Notes to Consolidated Financial Statements
(in thousands of dollars)
1. The Company and Summary of Significant Accounting Policies
Description of Company
Web.com Group, Inc. ("Web.com" or "the Company") provides a full range of Internet services to small businesses to help them compete and succeed online. Web.com meets the needs of small businesses anywhere along their lifecycle with affordable, subscription-based solutions including domains, hosting, website design and management, search engine optimization, online marketing campaigns, local sales leads, social media, mobile products and eCommerce solutions.
The Company has reviewed the criteria of Accounting Standards Codification (“ASC”) 280-10,
Segment Reporting,
and has determined that the Company is comprised of only
one
segment, web services and products.
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles ("GAAP") in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company’s United Kingdom-based operations acquired in July 2014 is the British Pound and the functional currency of the Company's Argentine-based sales operations acquired in January 2017 is the Argentine Peso. The Company translates the financial statements of these subsidiaries to U.S. dollars using month-end rates of exchange for assets and liabilities, historical rates of exchange for equity and average rates of exchange for revenues, costs, and expenses. Translation gains and losses are recorded in accumulated other comprehensive income as a component of stockholders’ equity.
In addition, the Company’s foreign operations include a customer service center, technology center and an outbound sales center in Canada and a technology center in Argentina. The Company records foreign currency transaction gains and losses, and remeasurement of local currencies of these foreign subsidiaries where the functional currency is different from the local foreign currency in the consolidated statements of income. During the years ended December 31,
2017
,
2016
and
2015
, the Company recorded expense of approximately
$0.1 million
,
$0.3 million
and
$0.4 million
, respectively.
Principles of Consolidation
The Company’s consolidated financial statements include the assets, liabilities and the operating results of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Revenue Recognition and Deferred Revenue
The Company recognizes revenue in accordance with ASC 605,
Revenue Recognition
. The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is reasonably assured.
Thus, the Company recognizes subscription revenue on a daily basis, as services are provided. Customers are billed for the subscription on a monthly, quarterly, semi-annual, annual or on a multi-year basis, at the customer’s option. For all of the Company’s customers, regardless of the method the Company uses to bill them, subscription revenue is recorded as deferred revenue in the accompanying consolidated balance sheets. As services are performed, the Company recognizes subscription revenue on a daily basis over the applicable service period. When the Company provides a free trial period, the Company does not begin to recognize subscription revenue until the trial period has ended and the customer has been billed for the services.
The Company offers certain integrated online marketing services where the fee charged to the customer includes a media budget (”Pay-Per-Click” or “PPC”). Revenue for PPC services are recognized ratably over the period of service.
The Company accounts for our multi-element arrangements in accordance with ASC 605-25,
Revenue Recognition: Multiple-Element Arrangement.
The Company may sell multiple products or services to customers at the same time. For example, we may design a customer website and separately offer other services such as hosting and marketing or a customer may combine a
domain registration with other services such as private registration or e-mail. In accordance with ASC 605-25, each element is accounted for as a separate unit of accounting provided the following criteria is met: the delivered products or services have value to the customer on a standalone basis; and for an arrangement that includes a general right of return relative to the delivered products or services, delivery or performance of the undelivered product or service is considered probable and is substantially controlled by the Company. The Company considers a deliverable to have standalone value if the product or service is sold separately by us or another vendor or could be resold by the customer. Our products and services do not include a general right of return relative to the delivered products. In cases where the delivered products or services do not meet the separate unit of accounting criteria, the deliverables are combined and treated as one single unit of accounting for revenue recognition. The Company assigns value to the separate units of accounting in multiple-element arrangements using the relative selling price method which is calculated by taking the standalone selling price of each unit to the total selling price of the arrangement, multiplied by the total sales price. Typically, the deliverables within multiple-element arrangements are provided over the same service period, and therefore revenue is recognized over the same period.
To determine the selling price in multiple-element arrangements, the Company establishes vendor-specific objective evidence of the selling price using the price of the deliverable when sold separately. If we are unable to determine the selling price because vendor-specific objective evidence does not exist, the Company will first look to third party evidence, and if that is not sufficient, it will determine an estimated sales price through consultation with and approval by the Company’s management, taking into consideration the Company’s relative costs, target profit margins, and any other information gathered during this process.
Generally, compensation related sales costs are expensed as incurred.
Cost of Revenue and Operating Expenses
Cost of Revenue
Cost of revenue consists of expenses related to compensation of our web page development staff, domain name registration costs, directory listing fees, eCommerce store design, online marketing costs for services provided, billing costs, hosting expenses, and allocated occupancy overhead costs. The Company allocates occupancy overhead costs such as rent and utilities to all departments based on headcount. Accordingly, general overhead expenses are reflected in each cost of revenue and operating expense category.
Sales and Marketing Expense
The Company's direct marketing expenses include the costs associated with the online marketing channels used to promote our services and acquire customers. These channels include search marketing, affiliate marketing and partnerships. Sales and marketing costs consist primarily of compensation and related expenses for our sales and marketing staff as well as our customer support staff and allocated occupancy overhead costs. Sales and marketing expenses also include marketing programs, such as advertising, corporate sponsorships and other corporate events and communications.
Technology and development
Technology and development represents costs associated with creation, development and distribution of our products and websites. Technology and development expenses primarily consist of headcount-related costs associated with the design, development, deployment, testing, operation, enhancement of our products and costs associated with the data centers and all systems infrastructure costs supporting those products as well as all administrative platforms and allocated occupancy overhead costs.
General and Administrative Expense
General and administrative expenses consist of compensation and related expenses for executive, finance, and administration, as well as professional fees, corporate development costs, other corporate expenses, and allocated occupancy overhead costs.
Depreciation and Amortization Expense
Depreciation and amortization expenses relate primarily to our intangible assets recorded due to the acquisitions we have completed, as well as depreciation expense from computer and other equipment, internally developed software, furniture and fixtures, and building and improvement expenditures.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and bank demand deposit accounts. For purposes of presentation in the Consolidated Balance Sheets, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Short term restricted cash of
$0.3 million
and
$0.5 million
as of
December 31, 2017
and
2016
, respectively is included in other current assets. Long term restricted cash of
$4.6 million
and
$4.9 million
as of
December 31, 2017
and
2016
, respectively is included in other long-term assets. The restricted cash is primarily to collateralize letters of credit in support of leases.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade receivables. The Company invests its cash in cash and credit instruments of highly rated financial institutions;
four
institutions hold
97%
of the Company's total cash and cash equivalents.
Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers comprising the Company’s customer base and their geographic dispersion. The Company has not incurred any significant credit related losses.
Accounts Receivable
Accounts receivable are recorded on the balance sheet at net realizable value. The Company uses historical collection percentages and customer-specific information, when available, to estimate the amount of trade receivables that are uncollectible and establishes reserves for uncollectible balances based on this information. Generally, receivables are classified as past due after
60 days
. Trade receivables are written off once collection efforts are exhausted. The Company does not generally require deposits or other collateral from customers. Bad debt expense reported in operating expenses excludes provisions made to the allowance for doubtful accounts for anticipated refunds and automated clearinghouse returns that are recorded as adjustments to revenue.
Deferred Expenses
Deferred expenses primarily consist of prepaid domain name registry fees that are paid in full at the time a domain name is registered. The registry fees are recognized on a straight-line basis over the term of the domain registration period.
Goodwill and Other Intangible Assets
The Company continued to perform the quantitative tests to determine if the carrying value of our goodwill and indefinite-lived intangible assets are impaired for our annual test at December 31,
2017
. The Company tests goodwill and intangible assets for impairment using one reporting unit. A market approach is used to test goodwill for impairment, while our intangible asset test uses the income approach. The following is not a complete discussion of the Company’s calculations, but outlines the general assumptions and steps for testing goodwill and intangible assets for impairment:
Goodwill
The first step involves comparing the fair value of our reporting unit to its carrying value, including goodwill. The Company uses a market capitalization approach after considering an estimated control premium.
If the carrying value exceeds its fair value, the second step of the test is performed by comparing the carrying value of goodwill to its implied fair value. An impairment charge is recognized for the excess of the carrying value over its implied fair value.
Intangible Assets
The Company estimates the fair value of indefinite-lived intangibles using the relief-from-royalty method, a form of the income approach. It is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset. Key assumptions in estimating the fair value include, among other items, forecasted revenue, royalty rates, tax rates, and the benefit of tax amortization. The Company employs a weighted-average cost of capital approach to determine the discount rate used in our projections. The determination of the discount rate includes certain factors such as, but not limited to, the risk-free rate of return, market risk, size premium, and the overall level of inherent risk.
If the carrying value of the intangibles exceeds its fair value, an impairment charge is recognized.
The results of these analyses indicated that the Company’s goodwill and indefinite-lived intangible assets were not impaired at December 31,
2017
.
Technology and Development Costs
The Company expenses technology and development costs as incurred.
Property and Equipment
Property and equipment, including software, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided over the estimated useful lives of the assets using the straight-line method.
The asset lives used are presented in the table below:
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Estimated Useful Life in
Years
|
Computer equipment
|
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3 - 5
|
|
Software
|
|
|
2 - 3
|
|
Furniture and fixtures
|
|
|
5
|
|
Other equipment
|
|
|
5 - 6
|
|
Buildings
|
|
|
30
|
|
Building improvements
|
|
|
15
|
|
Leasehold improvements
|
|
|
Shorter of asset’s life
or life of the lease
|
|
Advertising
Advertising costs are expensed as incurred. Included in advertising are general marketing, corporate sponsorships as well as online marketing and banner advertisements. Total advertising expense was
$30.6 million
,
$46.4 million
and
$50.1 million
for the years ending December 31,
2017
,
2016
and
2015
, respectively.
Income Taxes
The Company accounts for income taxes using the liability method under the provisions of ASC 740,
Income Taxes
. ASC 740 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse.
Further, deferred tax assets are recognized for the expected realization of available deductible temporary differences and net operating loss and tax credit carry forwards. ASC 740 requires companies to assess whether a valuation allowance should be established against deferred tax assets based on consideration of all available evidence using a “more likely than not” threshold. In making such assessments, the Company considers the expected reversals of our existing deferred tax liabilities within the applicable jurisdictions and carry forward periods, based on our existing Section 382 limitations. The Company does not consider deferred tax liabilities related to indefinite lived intangibles or tax deductible goodwill as a source of future taxable income. Additionally, the determination of the amount of deferred tax assets which are more likely than not to be realized is also dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors.
A valuation allowance is recorded to reduce our deferred tax assets to the amount that is “more likely than not” to be realized based on the above methodology. The Company reviews the adequacy of the valuation allowance on an ongoing basis and adjusts our valuation allowance in the appropriate period, if applicable.
The Company records liabilities for uncertain tax positions related to federal, state and foreign income taxes in accordance with ASC 740. These liabilities reflect the Company’s best estimate of its ultimate income tax liability based on the tax code, regulations, and pronouncements of the jurisdictions in which we do business. Estimating our ultimate tax liability may involve significant judgments regarding the application of complex tax regulations across many jurisdictions. If the Company’s actual results differ from estimated results, our effective tax rate and tax balances could be affected. As such,
these estimates may require adjustment in the future as additional facts become known or as circumstances change. If applicable, the Company will adjust the income tax provision in the appropriate period.
Stock-Based Employee Compensation
The Company grants to our employees and directors options to purchase common stock at exercise prices equal to the quoted market values of the underlying stock at the time of each grant. The fair value of each option award as of the grant date is determined using the Black-Scholes option pricing valuation model in accordance with ASC 718,
Compensation-Stock Compensation
.
In addition, the Company grants performance-based share equity awards that contain service, performance and market conditions. The performance conditions are assessed at each reporting period and compensation expense is recorded to reflect the probable attainment of each condition. The market conditions are valued using a Monte Carlo simulation model. The valuation is prepared with the assistance of a third-party specialist to estimate the grant date fair value of the award.
The fair value of all stock awards is recognized in compensation expense on a straight-line basis over the requisite service period for awards expected to vest.
