names we own.
As a provider of cloud-based solutions, including as a registrar of domain names and related services, we have faced and may continue to face liability or costs related to ownership or control of subscriber accounts, websites, domain names or email contact lists, or in connection with domain names we own, including the following:
•
Our failure to renew a subscriber’s domain name or for our role in the wrongful transfer of control or ownership of accounts, websites or domain names;
•
Other forms of account, website or domain name “hijacking,” including misappropriation by third parties of subscriber accounts, websites or domain names;
•
Trademark infringement if one or more domain names in our domain name portfolios that we own and provide for resale is alleged to violate another party’s trademark;
•
Infringement of third party trademarks or copyrights if advertisements displayed on websites associated with domains registered by us contain allegedly infringing content placed by third parties; and
•
Providing the identity and contact details of a domain name registrant who has purchased our domain privacy service, or who has rights preventing disclosure of such information under the GDPR, even though our terms of service reserve the right to provide the underlying WHOIS information and/or to cancel privacy services on domain names in certain circumstances.
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 involvement by us and, therefore, could result in increased costs for us.

22

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 administered by the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC, which prohibit certain transactions with U.S. embargoed or sanctioned countries, governments, persons and entities. These laws and regulations, and the targets of U.S. sanctions, are subject to change, including without advance notice.
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 particular, as we enhance the systems we use to screen out prohibited transactions, we may identify additional instances of non-compliance. 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 targets of U.S. and other applicable sanctions laws. 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.
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 limitations or prohibitions on, or delays affecting, our ability to export or sell our solutions could adversely affect 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. Additionally, a reorganization of or change in the number of reporting units could result in the reassignment of goodwill between reporting units and may trigger an impairment assessment. 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 determined. Any impairment charges or changes to the estimated amortization periods could have a material adverse effect on our financial results. We recorded charges for impairment of goodwill and other intangible assets during 2019, 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, 2019, we had approximately $1.7 billion of aggregate indebtedness, not including original issue discounts of $16.9 million and deferred financing costs of $25.7 million. Under our first lien term loan facility entered into on June 20, 2018, which refinanced our prior first lien term loan facility, we are required to repay approximately $7.9 million of principal at the end of each quarter and are required to pay accrued interest upon the maturity of each interest accrual period. We estimate that our interest payments on our first lien term loan facility will be approximately $78.3 million for 2020. The interest accrual periods under our Senior Credit Facilities are typically three months in duration, except for LIBOR-based revolver loans, which are generally one or three months 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 Senior Notes on a semi-annual basis. We estimate that we will pay approximately $38.1 million of interest on the Senior Notes during the year ended December 31, 2020.
We may be able to incur substantial additional debt in the future. The terms of our Senior Credit Facilities and the indenture governing the Senior 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;

23

•
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 elimination of LIBOR could adversely affect our business, results of operations or financial condition.
In July 2017, the head of the United Kingdom Financial Conduct Authority announced plans to phase out the use of LIBOR by the end of 2021. In addition, other regulators have suggested reforming or replacing other benchmark rates. These may be replaced by the Secured Overnight Financing Rate, or SOFR, or other benchmark rates over the next several years. Although the impact is uncertain at this time, the elimination of LIBOR could have an adverse impact on our business, results of operations, or financial condition. We have approximately $1,374.0 million principal amount of LIBOR-based debt under our Senior Credit Facilities. All of this amount will convert to a floating interest rate based on the prime rate if LIBOR is discontinued, which would likely result in increased interest expense. We may incur significant expenses to amend our LIBOR-indexed loans, derivatives, and other applicable financial or contractual obligations, including our Senior Credit Facilities and interest rate caps, to a new reference rate, which may differ significantly from LIBOR. Accordingly, the use of an alternative rate could result in increased costs, including increased interest expense on our Senior Credit Facilities, and increased borrowing and hedging costs in the future. Additionally, the elimination of LIBOR may adversely impact the value of and the expected return on our existing interest rate cap and any other derivatives, as well as any other contracts that reference LIBOR. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and we are unable to predict the effect of any such alternatives on our business, results of operations or financial condition.
The terms of our Senior Credit Facilities and the indenture governing the Senior 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.
Our Senior Credit Facilities and the indenture governing the Senior 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. We are also required to comply with a financial covenant to not exceed a maximum ratio of consolidated senior secured net indebtedness to an adjusted consolidated EBITDA measure. 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 our Senior Credit Facilities and the Senior Notes and could have a material adverse impact on our business. Our Senior Credit Facilities and the indenture governing the Senior

24

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 Senior Notes or to remedy any defaults under our Senior Credit Facilities or the indenture governing the Senior 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 Senior 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 Senior 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 Senior Notes. The ability of our subsidiaries to make transfers and other distributions to EIG Investors is 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, on satisfactory terms, or at all, which would limit EIG Investors’ ability to meet its scheduled debt service obligations (including in respect of our Senior Credit Facilities or the Senior Notes). Our ability to restructure or refinance our indebtedness 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. Our Senior Credit Facilities and the indenture governing the Senior Notes will also 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 could result in an event of default that would trigger acceleration of our indebtedness and would likely result in a reduction of EIG Investors' credit rating, which could harm our ability to incur additional indebtedness.
EIG Investors may not be able to repurchase the Senior Notes upon a change of control or pursuant to an asset sale offer, which would cause a default under the indenture governing the Senior Notes and our Senior Credit Facilities.
Upon the occurrence of specific kinds of change of control events, EIG Investors will be required under the indenture governing the Senior Notes to offer to repurchase all outstanding Senior Notes at 101% of their principal amount plus accrued and unpaid interest, if any, unless the Senior Notes have been previously called for redemption. The source of funds for any such purchase of the Senior 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 Senior Notes upon a change of control because it may not have sufficient financial resources to purchase all of the Senior Notes that are tendered upon a change of control. Further, the terms of our Senior Credit Facilities and any of EIG Investors' future debt agreements may restrict EIG Investors from repurchasing all of the Senior Notes tendered by holders upon a change of control. Accordingly, EIG Investors may not be able to satisfy its obligations to purchase the Senior Notes unless it is able to refinance or obtain waivers under our Senior Credit Facilities. EIG Investors’ failure to repurchase the Senior Notes upon a change of control would cause an event of default under the indenture governing the Senior Notes and a cross-default under our Senior Credit Facilities. Our Senior Credit Facilities also provide that a change of control is an event of 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 following a non-ordinary course asset sale as specified in the indenture governing the Senior Notes, EIG Investors may be required to commence an offer to purchase the Senior Notes with the proceeds from the asset sale at a price equal to 100% of their principal amount plus accrued and unpaid interest. Our Senior Credit Facilities and any of EIG Investors' future debt agreements may contain restrictions that would limit or prohibit EIG Investors from completing any such offer. EIG Investors’ failure to purchase any such Senior Notes when required under the indenture would be an event of default and a cross-default under our Senior Credit Facilities.
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.

25

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;
•
changes in expectations for, or evaluations of, our stock by securities analysts, or decisions by securities or industry analysts not to publish or to cease publishing research or reports about us, our business or our market;
•
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; and
•
recruitment or departure of key personnel.
Securities class action litigation is sometimes brought against companies that experience periods of volatility in the market price of their securities. As discussed in Note 18, Commitments and Contingencies, to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, in 2015, separate class action securities lawsuits were filed against us and Constant Contact; we settled one of these lawsuits in 2019, and we expect the final settlement hearing for the other to take place in the first half of 2020. In the future, we may be the target of additional securities litigation related to volatility in our stock, which could result in substantial costs and divert management’s attention and resources from our business.
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 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, 2019, a total of 28,619,888 shares of our common stock are subject to outstanding options, restricted stock units and restricted stock awards, of which 17,526,179 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 65,693,919 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, 2019, our directors, executive officers and their affiliates beneficially own, in the aggregate, 50.3% of our issued and outstanding common stock. Specifically, investment funds and entities affiliated with Warburg Pincus own, in the aggregate, 35.9% of our issued and outstanding common stock, and investment funds and entities affiliated with Goldman Sachs own, in the aggregate, approximately 10.5% 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

26

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;
•
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;
•
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, subject to limited exceptions set forth in our stockholders agreement;
•
controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings;
•
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, subject to limited exceptions set forth in our stockholders agreement;
•
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; subject to limited exceptions 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.
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.

27

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.
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 Warburg Pincus or Goldman Sachs, together, hold a significant 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 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 Senior 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.
ITEM 2.
Properties
As of December 31, 2019, we leased approximately 115,000 square feet of office space located in Burlington, Massachusetts, which serves as our corporate headquarters, under a lease that expires in March 2026.
Our web presence segment used additional offices and data centers, primarily:
•
approximately 264,000 square feet of leased office space in the United States located primarily in Arizona, Texas and Utah;
•
approximately 59,000 square feet of leased office space outside of the United States located primarily in Brazil 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, Texas and Virginia, with approximately 2,800 kilowatts of power under contract.
Our email marketing segment used additional offices and data centers, primarily:
•
approximately 149,000 square feet of leased office space in the United States located primarily in Massachusetts and Colorado; and
•
leased and co-located data center space located primarily in Massachusetts and Texas, with approximately 750 kilowatts of power under contract.
Our domain segment used additional offices and data centers, primarily:
•
approximately 4,000 square feet of leased office space in the United States located primarily in Washington;
•
approximately 86,000 square feet of leased office space outside of the United States located primarily in India; and
•
leased and co-located data center space located primarily in Texas, India and Hong Kong, with approximately 400 kilowatts of power under contract.

28

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.
As previously disclosed, we were named as a defendant in two shareholder litigation matters. For more information on these legal proceedings, see Note 18, Commitments and Contingencies, to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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.”
Stockholders
As of January 31, 2020, there were approximately 31 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 2020 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.
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 December 31, 2014 through December 31, 2019. The comparison assumes $100 was invested after the market closed on December 31, 2014 in our common stock, and each of the foregoing indices, and it assumes the reinvestment of dividends, if any.

29

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.
 
CHART-1A3E55AE2B7055EBAA4.JPG
 
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
Endurance International Group Holdings, Inc.
$
100.00

$
59.31

$
50.46

$
45.58

$
36.08

$
25.50

Nasdaq Composite Index
$
100.00

$
106.96

$
116.45

$
150.96

$
146.67

$
200.49

RDG Internet Composite Index
$
100.00

$
128.89

$
135.45

$
203.48

$
197.34

$
262.03

ITEM 6. Selected Consolidated Financial Data
The consolidated statements of operations and comprehensive income (loss) data for the years ended December 31, 2017, 2018 and 2019, and the consolidated balance sheet data as of December 31, 2018 and 2019, are derived from our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations and comprehensive income (loss) data for the years ended December 31, 2015 and 2016, and the consolidated balance sheet data as of December 31, 2015, 2016 and 2017, 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.

30

 
For the year ended December 31,
 
2015
 
2016
 
2017
 
2018
 
2019
 
(in thousands, except per share and share information)
Consolidated Statements of Operations and Comprehensive Income (Loss) Data:
 
 
 
 
 
 
 
 
 
Revenue
$
741,315

 
$
1,111,142

 
$
1,176,867

 
$
1,145,291

 
$
1,113,278

Cost of revenue(1)
425,035

 
583,991

 
603,930

 
520,737

 
510,296

Gross profit
316,280

 
527,151

 
572,937

 
624,554

 
602,982

Operating expense:
 
 
 
 
 
 
 
 
 
Sales and marketing
145,419

 
303,511

 
277,460

 
265,424

 
258,019

Engineering and development(2)
26,707

 
87,601

 
78,772

 
87,980

 
106,377

General and administrative(3)
90,968

 
175,379

 
164,745

 
124,204

 
117,967

Gain on sale of business
—

 
—

 
—

 
—

 
(40,700
)
Impairment of goodwill
—

 
—

 
12,129

 
—

 
12,333

Total operating expense(4)
263,094

 
566,491

 
533,106

 
477,608

 
453,996

Income (loss) from operations
53,186

 
(39,340
)
 
39,831

 
146,946

 
148,986

Total other expense, net
(52,974
)
 
(150,450
)
 
(157,006
)
 
(148,391
)
 
(143,454
)
Income (loss) before income taxes and equity earnings of unconsolidated entities
212

 
(189,790
)
 
(117,175
)
 
(1,445
)
 
5,532

Income tax expense (benefit)
11,342

 
(109,858
)
 
(17,281
)
 
(6,246
)
 
17,879

(Loss) income before equity earnings of unconsolidated entities
(11,130
)
 
(79,932
)
 
(99,894
)
 
4,801

 
(12,347
)
Equity loss (income) of unconsolidated entities, net of tax
14,640

 
1,297

 
(110
)
 
267

 
—

Net (loss) income
(25,770
)
 
(81,229
)
 
(99,784
)
 
4,534

 
(12,347
)
Net (loss) income attributable to non-controlling interest
—

 
(8,398
)
 
7,524

 
—

 
—

Net (loss) income attributable to Endurance International Group Holdings, Inc.
$
(25,770
)
 
$
(72,831
)
 
$
(107,308
)
 
$
4,534

 
$
(12,347
)
Net (loss) income per share attributable to Endurance International Group Holdings, Inc.
 
 
 
 
 
 
 
 
 
Basic
$
(0.20
)
 
$
(0.55
)
 
$
(0.78
)
 
$
0.03

 
$
(0.09
)
Diluted
$
(0.20
)
 
$
(0.55
)
 
$
(0.78
)
 
$
0.03

 
$
(0.09
)
Weighted average shares used to compute net (loss) income per share attributable to Endurance International Group Holdings, Inc.
 
 
 
 
 
 
 
 
 
Basic
131,340,557

 
133,415,732

 
137,322,201

 
142,316,993

 
145,259,691

Diluted
131,340,557

 
133,415,732

 
137,322,201

 
145,669,760

 
145,259,691

(1)
Includes stock-based compensation expense of $2.0 million, $5.9 million, $6.1 million, $3.8 million and $3.3 million, for the years ended December 31, 2015, 2016, 2017, 2018 and 2019, respectively. Also includes amortization expense of $91.1 million, $143.6 million, $140.4 million, $103.1 million and $85.2 million for the years ended December 31, 2015, 2016, 2017, 2018 and 2019, respectively. Also includes impairment of intangible assets of $18.7 million for the year ended December 31, 2017 and $25.2 million for the year ended December 31, 2019.
(2)
Includes impairment of intangible assets of $9.0 million for the year ended December 31, 2016.
(3)
Includes transaction expenses of $9.6 million, $32.3 million, $0.8 million, $0.0 million, and $0.0 million for the years ended December 31, 2015, 2016, 2017, 2018 and 2019, respectively.
(4)
Includes stock-based compensation expense of $27.9 million, $52.4 million, $53.9 million, $25.2 million and $32.4 million for the years ended December 31, 2015, 2016, 2017, 2018 and 2019, respectively.


31

 
For the year ended December 31,
 
2015
 
2016
 
2017
 
2018
 
2019
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
33,030

 
$
53,596

 
$
66,493

 
$
88,644

 
$
111,265

Property and equipment, net
75,762

 
95,272

 
95,452

 
92,275

 
85,925

Working capital (deficit)
(370,335
)
 
(362,677
)
 
(359,222
)
 
(300,692
)
 
(278,143
)
Total assets
1,802,500

 
2,756,274

 
2,600,034

 
2,606,507

 
2,584,086

Current and long-term debt, net of original issuance discounts and deferred financing costs(1)
1,092,385

 
1,986,980

 
1,892,245

 
1,801,661

 
1,681,473

Current and long-term financed equipment
13,081

 
7,202

 
15,349

 
8,379

 
790

Total stockholders’ equity
179,674

 
124,383

 
83,005

 
174,454

 
196,954

(1)
Net of deferred financing costs of $1.0 million, $43.3 million, $37.7 million, $32.0 million and $25.7 million for the years ended December 31, 2015, 2016, 2017, 2018 and 2019, 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 years ended December 31, 2016, 2017, 2018 and 2019 are also net of original issuance discount of $25.9 million, $25.8 million, $21.3 million and $16.9 million, respectively.
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 4.8 million subscribers globally with a range of products and services that help SMBs get online, get found and grow their businesses. In addition to for-profit businesses, our subscribers include non-profit organizations, community groups, bloggers, and hobbyists. Although we provide our solutions through a number of brands, we are focusing our marketing, engineering and product development efforts on a small number of strategic assets, including our Constant Contact, Bluehost, HostGator, and Domain.com brands.
From fiscal year 2017 through fiscal year 2019, we have reported our financial results in three reportable segments, as follows:
Web Presence. Our web presence segment consists primarily of our web hosting brands, including Bluehost and HostGator. This segment also includes related products such as domain names, website security, website design tools and services, and e-commerce products.
Email Marketing. Our email marketing segment consists of Constant Contact email marketing tools and related products. This segment also generates revenue from sales of our Constant Contact-branded website builder tool and our Ecomdash inventory management and marketplace listing solution, or Ecomdash, which we acquired in the third quarter of 2019. For most of 2019, the email marketing segment also included the SinglePlatform digital storefront business, which we sold on December 5, 2019.
Domain. Our domain segment consists of domain-focused brands such as Domain.com, ResellerClub and LogicBoxes as well as certain web hosting brands that are under common management with our domain-focused brands. This segment sells domain names and domain management services to resellers and end users, as well as premium domain names, and also generates advertising revenue from domain name parking. It also resells domain names and domain management services to our web presence segment.
In the second half of 2019, we started the process of simplifying our organization to support our two key strategic platforms, web presence (including our web hosting and domain offerings) and email marketing. In 2020, we plan to modify our internal reporting structure to reflect these changes in our structure and leadership, and also to change the name of the email marketing segment to the "digital marketing" segment. This will result in consolidation of our current domain segment into our web presence segment, such that we expect to report our financial results in two segments - web presence (including domains) and digital marketing - beginning with the first quarter of 2020.

32

During 2018 and 2019, we focused on investing to improve the customer experience and expand product offerings in our strategic brands, including Constant Contact, Bluehost, HostGator and Domain.com, and on simplifying our business. Although our revenue, net income, operating cash flows and total subscriber base decreased in 2019 relative to 2018, we believe the second half of 2019 began to show positive results from our continuing investment and simplification efforts. Our fourth quarter 2019 revenue was flat as compared to third quarter 2019 revenue, and when third and fourth quarter 2019 revenue are both adjusted to exclude the revenue contribution of our SinglePlatform business, which we sold on December 5, 2019, fourth quarter revenue increased relative to third quarter revenue. SinglePlatform contributed $6.8 million and $4.8 million in revenue in the third and fourth quarters of 2019, respectively, and $28.4 million and $25.4 million in revenue in 2018 and 2019, respectively.
Changes in our revenue, net income (loss) and net cash provided by operating activities from 2018 to 2019 are summarized below:
 
Year Ended December 31, 2018
 
Year Ended December 31, 2019
 
(in thousands)
Revenue
$
1,145,291

 
$
1,113,278

Net income (loss)
$
4,534

 
$
(12,347
)
Net cash provided by operating activities
$
182,552

 
$
161,973

•
Revenue decreased by 3% from 2018 primarily due to revenue declines in the web presence segment and to a lesser extent, in the domain segment. This decline was partially offset by an increase in email marketing segment revenue.
•
We had a net loss in 2019 as compared to net income in 2018, due primarily to impairment charges, decreases in revenue, increases in income taxes and increases in stock-based compensation expense. This change was partially offset by a gain from the disposition of SinglePlatform, and decreases in amortization, depreciation and interest expenses.
•
Net cash provided by operating activities decreased by 11% from 2018. This decrease was primarily due to lower revenue and subscriber billings, timing of vendor payments, and higher income tax payments. These factors were partially offset by lower restructuring and interest payments in 2019. Our 2019 cash flows allowed us to make voluntary debt principal payments of $51.3 million in 2019, which were in addition to required debt principal payments of $31.6 million made during the year. In addition, our proceeds from the disposition of SinglePlatform triggered an additional mandatory repayment of $48.1 million.
With respect to total subscribers, we recorded net subscriber additions for the third quarter of 2019. Fourth quarter 2019 net subscriber additions would also have been positive but for the impact of the sale of SinglePlatform, which resulted in a decrease of approximately 23,000 subscribers. Our non-strategic brands continue to lose subscribers, but the rate of attrition slowed during 2019, and for the third and fourth quarters, net subscriber additions from our strategic brands (in the aggregate and excluding the impact of the SinglePlatform sale) outpaced losses in the non-strategic brands. Our non-strategic brands are principally web hosting brands, but also include our cloud backup brands and certain other products that we launched in late 2015 and early 2016, and that we have either discontinued or no longer actively market. Subscriber counts are decreasing in these brands, and we are managing them to optimize cash flow rather than to acquire new subscribers.
Our operating plan for 2020 continues to focus on delivering increased value to customers of our key strategic brands, and on further simplifying our operations. We expect to continue our investments in engineering and development in 2020 in order to further improve the customer experience and expand product offerings in our strategic brands. We also intend to invest more heavily in marketing efforts for our strategic brands as compared to 2018 and 2019. We expect that these investments will adversely impact our net income (loss), adjusted EBITDA, cash flows from operations and free cash flow during 2020.
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, or 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-

33

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 our key metrics (except for free cash flow, which is discussed in Liquidity and Capital Resources below) by segment for the periods presented:
 
Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands, except ARPS)
Consolidated metrics:
 
 
 
 
 
Total subscribers
5,051

 
4,802

 
4,766

Average subscribers
5,211

 
4,927

 
4,793

Average revenue per subscriber
$
18.82

 
$
19.37

 
$
19.35

Adjusted EBITDA
$
350,814

 
$
338,058

 
$
313,644

 
 
 
 
 
 
Web presence segment metrics:
 
 
 
 
 
Total subscribers
3,849

 
3,639

 
3,567

Average subscribers
4,024

 
3,744

 
3,603

Average revenue per subscriber
$
13.29

 
$
13.47

 
$
13.34

Adjusted EBITDA
$
165,088

 
$
146,578

 
$
132,575

 
 
 
 
 
 
Email marketing segment metrics:
 
 
 
 
 
Total subscribers(1)
519

 
497

 
468

Average subscribers
531

 
508

 
492

Average revenue per subscriber
$
62.92

 
$
67.28

 
$
69.58

Adjusted EBITDA
$
185,869

 
$
183,384

 
$
174,555

 
 
 
 
 
 
Domain segment metrics:
 
 
 
 
 
Total subscribers
683

 
666

 
731

Average subscribers
656

 
675

 
698

Average revenue per subscriber
$
16.98

 
$
16.05

 
$
15.02

Adjusted EBITDA
$
(143
)
 
$
8,096

 
$
6,514

(1) The total email marketing subscriber count as of December 31, 2019 includes approximately 1,300 subscribers added as part of the September 2019 acquisition of Ecomdash and reflects a decrease of approximately 23,000 subscribers due to the December 2019 sale of our SinglePlatform business.
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.
Most of our web presence segment subscribers have hosting subscriptions, but web presence subscribers also include customers who do not have a web hosting subscription but subscribe to other non-hosting services such as email or domain privacy. These subscribers generally have lower-priced subscriptions than hosting subscribers.

34

Email marketing segment subscribers mostly consist of subscribers to Constant Contact's email marketing service, but also include paying subscribers to our Constant Contact-branded website builder tool and our Ecomdash inventory management and marketplace listing solution, which we acquired in the quarter ended September 30, 2019. Until the sale of our SinglePlatform business on December 5, 2019, email marketing subscribers also included SinglePlatform subscribers. Our email marketing and total subscriber counts as of December 31, 2019 include approximately 1,300 subscribers added as part of the Ecomdash acquisition and reflect a decrease of approximately 23,000 subscribers due to the sale of SinglePlatform.
Domain segment subscribers mostly consist of customers who have a domain name subscription as well as a subscription to another product, such as domain privacy, office productivity software, or a basic hosting, email or domain privacy service that is bundled with their domain subscription. Also included as domain segment subscribers are hosting customers of our BigRock and HostGator India brands and certain other small web hosting brands that are under common management with our domain-focused brands.
The table below shows the approximate sources of changes in our total subscriber count by segment during 2018 and 2019. Adjustments below are shown on a full year basis.
 
Web Presence
Email Marketing
Domain
Total
 
(in thousands)
Total Subscribers - December 31, 2017
3,849

519

683

5,051

Adjustments
10

—

(14
)
(4
)
Net subscriber decrease
(220
)
(22
)
(3
)
(245
)
Total Subscribers - December 31, 2018
3,639

497

666

4,802

Acquisitions
—

1

—

1

Dispositions
—

(23
)
—

(23
)
Adjustments
(2
)
1

—

(1
)
Net subscriber (decrease) increase
(70
)
(8
)
65

(13
)
Total Subscribers - December 31, 2019
3,567

468

731

4,766

The decrease in total subscribers from 4.802 million at December 31, 2018 to 4.766 million at December 31, 2019 was driven primarily by subscriber losses in our web presence segment, which were due to subscriber attrition in our non-strategic brands, and, to a lesser extent, by subscriber losses in our email marketing segment (including a decrease of approximately 23,000 subscribers due to the SinglePlatform sale). These subscriber losses were partially offset by subscriber additions in our domain segment.
The decrease in total subscribers from 5.051 million at December 31, 2017 to 4.802 million at December 31, 2018 was driven primarily by subscriber losses in our web presence segment, a majority of which were due to subscriber attrition in our non-strategic brands, and, to a lesser extent, by subscriber losses in our email marketing and domain segments.
Average Revenue per Subscriber
We calculate ARPS as the amount of revenue we recognize in a period, including marketing development funds and other revenue not received from subscribers, divided by the average of the number of total subscribers at the beginning of the period and at the end of the period, which we refer to as average subscribers for the period, divided by the number of months in the period. For our web presence and email marketing segments, we believe ARPS is an indicator of our ability to optimize our mix of products, services and pricing and sell products and services to both new and existing subscribers. For our domain segment, ARPS may fluctuate from period to period due to changes in the amount of non-subscription-based revenue, reseller activity and other factors impacting this segment as discussed in more detail below.
The following table reflects the calculation of ARPS by segment:



35

 
Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands, except ARPS)
Consolidated revenue
$
1,176,867

 
$
1,145,291

 
$
1,113,278

Consolidated total subscribers
5,051

 
4,802

 
4,766

Consolidated average subscribers for the period
5,211

 
4,927

 
4,793

Consolidated ARPS
$
18.82

 
$
19.37

 
$
19.35

 
 
 
 
 
 
Web presence revenue
$
641,993

 
$
605,315

 
$
576,704

Web presence subscribers
3,849

 
3,639

 
3,567

Web presence average subscribers
4,024

 
3,744

 
3,603

Web presence ARPS
$
13.29

 
$
13.47

 
$
13.34

 
 
 
 
 
 
Email marketing revenue
$
401,250

 
$
410,052

 
$
410,672

Email marketing subscribers(1)
519

 
497

 
468

Email marketing average subscribers
531

 
508

 
492

Email marketing ARPS
$
62.92

 
$
67.28

 
$
69.58

 
 
 
 
 
 
Domain revenue
$
133,624

 
$
129,924

 
$
125,902

Domain subscribers
683

 
666

 
731

Domain average subscribers
656

 
675

 
698

Domain ARPS
$
16.98

 
$
16.05

 
$
15.02

(1) The total email marketing subscriber count as of December 31, 2019 includes approximately 1,300 subscribers added as part of the September 2019 acquisition of Ecomdash and reflects a decrease of approximately 23,000 subscribers due to the December 2019 sale of our SinglePlatform business.
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-subscription-based revenue:
•
Revenue from domain-only customers. Our web presence and domain segments each earn revenue from domain-only customers. For our web presence segment, approximately 0.5% of our fiscal year 2019 revenue was earned from domain-only customers. For our domain segment, approximately 4.3% of our revenue for fiscal year 2019 was earned from domain-only customers.
•
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. A significant portion of this revenue is associated with our domain segment.
•
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.
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 revenue is for the purchase of domains and is primarily related to our domain segment. Approximately 41% of our domain segment revenue is earned from resellers. Reseller revenue earned by our web presence segment and our email marketing segment was less than 4% and less than 1%, respectively, for all periods presented, and fluctuations in reseller revenue have not materially impacted ARPS for these segments.
Comparison of Year Ended December 31, 2018 and 2019: ARPS
For the years ended December 31, 2018 and 2019, consolidated ARPS decreased from $19.37 to $19.35, respectively. This decrease in ARPS was driven primarily by lower ARPS in our domain segment, and to a lesser extent by a decrease in ARPS in our web presence segment. These decreases were partially offset by higher ARPS in our email marketing segment.

36

Web presence ARPS decreased from $13.47 for the year ended December 31, 2018 to $13.34 for the year ended December 31, 2019, primarily due to the impact of more subscribers joining our platform at introductory pricing, which is typically lower than renewal pricing.
Email marketing ARPS increased from $67.28 for the year ended December 31, 2018 to $69.58 for the year ended December 31, 2019, primarily due to additional purchases by existing subscribers and price increases.
Domain ARPS decreased from $16.05 for the year ended December 31, 2018 to $15.02 for the year ended December 31, 2019. This decrease was partially due to a decrease in non-subscription-based revenue, including sales of premium domains and domain monetization, from $25.8 million for fiscal year 2018 to $23.4 million for fiscal year 2019, which decreased ARPS by $0.39, and the balance of the decrease was attributable to an increased number of subscribers to our lower-priced product offerings.
Comparison of Year Ended December 31, 2017 and 2018: ARPS
For the years ended December 31, 2017 and 2018, consolidated ARPS increased from $18.82 to $19.37, respectively. This increase in ARPS was driven primarily by our email marketing segment, and to a lesser extent, a focus on higher lifetime revenue subscribers in our web presence segment. These increases in ARPS were partially offset by lower ARPS in our domain segment.
Web presence ARPS increased from $13.29 for the year ended December 31, 2017 to $13.47 for the year ended December 31, 2018, primarily due to a shift in our marketing programs away from targeting subscribers for our lower priced products, and towards targeting subscribers who have higher lifetime revenue potential. This shift in focus has resulted in a loss of subscribers of lower priced products, resulting in an overall increase in ARPS.
Email marketing ARPS increased from $62.92 for the year ended December 31, 2017 to $67.28 for the year ended December 31, 2018, primarily due to price increases and additional purchases by existing subscribers.
Domain ARPS decreased from $16.98 for the year ended December 31, 2017 to $16.05 for the year ended December 31, 2018. This decrease was partially due to a decrease in non-subscription-based revenue, including domain monetization and marketing development funds, from $27.6 million for fiscal year 2017 to $25.8 million for fiscal year 2018, which decreased ARPS by $0.33, and the balance of the decrease was attributable to increased sales of lower priced products.
  Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), excluding the impact of
interest expense (net), income tax expense (benefit), depreciation, amortization of other intangible assets, stock-based compensation, restructuring expenses, transaction expenses and charges, gain on sale of business, (gain) loss of unconsolidated entities, impairment of goodwill and other long-lived assets, SEC investigations reserve, and shareholder litigation reserve. We view adjusted EBITDA as a performance measure and believe it helps investors evaluate and compare our core operating performance from period to period.
SEC investigations reserve refers to a reserve we recorded in the third quarter of 2017 in connection with the Securities and Exchange Commission investigations initiated against Endurance and Constant Contact in December 2015, which we settled in June 2018. Shareholder litigation reserve refers to a reserve we first recorded in the first quarter of 2018 in connection with shareholder class action lawsuits filed against each of Endurance and Constant Contact in 2015. As described in Note 18, Commitments and Contingencies, to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K, we settled the Endurance lawsuit during 2019, and we expect the final settlement hearing for the Constant Contact lawsuit to take place in 2020.
The following table reflects the reconciliation of adjusted EBITDA to net (loss) income calculated in accordance with GAAP for the periods presented.


