Endurance International Group Holdings, Inc. (Nasdaq:EIGI), a
leading provider of cloud-based platform solutions designed to help
small and medium-sized businesses succeed online, reported
financial results for the third quarter ended September 30, 2013
today.
"We're excited to report great results for the third quarter,
our first as a public company. We demonstrated strong organic
revenue growth while increasing adjusted EBITDA and unlevered free
cash flow. Our company's strategy is based on two simple
principles: adding more high quality subscribers to our platform
and then selling our subscribers more value added solutions. During
the quarter, we added over70,000 new subscribers, bringing our year
to date net new additions to 217,000. Further, we continued to
increase our average revenue per subscriber (ARPS), which grew to
$13.14 for the quarter," commented Hari Ravichandran, CEO and
Founder of Endurance International Group.
Third Quarter Highlights
- Revenue increased 59% to $132.9 million compared to $83.4
million for the third quarter of 2012.
- Adjusted EBITDA increased 36% to $50.3 million compared to
$37.1 million for the third quarter of 2012.
- Net loss was $27.0 million, or $0.28 per diluted share,
compared to a net loss of $27.7 million, or $0.29 per diluted
share, for the third quarter of 2012.
- Unlevered free cash flow (UFCF) increased 48% to $43.1 million,
compared to $29.2 million for the third quarter of 2012.
- Total subscribers were approximately 3.440 million as of
September 30, 2013, a sequential increase of approximately 70,000
from 3.370 million as of June 30, 2013, and a year-over-year
increase of approximately 326,000 from 3.114 million as of
September 30, 2012.
- ARPS was $13.14 for the third quarter of 2013, representing a
sequential increase of $0.13 from $13.01 for the second quarter of
2013, and a year-over-year increase of $0.19 from $12.95 for the
third quarter of 2012.
- Monthly recurring revenue (MRR) retention rate remained at 99%,
consistent with our MRR retention rate for the second quarter of
2013 and the third quarter of 2012.
Adjusted EBITDA, UFCF and ARPS are non-GAAP financial measures.
A reconciliation of these non-GAAP financial measures to their most
comparable measure calculated in accordance with GAAP is provided
in the financial statement tables included at the end of this press
release. An explanation of these measures is also provided below
under the heading "Use of Non-GAAP Financial Measures".
Recent Developments
The company completed its initial public offering in October
2013, pursuant to which it sold 21,051,000 shares of common stock
at an offering price of $12.00 per share, raising gross proceeds of
$252.6 million. On November 25, 2013, Endurance completed a
refinancing of its bank debt. Using proceeds from its initial
public offering, cash on hand and incremental first lien
facilities, the company repaid its $315 million second lien term
loan and secured a lower effective interest rate. Following
the transaction, the company's outstanding bank debt is $1,050
million. As compared with the bifurcated term loan facility in
place at September 30, 2013, the new single tranche of first lien
debt is expected to lower the company's annualized term loan
interest expense by over$35 million, based on the current loan
balance and new interest rates.
2013 Guidance
The company is providing fiscal year 2013 guidance as
follows:
- Adjusted Revenue of approximately $525
million
- Adjusted EBITDA of approximately $204
million
- UFCF of approximately $162 million
The Adjusted Revenue metric adds back$0.5 million in the fourth
quarter 2013 and $7.3 million for the full year 2013 associated
with purchase accounting adjustments to our GAAP revenue.
Conference Call and Webcast Information
Endurance International Group's third quarter 2013
teleconference and webcast is scheduled to begin at 4:30 p.m. ET on
Tuesday, December 3, 2013. To participate on the live call,
analysts and investors should dial (888) 734-0328 at least ten
minutes prior to the call. Endurance International Group will
also offer a live and archived webcast of the conference call,
accessible from the "Investor Relations" section of the Company's
website at http://ir.enduranceinternational.com/.
Use of Non-GAAP Financial Measures
In addition to our financial information presented in accordance
with GAAP, we use certain non-GAAP financial measures to clarify
and enhance our understanding of past performance and future
prospects. Generally, a non-GAAP financial measure is a numerical
measure of a company's operating performance, financial position or
cash flow that includes or excludes amounts that are included or
excluded from the most directly comparable measure calculated and
presented in accordance with GAAP. We monitor the non-GAAP
financial measures described below, and we believe they are helpful
to investors, because we believe they reflect the operating
performance of our business and help management and investors gauge
our ability to generate cash flow, excluding some recurring and
non-recurring expenses that are included in the most directly
comparable measures calculated and presented in accordance with
GAAP.