2. New Accounting Standards
Recently Adopted Accounting Standards
In March 2016, the FASB issued Accounting Standards Update ("ASU") 2016-09,
Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting
and is effective for fiscal years beginning after December 15, 2016. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows, statutory withholding requirements and forfeitures. The Company adopted ASU 2016-09 in the first quarter of 2017 and recorded excess tax benefits (ETBs) as expense or benefit in the income statement prospectively as of the beginning of the year of adoption and the Company continued to record shortfalls as a component of income tax expense consistent with historical practices. For interim reporting purposes, the Company reports ETBs and shortfalls as discrete items in the period in which they occur. For the twelve months ended December 31, 2017, the Company recognized a tax benefit related to the adoption of
$1.8 million
.
In addition, the guidance eliminates the requirement that ETBs be realized before companies can recognize them. The Company applied this part of the guidance using a modified retrospective transition method and recorded a cumulative-effect adjustment for previously unrecognized ETBs in opening retained earnings on January 1, 2017 upon adoption. The cumulative-effect adjustment for federal and state tax purposes was
$27.0 million
and
$2.7 million
, respectively. A valuation allowance was recorded on
$1.7 million
of these deferred tax assets for a portion of the state adjustment to reflect the amount realized on a "more likely than not" basis.
Further, the Company presents ETBs and excess tax deficiencies as an operating activity on the statement of cash flows starting on January 1, 2017. The Company has prospectively adopted this change. The Company continues to record its stock compensation expense based on an estimate of the awards that are expected to vest, rather than recording forfeitures when they occur.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, addressing eight specific cash flow issues in an effort to reduce diversity in practice. The amended guidance is effective for fiscal years beginning after December 31, 2017, and for interim periods within those years. The Company early adopted this standard with no impact.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
, which requires a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amended guidance is effective for fiscal years beginning after December 31, 2017, and for interim periods within those years. The Company elected to early adopt this standard and has restated the statement of cash flows for the earliest period presented to conform with the retrospective application of the standard. The Company elected to early adopt this standard which increased net cash flows provided by operating activities for the year ending December 31, 2016 by approximately
$5.0 million
and decreased net cash flows provided by operating activities for the year ending December 31, 2015 by approximately
$0.3 million
from the previously filed amounts.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
. The new guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for the Company beginning after January 1, 2018, including interim periods within those periods. The Company elected to early adopt the standard and did so without material impact.
Accounting Standards Issued Not Yet Adopted
In May 2014, the FASB and International Accounting Standards Board ("IASB") issued ASU 2014-09
Revenue from Contracts with Customers (Topic 606)
, a converged standard on revenue recognition which supersedes previous revenue recognition guidance. Some of the main areas of transition to the new standard include, among others, transfer of control (revenue is recognized when a customer obtains control of a good or service), allocation of transaction price is based on relative standalone selling price (entities that sell multiple goods or services in a single arrangement must allocate the consideration to each of those goods or services), contract costs (entities sometimes incur costs, such as sales commissions or mobilization activities, to obtain or fulfill a contract), and disclosures (extensive disclosures are required to provide greater insight into both revenue that has been recognized, and revenue that is expected to be recognized in the future from existing contracts). In August 2015, the FASB issued ASU 2015-14
Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date
, which defers the effective date of the new standard by one year, resulting in the new standard being effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 with early adoption as of the original effective date permitted. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
and in April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing
. Further in May 2016, the FASB issued ASU
2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients
. These standards clarify the guidance in ASU 2014-09 and have the same effective date as the original standard. The Company will apply the standard using a modified retrospective approach with the cumulative effect of initially applying the standard recognized at the date of initial application inclusive of certain additional disclosures, as permitted under Topic 606. The Company has completed its initial evaluation of its customer contracts and related costs to acquire and fulfill contracts and designed necessary systematic changes to account for the ongoing impact of the new standard on its consolidated financial statements. Based upon the initial evaluation of customer contracts, the Company does not expect a material impact on revenue as a result of adopting the standard; however, the Company does expect to have an impact on total assets and expense recognition patterns resulting from provisions in the standard requiring the capitalization of and amortization of costs to acquire contracts. The Company is in process of completing the quantification of the impact upon adoption.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
, which addresses certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The amendment will be effective for the Company beginning January 1, 2018 and the adoption of this standard is not expected to have a material impact on our consolidated financial statements or disclosures.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 is effective for the Company beginning January 1, 2019 and we are currently evaluating the impact that ASU 2016-02 will have on our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The standard will be effective for the Company on January 1, 2018. The adoption is not expected to have a material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. The new guidance requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. For public companies, the amended guidance is effective for the Company beginning after January 1, 2020. The adoption of this standard is not expected to have a material impact on its consolidated financial statements or disclosures.
In May 2017, the FASB issued ASU 2017-09,
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
. The new guidance amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. This standard is effective for the Company beginning January 1, 2018, including interim periods within those periods. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on its consolidated financial statements or disclosures.
In July 2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities From Equity (Topic 480) And Derivatives And Hedging (Topic 815): Accounting For Certain Financial Instruments With Down Round Features,
Replacement of the Indefinite Deferral For Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception
. The new guidance changes the classification of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. For freestanding equity-classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260, Earnings Per Share, to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features would be subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480, Distinguishing Liabilities from Equity, that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. Part I of the new guidance affects any entity that issues financial instruments that include down round features. The amendments in Part I of this Update that relate to the recognition, measurement, and earnings per share of certain freestanding equity-classified financial instruments that include down round features affect entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share.
Part I is effective for the Company beginning January 1, 2019 and Part II did not require transition guidance as the amendment did not have an accounting effect. The adoption of this standard is not expected to have a material impact on its consolidated financial statements or disclosures.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Cuts and Jobs Act (the "Act"). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Act indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. The Company is in process of evaluating the impact of the GILTI provisions.
In February 2018, the FASB issued ASU 2018-02,
Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
that allows entities to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the Act. The Company is in the process of evaluating the impact of adoption.
3. Net Earnings Per Common Share
Basic net earnings per common share is calculated using net income and the weighted-average number of shares outstanding during the reporting period. Diluted net earnings per common share includes the effect from the potential issuance of common stock, such as common stock issued pursuant to the exercise of stock options or vesting of restricted shares.
During the first quarters of 2017, 2016 and 2015, the Company issued equity awards with performance, service, and market conditions. These awards are included in basic shares outstanding once all criteria have been met and the shares have vested. Prior to the end of the vesting period, the number of contingently issuable shares included in diluted EPS is based on the number of shares, if any, that would be issuable under the terms of the arrangement if the end of the reporting period were the end of the contingency period, using the treasury stock method and assuming the result would be dilutive. As of December 31,
2017
and
2016
, the performance criteria for the first through third tranches of the 2015 grant, the first and second tranche of the 2016 grant and the first tranche of the 2017 grant were satisfied and the equity awards were included in the diluted share calculation. See Note 11,
Stock-Based Compensation and Stockholders' Equity
, for additional information on these awards.
During the years ended
December 31, 2017
,
2016
and
2015
,
2.4 million
,
3.4 million
and
1.6 million
share-based awards, respectively, have been excluded from the calculation of diluted common shares because including those securities would have been anti-dilutive.
The Company's potentially dilutive shares also include incremental shares issuable upon the conversion of the Senior Convertible Notes due August 15, 2018 ("2018 Notes"). Upon conversion or maturity of the 2018 Notes, the Company may settle the notes with either cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The Company has adopted a current policy to settle the principal amount in cash and any excess conversion value in shares of our common stock. Because the principal amount of the 2018 Notes will be settled in cash upon conversion, only the conversion spread relating to the 2018 Notes is included in our calculation of diluted earnings per common share. When the market price of our stock exceeds the conversion price, as applicable, we will include, in the diluted net income per common share calculation, the effect of the additional shares that may be issued upon conversion using the treasury stock method. There were no incremental common shares from the 2018 Notes that were included in the calculation of diluted shares because the
Company's average common stock price did not exceed the conversion price of approximately
$35.00
per common share during the years ended December 31,
2017
,
2016
and
2015
. See Note 4,
Long-term Debt
, for information on these notes.
The following table sets forth the computation of basic and diluted net earnings per common share (in thousands, except per share amounts):
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2017
|
|
2016
|
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2015
|
Net income
|
|
$
|
53,629
|
|
|
$
|
3,990
|
|
|
$
|
89,961
|
|
|
|
|
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Basic weighted average common shares
|
|
48,629
|
|
|
49,262
|
|
|
50,243
|
|
Dilutive effect of stock options
|
|
1,399
|
|
|
1,265
|
|
|
1,757
|
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Dilutive effect of restricted shares
|
|
612
|
|
|
352
|
|
|
426
|
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Dilutive effect of performance shares
|
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14
|
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|
1
|
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|
16
|
|
Dilutive effect of the assumed conversion of the 2018 Notes
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted weighted average common shares
|
|
50,654
|
|
|
50,880
|
|
|
52,442
|
|
Basic earnings per share:
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Net income per common share
|
|
$
|
1.10
|
|
|
$
|
0.08
|
|
|
$
|
1.79
|
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Diluted earnings per share:
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Net income per common share
|
|
$
|
1.06
|
|
|
$
|
0.08
|
|
|
1.72
|
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4. Long-term Debt
1%
Senior Convertible Notes due August 15, 2018
In August 2013, the Company issued
$258.8 million
aggregate principal amount of
1.00%
Senior Convertible Notes due
August 15, 2018
("2018 Notes"). The 2018 Notes bear interest at a rate of
1.00%
per year, payable semiannually in arrears, on February 15 and August 15 of each year, beginning on February 15, 2014. The conversion price for the 2018 Notes is equivalent to an initial effective conversion price of approximately
$35.00
per share of common stock. Proceeds, net of original issuance discounts of
$252.3 million
were received from the 2018 Notes. The net proceeds were used to pay down
$208.0 million
of the First Lien Term Loan and
$43.0 million
of the Revolving Credit Facility.
Beginning August 20, 2016, the Company may redeem for cash any or all of the 2018 Notes, at its option, if the last reported sale price of our common stock exceeds
130%
of the applicable conversion price on each applicable trading day as defined by the indenture. The redemption price will equal
100%
of the principal amount of the 2018 Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date. Holders of the 2018 Notes may also convert their notes at any time prior to
May 15, 2018
if the sale price of our common stock exceeds
130%
of the applicable conversion price on each applicable trading day as defined by the indenture.
In addition, holders may also convert their 2018 Notes any time prior to May 15, 2018, (i) if during the
five
business days after any
five
consecutive trading day period in which the trading price of the 2018 Notes was less than
98%
of the product of the last reported sale price of the Company's common stock and the conversion rate, (ii) if the Company calls the 2018 Notes for redemption; or (iii) upon the occurrence of specified corporate events.
The 2018 Notes are senior unsecured obligations and will be effectively junior to any of the Company's existing and future secured indebtedness. As of
December 31, 2017
, the Company has included
$248.1 million
of the 2018 Notes as long-term debt based upon our intent and ability to refinance these obligations.
The Company determined that the embedded conversion option in the 2018 Notes is not required to be separately accounted for as a derivative under ASC 815,
Derivatives and Hedging
. The 2018 Notes are within the scope of ASC 470, Topic 20,
Debt with Conversion and Other Options,
which requires the Company to separate a liability component and an equity component from the proceeds received. The carrying amount of the liability component at the time of the transaction of
$204.4 million
was calculated by measuring the fair value of a similar debt instrument that does not have an associated equity component. The fair value of the liability component was subtracted from the initial proceeds and the remaining amount of
$47.8 million
was recorded as the equity component. The excess of the principal amount of the liability component over its carrying amount is being amortized to interest expense over the expected life of
5 years
using the effective interest method.
Upon conversion or maturity of the 2018 Notes, the Company may settle the notes with either cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The Company has adopted a policy to settle the
$258.8 million
of principal amount in cash and any excess conversion value in shares of our common stock. Because the principal amount of the 2018 Notes will be settled in cash upon conversion, only the conversion spread relating to the 2018 Notes may be included in the Company's calculation of diluted net earnings per common share. When the market price of the Company's stock exceeds the conversion price, it will include, in the diluted net earnings per common share calculation, the effect of the additional shares that may be issued upon conversion using the treasury stock method. As such, the 2018 Notes have no impact on diluted net earnings per common share until the price of the Company's common stock exceeds the conversion price (approximately
$35.00
per common share) of the 2018 Notes.