37

 
Year Ended December 31,
 
2017
 
2018
 
2019
Consolidated
(in thousands)
Net (loss) income
$
(99,784
)
 
$
4,534

 
$
(12,347
)
Interest expense, net(1)
156,406

 
148,391

 
143,454

Income tax (benefit) expense
(17,281
)
 
(6,246
)
 
17,879

Depreciation
55,185

 
48,207

 
44,951

Amortization of other intangible assets
140,354

 
103,148

 
85,183

Stock-based compensation
60,001

 
29,064

 
35,692

Restructuring expenses
15,810

 
3,368

 
1,992

Transaction expenses and charges
773

 
—

 
—

Gain on sale of business
—

 
—

 
(40,700
)
(Gain) loss of unconsolidated entities(2)
(110
)
 
267

 
—

Impairment of goodwill and other long-lived assets
31,460

 
—

 
37,540

SEC investigations reserve
8,000

 
—

 
—

Shareholder litigation reserve
—

 
7,325

 
—

Adjusted EBITDA
$
350,814

 
$
338,058

 
$
313,644

 
Year Ended December 31,
 
2017
 
2018
 
2019
Web presence
(in thousands)
Net loss
$
(64,962
)
 
$
(22,534
)
 
$
(44,886
)
Interest expense, net(1)
67,491

 
70,956

 
66,779

Income tax expense (benefit)
4,063

 
(4,961
)
 
9,261

Depreciation
37,634

 
32,915

 
32,344

Amortization of other intangible assets
60,277

 
47,020

 
36,906

Stock-based compensation
46,641

 
16,000

 
19,086

Restructuring expenses
9,131

 
2,135

 
752

Transaction expenses and charges
—

 
—

 
—

Gain on sale of business
—

 
—

 
—

(Gain) loss of unconsolidated entities(2)
(110
)
 
267

 
—

Impairment of goodwill and other long-lived assets
600

 
—

 
12,333

SEC investigations reserve
4,323

 
—

 
—

Shareholder litigation reserve
—

 
4,780

 
—

Adjusted EBITDA
$
165,088

 
$
146,578

 
$
132,575


38

 
Year Ended December 31,
 
2017
 
2018
 
2019
Email marketing
(in thousands)
Net (loss) income
$
(10,615
)
 
$
38,628

 
$
67,412

Interest expense, net(1)
86,914

 
68,317

 
72,826

Income tax expense
5,152

 
115

 
6,600

Depreciation
13,912

 
11,497

 
9,027

Amortization of other intangible assets
74,467

 
53,100

 
45,876

Stock-based compensation
6,934

 
9,638

 
12,307

Restructuring expenses
5,581

 
589

 
1,207

Transaction expenses and charges
773

 
—

 
—

Gain on sale of business
—

 
—

 
(40,700
)
(Gain) loss of unconsolidated entities(2)
—

 
—

 
—

Impairment of goodwill and other long-lived assets
—

 
—

 
—

SEC investigations reserve
2,751

 
—

 
—

Shareholder litigation reserve
—

 
1,500

 
—

Adjusted EBITDA
$
185,869

 
$
183,384

 
$
174,555

 
Year Ended December 31,
 
2017
 
2018
 
2019
Domain
(in thousands)
Net loss
$
(24,207
)
 
$
(11,560
)
 
$
(34,873
)
Interest expense, net(1)
2,001

 
9,118

 
3,849

Income tax (benefit) expense
(26,496
)
 
(1,400
)
 
2,018

Depreciation
3,639

 
3,795

 
3,580

Amortization of other intangible assets
5,610

 
3,028

 
2,401

Stock-based compensation
6,426

 
3,426

 
4,299

Restructuring expenses
1,098

 
644

 
33

Transaction expenses and charges
—

 
—

 
—

Gain on sale of business
—

 
—

 
—

(Gain) loss of unconsolidated entities(2)
—

 
—

 
—

Impairment of goodwill and other long-lived assets
30,860

 
—

 
25,207

SEC investigations reserve
926

 
—

 
—

Shareholder litigation reserve
—

 
1,045

 
—

Adjusted EBITDA
$
(143
)
 
$
8,096

 
$
6,514

(1)
Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income. For the years ended December 31, 2017 and 2018, it also includes $6.5 million and $1.2 million, respectively, of deferred financing costs and original issuance discounts (OID) immediately expensed upon the refinancing of our term loan in 2017 and 2018.
(2)
For all years presented, (gain) loss of unconsolidated entities is reported on a net basis, which includes our proportionate share of net (income) losses from unconsolidated entities, any (gain) loss recorded when we acquired our controlling interest in these entities and any impairments related to these entities.
Comparison of the Years Ended December 31, 2018 and 2019: Net (Loss) Income and Adjusted EBITDA
Net income (loss) on a consolidated basis decreased from net income of $4.5 million for the year ended December 31, 2018 to a net loss of $12.3 million for the year ended December 31, 2019. This change was primarily due to higher net losses in our web presence and domain segments, partially offset by higher net income in our email marketing segment. These changes in segment net income (loss) were significantly impacted by impairment charges and by the gain from the disposition of our SinglePlatform business, as well as by changes in revenue, income taxes, amortization, stock-based compensation and depreciation expenses, as discussed below.
Net loss for our web presence segment increased from $22.5 million for the year ended December 31, 2018 to $44.9 million for the year ended December 31, 2019. The increase in net loss was primarily related to lower revenue of $28.6 million, higher income tax expense allocated to this segment of $14.2 million, impairment charges of $12.3 million relating to goodwill

39

for two of our non-strategic reporting units, higher costs impacting engineering and development of $10.5 million, higher costs impacting general and administrative expense of $3.6 million (net of a $2.2 million insurance reimbursement of legal fees), and higher stock-based compensation of $3.1 million. These increases in net loss were partially offset by lower costs impacting sales and marketing of $15.8 million, lower costs impacting cost of revenue of $12.9 million, lower amortization expense of $10.1 million, the impact of the shareholder litigation reserve of $4.8 million allocated to this segment during the year ended December 31, 2018, lower interest expense allocated to this segment of $4.2 million, lower restructuring expense of $1.4 million, and lower depreciation expense of $0.6 million.
Net income for our email marketing segment increased from $38.6 million for the year ended December 31, 2018 to $67.4 million for the year ended December 31, 2019. This improvement was primarily related to gain from the disposition of SinglePlatform of $40.7 million, reduced amortization expense of $7.2 million, reduced depreciation expense of $2.5 million, the impact of the shareholder litigation reserve of $1.5 million recorded during the year ended December 31, 2018, reduced costs impacting general and administrative expense of $1.5 million (net of a $1.6 million insurance reimbursement of legal fees), and higher revenue of $0.6 million. These factors were partially offset by an increase in income tax expense allocated to this segment of $6.5 million, higher interest expense allocated to this segment of $4.5 million, higher costs impacting engineering and development of $6.5 million, higher costs impacting sales and marketing of $3.3 million, higher stock-based compensation expense of $2.7 million, higher costs impacting cost of revenue of $1.1 million, and higher restructuring costs of $0.6 million.
Net loss for our domain segment increased from $11.6 million for the year ended December 31, 2018 to $34.9 million for the year ended December 31, 2019. This was primarily due to an impairment charge of $25.2 million relating to long-lived intangible assets, lower revenue of $4.0 million, an increase in income tax expense allocated to this segment of $3.4 million and higher stock-based compensation expense of $0.9 million. The increase in net loss was partially offset by a decrease in interest expense allocated to this segment of $5.3 million, the impact of the shareholder litigation reserve of $1.0 million allocated to this segment during the year ended December 31, 2018, a reduction of amortization expense of $0.6 million, a reduction in restructuring expense of $0.6 million and an insurance reimbursement of legal fees of $0.4 million.
Adjusted EBITDA on a consolidated basis decreased from $338.1 million for the year ended December 31, 2018 to $313.6 million for the year ended December 31, 2019. This decrease was primarily attributable to our web presence and email marketing segments, and to a lesser extent, to our domain segment as described below. We also expect a decrease in adjusted EBITDA from fiscal year 2019 to fiscal year 2020, as we continue to invest in engineering and development and sales and marketing.
Adjusted EBITDA for our web presence segment decreased from $146.6 million for the year ended December 31, 2018 to $132.6 million for the year ended December 31, 2019. This decrease was primarily due to a $28.6 million decline in revenue and increased engineering and development and general and administrative expense of $10.5 million and $3.6 million, respectively, in both cases primarily due to higher labor costs. This decrease in adjusted EBITDA was partially offset by lower sales and marketing costs of $15.8 million, which primarily consisted of reduced expenditures on non-strategic brands, and lower cost of revenue of $12.9 million, primarily due to lower support costs, data center costs and domain registration costs.
Adjusted EBITDA for our email marketing segment decreased from $183.4 million for the year ended December 31, 2018 to $174.6 million for the year ended December 31, 2019. This decrease was primarily attributable to increased engineering and development costs of $6.5 million, primarily due to increased labor costs; higher sales and marketing costs of $3.3 million, primarily due to higher labor costs; and higher costs impacting cost of revenue of $1.1 million, primarily due to higher support costs. These factors were partially offset by $0.6 million of revenue growth and lower general and administrative expense of $1.5 million.
Adjusted EBITDA for our domain segment decreased from $8.1 million for the year ended December 31, 2018 to $6.5 million for the year ended December 31, 2019. This decrease was attributable to lower revenue of $4.0 million; higher sales and marketing costs of $3.9 million, primarily due to higher program spend and higher labor costs; and higher engineering and development costs of $1.0 million, primarily due to higher labor costs. These factors were partially offset by lower general and administrative costs of $3.8 million, primarily due to labor costs, and lower cost of revenue of $3.6 million, primarily due to lower domain registration costs.
Comparison of the Years Ended December 31, 2017 and 2018: Net Income (Loss) and Adjusted EBITDA
Net income (loss) on a consolidated basis improved from a net loss of $99.8 million for the year ended December 31, 2017 to net income of $4.5 million for the year ended December 31, 2018. This change was primarily due to improved net income (loss) from our email marketing, web presence and domain segments of $49.2 million, $42.4 million, and $12.6 million, respectively. These improvements in segment net loss were significantly impacted by changes in stock-based compensation, amortization expense, impairment charges, restructuring charges and cost of revenue, among other factors, as described more fully below.

40

Net loss for our web presence segment decreased from $65.0 million for the year ended December 31, 2017 to $22.5 million for the year ended December 31, 2018. The decrease in net loss was primarily related to lower stock-based compensation of $30.6 million, lower amortization expense of $13.3 million, lower operating expenses of $10.4 million, lower costs impacting cost of revenue of $7.8 million, lower restructuring charges of $7.0 million, lower income tax expense of $9.0 million, and lower depreciation expense of $4.7 million. These factors were partially offset by a $36.7 million decrease in revenue and higher interest expense of $3.5 million.
Net income (loss) for our email marketing segment improved from a net loss of $10.6 million for the year ended December 31, 2017 to net income of $38.6 million for the year ended December 31, 2018. This improvement was primarily related to reduced amortization expense of $21.4 million, reduced interest expense allocated to our email marketing segment of $18.6 million, increased revenue of $8.8 million, and other cost reductions, consisting mainly of lower restructuring costs and lower income tax expense totaling $14.1 million. These increases in net income were partially offset by increased engineering and development expense.
Net loss for our domain segment decreased from $24.2 million for the year ended December 31, 2017 to $11.6 million for the year ended December 31, 2018. This decrease was primarily due to a reduction of $30.9 million in impairment charges related to both goodwill and long-lived assets which was incurred in the year ended December 31, 2017 and did not reoccur in the year ended December 31, 2018, and lower cost of revenue of $8.0 million, primarily related to lower domain registration costs. These cost decreases were partially offset by a reduction of the income tax benefit allocated to this segment of $25.1 million and other net cost increases of $1.2 million.
Adjusted EBITDA on a consolidated basis decreased from $350.8 million for the year ended December 31, 2017 to $338.1 million for the year ended December 31, 2018. This decrease is primarily attributable to our web presence and email marketing segments, partially offset by an increase in our domain segment as described below.
Adjusted EBITDA for our web presence segment decreased from $165.1 million for the year ended December 31, 2017 to $146.6 million for the year ended December 31, 2018. This decrease was primarily due to a $36.7 million decline in revenue and to increased engineering and development expense of $3.6 million. This decrease was partially offset by an $8.1 million decrease in sales and marketing expense, which primarily consisted of reduced expenditures on non-strategic brands; lower cost of revenue of $7.8 million, primarily due to lower support costs and data center costs; and lower general and administrative expense of $5.9 million, primarily due to lower labor costs.
Adjusted EBITDA for our email marketing segment decreased from $185.9 million for the year ended December 31, 2017 to $183.4 million for the year ended December 31, 2018. This decrease was primarily attributable to increased engineering and development costs of $9.7 million, primarily due to increased labor costs, and higher sales and marketing costs of $3.9 million, primarily due to higher marketing program spend. This decrease was partially offset by $8.8 million of revenue growth (which includes the impact of price increases); lower general and administrative expense of $1.6 million; and lower cost of revenue of $0.8 million, primarily due to lower data center costs.
Adjusted EBITDA for our domain segment increased from a loss of $0.1 million for the year ended December 31, 2017 to income of $8.1 million for the year ended December 31, 2018. This increase was attributable to lower cost of revenue of $8.0 million, primarily due to lower domain registration costs and lower support costs; lower general and administrative expenses of $5.0 million, primarily due to labor costs; and lower sales and marketing related costs of $0.3 million, primarily related to changes in labor and program spend. This increase was partially offset by a $3.7 million decrease in revenue, most of which related to domain monetization, and higher engineering and development costs of $1.4 million, primarily due to increased labor costs.
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 automatically renew a subscription at the end of the subscription period. Due to factors such as discounted introductory pricing, our renewal fees may be higher than our initial subscription. A majority of our web presence segment and domain segment subscriptions have terms of 24 months or less, 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

41

products and services, such as certain online security products and professional technical services as well as through referral fees and commissions.
Cost of Revenue
Cost of revenue includes costs of operating our customer support organization, fees we pay to register domain names for our customers, 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 customer support activities. In addition, cost of revenue includes stock-based compensation expense for employees engaged in support and network operations. Excluding potential impacts of future changes in operations, we generally expect cost of revenue to decrease on an absolute dollar basis due to an anticipated decrease in amortization expense on our existing 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 well as revenue and cost of revenue impacts related to developments 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. For a new customer 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 expense due to the significance of the costs incurred to acquire Constant Contact. In 2017, we started breaking out impairment of goodwill due to the significance of the charge incurred in our domain segment. In 2019, we started breaking out gain on sale of business due to the significance of the gain associated with the disposition of our SinglePlatform business.
Sales and Marketing
Sales and marketing expense primarily consists of costs associated with bounty payments to our network of online partners, search engine marketing, or SEM, and search engine optimization, or 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 customers to our solutions, changes in how we invest in different customer 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.
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.
General and Administrative
General and administrative expense includes the cost of employees engaged in corporate functions, such as finance and accounting, information technology, human resources, legal and executive management. General and administrative expense also includes insurance premiums, professional service fees, and cost incurred related to regulatory and litigation matters.

42

General and administrative expense includes stock-based compensation expense for employees engaged in general and administrative activities.
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 costs and original issue discounts and the amortization of the net present value adjustment which we may apply to some deferred consideration payments related to our acquisitions in our calculation of interest expense. Interest income consists primarily of interest income earned on our cash and cash equivalents balances.
Income Tax Expense (Benefit)
We estimate our income taxes in accordance with the asset and liability method. Under this method we determine deferred tax assets and liabilities based on differences between the financial reporting and tax bases of our assets and liabilities. We measure deferred tax assets and liabilities using the enacted tax rates and laws that will be in effect when we expect the differences to reverse. We reduce our deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that we will not realize some portion or all of the deferred tax assets. We consider relevant evidence, both positive and negative, to determine the need for a valuation allowance. Information evaluated includes our financial position and results of operations for the current and preceding years, the availability of deferred tax liabilities and an evaluation of currently available information about future years.
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.
See Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.
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
•
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.

43

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.
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 and delivery of an authorization key to access the domain name has occurred. Premium domain names are paid for in advance prior to the delivery of the domain name.
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.
Contracts with Multiple Performance Obligations
A considerable amount of our revenue is generated from transactions that are contracts with customers that may include hosting plans, domain name registrations, and other cloud-based products and services. In these cases, we determine whether the products and services are distinct performance obligations that should be accounted for separately versus together. We allocate revenue to each performance obligation based on its relative standalone selling price, generally based on the price charged to customers. Hosting services, domain name registrations, and other cloud-based products and services have distinct performance obligations and are often sold separately. If the promise is not distinct and there is not a performance obligation, then the total transaction amount is allocated to the identified performance obligation based on a relative selling price hierarchy. When multiple performance obligations are included in a contract, the total transaction amount for the contract is allocated to the performance obligations based on a relative selling price hierarchy. We determine the relative selling price for a performance obligation based on a standalone selling price, or SSP. We determine SSP by considering our observed standalone selling prices, competitive prices in the marketplace and management judgment; these standalone selling prices may vary depending upon the particular facts and circumstances related to each performance obligation. We analyze the standalone selling prices used in our allocation of transaction amount, at a minimum, on a quarterly basis.
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 $0.4 million and $0.3 million as of December 31, 2018 and 2019, respectively. The portion of deferred revenue that is expected to be refunded at December 31, 2018 and 2019 was $2.2 million and $1.9 million, respectively. Based on refund history, approximately 84% of all refunds happen in the same fiscal month that the customer contract starts or renews, and approximately 95% of all refunds happen within 45 days of the contract start or renewal date.
Goodwill
Goodwill relates to amounts that arose in connection with 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 it 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 ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for Impairment, or ASU 2011-08, we are required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. A reporting unit is either the equivalent of, or one level below, an operating segment. We early adopted the provisions in ASU 2017-04, which eliminates the second step of the goodwill impairment test. As a result, our goodwill impairment tests include only one step, which is a comparison of the carrying value of each reporting unit to its fair value, and any excess carrying value, up to the amount of goodwill allocated to that reporting unit is impaired.
The carrying value of each reporting unit is based on the assignment of the appropriate assets and liabilities to each reporting unit. Assets and liabilities were assigned to each reporting unit if the assets or liabilities are employed in the operations of the reporting unit and the asset and liability is considered in the determination of the reporting unit fair value. Certain assets and liabilities are shared by multiple reporting units, and were allocated to each reporting unit based on the relative size of a reporting unit, primarily based on revenue.

44

Our goodwill impairment test as of October 31, 2017 resulted in a $12.1 million impairment of goodwill to our domain monetization reporting unit within the domain segment. The impairment was a direct result of a more rapid decline in domain parking revenue than originally expected, and to a lesser extent, reduced sales of premium domain names. Goodwill for this reporting unit was completely impaired. Goodwill allocated to the other six reporting units to which goodwill has been allocated was not impaired.
As of the test date of October 31, 2018, the fair value for all reporting units was higher than their respective carrying values, and no impairment was recorded. No triggering events were identified between the October 31, 2018 test and December 31, 2018.
For the annual impairment test as of October 31, 2019, we had a total of seven reporting units to which goodwill has been allocated. Additionally, we have three smaller reporting units to which no goodwill has been allocated, as they had been determined to have no material fair value, and one reporting unit which has no remaining goodwill allocated to it.
We determine the fair value of each reporting unit by utilizing the income approach and the market approach. For the income approach, fair value is determined based on the present value of estimated future after-tax cash flows, discounted at an appropriate risk adjusted rate. We derive our discount rates by using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the weighted-average cost of capital. We use discount rates that are commensurate with the risks and uncertainty inherent in our business and in our internally developed forecasts. For fiscal years 2017 and 2018, we used a discount rate of 10.0% for all but one of our reporting units. For fiscal year 2019, we used a discount rate of 10.5% for all but three of our reporting units. For two of our reporting units, which are experiencing declining cash flows, we used a discount rate of 13.0% and 13.5%, respectively, to adjust for the risk in the projected cash flows. For the remaining reporting unit, which had just been acquired in September 2019, we used a discount rate of 15.5%, to adjust for the risk in the projected cash flows. We also performed sensitivity analysis on our discount rates. We use internal forecasts to estimate future after-tax cash flows, which include an estimate of long-term future growth rates based on our view of the long-term outlook for each reporting unit. Actual results may differ from those assumed in our forecasts.
For the market approach, we use a valuation technique in which values are derived based on valuation multiples from comparable public companies, and a valuation multiple from sales of comparable companies.
For the fiscal 2017 goodwill impairment analysis, we compared the fair value from the income approach to the market approach based on multiples of comparable public companies and noted no material variances in the valuation techniques.
For the fiscal 2018 goodwill impairment analysis, we compared the fair value from the income approach to two market approaches, which included a valuation multiple of comparable public companies and a valuation multiple from sales of comparable companies. For three of our reporting units, which represented approximately 95% of our goodwill at the time of the 2018 goodwill impairment analysis, the fair value derived from the income approach was consistent with the fair value derived from the two market approaches. We established the fair value for these reporting units based on the average fair value from all three valuation approaches.
For the fiscal 2018 goodwill impairment analysis, for two of our reporting units, which represented approximately 3% of our goodwill, we based their fair value entirely upon the income approach, as these two reporting units were experiencing declining cash flows and were expected to continue to experience declines over time. The fair values from the income approach for these two reporting units were materially below the fair values derived from both market approaches. The goodwill allocated to these two reporting units was approximately $64.2 million as of December 31, 2018. For one of our reporting units, which represented approximately 2% of our goodwill, the fair values derived from the market approaches were much lower than the income approach using a discount rate of 10%. We determined that more risk was present in the projected future cash flows of this reporting unit as compared to our other reporting units and determined that a discount rate of 17% was appropriate. The fair value of this reporting unit under the income approach at a discount rate of 17% was consistent with the fair values determined under the two market approaches. We established fair value for this reporting unit based on the average fair value from all three valuation approaches.
For the fiscal 2019 goodwill impairment analysis, we compared the fair value from the income approach to two market approaches, which included a valuation multiple of comparable public companies and a valuation multiple from sales of comparable companies. For three of the reporting units, which represent approximately 97% of our goodwill as of December 31, 2019, we established the fair value based on the average fair value from all three valuation approaches. For two of the remaining reporting units, which represent approximately 3% of our goodwill as of December 31, 2019, we established fair value based on the income approach only, because these reporting units are experiencing declining cash flows. We calculated and recognized a partial impairment of $10.0 million for one of these reporting units and a full impairment of $2.3 million for the second of these reporting units. For the other two reporting units for which the income approach was used, we had just acquired one reporting unit in the three months ended September 30, 2019, and we were in the process of disposing of the other reporting unit through a sale in December 2019.

45

Goodwill as of December 31, 2019 was $1,835.3 million. The carrying value of goodwill that was allocated to the web presence, email marketing and domain segments was $1,202.0 million, $603.4 million and $29.9 million, respectively. The fair value of all but three of the reporting units with goodwill at December 31, 2019 exceeds each reporting unit's carrying value by at least 20%.
Of the other three reporting units with less than 20% excess of fair value over carrying value, one reporting unit is forecast to experience continuing negative growth in both revenue and cash flows. Given this fact pattern, we relied upon the income approach in order to quantify the impact of persistent negative growth expectations and to develop a fair value for this reporting unit. The goodwill allocated to this reporting unit as of December 31, 2019 was $52.0 million. We expect that cash flows will continue to decline, which could result in goodwill impairment charges for this reporting unit at some point in the future.
The second reporting unit with less than a 20% excess of fair value over carrying value was acquired in September 2019. Based on the short duration between the acquisition date and the testing date, and lacking indications of specific events that either positively or negatively impacted the carrying value, fair value on this reporting unit approximated the allocated goodwill. Goodwill for this reporting unit as of December 31, 2019 was approximately $7.0 million.
The third reporting unit represents a combination of different hosting brands, which we will continue to monitor in the future. Though near term cash flows are projected to decline, growth in the cash flows is expected to return after further investments in engineering and development and sales and marketing are made. This reporting unit's fair value was established using three valuation methods, equally weighted. As the reporting unit passed the goodwill impairment test with equal weight given to the three approaches, we did not adjust the weight given to the three valuation approaches. As of December 31, 2019, the fair value of this reporting unit, as estimated based upon the Company's future projections, exceeded its carrying value by less than 4%. In the event our investments in engineering and development and sales and marketing do not generate the anticipated improvement in future operating performance, then future impairments may be recognized for this reporting unit. Goodwill for this reporting unit as of December 31, 2019 was approximately $1.2 billion.
Long-Lived Assets
Our long-lived assets consist primarily of intangible assets, including acquired subscriber relationships, trade names, intellectual property, developed technology, and domain names available for sale. 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. 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 are 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.
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.
During the year ended December 31, 2017, we recognized an impairment charge of $13.8 million relating to certain domain name intangible assets acquired in 2014, as the intangible assets were producing diminished cash flows. In addition, we recognized an impairment charge of $4.9 million primarily relating to developed technology and customer relationships associated with our acquisition of the Directi web presence business in 2014. This impairment also resulted from diminished cash flows associated with these intangible assets.
We did not recognize any impairments of long-lived intangible and tangible assets in the year ended December 31, 2018.
During the year ended December 31, 2019, we recognized impairment charges totaling $25.2 million relating primarily to premium domain name intangible assets acquired in 2014, which was recorded in cost of revenue in the consolidated statements of operations and comprehensive income (loss). The impairment resulted from recent market conditions that have adversely impacted cash flows from these assets, and these market conditions are expected to continue.
Derivative Instruments

46

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. Cost of revenue includes depreciation on data center equipment and support infrastructure. We 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

47

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. We had unrecognized tax benefits for uncertain tax positions of $4.4 million and $4.7 million as of December 31, 2018 and 2019, respectively.
We record interest related to unrecognized tax benefits in interest expense and penalties in operating expense. We recognized $0.1 million, $0.4 million, and $0.5 million of interest and penalties related to unrecognized tax benefits during the years ended December 31, 2017, 2018 and 2019, respectively.
We describe our accounting treatment of taxes more fully in Note 16, Income Taxes, to the consolidated financial statements included in Part II, Item 8 of 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. In addition, for stock-based awards where vesting is dependent upon achieving certain performance goals, we estimate the likelihood of achieving the performance goals against established performance targets.
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, 2019. 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 a blended average of the historical volatility measures of this peer group of companies and of the historical volatility measures of our stock. 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.
Segment Information
Since the fourth quarter of 2017 through the end of 2019, we have had three reportable segments: web presence, email marketing, and domain. The products and services included in these segments are as follows:
Web Presence. Our web presence segment consists primarily of our web hosting brands, including Bluehost and HostGator. This segment also includes related products such as domain names, website security, website design tools and services, and e-commerce products.
Email Marketing. Our email marketing segment consists of Constant Contact email marketing tools and related products. This segment also generates revenue from sales of our Constant Contact-branded website builder tool and our Ecomdash inventory management and marketplace listing solution, or Ecomdash, which we acquired in the third quarter of 2019. For most of 2019, the email marketing segment also included the SinglePlatform digital storefront business, which we sold on December 5, 2019.
Domain. Our domain segment consists of domain-focused brands such as Domain.com, ResellerClub and LogicBoxes as well as certain web hosting brands that are under common management with our domain-focused brands. This segment sells domain names and domain management services to resellers and end users, as well as premium domain names, and also generates advertising revenue from domain name parking. It also resells domain names and domain management services to our web presence segment.
Our segments share certain resources, primarily related to sales and marketing, engineering and development, and general and administrative functions. We allocate these costs to each respective segment based on a consistently applied methodology.

48

In the second half of 2019, we started the process of simplifying our organization to support our two key strategic platforms, web presence (including our web hosting and domain offerings) and email marketing. In 2020, we plan to modify our internal reporting structure to reflect these changes in our structure and leadership, and also to change the name of the email marketing segment to the "digital marketing" segment. This will result in consolidation of our current domain segment into our web presence segment, such that we expect to report our financial results in two segments - web presence (including domains) and digital marketing - beginning with the first quarter of 2020.
Results of Operations
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,
 
2017
 
2018
 
2019
 
(in thousands)
Revenue
$
1,176,867

 
$
1,145,291

 
$
1,113,278

Cost of revenue(1)
603,930

 
520,737

 
510,296

Gross profit
572,937

 
624,554

 
602,982

Operating expense:
 
 
 
 
 
Sales and marketing
277,460

 
265,424

 
258,019

Engineering and development
78,772

 
87,980

 
106,377

General and administrative
163,972

 
124,204

 
117,967

Gain on sale of business
—

 
—

 
(40,700
)
Transaction expenses
773

 
—

 
—

Impairment of goodwill
12,129

 
—

 
12,333

Total operating expense
533,106

 
477,608

 
453,996

Income from operations
39,831

 
146,946

 
148,986

Other income (expense)
(157,006
)
 
(148,391
)
 
(143,454
)
(Loss) income before income taxes and equity earnings of unconsolidated entities
(117,175
)
 
(1,445
)
 
5,532

Income tax (benefit) expense
(17,281
)
 
(6,246
)
 
17,879

(Loss) income before equity earnings of unconsolidated entities
(99,894
)
 
4,801

 
(12,347
)
Equity (income) loss of unconsolidated entities, net of tax
(110
)
 
267

 
—

Net (loss) income
$
(99,784
)
 
$
4,534

 
$
(12,347
)
Net loss attributable to non-controlling interest
7,524

 
—

 
—

Net (loss) income attributable to Endurance International Group Holdings, Inc.
$
(107,308
)
 
$
4,534

 
$
(12,347
)
(1) Includes impairment of intangible assets of $18.7 million for the year ended December 31, 2017 and $25.2 million for the year ended December 31, 2019.
Comparison of the Years Ended December 31, 2018 and 2019
Revenue
 
Year Ended December 31,
 
Change
 
2018
 
2019
 
Amount
 
%
 
(dollars in thousands)
Revenue
$
1,145,291

 
$
1,113,278

 
$
(32,013
)
 
(3
)%
Revenue decreased by $32.0 million, or 3%, from $1,145.3 million for the year ended December 31, 2018 to $1,113.3 million for the year ended December 31, 2019. This decrease was attributable to a $28.6 million decrease in revenue from our web presence segment and a $4.0 million decrease in revenue from our domain segment, partially offset by increased revenue of $0.6 million from our email marketing segment.
Our revenue is generated primarily from products and services delivered on a subscription basis, which include web hosting, domains, website builders, search engine marketing, email marketing and other similar services. We also generate non-subscription-based revenue through domain monetization and marketing development funds. Non-subscription revenue

49

decreased from $35.1 million, or 3% of revenue for the year ended December 31, 2018 to $31.5 million, or 3% of total revenue for the year ended December 31, 2019. The majority of our non-subscription revenue is included in our domain segment.
Our web presence segment revenue decreased by $28.6 million, or 5%, from $605.3 million for the year ended December 31, 2018 to $576.7 million for the year ended December 31, 2019. This decrease was primarily attributable to a decline in revenue from non-strategic brands.
Our email marketing segment revenue increased by $0.6 million, or 0%, from $410.1 million for the year ended December 31, 2018 to $410.7 million for the year ended December 31, 2019. This increase was mostly attributable to growth in services delivered to existing customers, and to a lesser extent, to price increases.
Our domain segment revenue decreased by $4.0 million, or 3%, from $129.9 million for the year ended December 31, 2018 to $125.9 million for the year ended December 31, 2019, which was caused in part by a reduction in non-subscription-based revenues, mainly from sales of premium domains, of $2.3 million, with the balance of the decrease related to declines in subscription-based revenues.
Gross Profit
 
Year Ended December 31,
 
 
 
 
 
2018
 
2019
 
Change
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
Amount
 
%
 
(dollars in thousands)
Gross profit
$
624,554

 
55
%
 
$
602,982

 
54
%
 
$
(21,572
)
 
(3
)%
Gross profit decreased by $21.6 million, or 3%, from $624.6 million for the year ended December 31, 2018 to $603.0 million for the year ended December 31, 2019. This decrease was primarily due to a $24.7 million decrease in the gross profit contribution from our domain segment and a $3.9 million decrease in the gross profit contribution from our web presence segment, partially offset by a $7.0 million increase in the gross profit contribution from our email marketing segment. Our gross profit as a percentage of revenue decreased by 1 percentage point from 55% for the year ended December 31, 2018 to 54% for the year ended December 31, 2019, mainly due to our domain segment, which recorded impairments during fiscal year 2019.
Our web presence segment gross profit decreased by $3.9 million, or 1%, from $297.6 million for the year ended December 31, 2018 to $293.7 million for the year ended December 31, 2019. The decrease was primarily due to the reduction in revenue of $28.6 million discussed above, which was partially offset by lower cost of revenue, primarily due to lower amortization expense of $10.1 million, lower data center and third party costs of $6.7 million, lower labor related costs of $3.5 million, and lower domain registration costs of $2.5 million. Our web presence segment gross profit as a percentage of revenue was 51% for the year ended December 31, 2019 as compared to 49% in the prior year.
Our email marketing segment gross profit increased by $7.0 million, or 2%, from $288.0 million for the year ended December 31, 2018 to $295.1 million for the year ended December 31, 2019. This increase was primarily due to reduced cost of revenue of $6.4 million, primarily due to lower amortization expense of $7.2 million, and increased revenue of $0.6 million. Our email marketing segment gross profit as a percentage of revenue was 72% for the year ended December 31, 2019 as compared to 70% in the prior year.
Our domain segment gross profit decreased by $24.7 million, or 63%, from $38.9 million for the year ended December 31, 2018 to $14.2 million for the year ended December 31, 2019. This decrease was primarily due to impairment charges of $25.2 million and reduced revenue of $4.0 million, partially offset by reductions in cost of revenue. Our domain segment gross profit as a percentage of revenue was 11% for the year ended December 31, 2019 as compared to 30% in the prior year.
Operating Expense

50

 
Year Ended December 31,
 
 
 
 
 
2018
 
2019
 
Change
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
Amount
 
%
 
(dollars in thousands)
Sales and marketing
$
265,424

 
23
%
 
$
258,019

 
23
 %
 
$
(7,405
)
 
(3
)%
Engineering and development
87,980

 
8
%
 
106,377

 
10
 %
 
18,397

 
21
 %
General and administrative
124,204

 
11
%
 
117,967

 
11
 %
 
(6,237
)
 
(5
)%
Gain on sale of business
—

 
—
%
 
(40,700
)
 
(4
)%
 
(40,700
)
 
100
 %
Impairment of goodwill
—

 
—
%
 
12,333

 
1
 %
 
12,333

 
100
 %
Total
$
477,608

 
42
%
 
$
453,996

 
41
 %
 
$
(23,612
)
 
(5
)%
Sales and Marketing. Sales and marketing expense decreased by $7.4 million, or 3%, from $265.4 million for the year ended December 31, 2018 to $258.0 million for the year ended December 31, 2019. Of this decrease, $15.0 million was due to lower marketing expense in our web presence segment, primarily due to decreased marketing investments in non-strategic brands, partially offset by an increase of $4.0 million in our domain segment and $3.6 million in our email marketing segment. In fiscal year 2020, we expect to make additional investments in sales and marketing in order to promote and strengthen our brands.
Sales and marketing expense for our web presence segment decreased by $15.0 million, or 10%, from $147.7 million for the year ended December 31, 2018 to $132.7 million for the year ended December 31, 2019. This decrease was primarily attributable to reduced expense on non-strategic brands, which was partially offset by increased investments in key hosting brands.
Sales and marketing expense for our email marketing segment increased by $3.6 million, or 4%, from $97.8 million for the year ended December 31, 2018 to $101.4 million for the year ended December 31, 2019. The increase was primarily due to higher labor costs.
Sales and marketing expense for our domain segment increased by $4.0 million, or 20%, from $19.9 million for the year ended December 31, 2018 to $23.9 million for the year ended December 31, 2019. This increase was primarily attributable to increased marketing program spend of $3.1 million and higher labor costs of $0.9 million
Engineering and Development. Engineering and development expense increased by $18.4 million, or 21%, from $88.0 million for the year ended December 31, 2018 to $106.4 million for the year ended December 31, 2019. Of this increase, $10.7 million, $6.7 million and $1.1 million were due to increased engineering and development expense for our web presence, email marketing, and domain segments, respectively. For fiscal year 2020, we expect to continue to make investments in our engineering and development organization in order to further enhance our products.
Engineering and development expense for our web presence segment increased by $10.7 million, or 27%, from $39.0 million for the year ended December 31, 2018 to $49.7 million for the year ended December 31, 2019. This increase was primarily attributable to growth in engineering resources aimed at enhancing our products and higher product spend.
Engineering and development expense for our email marketing segment increased by $6.7 million, or 16%, from $41.3 million for the year ended December 31, 2018 to $48.0 million for the year ended December 31, 2019. This increase was primarily attributable to growth in engineering resources aimed at enhancing our products of $6.2 million and higher stock-based compensation expense of $0.5 million. These increases were partially offset by lower depreciation expense of $0.6 million.
Engineering and development expense for our domain segment increased by approximately $1.1 million, or 14%, from $7.7 million for the year ended December 31, 2018 to $8.7 million for the year ended December 31, 2019. This increase was primarily attributable to increases in engineering resources aimed at enhancing our products.
General and Administrative. General and administrative expense decreased by $6.2 million, or 5%, from $124.2 million for the year ended December 31, 2018 to $118.0 million for the year ended December 31, 2019. Our general and administrative expenses primarily consist of consolidated corporate wide support functions, and the costs of these functions are allocated between our three segments primarily based on relative revenues. The decrease in consolidated general and administrative expense was primarily attributable to the impact of the shareholder litigation reserve of $7.3 million recorded during the year ended December 31, 2018, a $4.2 million insurance reimbursement of legal fees, and lower labor costs. These factors were partially offset by higher stock-based compensation expense of $5.0 million.
General and administrative expense for our web presence segment increased by $0.7 million, or 1%, from $67.1 million for the year ended December 31, 2018 to $67.8 million for the year ended December 31, 2019. General and administrative