Our non-GAAP financial measures may not provide information that
is directly comparable to that provided by other companies in our
industry, as other companies in our industry may calculate non-GAAP
financial results differently. In addition, there are limitations
in using non-GAAP financial measures because they are not prepared
in accordance with GAAP, may be different from non-GAAP financial
measures used by other companies and exclude expenses that may have
a material impact on our reported financial results. Further,
interest expense, which is excluded from some of our non-GAAP
financial measures, has and will continue to be for the foreseeable
future a significant recurring expense in our business. The
presentation of non-GAAP financial information is not meant to be
considered in isolation or as a substitute for the directly
comparable financial measures prepared in accordance with GAAP. We
urge you to review the reconciliations of our non-GAAP financial
measures to the comparable GAAP financial measures included in this
press release, and not to rely on any single financial measure to
evaluate our business.
Adjusted Net Income
Adjusted net income is a non-GAAP financial measure that we
calculate as net income (loss) plus changes in deferred revenue
inclusive of purchase accounting adjustments related to
acquisitions, amortization, stock-based compensation expense,
severance, expenses related to restructurings or integration of
acquisitions, any dividend-related payments accounted for as
compensation expense, costs associated with litigation matters and
preparation for the initial public offering and the estimated
tax effects of the foregoing adjustments. Due to our history of
acquisitions and financings, we have incurred accounting charges
and expenses that obscure the operating performance of our
business. We believe that adjusting for these items and the use of
adjusted net income is useful to investors in evaluating the
performance of our company.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we
calculate as adjusted net income plus interest expense,
depreciation, amortization and change in deferred taxes. We manage
our business based on the cash collected from our subscribers and
the cash required to acquire and service those subscribers. We
believe highlighting cash collected and cash spent in a given
period is valuable insight for an investor to gauge the overall
health of our business. Under GAAP, although subscription fees are
paid in advance, we recognize the associated revenue over the
subscription term, which does not fully reflect short-term trends
in our operating results.
Unlevered Free Cash Flow
Unlevered free cash flow, or UFCF, is a non-GAAP financial
measure that we calculate as adjusted EBITDA plus changes in
operating assets and liabilities (other than deferred revenue) net
of acquisitions less capital expenditures. We believe the most
useful indicator of our operating performance is the cash
generating potential of our company prior to the impact of our
capital structure and prior to any accounting charges related to
our acquisitions. We have substantial indebtedness primarily
as a result of the December 2011 acquisition of a controlling
interest in our company by investment funds and entities affiliated
with Warburg Pincus and Goldman Sachs and a substantial dividend
payment in November 2012. We also believe that because our business
has meaningful data center and related infrastructure requirements,
the level of capital expenditures required to run our business are
an important factor for investors. We believe UFCF is a useful
measure that captures the effects of these issues.
Adjusted Revenue
Adjusted revenue is a non-GAAP financial measure that we
calculate as GAAP revenue adjusted to exclude the impact of any
fair value adjustments to deferred revenue resulting from
acquisitions and to include the revenue generated from subscribers
we added through business acquisitions as if those acquired
subscribers had been our subscribers since the beginning of the
period presented. We believe that excluding fair value adjustments
to deferred revenue is useful to investors because it shows our
revenue prior to purchase accounting adjustments related to our
acquisitions, and that including revenue from acquired subscribers
in this manner provides a helpful comparison of the revenues
generated from our subscribers from period to period.
Average Revenue Per Subscriber
Average revenue per subscriber, or ARPS, is a non-GAAP financial
measure that we calculate as the amount of adjusted revenue we
recognize from subscribers in a period divided by the average of
the number of total subscribers at the beginning of the period and
at the end of the period. We believe ARPS is an indicator of our
ability to optimize our product and service mix and pricing, and to
sell products and services to new and existing subscribers.