As of December 31,
2017
and
2016
, the carrying value of the debt and equity component was
$251.0 million
and
$47.8 million
and
$239.2 million
and
$47.8 million
, respectively. The unamortized debt discount of
$7.7 million
as of
December 31, 2017
will be amortized over the remaining life of
0.6 years
using the effective interest method.
Amended Credit Agreement
On February 11, 2016, the Company entered into an amendment (the "Amendment") to that certain Credit Agreement, dated as of September 9, 2014 (the "Existing Credit Agreement" and as amended by the Amendment, the "Amended Credit Agreement"), by and among the Company, the several lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent. On March 9, 2016 (the "Closing Date"), the Amended Credit Agreement became effective following the completion of the acquisition of Yodle Inc. (the "Acquisition"). On May 18, 2017, the Company entered into a second amendment to the Credit Agreement ("Second Amendment").
The Amended Credit Agreement provides for (i)
$390.0 million
of
five
-year secured term loans, replacing and refinancing
$190.0 million
of secured term loans outstanding under the Existing Credit Agreement and providing for an additional
$200.0 million
of secured term loans (the "Term Loan") and (ii) a
five
-year secured revolving credit facility that provides up to
$150 million
of revolving loans (the "Revolving Credit Facility"), which replaces the revolving credit facility under the Existing Credit Agreement. On the Closing Date, the Company used the proceeds of the Term Loan and borrowed
$115.0 million
of loans under the Revolving Credit Facility, together with cash on hand, to complete the Acquisition. The Second Amendment to the Credit Agreement provided an incremental $
50.0 million
of secured Term Loan and an incremental $
110.0 million
of borrowing capacity on the Revolving Credit Facility with maturity dates that were commensurate with the Amended Credit Agreement. The Company used the proceeds from the incremental Term Loan to repay the then outstanding amount drawn on the Revolving Credit Facility at the date of closing.
The Term Loan and loans under the Revolving Credit Facility initially bore interest at a rate equal to either, at the Company’s option, the LIBOR rate plus an applicable margin equal to
3.00%
per annum, or the prime lending rate plus an applicable margin equal to
2.00%
per annum. The applicable margins for the Term Loan and loans under the Revolving Credit Facility are subject to reduction or increase based upon the Company’s consolidated first lien net leverage ratio as of the end of each fiscal quarter. Effective August 2016, the Company's interest rate on these loans was reduced to the LIBOR rate plus the applicable margin of
2.50%
per annum as a result of reaching certain financial covenant ratios. The Company must also pay (i) a commitment fee of
0.45%
per annum on the actual daily amount by which the revolving credit commitment exceeds then-outstanding usage under the Revolving Credit Facility, also subject to reduction or increase based upon the Company’s consolidated first lien net leverage ratio, (ii) a letter of credit fee equal to the applicable margin that applies to LIBOR loans under the Revolving Credit Facility and (iii) a fronting fee of
0.125%
per annum, calculated on the daily amount available to be drawn under each letter of credit issued under the Revolving Credit Facility.
The Company is permitted to make voluntary prepayments with respect to the Revolving Credit Facility and the Term Loan at any time without payment of a premium. The Company is required to make mandatory prepayments of the Term Loan with (i) net cash proceeds from certain asset sales (subject to reinvestment rights) and (ii) net cash proceeds from certain issuances of debt. The Company is also required to maintain certain financial ratios under the Credit Agreement and there are customary covenants that limit the incurrence of debt, the payment of dividends, the disposition of assets, and making of certain payments. Substantially all of the Company's and certain of its domestic subsidiaries' tangible and intangible assets are pledged as collateral under the Credit Agreement.
Both of the aforementioned amendments were accounted for as a modification of the credit agreement and as a result,
$1.9 million
and
$5.7 million
of additional loan origination discounts and bank lender fees were capitalized during the years ended December 31,
2017
and
2016
, respectively.
Outstanding long-term debt and the effective interest rates at
December 31, 2017
and
2016
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
December 31,
2016
|
Revolving Credit Facility maturing 2021, 3.93%, based on LIBOR plus 2.50%
|
$
|
10,000
|
|
|
$
|
47,094
|
|
Term Loan due 2021, 3.98%, based on LIBOR plus 2.50%, less unamortized discount of $3,800 at December 31, 2017, effective rate of 4.33%
|
385,934
|
|
|
377,851
|
|
Senior Convertible Notes, maturing 2018, 1.00%, less unamortized discount of $7,714 at December 31, 2017, effective rate of 5.88%
|
251,036
|
|
|
239,196
|
|
Total Outstanding Debt, less unamortized discount of $11,514 at December 31, 2017
|
646,970
|
|
|
664,141
|
|
Less: Current Portion of Long-Term Debt, less unamortized discount of $379 at December 31, 2017
|
(16,612
|
)
|
|
(16,847
|
)
|
Long-Term Portion, less unamortized discount of $11,135 at December 31, 2017
|
$
|
630,358
|
|
|
$
|
647,294
|
|
* The Compan
y has
$248.1 million
of av
ailable borrowings under the Revolving Credit Facility as of
December 31, 2017
.
Debt discount and issuance costs
The Company recorded
$14.2 million
,
$12.8 million
and
$11.4 million
of interest expense from amortizing debt issuance costs and discounts during the years ended December 31,
2017
,
2016
and
2015
, respectively.
Total estimated principal payments due for the next five years as of
December 31, 2017
are as follows (in thousands):
|
|
|
|
|
2018
|
$
|
16,990
|
|
2019
|
41,370
|
|
2020
|
44,128
|
|
2021
|
555,996
|
|
Total principal payments
|
$
|
658,484
|
|
Included in fiscal 2021 payments is $248.1 million related to the 2018 Senior Convertible Notes, as the Company has the intent and ability to refinance these obligations.
|
|
5. Business Combinations
Acquisition of Acquisio, Inc.
On November 1, 2017, the Company acquired certain assets and liabilities of Acquisio, Inc., a provider of online advertising management. The Company paid approximately
$8.7 million
from acquisition closing through December 31, 2017 and the Company may pay additional consideration of up to approximately
$0.6 million
, subject to certain indemnification provisions. Transaction costs associated with the acquisition were not significant.
The Company has accounted for the acquisition using the acquisition method as required by ASC 805,
Business Combinations
. As such, preliminary fair values have been assigned to the assets acquired and liabilities assumed and the excess of the total purchase price over the fair value of the net assets acquired is recorded as goodwill. The Company, with the assistance of independent valuation professionals, has also performed preliminary estimates of the fair value of certain intangible assets. The goodwill recorded from this acquisition represents business benefits the Company anticipates realizing from acquiring the entity, and the amount is expected to be deductible for income tax purposes.
The following table summarizes the Company's preliminary purchase price allocation based on the fair values of the assets acquired and the liabilities assumed (in thousands):
|
|
|
|
|
|
November 1, 2017
|
Tangible current assets
|
$
|
130
|
|
Property plant and equipment
|
376
|
|
Domain/Trade names
|
401
|
|
Developed Technology
|
2,698
|
|
Customer relationships
|
1,908
|
|
Goodwill
|
4,264
|
|
Current liabilities
|
(274
|
)
|
Deferred revenue
|
(93
|
)
|
Other long term liabilities
|
(129
|
)
|
Purchase price consideration
|
$
|
9,281
|
|
The Company is still reviewing information surrounding intangible assets, certain assets and liabilities and income taxes. These items may result in changes to the Company's preliminary purchase price allocation. The preliminary customer relationships and developed technology will be amortized over
four
years and
ten
years, respectively. The domain and trade names are indefinite-lived intangible assets and are not amortized.
Acquisition of DonWeb
On January 31, 2017, the Company acquired
100%
of the outstanding shares of DonWeb, a hosting and domain registration company catering to the Spanish-speaking market, located in Rosario, Argentina. The Company paid approximately
$8.6 million
at closing. The Company may pay the seller additional consideration of up to
$2.0 million
on January 31, 2021, present valued to
$1.7 million
as of the acquisition date subject to certain indemnification provisions, for total consideration of
$10.3 million
. In addition, the agreement includes a
four
-year earnout provision that entitles the seller up to
$3.0 million
of consideration contingent upon the post-acquisition business performance and employment. Earnout amounts are recorded as compensation expense. Transaction costs associated with the acquisition were not significant.
The Company has accounted for the acquisition using the acquisition method as required by ASC 805,
Business Combinations
. As such, preliminary fair values have been assigned to the assets acquired and liabilities assumed and the excess of the total purchase price over the fair value of the net assets acquired is recorded as goodwill. The Company, with the assistance of independent valuation professionals, has also performed preliminary estimates of the fair value of certain intangible assets. The goodwill recorded from this acquisition represents business benefits the Company anticipates realizing from acquiring an entity in the Spanish-speaking market, and is not expected to be deductible for income tax purposes. In connection with the acquisition, the Company recorded approximately
$4.0 million
of liabilities arising from pre-acquisition matters that are more likely than not to be sustained upon examination, inclusive of interest and penalties for which the Company is indemnified. The following table summarizes the Company's preliminary purchase price allocation based on the fair values of the assets acquired and the liabilities assumed (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2017
|
Adjustments to Opening Balance Sheet
|
As of December 31, 2017
|
Tangible current assets
|
$
|
1,145
|
|
$
|
(74
|
)
|
$
|
1,071
|
|
Property plant and equipment
|
2,392
|
|
(48
|
)
|
2,344
|
|
Domain/Trade names
|
—
|
|
990
|
|
990
|
|
Non-competes
|
—
|
|
236
|
|
236
|
|
Customer relationships
|
4,140
|
|
(2,420
|
)
|
1,720
|
|
Other non current assets
|
2,849
|
|
(38
|
)
|
2,811
|
|
Goodwill
|
9,519
|
|
1,049
|
|
10,568
|
|
Current liabilities
|
(837
|
)
|
(901
|
)
|
(1,738
|
)
|
Deferred revenue
|
(2,860
|
)
|
1,276
|
|
(1,584
|
)
|
Other long term liabilities
|
(6,000
|
)
|
(70
|
)
|
(6,070
|
)
|
Purchase price consideration
|
$
|
10,348
|
|
$
|
—
|
|
$
|
10,348
|
|
The Company is still reviewing information surrounding intangible assets, certain assets and liabilities, income taxes and deferred revenue. These items may result in changes to the Company's preliminary purchase price allocation. The preliminary non-competes and customer relationships will be amortized over
four
years and
three
years, respectively. The domain and trade names are indefinite-lived intangible assets and are not amortized.
Acquisition of Yodle
On March 9, 2016, the Company executed an Agreement and Plan of Merger (the "Merger Agreement) with Yodle, Inc., a Delaware corporation ("Yodle"), and Shareholder Representative Services, LLC, a Colorado limited liability company. The Company acquired
100%
of the outstanding shares of Yodle, Inc. and paid approximately
$300.3 million
adjusted for, among other things, Yodle's cash and outstanding debt and transaction related expenses. The Company will pay an additional
$18.9 million
and
$22.0 million
on the first and second anniversary dates of the closing, respectively, subject to adjustments as described in the Merger Agreement. Finally, the Company converted out of the money stock options held by employees of Yodle to Web.com options, which resulted in additional consideration of
$2.3 million
, for total consideration of
$341.3 million
. In addition to the consideration, the Company incurred approximately
$3.9 million
of acquisition-related transaction expenses which are reflected in the General and Administrative line item of the Consolidated Statement of Comprehensive Income for the year ended December 31, 2016.
The Company has accounted for the acquisition of Yodle using the acquisition method as required by ASC 805,
Business Combinations
. As such, fair values have been assigned to the assets acquired and liabilities assumed and the excess of the total purchase price over the fair value of the net assets acquired is recorded as goodwill. The Company, with the assistance of independent valuation professionals, has also performed valuation of the fair value of certain intangible assets. The goodwill recorded from this acquisition represents business benefits the Company anticipates realizing from acquiring a leader in value added digital marketing solutions that further solidifies our position as a leading national provider in this space. In addition, Yodle has vertically focused solutions that help small businesses attract new business and retain existing customers through cloud based marketing platforms. Finally, the Company also expects to benefit from synergies by eliminating duplicate operational and administrative expenditures, where feasible. The goodwill from the acquisition is not deductible for tax purposes.