51

expense for our email marketing segment decreased by $2.3 million, or 5%, from $41.9 million for the period ended December 31, 2018 to $39.6 million for the year ended December 31, 2019. General and administrative expense for our domain segment decreased by $4.6 million, or 30%, from $15.2 million for the year ended December 31, 2018 to $10.6 million for the year ended December 31, 2019.
Gain on Sale of Business. We recorded a $40.7 million gain on sale of our SinglePlatform business in fiscal year 2019. No such sales were recorded in fiscal 2018.
Impairment of Goodwill. We recorded goodwill impairment charges totaling $12.3 million during the year ended December 31, 2019, which were attributable to two non-strategic reporting units within our web presence segment. The impairments were primarily the result of a continued decline in the cash flows associated with these non-strategic brands. No such impairment charges were incurred in fiscal 2018.
Other Expense, Net 
 
Year Ended
December 31,
 
Change
 
2018
 
2019
 
Amount
 
%
 
(dollars in thousands)
Other expense, net
$
148,391

 
$
143,454

 
$
(4,937
)
 
(3
)%
Other expense, net decreased by $4.9 million, or 3%, from $148.4 million for the year ended December 31, 2018 to $143.5 million for the year ended December 31, 2019. The decrease consists primarily of lower interest expense relative to 2018, when we incurred $1.5 million in interest expense due to our 2018 term loan refinancing, most of it relating to immediately expensed financing costs. The balance of the decrease was mainly due to lower average debt balances during 2019.
Income Tax (Benefit) Expense 
 
Year Ended
December 31,
 
Change
 
2018
 
2019
 
Amount
 
%
 
(dollars in thousands)
Income tax (benefit) expense
$
(6,246
)
 
$
17,879

 
$
24,125

 
(386
)%
For the years ended December 31, 2018 and 2019, we recognized an income tax benefit of $6.2 million and an income tax expense of $17.9 million, respectively, in the consolidated statements of operations and comprehensive income (loss).
The income tax benefit for the year ended December 31, 2018 was primarily attributable to a federal and state deferred tax benefit of $9.6 million, a foreign deferred tax benefit of $0.8 million, and a federal and state current income tax benefit of $1.3 million, partially offset by foreign current tax expense of $5.4 million. This aggregate tax benefit of $6.2 million includes $2.2 million of reserves provided for unrecognized tax benefits.
The income tax expense for the year ended December 31, 2019 was primarily attributable to a federal and state deferred tax expense of $10.6 million, a foreign deferred tax expense of $0.1 million, a federal and state current income tax expense of $4.2 million, and foreign current tax expense of $3.0 million. This aggregate tax expense of $17.9 million includes $1.4 million of reserves provided for unrecognized tax benefits.
Comparison of the Years Ended December 31, 2017 and 2018
Revenue
 
Year Ended December 31,
 
Change
 
2017
 
2018
 
Amount
 
%
 
(dollars in thousands)
Revenue
$
1,176,867

 
$
1,145,291

 
$
(31,576
)
 
(3
)%
Revenue decreased by $31.6 million, or 3%, from $1,176.9 million for the year ended December 31, 2017 to $1,145.3 million for the year ended December 31, 2018. This decrease is attributable to a $36.7 million decrease in revenue from our web presence segment and a $3.7 million decrease in revenue from our domain segment, partially offset by increased revenue of $8.8 million from our email marketing segment.
Our revenue is 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

52

revenue through premium domain sales and domain parking (which we refer to as domain monetization) and marketing development funds. Non-subscription revenue decreased from $39.4 million for the year ended December 31, 2017 to $35.1 million for the year ended December 31, 2018, and represented 3% of total revenue for the year ended December 31, 2017, and 3% of total revenue for the year ended December 31, 2018. The majority of our non-subscription revenue is included in our domain segment.
Our web presence segment revenue decreased by $36.7 million, or 6%, from $642.0 million for the year ended December 31, 2017 to $605.3 million for the year ended December 31, 2018. This decrease was primarily attributable to a decline in revenue from non-strategic brands.
Our email marketing segment revenue increased by $8.8 million, or 2%, from $401.3 million for the year ended December 31, 2017 to $410.1 million for the year ended December 31, 2018. This increase was mostly attributable to price increases, and to a lesser extent, growth in services delivered to existing customers.
Our domain segment revenue decreased by $3.7 million, or 3%, from $133.6 million for the year ended December 31, 2017 to $129.9 million for the year ended December 31, 2018, which was caused in part by a reduction in non-subscription revenues, mainly domain monetization revenue, of $1.9 million, with the balance of the decrease related to declines in subscription based revenues.
Gross Profit
 
Year Ended December 31,
 
 
 
 
 
2017
 
2018
 
Change
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
Amount
 
%
 
(dollars in thousands)
Gross profit
$
572,937

 
49
%
 
$
624,554

 
55
%
 
$
51,617

 
9
%
Gross profit increased by $51.6 million, or 9%, from $572.9 million for the year ended December 31, 2017 to $624.6 million for the year ended December 31, 2018. This increase was primarily due to a $33.1 million increase in the gross profit contribution from our email marketing segment, and a $26.5 million increase in the gross profit contribution from our domain segment, partially offset by an $8.0 million decrease in the gross profit contribution from our web presence segment. Our gross profit as a percentage of revenue increased by 6 percentage points from 49% for the year ended December 31, 2017 to 55% for the year ended December 31, 2018, mainly due to the performance of our email marketing segment.
Our web presence segment gross profit decreased by $8.0 million, or 3%, from $305.6 million for the year ended December 31, 2017 to $297.6 million for the year ended December 31, 2018. The decrease was primarily due to the reduction in revenue of $36.7 million discussed above, which was partially offset by lower cost of revenue of $28.7 million, primarily due to lower amortization expense of $13.3 million and lower stock-based compensation expense of $3.3 million, with the balance of the decrease being mostly related to lower support and data center costs as we further consolidated our operations in these areas. Our web presence segment gross profit as a percentage of revenue was 49% for the year ended December 31, 2018 as compared to 48% in the prior year.
Our email marketing segment gross profit increased by $33.1 million, or 13%, from $254.9 million for the year ended December 31, 2017 to $288.0 million for the year ended December 31, 2018. This increase was primarily due to reduced cost of revenue of $24.3 million, primarily due to lower amortization of $21.4 million, and increased revenue of $8.8 million. Our email marketing segment gross profit as a percentage of revenue was 70% for the year ended December 31, 2018 as compared to 64% in the prior year.
Our domain segment gross profit increased by $26.5 million, or 214%, from $12.4 million for the year ended December 31, 2017 to $38.9 million for the year ended December 31, 2018. This increase was primarily due to a $30.2 million reduction in cost of revenue, due mostly to an impairment charge of $18.7 million recorded in fiscal year 2017, which was related primarily to domain monetization intangible assets, and reduced amortization of $2.6 million, with the balance being primarily related to reduced domain registration costs, as we discontinued certain low priced product offerings. Our domain segment gross profit as a percentage of revenue was 30% for the year ended December 31, 2018 as compared to 9% in the prior year.
Operating Expense

53

 
Year Ended December 31,
 
 
 
 
 
2017
 
2018
 
Change
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
Amount
 
%
 
(dollars in thousands)
Sales and marketing
$
277,460

 
24
%
 
$
265,424

 
23
%
 
$
(12,036
)
 
(4
)%
Engineering and development
78,772

 
7
%
 
87,980

 
8
%
 
9,208

 
12
 %
General and administrative
163,972

 
14
%
 
124,204

 
11
%
 
(39,768
)
 
(24
)%
Impairment of goodwill
12,129

 
1
%
 
—

 
—
%
 
(12,129
)
 
(100
)%
Transaction expenses
773

 
—
%
 
—

 
—
%
 
(773
)
 
(100
)%
Total
$
533,106

 
45
%
 
$
477,608

 
42
%
 
$
(55,498
)
 
(10
)%
Sales and Marketing. Sales and marketing expense decreased by $12.0 million, or 4%, from $277.5 million for the year ended December 31, 2017 to $265.4 million for the year ended December 31, 2018. Of this decrease, $13.0 million was due to lower marketing expense in our web presence segment, primarily due to decreased marketing investments in non-strategic brands, partially offset by an increase of $1.1 million in our email marketing segment.
Sales and marketing expense for our web presence segment decreased by $13.0 million, or 8%, from $160.7 million for the year ended December 31, 2017 to $147.7 million for the year ended December 31, 2018. This decrease was primarily attributable to reduced expense on non-strategic brands, which was partially offset by increased investments in key hosting brands.
Sales and marketing expense for our email marketing segment increased by $1.1 million, or 1%, from $96.8 million for the year ended December 31, 2017 to $97.8 million for the year ended December 31, 2018. The increase, which is net of a $1.9 million decrease in restructuring charges, is primarily due to investments in brand building activities.
Sales and marketing expense for our domain segment decreased by $0.1 million, or 0%, from $20.0 million for the year ended December 31, 2017 to $19.9 million for the year ended December 31, 2018. This decrease was primarily attributable to lower labor costs of $1.4 million, partially offset by increased marketing program spend of $1.1 million and higher stock-based compensation expense of $0.2 million.
Engineering and Development. Engineering and development expense increased by $9.2 million, or 12%, from $78.8 million for the year ended December 31, 2017 to $88.0 million for the year ended December 31, 2018. Of this increase, $7.9 million and $1.5 million were due to increased engineering and development expense for our email marketing and domain segments, respectively, partially offset by slightly reduced expense for our web presence segment.
Engineering and development expense for our web presence segment decreased by $0.2 million, or 0%, from $39.2 million for the year ended December 31, 2017 to $39.0 million for the year ended December 31, 2018. This decrease was primarily attributable to lower depreciation and stock-based compensation expense of $3.4 million. These cost decreases were almost completely offset by growth in engineering resources aimed at enhancing our products.
Engineering and development expense for our email marketing segment increased by $7.9 million, or 23%, from $33.4 million for the period ended December 31, 2017 to $41.3 million for the year ended December 31, 2018. This increase was primarily attributable to increases in engineering resources aimed at enhancing our products.
Engineering and development expense for our domain segment increased by $1.5 million, or 25%, from $6.1 million for the year ended December 31, 2017 to $7.7 million for the year ended December 31, 2018. This increase was primarily attributable to increases in engineering resources aimed at enhancing our products.
General and Administrative. General and administrative expense decreased by $39.8 million, or 24%, from $164.0 million for the year ended December 31, 2017 to $124.2 million for the year ended December 31, 2018. Our general and administrative expenses primarily consist of consolidated corporate wide support functions, and the costs of these functions are allocated between our three segments primarily based on relative revenues. The decrease in consolidated general and administrative expense was primarily attributable to reductions in stock-based compensation, labor, and restructuring costs of $23.8 million, $12.6 million, and $4.4 million, respectively, and changes in our shareholder litigation reserve charges of $0.7 million.
General and administrative expense for our web presence segment decreased by $31.5 million, or 32%, from $98.6 million for the year ended December 31, 2017 to $67.1 million for the year ended December 31, 2018. General and administrative expense for our email marketing segment decreased by $0.7 million, or 2%, from $42.5 million for the period ended December 31, 2017 to $41.9 million for the year ended December 31, 2018. General and administrative expense for our

54

domain segment decreased by $7.6 million, or 33%, from $22.8 million for the year ended December 31, 2017 to $15.2 million for the year ended December 31, 2018.
Transaction Expenses. Transaction expense decreased by $0.8 million, or 100%, from $0.8 million for the year ended December 31, 2017 to $0.0 million for the year ended December 31, 2018. The year-over-year decrease was primarily attributable to the lack of merger and acquisitions-related activity in 2018.
Impairment of Goodwill. We recorded an impairment of goodwill of $12.1 million during the year ended December 31, 2017, which was entirely attributable to the domain monetization reporting unit within our domain segment. The impairment was the result of a more rapid decline in domain parking revenue than originally anticipated, and to a lesser extent, a decrease in premium domain name sales. No such impairment recurred in fiscal 2018.
Other Expense, Net 
 
Year Ended
December 31,
 
Change
 
2017
 
2018
 
Amount
 
%
 
(dollars in thousands)
Other expense, net
$
157,006

 
$
148,391

 
$
(8,615
)
 
(5
)%
Other expense, net decreased by $8.6 million, or 5%, from $157.0 million for the year ended December 31, 2017 to $148.4 million for the year ended December 31, 2018. The decrease primarily consists of a lower amount of immediately expensed deferred financing costs of $4.3 million and a lower loss on extinguishment of debt of $0.7 million for our 2018 term loan refinancing when compared to our 2017 term loan refinancing, with the balance of the decrease mainly due to lower average debt balances.
Income Tax Benefit
 
Year Ended
December 31,
 
Change
 
2017
 
2018
 
Amount
 
%
 
(dollars in thousands)
Income tax benefit
$
(17,281
)
 
$
(6,246
)
 
$
(11,035
)
 
(64
)%
For the years ended December 31, 2017 and 2018, we recognized an income tax benefit of $17.3 million and $6.2 million, respectively, in the consolidated statements of operations and comprehensive income (loss).
The income tax benefit for the year ended December 31, 2017 was primarily attributable to $21.8 million in federal and state deferred tax benefit (which includes a $16.9 million tax benefit pertaining to the federal tax rate change as a result of the Tax Cut and Jobs Act of 2017 and the identification and recognition of $1.2 million of U.S. federal and state tax credits) and a foreign deferred tax benefit of $1.0 million, offset by a provision for federal and state current income taxes of $2.9 million, and foreign current tax expense of $2.6 million. This aggregate tax benefit of $17.3 million is inclusive of $1.1 million of reserves provided for unrecognized tax benefits.
The income tax benefit for the year ended December 31, 2018 was primarily attributable to $9.6 million of a federal and state deferred tax benefit, a foreign deferred tax benefit of $0.8 million, and a federal and state current income tax benefit of $1.3 million, partially offset by foreign current tax expense of $5.4 million. This aggregate tax benefit of $6.2 million is inclusive of $2.2 million of reserves provided for unrecognized tax benefits.
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations since inception primarily with cash flow generated by operations, borrowings under our credit facilities and public offerings of our securities.
In November 2013, we entered into a $1,050.0 million first lien term loan facility and a $125.0 million revolving credit facility. On February 9, 2016, in connection with our acquisition of Constant Contact and the related financing of that transaction, we entered into a $735.0 million incremental first lien term loan facility and a new $165.0 million revolving credit facility, which replaced our previous revolving credit facility and which we refer to as the "Revolver," and our wholly owned subsidiary, EIG Investors, issued $350.0 million aggregate principal amount of 10.875% senior notes due 2024, or the "Senior Notes." On June 14, 2017, we refinanced our then-outstanding term loans and replaced them with a new $1,697.3 million first lien term loan facility, which we refer to as the “2017 Term Loan.” On June 20, 2018, we repriced the 2017 Term Loan and replaced it with a new $1,580.3 million first lien term loan facility, which we refer to as the "Term Loan," and we also extended

55

the maturity of $106.2 million of the Revolver. We refer to the Term Loan (or prior to June 20, 2018, the 2017 Term Loan) and the Revolver together as the "Senior Credit Facilities."
2018 First Lien Term Loan Facility. The Term Loan was issued at par with an original balance of $1,580.3 million and has a maturity date of February 9, 2023. The Term Loan automatically bears interest at an alternate base rate unless we give notice to opt for the LIBOR-based interest rate. The LIBOR-based interest rate for the Term Loan is 3.75% per annum plus the greater of an adjusted LIBOR and 1.00%. The alternate base rate for the Term Loan is 2.75% per annum plus the greatest of the prime rate, the federal funds effective rate plus 0.50%, an adjusted LIBOR for a one-month interest period plus 1.00%, and 2.00%. The Term Loan requires quarterly mandatory repayments of principal. For the year ended December 31, 2019, we made four mandatory repayments of $7.9 million each, three voluntary prepayments of $17.1 million each, and one mandatory prepayment of $48.1 million (triggered by the sale of our SinglePlatform business), for a total repayment of $131.0 million.
2017 First Lien Term Loan Facility. The 2017 Term Loan was issued at a price of 99.75% of par and had a maturity date of February 9, 2023. The 2017 Term Loan automatically bore interest at an alternate base rate unless we gave notice to opt for the LIBOR-based interest rate. The LIBOR-based interest rate for the 2017 Term Loan was 4.00% per annum plus the greater of an adjusted LIBOR and 1.00%. The alternate base rate for the 2017 Term Loan was 3.00% per annum plus the greatest of the prime rate, the federal funds effective rate plus 0.50%, an adjusted LIBOR for a one-month interest period plus 1.00%, and 2.00%. The 2017 Term Loan required quarterly mandatory repayments of principal. During the year ended December 31, 2018, we made one mandatory repayment of $8.5 million and one voluntary prepayment of $17.0 million prior to the refinancing of the 2017 Term Loan.
Revolving Credit Facility. The Revolver has an aggregate available amount of $165.0 million and consists of a non-extended tranche of approximately $58.8 million and an extended tranche of approximately $106.2 million. The non-extended tranche has a maturity date of February 9, 2021. The extended tranche has a maturity date of June 20, 2023, with a "springing" maturity date of November 10, 2022 if the Term Loan has not been repaid in full or otherwise extended to September 19, 2023 or later prior to November 10, 2022. We have the ability to draw down against the Revolver using a LIBOR-based interest rate or an alternate base rate. The LIBOR-based interest rate for a non-extended revolving loan is 4.00% per annum (subject to a leverage-based step-down) and for an extended revolving loan is 3.25% per annum (subject to a leverage-based step-down), in each case plus an adjusted LIBOR for a selected interest period. The alternate base rate for a non-extended revolving loan is 3.00% per annum (subject to a leverage-based step-down) and for an extended revolving loan is 2.25% per annum (subject to a leverage-based step-down), in each case plus the greatest of the prime rate, the federal funds rate plus 0.50% and an adjusted LIBOR for a one-month interest period plus 1.00%. We are also required to pay a commitment fee of 0.50% per annum (subject to a leverage-based step-down) to the lenders based on the average daily unused principal amount of the Revolver.
Senior Notes. The Senior Notes were issued at a price of 98.065% of par and have a maturity date of February 1, 2024. The Senior Notes bear interest at the rate of 10.875% per annum. We have the right to redeem all or part of the Senior Notes at any time for a premium which is based on the applicable redemption date. On January 30, 2017, we completed a registered exchange offer for the Senior Notes, as required under the registration rights agreement we entered into with the initial purchasers of the Senior Notes. All of the $350.0 million aggregate principal amount of the Senior Notes was validly tendered for exchange as part of this exchange offer. The registration rights agreement also obligated us to use reasonable efforts to cause to become effective a registration statement providing for the registration of certain secondary transactions in the Senior Notes by Goldman, Sachs & Co. and its affiliates. The Senior Notes have been fully and unconditionally guaranteed, on a senior unsecured basis, by us and our subsidiaries that guarantee the Senior Credit Facilities.
As of December 31, 2019, we had cash and cash equivalents totaling $111.3 million and negative working capital of $278.1 million, which included the $31.6 million current portion of the Term Loan. There was no balance outstanding on the Revolver as of December 31, 2019. In addition, we had approximately $1,675.6 million of long term indebtedness, including deferred financing costs, outstanding under the Term Loan and the Senior Notes. We also had $469.1 million of short-term and long-term deferred revenue, which is not expected to be payable in cash.
LIBOR Phase-Out
The U.K. Financial Conduct Authority announced in 2017 that it intends to phase out LIBOR by the end of 2021. We are evaluating the impact of the expected discontinuation of LIBOR on our Term Loan, Revolver, outstanding interest rate cap, and other contracts. Refer to Part I, Item 1A, Risk Factors for further discussion of the LIBOR phrase-out.
Debt Covenants
Senior Credit Facilities
The Senior Credit Facilities require that we comply with a financial covenant to maintain a maximum ratio of consolidated net senior secured indebtedness to Bank Adjusted EBITDA (as defined below), which is different than our reported non-GAAP adjusted EBITDA.

56

The Senior Credit Facilities contain covenants that limit our ability to, among other things, incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of capital stock; make other restricted payments; make certain investments; sell or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Additionally, the Senior Credit Facilities require us to comply with certain negative covenants and specify certain events of default that could result in amounts becoming payable, in whole or in part, prior to their maturity dates. We were in compliance with all covenants at December 31, 2019.
With the exception of certain equity interests and other excluded assets under the terms of the Senior Credit Facilities, substantially all of our assets are pledged as collateral for the obligations under the Senior Credit Facilities.
Senior Notes
The indenture governing the Senior Notes contains covenants that limit our ability to, among other things, incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of capital stock; make other restricted payments; make certain investments; sell or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Upon a change of control as defined in the indenture, we or EIG Investors must offer to repurchase the Senior Notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, up to, but not including, the repurchase date. These covenants are subject to a number of important limitations and exceptions.
The indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately.
We were in compliance with all covenants under the Senior Credit Facilities and the Senior Notes at December 31, 2019.
Secured Net Leverage Ratio
The Senior Credit Facilities require that we comply with a financial covenant not to exceed a maximum ratio of consolidated senior secured net indebtedness on the date of determination to an adjusted consolidated EBITDA measure, which we refer to as "Bank Adjusted EBITDA," for the most recently completed four quarters (which we refer to as trailing twelve months, or "TTM"). This net leverage ratio is tested as of the last day of each fiscal quarter and was required to be at or below 6.50 to 1.00 through December 31, 2016 and at or below 6.25 to 1.00 from March 31, 2017 through December 31, 2017, and may not exceed 6.00 to 1.00 from March 31, 2018 and thereafter. As of December 31, 2019, we were in compliance with this covenant.
The credit agreement governing the Senior Credit Facilities defines consolidated senior secured net indebtedness as our and our restricted subsidiaries' aggregate amount of indebtedness that is secured by a lien not expressly subordinated to the liens securing the Senior Credit Facilities. Consolidated senior secured net indebtedness is determined on a consolidated basis in accordance with GAAP and consists only of indebtedness for borrowed money, unreimbursed obligations under letters of credit, obligations with respect to financed equipment obligations and debt obligations evidenced by promissory notes and similar instruments, minus the aggregate amount of cash and permitted investments, excluding cash and permitted investments that are restricted.
The credit agreement defines Bank Adjusted EBITDA as net income (loss) adjusted to exclude, among other things, interest expense, income tax expense (benefit), depreciation and amortization. Bank Adjusted EBITDA also adjusts net income (loss) by excluding certain non-cash foreign exchange gains (losses), certain gains (losses) from sale of assets, stock-based compensation, unusual and non-recurring expenses (including acquisition related costs, gains or losses on early extinguishment of debt, and loss on impairment of tangible or intangible assets). It also adjusts net income (loss) for revenue on a billed basis, changes in deferred domain costs, share of loss (profit) of unconsolidated entities, and certain integration related costs. Finally, it adjusts net income (loss) to give pro forma effect to acquisitions, debt incurrences, repayments of debt, other specified transactions and certain cost savings on a TTM basis.
We use Bank Adjusted EBITDA to monitor our secured net leverage ratio and our ability to undertake key investing and financing functions such as making investments and incurring additional indebtedness, which may be prohibited by the covenants under our credit agreement unless we comply with certain financial ratios and tests.
Bank Adjusted EBITDA is a supplemental measure of our liquidity and is not presented in accordance with GAAP. Bank Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered an alternative to revenue, net income (loss), cash flow, or any other performance measure derived in accordance with GAAP. Our presentation of Bank Adjusted EBITDA may not be comparable with similarly titled measures of other companies.

57

As of December 31, 2019, our secured net leverage ratio on a TTM basis was 4.04 to 1.00 and was calculated as follows:
 
 
 For the three months ended,
 
 
 
 
March 31, 2019
 
June 30, 2019
 
September 30, 2019
 
December 31, 2019
 
 TTM
 
 
 (in thousands except ratios)
Net (loss) income
 
$
(3,488
)
 
$
(26,228
)
 
$
7,816

 
$
9,553

 
$
(12,347
)
Interest expense
 
37,214

 
37,037

 
36,057

 
34,368

 
144,676

Income tax expense (benefit)
 
1,719

 
6,160

 
(4,839
)
 
14,839

 
17,879

Depreciation
 
11,206

 
10,899

 
11,280

 
11,566

 
44,951

Amortization of other intangible assets
 
21,120

 
21,349

 
21,668

 
21,046

 
85,183

Stock-based compensation
 
9,016

 
9,354

 
9,143

 
8,179

 
35,692

Integration and restructuring costs
 
2,015

 
183

 
(193
)
 
(13
)
 
1,992

Transaction expenses and charges
 
—

 
—

 
—

 
—

 
—

(Gain) loss of unconsolidated entities
 
—

 
—

 
—

 
—

 
—

Impairment of long-lived assets and goodwill
 
—

 
17,892

 
—

 
19,648

 
37,540

(Gain) loss on assets, not ordinary course
 
—

 
—

 
—

 
(40,700
)
 
(40,700
)
Legal advisory expenses
 
400

 
465

 
849

 
(3,962
)
 
(2,248
)
Billed revenue to GAAP revenue adjustment
 
10,385

 
(3,143
)
 
578

 
(4,065
)
 
3,755

Domain registration cost cash to GAAP adjustment
 
(2,441
)
 
1,421

 
465

 
1,163

 
608

Currency translation
 
29

 
63

 
75

 
18

 
185

Adjustment for acquisitions on a proforma basis
 
(54
)
 
(54
)
 
(43
)
 
—

 
(151
)
Adjustment for dispositions on a proforma basis
 
(1,591
)
 
(1,058
)
 
(1,053
)
 
(326
)
 
(4,028
)
 Bank Adjusted EBITDA
 
$
85,530

 
$
74,340

 
$
81,803

 
$
71,314

 
$
312,987

 
 
 
 
 
 
 
 
 
 
 
Current portion of notes payable
 
 
 
 
 
 
 
 
 
$
31,606

Current portion of financed equipment
 
 
 
 
 
 
 
 
 
790

Notes payable - long term
 
 
 
 
 
 
 
 
 
1,649,867

Financed equipment - long term
 
 
 
 
 
 
 
 
 
—

Original issue discounts and deferred financing costs
 
 
 
 
 
 
 
 
 
42,549

Less:
 
 
 
 
 
 
 
 
 
 
  Unsecured notes
 
 
 
 
 
 
 
 
 
(350,000
)
  Cash
 
 
 
 
 
 
 
 
 
(111,265
)
  Certain permitted restricted cash
 
 
 
 
 
 
 
 
 
—

 Net senior secured indebtedness
 
 
 
 
 
 
 
 
 
$
1,263,547

 Net leverage ratio
 
 
 
 
 
 
 
 
 
4.04

 Maximum net leverage ratio
 
 
 
 
 
 
 
 
 
6.00

Cash and Cash Equivalents
As of December 31, 2019, our cash and cash equivalents were primarily held for working capital purposes and for required principal and interest payments under our indebtedness. A majority of our cash and cash equivalents was held in operating accounts. Our cash and cash equivalents increased by $22.6 million from $88.6 million at December 31, 2018 to $111.3 million at December 31, 2019. Of the $111.3 million cash and cash equivalents we had at December 31, 2019, $28.9 million was held in foreign countries, and due to tax reasons, we do not plan to repatriate this cash in the near future. We used cash on hand at December 31, 2018 and cash flows from operations to purchase property and equipment and to make our debt payments on our Term Loan, as described under "Financing Activities" below. Our future capital requirements will depend on many factors including, but not limited to our growth rate, our level of sales and marketing activities, the development and introduction of new and enhanced products and services, market acceptance of our solutions, potential settlements of legal proceedings, acquisitions, and our gross profits and operating expenses. We believe that our current cash and cash equivalents

58

and operating cash flows will be sufficient to meet our anticipated working capital and capital expenditure requirements, as well as our required principal and interest payments under our indebtedness, for at least the next 12 months.
The following table shows our purchases of property and equipment, principal payments on financed equipment obligations, depreciation, amortization, and cash flows from operating activities, investing activities and financing activities for the periods presented:
 
For the year ended December 31,
 
2017
 
2018
 
2019
 
(in thousands)
Purchases of property and equipment
$
(43,062
)
 
$
(45,880
)
 
$
(39,126
)
Principal payments on financed equipment
(7,390
)
 
(7,439
)
 
(8,189
)
Depreciation
55,185

 
48,207

 
44,951

Amortization
152,162

 
114,280

 
97,015

Cash flows provided by operating activities
201,273

 
182,552

 
161,973

Cash flows (used in) provided by investing activities
(44,498
)
 
(45,882
)
 
3,000

Cash flows used in financing activities
(146,705
)
 
(113,421
)
 
(141,638
)
Capital Expenditures
Our capital expenditures on the purchase of property and equipment for the years ended December 31, 2018 and 2019 were $45.9 million and $39.1 million, respectively. The higher property and equipment expenditures in the year ended December 31, 2018 consisted primarily of an investment in data center and customer infrastructure, including internally developed software. In addition, during the years ended December 31, 2018 and 2019, we made principal payments of $7.4 million and $8.2 million, respectively, under an agreement for equipment financing. The remaining balance payable on the equipment financing was $0.8 million as of December 31, 2019.
Depreciation
Our depreciation expense for the years ended December 31, 2018 and 2019 decreased by $3.3 million from $48.2 million to $45.0 million, respectively. This decrease was primarily due to a reduction in depreciation for our email marketing segment as certain assets became fully depreciated.
Amortization
Our amortization expense, which includes amortization of other intangible assets, amortization of deferred financing costs and amortization of net present value of deferred consideration, decreased by $17.3 million from $114.3 million for the year ended December 31, 2018 to $97.0 million for the year ended December 31, 2019. Of this decrease in amortization expense, $18.0 million related to lower amortization expense of intangible assets relating to businesses and assets acquired. This decrease was partially offset by an increase of $0.7 million relating to increased amortization of deferred financing costs and an increase of $0.2 million relating to amortization of original issue discounts related to our Senior Credit Facilities.
Operating Activities
Cash provided by operating activities consists primarily of net income (loss) adjusted for certain non-cash items including depreciation, amortization, stock-based compensation expense, impairment charges, if any, (gains) losses on sale of business or sale of assets, and changes in deferred taxes, and the effect of changes in working capital, in particular in deferred revenue. As we add subscribers to our platform, we typically collect subscription fees at the time of initial billing and recognize revenue over the terms of the subscriptions. Accordingly, we generate operating cash flows as we collect cash from our subscribers in advance of delivering the related products and services, and we maintain a significant deferred revenue balance.
Net cash provided by operating activities was $162.0 million for the year ended December 31, 2019 compared with $182.6 million for the year ended December 31, 2018. Net cash provided by operating activities for the year ended December 31, 2019 consisted of net loss of $12.3 million, offset by non-cash charges of $185.3 million, which includes $40.7 million of gain on disposition of our SinglePlatform business, and an unfavorable net change of $11.0 million in our operating assets and liabilities. The $11.0 million of cash outlays for operating assets and liabilities was primarily due to lower subscriber billings resulting from subscriber attrition in our non-strategic brands, the timing of payments to suppliers, and higher income tax payments, partially offset by lower payments for restructuring programs and interest payments. We expect cash provided by operations in fiscal year 2020 to be substantially consistent with, or slightly lower, than the levels achieved in fiscal year 2019.
Net cash provided by operating activities was $182.6 million for the year ended December 31, 2018, compared with $201.3 million for the year ended December 31, 2017. Net cash provided by operating activities for the year ended December 31, 2018 consisted of profit of $4.5 million, offset by non-cash charges of $183.1 million and an unfavorable net