Forward-Looking Statements
This press release includes certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements concerning our financial guidance for
fiscal year 2013 and our expectations regarding future interest
expense. These forward-looking statements include, but are not
limited to, plans, objectives, expectations and intentions and
other statements contained in this press release that are not
historical facts, and statements identified by words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" or words of similar meaning. These forward-looking
statements reflect our current views about our plans, intentions,
expectations, strategies and prospects, which are based on the
information currently available to us and on assumptions we have
made. Although we believe that our plans, intentions, expectations,
strategies and prospects as reflected in or suggested by those
forward-looking statements are reasonable, we can give no assurance
that the plans, intentions, expectations or strategies will be
attained or achieved. Furthermore, actual results may differ
materially from those described in the forward-looking statements
and will be affected by a variety of risks and factors that are
beyond our control including, without limitation, risks set forth
under the caption "Risk Factors" in our SEC filings. We assume no
obligation to update any forward-looking statements contained in
this document as a result of new information, future events or
otherwise.
About Endurance International Group
Endurance International Group is a leading provider of
cloud-based platform solutions designed to help small and
medium-sized businesses succeed online. Less than
20 years old, Endurance serves over 3.4 million subscribers through
a family of brands that includes Bluehost, HostGator, Domain.com,
FatCow, iPower and iPage. Endurance is headquartered in Burlington,
Massachusetts, has a presence in Asia and the Americas, and employs
approximately 2,500 people. Endurance provides a comprehensive
suite of over 150 products and services that includes web presence
and mobile sites, email and e-commerce solutions, as well as more
advanced offerings, such as SEO services, scalable computing,
security, storage and backup, online marketing and productivity
solutions.
|
|
|
Endurance International
Group Holdings, Inc. |
Consolidated Balance
Sheets (unaudited) |
(in thousands, except
share and per share amounts) |
|
|
|
|
December 31, |
September 30, |
|
2012 |
2013 |
|
|
|
Assets |
|
|
Current assets: |
|
|
Cash and cash
equivalents |
$23,245 |
$33,383 |
Restricted cash |
888 |
1,172 |
Accounts receivable |
5,824 |
6,354 |
Deferred tax asset—short
term |
12,093 |
15,136 |
Prepaid expenses and other
current assets |
26,093 |
32,553 |
Total current assets |
68,143 |
88,598 |
|
|
|
Property and
equipment—net |
34,604 |
46,587 |
Goodwill |
936,746 |
942,088 |
Other intangible
assets—net |
480,690 |
404,683 |
Deferred financing
costs |
1,481 |
2,572 |
Investment |
10,227 |
19,396 |
Other assets |
6,245 |
15,244 |
Total assets |
$1,538,136 |
$1,519,168 |
|
|
|
Liabilities and stockholders' equity
(deficit) |
|
|
Current liabilities: |
|
|
Accounts payable |
$8,007 |
$4,913 |
Accrued expenses |
31,267 |
38,587 |
Deferred revenue |
151,078 |
183,468 |
Current portion of notes
payable |
23,000 |
8,905 |
Deferred consideration—short
term |
52,878 |
26,694 |
Other current
liabilities |
5,766 |
6,254 |
Total current liabilities |
271,996 |
268,821 |
|
|
|
Long-term deferred revenue |
36,291 |
49,814 |
Notes payable—long term |
1,107,000 |
1,189,869 |
Deferred tax liability—long term |
27,579 |
29,048 |
Deferred consideration |
24,501 |
1,989 |
Other liabilities |
614 |
104 |
Total liabilities |
$1,467,981 |
$1,539,645 |
|
|
|
Stockholders' equity (deficit): |
|
|
Preferred Stock—par value
$0.0001; 5,000,000 shares authorized; no shares issued or
outstanding |
— |
— |
Common Stock—par value $0.0001;
500,000,000 shares authorized; 105,187,363 shares issued at
December 31, 2012 and September 30, 2013; 96,774,449 and 98,393,401
outstanding at December 31, 2012 and September 30, 2013,