The adjustments made to the purchase price allocation through December 31, 2016 were primarily due to refinement of inputs used to calculate the fair value of the customer relationship, developed technology and the domain/trade name intangible assets. As a result of these adjustments to the fair value of the definite-lived intangible assets, along with the related income tax impact, the amortization expense was reduced by
$2.1 million
from acquisition date to year end 2016. The following table summarizes the Company's purchase price allocation based on the fair values of the assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
|
Opening Balance Sheet
|
Tangible current assets
|
$
|
7,455
|
|
Property plant and equipment
|
18,286
|
|
Developed technology
|
85,990
|
|
Domain/Trade names
|
27,990
|
|
Customer relationships
|
34,079
|
|
Other non current assets
|
277
|
|
Goodwill
|
231,612
|
|
Current liabilities
|
(22,609
|
)
|
Deferred revenue
|
(7,791
|
)
|
Deferred tax liability
|
(33,607
|
)
|
Other long term liabilities
|
(411
|
)
|
Purchase price consideration
|
$
|
341,271
|
|
The customer relationships and developed technology intangible assets will be amortized over
6.3 years
and
six
years, respectively. The trademarks and trade names are indefinite-lived intangible assets and are not amortized.
The operations of Yodle have been incorporated with the existing Web.com Group Inc. operations subsequent to the transaction closing. As such, the determination of operating income and net income is not readily available nor would it be indicative of the standalone entity if presented.
The fair value and gross contractual amount of the acquired accounts receivable was
$4.8 million
.
Pro Forma Condensed Consolidated Results of Operations
The Company has prepared the condensed pro forma financial information to reflect the consolidated results of operations as though the Yodle acquisition had occurred on January 1, 2015, for the twelve months ended December 31, 2016 and 2015. The Company has made adjustments to the historical Web.com and Yodle financial statements that are directly attributable to the acquisition, factually supportable and expected to have a continuing impact on the combined results. The pro forma presentation does not include any impact of transaction costs or expected synergies. The pro forma results are not necessarily indicative of our results of operations had the Company owned Yodle for the entire periods presented.
The Company has adjusted the results of operations to reflect the impact of amortizing into revenue, deferred revenue that was recorded at fair value. In addition, interest expense and amortization of intangible assets were adjusted to reflect the cost of the March 9, 2016 debt issued to finance the acquisition and the fair value of the intangible assets on the acquisition date, respectively.
The following summarizes pro forma total revenue and net (loss) income (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
Twelve months ended December 31, 2016
|
Revenue
|
|
$
|
750,474
|
|
Net loss
|
|
$
|
(4,547
|
)
|
|
|
|
Basic net loss per share
|
|
$
|
(0.09
|
)
|
Diluted net loss per share
|
|
$
|
(0.09
|
)
|
|
|
|
Basic weighted-average common shares outstanding
|
|
49,262
|
|
Diluted weighted-average common shares outstanding
|
|
49,262
|
|
|
|
|
|
|
Twelve months ended December 31, 2015
|
Revenue
|
|
$
|
740,742
|
|
Net income
|
|
$
|
54,159
|
|
|
|
|
Basic net income per share
|
|
$
|
1.08
|
|
Diluted net income per share
|
|
$
|
1.03
|
|
|
|
|
Basic weighted-average common shares outstanding
|
|
50,243
|
|
Diluted weighted-average common shares outstanding
|
|
52,488
|
|
Acquisition of TORCHx
On May 31, 2016, the Company completed the acquisition of substantially all of the assets and certain liabilities of Brokerage Leader Inc. ("TORCHx"), a Florida corporation, which primarily consisted of customer relationships and developed technology intangible assets. TORCHx is a real estate platform built for agents and brokerages that features search engine optimization (SEO) and responsive design, customer relationship management (CRM) and other tools to help run successful online marketing campaigns. The Company paid
$4.4 million
for this business during the second quarter of 2016, of which
$3.0 million
was paid at closing and the remaining
$1.5 million
was paid on November 30, 2017.
The Company has accounted for the acquisition of TORCHx using the acquisition method as required by ASC 805,
Business Combinations
. As such, fair values have been assigned to the assets acquired and liabilities assumed and the excess of the total purchase price over the fair value of the net assets acquired is recorded as goodwill. The Company has estimated the fair value of certain intangible assets. The goodwill recorded from this acquisition represents business benefits the Company anticipates realizing from optimizing resources and cross-sale opportunities. The goodwill from the acquisition is deductible for tax purposes.
Assets and liabilities acquired are as follows (in thousands):
|
|
|
|
|
Tangible current assets
|
$
|
17
|
|
Customer relationships
|
360
|
|
Developed technology
|
1,790
|
|
Goodwill
|
2,266
|
|
Deferred revenue
|
(42
|
)
|
Purchase price consideration
|
$
|
4,391
|
|
The customer relationships and developed technology intangible assets will be amortized over
four
years and
seven
years, respectively.
6. Goodwill and Intangible Assets
In accordance with ASC 350, the Company reviews goodwill and other indefinite-lived intangible asset balances for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of goodwill or indefinite-lived intangible assets below their carrying amount. As of
December 31, 2017
and
December 31, 2016
, the Company completed its annual impairment test of goodwill and other indefinite-lived intangible assets and determined these assets were not impaired.
During the year ended December 31, 2016, the Company paid
$1.6 million
for registrar credentials. These credentials were recorded as other intangible assets of
$2.6 million
and are being amortized over
24
months. The remaining
$1.0 million
was recorded as a deferred tax liability.
The following table summarizes changes in the Company’s goodwill balances as required by ASC 350-20 for the
year ended December 31, 2017
and
2016
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
December 31,
2016
|
Goodwill balance at beginning of period
|
$
|
974,045
|
|
|
$
|
741,439
|
|
Accumulated impaired goodwill at beginning of period
|
(102,294
|
)
|
|
(102,294
|
)
|
Goodwill balance at beginning of period, net
|
871,751
|
|
|
639,145
|
|
Goodwill acquired during the period - Yodle -
Note 5, Business Combinations
|
—
|
|
|
231,612
|
|
Goodwill acquired during the period - TORCHx -
Note 5, Business Combinations
|
—
|
|
|
2,266
|
|
Goodwill acquired during the period - DonWeb -
Note 5, Business Combinations
|
10,568
|
|
|
—
|
|
Goodwill acquired during the period - Acquisio -
Note 5, Business Combinations
|
4,264
|
|
|
—
|
|
Foreign currency translation adjustments
|
(921
|
)
|
|
(1,272
|
)
|
Goodwill balance at end of period, net *
|
$
|
885,662
|
|
|
$
|
871,751
|
|
* Gross goodwill balances were $
988.0 million
and
$974.0 million
as of
December 31, 2017
and
2016
, respectively. This includes accumulated impairment losses of
$102.3 million
.
The Company’s intangible assets are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Weighted-average Amortization Period in Years
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
Domain/Trade names
|
$
|
161,251
|
|
|
$
|
—
|
|
|
$
|
161,251
|
|
|
|
Definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
Customer relationships
|
327,176
|
|
|
(185,353
|
)
|
|
141,823
|
|
|
5.6
|
Developed technology
|
283,319
|
|
|
(215,545
|
)
|
|
67,774
|
|
|
4.2
|
Other
|
8,673
|
|
|
(7,950
|
)
|
|
723
|
|
|
1.0
|
Total *
|
$
|
780,419
|
|
|
$
|
(408,848
|
)
|
|
$
|
371,571
|
|
|
|
|
|
|
|
|
|
|
|
*Cumulative foreign currency translation adjustments, reflecting the movement in currencies, decreased total intangible assets by approximately $0.2 million as of December 31, 2017.
|
|
|
|
December 31, 2016
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Weighted-average Amortization Period in Years
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
Domain/Trade names
|
$
|
159,805
|
|
|
$
|
—
|
|
|
$
|
159,805
|
|
|
|
Definite-lived intangible assets:
|
|
|
|
|
|
|
|
Customer relationships
|
324,327
|
|
|
(157,998
|
)
|
|
166,329
|
|
|
6.5
|
Developed technology
|
280,455
|
|
|
(195,695
|
)
|
|
84,760
|
|
|
4.8
|
Other
|
7,394
|
|
|
(5,161
|
)
|
|
2,233
|
|
|
1.4
|
Total *
|
$
|
771,981
|
|
|
$
|
(358,854
|
)
|
|
$
|
413,127
|
|
|
|
|
|
|
|
|
|
|
|
*Cumulative foreign currency translation adjustments, reflecting the movement in currencies, decreased total intangible assets by approximately $1.0 million as of December 31, 2016.
|
The weighted-average amortization period for the amortizable intangible assets as of
December 31, 2017
, is approximately
5.1
years. Total amortization expense was $
49.3 million
, $
56.8 million
and
$39.3 million
for the years ended
December 31,
2017
,
2016
and
2015
, respectively.
As of
December 31, 2017
, the amortization expense for the next five years and thereafter is as follows (in thousands):
|
|
|
|
|
2018
|
$
|
45,677
|
|
2019
|
41,934
|
|
2020
|
39,277
|
|
2021
|
38,344
|
|
2022
|
26,703
|
|
Thereafter
|
18,385
|
|
Total
|
$
|
210,320
|
|
7. Property and Equipment
The Company's property and equipment are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
2016
|
Land
|
$
|
1,251
|
|
$
|
416
|
|
Depreciable assets:
|
|
|
Software
|
74,048
|
|
58,381
|
|
Computer equipment
|
61,966
|
|
56,037
|
|
Other equipment
|
9,993
|
|
9,410
|
|
Furniture and fixtures
|
7,888
|
|
7,773
|
|
Building and improvements
|
3,319
|
|
2,351
|
|
Leasehold improvements
|
19,352
|
|
17,195
|
|
Total depreciable assets
|
176,566
|
|
151,147
|
|
Accumulated depreciation
|
(120,629
|
)
|
(98,431
|
)
|
Property and equipment, net
|
$
|
57,188
|
|
$
|
53,132
|
|
Depreciation expense relating to depreciable assets amounted to
$22.2 million
,
$21.2 million
, and
$17.1 million
for the years ended
December 31,
2017
,
2016
and
2015
, respectively.
As of
December 31,
2017
,
2016
and
2015
, the Company had unamortized computer software costs of
$25.0 million
,
$21.1 million
and
$16.9 million
, respectively. For the years ended
December 31,
2017
,
2016
and
2015
, approximately
$11.5 million
,
$9.8 million
and
$8.5 million
respectively of depreciation expense related to computer software was recorded.
8. Commitments
Operating Leases
The Company has lease obligations for its headquarters, technology administrative centers, sales and customer support centers and its eCommerce operations with varying renewal options on such locations.
Rental expense for leased facilities and equipment amounted to approximately
$16.7 million
,
$16.0 million
and
$7.5 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively. Accrued rent expense was
$1.9 million
and $
1.8 million
as of
December 31, 2017
and
2016
, respectively.
As of
December 31, 2017
, future minimum rental payments required under operating leases that have initial or remaining non-cancellable terms in excess of one year are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Rental Payments
|
Sublease Income Payments
|
Net Minimum Rental Payments
|
2018
|
$
|
15,431
|
|
$
|
(3,736
|
)
|
$
|
11,695
|
|
2019
|
17,271
|
|
(3,736
|
)
|
13,535
|
|
2020
|
17,056
|
|
(3,829
|
)
|
13,227
|
|
2021
|
16,638
|
|
(4,015
|
)
|
12,623
|
|
2022
|
14,364
|
|
(4,015
|
)
|
10,349
|
|
Thereafter
|
61,287
|
|
(5,353
|
)
|
55,934
|
|
|
$
|
142,047
|
|
$
|
(24,684
|
)
|
$
|
117,363
|
|
Included the minimum rental payments above are payments related to an office lease in Jacksonville, Florida for which the Company is contractually obligated; however, possession will revert to the Company in May 2019.