59

change of $5.1 million in our operating assets and liabilities. The $5.1 million of cash outlays for operating assets and liabilities was primarily due to lower subscriber billings resulting from subscriber attrition, which adversely impacted deferred revenue. In addition, we paid $8.0 million to settle SEC investigations initiated in 2015 against us and Constant Contact and $5.7 million to purchase an interest rate cap. These uses of cash were partially offset by lower payments for interest expense and lower payments for restructuring programs.
Net cash provided by operating activities was $201.3 million for the year ended December 31, 2017, and consisted of a net loss of $99.8 million, offset by non-cash charges of $282.1 million and a net change of $18.9 million in our operating assets and liabilities.
Investing Activities
Cash flows used in investing activities consist primarily of purchases of property and equipment, acquisition consideration payments, proceeds from the sale of business and sale of assets, and changes in restricted cash balances.
During the year ended December 31, 2019, cash flows provided by investing activities was $3.0 million, which was primarily due to the proceeds of $51.0 million from the disposition of our SinglePlatform business, partially offset by $39.1 million used to purchase property and equipment and $8.9 million used to acquire Ecomdash.
During the year ended December 31, 2018, cash flows used in investing activities was $45.9 million, which was used to purchase property and equipment.
During the year ended December 31, 2017, cash flows used in investing activities was $44.5 million. We used $43.1 million of cash to purchase property and equipment and $2.0 million of cash to acquire intangible assets, net of proceeds of $0.5 million from asset disposals.
Financing Activities
Cash flow from financing activities consists primarily of the net change in our overall indebtedness, payment of associated financing costs, payment of deferred consideration for our acquisitions and the issuance or repurchase of equity.
During the year ended December 31, 2019, cash flows used in financing activities was $141.6 million. We paid $131.0 million of principal payments related to our Term Loan, which included quarterly mandatory repayments of $31.6 million, voluntary repayments of $51.3 million, and a $48.1 million mandatory prepayment triggered by the disposition of our SinglePlatform business. We also made $8.2 million of principal payments related to financed equipment obligations and $2.5 million in deferred consideration payments relating to AppMachine. These payments were partially offset by an immaterial amount of proceeds that we received from the exercise of stock options. For fiscal year 2020, we plan to continue to use our cash flow from operations to reduce our outstanding debt obligations, including both voluntary and mandatory repayments, by an aggregate amount of $100.0 million.
During the year ended December 31, 2018, cash flows used in financing activities was $113.4 million. We paid $100.8 million of principal payments related to our 2017 Term Loan and Term Loan, which included mandatory repayments of $32.2 million and voluntary repayments of $68.6 million. We also made $7.4 million of principal payments related to financed equipment obligations and $4.5 million in deferred consideration payments relating to our AppMachine acquisition. In addition, we paid $1.6 million for deferred financing costs relating to the June 2018 refinancing of the 2017 Term Loan. These payments were partially offset by $0.9 million of proceeds that we received from the exercise of stock options.
During the year ended December 31, 2017, cash flows used in financing activities was $146.7 million. We made repayments on our term loans of $1,797.6 million (including the refinancing of our 2017 Term Loan, which provided new term debt proceeds of $1,693.0 million), for a net cash debt payment of $100.4 million during fiscal year 2017. In addition, we incurred $6.3 million of costs related to the 2017 Term Loan refinancing, made financed equipment payments of $7.4 million, paid $5.4 million of deferred consideration (primarily related to the AppMachine acquisition), and made the final payment of non-controlling interest obligations of $25.0 million to acquire all equity interests in WZ UK. These cash outlays were partially offset by $2.0 million in proceeds from the exercise of stock options.
Free Cash Flow
Free cash flow, or FCF, is a non-GAAP financial measure that we calculate as GAAP cash flow from operations less capital expenditures and financed equipment obligations. We believe that FCF provides investors with an indicator of our ability to generate positive cash flows after meeting our obligations with regard to capital expenditures (including financed equipment). The following table reflects the reconciliation of cash flow from operations to free cash flow:

60

 
For the year ended December 31,
 
2017
 
2018
 
2019
 
(in thousands)
Cash flow from operations
$
201,273

 
$
182,552

 
$
161,973

Less:
 
 
 
 
 
Capital expenditures and financed equipment(1)
(50,452
)
 
(53,319
)
 
(47,315
)
Free cash flow
$
150,821

 
$
129,233

 
$
114,658

(1)
Capital expenditures during the years ended December 31, 2017, 2018 and 2019 includes $7.4 million, $7.4 million and $8.2 million, respectively, of principal payments under a three year agreement for equipment financing. The remaining balance on the equipment financing is $0.8 million as of December 31, 2019.
Free cash flow decreased from $129.2 million for the year ended December 31, 2018 to $114.7 million for the year ended December 31, 2019. This decrease of $14.6 million was primarily driven by the same factors that led to the change in net cash provided by operating activities from 2018 to 2019, as discussed above. We expect free cash flow in fiscal year 2020 to be slightly lower than the levels achieved in fiscal year 2019.
Free cash flow decreased from $150.8 million for the year ended December 31, 2017 to $129.2 million for the year ended December 31, 2018. This decrease of $21.6 million was primarily driven by the same factors that led to the change in net cash provided by operating activities from 2017 to 2018, as discussed above.
Net Operating Loss (NOL) Carry-Forwards
As of December 31, 2019, we had NOL carry-forwards available to offset future U.S. federal taxable income of approximately $26.9 million and future state taxable income of approximately $78.0 million. These NOL carry-forwards expire on various dates through 2039. Under the Tax Cuts and Jobs Act of 2017, or the Tax Act, NOL carry-forwards arising in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the use of such NOLs is limited to 80% of our taxable income in any future taxable year. It is uncertain how various states will respond to the Tax Act. As of December 31, 2019, we had NOL carry-forwards in foreign jurisdictions available to offset future foreign taxable income by approximately $18.7 million, of which $12.4 million related to the Netherlands, $4.4 million related to Brazil, $0.4 million related to Singapore, and the remaining $1.5 million related to various other foreign jurisdictions. These foreign NOL carry-forwards begin to expire starting in 2021, excluding the carry-forwards for Brazil and Singapore, which can be carried forward indefinitely.
Utilization of the NOL carry-forwards may be subject to an annual limitation due to the ownership percentage change
limitations under Section 382 of the Internal Revenue Code (“Section 382 limitation”). Ownership changes can limit the
amount of net operating loss and other tax attributes that a company can use each year to offset future taxable income and taxes
payable. Although we have experienced a number of ownership changes over time, we do not currently have any Section 382
limitations restricting our ability to utilize NOL carry-forwards.
Backlog and Deferred Revenue
We define our backlog as the total committed value of our contracts which have not been recognized as revenue at the end of a period. Since we require prepayments for all our products and services, our backlog is equal to our deferred revenue balance. Our backlog as of December 31, 2018 and 2019 was $467.9 million and $469.1 million, respectively. Because revenue for any period is a function of revenue recognized from deferred revenue under contracts in existence at the beginning of a period, as well as contract renewals and new customer contracts during the period, backlog at the beginning of any period is not necessarily indicative of future performance. Our presentation of backlog may differ from other companies in our industry.
Contractual Obligations and Commitments
Our principal commitments consist of obligations under our outstanding debt facilities, which in 2019 included quarterly mandatory repayments of $7.9 million against the Term Loan, interest payments on the Term Loan, which are typically three-month LIBOR loans, and interest payments on the Senior Notes; non-cancelable leases for our office space; deferred payment obligations related to acquisitions; and purchase obligations under significant contracts. The following table summarizes these contractual obligations as of December 31, 2019:

61

 
Payments due by period
 
Total
 
Less
than 1 year
 
1-3 years
 
3-5 years
 
More
than 5 years
 
(in thousands)
Long-term debt obligations:
 
 
 
 
 
 
 
 
 
Principal payments on term loan facilities and notes
$
1,724,022

 
$
31,606

 
$
63,212

 
$
1,629,204

 
$
—

Interest payments and other debt facility related fees(1)
475,597

 
117,333

 
218,154

 
140,110

 
—

Financed equipment
828

 
828

 
—

 
—

 
—

Operating lease obligations
118,889

 
27,098

 
39,610

 
31,488

 
20,693

Deferred consideration(2)
2,201

 
2,201

 
—

 
—

 
—

Purchase commitments(3)
38,358

 
23,040

 
10,607

 
4,711

 
—

Total
$
2,359,895

 
$
202,106

 
$
331,583

 
$
1,805,513

 
$
20,693

(1)
Term Loan facility interest rate is based on adjusted LIBOR plus 375 basis points for the Term Loan, subject to a LIBOR floor of 1.00%. As of December 31, 2019, the interest rates on the Term Loan and the Senior Notes were 5.67% and 10.875%, respectively. The Term Loan and the Senior Notes mature on February 9, 2023, and February 1, 2024, respectively. Our revolving credit facility, which has no balance outstanding as of December 31, 2019, has maturity dates of February 9, 2021 and June 20, 2023 for the non-extended tranche and extended tranche, respectively, and bears a non-refundable commitment fee, equal to 0.50% per annum (subject to a leverage-based step-down) of the daily unused principal amount. See Liquidity and Capital Resources above for more information.
(2)
Consists of deferred payment obligations related to acquisitions.
(3)
Consists of commitments related to contracts made in the ordinary course of business, primarily for marketing, human resources, and insurance.
Off-Balance Sheet Arrangements
We do not have any special purpose entities or off-balance sheet arrangements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We have operations both within the United States and internationally, and we are exposed to market risk in the ordinary course of our business. These risks include primarily foreign exchange risk, interest rate and inflation.
Foreign Currency Exchange Risk
A significant majority of our subscription agreements and our expenses are denominated in U.S. dollars. We do, however, have sales in a number of foreign currencies as well as business operations in Brazil and India and are subject to the impacts of currency fluctuations in those markets. The impact of these currency fluctuations is insignificant relative to the overall financial results of our company.
Interest Rate Sensitivity
We had cash and cash equivalents of $111.3 million at December 31, 2019, the majority of which was held in operating accounts for working capital purposes and other general corporate purposes which includes payment of principal and interest under our indebtedness. As of December 31, 2019, we had approximately $1,374.0 million of indebtedness outstanding under our Term Loan, $350.0 million outstanding under the Notes and $0.0 million outstanding under the Revolver.
The Term Loan automatically bears interest at the bank’s reference rate unless we give notice to opt for LIBOR based interest rate term loans. The interest rate for a LIBOR based interest term loan is 3.75% plus the greater of an adjusted LIBOR and 1.00%, and the interest rate for a reference rate term loan was 3.00% per annum plus the greatest of the prime rate, the federal funds effective rate plus 0.50%, an adjusted LIBOR for a one-month interest period plus 1.00%, or 2.00%.
We have the ability to draw down against the Revolver using a LIBOR-based interest rate or an alternate base rate. The LIBOR-based interest rate for a non-extended revolving loan is 4.00% per annum (subject to a leverage-based step-down)and for an extended revolving loan is 3.25% per annum (subject to a leverage-based step-down), in each case plus an adjusted LIBOR for a selected interest period. The alternate base rate for a non-extended revolving loan is 3.00% per annum (subject to a leverage-based step-down) and for an extended revolving loan is 2.25% per annum (subject to a leverage-based step-down), in each case plus the greatest of the prime rate, the federal funds rate plus 0.50% and an adjusted LIBOR for a one-month interest period plus 1.00%. We are also required to pay a commitment fee of 0.50% per annum (subject to a leverage-based step-down) to the lenders based on the average daily unused principal amount of the Revolver.
Based on our aggregate indebtedness outstanding under Term Loan of $1,374.0 million as of December 31, 2019, a 100 basis point increase in the adjusted LIBOR above the LIBOR floor would result in a $13.8 million increase in our aggregate

62

interest payments over a 12-month period, and a 100 basis point decrease at the current LIBOR rate would result in a $13.8 million decrease in our interest payments.
We have entered into two interest rate caps as part of our risk management strategy. The three-year interest rate cap we entered into in December 2015 limited our exposure beginning on February 29, 2016 to LIBOR interest rate increases over 2.0% on $500.0 million of our Term Loan. The December 2015 interest rate cap matured in February 2019. The three-year interest rate cap we entered into in June 2018 limits our exposure beginning on August 28, 2018 to LIBOR interest rate increases over 3.0% on $800.0 million of our Term Loan. The LIBOR interest rate applicable to our Term Loan as of December 31, 2019 was approximately 1.92%.
Inflation Risk
We do not believe that inflation has a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability to do so could harm our business, financial condition and results of operations.

63

ITEM 8.
Financial Statements and Supplementary Data
ENDURANCE INTERNATIONAL GROUP HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 

64


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Endurance International Group Holdings, Inc.
Burlington, Massachusetts

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Endurance International Group Holdings, Inc. (the “Company”) as of December 31, 2018 and 2019, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as "the consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 14, 2020 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, on January 1, 2019, the Company changed its method of accounting for leases due to the adoption of ASU 2016-02, Leases (ASC 842).

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
 

/s/    BDO USA, LLP


We have served as the Company's auditor since 2008.
Boston, Massachusetts
February 14, 2020

65

Endurance International Group Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
 
December 31, 2018
 
December 31, 2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
88,644

 
$
111,265

Restricted cash
1,932

 
1,732

Accounts receivable
12,205

 
10,224

Prepaid domain name registry fees
56,779

 
55,237

Prepaid commissions
41,458

 
38,435

Prepaid and refundable taxes
7,235

 
6,810

Prepaid expenses and other current assets
27,855

 
23,883

Total current assets
236,108

 
247,586

Property and equipment—net
92,275

 
85,925

Operating lease right-of-use assets
—

 
90,519

Goodwill
1,849,065

 
1,835,310

Other intangible assets—net
352,516

 
245,002

Deferred financing costs
2,656

 
1,778

Investments
15,000

 
15,000

Prepaid domain name registry fees, net of current portion
11,207

 
11,107

Prepaid commissions, net of current portion
42,472

 
48,780

Deferred tax asset
—

 
64

Other assets
5,208

 
3,015

Total assets
$
2,606,507

 
$
2,584,086

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
12,449

 
$
10,054

Accrued expenses
79,279

 
64,560

Accrued taxes
2,498

 
251

Accrued interest
25,259

 
23,434

Deferred revenue
371,758

 
369,475

Operating lease liabilities—short term
—

 
21,193

Current portion of notes payable
31,606

 
31,606

Current portion of financed equipment
8,379

 
790

Deferred consideration—short term
2,425

 
2,201

Other current liabilities
3,147

 
2,165

Total current liabilities
536,800

 
525,729

Long-term deferred revenue
96,140

 
99,652

Operating lease liabilities—long term
—

 
78,151

Notes payable—long term, net of original issue discounts of $21,349 and $16,859, and deferred financing costs of $31,992 and $25,690, respectively
1,770,055

 
1,649,867

Deferred tax liability—long term
16,457

 
27,097

Deferred consideration—long term
1,364

 
—

Other liabilities
11,237

 
6,636

Total liabilities
2,432,053

 
2,387,132

Commitments and Contingencies (Note 18)

 

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

 
—

Common Stock—par value $0.0001; 500,000,000 shares authorized; 143,444,515 and 146,259,868 shares issued at December 31, 2018 and December 31, 2019, respectively; 143,444,178 and 146,259,868 outstanding at December 31, 2018 and December 31, 2019, respectively
14

 
15

Additional paid-in capital
961,235

 
996,958

Accumulated other comprehensive loss
(3,211
)
 
(4,088
)
Accumulated deficit
(783,584
)
 
(795,931
)
Total stockholders’ equity
174,454

 
196,954

Total liabilities and stockholders’ equity
$
2,606,507

 
$
2,584,086

See accompanying notes to consolidated financial statements.

66

Endurance International Group Holdings, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share amounts)
 
Year Ended December 31, 2017
 
Year Ended December 31, 2018
 
Year Ended December 31, 2019
Revenue
$
1,176,867

 
$
1,145,291

 
$
1,113,278

Cost of revenue (including impairment of $18,731 for the year ended December 21, 2017 and $25,207 for the year ended December 31, 2019)
603,930

 
520,737

 
510,296

Gross profit
572,937

 
624,554

 
602,982

Operating expense:
 
 
 
 
 
Sales and marketing
277,460

 
265,424

 
258,019

Engineering and development
78,772

 
87,980

 
106,377

General and administrative
163,972

 
124,204

 
117,967

Gain on sale of business
—

 
—

 
(40,700
)
Transaction costs
773

 
—

 
—

Impairment of goodwill
12,129

 
—

 
12,333

Total operating expense
533,106

 
477,608

 
453,996

Income from operations
39,831

 
146,946

 
148,986

Other income (expense):
 
 
 
 
 
Other expense, net
(600
)
 
—

 
—

Interest income
736

 
1,089

 
1,222

Interest expense
(157,142
)
 
(149,480
)
 
(144,676
)
Total other expense—net
(157,006
)
 
(148,391
)
 
(143,454
)
(Loss) income before income taxes and equity earnings of unconsolidated entities
(117,175
)
 
(1,445
)
 
5,532

Income tax (benefit) expense
(17,281
)
 
(6,246
)
 
17,879

(Loss) income before equity earnings of unconsolidated entities
(99,894
)
 
4,801

 
(12,347
)
Equity (income) loss of unconsolidated entities, net of tax
(110
)
 
267

 
—

Net (loss) income
$
(99,784
)
 
$
4,534

 
$
(12,347
)
Net loss attributable to non-controlling interest
277

 
—

 
—

Excess accretion of non-controlling interest
7,247

 
—

 
—

Total net loss attributable to non-controlling interest
7,524

 
—

 
—

Net (loss) income attributable to Endurance International Group Holdings, Inc.
$
(107,308
)
 
$
4,534

 
$
(12,347
)
Comprehensive (loss) income:
 
 
 
 
 
Foreign currency translation adjustments
3,091

 
(2,233
)
 
(598
)
Unrealized gain (loss) on cash flow hedge, net of taxes of $11, ($137) and $102 for the years ended December 31, 2017, 2018 and 2019
34

 
(437
)
 
(279
)
Total comprehensive (loss) income
$
(104,183
)
 
$
1,864

 
$
(13,224
)
Net (loss) income per share attributable to Endurance International Group Holdings, Inc. - basic earnings per share
$
(0.78
)
 
$
0.03

 
$
(0.09
)
Net (loss) income per share attributable to Endurance International Group Holdings, Inc. - diluted earnings per share
$
(0.78
)
 
$
0.03

 
$
(0.09
)
Weighted-average number of common shares used in computing net (loss) income per share attributable to Endurance International Group Holdings, Inc.
 
 
 
 
 
Basic
137,322,201

 
142,316,993

 
145,259,691

Diluted
137,322,201

 
145,669,760

 
145,259,691

See accompanying notes to consolidated financial statements.


67

Endurance International Group Holdings, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts) 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive Income (Loss)
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
 
Number
 
Amount
 
Balance—December 31, 2016
134,793,857

 
$
14

 
$
868,228

 
$
(3,666
)
 
$
(740,193
)
 
$
124,383

Vesting of restricted shares
5,040,609

 
—

 
—

 
—

 
—

 
—

Exercise of stock options
356,229

 
—

 
2,049

 
—

 
—

 
2,049

Other comprehensive income
—

 
—

 
—

 
3,125

 
—

 
3,125

Net income attributable to non-controlling interest
—

 
—

 
277

 
—

 
—

 
277

Net loss attributable to Endurance International Group Holdings, Inc.
—

 
—

 
—

 
—

 
(107,308
)
 
(107,308
)
Stock-based compensation
—

 
—

 
60,479

 
—

 
—

 
60,479

Balance—December 31, 2017
140,190,695

 
14

 
931,033

 
(541
)
 
(847,501
)
 
83,005

Vesting of restricted shares
3,122,079

 
—

 
—

 
—

 
—

 
—

Exercise of stock options
131,404

 
—

 
887

 
—

 
—

 
887

Other comprehensive loss
—

 
—

 
—

 
(2,670
)
 
—

 
(2,670
)
Adjustment to beginning retained earnings resulting from adoption of ASC 606, net of tax impact of $7.0 million
—

 
—

 
—

 
—

 
59,383

 
59,383

Net income attributable to Endurance International Group Holdings, Inc.
—

 
—

 
—

 
—

 
4,534

 
4,534

Stock-based compensation
—

 
—

 
29,315

 
—

 
—

 
29,315

Balance—December 31, 2018
143,444,178

 
14

 
961,235

 
(3,211
)
 
(783,584
)
 
174,454

Vesting of restricted shares
2,808,897

 
1

 
—

 
—

 
—

 
1

Exercise of stock options
6,793

 
—

 
31

 
—

 
—

 
31

Other comprehensive loss
—

 
—

 
—

 
(877
)
 
—

 
(877
)
Net loss attributable to Endurance International Group Holdings, Inc.
—

 
—

 
—

 
—

 
(12,347
)
 
(12,347
)
Stock-based compensation
—

 
—

 
35,692

 
—

 
—

 
35,692

Balance—December 31, 2019
146,259,868

 
$
15

 
$
996,958

 
$
(4,088
)
 
$
(795,931
)
 
$
196,954

See accompanying notes to consolidated financial statements.


68

Endurance International Group Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands) 
 
Year Ended December 31, 2017
 
Year Ended December 31, 2018
 
Year Ended December 31, 2019
Cash flows from operating activities:
 
 
 
 
 
Net (loss) income
$
(99,784
)
 
$
4,534

 
$
(12,347
)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 
 
Depreciation of property and equipment
55,185

 
48,207

 
44,951

Amortization of other intangible assets from acquisitions
140,354

 
103,148

 
85,183

Amortization of deferred financing costs
7,316

 
6,454

 
7,179

Amortization of net present value of deferred consideration
632

 
373

 
163

Amortization of original issuance discount
3,860

 
4,305

 
4,490

Impairment of long-lived assets
18,731

 
—

 
25,207

Impairment of investments
600

 
—

 
—

Impairment of goodwill
12,129

 
—

 
12,333

Stock-based compensation
60,001

 
29,064

 
35,692

Deferred tax (benefit) expense
(22,807
)
 
(10,438
)
 
10,669

Gain on sale of business
—

 
—

 
(40,700
)
(Gain) loss on sale of assets
(315
)
 
198

 
163

Gain from unconsolidated entities
(110
)
 
—

 
—

Loss of unconsolidated entities
—

 
267

 
—

Financing costs expensed
5,487

 
1,228

 
—

Loss on early extinguishment of debt
992

 
331

 
—

Dividend from minority interest
100

 
—

 
—

Changes in operating assets and liabilities, net of acquisitions and divestitures:
 
 
 
 
 
Accounts receivable
(3,102
)
 
3,616

 
1,985

Prepaid and refundable taxes
(732
)
 
(2,896
)
 
495

Prepaid expenses and other current assets
6,150

 
(4,564
)
 
3,857

Leases right-of-use asset, net
—

 
—

 
656

Accounts payable and accrued expenses
8,351

 
5,040

 
(21,565
)
Deferred revenue
8,235

 
(6,315
)
 
3,562

Net cash provided by operating activities
201,273

 
182,552

 
161,973

Cash flows from investing activities:
 
 
 
 
 
Businesses acquired in purchase transaction, net of cash acquired
—

 
—

 
(8,875
)
Purchases of property and equipment
(43,062
)
 
(45,880
)
 
(39,126
)
Proceeds from sale of assets
530

 
6

 
51,001

Purchases of intangible assets
(1,966
)
 
(8
)
 
—

Net cash (used in) provided by investing activities
(44,498
)
 
(45,882
)
 
3,000


69

Endurance International Group Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 
 
Year Ended December 31, 2017
 
Year Ended December 31, 2018
 
Year Ended December 31, 2019
Cash flows from financing activities:
 
 
 
 
 
Proceeds from issuance of term loan
1,693,007

 
1,580,305

 
—

Repayment of term loan
(1,797,634
)
 
(1,681,094
)
 
(130,980
)
Payment of financing costs
(6,304
)
 
(1,580
)
 
—

Payment of deferred consideration
(5,433
)
 
(4,500
)
 
(2,500
)
Payment of redeemable non-controlling interest liability
(25,000
)
 
—

 
—

Principal payments on financed equipment
(7,390
)
 
(7,439
)
 
(8,189
)
Proceeds from exercise of stock options
2,049

 
887

 
31

Net cash used in financing activities
(146,705
)
 
(113,421
)
 
(141,638
)
Net effect of exchange rate on cash and cash equivalents and restricted cash
2,150

 
(1,791
)
 
(914
)
Net increase in cash and cash equivalents and restricted cash
12,220

 
21,458

 
22,421

Cash and cash equivalents and restricted cash:
 
 
 
 
 
Beginning of period
56,898

 
69,118

 
90,576

End of period
$
69,118

 
$
90,576

 
$
112,997

Supplemental cash flow information:
 
 
 
 
 
Interest paid
$
141,157

 
$
134,145

 
$
132,805

Income taxes paid
$
3,369

 
$
4,141

 
$
4,728

Supplemental disclosure of non-cash financing activities:
 
 
 
 
 
Assets acquired under equipment financing
$
15,536

 
$
1,179

 
$
—

Operating lease right-of-use assets
$
—

 
$
—

 
$
114,942

Operating lease liabilities—short-term and long-term
$
—

 
$
—

 
$
124,549

See accompanying notes to consolidated financial statements.


70

Endurance International Group Holdings, Inc.
Notes to Consolidated Financial Statements
1. Nature of Business
Formation and Nature of Business
Endurance International Group Holdings, Inc. (“Holdings”) is a Delaware corporation, which, together with its wholly owned subsidiary, EIG Investors Corp. (“EIG Investors”), its primary operating subsidiary, The Endurance International Group, Inc. (“EIG”), and other subsidiaries of EIG, collectively form the “Company.” The Company is a leading provider of cloud-based platform solutions designed to help small- and medium-sized businesses succeed online.
EIG and EIG Investors were incorporated in April 1997 and May 2007, respectively, and Holdings was originally formed as a limited liability company in October 2011 in connection with the acquisition of a controlling interest in EIG Investors, EIG and EIG’s subsidiaries by investment funds and entities affiliated with Warburg Pincus and Goldman, Sachs & Co. ("Goldman") on December 22, 2011. On November 7, 2012, Holdings reorganized as a Delaware limited partnership and on June 25, 2013, Holdings converted into a Delaware C-corporation and changed its name to Endurance International Group Holdings, Inc.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements, which include the accounts of Holdings and its subsidiaries, have been prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions have been eliminated on consolidation.
Segment Information
Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker ("CODM"). The Company has determined that its chief executive officer is the Company's CODM.
The Company has identified three operating segments: web presence, email marketing and domain. The Company has determined that it does not satisfy aggregation criteria for these operating segments, and that each segment meets the quantitative threshold of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 280, Segment Reporting. Therefore, all three operating segments are reportable segments.
The Company's segments share certain resources, primarily related to sales and marketing, engineering and development, and general and administrative functions. Management allocates these costs to each respective segment based on a consistently applied methodology, primarily based on a percentage of revenue.
Use of Estimates
U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates, judgments and assumptions used in preparing the accompanying consolidated financial statements are based on the relevant facts and circumstances as of the date of the consolidated financial statements. Although the Company regularly assesses these estimates, judgments and assumptions used in preparing the consolidated financial statements, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known. The more significant estimates reflected in these consolidated financial statements include estimates of fair value of assets acquired and liabilities assumed under purchase accounting related to the Company’s acquisitions and when evaluating goodwill and long-lived assets for potential impairment, the estimated useful lives of intangible and depreciable assets, revenue recognition for multiple-element arrangements, stock-based compensation, derivative instruments, certain accruals, reserves and deferred taxes.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.
Cash Equivalents
Cash and cash equivalents include all highly liquid investments with remaining maturities of three months or less at the date of purchase.

71

Restricted Cash
Restricted cash is composed of certificates of deposits and cash held by merchant banks and payment processors, which provide collateral against any chargebacks, fees, or other items that may be charged back to the Company by credit card companies and other merchants, and collateral for certain facility leases.
Accounts Receivable
Accounts receivable is primarily composed of cash due from credit card companies for unsettled transactions charged to customers’ credit cards. As these amounts reflect authenticated transactions that are fully collectible, the Company does not maintain an allowance for doubtful accounts. The Company also accrues for earned referral fees and commissions, which are governed by reseller or affiliate agreements, when the amount is reasonably estimable.
Prepaid Domain Name Registry Fees
Prepaid domain name registry fees represent amounts that are paid in full at the time a domain is registered by one of the Company’s registrars on behalf of a customer. The registry fees are recognized on a straight-line basis over the term of the domain registration period.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable and certain accrued expenses, approximate their fair values due to their short maturities. The fair value of the Company’s notes payable is based on the borrowing rates currently available to the Company for debt with similar terms and average maturities and approximates their carrying value.
Derivative Instruments and Hedging Activities
FASB ASC 815, Derivatives and Hedging, or ASC 815, 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 the Company’s 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, the Company records 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 the Company has 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. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
In accordance with the FASB’s fair value measurement guidance in Accounting Standard Update ("ASU") 2011-4, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Concentrations of Credit and Other Risks
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash and cash equivalents are maintained at accredited financial institutions, and PayPal balances are at times without and in excess of federally insured limits. The Company has never experienced any losses related to these balances and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
For the years ended December 31, 2017, 2018 and 2019, no subscriber represented 10% or more of the Company’s total revenue. Additionally, as of December 31, 2018 and 2019, no subscriber represented 10% or more of the Company’s total accounts receivable.

72

Property and Equipment
Property and equipment is recorded at cost or fair value if acquired in an acquisition. The Company also capitalizes the direct costs of constructing additional computer equipment for internal use, as well as upgrades to existing computer equipment which extend the useful life, capacity or operating efficiency of the equipment. Capitalized costs include the cost of materials, shipping and taxes. Materials used for repairs and maintenance of computer equipment are expensed and recorded as a cost of revenue. Materials on hand and construction-in-process are recorded as property and equipment. Assets recorded under property, plant and equipment financing are depreciated over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows: 
Building
 
Thirty-five years
Software
 
Two to three years
Computers and office equipment
 
Three years
Furniture and fixtures
 
Five years
Leasehold improvements
 
Shorter of useful life or remaining term of the lease

Software Development Costs
The Company accounts for software development costs for internal use software under the provisions of ASC 350-40, Internal-Use Software. Accordingly, certain costs to develop internal-use computer software are capitalized, provided these costs are expected to be recoverable. During the years ended December 31, 2017, 2018 and 2019, the Company capitalized internal-use software development costs of $10.2 million, $10.1 million and $13.4 million, respectively.
Business Combinations
The Company accounts 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 the Company's 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 the Company's 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.
Goodwill
Goodwill relates to amounts that arose in connection with 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 it 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 ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for Impairment, or ASU 2011-08, the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. A reporting unit is either the equivalent of, or one level below, an operating segment. The Company early adopted the provisions in ASU 2017-04, which eliminates the second step of the goodwill impairment test. As a result, the Company's goodwill impairment tests include only one step, which is a comparison of the carrying value of each reporting unit to its fair value, and any excess carrying value, up to the amount of goodwill allocated to that reporting unit, is impaired.
The carrying value of each reporting unit is based on the assignment of the appropriate assets and liabilities to each reporting unit. Assets and liabilities were assigned to each reporting unit if the assets or liabilities are employed in the

73

operations of the reporting unit and the asset and liability is considered in the determination of the reporting unit fair value. Certain assets and liabilities are shared by multiple reporting units, and were allocated to each reporting unit based on the relative size of a reporting unit, primarily based on revenue.
The Company's goodwill impairment test as of October 31, 2017 resulted in a $12.1 million impairment of goodwill to the Company's domain monetization reporting unit within the domain segment. The impairment was a direct result of a more rapid decline in domain parking revenue than originally expected, and to a lesser extent, reduced sales of premium domain names. Goodwill for this reporting unit was completely impaired. Goodwill allocated to the other six reporting units to which goodwill has been allocated was not impaired.
As of the test date of October 31, 2018, the fair value for all reporting units was higher than their respective carrying values, and no impairment was recorded.
For the annual impairment test as of October 31, 2019, the Company had a total of seven reporting units to which goodwill has been allocated. Additionally, the Company has three smaller reporting units to which no goodwill has been allocated, as they had been determined to have no material fair value, and one reporting unit which has no remaining goodwill allocated to it.
The Company determines the fair value of each reporting unit by utilizing the income approach and the market approach. For the income approach, fair value is determined based on the present value of estimated future after-tax cash flows, discounted at an appropriate risk adjusted rate. The Company derives its discount rates by using a capital asset pricing model and analyzing published rates for industries relevant to its reporting units to estimate the weighted-average cost of capital. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in its business and in its internally developed forecasts. For fiscal years 2017 and 2018, the Company used a discount rate of 10.0% for all but one of its reporting units. For fiscal year 2019, the Company used a discount rate of 10.5% for all but three of its reporting units. For two of the reporting units, which are experiencing declining cash flows, the Company used a discount rate of 13.0% and 13.5%, respectively, to adjust for the risk in the projected cash flows. For the remaining reporting unit, which had just been acquired in September 2019, the Company used a discount rate of 15.5%, to adjust for the risk in the projected cash flows. The Company also performed sensitivity analysis on its discount rates. The Company uses internal forecasts to estimate future after-tax cash flows, which include an estimate of long-term future growth rates based on the Company's view of the long-term outlook for each reporting unit. Actual results may differ from those assumed in the Company's forecasts.
For the market approach, the Company uses a valuation technique in which values are derived based on valuation multiples from comparable public companies, and a valuation multiple from sales of comparable companies.
For the fiscal 2017 goodwill impairment analysis, the Company compared the fair value from the income approach to the market approach based on multiples of comparable public companies and noted no material variances in the valuation techniques.
For the fiscal 2018 goodwill impairment analysis, the Company compared the fair value from the income approach to two market approaches, which included a valuation multiple of comparable public companies and a valuation multiple from sales of comparable companies. For three of the Company's reporting units, which represented approximately 95% of the Company's goodwill at the time of the 2018 goodwill impairment analysis, the fair value derived from the income approach was consistent with the fair value derived from the two market approaches. The Company established the fair value for these reporting units based on the average fair value from all three valuation approaches.
For the fiscal 2018 goodwill impairment analysis, for two of the Company's reporting units, which represented approximately 3% of the Company's goodwill, the Company based their fair value entirely upon the income approach, as these two reporting units were experiencing declining cash flows and were expected to continue to experience declines over time. The fair values from the income approach for these two reporting units were materially below the fair values derived from both market approaches. The goodwill allocated to these two reporting units was approximately $64.2 million as of December 31, 2018. For one of the Company's reporting units, which represented approximately 2% of the Company's goodwill, the fair values derived from the market approaches were much lower than the income approach using a discount rate of 10%. The Company determined that more risk was present in the projected future cash flows of this reporting unit as compared to the Company's other reporting units and determined that a discount rate of 17% was appropriate. The fair value of this reporting unit under the income approach at a discount rate of 17% was consistent with the fair values determined under the two market approaches. The Company established fair value for this reporting unit based on the average fair value from all three valuation approaches.
For the fiscal 2019 goodwill impairment analysis, the Company compared the fair value from the income approach to two market approaches, which included a valuation multiple of comparable public companies and a valuation multiple from sales of comparable companies. For three of the reporting units, which represent approximately 97% of the Company's goodwill as of December 31, 2019, the Company established the fair value based on the average fair value from all three valuation

74

approaches. For two of the remaining reporting units, which represent approximately 3% of the Company's goodwill as of December 31, 2019, the Company established fair value based on the income approach only, because these reporting units are experiencing declining cash flows. The Company calculated and recognized a partial impairment of $10.0 million for one of these reporting units and a full impairment of $2.3 million for the second of these reporting units, both of which were recorded as an operating expense in the consolidated statements of operations and other comprehensive income (loss). For the other two reporting units for which the income approach was used, the Company had just acquired one reporting unit in the three months ended September 30, 2019, and was in the process of disposing of the other reporting unit through a sale in December 2019.
Goodwill as of December 31, 2019 was $1,835.3 million. The carrying value of goodwill that was allocated to the web presence, email marketing and domain segments was $1,202.0 million, $603.4 million and $29.9 million, respectively. The fair value of all but three of the reporting units with goodwill at December 31, 2019 exceeds each reporting unit's carrying value by at least 20%.
Of the other three reporting units with less than 20% excess of fair value over carrying value, one reporting unit is forecast to experience continuing negative growth in both revenue and cash flows. Given this fact pattern, the Company relied upon the income approach in order to quantify the impact of persistent negative growth expectations and to develop a fair value for this reporting unit. The goodwill allocated to this reporting unit as of December 31, 2019 was $52.0 million. The Company expects that cash flows will continue to decline, which could result in goodwill impairment charges for this reporting unit at some point in the future.
The second reporting unit with less than a 20% excess of fair value over carrying value was acquired in September 2019. Based on the short duration between the acquisition date and the testing date, and lacking indications of specific events that either positively or negatively impacted the carrying value, fair value on this reporting unit approximated the allocated goodwill. Goodwill for this reporting unit as of December 31, 2019 was approximately $7.0 million.
The third reporting unit represents a combination of different hosting brands, which the Company will continue to monitor in the future. Though near term cash flows are projected to decline, growth in the cash flows is expected to return after further investments in engineering and development and sales and marketing are made. This reporting unit's fair value was established using three valuation methods, equally weighted. As the reporting unit passed the goodwill impairment test with equal weight given to the three approaches, the Company did not adjust the weight given to the three valuation approaches. As of December 31, 2019, the fair value of this reporting unit, as estimated based upon our future projections, exceeded its carrying value by less than 4%. In the event the Company's investments in engineering and development and sales and marketing do not generate the anticipated improvement in future operating performance, then future impairments may be recognized for this reporting unit. Goodwill for this reporting unit as of December 31, 2019 was approximately $1.2 billion.
Long-Lived Assets
The Company’s long-lived assets consist primarily of intangible assets, including acquired subscriber relationships, trade names, intellectual property, developed technology, and domain names available for sale. The Company also has long-lived tangible assets, primarily consisting of property and equipment. The majority of the Company’s intangible assets are recorded in connection with its various acquisitions. The Company’s intangible assets are recorded at fair value at the time of their acquisition. The Company amortizes intangible assets over their estimated useful lives.
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 flows to be derived from the intangible asset. Amortization of intangible assets with finite lives is recognized in accordance with their estimated projected cash flows.
The Company evaluates 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 are less than the carrying amount, the fair value of the assets is determined and compared to the carrying value. If the fair value is less than the carrying value, then the carrying value of the asset is reduced to the estimated fair value and an impairment loss is charged to expense in the period the impairment is identified.
Indefinite life intangible assets 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, the Company records the cost of the domain in cost of revenue.
During the year ended December 31, 2017, the Company recognized an impairment charge of $13.8 million relating to certain domain name intangible assets acquired in 2014, which was recorded in cost of revenue in the consolidated statements of operations and comprehensive income (loss). The impairment resulted from diminished cash flows associated with these intangible assets.

75

Also during the year ended December 31, 2017, the Company recognized an impairment charge of $4.9 million primarily relating to developed technology and customer relationships associated with the acquisition of the Directi web presence business in 2014. This impairment was recorded in cost of revenue in the consolidated statements of operations and comprehensive income (loss). The impairment resulted from diminished cash flows associated with these intangible assets.
All of the 2017 impairments described above were recognized in the domain segment.
During the year ended December 31, 2018, the Company did not identify any impairments relating to its long-lived assets.
During the year ended December 31, 2019, the Company recognized an aggregate impairment of $25.2 million, relating primarily to premium domain name intangible assets acquired in 2014, which was recorded in cost of revenue in the consolidated statements of operations and comprehensive income (loss). The impairment resulted from recent market conditions that have adversely impacted cash flows from these assets, and these market conditions are expected to continue. During the three months ended June 30, 2019, the Company recognized an impairment of $17.9 million. The Company valued its premium domain name assets included in its domain monetization reporting unit based on discounted projected cash flows from these assets using a discount rate of 11.6%, which resulted in an impairment of $16.2 million. The balance of the impairment charge was primarily related to developed technology intangible assets associated with the premium domain business, which were valued using a relief from royalty approach. During the annual goodwill impairment test as of October 31, 2019, the Company valued the domain monetization reporting unit based on discounted projected cash flows from its assets using a discount rate of 10.5% and recognized an additional impairment of $7.3 million, of which $4.6 million related to domain names and the balance related to developed technology and trademarks associated with this reporting unit. As of December 31, 2019, the intangible assets relating to our domain monetization reporting unit have been completely written off.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09 or ASC 606, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. Since then, the FASB has also issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principals versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing, and ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), and Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments, which further elaborate on the original ASU No. 2014-09. The Company adopted the guidance in ASC 606 on January 1, 2018. Revenue is recognized when control of the promised products or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to for those products and services. In general, the Company determines revenue recognition through the following steps:
•
Identification of the contract, or contracts, with the customer
•
Identification of the performance obligations in the contract
•
Determination of the transaction price
•
Allocation of the transaction price to the performance obligations in the contract
•
Recognition of revenue when, or as, the Company satisfies a performance obligation
The Company provides cloud-based subscription services, which include website hosting and related add-ons, search engine optimization ("SEO") services, domain registration services and email marketing.
Website hosting gives subscribers access to an environment where the Company hosts a customer’s website. The related contract terms are generally for one year, but can range from 30 days to three years. Website hosting services are typically sold in bundled offerings that include website hosting, domain registration services and various add-ons. The Company recognizes revenue for website hosting and domain registration services over the term of the contract.
The main add-on services related to website hosting are domain privacy, secure sockets layer ("SSL") security, site backup and restoration, and website builder tools. These services may be included in website hosting bundles, or they may be purchased on a standalone basis. Certain add-on services are provided by third parties. In cases where the Company is acting as an agent for the sale of third party add-on services, the Company recognizes revenue on a net basis at the time of sale. In cases where the Company is acting as a principal for the sale of third party add-on services (i.e., the Company has the primary responsibility to provide specific goods or services, it has discretion to establish prices and it may assume inventory risk), the Company recognizes revenue on a gross basis over the term of the contract. The revenue for Company-provided add-on services is primarily recognized over the term of the contract.
SEO services are monthly subscriptions that provide a customer with increased traffic to their website over the term of the subscription. Revenue from SEO services is recognized over the monthly term of the contract.

76

In the case of domain registration services, the Company is an accredited registrar and can provide registration services to the customer, or it can select an accredited third party registrar to perform these duties. Domain registration services are generally annual subscriptions, but can cover multiple years. Revenue for these services is recognized over time.
Email marketing services provide subscribers with a cloud-based platform that can send broadcast emails to a customer list managed by the subscriber. Pricing is based on contract list volume from the prior monthly period, which determines the contractual billing price for the upcoming month. Revenue for this service is recognized over the monthly term of the contract.
Inventory management and marketplace listing services provide customers with a cloud-based platform that integrates standard inventory management features with order management and shipping management capabilities across multiple channels. Pricing is primarily based on order volume from the prior monthly period. For inventory management customers who subscribe to an annual plan, revenue is recognized ratably over the term of the contract. Inventory management professional services are also provided to customers when requested, and are recognized into revenue upon completion.
Non-subscription based services include certain professional services, primarily website design or re-design services, marketing development fund revenue ("MDF"), premium domain names and domain parking services.
Website design and re-design services are recognized when the service is complete.
Marketing development funds consist of commissions earned by the Company when a third party sells its products or services directly to the Company’s subscribers, and advertising revenue for third party ads placed on Company websites. The Company records revenue when the service is provided and calculates it based on the contractual revenue share arrangement or over the term of the advertisement.
Domain parking allows the Company to monetize certain of its premium domain names by loaning them to specialized third parties that generate advertising revenue from these parked domains on a pay per click ("PPC") basis. Revenue is recognized when earned and calculated based on the revenue share arrangement with the third party.
Revenue from the sale of premium domains is recognized when persuasive evidence of an arrangement to sell such domains exists and delivery of an authorization key to access the domain name has occurred. Premium domain names are paid for in advance prior to the delivery of the domain name.
For most of the Company’s performance obligations, the customer simultaneously receives and consumes the service over a period of time as the Company performs the service, resulting in the recognition of revenue over the subscription period. This method provides an appropriate depiction of the timing of the transfer of services to the customer. In limited instances, the customer obtains control of the promised service at a point in time, with no future obligations on the part of the Company. In these instances, the Company recognizes revenue at the point in time control is transferred. The contracts that the Company enters into typically do not contain any variable or non-cash considerations.
The Company maintains a reserve for refunds and chargebacks related to revenue that has been recognized and is expected to be refunded. The Company had a refund and chargeback reserve of $0.4 million and $0.3 million as of December 31, 2018 and 2019, respectively. The portion of deferred revenue that is expected to be refunded at December 31, 2018 and 2019 was $2.2 million and $1.9 million, respectively. Based on refund history, a significant majority of refunds happen in the same fiscal month that the customer contract starts or renews. Approximately 84% of all refunds happen in the same fiscal month that the contract starts or renews, and approximately 95% of all refunds happen within 45 days of the contract start or renewal date.
The Company did not apply any practical expedients during its adoption of ASC 606. The Company elected to use the portfolio method in the calculation of the deferred contract assets.
Direct Costs of Revenue
The Company’s direct costs of revenue include only those costs directly incurred in connection with the provision of its cloud-based products and services. The direct costs of registering domain names with registries are spread over the terms of the arrangement and the cost of reselling domains of other third-party registrars are expensed as incurred. Cost of revenue includes depreciation on data center equipment and support infrastructure and amortization expense related to the amortization of long-lived intangible assets.
Contracts with Multiple Performance Obligations
A considerable amount of the Company’s revenue is generated from transactions that are contracts with customers that may include web hosting plans, domain name registrations, and other cloud-based products and services. In these cases, the Company determines whether the products and services are distinct performance obligations that should be accounted for separately versus together. The Company allocates revenue to each performance obligation based on its relative standalone selling price ("SSP"), generally based on the price charged to customers. Web hosting services, domain name registrations, and other cloud-based products and services have distinct performance obligations and are often sold separately. If the promise is

77

not distinct and therefore not a performance obligation, then the total transaction amount is allocated to the identified performance obligation based on a relative selling price hierarchy. When multiple performance obligations are included in a contract, the total transaction amount for the contract is allocated to the performance obligations based on a relative selling price hierarchy. The Company determines the relative selling price for a performance obligation based on SSP. The Company determines SSP by considering its observed SSPs, competitive prices in the marketplace and management judgment; these SSPs may vary depending upon the particular facts and circumstances related to each deliverable. The Company analyzes the SSPs used in its allocation of transaction amount, at a minimum, on a quarterly basis.
Deferred Revenue
The Company records deferred revenue when cash payments are received or are due in advance of the Company’s performance, including amounts that are refundable. The change in the deferred revenue balance for the year ended December 31, 2019 is primarily driven by cash payments received or due in advance of the Company satisfying its performance obligations, offset by $363.5 million of revenue recognized that were included in the deferred revenue balance at the beginning of the period.
The following table provides a reconciliation of the Company's deferred revenue as of December 31, 2019:
 
Short-term
 
Long-term
 
(in thousands)
Balance at December 31, 2018
$
371,758

 
$
96,140

Recognition of the beginning deferred revenue into revenue, as a result of performance obligations satisfied
(363,454
)
 
—

Cash received in advance during the period
805,697

 
311,336

Recognition of cash received in the period into revenue, as a result of performance obligations satisfied
(749,823
)
 
—

Deferred revenue derecognized due to the disposition of SinglePlatform
(1,825
)
 
—

Foreign translation impact
(702
)
 
—

Reclassification between short-term and long-term
307,824

 
(307,824
)
Balance at December 31, 2019
$
369,475

 
$
99,652


The difference between the opening and closing balances of the Company’s deferred liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the year ended December 31, 2019, the Company recognized $363.5 million and $0.0 million, respectively, from beginning deferred revenue current and long-term balances existing at December 31, 2018. The Company did not recognize any revenue from performance obligations satisfied in prior periods.
The following table provides the remaining performance obligation amounts as of December 31, 2019. These amounts are equivalent to the ending deferred revenue balance of $469.1 million, which includes both short and long-term amounts:
 
Web presence
 
Email marketing
 
Domain
 
Total
 
(in thousands)
Remaining performance obligation, short-term
$
257,051

 
$
53,438

 
$
58,986

 
$
369,475

Remaining performance obligation, long-term
84,366

 
6

 
15,280

 
99,652

Total
$
341,417

 
$
53,444

 
$
74,266

 
$
469,127


This backlog of revenue related to future performance obligations is prepaid by customers and supported by executed contracts with customers. The Company has established a reserve of $0.3 million for refunds and chargebacks, 95% of which is expected to materialize in the first 45 days after the contract start or renewal date. The remainder of the deferred revenue is expected to be recognized in future periods.
Deferred Customer Acquisition Costs
As a result of the implementation of ASC 606, the Company now capitalizes the incremental costs directly related to obtaining and fulfilling a contract (such as sales commissions and certain direct sales and marketing success based costs), if these costs are expected to be recovered. These costs are amortized over the period the services are transferred to the customer, which is estimated based on customer churn rates for various segments of the business. The Company includes only those incremental costs that would not have been incurred if the contracts had not been entered into:

78

 
Short-term
 
Long-term
 
(in thousands)
Balance at December 31, 2018
$
41,458

 
$
42,472

Deferred customer acquisition costs incurred in the period
23,938

 
36,936

Amounts recognized as expense in the period
(55,479
)
 
—

Foreign translation impact
(115
)
 
83

Reclassification between short-term and long-term
29,801

 
(29,801
)
Adjustment resulting from sale of SinglePlatform business
(1,168
)
 
(910
)
Balance at December 31, 2019
$
38,435

 
$
48,780


As of December 31, 2019, the Company has a total of $74.7 million, $10.6 million and $1.9 million in deferred assets relating to costs incurred to obtain or fulfill contracts in its web presence, email marketing and domain segments, respectively. During the year ended December 31, 2019, the Company recognized total amortization costs related to the above items of $45.8 million, $6.3 million, and $3.4 million in its web presence, email marketing and domain segments, respectively, which were included in sales and marketing in the consolidated statements of operations and comprehensive income (loss).
Significant Judgments
The Company sells a number of third party cloud-based services to enhance a subscriber’s overall website hosting experience. The Company exercises considerable judgment to determine if it is the principal or agent in each of these arrangements, and in some instances, has concluded that it is an agent of the third party and recognizes revenue at time of subscriber purchase at an amount that is net of the revenue share payable to the third party.
The Company exercises judgment to determine the SSP (standalone selling price) for each distinct performance obligation. In instances where the SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include a competitive market assessment approach and other observable inputs. The Company typically has more than one SSP for individual products and services.
Judgment is required to determine whether particular types of sales and marketing costs incurred, including commissions, are incremental and recoverable costs incurred to obtain and fulfill the customer contract. In addition, judgment is required to determine the life of the customer over which deferred customer acquisition costs are amortized.
Engineering and Development Costs
Engineering and development costs incurred in the development and maintenance of the Company’s technology infrastructure are expensed as incurred.
Sales and Marketing Costs
The Company engages in sales and marketing through various online marketing channels, which include affiliate and search marketing as well as online partnerships. The Company expenses sales and marketing costs as incurred. For the years ended December 31, 2017, 2018 and 2019, the Company’s sales and marketing costs were $277.5 million, $265.4 million and $258.0 million, respectively.
Foreign Currency
The Company has sales in a number of foreign currencies. In 2013, the Company commenced operations in foreign locations which report in the local currency. The assets and liabilities of the Company’s foreign locations are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenue and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded as a separate component of stockholders’ equity and have not been material. Foreign currency transaction gains and losses relate to the settlement of assets or liabilities in another currency.
Foreign currency transaction losses were $0.8 million, $0.5 million, and $1.5 million during the years ended December 31, 2017, 2018 and 2019, respectively. These amounts are recorded in general and administrative expense in the Company’s consolidated statements of operations and comprehensive income (loss).
Income Taxes
Income taxes are accounted for in accordance with FASB ASC 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the estimated 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. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the Company expects the differences to reverse. The Company reduces the deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that the Company will not realize some portion or all of

79

the deferred tax assets. The Company considers relevant evidence, both positive and negative, to determine the need for a valuation allowance.
As part of the Tax Cut and Jobs Act of 2017, the Company is subject to a territorial tax system in which it is required to make an accounting policy in providing for tax on Global Intangible Low Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The Company has elected to treat the impact of GILTI as a period cost, to be reported as a part of continuing operations, as a component of income tax expense.
Under U.S. GAAP, in order to recognize an uncertain tax benefit, the taxpayer must determine it is more likely than not the position will be sustained, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. Although the Company believes that it has adequately provided for liabilities resulting from tax assessment by taxing authorities, positions taken by these tax authorities could have an impact on the Company’s results of operations, financial position and/or cash flows. The Company recognizes the interest and penalties related to income taxes as a part of interest expense and operating expenses, respectively, in continuing operations in its consolidated statements of operations and comprehensive income (loss).
In addition, 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. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is more likely than not to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company had $1.1 million unrecognized tax benefits as of December 31, 2017, $4.4 million as of December 31, 2018, and $4.7 million as of December 31, 2019.
The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company recognized $0.1 million, $0.4 million, and $0.5 million of interest and penalties related to unrecognized tax benefits during the years ended December 31, 2017, 2018 and 2019, respectively.
Stock-Based Compensation
The Company may issue restricted stock units, restricted stock awards and stock options which vest upon the satisfaction of a performance condition and/or a service condition. The Company follows the provisions of ASC 718, Compensation—Stock Compensation, or ASC 718, which requires employee stock-based payments to be accounted for under the fair value method. Under this method, the Company is 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, net of estimated forfeitures. The Company uses the straight-line amortization method for recognizing stock-based compensation expense. In addition, for stock-based awards where vesting is dependent upon achieving certain performance goals, the Company estimates the likelihood of achieving the performance goals against established performance targets.
The Company estimates 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, the Company estimates the fair value of each restricted stock award based on the closing trading price of its common stock on the date of grant.
Net (Loss) Income per Share
The Company considered ASC 260-10, Earnings per Share, or ASC 260-10, which requires the presentation of both basic and diluted earnings per share in the consolidated statements of operations and comprehensive income (loss). The Company’s basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding for the period, and, if there are dilutive securities, diluted net (loss) income per share is computed by including common stock equivalents which includes shares issuable upon the exercise of stock options, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.
The Company considered FASB ASC 260-10, Earnings per Share, which requires the presentation of both basic and diluted earnings per share in the consolidated statements of operations and comprehensive income (loss). The Company’s basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding for the period, and, if there are dilutive securities, diluted income per share is computed by including common stock equivalents which includes shares issuable upon the exercise of stock options, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.

80

 
For the Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands, except share amounts
and per share data)
Computation of basic and diluted net (loss) income per share:
 
 
 
 
 
Net (loss) income attributable to Endurance International Group Holdings, Inc.
$
(107,308
)
 
$
4,534

 
$
(12,347
)
Net (loss) income per share attributable to Endurance International Group Holdings, Inc.:
 
 
 
 
 
Basic
$
(0.78
)
 
$
0.03

 
$
(0.09
)
Diluted
$
(0.78
)
 
$
0.03

 
$
(0.09
)
Weighted-average number of common shares used in computing net (loss) income per share attributable to Endurance International Group Holdings, Inc.:
 
 
 
 
 
Basic
137,322,201

 
142,316,993

 
145,259,691

Diluted
137,322,201

 
145,669,760

 
145,259,691


The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted (loss) income per share because the effect of including such potentially dilutive shares would have been anti-dilutive:
 
For the Year Ended December 31,
 
2017
 
2018
 
2019
Restricted Stock Awards and Units
8,967,840

 
4,325,516

 
4,035,923

Options
10,728,795

 
8,443,928

 
8,570,215

Total
19,696,635

 
12,769,444

 
12,606,138


Guarantees
The Company has the following guarantees and indemnifications:
In connection with its acquisitions of companies and assets from third parties, the Company may provide indemnification or guarantees to the sellers in the event of damages for breaches or other claims covered by such agreements.
In connection with various vendor contracts, including those by which a product or service of a third party is offered to subscribers of the Company, the Company may guarantee the obligations of its subsidiaries or provide indemnification to the vendors in the event of damages for breaches or other claims covered by the contracts.
As permitted under Delaware and other applicable law, Holdings' charter and by-laws and those of its subsidiary companies provide that the Company shall indemnify its officers and directors for certain liabilities, including those incurred by reason of the fact that the officer or director is, was, or has agreed to serve as an officer or director of the Company. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited.
The Company leases office space and equipment under various operating leases. The Company has standard indemnification arrangements under these leases that require the Company to indemnify the lessor against losses, liabilities and claims incurred in connection with the premises or equipment covered by the Company’s lease agreements, the Company’s use of the premises, property damage or personal injury and breach of the agreement.
Through December 31, 2019, the only losses incurred by the Company in connection with any of its indemnification obligations or guarantees relate to immaterial amounts incurred to indemnify officers in connection with SEC investigations settled by the Company in 2018. The Company does not expect material claims related to these indemnification obligations and consequently concluded that the fair value of these obligations is negligible.
Recent Accounting Pronouncements - Recently Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases, or ASC 842. Since then, the FASB has also issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which further clarifies ASU No. 2016-02 and corrects unintended application of guidance. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

81

The Company adopted the new standard on January 1, 2019. The Company elected to utilize the available practical expedients and implemented internal controls and reporting systems to enable the preparation of the financial information on adoption and on an ongoing basis subsequent to adoption. Upon adoption, the Company recorded an ROU asset of $114.9 million, and a lease liability of $124.5 million, and reduced accrued facility exit costs by $1.7 million and deferred rent liabilities by $7.9 million. There was no impact to opening retained earnings as a result of the adoption of the new guidance. The impact of applying ASC 842 on the results for reporting periods and balance sheet beginning after January 1, 2019 is presented under ASC 842, while prior amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, Leases. The Company's accounting for finance leases remained substantially unchanged. See Note 7, Leases, for further details.
In July 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718). The new guidance expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in ASU No. 2018-07 specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards to a non-employee. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contract with Customers. The new guidance is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted, provided the company has already adopted the guidance in Topic 606. A company should only remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Upon transition, the company is required to measure these nonemployee awards at fair value as of the adoption date. The Company adopted the guidance on January 1, 2019. The adoption of this guidance did not have a material impact on its consolidated financial statements.
Recent Accounting Pronouncements - Recently Issued
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The new guidance provides for the deferral of implementation costs for cloud computing arrangements and expensing those costs over the term of the cloud services arrangement. The new guidance is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the timing of adoption and the expected impact of the new guidance.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020. The Company does not expect that the adoption of this new guidance will have a material impact on its consolidated financial statements.
3. Acquisitions/ Divestitures
Acquisitions
The Company accounts for the acquisitions of businesses using the purchase method of accounting. The Company allocates the purchase price to the tangible and identifiable intangible assets and liabilities assumed based on their estimated fair values. Purchased identifiable intangible assets typically include subscriber relationships, trade names, domain names held for sale, developed technology and in-process research and development. The methodologies used to determine the fair value assigned to subscriber relationships and domain names held for sale are typically based on the excess earnings method that considers the return received from the intangible asset and includes certain expenses and also considers an attrition rate based on the Company’s internal subscriber analysis and an estimate of the average life of the subscribers. The fair value assigned to trade names is typically based on the income approach using a relief from royalty methodology that assumes that the fair value of a trade name can be measured by estimating the cost of licensing and paying a royalty fee for the trade name that the owner of the trade name avoids. The fair value assigned to developed technology typically uses the cost approach. If applicable, the Company estimates the fair value of contingent consideration payments in determining the purchase price. The contingent consideration is then adjusted to fair value in subsequent periods as an increase or decrease in current earnings in general and administrative expense in the consolidated statements of operations and comprehensive income (loss).
Acquisitions—2019
Ecomdash

82

On September 13, 2019, the Company acquired substantially all of the assets of LTD Software LLC, doing business as Ecomdash (“Ecomdash”), which is a software provider that offers inventory management and marketplace listing solutions for small and mid-sized businesses selling online. The aggregate purchase price was $9.6 million, of which approximately $8.9 million was paid in cash at the closing. The Company retained the remainder of the purchase price as a holdback to fund any working capital adjustment, if applicable, and to serve as security for the indemnification obligations of the seller under the asset purchase agreement. Subject to any indemnification claims, the Company will release the holdback funds, less a small working capital adjustment, to the seller twelve months from the closing date. Transaction costs were expensed as incurred and were not material. The Company has accounted for this transaction as a business combination in accordance with the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. The following table summarizes the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed at the date of acquisition:
 
September 13, 2019
 
(in thousands)
 
 
Working capital
$
(187
)
Goodwill
6,973

Developed technology
2,445

Subscriber relationships
390

Total
$
9,621



Goodwill related to the acquisition is deductible for tax purposes.
Divestitures—2019
On December 5, 2019, the Company completed the sale of substantially all assets of its SinglePlatform digital storefront business, including all of the membership interests of its subsidiary SinglePlatform, LLC, to TripAdvisor LLC for consideration of approximately $51.0 million in cash. The Company recognized a pre-tax gain on the sale of $40.7 million during the fourth quarter of 2019, which was recorded as an operating expense in the consolidated statements of operations and other comprehensive income (loss). SinglePlatform contributed $28.4 million and $25.4 million in revenue in the years ended December 31, 2018 and 2019, respectively.
4. Fair Value Measurements
The following valuation hierarchy is used for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
 
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
•
Level 2 inputs are quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
•
Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
As of December 31, 2018 and 2019, the Company’s financial assets required to be measured on a recurring basis consist of the 2015 interest rate cap, the 2018 interest rate cap and certain cash equivalents, which include money market instruments and bank time deposits. The Company has classified these interest rate caps, which are discussed in Note 5. Derivatives and Hedging Activities below, within Level 2 of the fair value hierarchy. The Company has also classified these cash equivalents within Level 2 of the fair value hierarchy.
Basis of Fair Value Measurements 

83

 
Balance
 
Quoted Prices
in Active Markets
for Identical Items
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(in thousands)
Balance at December 31, 2018
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
Cash equivalents (included in cash and cash equivalents)
$
7,874

 
$
—

 
$
7,874

 
$
—

Interest rate cap (included in other assets)
2,583

 
—

 
2,583

 
—

Total financial assets
$
10,457

 
$
—

 
$
10,457

 
$
—

Balance at December 31, 2019
 
 
 
 
 
 
 
Financial assets:

 
 
 
 
 
 
Cash equivalents (included in cash and cash equivalents)
$
2,834

 
$
—

 
$
2,834

 
$
—

Interest rate cap (included in other assets)
6

 
—

 
6

 
—

Total financial assets
$
2,840

 
$
—

 
$
2,840

 
$
—


The carrying amounts of the Company's other financial assets and liabilities including cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization or settlement.
5. Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company has entered into two three-year interest rate caps as part of its risk management strategy, of which the first one matured in the three months ended March 31, 2019. The interest rate caps, designated as cash flow hedges of interest rate risk, provide for the payment to the Company of variable amounts if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Therefore, these derivatives limit the Company’s exposure if the interest rate rises, but also allow the Company to benefit when the interest rate falls.
In December 2015, the Company entered into a three-year interest rate cap with a $500.0 million notional value outstanding. This interest rate cap was effective beginning on February 29, 2016 and matured on February 27, 2019. The fair value of this interest rate contract included in other assets on the consolidated balance sheet as of December 31, 2018 and 2019 was $0.5 million and $0.0 million, respectively. The Company recognized interest expense of $1.9 million and $0.4 million, respectively, in the Company’s consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2018 and 2019, respectively. The Company recognized a $0.1 million loss in Accumulated Other Comprehensive Income ("AOCI") for the year ended December 31, 2019. For the year ended December 31, 2018, the Company recognized a $2.1 million gain in AOCI, net of a tax expense of $0.5 million.
In June 2018, the Company entered into a three-year interest rate cap with an $800.0 million notional value outstanding. This interest rate cap was effective beginning on August 28, 2018. The fair value of this interest rate contract included in other assets on the consolidated balance sheet as of December 31, 2018 and 2019 was $2.0 million and $0.0 million, respectively, and the Company recognized $0.9 million and $1.8 million, respectively, of interest expense in the Company’s consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2018 and 2019, respectively. The Company recognized a $2.7 million loss, net of a tax benefit of $0.6 million, in AOCI for the year ended December 31, 2018. The Company recognized a $0.3 million loss, net of a tax benefit of $0.1 million, in AOCI for the year ended December 31,

84

2019. The Company estimates that $1.8 million will be reclassified from AOCI to interest expense (as an increase to interest expense) in the next twelve months.
The changes in the fair value of derivatives that qualify as cash flow hedges are recorded in AOCI, and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Any ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. There was no ineffectiveness recorded in earnings for the year ended December 31, 2019.
6. Property, Plant and Equipment
Components of property and equipment consisted of the following: 
 
December 31, 2018
 
December 31, 2019
 
(in thousands)
Land
$
790

 
$
790

Building
7,819

 
8,285

Software
102,259

 
109,546

Computers and office equipment
157,396

 
187,056

Furniture and fixtures
19,258

 
18,918

Leasehold improvements
20,215

 
20,469

Construction in process
12,314

 
5,850

Property and equipment—at cost
320,051

 
350,914

Less accumulated depreciation
(227,776
)
 
(264,989
)
Property and equipment—net
$
92,275

 
$
85,925


Depreciation expense related to property and equipment for the years ended December 31, 2017, 2018 and 2019 was $55.2 million, $48.2 million, and $45.0 million, respectively.
The Company evaluates long-lived assets such as property, plant and equipment 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 are less than the carrying amount, the fair value of the assets is determined and compared to the carrying value. If the fair value is less than the carrying value, then the carrying value of the asset is reduced to the estimated fair value and an impairment loss is charged to expense in the period the impairment is identified.
During the years ended December 31, 2017, 2018 and 2019, the Company did not recognize any impairments with respect to its property, plant and equipment.
During the years ended December 31, 2018 and 2019, the Company entered into agreements to finance software licenses for use on certain data center server equipment for terms ranging from twenty-four months to thirty-nine months.
As of December 31, 2018 and 2019, the Company’s software shown in the above table included the software assets under financed equipment was as follows: 
 
December 31, 2018
 
December 31, 2019
 
(in thousands)
Software
$
16,715

 
$
16,715

Less accumulated depreciation
(6,221
)
 
(11,989
)
Financed equipment—net
$
10,494

 
$
4,726


At December 31, 2019, the expected future minimum lease payments under financed equipment discussed above were approximately as follows: 

85

 
Amount
 
(in thousands)
2020
$
828

2021
—

Total minimum lease payments
828

Less amounts representing interest
(38
)
Present value of financed equipment
$
790

Current portion
790

Long-term portion
—


7. Leases
The Company has operating leases for data centers, corporate offices, data center equipment, and office equipment. The Company's leases have remaining lease terms of 1 year to 8 years, some of which include options to extend. The Company's lease expense for the year ended December 31, 2019 consisted entirely of operating leases and amounted to $28.8 million. Operating lease payments, which reduced operating cash flows for the year ended December 31, 2019, amounted to $27.3 million. Supplemental balance sheet information related to leases was as follows:
 
December 31, 2019
 
(in thousands)
Operating lease right-of-use assets
$
90,519

 
 
Operating lease liabilities—short term
21,193

Operating lease liabilities—long term
78,151

Total operating lease liabilities
$
99,344


As of December 31, 2019, the weighted-average remaining lease term was 5.32 years and the discount rate for the Company's leases was 6.77%. Maturities for leases were as follows:
 
Operating Leases
 
(in thousands)
2020
$
27,098

2021
20,728

2022
18,882

2023
17,656

2024
13,832

Thereafter
20,693

Total lease payments
118,889

Less imputed interest
19,545

Total
$
99,344


Total net rent expense incurred under non-cancellable operating leases for the years ended December 31, 2017, 2018 and 2019, were $22.1 million, $20.8 million and $20.4 million, respectively. Total sublease income for the years ended December 31, 2017, 2018 and 2019 was $0.5 million, $1.0 million and $1.4 million, respectively.
8. Goodwill and Other Intangible Assets
The following table summarizes the changes in the Company’s goodwill balances as of December 31, 2018 and 2019: 

86

 
Web presence
 
Email marketing
 
Domain
 
Total
 
(in thousands)
Goodwill balance at December 31, 2017
$
1,216,419

 
$
604,305

 
$
29,858

 
$
1,850,582

Foreign translation impact
(1,517
)
 
—

 
—

 
(1,517
)
Goodwill balance at December 31, 2018
$
1,214,902

 
$
604,305

 
$
29,858

 
$
1,849,065

Goodwill related to 2019 acquisition
—

 
6,973

 
—

 
6,973

Goodwill related to 2019 divestiture
—

 
(7,864
)
 
—

 
(7,864
)
Foreign translation impact
(531
)
 
—

 
—

 
(531
)
Impairment
(12,333
)
 
—

 
—

 
(12,333
)
Goodwill balance at December 31, 2019
$
1,202,038

 
$
603,414

 
$
29,858

 
$
1,835,310


In accordance with ASC 350, the Company reviews goodwill and other indefinite-lived intangible assets for indicators of impairment on an annual basis, in addition to ad hoc reviews of goodwill if an event occurs or circumstances change that would more likely than not reduce the fair value of goodwill below its carrying amount.
As of December 31, 2018, other intangible assets consisted of the following: 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Weighted
Average
Useful Life
 
(dollars in thousands)
 
 
Developed technology
$
284,266

 
$
180,914

 
$
103,352

 
7 years
Subscriber relationships
659,515

 
486,518

 
172,997

 
7 years
Tradenames
134,048

 
84,617

 
49,431

 
8 years
Intellectual property
34,263

 
28,954

 
5,309

 
5 years
Domain names available for sale
30,981

 
9,554

 
21,427

 
Indefinite
Total December 31, 2018
$
1,143,073

 
$
790,557

 
$
352,516

 
 

As of December 31, 2019, other intangible assets consisted of the following: 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Weighted
Average
Useful Life
 
(dollars in thousands)
 
 
Developed technology
$
280,330

 
$
207,844

 
$
72,486

 
7 years
Subscriber relationships
659,837

 
529,276

 
130,561

 
7 years
Tradenames
134,046

 
94,982

 
39,064

 
8 years
Intellectual property
34,263

 
31,372

 
2,891

 
5 years
Domain names available for sale
18,160

 
18,160

 
—

 
Indefinite
Total December 31, 2019
$
1,126,636

 
$
881,634

 
$
245,002

 
 

During the year ended December 31, 2018 there were no impairment charges of intangible assets. During the year ended December 31, 2019, the Company recorded an aggregate impairment charge of $25.2 million relating to premium domain name intangible assets acquired in 2014, consisting of an impairment charge of $17.9 million recognized in the three months ended June 30, 2019 and an impairment charge of $7.3 million in the three months ended December 31, 2019. Both of these impairment charges were recorded in cost of revenue in the consolidated statements of operations and comprehensive income (loss). The impairments resulted from recent market conditions that have adversely impacted cash flows from these assets, and these market conditions are expected to continue.
The estimated useful lives of the individual categories of other intangible assets are based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with finite lives is recognized over the period of time the assets are expected to contribute to future cash flows. The Company amortizes finite-lived intangible assets over the period in which the economic benefits are expected to be realized based upon their estimated projected cash flows.
The Company’s amortization expense is included in cost of revenue in the aggregate amounts of $140.4 million, $103.1 million, and $85.2 million for the years ended December 31, 2017, 2018 and 2019, respectively.