Purchase Obligations
Purchase obligations include corporate and marketing related sponsorships, general operating purchase obligations and long-term service contracts for data storage. As of
December 31, 2017
, the Company’s unconditional purchase obligations are as follows (in thousands):
|
|
|
|
|
|
Payment Due
|
2018
|
$
|
20,388
|
|
2019
|
18,263
|
|
2020
|
14,790
|
|
2021
|
15,695
|
|
2022
|
715
|
|
Thereafter
|
—
|
|
|
$
|
69,851
|
|
Standby Letters of Credit
The Company utilizes letters of credit to back certain payment obligations relating to its facility operating leases and to meet certain vendor requirements. The Company had approximately
$6.8 million
and
$7.3 million
in standby letters of credit as of
December 31, 2017
and 2016, respectively,
$1.9 million
of which was drawn against the Company’s revolving credit facility as of December 31, 2017 and 2016. The letters of credit are primarily to fulfill requirements under Yodle's facility operating leases. These letters of credit are funded by domestic money market accounts and are restricted for withdrawal based upon expiration dates required by the terms of the underlying lease agreements. The money market accounts are recorded as Other Assets in the consolidated balance sheets.
9. Valuation Accounts
The Company's valuation accounts are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
Deductions
|
|
Description
|
Balance at beginning of year
|
Charged to statement of comprehensive income
|
Uncollectible accounts written off, net of recoveries or refunds to customers
|
Balance at end of year
|
|
|
|
|
|
Year Ended December 31, 2015:
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
1,705
|
|
$
|
2,906
|
|
$
|
2,796
|
|
$
|
1,815
|
|
Refund liability
|
1,356
|
|
10,606
|
|
10,276
|
|
1,686
|
|
Total
|
$
|
3,061
|
|
$
|
13,512
|
|
$
|
13,072
|
|
$
|
3,501
|
|
|
|
|
|
|
Year Ended December 31, 2016:
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
1,815
|
|
$
|
1,640
|
|
$
|
1,760
|
|
$
|
1,695
|
|
Refund liability
|
1,686
|
|
11,337
|
|
11,118
|
|
1,905
|
|
Total
|
$
|
3,501
|
|
$
|
12,977
|
|
$
|
12,878
|
|
$
|
3,600
|
|
|
|
|
|
|
Year Ended December 31, 2017:
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
1,695
|
|
$
|
65
|
|
$
|
306
|
|
$
|
1,454
|
|
Refund liability
|
1,905
|
|
9,316
|
|
9,797
|
|
1,424
|
|
Total
|
$
|
3,600
|
|
$
|
9,381
|
|
$
|
10,103
|
|
$
|
2,878
|
|
|
|
|
|
|
10. Fair Value
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels as follows:
Level 1
-Quoted prices in active markets for identical assets or liabilities.
Level 2
-Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
-Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The Company has financial assets and liabilities that are not required to be remeasured to fair value on a recurring basis. The Company’s cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair market value as of
December 31, 2017
and
December 31, 2016
due to the short maturity of these items. As of
December 31, 2017
, the fair value and carrying value of the Company’s 2018 Notes totaled
$255.3 million
and
$251.0 million
, respectively. As of
December 31, 2016
, the fair value and carrying value of the Company's 2018 Notes totaled
$248.6 million
and
$239.2 million
, respectively. The fair value of the First Lien Term Loan and the 2018 Notes, including the equity component, was calculated by taking the quoted market price for the instruments multiplied by the principal amount. This is based on a Level 2 fair value hierarchy calculation obtained from quoted market prices for the Company’s long-term debt instruments that may not be actively traded at each respective period end.
The Revolving Credit Facility and Term Loan are variable rate debt instruments indexed to a 1-Month LIBOR that resets monthly, and as such, the fair value of the Term Loan and Revolving Credit Facility approximates the carrying value as of
December 31, 2017
and
December 31, 2016
. See Note 4,
Long-term Debt
, for additional information surrounding the Second Amendment.
11. Stock-Based Compensation and Stockholders' Equity
The Company records compensation expense for employee and director stock-based compensation plans based upon the fair value of the award in accordance with ASC 718,
Compensation-Stock Compensation.
Equity Incentive Plans
At
December 31, 2017
, the Company has the 2014 Equity Incentive Plan for the issuance of stock-based compensation, including but not limited to, common stock options and restricted shares to employees. In addition, the Company’s plan provides for grants of non-statutory stock options and restricted shares awards (“RSA’s”) to non-employee directors. The Company issues shares out of treasury stock, if available, otherwise new shares of common stock are issued upon the exercise of stock options and the granting of restricted shares. At
December 31, 2017
, approximately
3.6 million
shares remain available for future issuance under this plan.
In addition, the Company has additional equity incentive plans that are established in conjunction with its acquisitions. These plans are considered one-time, inducement awards of incentive stock options, non-statutory stock options and restricted shares. Once the inducement awards are granted, no additional shares, including forfeitures and cancellations, are available for future grant under these plans.
Generally, incentive stock options and non-statutory stock options vest ratably over
three
to
four
years, are contingent upon continued employment and expire
ten
years from the grant date. Restricted share awards generally vest
25 percent
each year over a
four
year period.
The Board of Directors or a committee thereof, administers all of the equity incentive plans and establishes the terms of options granted, including the exercise price, the number of shares subject to individual option awards and the vesting period of options, within the limits set forth in the plans. Options have a maximum term of
10
years and generally vest monthly over
four
years, as determined by the Board of Directors.
Yodle Equity Grants
In connection with the March 2016 Yodle acquisition, the Company granted
0.3 million
restricted shares that vest annually over a
four
year period and
0.3 million
stock options of which
25 percent
vest
one
year from the date of grant and the remaining
75 percent
vest monthly over a
three
year period for a total of
four
years. In addition, the Company converted unvested and out-of-the-money vested Yodle stock options to
1.3 million
stock options of the Company. The total value of the converted stock options is approximately
$8.3 million
. Approximately
$2.3 million
has been recorded as additional consideration related to the vested options at the time of the closing of the acquisition. The remaining expense, net of forfeitures, is being amortized to stock compensation expense over the remaining service period of approximately
2 years
.
Performance Shares
During 2017, 2016 and 2015, the Compensation Committee of the Board of Directors approved performance share equity awards. The targeted number of shares granted under a
100 percent
payout scenario for the awards, in total, is
0.5 million
common shares over the
3 years
vesting periods, with approximately one-third vesting each year. The actual number of shares that may be earned and issued, if any, may range from
0% - 200%
of the target number of shares granted. The range is based upon (1) the number of shares earned based upon the over achievement or under achievement of the financial measures for the annual performance period and (2) the number of shares earned being adjusted higher or lower depending on the performance of the Company's total shareholder return, compared against the Company's peer group.
Compensation expense related to the performance shares for the years ended
December 31,
2017
, 2016 and 2015, was approximately
$3.5 million
,
$1.2 million
, and
$1.0 million
, respectively. As of
December 31, 2017
, there was approximately
$0.5 million
of unrecognized compensation expense related to the 2017 tranches of performance shares, which is expected to be recognized over a weighted average period of
0.1
years. The 2017 performance share period resulted in a payout of
71%
of the underlying target shares, or approximately
0.1 million
shares for the 2017, 2016 and 2015 tranches combined.
Stock Options
Compensation expense related to the Company's stock option plans was
$7.8 million
,
$9.6 million
and
$10.4 million
for the years ended
December 31,
2017
,
2016
and
2015
, respectively. As of
December 31, 2017
, the Company had
$10.5 million
of unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of
2.6 years
. During the years ended
December 31,
2017
,
2016
and
2015
,
1.2 million
,
0.7 million
and
0.7 million
common shares were issued from options exercised, respectively.
The total intrinsic value of options exercised during the years ended
December 31,
2017
,
2016
, and
2015
was
$9.4 million
,
$5.4 million
, and
$7.4 million
, respectively. The fair value of options vested during the years ended
December 31,
2017
,
2016
, and
2015
was
$9.1 million
,
$10.8 million
, and
$11.3 million
, respectively. The weighted-average grant-date fair value of an option granted during the years ended
December 31,
2017
,
2016
, and
2015
was
$8.64
,
$8.01
, and
$9.36
, respectively.
The fair value of each option award is estimated on the grant date using the Black-Scholes option valuation model and the assumptions noted in the following table. Expected volatility rates are based on the Company’s historical volatility on the grant date. The Company estimates the expected term based on the historical exercise experience of our employees, which we believe is representative of future behavior.
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. Below are the assumption ranges used in calculating the fair value of options granted during the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Risk-free interest rate
|
|
|
1.84 - 2.06
|
%
|
|
|
1.11 - 1.39
|
%
|
|
|
1.52 -1.60
|
%
|
Dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
Expected life (in years)
|
|
|
4.99 - 5.07
|
|
|
|
4.97 - 5.19
|
|
|
|
4.96 - 4.99
|
|
Volatility
|
|
|
42 - 45
|
%
|
|
|
47 - 54
|
%
|
|
|
55 - 57
|
%
|
The following table summarizes option activity for all of the Company’s stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Covered by Options
|
|
Weighted- Average Exercise Price
|
|
Weighted- Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Balance, December 31, 2016
|
|
|
5,815,297
|
|
|
|
$
|
16.06
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,211,925
|
|
|
|
$
|
21.07
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,173,494
|
)
|
|
|
$
|
14.45
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(499,248
|
)
|
|
|
$
|
19.27
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(88,447
|
)
|
|
|
$
|
22.12
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
5,266,033
|
|
|
|
$
|
17.20
|
|
|
|
|
5.81
|
|
|
$
|
31,096
|
|
|
Exercisable at December 31, 2017
|
|
|
3,820,834
|
|
|
|
$
|
16.17
|
|
|
|
|
4.73
|
|
|
$
|
28,014
|
|
|
Price ranges of outstanding and exercisable options as of
December 31, 2017
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
Exercisable Options
|
Exercise Price
|
|
Number of Options
|
|
Weighted- Average Remaining Life (Years)
|
|
Weighted- Average Exercise Price
|
|
Number of Options
|
|
Weighted- Average Exercise Price
|
$3.55 - $9.97
|
|
|
1,059,960
|
|
|
|
|
2.15
|
|
|
$
|
7.32
|
|
|
|
|
1,059,960
|
|
|
|
$
|
7.32
|
|
|
$10.95 - $15.96
|
|
|
1,392,729
|
|
|
|
|
4.61
|
|
|
$
|
14.22
|
|
|
|
|
1,359,968
|
|
|
|
$
|
14.22
|
|
|
$16.97 - $19.24
|
|
|
1,129,540
|
|
|
|
|
7.54
|
|
|
$
|
17.92
|
|
|
|
|
577,059
|
|
|
|
$
|
18.06
|
|
|
$19.48 - $24.88
|
|
|
1,053,615
|
|
|
|
|
9.07
|
|
|
$
|
21.20
|
|
|
|
|
214,811
|
|
|
|
$
|
21.16
|
|
|
$26.69 - $36.45
|
|
|
630,189
|
|
|
|
|
6.07
|
|
|
$
|
32.37
|
|
|
|
|
609,036
|
|
|
|
$
|
32.36
|
|
|
|
|
|
5,266,033
|
|
|
|
|
|
|
|
|
|
|
|
|
3,820,834
|
|
|
|
|
|
|
Restricted Stock Awards
The fair value of each restricted stock award grant is based on the closing price of the Company’s stock on the date of grant and is amortized to compensation expense over its vesting period, which generally ranges between
one
and
four
years. Restricted stock is not transferable until vested.
Compensation expense related to restricted stock plans for the years ended
December 31,
2017
,
2016
and
2015
was approximately
$11.9 million
,
$9.9 million
and
$8.7 million
, respectively. As of
December 31, 2017
, there was approximately
$20.4 million
of unrecognized compensation cost related to restricted stock outstanding, which is expected to be recognized over a weighted average period of
2.4 years
. During the years ended
December 31,
2017
, 2016 and 2015, approximately
0.2 million
,
0.2 million
and
0.1 million
shares totaling approximately
$4.6 million
,
$4.3 million
and
$2.4 million
, respectively, were withheld by the Company for minimum income tax withholding requirements, primarily for restricted shares that vested. During the years ended
December 31,
2017
,
2016
and
2015
,
0.9 million
,
1.2 million
and
0.5 million
restricted common shares were granted, respectively.