87

As of December 31, 2019, the expected future amortization of the other intangible assets, excluding indefinite life and in-process research and development intangibles, was approximately as follows: 
 
Amount
Year Ending December 31,
(in thousands)
2020
$
71,321

2021
61,322

2022
37,699

2023
18,178

2024
13,935

Thereafter
42,547

Total
$
245,002


9. Investments
As of December 31, 2018 and 2019, the Company’s carrying value of investments in privately-held companies was $15.0 million and $15.0 million, respectively.
In May 2014, the Company made a strategic investment of $15.0 million in Automattic, Inc. (“Automattic”), which provides content management systems associated with WordPress. The investment represents less than 5.0% of the outstanding shares of Automattic. The investment is accounted for using the measurement alternative under ASU 2016-01 as fair value is not readily available.
On March 3, 2016, the Company purchased a $0.6 million convertible promissory note from a business that provides web and mobile money management solutions, with the potential for subsequent purchases of additional convertible notes. During the year ended December 31, 2017, the Company recognized an impairment expense of $0.6 million in other expense in the consolidated statement of operations and comprehensive income (loss), as the carrying amount of the investment was deemed unrecoverable. This impairment was recognized in the Company's web presence segment.
On April 8, 2016, the Company made an investment of $5.0 million for a 33.0% equity interest in Fortifico Limited, a company providing a billing, customer relationship management (CRM), and affiliate management solution to small and mid-sized businesses. During the year ended December 31, 2016, the Company incurred a charge of $4.7 million to impair the Company's 33% equity interest in Fortifico Limited, after determining that there were diminishing projected future cash flows on this investment.
Investments in which the Company’s interest is less than 20.0% and which are not classified as available-for-sale securities are carried at the lower of cost or net realizable value unless it is determined that the Company exercises significant influence over the investee company, in which case the equity method of accounting is used. For those investments in which the Company’s voting interest is between 20.0% and 50.0%, the equity method of accounting is used. Under this method, the investment balance, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee company, as they occur, limited to the extent of the Company’s investment in, advances to and commitments for the investee. These adjustments are reflected in equity (income) loss of unconsolidated entities, net of tax in the Company’s consolidated statements of operations and comprehensive income (loss). The Company recognized net profit of $0.1 million and net loss of $0.3 million for the years ended December 31, 2017 and 2018, respectively. The Company recorded no charges related to its investments during the year ended December 31, 2019.
From time to time, the Company may make new and follow-on investments and may receive distributions from investee companies. As of December 31, 2019, the Company was not obligated to fund any follow-on investments in these investee companies.
As of December 31, 2019, the Company did not have an equity method investment in which the Company’s proportionate share exceeded 10% of the Company’s consolidated assets or income from continuing operations. As of December 31, 2019, the Company did not have an equity method investment in which the Company’s proportionate share of net losses exceeded 20% of net loss of the Company’s consolidated statement of operations and comprehensive income (loss).
10. Notes Payable
As of December 31, 2018 and 2019, notes payable, net of original issuance discounts (sometimes referred to as "OID") and deferred financing costs, consisted of the following:

88

 
December 31, 2018
 
December 31, 2019
 
(in thousands)
Term Loan
$
1,470,085

 
$
1,347,056

Notes
331,576

 
334,417

Revolving credit facilities
—

 
—

Total notes payable
1,801,661

 
1,681,473

Current portion of notes payable
31,606

 
31,606

Notes Payable—long term
$
1,770,055

 
$
1,649,867


First Lien Term Loan Facility
The first lien term loan (the "Term Loan") was issued at par and automatically bears interest at an alternate base rate unless the Company gives notice to opt for the LIBOR-based interest rate. The LIBOR-based interest rate for the Term Loan is 3.75% per annum plus the greater of an adjusted LIBOR or 1.00%. The alternate base rate for the Term Loan is 2.75% per annum plus the greatest of the prime rate, the federal funds effective rate plus 0.50%, an adjusted LIBOR for a one-month interest period plus 1.00%, and 2.00%.
The Term Loan has a maturity date of February 9, 2023 and requires quarterly mandatory repayments of principal. During the year ended December 31, 2019, the Company made four mandatory repayments of $7.9 million, three voluntary repayments of $17.1 million each, and one mandatory payment of $48.1 million (triggered by the sale of the SinglePlatform business during the fourth quarter), for a total repayment of $131.0 million.
Interest is payable on maturity of the elected interest period for a term loan with LIBOR-based interest rate, which interest period can be one, two, three or six months. Interest is payable at the end of each fiscal quarter for a term loan with an alternate base rate.
As of December 31, 2018 and 2019, the Term Loan had an outstanding balance of:
 
December 31, 2018
 
December 31, 2019
 
(in thousands)
Term Loan
$
1,505,002

 
$
1,374,022

Unamortized deferred financing costs
(18,556
)
 
(14,331
)
Unamortized original issue discount
(16,361
)
 
(12,635
)
Net Term Loan
1,470,085

 
1,347,056

Current portion of Term Loan
31,606

 
31,606

Term Loan—long term
$
1,438,479

 
$
1,315,450


Revolving Credit Facility
The Company has a revolving credit facility (the "Revolver"), which has an aggregate available amount of $165.0 million. As of December 31, 2018 and 2019, the Company did not have any balances outstanding under the Revolver and the full amount of the facility was unused and available.
The Revolver consists of a non-extended tranche of approximately $58.8 million and an extended tranche of approximately $106.2 million. The non-extended tranche has a maturity date of February 9, 2021. The extended tranche has a maturity date of June 20, 2023, with a "springing" maturity date of November 10, 2022 if the Term Loan has not been repaid in full or otherwise extended to September 19, 2023 or later prior to November 10, 2022.
The Company has the ability to draw down against the Revolver using a LIBOR-based interest rate or an alternate based interest rate. The LIBOR-based interest rate for a non-extended revolving loan is 4.0% per annum (subject to a leverage-based step-down) and for an extended revolving loan is 3.25% per annum (subject to a leverage-based step-down), in each plus an adjusted LIBOR for a selected interest period. The alternate base rate for a non-extended revolving loan is 3.0% per annum (subject to a leverage-based step-down) and for an extended revolving loan is 2.25% per annum (subject to a leverage-based step down), in each case plus the greatest of the prime rate, the federal funds rate plus 0.50% and an adjusted LIBOR for a one-month interest period plus 1.00%. There is also a non-refundable commitment fee, equal to 0.50% per annum (subject to a leverage-based step-down) of the daily unused principal amount of the Revolver, which is payable in arrears on the last day of each fiscal quarter. Interest is payable on maturity of the elected interest period for a Revolver loan with a LIBOR-based

89

interest rate, which interest period can be one, two, three or six months. Interest is payable at the end of each fiscal quarter for a Revolver loan with an alternate base rate.
Senior Notes
In connection with the acquisition of Constant Contact, Inc. ("Constant Contact") in February 2016, EIG Investors issued $350.0 million aggregate principal amount of Senior Notes (the “Senior Notes”) with a maturity date of February 1, 2024. The Senior Notes were issued at a price of 98.065% of par and bear interest at the rate of 10.875% per annum. The Senior Notes have been fully and unconditionally guaranteed, on a senior unsecured basis, by the Company and its subsidiaries that guarantee the Term Loan and the Revolver (including Constant Contact and certain of its subsidiaries). The Company has the right to redeem all or part of the Senior Notes at any time for a premium which is based on the applicable redemption date. As of December 31, 2018 and 2019, the Senior Notes had an outstanding balance of:
 
December 31, 2018
 
December 31, 2019
 
(in thousands)
Senior Notes
$
350,000

 
$
350,000

Unamortized deferred financing costs
(13,436
)
 
(11,359
)
Unamortized original issue discounts
(4,988
)
 
(4,224
)
Net Senior Notes
331,576

 
334,417

Current portion of Senior Notes
—

 
—

Senior Notes—long term
$
331,576

 
$
334,417


Interest on the Senior Notes is payable twice a year, on August 1 and February 1.
On January 30, 2017, the Company completed a registered exchange offer for the Senior Notes, as required under the registration rights agreement it entered into with the initial purchasers of the Senior Notes. All of the $350.0 million aggregate principal amount of the Senior Notes was validly tendered for exchange as part of this exchange offer.
Maturity of Notes Payable
The maturity of the notes payable as of December 31, 2019 is as follows:
 
Amounts
Maturity date as of December 31,
(in thousands)
2020
$
31,606

2021
31,606

2022
31,606

2023
1,279,204

2024
350,000

Thereafter
—

Total
$
1,724,022


Interest
The Company recorded $157.1 million, $149.5 million, and $144.7 million in interest expense for the years ended December 31, 2017, 2018 and 2019, respectively.
The following table provides a summary of loan interest rates incurred and interest expense for the years ended December 31, 2017, 2018 and 2019:

90

 
For the Year Ended December 31,
 
2017
 
2018
 
2019
 
(dollars in thousands)
Interest rate—LIBOR
5.14%-6.68%

 
5.46%-6.44%

 
5.45%-6.44%

Interest rate—alternate base
*

 
*

 
*

Interest rate—Notes
10.875
%
 
10.875
%
 
10.875
%
Non-refundable fee—unused facility
0.50
%
 
0.50
%
 
0.50
%
Interest expense and service fees
$
138,041

 
$
136,094

 
$
132,326

Loss on extinguishment of debt
992

 
331

 
—

Deferred financing costs immediately expensed
5,487

 
1,228

 
—

Amortization of deferred financing fees
7,316

 
6,454

 
7,179

Amortization of original issue discounts
3,860

 
4,305

 
4,490

Amortization of net present value of deferred consideration
632

 
373

 
163

Other interest expense
814

 
695

 
$
518

Total interest expense
$
157,142

 
$
149,480

 
$
144,676

* The Company did not have debt bearing interest based on the alternate base rate for the years ended December 31, 2018 and 2019.
The Company concluded that the refinancing of its then-outstanding term loan in June 2018 (the "2018 Refinancing") was primarily a debt modification of the existing term loan in accordance with ASC 470-50, Debt: Modifications and Extinguishments, with extinguishment relating only to one existing lender that did not participate in the 2018 Refinancing. As a result, during the second quarter of 2018, the Company capitalized $0.4 million of deferred financing costs related to new lenders participating in the Term Loan. These capitalized costs will be amortized over the remaining life of the loan using the effective interest method. Additionally, in the second quarter of 2018, the Company recorded a charge of $0.3 million, included in interest expense, to write off OID and deferred financing costs related to the refinanced debt for the lender not participating in the Term Loan. Lastly, the Company recorded a charge of $1.2 million during the second quarter of 2018, included in interest expense, for deferred financing costs incurred for the Term Loan that related to existing lenders that carried over from the refinanced debt.
Debt Covenants
The Term Loan and the Revolver (together, the "Senior Credit Facilities") require that the Company complies with a financial covenant to maintain a maximum ratio of consolidated senior secured net indebtedness to an adjusted consolidated EBITDA measure.
The Senior Credit Facilities also contain covenants that limit the Company's ability to, among other things, incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of capital stock; make other restricted payments; make certain investments; sell or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; and enter into certain transactions with affiliates. These covenants are subject to a number of important limitations and exceptions.
Additionally, the Senior Credit Facilities require the Company to comply with certain negative covenants and specify certain events of default that could result in amounts becoming payable, in whole or in part, prior to their maturity dates.
With the exception of certain equity interests and other excluded assets under the terms of the Senior Credit Facilities, substantially all of the Company's assets are pledged as collateral for the obligations under the Senior Credit Facilities. The indenture with respect to the Notes contains covenants that limit the Company's ability to, among other things, incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of capital stock; make other restricted payments; make certain investments; sell or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge sell or otherwise dispose of all or substantially all of its assets; and enter into certain transactions with affiliates. Upon a change of control as defined in the indenture, the Company must offer to repurchase the Notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, up to, but not including, the repurchase date. These covenants are subject to a number of important limitations and exceptions.
The indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately.
The Company was in compliance with all covenants at December 31, 2019.

91

11. Stockholders’ Equity
The Company’s restated certificate of incorporation authorizes the issuance of up to 500,000,000 shares of common stock and up to 5,000,000 shares of preferred stock, each having a par value of $0.0001 per share. All holders of common stock are entitled to one vote per share. Upon the issuance of preferred stock, if any, the voting, dividend and liquidation rights of the holders of the common stock will be subject to and qualified by the rights of the holders of the preferred stock. Preferred stock may be issued from time to time in one or more series. The Company's board of directors has the authority to establish voting powers, designations, preferences and other special rights, including dividend rights and liquidation preferences, to the full extent permitted by law for each series of preferred stock that may be issued.
There were no shares of preferred stock issued or outstanding as of December 31, 2018 and 2019.
12. Stock-Based Compensation
The Company follows the provisions of ASC 718, Compensation—Stock Compensation, or ASC 718, which requires employee stock-based payments to be accounted for under the fair value method. Under this method, the Company is 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. The Company uses the straight-line amortization method for recognizing stock-based compensation expense.
The Company estimates 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 and units granted, the Company estimates the fair value of each restricted stock award and unit based on the closing trading price of its common stock on the date of grant.
The Company has two stock incentive plans, as described below.
2013 Stock Incentive Plan
The Amended and Restated 2013 Stock Incentive Plan (the “2013 Plan”) of the Company became effective upon the closing of the Company's IPO. The 2013 Plan provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to employees, officers, directors, consultants and advisers of the Company. Under the 2013 Plan, the Company may issue up to 38,000,000 shares of the Company’s common stock. At December 31, 2019, there were 12,959,690 shares available for grant under the 2013 Plan.
2011 Stock Incentive Plan
As of February 9, 2016, the effective date of the acquisition of Constant Contact, the Company assumed and converted certain outstanding equity awards granted by Constant Contact under the Constant Contact 2011 Stock Incentive Plan (the “2011 Plan”) prior to the effective date of the acquisition (the “Assumed Awards”) into corresponding equity awards with respect to shares of the Company’s common stock. In addition, the Company assumed certain shares of Constant Contact common stock, par value $0.01 per share, available for issuance under the 2011 Plan (the “Available Shares”), which are available for future issuance under the 2011 Plan in satisfaction of the vesting, exercise or other settlement of options and other equity awards that may be granted by the Company following the effective date of the acquisition of Constant Contact in reliance on the prior approval of the 2011 Plan by the stockholders of Constant Contact. The Assumed Awards were converted into 2,143,987 stock options and 2,202,846 restricted stock units with respect to the Company’s common stock and the Available Shares were converted into 10,000,000 shares of the Company’s common stock reserved for future awards under the 2011 Plan. At December 31, 2019, there were 8,835,205 shares available for grant under the 2011 Plan.
The Company calculated the fair value of the exchanged awards in accordance with the provisions of ASC 718 as of the acquisition date. The Company allocated the fair value of these awards between the pre-acquisition and post-acquisition stock-based compensation expense. The Company determined that the value of the awards under this plan was $22.3 million, of which $5.4 million was attributed to the pre-acquisition period and recognized as part of the purchase consideration for Constant Contact. The balance of $16.9 million has been attributed to the post-acquisition period, and is being recognized in the Company’s consolidated statements of operations and comprehensive income (loss) over the vesting period of the awards.
All Plans

92

The following table presents total stock-based compensation expense recorded in the consolidated statements of operations and comprehensive income (loss) for all awards granted under the Company’s 2013 Plan and the 2011 Plan:
 
For the Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands)
Cost of revenue
$
6,135

 
$
3,823

 
$
3,282

Sales and marketing
8,658

 
5,418

 
7,217

Engineering and development
6,090

 
4,495

 
4,908

General and administrative
39,118

 
15,328

 
20,285

Total stock-based compensation expense
$
60,001

 
$
29,064

 
$
35,692


Under both plans combined, as of December 31, 2019, the Company has approximately $5.5 million of unrecognized stock-based compensation expense related to option awards that will be recognized over 1.6 years and approximately $45.3 million of unrecognized stock-based compensation expense related to restricted stock awards and units that will be recognized over approximately 1.9 years.
2013 Stock Incentive Plan
For stock options issued under the 2013 Plan, the fair value of each option is estimated on the date of grant, and upon the adoption of ASU 2016-09, the Company accounts for forfeitures as they are incurred. Unless otherwise approved by the Company’s board of directors, stock options typically vest over a three- or four-year period and the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards and determine the related compensation expense. The weighted-average assumptions used to compute stock-based compensation expense for awards granted under the 2013 Plan during the years ended December 31, 2017, 2018 and 2019 are as follows:
 
2017
 
2018
 
2019
Risk-free interest rate
2.2
%
 
2.9
%
 
2.6
%
Expected volatility
50.5
%
 
47.8
%
 
44.6
%
Expected life (in years)
6.25

 
6.00

 
6.00

Expected dividend yield
—

 
—

 
—


The risk-free interest rate assumption was based on the U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The Company bases its estimate of expected volatility using blended volatility data from the Company's common stock and from comparable public companies in similar industries and markets because there is currently limited public history for the Company’s common stock, and therefore, a lack of market-based company-specific historical and implied volatility information. The weighted-average expected life for employee options reflects the application of the simplified method, which represents the average of the contractual term of the options and the weighted-average vesting period for all option tranches. The simplified method has been used since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to a limited history of stock option grants. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future.

93

The following table provides a summary of the Company’s stock options as of December 31, 2019 and the stock option activity for all stock options granted under the 2013 Plan during the year ended December 31, 2019: 
 
Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual 
Term
(in years)
 
Aggregate
Intrinsic
Value(3)
(in thousands)

Outstanding at December 31, 2018
7,322,293

 
$
11.62

 
 
 
 
Granted
1,215,789

 
$
7.99

 
 
 
 
Exercised
—

 
$
—

 
 
 
 
Forfeited
(201,365
)
 
$
8.04

 
 
 
 
Canceled
(3,060,038
)
 
$
12.23

 
 
 
 
Outstanding at December 31, 2019
5,276,679

 
$
10.57

 
6.7
 
$
—

Exercisable at December 31, 2019
3,688,733

 
$
11.63

 
5.8
 
$
—

Expected to vest after December 31, 2019(1)
1,587,946

 
$
8.12

 
8.6
 
$
—

Exercisable as of December 31, 2019 and expected to vest thereafter(2)
5,276,679

 
$
10.57

 
6.6
 
$
—

 
(1)
This represents the number of unvested options outstanding as of December 31, 2019 that are expected to vest in the future.
(2)
This represents the number of vested options as of December 31, 2019 plus the number of unvested options outstanding as of December 31, 2019 that are expected to vest in the future.
(3)
The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common stock on December 31, 2019 of $4.70 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options.
Restricted stock awards granted under the 2013 Plan generally vest annually over a four-year period, unless otherwise determined by the Company’s board of directors. Performance-based restricted stock awards are earned based on the achievement of performance criteria established by the Company’s compensation committee and board of directors. The following table provides a summary of the Company’s restricted stock award activity for the 2013 Plan during the year ended December 31, 2019:
 
Restricted Stock Awards
 
Weighted-
Average
Grant Date
Fair Value
Non-vested at December 31, 2018
443,247

 
$
11.67

Granted
—

 
$
—

Vested
(246,757
)
 
$
12.57

Canceled
(36,973
)
 
$
9.87

Non-vested at December 31, 2019
159,517

 
$
10.68


Restricted stock units granted under the 2013 Plan generally vest annually over a three-year period, unless otherwise determined by the Company’s board of directors. The following table provides a summary of the Company’s restricted stock unit activity for the 2013 Plan during the year ended December 31, 2019:  
 
Restricted Stock Units
 
Weighted-
Average
Grant Date
Fair Value
Non-vested at December 31, 2018
5,203,259

 
$
7.69

Granted
7,426,877

 
$
6.62

Vested
(2,126,221
)
 
$
7.70

Canceled
(1,498,806
)
 
$
7.12

Non-vested at December 31, 2019
9,005,109

 
$
6.90


2015 Performance Based Award

94

During fiscal year 2015, the Company granted a performance-based restricted stock award to the Company's chief executive officer at that time, Hari Ravichandran, which provided for the opportunity to earn up to 3,693,754 shares of the Company's common stock (the "Award Shares") over a three-year period beginning July 1, 2015 and ending on June 30, 2018 (the "Performance Period"). Award Shares could be earned based on the Company achieving pre-established threshold, target and maximum performance metrics. This performance-based award was evaluated quarterly to determine the probability of its vesting and to determine the amount of stock-based compensation to be recognized.
In April 2017, the Company announced that its board of directors and Mr. Ravichandran adopted a transition plan. As a result of this transition, Mr. Ravichandran's employment with the Company ended during the fourth quarter of fiscal year 2017. Upon the end of his employment, in accordance with the terms of the award, Mr. Ravichandran received the Award Shares earned in the quarters completed prior to the separation, plus the number of Award Shares that would have been earned in the quarter in which the separation occurred, which amounted to an aggregate of 1,661,439 shares. The unearned 2,032,315 shares were forfeited. During the years ended December 31, 2015 and December 31, 2016, the Company recorded compensation expense of $5.9 million and $6.8 million, respectively, in connection with this award. The final compensation charges in connection with this award of $12.1 million were recorded during the year ended December 31, 2017.
2016 Performance Based Awards
On February 16, 2016, the compensation committee of the board of directors of the Company approved the grant of performance-based restricted stock awards to the Company’s chief financial officer (“CFO”), chief operating officer (“COO”) at that time, and chief administrative officer (“CAO”) at that time. Based on the Company's achievement of Constant Contact revenue, adjusted EBITDA and cash flow metrics, each executive earned the maximum number of shares subject to his or her award. The CFO earned 223,214 shares of the Company’s stock, the COO earned 260,416 shares of the Company’s stock, and the CAO earned 148,810 shares of the Company’s stock. These earned shares vested on March 31, 2017. During the fiscal year ended December 31, 2016, the Company recognized $4.1 million of stock-based compensation expense related to these performance-based awards. During the year ended December 31, 2017, the Company recognized $1.2 million of stock-based compensation expense related to these performance-based awards.
New CEO Award
On August 11, 2017, the Company and Jeffrey H. Fox entered into an employment agreement (the "Employment Agreement") appointing Mr. Fox as the Company's president and chief executive officer effective upon his employment start date (the "Effective Date") of August 22, 2017. The Employment Agreement provides for Mr. Fox to receive, on the Effective Date, an equity award under the 2013 Plan with a total value of $10,375,000 as of August 11, 2017, split between and award of 1,032,500 restricted stock units (the "RSU Award") and an option to purchase 612,419 shares of the Company's common stock (the "Stock Option Grant").
282,500 of the restricted stock units subject to the RSU Award vested immediately on the Effective Date, but are subject to a requirement that Mr. Fox hold the shares underlying such restricted stock units until the earlier of the third anniversary of the Effective Date, his death or disability (as defined in the Employment Agreement) or a change in control of the company (as defined in the Employment Agreement). The Company recorded a charge of $2.2 million for these immediately vested shares during the year ended December 31, 2017. The remaining 750,000 restricted stock units subject to the RSU Award will vest over a three-year period, with 250,000 of such restricted stock units vesting annually on the anniversary of the Effective Date. The Stock Option Grant will vest over a three-year period, with one-third of the total number of shares subject to the Stock Option Grant vesting on the first anniversary of the Effective Date and the remainder vesting in equally monthly installments thereafter.
2011 Stock Incentive Plan
For stock options issued under the 2011 Plan, the fair value of each option is estimated on the date of grant. Unless otherwise approved by the Company’s board of directors, stock options typically vest over a three- or a four years period and the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. The Company uses the Black-Scholes option simplified pricing model to estimate the fair value of stock option awards and determine the related compensation expense. There were no stock options granted under the 2011 Plan for the years ended December 31, 2018 and 2019.
The following table provides a summary of the Company’s stock options as of December 31, 2019 and the stock option activity for all stock options granted under the 2011 Plan during the year ended December 31, 2019:

95

 
Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual 
Term
(in years)
 
Aggregate
Intrinsic
Value(3)
(in thousands)

Outstanding at December 31, 2018
715,104

 
$
9.00

 
 
 
 
Granted
—

 
$
—

 
 
 
 
Exercised
(6,793
)
 
$
4.81

 
 
 
 
Forfeited
(27,281
)
 
$
9.53

 
 
 
 
Canceled
(147,483
)
 
$
9.75

 
 
 
 
Outstanding at December 31, 2019
533,547

 
$
8.83

 
2.0
 
$
19

Exercisable at December 31, 2019
512,265

 
$
8.79

 
1.9
 
$
19

Expected to vest after December 31, 2019(1)
21,282

 
$
9.71

 
3.6
 
$
—

Exercisable as of December 31, 2019 and expected to vest thereafter(2)
533,547

 
$
8.83

 
2.0
 
$
19


(1)
This represents the number of unvested options outstanding as of December 31, 2019 that are expected to vest in the future.
(2)
This represents the number of vested options as of December 31, 2019 plus the number of unvested options outstanding as of December 31, 2019 that are expected to vest in the future.
(3)
The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common stock on December 31, 2019 of $4.70 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options.
Unless otherwise determined by the Company’s board of directors, restricted stock units granted under the 2011 Plan generally vest annually over a three or four-year period. The following table provides a summary of the Company’s restricted stock unit activity for the 2011 Plan during the year ended December 31, 2019:
 
Restricted Stock Units
 
Weighted-
Average
Grant Date
Fair Value
Non-vested at December 31, 2018
868,026

 
$
8.26

Granted
—

 
$
—

Vested
(435,919
)
 
$
8.20

Canceled
(111,965
)
 
$
8.26

Non-vested at December 31, 2019
320,142

 
$
8.35


2016 Award Obligations
For the year ended December 31, 2016, stock-based compensation expense included $0.7 million of equity award obligations pursuant to which the Company agreed to issue shares of common stock upon the achievement of certain conditions, of which $0.3 million was recorded in sales and marketing expense, $0.1 million was recorded in engineering and development expense, and $0.3 million was recorded in general and administrative expense within the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2016. This amount was included in accrued expenses at December 31, 2017, and would be reclassified against additional paid in capital upon issuance of the shares. During the year ended December 31, 2017, the Company incurred stock-based compensation expense of $1.2 million relating to these 2016 award obligations, all of which was recorded in sales and marketing expense within the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2017. All of the shares issued pursuant to the 2016 equity award obligations were issued during the year ended December 31, 2017 and were reclassified against additional paid in capital at that time.
13. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax were as follows: 

96

 
Foreign
Currency
Translation
Adjustments
 
Unrealized 
Losses on
Cash Flow
Hedges
 
Total
 
(in thousands)
Balance at December 31, 2017
$
696

 
$
(1,237
)
 
$
(541
)
Other comprehensive loss
(2,233
)
 
(437
)
 
(2,670
)
Balance at December 31, 2018
(1,537
)
 
(1,674
)
 
(3,211
)
Other comprehensive loss
(598
)
 
(279
)
 
(877
)
Balance at December 31, 2019
$
(2,135
)
 
$
(1,953
)
 
$
(4,088
)

14. Revenue
During the year ended December 31, 2019, the Company recognized $1,113.3 million of revenue, the majority of which was derived from contracts with customers.
During the year ended December 31, 2019, the Company did not incur any impairment losses on any receivables or contract assets arising from the Company’s contracts with customers.
During the year ended December 31, 2019, the Company did not incur any credit losses on any receivables or contract assets arising from the Company’s contracts with customers.
In accordance with ASC 606, the Company disaggregates revenue from contracts with customers based on the timing of revenue recognition. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. As discussed in Note 21, Segment Information, the Company business consists of the web presence, email marketing and domain segments. The following table presents disaggregated revenues by category for the years ended December 31, 2018 and 2019:
 
Year Ended December 31, 2018
 
Web presence
 
Email marketing
 
Domain
 
Total
 
(in thousands)
Subscription-based revenue
 
 
 
 
 
 
 
Direct revenue from subscriptions
$
561,583

 
$
404,533

 
$
52,016

 
$
1,018,132

Professional services
13,414

 
1,373

 
401

 
15,188

Reseller revenue
21,587

 
3,537

 
51,754

 
76,878

Total subscription-based revenue
$
596,584

 
$
409,443

 
$
104,171

 
$
1,110,198

 
 
 
 
 
 
 
 
Non-subscription-based revenue
 
 
 
 
 
 
 
MDF
$
7,842

 
$
609

 
$
789

 
$
9,240

Premium domains
84

 
—

 
20,025

 
20,109

Domain parking and monetization
805

 
—

 
4,939

 
5,744

Total non-subscription-based revenue
$
8,731

 
$
609

 
$
25,753

 
$
35,093

 
 
 
 
 
 
 
 
Total revenue
$
605,315

 
$
410,052

 
$
129,924

 
$
1,145,291


97

 
Year Ended December 31, 2019
 
Web presence
 
Email marketing
 
Domain
 
Total
 
(in thousands)
Subscription-based revenue
 
 
 
 
 
 
 
Direct revenue from subscriptions
$
538,136

 
$
404,722

 
$
50,827

 
$
993,685

Professional services
12,141

 
1,611

 
437

 
14,189

Reseller revenue
18,971

 
3,685

 
51,225

 
73,881

Total subscription-based revenue
$
569,248

 
$
410,018

 
$
102,489

 
$
1,081,755

 
 
 
 
 
 
 
 
Non-subscription-based revenue
 
 
 
 
 
 
 
MDF
$
6,642

 
$
654

 
$
1,228

 
$
8,524

Premium domains
92

 
—

 
17,474

 
17,566

Domain parking and monetization
722

 
—

 
4,711

 
5,433

Total non-subscription-based revenue
$
7,456

 
$
654

 
$
23,413

 
$
31,523

 
 
 
 
 
 
 
 
Total revenue
$
576,704

 
$
410,672

 
$
125,902

 
$
1,113,278

Subscription-based revenue is primarily recognized over time, when the services are performed, except for third party products for which the Company acts as an agent. Revenue from third party products for which the Company acts as an agent is recognized at a point in time, when the revenue is earned.
Revenue, classified by the major geographic areas in which the Company’s customers are located, was as follows for the years ended December 31, 2018 and 2019:
 
Year Ended December 31, 2018
 
Web presence
 
Email marketing
 
Domain
 
Total
 
(in thousands)
Domestic
$
405,928

 
$
376,974

 
$
50,962

 
$
833,864

International
199,387

 
33,078

 
78,962

 
311,427

Total
$
605,315

 
$
410,052

 
$
129,924

 
$
1,145,291

 
Year Ended December 31, 2019
 
Web presence
 
Email marketing
 
Domain
 
Total
 
(in thousands)
Domestic
$
386,072

 
$
379,516

 
$
47,282

 
$
812,870

International
190,632

 
31,156

 
78,620

 
300,408

Total
$
576,704

 
$
410,672

 
$
125,902

 
$
1,113,278


15. Redeemable Non-Controlling Interest
On January 6, 2016, the Company acquired a controlling interest in WZ UK. In connection with this acquisition, the Company recorded redeemable NCI of $10.8 million. In accordance with ASC 480-10-S99, Accounting for Redeemable Equity Securities, the difference between the $10.8 million fair value of the redeemable NCI and the $30 million value that was expected to be paid upon exercise of the put option was being accreted over the option period. Adjustments to the carrying amount of the redeemable non-controlling interest were charged to additional paid-in capital.
Throughout the balance of fiscal year 2016, the Company acquired additional equity interests in WZ UK for an aggregate price of $33.4 million, which increased the Company's ownership from 57.5% to 86.4%. As part of the agreement to acquire these additional interests, the Company agreed to acquire the remaining 13.6% of WZ UK for $25.0 million, under certain circumstances. Based on the Company's fair value measurement of the NCI using market multiples and discounted cash flows, the Company determined that the estimated fair value of the non-controlling interest was below the expected redemption amount of $25.0 million, which resulted in $14.2 million of excess accretion that reduced income available to common shareholders for the period starting on the date of the restructuring through the redemption date of July 1, 2017. The Company

98

recognized excess accretion of $6.8 million and $7.2 million during the years ended December 31, 2016 and 2017, respectively, which is reflected in net loss attributable to accretion of non-controlling interest in the Company’s consolidated statements of operations and comprehensive income (loss). On July 7, 2017, the Company redeemed the remaining redeemable non-controlling interest for $25.0 million.
16. Income Taxes
The following table presents domestic and foreign components of (loss) income before income taxes for the periods presented: 
 
Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands)
United States
$
(117,715
)
 
$
(52,029
)
 
$
2,773

Foreign
540

 
50,584

 
2,759

Total (loss) income before income taxes
$
(117,175
)
 
$
(1,445
)
 
$
5,532


The components of the (benefit) provision for income taxes consisted of the following:
 
Year Ended December 31,
 
2017
 
2018
 
2019
Current:
(in thousands)
U.S. federal
$
319

 
$
(4,000
)
 
$
1,409

State
2,610

 
2,772

 
2,776

Foreign
2,597

 
5,420

 
3,025

Total current provision
5,526

 
4,192

 
7,210

Deferred:

 

 

U.S. federal
(36,854
)
 
(4,671
)
 
10,505

State
(3,243
)
 
236

 
(913
)
Foreign
9,377

 
10,435

 
(1,848
)
Change in valuation allowance
7,913

 
(16,438
)
 
2,925

Total deferred (benefit) provision
(22,807
)
 
(10,438
)
 
10,669

Total (benefit) provision
$
(17,281
)
 
$
(6,246
)
 
$
17,879


The income tax expense for the year ended December 31, 2019 was primarily attributable to a $10.6 million federal and state deferred tax expense, a foreign deferred tax expense of $0.1 million, a federal and state current income tax expense of $4.2 million, and foreign current tax expense of $3.0 million. This aggregate tax expense of $17.9 million includes $1.4 million of reserves provided for unrecognized tax benefits.
The income tax benefit for the year ended December 31, 2018 was primarily attributable to a $9.6 million federal and state deferred tax benefit, a foreign deferred tax benefit of $0.8 million, and a federal and state current income tax benefit of $1.3 million, offset by foreign current tax expense of $5.4 million. This aggregate tax benefit of $6.2 million includes $2.2 million of reserves provided for unrecognized tax benefits.
The income tax benefit for the year ended December 31, 2017 was primarily attributable to a federal and state deferred tax benefit of $21.8 million (which includes a $16.9 million tax benefit pertaining to the federal tax rate change as a result of the Tax Cut and Jobs Act of 2017 and the identification and recognition of $1.2 million of U.S. federal and state tax credits) and a foreign deferred tax benefit of $1.0 million, offset by a provision for federal and state current income taxes of $2.9 million and foreign current tax expense of $2.6 million. This aggregate tax benefit of $17.3 million includes $1.1 million of reserves provided for unrecognized tax benefits.
The following table presents a reconciliation of the Company's income tax (benefit) expense based on statutory income tax rates and the actual income tax (benefit) expense, for the periods presented:

99

 
Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands)
U.S. federal taxes at statutory rate
$
(40,973
)
 
$
(303
)
 
$
582

State income taxes, net of federal benefit
(749
)
 
265

 
1,981

Non-deductible stock-based compensation
9,265

 
3,906

 
8,358

Goodwill related
—

 
—

 
4,242

Non-deductible transaction costs
—

 
1,538

 
—

Non-taxable loss on redemption of equity interest
—

 
9,230

 
—

Credits
(1,247
)
 
(5,659
)
 
(4,484
)
Foreign rate differential
(1,404
)
 
369

 
(484
)
Change in valuation allowance—U.S.
18,777

 
(5,199
)
 
985

Change in valuation allowance—foreign
(10,864
)
 
(11,239
)
 
1,940

Rate change
(8,809
)
 
694

 
30

Foreign attribute - write-off
9,261

 
—

 
—

Uncertain tax positions
1,129

 
2,195

 
1,367

Permanent differences and other
8,333

 
(2,043
)
 
3,362

Total (benefit) expense
$
(17,281
)
 
$
(6,246
)
 
$
17,879


The (benefit) expense for income taxes shown on the consolidated statements of operations and other comprehensive income (loss) differs considerably from amounts that would result from applying the statutory tax rates to income before taxes primarily because of U.S. net operating losses historically incurred, which offset federal income taxes, but do not fully offset state or foreign income taxes. In addition, acquisitions and the recent changes in U.S. tax law that limit the deductibility of interest expenses have impacted the calculation of deferred tax liabilities and created variability in deferred income tax benefit from period to period. Lastly, the Company provides a valuation allowance against most of its deferred tax assets, which prevents recognition of certain deferred tax assets and results in further variability in deferred income tax benefit from period to period.
The significant components of the Company’s deferred income tax assets and liabilities are as follows:

100

 
As of December 31,
 
2018
 
2019
 
(in thousands)
Deferred income tax assets:
 
Net operating loss carry-forward
$
39,765

 
$
15,806

Credit carry-forward
33,526

 
37,373

Interest expense limitation carry-forward
14,711

 
28,131

Deferred compensation
179

 
134

Deferred revenue
3,752

 
—

Other reserves
2,549

 
—

Stock-based compensation
11,673

 
7,891

Operating lease
—

 
23,812

Other, net
977

 
—

Total deferred income tax assets
107,132

 
113,147

Deferred income tax liabilities:
 
 
 
Purchased intangible assets
(29,855
)
 
(11,049
)
Goodwill
(35,400
)
 
(43,075
)
Property and equipment
(11,183
)
 
(12,000
)
Operating lease
—

 
(21,729
)
Deferred revenue
—

 
(553
)
Other reserves
—

 
(736
)
Other
—

 
(962
)
Total deferred income tax liabilities
(76,438
)
 
(90,104
)
Valuation allowance
(47,151
)
 
(50,076
)
Net deferred income tax liabilities
$
(16,457
)
 
$
(27,033
)

The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence the Company considered included:
•
Net Operating Losses ("NOL") incurred from the Company's inception to December 31, 2019
•
Expiration of various federal and state tax attributes
•
Reversals of existing temporary differences
•
Composition and cumulative amounts of existing temporary differences, and
•
Forecasted profit before tax
The Company assessed its ability to realize its U.S. deferred tax assets as of December 31, 2019 and determined that it was more likely than not that the Company would not realize $44.1 million of net deferred tax assets. The Company assessed its ability to realize its foreign deferred tax assets as of December 31, 2019 and determined that it was more likely than not that the Company would not realize $6.0 million of net deferred tax assets, of which $3.5 million is in the Netherlands, $1.5 million in Brazil, and $1.0 million in various other foreign jurisdictions.
As of December 31, 2019, the Company recorded the following tax attributes available to be carried forward:

101

Jurisdiction
Amount
Year Loss Carry-forwards Expire
 
(in millions)
 
Domestic
 
 
   Federal
$
26.9

2037
   State
78.0

various dates through 2039
Foreign
 
 
   China
0.9

2021
   Brazil
4.4

indefinite
   Netherlands
12.4

2022
   India
0.6

2022
   Singapore
0.4

indefinite
Total NOL carry-forwards
$
123.6

 
 
 
 
Domestic
 
 
   Federal
$
25.2

2034
   State
15.5

various dates
Total tax credit carry-forwards
$
40.7

 
 
 
 
Total tax attributes available
$
164.3

 

Due to provisions of the Tax Cuts and Jobs Act of 2017, the Company has a carry-forward of disallowed interest expense of $114.9 million, which has an indefinite carry-forward period.
Utilization of the NOL carry-forwards may be subject to an annual limitation due to the ownership percentage change limitations under Section 382 of the Internal Revenue Code (“Section 382 limitation”). Ownership changes can limit the amount of net operating loss and other tax attributes that a company can use each year to offset future taxable income and taxes payable. In connection with a change in control in 2011, the Company was subject to Section 382 annual limitation of $77.1 million, which was in excess of the actual NOLs available. Therefore, these NOLs were not impacted by this limitation. The Company performed additional Section 382 analysis following its IPO during the year ended December 31, 2013, and after additional offerings of its common stock during the years ended December 31, 2014 and 2015, and determined that no additional Section 382 limitations applied. The acquisition of Constant Contact during the year ended December 31, 2016 was considered a change of control under Section 382 for Constant Contact, however, the amount of the limitation exceeded the amount of NOLs and other tax attributes available at the time of the acquisition, therefore, these NOLs and tax attributes were not adversely impacted by these limitations. As a result, all unused NOL carry-forwards at December 31, 2019 are available for future use to offset taxable income.
The Company recognizes, in its consolidated financial statements, the effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company has unrecognized tax benefits for uncertain tax positions of $4.4 million and $4.7 million at December 31, 2018 and 2019, respectively, that would affect its effective tax rate. The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expense. The Company recognized $0.1 million, $0.4 million and $0.5 million in interest and penalties related to unrecognized tax benefits during the years ended December 31, 2017, 2018 and 2019, respectively.
The Company does not expect a significant change in the liability for unrecognized tax benefits in the next 12 months.
The following table presents a reconciliation of the total amounts of unrecognized tax benefits:

102

 
For the Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands)
Unrecognized tax benefits at the beginning of the year
$
—

 
$
1,129

 
$
4,381

Additions for tax positions of prior years
734

 
887

 
493

Reductions for tax positions of prior years
—

 
$
—

 
(1,057
)
Additions for tax positions of current year
395

 
2,365

 
881

Statute of limitation
—

 
—

 
(7
)
Unrecognized tax benefits at the end of the year
$
1,129

 
$
4,381

 
$
4,691


The Company conducts business globally and, as a result, its subsidiaries file income tax returns in U.S. federal and state jurisdictions and various foreign jurisdictions. In the normal course of business, the Company may be subject to examination by taxing authorities throughout the world, including such major jurisdictions as Brazil, India, the United Kingdom, the Netherlands and the United States.
In the normal course of business, the Company is subject to examination by tax authorities throughout the world. Since the Company is in a loss carry-forward position, the Company is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carry-forward is utilized. The Company's Constant Contact subsidiary was under an Internal Revenue Service audit in the United States for the periods ended December 31, 2015 and February 9, 2016 (short period), which is now concluded. The adjustments resulting from the audit were immaterial. Several of our U.S. subsidiaries are under income tax examinations in various states for tax years 2011 to 2018. Certain of our subsidiaries are under tax audits in India for fiscal years ended March 31, 2015, 2016, 2017 and 2018, and one of our Israel subsidiaries is under audit for the fiscal years ended December 31, 2012, 2013, 2014, 2015, 2016 and 2017. At this time, the Company does not expect material changes as a result of the audits.
The statute of limitations in the Company’s other tax jurisdictions, in the United Kingdom and Brazil, remains open for various periods between 2014 and the present. However, carry-forward attributes from prior years may still be adjusted upon examination by tax authorities if they are used in an open period.
Tax Cuts and Jobs Act
On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changed the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, a limitation on the deductibility of interest expenses, a move from a worldwide tax system to a territorial system, as well as other changes. As a result of enactment of the legislation, the Company incurred an additional one-time income tax benefit on the re-measurement of certain deferred tax assets and liabilities in the amount of $16.9 million. The legislation also introduced substantial international tax reform that moves the U.S. toward a territorial system, in which income earned in other countries will generally not be subject to U.S. taxation. The accumulated foreign earnings of U.S. shareholders of certain foreign corporations will be subject to a one-time transition tax. Amounts held in cash or cash equivalents will be subject to a 15.5% tax, while amounts held in illiquid assets will be subject to an eight percent tax. Due to an accumulated deficit in the undistributed earnings of its foreign subsidiaries, the one-time transition tax will not apply to the Company.
Permanent Reinvestment of Foreign Earnings
As of December 31, 2019, the cumulative amount of undistributed earnings of the Company's foreign subsidiaries amounted to $14.8 million. The Company has not provided U.S. taxes on these undistributed earnings of its foreign subsidiaries that it considers indefinitely reinvested. This indefinite reinvestment determination is based on the future operational and capital requirements of the Company's domestic and foreign operations. The Company expects that the cash held by its foreign subsidiaries of $28.9 million will continue to be used for its foreign operations and therefore does not anticipate repatriating these funds.
Included within the Tax Cuts and Jobs Act of 2017 were changes to Subpart F rules and a requirement for taxation of the aggregate net unrepatriated foreign earnings accumulated before January 1, 2018. These changes did not impact the Company in 2017 and the Company does not expect the Subpart F changes to have a material impact in the future. Except for Subpart F income, the Company has not provided taxes for the remaining $14.8 million of undistributed earnings of its profitable foreign subsidiaries because the Company plans to keep these amounts permanently reinvested overseas except for instances where it can remit such earnings to the U.S. without an associated net tax cost. If the Company decides to repatriate the foreign earnings, it would need to adjust its income tax provision in the period it determines that the earnings will no longer be indefinitely invested outside the United States. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practicable to determine the unrecognized deferred tax liability relating to such amounts.

103

17. Severance and Other Exit Costs
The Company evaluates its data center, sales and marketing, support and engineering operations and the general and administrative function on an ongoing basis in an effort to optimize its cost structure. As a result, the Company may incur charges for employee severance, exiting facilities and restructuring data center commitments and other related costs.
2019 Restructuring Plan
In January 2019, the Company announced plans to eliminate approximately 40 positions located primarily in the southwest United States, and further consolidate a Massachusetts facility, in order to streamline operations and create operational efficiencies (the "2019 Restructuring Plan"). During the year ended December 31, 2019, the Company incurred severance costs of $0.8 million and paid $0.8 million. The Company had a remaining accrued severance liability of $0.0 million at December 31, 2019 in connection with the 2019 Restructuring Plan. The Company completed severance charges related to the 2019 Restructuring Plan during the year ended December 31, 2019.
In connection with the 2019 Restructuring Plan, the Company reduced the amount of space leased for an office in Massachusetts. During the year ended December 31, 2019, the Company incurred facility exit costs of $1.4 million and made payments of $0.2 million. The Company had a remaining facility exit cost accrual of $1.2 million as of December 31, 2019 in connection with the 2019 Restructuring Plan.
2018 Restructuring Plan
In January 2018, the Company announced plans to eliminate approximately 71 positions, later increased to approximately 95 positions, primarily in the Asia Pacific region and to a lesser extent in the U.S., in order to streamline operations and create operational efficiencies (the "2018 Restructuring Plan"). During the year ended December 31, 2019, the Company incurred no additional severance costs and paid $0.2 million. The Company had no remaining accrued severance liability at December 31, 2019 in connection with the 2018 Restructuring Plan.
In connection with the 2018 Restructuring Plan, the Company closed offices in Ohio. During the year ended December 31, 2019, the Company recorded a reduction to facility charges of $0.2 million related to the adoption of ASC 842. The Company made payments of $0.1 million during the year ended December 31, 2019, and had a remaining accrued facility liability of $0.1 million as of December 31, 2019.
2017 Restructuring Plan
In January 2017, the Company announced plans to close certain offices as part of a plan to consolidate certain web presence customer support operations, resulting in severance costs. These severance charges were associated with the elimination of approximately 660 positions, primarily in customer support. Additionally, the Company implemented additional restructuring plans to create operational efficiencies and synergies related to the Constant Contact acquisition, which resulted in additional severance charges for the elimination of approximately 50 positions. For the year ended December 31, 2019, in connection with these plans (together, the “2017 Restructuring Plan”), the Company incurred no additional severance costs and paid $0.2 million. The Company had no remaining accrued severance liability as of December 31, 2019.
In connection with the 2017 Restructuring Plan, the Company closed offices in Orem, Utah and relocated certain employees to its Tempe, Arizona office. The Company completed facility charges related to the 2017 Restructuring Plan during the year ended December 31, 2018. There is no remaining facility liability as of December 31, 2019.
2016 Restructuring Plan
In connection with the Company’s acquisition of Constant Contact on February 9, 2016, the Company implemented a plan to create operational efficiencies and synergies resulting in severance costs and facility exit costs (the “2016 Restructuring Plan”).
The severance charges were associated with eliminating approximately 265 positions across the business. The Company incurred all employee-related charges associated with the 2016 Restructuring Plan during the year ended December 31, 2016 and all severance payments were complete at December 31, 2017. There is no severance accrual remaining as of December 31, 2019.
The 2016 Restructuring Plan included a plan to close offices in San Francisco, California, Delray Beach, Florida, New York, New York, United Kingdom, Porto Alegre, Brazil and Miami, Florida, and a plan to relocate certain employees to its Austin Office. The Company also closed a portion of the Constant Contact offices in Waltham, Massachusetts. During the year ended December 31, 2019, the Company recorded a reduction to facility charges of $0.2 million and a reduction of $1.3 million related to the adoption of ASC 842. The Company paid $1.5 million of facility costs related to the 2016 Restructuring Plan during the year ended December 31, 2019 and had a remaining accrued facility liability of $1.0 million as of December 31, 2019.

104

The Company expects to complete facility exit cost payments related to the 2016 Restructuring Plan during the year ended December 31, 2022.
The following table provides a summary of the aggregate activity for the year ended December 31, 2019 related to the Company’s combined severance accrual for the 2019, 2018, 2017 and 2016 Restructuring Plans (together, the "Restructuring Plans"):
 
Employee Severance
 
(in thousands)
Balance at December 31, 2018
$
393

Severance charges
785

Cash paid
(1,134
)
Balance at December 31, 2019
$
44

The following table provides a summary of the aggregate activity for the year ended December 31, 2019 related to the Company’s combined Restructuring Plans facilities exit accrual:
 
Facilities
 
(in thousands)
Balance at December 31, 2018
$
4,100

Facility charges
1,207

Adjustment for adoption of ASC 842
(1,417
)
Sublease income
315

Cash paid
(1,836
)
Balance at December 31, 2019
$
2,369


The following table presents restructuring charges recorded in the consolidated statements of operations and comprehensive income (loss) for the periods presented:
 
For the Year Ended
December 31,
 
2017
 
2018
 
2019
 
(in thousands)
Cost of revenue
$
4,100

 
$
1,385

 
$
1,424

Sales and marketing
3,586

 
110

 
239

Engineering and development
1,469

 
348

 
445

General and administrative
6,655

 
1,525

 
(116
)
Total restructuring charges
$
15,810

 
$
3,368

 
$
1,992


18. Commitments and Contingencies
Total net rent expense incurred under non-cancellable operating leases for the years ended December 31, 2017, 2018 and 2019, were $22.1 million, $20.8 million and $20.4 million, respectively. Total sublease income for the years ended December 31, 2017, 2018 and 2019 was $0.5 million, $1.0 million and $1.4 million, respectively.
Contingencies
From time to time, the Company is involved in legal proceedings or subject to claims arising in the ordinary course of its business. The Company is not presently involved in any such legal proceeding or subject to any such claim that, in the opinion of its management, would have a material adverse effect on its 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 the Company because of defense and settlement costs, diversion of management resources and other factors.
As previously disclosed, the Company was named as a defendant in two shareholder litigation matters, which are discussed below.
Endurance

105

On May 4, 2015, Christopher Machado, a purported holder of the Company’s common stock, filed a civil action in the United States District Court for the District of Massachusetts against the Company and its former chief executive officer and former chief financial officer, captioned Machado v. Endurance International Group Holdings, Inc., et al., Civil Action No. 1:15-cv-11775-GAO. The plaintiff filed an amended complaint on December 8, 2015, a second amended complaint on March 18, 2016, and a third amended complaint on June 30, 2017. In the third amended complaint, plaintiffs Christopher Machado and Michael Rubin alleged claims for violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, on behalf of a purported class of purchasers of the Company’s securities between October 25, 2013 and December 16, 2015, including persons or entities who purchased or acquired the Company's shares pursuant or traceable to the registration statement and prospectus issued in connection with the Company's October 25, 2013 initial public offering. The plaintiffs challenged as false or misleading certain of the Company’s disclosures about the total number of subscribers, average revenue per subscriber, the number of customers paying over $500 per year for the Company’s products and services, and the average number of products sold per subscriber. The parties subsequently agreed to settle the matter on a class wide basis. On September 13, 2019, the court certified a settlement class and approved the settlement. The period in which a settlement class member could appeal that order lapsed without any class members filing an appeal, and the court's order is now final. The Company's contribution to the settlement pool was equal to the $5.8 million it reserved for this matter during the year ended December 31, 2018.
Constant Contact
On February 9, 2016, the Company acquired all of the outstanding shares of common stock of Constant Contact.
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. The parties mediated the claims on March 27, 2018, and as a result of that mediation reached an agreement in principle with the lead plaintiff to settle the action. The parties then negotiated the terms and conditions of a stipulation and agreement of settlement and related papers, which, among other things, provide for the release of all claims asserted against Constant Contact and its former officers. On May 18, 2018, the plaintiffs filed an unopposed motion seeking preliminary approval of the proposed settlement, certification of the proposed settlement class for settlement purposes only, and approval of notice to the settlement class. On November 26, 2019, the court entered an order preliminarily approving the settlement and scheduling a hearing for May 27, 2020 at which the court will determine whether the proposed settlement is fair, reasonable and adequate and whether the case should therefore be dismissed with prejudice. The Company's contribution to the settlement pool under the proposed settlement would be equal to the $1.5 million it reserved for this matter during the year ended December 31, 2018. The Company cannot make any assurances as to whether or when the McGee settlement will be approved by the court and the Company cannot assess the ultimate outcome of this matter or an estimate of any probable losses or any reasonably possible losses (other than the reserve specifically discussed above) at this time.
19. Employee Benefit Plans
The Company has a defined contribution plan established under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”), which covers substantially all employees. Employees are eligible to participate in the 401(k) Plan beginning on the first day of the month following commencement of their employment. The 401(k) Plan includes a salary deferral arrangement pursuant to which participants may elect to reduce their current compensation by up to the statutorily prescribed limit, equal to $19,000 in 2019, and have the amount of the reduction contributed to the 401(k) Plan. Beginning January 1, 2013, the Company matched 100% of each participant’s annual contribution to the 401(k) plan up to 3% of the participant’s salary and then 50% of each participant’s contribution up to 2% of each participant’s salary. The match immediately vests 100%. Matching contributions by the Company to the 401(k) Plan related to the 2017, 2018, and 2019 plan years were approximately $6.3 million, $5.9 million, and $7.3 million respectively.
20. Related Party Transactions
The Company has various agreements in place with related parties. Below are details of related party transactions that occurred during the years ended December 31, 2017, 2018 and 2019.
Tregaron:
The Company has contracts with Tregaron India Holdings, LLC and its affiliates, including Diya Systems (Mangalore) Private Limited, Glowtouch Technologies Pvt. Ltd. and Touchweb Designs, LLC, (collectively, “Tregaron”), for outsourced services, including email- and chat-based customer and technical support, network monitoring, engineering and development

106

support, web design and web building services, and an office space lease. As of December 31, 2017 and 2018, these entities were owned directly or indirectly by family members of the Company’s former chief executive officer, who was also a holder of more than 5.0% of the Company's capital stock during fiscal year 2017 and the majority of fiscal year 2018. During the last quarter of fiscal year 2018, the former chief executive officer divested shares of the Company's capital stock, reducing his ownership to under 5%. As a result, Tregaron is not a related party as of January 1, 2019 and, therefore, no related party transactions are reported with Tregaron for the year ended December 31, 2019.
The following table presents amounts of related party transactions recorded in the consolidated statements of operations and comprehensive income (loss) for years presented relating to services provided by Tregaron and its affiliates under these agreements for the periods in 2017 and 2018, during which Treragon was a related party:
 
For the Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands)
Cost of revenue
$
12,100

 
$
14,255

 
$
—

Sales and marketing
1,200

 
755

 
—

Engineering and development
1,300

 
1,260

 
—

General and administrative
200

 
115

 
—

Total related party transaction expense
$
14,800

 
$
16,385

 
$
—


As of December 31, 2018, approximately $2.4 million was included in accounts payable and accrued expenses relating to services provided by Tregaron.
Innovative Business Services, LLC and SiteLock, LLC:
The Company also has an agreement with SiteLock, LLC ("SiteLock"), a subsidiary of Innovative Business Services, LLC, which provides multi-layered third-party security and website performance applications that are sold by the Company. During the year ended December 31, 2019, a director of the Company continued to hold a material financial interest in IBS.
The Company records revenue on the sale of SiteLock products on a net basis, since the Company views SiteLock as the primary obligor to deliver these services. As a result, the revenue share paid by the Company to SiteLock is recorded as contra-revenue. Further, SiteLock pays the Company a fee on sales made by SiteLock directly to customers of the Company. The Company records these fees as revenue.
The following table presents the amounts of related party transactions recorded in the consolidated statements of operations and comprehensive income (loss) for the periods presented relating to the Company's agreement with SiteLock:
 
For the Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands)
Revenue
$
(4,250
)
 
$
(5,450
)
 
$
(5,220
)
Revenue (contra)
7,850

 
7,965

 
6,410

Total related party transaction impact to revenue
$
3,600

 
$
2,515

 
$
1,190

Cost of revenue
675

 
640

 
590

Total related party transaction expense, net
$
4,275

 
$
3,155

 
$
1,780


As of December 31, 2018 and 2019, approximately $0.2 million and $0.0 million, respectively, was included in prepaid expenses and other current assets relating to the Company’s agreement with SiteLock.
As of December 31, 2018 and 2019, approximately $0.6 million and $0.4 million, respectively was included in accounts payable and accrued expenses relating to the Company’s agreement with SiteLock.
As of December 31, 2018 and 2019, approximately $0.9 million and $0.3 million, respectively, was included in accounts receivable relating to the Company’s agreement with SiteLock.
Goldman, Sachs & Co.:
Goldman Sachs Lending Partners LLC, a subsidiary of Goldman, was one of the joint bookrunners and joint lead arrangers for the refinancing of the Company's Term Loan in June 2018. In that capacity, Goldman Sachs Lending Partners LLC received an arrangement fee of $0.3 million and was reimbursed for an immaterial amount of expenses.

107

21. Segment Information
The Company has three reportable segments: web presence, email marketing and domain. The products and services included in each of the three reportable segments are as follows:
Web Presence. The web presence segment consists primarily of the Company's web hosting brands, including Bluehost and HostGator. This segment also includes related products such as domain names, website security, website design tools and services, and e-commerce products.
Email Marketing. The email marketing segment consists of Constant Contact email marketing tools and related products. This segment also generates revenue from sales of the Company's Constant Contact-branded website builder tool and Ecomdash inventory management and marketplace listing solution, or Ecomdash, which was acquired in the third quarter of 2019. For most of 2019, the email marketing segment also included the SinglePlatform digital storefront business, which was sold on December 5, 2019.
Domain. The domain segment consists of domain-focused brands such as Domain.com, ResellerClub and LogicBoxes as well as certain web hosting brands that are under common management with domain-focused brands. This segment sells domain names and domain management services to resellers and end users, as well as premium domain names, and also generates advertising revenue from domain name parking. It also resells domain names and domain management services to the web presence segment.
The Company measures profitability of these segments based on revenue, gross profit, and adjusted EBITDA. The Company's segments share certain resources, primarily related to sales and marketing, engineering and development, and general and administrative functions. Management allocates these costs to each respective segment based on a consistently applied methodology, primarily based on a percentage of revenue.
The CODM does not use asset information to allocate resources or make operating decisions.
The accounting policies of each segment are the same as those described in the summary of significant accounting policies. Refer to Note 2, Summary of Significant Accounting Policies, for further details. The following tables contain financial information for each reportable segment for the years ended December 31, 2017, 2018 and 2019:
 
Year Ended December 31, 2017
 
Web presence
Email marketing
Domain
Total
 
(in thousands)
Revenue(1)
$
641,993

$
401,250

$
133,624

$
1,176,867

Gross profit
305,588

254,941

12,408

572,937

 
 
 
 
 
Net loss
$
(64,962
)
$
(10,615
)
$
(24,207
)
$
(99,784
)
Interest expense, net(2)
67,491

86,914

2,001

156,406

Income tax expense (benefit)
4,063

5,152

(26,496
)
(17,281
)
Depreciation
37,634

13,912

3,639

55,185

Amortization of other intangible assets
60,277

74,467

5,610

140,354

Stock-based compensation
46,641

6,934

6,426

60,001

Restructuring expenses
9,131

5,581

1,098

15,810

Transaction expenses and charges
—

773

—

773

Gain of unconsolidated entities(3)
(110
)
—

—

(110
)
Impairment of goodwill and other long-lived assets(4)
600

—

30,860

31,460

SEC investigations reserve
4,323

2,751

926

8,000

Shareholder litigations reserve
—

—

—

—

Adjusted EBITDA
$
165,088

$
185,869

$
(143
)
$
350,814



108

 
Year Ended December 31, 2018
 
Web presence
Email marketing
Domain
Total
 
(in thousands)
Revenue(1)
$
605,315

$
410,052

$
129,924

$
1,145,291

Gross profit
297,590

288,023

38,941

624,554

 
 
 
 
 
Net (loss) income
$
(22,534
)
$
38,628

$
(11,560
)
$
4,534

Interest expense, net(2)
70,956

68,317

9,118

148,391

Income tax (benefit) expense
(4,961
)
115

(1,400
)
(6,246
)
Depreciation
32,915

11,497

3,795

48,207

Amortization of other intangible assets
47,020

53,100

3,028

103,148

Stock-based compensation
16,000

9,638

3,426

29,064

Restructuring expenses
2,135

589

644

3,368

Transaction expenses and charges
—

—

—

—

Loss of unconsolidated entities(3)
267

—

—

267

Impairment of goodwill and other long-lived assets(4)
—

—

—

—

SEC investigations reserve
—

—

—

—

Shareholder litigation reserve
4,780

1,500

1,045

7,325

Adjusted EBITDA
$
146,578

$
183,384

$
8,096

$
338,058

 
Year Ended December 31, 2019
 
Web presence
Email marketing
Domain
Total
 
(in thousands)
Revenue(1)
$
576,704

$
410,672

$
125,902

$
1,113,278

Gross profit
293,679

295,068

14,235

602,982

 
 
 
 
 
Net (loss) income
$
(44,886
)
$
67,412

$
(34,873
)
$
(12,347
)
Interest expense, net(2)
66,779

72,826

3,849

143,454

Income tax expense
9,261

6,600

2,018

17,879

Depreciation
32,344

9,027

3,580

44,951

Amortization of other intangible assets
36,906

45,876

2,401

85,183

Stock-based compensation
19,086

12,307

4,299

35,692

Restructuring expenses
752

1,207

33

1,992

Transaction expenses and charges
—

—

—

—

Gain on sale of business
—

(40,700
)
—

(40,700
)
Gain of unconsolidated entities(3)
—

—

—

—

Impairment of goodwill and other long-lived assets(4)
12,333

—

25,207

37,540

SEC investigations reserve
—

—

—

—

Shareholder litigation reserve
—

—

—

—

Adjusted EBITDA
$
132,575

$
174,555

$
6,514

$
313,644

(1)
Revenue excludes intercompany sales of domain names and domain services from the domain segment to the web presence segment of $10.3 million, $10.0 million and $9.8 million, for fiscal years 2017, 2018 and 2019, respectively.
(2)
Interest expense includes impact of amortization of deferred financing costs, original issue discounts and interest income. For the years ended December 31, 2017 and 2018, it also includes $6.5 million and $1.2 million, respectively, of deferred financing costs and OID immediately expensed upon the 2017 and 2018 term loan refinancings.
(3)
The (gain) loss of unconsolidated entities is reported on a net basis for the years ended December 31, 2017 and 2018.
(4)
The impairment of goodwill and other long-lived assets for the year ended December 31, 2017 includes $13.8 million related to certain domain name intangible assets, $0.6 million to write off a debt investment in a privately held entity, $12.1 million related to

109

impairment of goodwill associated with the domain segment, and $4.9 million related to developed technology and customer relationships associated with the Directi acquisition. The impairment of goodwill and other long-lived assets for the year ended December 31, 2019 includes $12.3 million of goodwill impairment relating to two non-strategic reporting units in the web presence segment and $25.2 million related to premium domain name intangible assets acquired in 2014, which was recorded in cost of revenue in the consolidated statements of comprehensive income (loss).
22. Geographic and Other Information
Revenue, classified by the major geographic areas in which the Company's customers are located, was as follows: 
 
Year Ended December 31,
 
2017
 
2018
 
2019
 
(in thousands)
United States
$
845,305

 
$
833,864

 
$
812,870

International
331,562

 
311,427

 
300,408

Total
$
1,176,867

 
$
1,145,291

 
$
1,113,278


The following table presents the amount of tangible long-lived assets by geographic area: 
 
Year Ended December 31,
 
2018
 
2019
 
(in thousands)
United States
$
87,301

 
$
80,967

International
4,974

 
4,958

Total
$
92,275

 
$
85,925


The Company’s revenue is generated primarily from products and services delivered on a subscription basis, which include web hosting, domains, website builders, search engine marketing, email marketing and other similar services. The Company also generates non-subscription revenue through domain monetization and marketing development funds. Non-subscription revenue decreased from $39.4 million, or 3% of total revenue, for the year ended December 31, 2017 to $35.1 million, or 3% of total revenue, for the year ended December 31, 2018, and decreased to $31.5 million, or 3% of total revenue for the year ended December 31, 2019. The majority of the Company's non-subscription revenue is included in its domain segment.
No individual international country represented more than 10% of total revenue in any period presented. Furthermore, substantially all of the Company's tangible long-lived assets are located in the United States.
23. Quarterly Financial Data (unaudited)
The following table presents the Company’s unaudited quarterly financial data:
 
For the three months ended
 
March 31,
2018
 
June 30,
2018
 
Sept. 30,
2018
 
Dec. 31,
2018
 
March 31,
2019
 
June 30,
2019
 
Sept. 30,
2019
 
Dec. 31,
2019
 
(in thousands, except per share data)
Revenue
$
291,356

 
$
287,770

 
$
283,770

 
$
282,395

 
$
280,683

 
$
278,204

 
$
277,193

 
$
277,198

Gross profit
157,450

 
157,024

 
154,825

 
155,255

 
156,829

 
138,617

 
156,438

 
151,098

Income from operations
31,402

 
37,775

 
42,618

 
35,151

 
35,154

 
16,655

 
38,729

 
58,448

Net (loss) income attributable to Endurance International Group Holdings, Inc.(1)
$
(2,528
)
 
$
627

 
$
(6,335
)
 
$
12,770

 
$
(3,488
)
 
$
(26,228
)
 
$
7,816

 
$
9,553

Basic net (loss) income per share attributable to Endurance International Group Holdings, Inc.
$
(0.02
)
 
$
0.00

 
$
(0.04
)
 
$
0.09

 
$
(0.02
)
 
$
(0.18
)
 
$
0.05

 
$
0.07

Diluted net (loss) income per share attributable to Endurance International Group Holdings, Inc.
$
(0.02
)
 
$
0.00

 
$
(0.04
)
 
$
0.09

 
$
(0.02
)
 
$
(0.18
)
 
$
0.05

 
$
0.07


During the three months ended June 30, 2019, the Company recognized an impairment charge of $17.9 million relating to the long-lived intangible assets of its premium domain business, which was recorded in cost of revenue in the consolidated statements of operations and comprehensive income (loss).