The following restricted stock activity occurred under the Company’s equity incentive plans during the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted- Average Grant-Date Fair Value
|
Restricted stock awards outstanding at December 31, 2016
|
|
|
1,552,723
|
|
|
|
$
|
17.87
|
|
|
Granted
|
|
|
1,067,959
|
|
|
|
$
|
20.46
|
|
|
Forfeited
|
|
|
(205,889
|
)
|
|
|
$
|
19.34
|
|
|
Lapse of restriction (released)
|
|
|
(543,596
|
)
|
|
|
$
|
18.95
|
|
|
Restricted stock awards outstanding at December 31, 2017
|
|
|
1,871,197
|
|
|
|
$
|
18.87
|
|
|
Stock Repurchases
On November 5, 2014, the Company's Board of Directors authorized a share repurchase program of up to
$100.0 million
of the Company's common stock expiring on December 31, 2016. In October 2016, the Company's Board of Directors authorized that the
share repurchase program of the Company's outstanding securities be extended through December 31, 2018 and be increased by an additional
$100.0 million
.
The aggregate amount of available shares available for repurchase under this program was
$33.8 million
at December 31,
2017
. Repurchases under the repurchase programs may take place in the open market or in privately negotiated transactions, including structured and derivative transactions such as accelerated share repurchase transactions, and may be made under a Rule 10b5-1 plan. During the years ended December 31,
2017
and
2016
, the Company repurchased common shares totaling
$76.3 million
and
$28.6 million
, respectively.
12. Common Shares Reserved
The Company had reserved the following number of shares of common stock for future issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Outstanding stock options, performance share units and restricted stock units
|
|
|
5,955,837
|
|
|
|
|
6,239,847
|
|
|
|
|
5,674,405
|
|
|
Options available for future grants and other awards
|
|
|
3,567,989
|
|
|
|
|
5,513,027
|
|
|
|
|
3,738,466
|
|
|
Total common shares reserved
|
|
|
9,523,826
|
|
|
|
|
11,752,874
|
|
|
|
|
9,412,871
|
|
|
13. Income Taxes
The domestic and foreign components of net income before income taxes for the years ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Income before income taxes
|
|
|
|
|
|
|
U.S. income
|
|
$
|
57,227
|
|
|
$
|
15,510
|
|
|
$
|
43,544
|
|
Foreign loss
|
|
(1,673
|
)
|
|
(1,268
|
)
|
|
(1,843
|
)
|
Net income before income taxes
|
|
$
|
55,554
|
|
|
$
|
14,242
|
|
|
$
|
41,701
|
|
The provision (benefit) for income taxes consisted of the following for the years ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2015
|
|
Current expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,112
|
|
|
|
$
|
944
|
|
|
|
$
|
1,000
|
|
|
State
|
|
|
1,721
|
|
|
|
|
1,044
|
|
|
|
|
835
|
|
|
Foreign
|
|
|
1,379
|
|
|
|
|
550
|
|
|
|
|
147
|
|
|
Total current tax expense
|
|
|
4,212
|
|
|
|
|
2,538
|
|
|
|
|
1,982
|
|
|
Deferred expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(6,302
|
)
|
|
|
|
9,096
|
|
|
|
|
(49,301
|
)
|
|
State
|
|
|
4,700
|
|
|
|
|
(1,289
|
)
|
|
|
|
(820
|
)
|
|
Foreign
|
|
|
(685
|
)
|
|
|
|
(93
|
)
|
|
|
|
(121
|
)
|
|
Total deferred tax (benefit) expense
|
|
|
(2,287
|
)
|
|
|
|
7,714
|
|
|
|
|
(50,242
|
)
|
|
Total income tax expense (benefit)
|
|
$
|
1,925
|
|
|
|
$
|
10,252
|
|
|
|
$
|
(48,260
|
)
|
|
As of December 31,
2017
and
2016
, the Company had federal net operating loss carry forwards (“NOLs”) at December 31,
2017
and
2016
of
$182.2 million
and
$159.8 million
. These NOLs expire in varying amounts beginning in 2020 through 2036 and are included in the schedule of deferred tax assets in the table below. See
Note 2
for additional information related to the adoption of ASU 2016-09.
As of December 31,
2017
, the Company had state NOLs of
$378.6 million
, which substantially expire in varying amounts beginning in 2020 through 2037. As of December 31,
2016
, the Company had state NOLs of
$324.6 million
.
As of December 31, 2017 and December 31, 2016, the Company had foreign NOLs in the United Kingdom of
$57.5 million
and
$51.5 million
, respectively, which do not expire.
As of December 31,
2017
and
2016
, the Company had Foreign Tax Credit (“FTC”) carry forwards of
$1.2 million
which expire 2018 through 2020. As of December 31,
2017
and
2016
, the Company had Research & Development (“R&D”) Tax Credit carry forwards of
$0.5 million
. The R&D credits begin to expire in
2028
. As of December 31,
2017
and
2016
, the Company had Alternative Minimum Tax (“AMT”) Credit carry forwards of approximately
$5.2 million
and
$4.1 million
, respectively which are included in the noncurrent deferred income tax accounts. The Act provides for the refund of AMT Credits in tax years 2018 through 2021.
On December 22, 2017, the Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. We have estimated our provision for income taxes in accordance with the Act and guidance available as of the date of this filing and as a result have recorded
$22.9 million
net tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount consisted of
$26.1 million
related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, offset by a
$3.8 million
increase in valuation allowance for certain state deferred tax assets in jurisdictions in which a valuation allowance was required to reflect the amount more likely than not be realized, a
$1.9 million
benefit from the reversal of a liability associated with the prior year earnings and profits, a
$0.8 million
deferred tax expense associated with the one-time transition tax on the mandatory deemed repatriation of foreign earnings based on cumulative foreign earnings of
$5.1 million
and a
$0.5 million
tax expense related to writing off certain deferred tax assets associated with the deductibility of certain compensation amounts.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that
$22.9 million
was the estimated benefit from the implementation of the Act was a provisional amount and a reasonable estimate at December 31, 2017. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities and our historical foreign earnings as well as potential correlative adjustments. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. Any subsequent adjustment to these amounts will be recorded to tax expense in 2018 when the analysis is complete.
In establishing its deferred tax assets and liabilities, the Company makes judgments and interpretations based on the enacted tax laws and published tax guidance that are applicable to its operations. Deferred tax assets and liabilities are measured and recorded using currently enacted tax rates, which the Company expects will apply to taxable income in the years in which those temporary differences are recovered or settled.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s
deferred tax assets and liabilities are as follows at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
51,087
|
|
|
|
$
|
76,887
|
|
|
NOLs
|
|
|
68,952
|
|
|
|
|
79,338
|
|
|
Stock compensation
|
|
|
6,548
|
|
|
|
|
9,509
|
|
|
Other deferred tax assets
|
|
|
15,986
|
|
|
|
|
20,243
|
|
|
|
|
|
142,573
|
|
|
|
|
185,977
|
|
|
Less: valuation allowance
|
|
|
(30,364
|
)
|
|
|
|
(22,289
|
)
|
|
Total noncurrent deferred tax assets
|
|
|
112,209
|
|
|
|
|
163,688
|
|
|
Noncurrent deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Intangible basis
|
|
|
149,328
|
|
|
|
|
218,582
|
|
|
Discount on 2018 Notes
|
|
|
1,874
|
|
|
|
|
7,005
|
|
|
Other liabilities
|
|
|
11,816
|
|
|
|
|
18,004
|
|
|
Total noncurrent deferred tax liabilities
|
|
|
163,018
|
|
|
|
|
243,591
|
|
|
Net noncurrent deferred tax asset
|
|
|
233
|
|
|
|
|
232
|
|
|
Net noncurrent deferred tax liability
|
|
|
(51,042
|
)
|
|
|
|
(80,135
|
)
|
|
Net deferred tax liability
|
|
$
|
(50,809
|
)
|
|
|
$
|
(79,903
|
)
|
|
In 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% in accordance with the Act. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The largest driver for the
decrease
in the net noncurrent deferred tax liabilities of
$29.1 million
was related to the adoption of ASU 2016-09 (See
Note 2
,
New Accounting Standards
) partially offset by deferred tax liabilities associated with the DonWeb acquisition of
$1.2 million
.
Net noncurrent deferred tax assets of
$0.2 million
above as of
December 31, 2017
and
2016
are included in Other Assets in the consolidated balance sheets.
The valuation allowance at December 31,
2017
of
$30.4 million
includes
$19.0 million
and
$10.2 million
related to certain state and foreign net deferred tax assets, respectively, and
$1.2 million
related to FTC carry forwards, that are not more likely than not to be realized.
During the year ended
December 31, 2017
, the valuation allowance increased by
$8.1 million
. The net increase attributable to the Company's state valuation allowance was
$6.6 million
, mainly related to the increase in state deferred tax assets due to the federal tax rate change. The net increase attributable to the Company's foreign valuation allowance was
$1.5 million
, driven by current year foreign losses in jurisdictions in which a full valuation allowance was still required and foreign currency translation adjustments associated with the underlying foreign net deferred tax assets for which a full valuation allowance was required.
During the year ended December 31, 2016, the valuation allowance decreased by
$4.3 million
. The net decrease attributable to the Company's state valuation allowance was
$0.9 million
, which included a
$1.5 million
increase related to current year book losses attributable to state jurisdictions in which a full valuation allowance was still required, offset by a
$2.4 million
decrease in our beginning-of-the-year valuation allowance to reflect the amount more likely than not to be realized. The
$2.4 million
decrease related to a state jurisdiction in which the applicable combined legal entities no longer operated on a 3-year cumulative pre-tax book loss position as of the fourth quarter of 2016. In addition to this positive evidence, the Company also determined that positive evidence associated with forecasted 2017 and future estimated taxable income for this state jurisdiction outweighed the negative evidence in the assessment of the portion of the valuation allowance release in the fourth quarter of 2016. The net decrease attributable to the Company's foreign valuation allowance was
$3.4 million
, which included a
$0.6 million
increase related to current year foreign losses for which a full valuation allowance was still required, offset by a
$1.8 million
decrease related to the decrease in foreign net deferred tax assets attributable to a UK tax rate change and a
$2.2 million
decrease related to foreign currency translation adjustments associated with the underlying foreign deferred tax assets for which a full valuation allowance was required. The net impact of this foreign currency translation adjustment included in Accumulated Other Comprehensive Loss is
zero
.
During the year ended December 31, 2015, the valuation allowance decreased by
$66.9 million
. In December 2015, after weighing all evidence available, the Company determined that it was more likely than not that the Company would be able to realize substantially all its net U.S. Federal deferred tax assets and a portion of its net U.S. state deferred tax assets. As a result, the Company reversed
$68.8 million
of its beginning-of-the-year valuation allowance related to these deferred tax assets, which was partially offset by current year increases of
$1.9 million
related to certain foreign and state deferred tax assets for which it was determined that a valuation allowance was still required.
The positive evidence that outweighed the negative evidence used in the Company’s assessment of the portion of the valuation allowance released in the fourth quarter of 2015 included, but was not limited to, the following:
|
|
•
|
The Company was no longer in a 3-year cumulative pre-tax book loss position as of the fourth quarter of 2015;
|
|
|
•
|
Strong positive trend in financial performance over the last two fiscal years, including each of the previous four quarters; and
|
|
|
•
|
Forecasted 2016 and future period taxable income.
|
The Company will continue to evaluate its ability to realize our deferred tax assets. If future evidence suggests that any changes are required to reflect the amount of our deferred tax asset that is more likely than not to be realized, the Company will adjust its valuation allowance, as needed in the appropriate period.
The provision (benefit) for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rates as a result of the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2015
|
|
U.S. statutory rate
|
|
|
35.0
|
|
%
|
|
|
35.0
|
|
%
|
|
|
35.0
|
|
%
|
State income taxes (net of federal tax benefit)
|
|
|
3.0
|
|
|
|
|
2.6
|
|
|
|
|
2.8
|
|
|
Stock-based compensation
|
|
|
0.6
|
|
|
|
|
24.1
|
|
|
|
|
4.7
|
|
|
Change in valuation allowance
|
|
|
4.7
|
|
|
|
|
(30.2
|
)
|
|
|
|
(160.5
|
)
|
|
Foreign rate differential
|
|
|
1.3
|
|
|
|
|
5.2
|
|
|
|
|
2.0
|
|
|
Non-deductible compensation costs
|
|
|
1.3
|
|
|
|
|
5.2
|
|
|
|
|
2.0
|
|
|
Change in tax rates
|
|
|
(1.0
|
)
|
|
|
|
13.6
|
|
|
|
|
(0.6
|
)
|
|
Foreign currency translation adjustment
|
|
|
(1.4
|
)
|
|
|
|
15.3
|
|
|
|
|
—
|
|
|
Unremitted foreign earnings and profits
|
|
|
—
|
|
|
|
|
(0.8
|
)
|
|
|
|
0.7
|
|
|
Transaction costs
|
|
|
0.5
|
|
|
|
|
4.9
|
|
|
|
|
—
|
|
|
Tax impacts of the Act
|
|
|
(41.2
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Other
|
|
|
0.7
|
|
|
|
|
(2.9
|
)
|
|
|
|
(1.9
|
)
|
|
Income tax expense (benefit)
|
|
|
3.5
|
|
%
|
|
|
72.0
|
|
%
|
|
|
(115.8
|
)
|
%
|
The Company applies ASC 740,
Income Taxes
, which clarifies the accounting for uncertainty in income tax positions recognized in financial statements. The Company has filed income tax returns for years through 2016. These returns are subject to examination by the taxing authorities in the respective jurisdictions generally for three or four years after they are filed. NOLs and certain tax credits generated in these periods, as well as any carry forwards from prior periods, remain subject to adjustment by taxing authorities generally for three or four years after the years in which such NOLs and credit carry forwards are utilized.
The Company’s policy is that it recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
The Company’s unrecognized tax benefits are summarized as follows (in thousands):
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
3,431
|
|
|
Additions in unrecognized tax benefits – prior year tax positions
|
|
|
73
|
|
|
Additions in unrecognized tax benefits – current year tax positions
|
|
|
300
|
|
|
Reductions in unrecognized tax benefits – current year tax positions
|
|
|
(62
|
)
|
|
Lapse of statute of limitations
|
|
|
(248
|
)
|
|
Balance at December 31, 2015
|
|
$
|
3,494
|
|
|
Additions in unrecognized tax benefits – prior year tax positions
|
|
|
50
|
|
|
Additions in unrecognized tax benefits – current year tax positions
|
|
|
540
|
|
|
Lapse of statute of limitations
|
|
|
(225
|
)
|
|
Balance at December 31, 2016
|
|
$
|
3,859
|
|
|
Additions in unrecognized tax benefits – prior year tax positions
|
|
|
1,565
|
|
|
Additions in unrecognized tax benefits – current year tax positions
|
|
|
656
|
|
|
Reductions in unrecognized tax benefits – prior year tax positions
|
|
|
(546
|
)
|
|
Lapse of statute of limitations
|
|
|
(42
|
)
|
|
Balance at December 31, 2017
|
|
$
|
5,492
|
|
|
As of December 31,
2017
and
2016
, the Company had
$4.5 million
and
$3.2 million
, respectively, of total unrecognized tax benefits, which could favorably affect the effective rate. The Company recorded a net expense/(benefit) related to interest and penalties of
$2.5 million
,
$0.0 million
, and $
(0.2) million
million, during 2017, 2016, and 2015, respectively. The total accrued interest and penalties as of December 31,
2017
and December 31,
2016
, was
$2.6 million
and
$0.1 million
, respectively. Refer to footnote 5,
Business Combinations
for further information on current year additions to unrecognized tax benefits in connection with our DonWeb acquisition.
14. Employee Savings Plans
The Company has a qualifying defined contribution 401(k) plan under the Internal Revenue Code. All employees at the date of hire are eligible to participate in the plan. Each participant may contribute to the plan up to the maximum allowable amount as determined by the Federal Government. Employee 401(k) deferrals are
100%
vested. Company contributions are subject to a vesting schedule based on years of service. The Company recorded contribution expense of
$2.4 million
,
$1.8 million
and
$1.1 million
during the years ended December 31,
2017
,
2016
, and
2015
, respectively.
Effective July 1, 2012, the Company established an unfunded deferred compensation defined contribution plan for key management and highly compensated employees. The purpose of the plan is to provide a select group of employees who contribute significantly to the future business success of the Company with supplemental retirement income benefits through the deferral of base salary and other compensation and through additional discretionary company matching contributions. Deferral elections are made at the discretion of the employee and would be an amount or percentage of the employee’s compensation. Each plan year, the Company may, but is not required to, make a matching contribution to the plan on behalf of the participant. In addition, matching contributions need not be uniform among participants. The Company recorded contribution expense of
$0.1 million
for each of the years ended December 31,
2017
,
2016
, and
2015
.
Also effective July 1, 2012, the Company established an unfunded supplemental retirement defined contribution plan for key management. The purpose of the plan is to provide a select group of management or highly compensated employees who contribute significantly to the future business of the company with supplemental retirement income through discretionary company contributions. Each plan year, the Company may, but is not required to, make a discretionary contribution to the plan on behalf of a participant. The Company is under no obligation to make a contribution for the plan year and contributions need not be uniform among participants. The Company recorded contribution expense of
$0.6 million
and
$0.8 million
for the years ended December 31,
2016
, and
2015
, respectively.
No
contribution was made for the year ended December 31,
2017
.
15. Contingencies
On July 13, 2017, the Company was named as a defendant in a lawsuit filed in the United States District Court for the Middle District of Florida. The plaintiff in the case alleges that the Company infringed upon certain copyrights, misappropriated trade secrets, breached contracts, and violated the Florida Deceptive and Unfair Trade Practices Act in connection with the Company’s Ignite products. The plaintiff seeks damages in an unspecified amount, plus the recovery of its costs and attorneys’
fees incurred in the suit. The Company believes that it has meritorious defenses against the asserted claims and is no longer offering the afore mentioned products for sale. A preliminary injunction against the Company was entered and the appeal is pending. The Company has reserved an immaterial amount which it determined to be commensurate with the liability, damage and coverage issues presented by the subject claims at this early stage of the pending lawsuit. It is also not currently possible to reasonably estimate the amount or range of any amounts that the Company may be required to pay as damages in the event that liability is found against the Company in excess of the amount reserved without plaintiff providing more detail on its claims and without expert discovery on the damage and apportionment issues presented by the claims.
From time to time, the Company and its subsidiaries receive inquiries from foreign, federal, state and local regulatory authorities or are named as defendants in various legal actions that are incidental to our business and arise out of or are related to claims made in connection with our marketing practices, customer and vendor contracts and employment related disputes. We believe that the resolution of these investigations, inquiries o
r legal actions will not have a material adverse effect on our financial position, marketing practices or results of operations. There were no material legal matters for which a loss was reasonably possible or probable and estimable at
December 31, 2017
other than the item noted above.
16. Quarterly Results for
2017
and
2016
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
(in thousands, except per share amounts)
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
Total Year
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$185,118
|
|
$186,731
|
|
$188,567
|
|
$188,845
|
|
$
|
749,261
|
|
|
Income from operations
|
$20,542
|
(1)
|
$22,998
|
|
$23,602
|
|
$21,473
|
(2)
|
$
|
88,615
|
|
|
Net income
|
$6,518
|
(3)
|
$8,046
|
(4)
|
$8,300
|
|
$30,765
|
(5)
|
$
|
53,629
|
|
|
Basic EPS
|
$0.13
|
|
$0.16
|
|
$0.17
|
|
$0.65
|
|
$
|
1.10
|
|
|
Diluted EPS
|
$0.13
|
|
$0.16
|
|
$0.16
|
|
$0.62
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$144,798
|
|
$187,818
|
|
$190,686
|
|
$187,203
|
|
$
|
710,505
|
|
|
Income from operations
|
$6,912
|
(6)
|
$7,578
|
|
$18,093
|
(7)
|
$12,121
|
(8)
|
$
|
44,704
|
|
|
Net income (loss)
|
$337
|
|
$(1,606)
|
|
$3,346
|
|
$1,913
|
(9)
|
$
|
3,990
|
|
|
Basic EPS (loss)
|
$0.01
|
|
$(0.03)
|
|
$0.07
|
|
$0.04
|
|
$
|
0.08
|
|
|
Diluted EPS (loss)
|
$0.01
|
|
$(0.03)
|
|
$0.07
|
|
$0.04
|
|
$
|
0.08
|
|
|
|
(1)
|
On January 31, 2017, the Company acquired
100%
of the outstanding shares of DonWeb. The Company paid approximately
$8.6 million
at closing. The Company may pay the seller additional consideration of up to
$2.0 million
on January 31, 2021, present valued to
$1.7 million
as of the acquisition date, for total consideration of
$10.3 million
. Transaction costs associated with the acquisition were not significant.
|
|
|
(2)
|
On November 1, 2017, the Company acquired certain assets and liabilities of Acquisio, Inc., a provider of online advertising management. The Company paid approximately
$8.7 million
from acquisition closing through December 31, 2017. Additionally, the Company may pay additional consideration of up to approximately
$0.6 million
. Transaction costs associated with the acquisition were not significant.
|
|
|
(3)
|
The Consolidated Statement of Comprehensive Income includes an asset impairment charge of
$0.1 million
from writing down domain name inventory.
|
|
|
(4)
|
The Consolidated Statement of Comprehensive Income includes restructuring charges of
$0.4 million
associated with adjusting the estimated real estate taxes on a portion of our New York, New York office lease space that was previously vacated which was exited in December 2016
|
|
|
(5)
|
The Consolidated Statement of Comprehensive Income includes an asset impairment charge of
$0.2 million
from abandoning certain technology and restructuring charges of approximately
$0.5 million
for an early lease termination payment related to the Herndon, VA facility. In the fourth quarter ended December 31, 2017, the Company recorded a tax benefit of
$17.8 million
primarily from adopting provisions of the Act.
|
|
|
(6)
|
On March 9, 2016, the Company acquired
100%
of the outstanding shares of Yodle, Inc. and paid approximately
$300.3 million
adjusted for, among other things, Yodle's cash and outstanding debt and transaction related expenses. In addition to the consideration, the Company incurred approximately
$3.9 million
of acquisition-related transaction expenses which are reflected in the General and Administrative line item of the Consolidated Statement of Comprehensive Income.
|
|
|
(7)
|
The Consolidated Statement of Comprehensive Income includes an asset impairment charge of
$2.0 million
from writing down domain name inventory.
|
|
|
(8)
|
The Consolidated Statement of Comprehensive Income includes an asset impairment charge of
$7.1 million
for leasehold improvements that were abandoned as part of exiting the operating lease acquired in the March 2016 Yodle acquisition. In addition, there is
$1.6 million
of restructuring charges that were recorded during the fourth quarter ended December 31, 2016, which primarily consists of the estimated expense for lease obligations offset by sublease income expected.
|
|
|
(9)
|
Included in the fourth quarter ended December 31, 2016 is the reversal of
$2.4 million
respectively, of valuation allowance for certain U.S. federal and state deferred tax assets, which contributed to the Company recording income tax expense of
$2.3 million
.
|
17. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Foreign currency translation adjustments
|
$
|
(4,503
|
)
|
|
$
|
(4,019
|
)
|
Unrealized gains on investments
|
—
|
|
|
(1
|
)
|
Total accumulated other comprehensive loss
|
$
|
(4,503
|
)
|
|
$
|
(4,020
|
)
|
18. Related Party Transactions
Effective February 6, 2015, the Company elected Mr. John A. Giuliani to serve on its Board of Directors. Mr. Giuliani serves as President, Chief Executive Officer and Director of Conversant, a personalized digital marketing platform, which was sold to AllianceData in December 2014. Mr. Giuliani joined Conversant after the acquisition of Dotomi, a dynamic display ad optimization company, where he had served as Chief Executive Officer. The Company incurred
$0.6 million
,
$0.7 million
and
$0.9 million
of
expense related to services provided by Conversant during the years ended December 31,
2017
,
2016
and
2015
, respectively.