110

During the three months ended December 31, 2019, the Company disposed of its SinglePlatform reporting unit for a net gain of $40.7 million, which was recorded as an operating expense in the consolidated statements of operations and other comprehensive income (loss). During the same quarter, the Company recognized an aggregate charge for goodwill impairment of $12.3 million, which related to two of its non-strategic reporting units and which was recorded as an operating expense in the consolidated statements of operations and comprehensive income (loss), and an impairment charge of $7.3 million relating to the long-lived intangible assets of its premium domain business, which was recorded in cost of revenue in the consolidated statements of operations and comprehensive income (loss).
24. Supplemental Guarantor Financial Information
In February 2016, EIG Investors Corp., a wholly-owned subsidiary of the Company (the “Issuer”), issued $350.0 million aggregate principal amount of its 10.875% Senior Notes due 2024 (refer to Note 10, Notes Payable, for further details), which it exchanged for new 10.875% Senior Notes due 2024 pursuant to a registration statement on Form S-4. The registered exchange offer for the Senior Notes was completed on January 30, 2017. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and the Issuer, and the following wholly-owned subsidiaries: The Endurance International Group, Inc., Bluehost Inc., FastDomain Inc., Domain Name Holding Company, Inc., Endurance International Group – West, Inc., HostGator.com LLC, A Small Orange, LLC, and Constant Contact, Inc.(collectively, the “Subsidiary Guarantors”), subject to certain customary guarantor release conditions. The Company’s other domestic subsidiaries and its foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) have not guaranteed the Senior Notes.
SinglePlatform, LLC ceased being a Subsidiary Guarantor on December 5, 2019 due to the Company's sale of the SinglePlatform business, including SinglePlatform, LLC. P.D.R Solutions (U.S.) LLC became a Subsidiary Guarantor on April 25, 2019. The condensed consolidated financial statements have been revised for all periods presented to reflect these changes.
The following tables present supplemental condensed consolidating balance sheet information of the Company (“Parent”), the Issuer, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of December 31, 2018 and December 31, 2019, and supplemental condensed consolidating results of operations and cash flow information for the years ended December 31, 2017, 2018 and 2019:

111


Condensed Consolidating Balance Sheets
December 31, 2018
(in thousands)
 
 Parent
 Issuer
 Guarantor Subsidiaries
 Non-Guarantor Subsidiaries
 Eliminations
 Consolidated
Assets:
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
$
21

$
2

$
62,495

$
26,126

$
—

$
88,644

Restricted cash
—

—

1,932

—

—

1,932

Accounts receivable
—

—

11,219

986

—

12,205

Prepaid domain name registry fees
—

—

50,325

6,454

—

56,779

Prepaid commissions
—

—

40,804

654

—

41,458

Prepaid expenses & other current assets
—

422

31,425

3,243

—

35,090

Total current assets
21

424

198,200

37,463

—

236,108

Intercompany receivables, net
34,595

401,342

(323,200
)
(112,737
)
—

—

Property and equipment, net
—

—

79,091

13,184

—

92,275

Goodwill
—

—

1,695,451

153,614

—

1,849,065

Other intangible assets, net
—

—

351,920

596

—

352,516

Investment in subsidiaries
139,838

1,559,256

57,749

—

(1,756,843
)
—

Prepaid commissions, net of current portion
—

—

41,746

726

—

42,472

Other assets
—

5,239

27,463

1,369

—

34,071

Total assets
$
174,454

$
1,966,261

$
2,128,420

$
94,215

$
(1,756,843
)
$
2,606,507

Liabilities and stockholders' equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable
$
—

$
—

$
12,015

$
434

—

$
12,449

Accrued expenses and other current liabilities
—

25,373

77,316

7,494

—

110,183

Deferred revenue
—

—

347,703

24,055

—

371,758

Current portion of notes payable
—

31,606

—

—

—

31,606

Current portion of financed equipment
—

—

8,379

—

—

8,379

Deferred consideration, short-term
—

—

2,425

—

—

2,425

Total current liabilities
—

56,979

447,838

31,983

—

536,800

Deferred revenue, long-term
—

—

91,615

4,525

—

96,140

Notes payable
—

1,770,055

—

—

—

1,770,055

Financed equipment—long term
—

—

—

—

—

—

Deferred consideration
—

—

1,364

—

—

1,364

Other long-term liabilities
—

(612
)
28,349

(43
)
—

27,694

Total liabilities
—

1,826,422

569,166

36,465

—

2,432,053

Equity
174,454

139,839

1,559,254

57,750

(1,756,843
)
174,454

Total liabilities and equity
$
174,454

$
1,966,261

$
2,128,420

$
94,215

$
(1,756,843
)
$
2,606,507


112

Condensed Consolidating Balance Sheets
December 31, 2019
(in thousands)
 
 Parent
 Issuer
 Guarantor Subsidiaries
 Non-Guarantor Subsidiaries
 Eliminations
 Consolidated
Assets:
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
$
195

$
1

$
80,642

$
30,427

$
—

$
111,265

Restricted cash
—

—

1,732

—

—

1,732

Accounts receivable
—

—

8,762

1,462

—

10,224

Prepaid domain name registry fees
—

—

48,943

6,294

—

55,237

Prepaid commissions
—

—

37,910

525

—

38,435

Prepaid expenses & other current assets
—

90

26,847

3,756

—

30,693

Total current assets
195

91

204,836

42,464

—

247,586

Intercompany receivables, net
32,845

172,807

(87,398
)
(118,254
)
—

—

Property and equipment, net
—

—

72,751

13,174

—

85,925

Operating lease right-of-use assets
—

—

86,111

4,408

—

90,519

Goodwill
—

—

1,677,587

157,723

—

1,835,310

Other intangible assets, net
—

—

243,994

1,008

—

245,002

Investment in subsidiaries
163,934

1,693,565

61,023

—

(1,918,522
)
—

Prepaid commissions, net of current portion
—

—

48,289

491

—

48,780

Other assets
—

1,784

27,215

1,965

—

30,964

Total assets
$
196,974

$
1,868,247

$
2,334,408

$
102,979

$
(1,918,522
)
$
2,584,086

Liabilities and stockholders' equity:
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable
$
—

$
—

$
9,474

$
580

$
—

$
10,054

Accrued expenses and other current liabilities
20

23,554

59,695

7,141

—

90,410

Deferred revenue
—

—

345,116

24,359

—

369,475

Operating lease liabilities—short term
—

—

18,513

2,680

 
21,193

Current portion of notes payable
—

31,606

—

—

—

31,606

Current portion of financed equipment
—

—

790

—

—

790

Deferred consideration, short-term
—

—

2,201

—

—

2,201

Total current liabilities
20

55,160

435,789

34,760

—

525,729

Deferred revenue, long-term
—

—

94,471

5,181

—

99,652

Operating lease liabilities—long term
—

—

76,166

1,985

—

78,151

Notes payable
—

1,649,867

—

—

—

1,649,867

Financed equipment—long term
—

—

—

—

—

—

Deferred consideration
—

—

—

—

—

—

Other long-term liabilities
—

(714
)
34,417

30

—

33,733

Total liabilities
20

1,704,313

640,843

41,956

—

2,387,132

Equity
196,954

163,934

1,693,565

61,023

(1,918,522
)
196,954

Total liabilities and equity
$
196,974

$
1,868,247

$
2,334,408

$
102,979

$
(1,918,522
)
$
2,584,086




113

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2017
(in thousands)
 
 Parent
 Issuer
 Guarantor Subsidiaries
 Non-Guarantor Subsidiaries
 Eliminations
 Consolidated
Revenue
$
—

$
—

$
1,080,220

$
107,385

$
(10,738
)
$
1,176,867

Cost of revenue
—

—

540,965

72,425

(9,460
)
603,930

Gross profit
—

—

539,255

34,960

(1,278
)
572,937

Operating expense:
 
 
 
 
 
 
Sales and marketing
—

—

260,516

16,947

(3
)
277,460

Engineering and development
—

—

66,113

12,659

—

78,772

General and administrative
—

207

159,251

5,142

(628
)
163,972

Transaction expenses
—

—

773

—

—

773

Impairment of goodwill
—

—

12,129

—

—

12,129

Total operating expense
—

207

498,782

34,748

(631
)
533,106

(Loss) income from operations
—

(207
)
40,473

212

(647
)
39,831

Total other expense (income)—net
—

156,144

1,336

(474
)
—

157,006

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

(156,351
)
39,137

686

(647
)
(117,175
)
Income tax (benefit) expense
—

(57,504
)
39,233

990

—

(17,281
)
(Loss) income before equity earnings of unconsolidated entities
—

(98,847
)
(96
)
(304
)
(647
)
(99,894
)
Net loss (income) attributable to non-controlling interest
106,661

7,814

194

(17
)
(114,762
)
(110
)
Net (loss) income
$
(106,661
)
$
(106,661
)
$
(290
)
$
(287
)
$
114,115

$
(99,784
)
Net loss attributable to non-controlling interest
—

—

7,524

—

—

7,524

Net (loss) income attributable to Endurance International Group Holdings, Inc.
$
(106,661
)
$
(106,661
)
$
(7,814
)
$
(287
)
$
114,115

$
(107,308
)
Comprehensive (loss) income:
 
 
 
 
 
 
Foreign currency translation adjustments
—

—

—

3,091

—

3,091

Unrealized gain on cash flow hedge


34

—

—

—

34

Total comprehensive (loss) income
$
(106,661
)
$
(106,627
)
$
(7,814
)
$
2,804

$
114,115

$
(104,183
)


114

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2018
(in thousands)
 
 Parent
 Issuer
 Guarantor Subsidiaries
 Non-Guarantor Subsidiaries
 Eliminations
 Consolidated
Revenue
$
—

$
—

$
1,094,463

$
64,665

$
(13,837
)
$
1,145,291

Cost of revenue
—

—

490,966

43,608

(13,837
)
520,737

Gross profit
—

—

603,497

21,057

—

624,554

Operating expense:
 
 
 
 
 
 
Sales and marketing
—

—

255,272

10,152

—

265,424

Engineering and development
—

—

80,095

7,885

—

87,980

General and administrative
(12
)
225

168,560

(44,569
)
—

124,204

Transaction expenses
—

—

—

—

—

—

Impairment of goodwill
—

—

—

—

—

—

Total operating expense
(12
)
225

503,927

(26,532
)
—

477,608

Income (loss) from operations
12

(225
)
99,570

47,589

—

146,946

Total other expense (income)—net
—

148,411

506

(526
)
—

148,391

Income (loss) before income taxes and equity earnings of unconsolidated entities
12

(148,636
)
99,064

48,115

—

(1,445
)
Income tax (benefit) expense
—

(35,381
)
25,253

3,882

—

(6,246
)
Income (loss) before equity earnings of unconsolidated entities
12

(113,255
)
73,811

44,233

—

4,801

Net (income) loss attributable to non-controlling interest
(4,522
)
(117,778
)
(43,967
)
16

166,518

267

Net income (loss)
$
4,534

$
4,523

$
117,778

$
44,217

$
(166,518
)
$
4,534

Net income (loss) attributable to non-controlling interest
—

—

—

—

—

—

Net income (loss) attributable to Endurance International Group Holdings, Inc.
$
4,534

$
4,523

$
117,778

$
44,217

$
(166,518
)
$
4,534

Comprehensive income (loss):
 
 
 
 
 
 
Foreign currency translation adjustments
—

—

—

(2,233
)
—

(2,233
)
Unrealized loss on cash flow hedge
 
(437
)
—

—

—

(437
)
Total comprehensive income (loss)
$
4,534

$
4,086

$
117,778

$
41,984

$
(166,518
)
$
1,864



115

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2019
(in thousands)
 
 Parent
 Issuer
 Guarantor Subsidiaries
 Non-Guarantor Subsidiaries
 Eliminations
 Consolidated
Revenue
$
—

$
—

$
1,064,510

$
61,650

$
(12,882
)
$
1,113,278

Cost of revenue
—

—

482,246

40,932

(12,882
)
510,296

Gross profit
—

—

582,264

20,718

—

602,982

Operating expense:
 
 
 
 
 
 
Sales and marketing
—

—

245,817

12,202

—

258,019

Engineering and development
—

—

96,778

9,599

—

106,377

General and administrative
1,628

238

113,983

2,118

—

117,967

Gain on sale of business
—

—

(40,700
)
—

—

(40,700
)
Transaction expenses
—

—

—

—

—

—

Impairment of goodwill
 
 
12,333

 
 
12,333

Total operating expense
1,628

238

428,211

23,919

—

453,996

(Loss) income from operations
(1,628
)
(238
)
154,053

(3,201
)
—

148,986

Total other expense (income)—net
—

144,034

(18
)
(562
)
—

143,454

(Loss) income before income taxes and equity earnings of unconsolidated entities
(1,628
)
(144,272
)
154,071

(2,639
)
—

5,532

Income tax (benefit) expense
—

(34,336
)
49,105

3,110

—

17,879

(Loss) income before equity earnings of unconsolidated entities
(1,628
)
(109,936
)
104,966

(5,749
)
—

(12,347
)
Equity loss (income) of unconsolidated entities, net of tax
10,719

(99,216
)
5,750

—

82,747

—

Net (loss) income
$
(12,347
)
$
(10,720
)
$
99,216

$
(5,749
)
$
(82,747
)
$
(12,347
)
Net loss attributable to non-controlling interest
—

—

—

—

—

—

Net (loss) income attributable to Endurance International Group Holdings, Inc.
$
(12,347
)
$
(10,720
)
$
99,216

$
(5,749
)
$
(82,747
)
$
(12,347
)
Comprehensive (loss) income:
 
 
 
 
 
 
Foreign currency translation adjustments
—

—

—

(598
)
—

(598
)
Unrealized loss on cash flow hedge
 
(279
)
—

—

—

(279
)
Total comprehensive (loss) income
$
(12,347
)
$
(10,999
)
$
99,216

$
(6,347
)
$
(82,747
)
$
(13,224
)


116

Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2017
(in thousands)
 
 Parent
 Issuer
 Guarantor Subsidiaries
 Non-Guarantor Subsidiaries
 Eliminations
 Consolidated
Net cash provided by (used in) operating activities
$
12

$
(82,189
)
$
281,416

$
2,034

$
—

$
201,273

Cash flows from investing activities:
 
 
 
 
 
 
  Businesses acquired in purchase transaction, net of cash acquired
—

—

—

—

—

—

  Purchases of property and equipment
—

—

(38,731
)
(4,331
)
—

(43,062
)
  Cash paid for minority investments
—

—

—

—

—

—

  Proceeds from sale of property and equipment
—

—

—

—

—

—

  Proceeds from note receivable
—

—

—

—

—

—

  Proceeds from sale of assets
—

—

530

—

—

530

  Purchases of intangible assets
—

—

(1,933
)
(33
)
—

(1,966
)
    Net cash used in investing activities
—

—

(40,134
)
(4,364
)
—

(44,498
)
Cash flows from financing activities:
 
 
 
 
 
 
  Proceeds from issuance of term loan and notes, net of original issue discounts
—

1,693,007

—

—

—

1,693,007

  Repayments of term loans
—

(1,797,634
)
—

—

—

(1,797,634
)
  Payment of financing costs
—

(6,304
)
—

—

—

(6,304
)
  Payment of deferred consideration
—

—

(4,550
)
(883
)
—

(5,433
)
  Payment of redeemable non-controlling interest liability
—

—

(25,000
)
—

—

(25,000
)
  Principal payments on financed equipment
—

—

(7,390
)
—

—

(7,390
)
  Proceeds from exercise of stock options
2,049

—

—

—

—

2,049

  Capital investments from minority partner
—

—

—

—

—

—

  Intercompany loans and investments
(1,972
)
193,119

(188,367
)
(2,780
)
—

—

    Net cash provided by (used in) financing activities
77

82,188

(225,307
)
(3,663
)
—

(146,705
)
Net effect of exchange rate on cash and cash equivalents and restricted cash
—

—

—

2,150

—

2,150

Net increase (decrease) in cash and cash equivalents and restricted cash
89

(1
)
15,975

(3,843
)
—

12,220

Cash and cash equivalents and restricted cash:
 
 
 
 
 
 
  Beginning of period
3

4

41,654

15,237

—

56,898

  End of period
$
92

$
3

$
57,629

$
11,394

$
—

$
69,118



117

Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2018
(in thousands)
 
 Parent
 Issuer
 Guarantor Subsidiaries
 Non-Guarantor Subsidiaries
 Eliminations
 Consolidated
Net cash (used in) provided by operating activities
$
—

$
(103,123
)
$
246,188

$
39,487

$
—

$
182,552

Cash flows from investing activities:










 
  Businesses acquired in purchase transaction, net of cash acquired
—

—

—

—

—

—

  Purchases of property and equipment
—

—

(45,694
)
(186
)
—

(45,880
)
  Cash paid for minority investments
—

—

—

—

—

—

  Proceeds from sale of property and equipment
—

—

—

—

—

—

  Proceeds from note receivable
—

—

—

—

—

—

  Proceeds from sale of assets
—

—

6

—

—

6

  Purchases of intangible assets
—

—

(8
)
—

—

(8
)
    Net cash used in investing activities
—

—

(45,696
)
(186
)
—

(45,882
)
Cash flows from financing activities:
 
 
 
 
 
 
  Proceeds from issuance of term loan and notes, net of original issue discounts
—

1,580,305

—

—

—

1,580,305

  Repayments of term loans
—

(1,681,094
)
—

—

—

(1,681,094
)
  Payment of financing costs
—

(1,580
)
—

—

—

(1,580
)
  Payment of deferred consideration
—

—

(4,500
)
—

—

(4,500
)
  Principal payments on financed equipment
—

—

(7,439
)
—

—

(7,439
)
  Proceeds from exercise of stock options
887

—

—

—

—

887

  Intercompany loans and investments
(958
)
205,491

(181,755
)
(22,778
)
—

—

    Net cash (used in) provided by financing activities
(71
)
103,122

(193,694
)
(22,778
)
—

(113,421
)
Net effect of exchange rate on cash and cash equivalents and restricted cash
—

—

—

(1,791
)
—

(1,791
)
Net (decrease) increase in cash and cash equivalents and restricted cash
(71
)
(1
)
6,798

14,732

—

21,458

Cash and cash equivalents and restricted cash:
 
 
 
 
 
 
  Beginning of period
92

3

57,629

11,394

—

69,118

  End of period
$
21

$
2

$
64,427

$
26,126

$
—

$
90,576



118

Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2019
(in thousands)
 
 Parent
 Issuer
 Guarantor Subsidiaries
 Non-Guarantor Subsidiaries
 Eliminations
 Consolidated
Net cash (used in) provided by operating activities
$
(1,609
)
$
(97,558
)
$
261,442

$
(302
)
$
—

$
161,973

Cash flows from investing activities:
 
 
 
 
 
 
  Businesses acquired in purchase transaction, net of cash acquired
—

—

(8,875
)
—

—

(8,875
)
  Purchases of property and equipment
—

—

(39,126
)
—

—

(39,126
)
  Cash paid for minority investments
—

—

—

—

—

—

  Proceeds from sale of property and equipment
—

—

—

—

—

—

  Proceeds from note receivable
—

—

—

—

—

—

  Proceeds from sale of assets
—

—

51,000

1

—

51,001

  Purchases of intangible assets
—

—

—

—

—

—

    Net cash provided by investing activities
—

—

2,999

1

—

3,000

Cash flows from financing activities:
 
 
 
 
 
 
  Proceeds from issuance of term loan and notes, net of original issue discounts
—

—

—

—

—

—

  Repayments of term loans
—

(130,980
)
—

—

—

(130,980
)
  Payment of financing costs
—

—

—

—

—

—

  Payment of deferred consideration
—

—

(2,500
)
—

—

(2,500
)
  Principal payments on financed equipment
—

—

(8,189
)
—

—

(8,189
)
  Proceeds from exercise of stock options
31

—

—

—

—

31

 
 
 
 
 
 
 
  Intercompany loans and investments
1,752

228,537

(235,805
)
5,516

—

—

    Net cash provided by (used in) financing activities
1,783

97,557

(246,494
)
5,516

—

(141,638
)
Net effect of exchange rate on cash and cash equivalents and restricted cash
—

—

—

(914
)
—

(914
)
Net increase (decrease) in cash and cash equivalents and restricted cash
174

(1
)
17,947

4,301

—

22,421

Cash and cash equivalents and restricted cash:
 
 
 
 
 
 
  Beginning of period
21

2

64,427

26,126

—

90,576

  End of period
$
195

$
1

$
82,374

$
30,427

$
—

$
112,997


ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2019, our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter

119

how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation of our disclosure controls and procedures as of December 31, 2019, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of our chief executive and chief financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the polices or procedures may deteriorate.
Under the supervision and with the participation of our management, our chief executive officer and chief financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, we used criteria set forth in the 2013 framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, management (including our Chief Executive Officer and Chief Financial Officer) has concluded that as of December 31, 2019, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by BDO USA LLP, an independent registered public accounting firm, as stated in the following report:

120

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Endurance International Group Holdings, Inc.
Burlington, Massachusetts

Opinion on Internal Control over Financial Reporting
We have audited Endurance International Group Holdings, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2018 and 2019, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019 and our report dated February 14, 2020 expressed an unqualified opinion thereon.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting
A company’s 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 for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/    BDO USA, LLP

Boston, Massachusetts
February 14, 2020

121

Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, or ITRA, which added Section 13(r) to the Exchange Act, we are required to disclose in our annual or quarterly reports, as applicable, whether we or any of our affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with certain individuals or entities that are subject to sanctions under U.S. law. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.
On September 11, 2019, our subsidiary P.D.R Solutions (U.S.) LLC, or PDR, suspended the domain name arabisc-haram.com, or the Domain Name, which was identified on September 10, 2019 by the Office of Foreign Assets Control, or OFAC, as associated with Al Haram Commercial Company, or Al Haram, a Specially Designated National, or SDN, pursuant to 31 C.F.R. Part 594. The Domain Name was registered on November 13, 2017 through a third party domain registrar that uses PDR’s platform to sell, register and manage domain names for customers of such third party domain registrar; there was no direct financial transaction between PDR and the registrant of the Domain Name. PDR debited the account of the third party domain registrar a total of USD sixty cents ($0.60) as a fee for such third party domain registrar’s use of PDR’s platform in connection with the Domain Name, all of which was debited prior to OFAC’s designation of Al Haram. PDR reported the Domain Name to OFAC as potentially the property of an SDN subject to blocking pursuant to Executive Order 13224.
On January 24, 2020, our subsidiary MyDomain, LLC (“MyDomain”) suspended the domain names FarsNews.com, FarNews.org and FarsNews.net, or the FarNews Domain Names, which are potentially associated with the Government of Iran. MyDomain’s records indicate that it collected a total of USD two-hundred sixteen dollars and eighty-four cents ($216.84) for products and services in connection with the subscriber account associated with the FarNews Domain Names since the subscriber account was migrated to our servers on or about August 10, 2012, following our acquisition of MyDomain on July 22, 2011. MyDomain reported the FarNews Domain Names to OFAC as property potentially associated with the Government of Iran subject to blocking pursuant to 31 C.F.R. §560.304.

122

PART III 
ITEM 10.
Directors, Executive Officers, and Corporate Governance
The information required by this item is incorporated by reference from the information disclosed under the heading “Management and Corporate Governance” and under the subheading “Delinquent Section 16(a) Reports” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this report relates.
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The text of our Code of Business Conduct and Ethics is posted under Corporate Governance in the Investor Relations section of our website, www.endurance.com. 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 the disclosure requirements of Item 5.05 of Form 8-K.
ITEM 11.
Executive Compensation
The information required by this item is incorporated by reference to the information disclosed under the heading “Executive Compensation” and under the subheading “Compensation Committee Interlocks and Insider Participation” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this report relates.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the information disclosed under the heading “Principal Stockholders” and under the subheading “Equity Compensation Plan Information” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this report relates.
ITEM 13.
Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated by reference to the information disclosed under the heading “Related Person Transactions” and under the subheading “Director Independence” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this report relates.
ITEM 14.
Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the information disclosed under the proposal “Ratification of Appointment of Independent Registered Public Accounting Firm” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of the fiscal year to which this report relates.

123

PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(1)
Financial Statements
For a list of the consolidated financial statements included herein, which are incorporated into this Item by reference, see Index to Consolidated Financial Statements in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
(2)
Financial Statement Schedules
Schedules have been omitted since they are either not required or not applicable or the information is otherwise included herein.
(3)
Exhibits
Exhibit
Number
 
Description of Exhibit
 
Incorporated by Reference
 
Filed
Herewith
 
 
 
 
Form
 
File Number
 
Date of Filing
 
Exhibit
Number
 
 
2.1*
 
 
8-K
 
001-36131
 
November 2, 2015
 
2.1
 
 
2.2*
 
 
8-K
 
001-36131
 
September 16, 2019
 
2.1
 
 
2.3*
 
 
8-K
 
001-36131
 
December 5, 2019
 
2.1
 
 
3.1
 
 
S-1/A
 
333-191061
 
October 23, 2013
 
3.3
 
 
3.2
 
 
8-K
 
001-36131
 
January 30, 2017
 
3.1
 
 
4.1
 
 
S-1/A
 
333-191061
 
October 8, 2013
 
4.1
 
 
4.2
 
 
10-Q
 
001-36131
 
November 7, 2014
 
4.2
 
 
4.3
 
 
10-Q
 
001-36131
 
November 7, 2014
 
4.3
 
 
4.4
 
 
8-K
 
001-36131
 
February 10, 2016
 
4.1
 
 
4.5
 
 
10-Q
 
001-36131
 
May 9, 2016
 
4.6
 
 
4.6
 
 
 
 
 
 
 
 
 
 
X

124

10.1#
 
 
10-Q
 
001-36131
 
August 8, 2016
 
10.2
 
 
10.2#
 
 
S-1/A
 
333-191061
 
October 8, 2013
 
10.2
 
 
10.3#
 
 
S-1/A
 
333-191061
 
October 8, 2013
 
10.3
 
 
10.4#
 
 
S-1/A
 
333-191061
 
October 8, 2013
 
10.29
 
 
10.5#
 
 
10-Q
 
001-36131
 
May 9, 2017
 
10.1
 
 
10.6#
 
 
10-Q
 
001-36131
 
May 9, 2017
 
10.2
 
 
10.7#
 
 
10-Q
 
001-36131
 
May 9, 2017
 
10.3
 
 
10.8#
 
 
10-Q
 
001-36131
 
November 3, 2017
 
10.3
 
 
10.9#
 
 
10-Q
 
001-36131
 
November 3, 2017
 
10.4
 
 
10.10#
 
 
10-Q
 
001-36131
 
August 2, 2018
 
10.3
 
 
10.11#
 
 
10-Q
 
001-36131
 
August 2, 2018
 
10.4
 
 
10.12#
 
 
S-8
 
333-209680
 
February 24, 2016
 
99.1
 
 
10.13#
 
 
10-Q
 
001-36131
 
May 9, 2016
 
10.4
 
 
10.14#
 
 
10-Q
 
001-36131
 
May 9, 2016
 
10.5
 
 
10.15#
 
 
10-Q
 
001-36131
 
May 9, 2016
 
10.6
 
 
10.16#
 
 
10-Q
 
001-36131
 
August 8, 2016
 
10.4
 
 
10.17#
 
 
10-Q
 
001-36131
 
August 8, 2016
 
10.5
 
 
10.18#
 
 
10-Q
 
001-36131
 
August 8, 2016
 
10.6
 
 
10.19#
 
 
10-Q
 
001-36131
 
May 9, 2017
 
10.4
 
 
10.20#
 
 
10-Q
 
001-36131
 
August 8, 2016
 
10.7
 
 
10.21#
 
 
10-Q
 
001-36131
 
May 3, 2019
 
10.1
 
 

125

10.22#
 
 
8-K
 
001-36131
 
August 4, 2015
 
10.1
 
 
10.23#
 
 
10-Q
 
001-36131
 
May 9, 2016
 
10.9
 
 
10.24#
 
 
10-Q
 
001-36131
 
May 9, 2017
 
10.6
 
 
10.25#
 
 
8-K
 
001-36131
 
August 14, 2017
 
10.1
 
 
10.26#
 
 
10-K
 
001-36131
 
February 21, 2019
 
10.26
 
 
10.27#
 
 
S-1/A
 
333-191061
 
October 8, 2013
 
10.19
 
 
10.28#
 
 
10-Q
 
001-36131
 
November 3, 2017
 
10.2
 
 
10.29
 
 
S-1
 
333-191061
 
September 9, 2013
 
10.5
 
 
10.30
 
 
10-Q
 
001-36131
 
May 9, 2014
 
10.5
 
 
10.31
 
 
10-Q
 
001-36131
 
November 7, 2014
 
10.1
 
 
10.32
 
 
10-K
 
001-36131
 
February 27, 2015
 
10.20
 
 
10.33
 
 
10-Q
 
001-36131
 
May 9, 2017
 
10.7
 
 
10.34
 
 
10-K
 
001-36131
 
February 22, 2018
 
10.50
 
 
10.35+
 
 
10-Q
 
001-36131
 
May 9, 2017
 
10.8
 
 

126

10.36+
 
 
S-1
 
333-191061
 
September 9, 2013
 
10.7
 
 
10.37+
 
 
10-Q
 
001-36131
 
May 4, 2018
 
10.2
 
 
10.38+
 
 
S-1
 
333-191061
 
September 9, 2013
 
10.11
 
 
10.39+
 
 
10-Q
 
001-36131
 
May 4, 2018
 
10.3
 
 
10.40+
 
 
10-K
 
001-36131
 
February 27, 2015
 
10.24
 
 
10.41+
 
 
10-Q
 
001-36131
 
November 4, 2016
 
10.1
 
 
10.42+
 
 
S-1
 
333-191061
 
September 9, 2013
 
10.26
 
 
10.43+
 
 
10-K
 
001-36131
 
February 21, 2019
 
10.43
 
 
10.44
 
 
10-Q
 
001-36131
 
May 9, 2016
 
10.11
 
 

127

10.45
 
 
10-Q
 
001-36131
 
May 9, 2016
 
10.12
 
 
10.46
 
 
10-Q
 
001-36131
 
November 3, 2017
 
10.6
 
 
10.47+
 
 
10-Q
 
001-36131
 
August 4, 2017
 
10.4
 
 
10.48+
 
 
10-K
 
001-36131
 
February 22, 2018
 
10.61
 
 
10.49+
 
 
10-K
 
001-36131
 
February 24, 2017
 
10.43
 
 
10.50+
 
 
10-K
 
001-36131
 
February 22, 2018
 
10.63
 
 
10.51+
 
 
10-Q
 
001-36131
 
August 2, 2018
 
10.2
 
 
10.52+
 
 
10-Q
 
001-36131
 
May 3, 2019
 
10.2
 
 

128

10.53
 
 
10-K
 
001-36131
 
February 28, 2014
 
10.23
 
 
10.54
 
 
10-K
 
001-36131
 
February 28, 2014
 
10.24
 
 
10.55
 
 
8-K
 
001-36131
 
February 10, 2016
 
10.1
 
 
10.56
 
 
8-K
 
001-36131
 
February 10, 2016
 
10.2
 
 
10.57
 
 
8-K
 
001-36131
 
June 14, 2017
 
10.1
 
 
10.58
 
 
10-Q
 
001-36131
 
August 2, 2018
 
10.1
 
 
10.59
 
 
10-K
 
001-36131
 
February 28, 2014
 
10.25
 
 
10.60
 
 
10-Q
 
001-36131
 
May 9, 2016
 
10.13
 
 

129

10.61
 
 
10-K
 
001-36131
 
February 28, 2014
 
10.26
 
 
10.62
 
 
10-Q
 
001-36131
 
May 9, 2016
 
10.14
 
 
21.1
  
  
10-K
 
001-36131
 
February 21, 2019
 
21.1
  
 
23.1
  
  
 
  
 
  
 
  
 
  
X
31.1
  
  
 
  
 
  
 
  
 
  
X
31.2
  
  
 
  
 
  
 
  
 
  
X
32.1
  
  
 
  
 
  
 
  
 
  
X
32.2
  
  
 
  
 
  
 
  
 
  
X
101.INS
  
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
  
 
  
 
  
 
  
 
  
X
101.SCH
  
Inline XBRL Taxonomy Extension Schema Document
  
 
  
 
  
 
  
 
  
X
101.CAL
  
Inline XBRL Taxonomy Extension Calculation Linkbase Document
  
 
  
 
  
 
  
 
  
X
101.DEF
  
Inline XBRL Taxonomy Extension Definition Linkbase Document
  
 
  
 
  
 
  
 
  
X
101.LAB
  
Inline XBRL Taxonomy Extension Label Linkbase Document
  
 
  
 
  
 
  
 
  
X
101.PRE
  
Inline XBRL Taxonomy Extension Presentation Linkbase Document
  
 
  
 
  
 
  
 
  
X
104
 
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

 
 
 
 
 
 
 
 
 
X
*
Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Endurance agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule or exhibit upon request.
#
Management contract or any compensatory plan, contract or agreement.
+
Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.

130


ITEM 16. FORM 10-K SUMMARY

None.


131

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
ENDURANCE INTERNATIONAL GROUP HOLDINGS, INC.
 
 
 
Date: February 14, 2020
By:
 
/s/ Jeffrey H. Fox
 
 
 
Jeffrey H. Fox
 
 
 
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jeffrey H. Fox
President, Chief Executive Officer and Director
February 14, 2020
Jeffrey H. Fox
(Principal Executive Officer)
 
/s/ Marc Montagner
Chief Financial Officer
February 14, 2020
Marc Montagner
(Principal Financial Officer)
 
/s/ Timothy R. Oakes
Chief Accounting Officer
February 14, 2020
Timothy R. Oakes
(Principal Accounting Officer)
 
/s/ James C. Neary
Chairman of the Board
February 14, 2020
James C. Neary
 
 
/s/ Andrea J. Ayers
Director
February 14, 2020
Andrea J. Ayers
 
 
/s/ Dale Crandall
Director
February 14, 2020
Dale Crandall
 
 
/s/ Joseph P. DiSabato
Director
February 14, 2020
Joseph P. DiSabato
 
 
/s/ Tomas Gorny
Director
February 14, 2020
Tomas Gorny
 
 
/s/ Peter J. Perrone
Director
February 14, 2020
Peter J. Perrone
 
 
/s/ Chandler J. Reedy
Director
February 14, 2020
Chandler J. Reedy
 
 
/s/ Justin L. Sadrian
Director
February 14, 2020
Justin L. Sadrian
 
 
/s/ Alexi A. Wellman
Director
February 14, 2020
Alexi A. Wellman
 
 

132
Endurance (NASDAQ:EIGI)
Historical Stock Chart
From Mar 2024 to Apr 2024 Click Here for more Endurance Charts.
Endurance (NASDAQ:EIGI)
Historical Stock Chart
From Apr 2023 to Apr 2024 Click Here for more Endurance Charts.