19. Restructuring
Restructuring charges of
$1.3 million
and
$3.6 million
and
$0.6 million
were incurred during the years ended December 31,
2017
,
2016
and
2015
, respectively. The restructuring expense for the year ended
December 31,
2017
included
$0.8 million
of primarily lease restructuring costs from adjusting the estimated real estate taxes on a portion of our New York, New York office lease space that was previously vacated which was exited in December 2016 and severance expense associated with the elimination of certain Yodle positions. An additional
$0.5 million
in expense resulted from an early lease termination payment for an office in Herndon, Virginia. The lease restructuring costs and severance expense from terminating certain positions associated with Yodle for the year ended
December 31,
2016
were
$1.4 million
and
$2.2 million
, respectively.
20. Asset Impairments
The Company recorded
$0.3 million
in asset impairment charges during the year ended
December 31,
2017
. The charges included
$0.2 million
for the impairment of certain technology and
$0.1 million
of asset impairment charges related to domain name inventory. During the year ended
December 31,
2016
, asset impairment charges of
$9.1 million
resulted from a
$7.1 million
charge for the impairment of leasehold improvements, furniture and fixtures, and office equipment due to exiting a portion of the Yodle offices leased in New York and a
$2.0 million
charge related to domain name inventory.
2. Financial Statement Schedules
The information required by Schedule II, Valuation and Qualifying Accounts, is included in the Consolidated Financial Statements. All other financial statement schedules are not applicable.
3. Exhibits.
INDEX OF EXHIBITS
|
|
|
|
Exhibit No.
|
|
Description of Document
|
|
|
Agreement and Plan of Merger and Reorganization dated June 26, 2007 by and among the Company, Augusta Acquisition Sub, Inc., and Web.com, Inc. (1)
|
|
|
Purchase Agreement among the Company, Register.com GP (Cayman) Ltd, each seller named therein and Register.com (Cayman) Limited Partnership, dated June 17, 2010. (2)
|
|
|
Purchase Agreement among Web.com Group, Inc., Net Sol Holdings LLC and GA-Net Sol Parent, LLC, dated August 3, 2011. (3)
|
|
|
Agreement and Plan of Merger dated February 11, 2016 by and among the Company, Barton Creek Web.com, LLC and Yodle, Inc. (22)
|
|
|
Amendment No. 1, dated as of March 9, 2016, by and among Yodle, Inc., a Delaware corporation Web.com Group Inc., a Delaware corporation, Barton Creek Web.com, LLC, a Delaware corporation and wholly owned subsidiary of Parent, and Shareholder Representative Services LLC, a Colorado limited liability company. (24)
|
|
|
Amended and Restated Certificate of Incorporation of the Web.com Group, Inc. (4)
|
|
|
Amended and Restated Bylaws of Web.com, Group, Inc. (5)
|
|
|
Certificate of Ownership and Merger of Registration (6)
|
|
|
Reference is made to Exhibits 3.1 and 3.2
|
|
|
Specimen Stock Certificate. (6)
|
|
|
Indenture dated August 14, 2013 between the Company and Wells Fargo Bank, National Association, as Trustee. (7)
|
|
|
First Supplemental Indenture, dated August 14, 2013, between the Company and Wells Fargo Bank, National Association, as Trustee (including the form of 1.00% Senior Convertible Notes due 2018). (7)
|
|
|
2005 Equity Incentive Plan and forms of related agreements. (4)†
|
|
|
2005 Non-Employee Directors’ Stock Option Plan and forms of related agreements. (4)†
|
|
|
2005 Employee Stock Purchase Plan. (4)†
|
|
|
Form of Indemnity Agreement entered into between the Company and certain of its officers and directors. (4)
|
|
|
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under Web.com Group, Inc. 2008 Equity Incentive Plan. (5)†
|
|
|
Executive Severance Benefit Plan (8)†
|
|
|
2008 Equity Incentive Plan. (9)†
|
|
|
2008 Equity Incentive Plan forms of related agreements. (10) †
|
|
|
2009 Inducement Award Plan and form of related Option Grant Notice. (11)†
|
|
|
2010 Inducement Award Plan and related agreements. (12)†
|
|
|
2011 Inducement Award Plan. (13)†
|
|
|
Company Supplemental Executive Retirement Plan. (14)†
|
|
|
Company Non-Qualified Deferred Compensation Plan. (14)†
|
|
|
Trust Agreement between the Company and Reliance Trust Company. (14)†
|
|
|
Amended and Restated Employment Agreement between the Company and David L. Brown. (15)†
|
|
|
Amended and Restated Employment Agreement between the Company and Kevin M. Carney. (15)†
|
|
|
Amendment to Employment Arrangement with Jason Teichman. (16)†
|
|
|
Compensatory Arrangements of certain officers. (17)†
|
|
|
Lease agreement dated December 4, 2007 between the Company and FDG Flagler Center I, LLC (18)
|
|
|
Amended and Restated First Lien Credit Agreement, dated March 6, 2013. (19)
|
|
|
Web.com Group, Inc. 2014 Equity Incentive Plan. (20)
|
|
|
|
|
|
|
Credit Agreement, dated as of September 9, 2014, by and among Web.com Group, Inc., the several banks and other financial institutions or entities from time to time parties thereto, JPMorgan Chase Bank, N.A. and SunTrust Bank., as co-syndication agents, Regions Bank, Fifth Third Bank, Bank of America, N.A., Barclays Bank plc, Wells Fargo Bank, National Association, Royal Bank of Canada, Deutsche Bank Securities Inc. and Compass Bank, as co-documentation agents, and JPMorgan Chase Bank, N.A., as administrative agent. (21)
|
|
|
Amendment to Credit Agreement, dated as of February 17, 2016, by and among the Company, the guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto. (22)
|
|
|
Web.com Group, Inc. 2017 Acquisio Inducement Award Plan (25)
|
|
|
Web.com Group, Inc. 2017 DonWeb Inducement Award Plan (26)
|
|
|
Web.com Group, Inc. 2016 Inducement Award Plan (27)
|
|
|
Yodle, Inc. 2007 Equity Incentive Plan (28)
|
|
|
Subsidiaries of the Company.
|
|
|
Consent of Ernst & Young, LLP, Independent Registered Certified Public Accounting Firm.
|
|
|
Power of Attorney (included in the signature page hereto).
|
|
|
Chief Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
|
Chief Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
|
Certifications of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). (23)
|
EX-101.INS
|
|
XBRL Instance Document.*
|
EX-101.SCH
|
|
XBRL Taxonomy Extension Schema Document.*
|
EX-101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.*
|
EX-101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.*
|
EX-101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.*
|
EX-101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.*
|
|
|
(1)
|
Filed as an Exhibit to the Company’s current report on Form 8-K (000-51595), filed with the SEC on June 27, 2007, and incorporated herein by reference.
|
|
|
(2)
|
Filed as an Exhibit to the Company’s quarterly report on Form 10-Q (000-51595), filed with the SEC on August 4, 2010, and incorporated herein by reference.
|
|
|
(3)
|
Filed as Annex A to the Company’s definitive proxy statement on Schedule 14A, filed with the SEC on September 22, 2011, and incorporated herein by reference.
|
|
|
(4)
|
Filed as an Exhibit to the Company’s registration statement on Form S-1 (333-124349), filed with the SEC on April 27, 2005, as amended, and incorporated herein by reference.
|
|
|
(5)
|
Filed as an Exhibit to the Company’s current report on Form 8-K (000-51595), filed with the SEC on February 10, 2009, and incorporated herein by reference.
|
|
|
(6)
|
Filed as an Exhibit to the Company’s current report on Form 8-K (000-51595), filed with the SEC on October 30, 2008, and incorporated herein by reference.
|
|
|
(7)
|
Filed as an Exhibit to the Registrant's current report on Form 8-K (000-51595), filed with the SEC on August 14, 2013, and incorporated herein by reference.
|
|
|
(8)
|
Filed as an Exhibit to the Company’s registration statement report on Form S-1 (333-124349), filed with the SEC on June 8, 2005.
|
|
|
(9)
|
Filed as Appendix B to the Company’s proxy statement on Schedule 14A, filed with the SEC on April 14, 2008, and incorporated herein by reference.
|
|
|
(10)
|
Filed as an Exhibit to the Company’s annual report on Form 10-K (000-51595), filed with the SEC on March 6, 2013, and incorporated herein by reference.
|
|
|
(11)
|
Filed as an Exhibit to the Company’s registration statement on Form S-8 (333-158819), filed with the SEC on April 27, 2009, and incorporated herein by reference.
|
|
|
(12)
|
Filed as an Exhibit to the Company’s registration statement on Form S-8 (333-168641), filed with the SEC on August 9, 2010, and incorporated herein by reference.
|
|
|
(13)
|
Filed as an Exhibit to the Company’s registration statement on Form S-8 (333-177610), filed with the SEC on October 31, 2011, and incorporated herein by reference.
|
|
|
(14)
|
Filed as an Exhibit to the Company’s quarterly report on Form 8-K (000-51595), filed with the SEC on June 19, 2012.
|
|
|
(15)
|
Filed as an Exhibit to the Company’s current report on Form 8-K (000-51595), filed with the SEC on March 11, 2011, and incorporated herein by reference.
|
|
|
(16)
|
Incorporated by reference to Item 5.02 of the Current Report on Form 8-K, filed with the SEC on September 30, 2013, with respect to salary increase for Mr. Teichman (SEC File No. 000-51595).
|
|
|
(17)
|
Filed as Item 5.02 to the Company's current report on Form 8-K (000-51595), filed with the SEC on February 7, 2018.
|
|
|
(18)
|
Filed as an exhibit to the Company’s quarterly report on Form 10-Q (000-51595), filed with the SEC on May 12, 2008, and incorporated herein by reference.
|
|
|
(19)
|
Filed as an exhibit to the Company’s current report on Form 8-K (000-51595), filed with the SEC on March 6, 2013.
|
|
|
(20)
|
Filed as Appendix A to the Registrant's Proxy Statement on Schedule 14A, filed with the SEC on March 28, 2014, and incorporated by reference.
|
|
|
(21)
|
Filed as an Exhibit to the Registrant's current report on Form 8-K (000-51595), filed with the SEC on September 10, 2014, and incorporated herein by reference.
|
|
|
(22)
|
Filed as an Exhibit to the Registrant's current report on Form 8-K (000-51595), filed with the SEC on February 11, 2016, and incorporated herein by reference.
|
|
|
(23)
|
The certification attached as Exhibit 32.1 accompanying this Annual Report on Form 10-K, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Web.com Group, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.
|
|
|
(24)
|
Filed as an Exhibit to the Registrant's current report on Form 8-K (000-51595), filed with the SEC on March 11, 2016, and incorporated herein by reference.
|
|
|
(25)
|
Filed as an Exhibit to the Company’s registration statement on Form S-8 (333-221383), filed with the SEC on November 7, 2017, and incorporated herein by reference.
|
|
|
(26)
|
Filed as an Exhibit to the Company’s registration statement on Form S-8 (333-215843), filed with the SEC on January 31, 2017, and incorporated herein by reference.
|
|
|
(27)
|
Filed as an Exhibit to the Company’s registration statement on Form S-8 (333-210047), filed with the SEC on March 9, 2016, and incorporated herein by reference.
|
|
|
(28)
|
Filed as an Exhibit to the Company’s registration statement on Form S-8 (333-210047), filed with the SEC on March 9, 2016, and incorporated herein by reference.
|
|
|
(29)
|
Incorporated by reference to Exhibit 10.2 to Interland, Inc.’s current report on Form 8-K (No. 000-17932), filed with the SEC on November 7, 2005.
|
|
|
(30)
|
Incorporated by reference to Exhibit 10.136 to Web.com’s current report on Form 8-K (No. 000-17932), filed with the SEC on April 3, 2006.
|
† Management contract or compensatory plan or arrangement.
* The XBRL information is being furnished with this Form 10-K, not filed.