respectively |
11 |
11 |
Additional paid-in
capital |
509,714 |
510,819 |
Accumulated other comprehensive
income |
— |
(24) |
Accumulated deficit |
(439,570) |
(531,283) |
Total stockholders' equity
(deficit) |
70,155 |
(20,477) |
Total liabilities and stockholders' equity
(deficit) |
$1,538,136 |
$1,519,168 |
|
|
|
|
|
|
|
|
Endurance International
Group Holdings, Inc. |
Consolidated Statements
of Operations and Comprehensive Loss |
(unaudited) |
(in thousands, except
share and per share amounts) |
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September 30, |
September 30, |
|
2012 |
2013 |
2012 |
2013 |
|
|
|
|
|
Revenue |
$83,353 |
$132,913 |
$175,121 |
$383,876 |
Cost of revenue |
69,492 |
87,165 |
150,060 |
262,345 |
Gross profit |
13,861 |
45,748 |
25,061 |
121,531 |
Operating expense: |
|
|
|
|
Sales and marketing |
22,600 |
28,932 |
59,158 |
87,231 |
Engineering and
development |
3,082 |
5,409 |
7,080 |
17,644 |
General and
administrative |
13,319 |
15,742 |
25,567 |
44,105 |
Total operating expense |
39,001 |
50,083 |
91,805 |
148,980 |
Loss from operations |
(25,140) |
(4,335) |
(66,744) |
(27,449) |
Other expense: |
|
|
|
|
Interest income |
14 |
31 |
18 |
61 |
Interest expense |
(18,761) |
(22,572) |
(37,605) |
(66,111) |
Total other expense—net |
(18,747) |
(22,541) |
(37,587) |
(66,050) |
Loss before income taxes |
(43,887) |
(26,876) |
(104,331) |
(93,499) |
Income tax expense (benefit) |
(16,195) |
244 |
(37,623) |
(1,427) |
Equity loss (income) of unconsolidated
entities, net of tax |
— |
(93) |
— |
(359) |
Net loss |
$(27,692) |
$(27,027) |
$(66,708) |
$(91,713) |
Comprehensive loss: |
|
|
|
|
Foreign currency translation
adjustments |
— |
(24) |
— |
(24) |
Total comprehensive loss |
$(27,692) |
$(27,051) |
$(66,708) |
$(91,737) |
Net loss per share attributable to common
stockholders – basic and diluted |
$(0.29) |
$(0.28) |
$(0.69) |
$(0.94) |
Weighted-average number of common shares used
in computing net loss per share attributable to common stockholders
– basic and diluted |
96,558,052 |
98,206,616 |
96,558,052 |
97,618,972 |
|
|
|
|
|
|
|
|
|
|
Endurance International
Group Holdings, Inc. |
Consolidated Statements
of Cash Flows |
(unaudited) |
(in
thousands) |
|
|
|
|
|
|
Three Months |
Nine Months |
|
Ended |
Ended |
|
September
30, |
September
30, |
|
|
|
|
|
|
2012 |
2013 |
2012 |
2013 |
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
Net loss |
$(27,692) |
$(27,027) |
$(66,708) |
$(91,713) |
Adjustments to reconcile net
loss to net cash provided by (used in) operating activities: |
|
|
|
|
Depreciation of
property and equipment |
1,610 |
4,803 |
3,985 |
13,070 |
Amortization of
other intangible assets |
25,699 |
26,467 |
57,272 |
78,781 |
Amortization of
deferred financing costs |
1,739 |
83 |
3,813 |
189 |
Amortization of
net present value of deferred consideration |
506 |
225 |
506 |
1,393 |
Stock-based
compensation |
456 |
366 |
1,485 |
1,105 |
Deferred tax
(benefit) loss |
(16,200) |
611 |
(37,629) |
(2,139) |
(Gain) loss on
sale of property and equipment |
(23) |
— |
2 |
332 |
(Gain) loss on
equity investments |
— |
(93) |
— |
(359) |
Financing costs
expensed |
— |
— |
609 |
— |
Changes in
operating assets and liabilities: |
|
|
|
|
Accounts receivable |
(1,649) |
1,528 |
(2,168) |
(374) |
Prepaid expenses and other current assets |
(4,801) |
(3,385) |
(18,183) |
(10,422) |
Accounts payable and accrued expenses |
3,965 |
2,032 |
6,051 |
4,119 |
Deferred revenue |
26,136 |
10,844 |
93,574 |
44,495 |
Net cash provided by operating
activities |
9,746 |
16,454 |
42,609 |
38,477 |
Cash flows from investing activities |
|
|
|
|
Business acquired in purchase
transaction, net of cash acquired |
(296,227) |
(4,951) |
(297,228) |
(7,385) |
Deferred
consideration |
3,000 |
(49,770) |
(7,235) |
(53,106) |
Proceeds from sale of
assets |
— |
— |
— |
23 |
Cash paid for minority
investment |
(111) |
(175) |
(361) |
(8,935) |
Purchases of property and
equipment |
(5,478) |
(7,437) |
(11,893) |
(25,384) |
Proceeds from sale of property
and equipment |
102 |
— |
115 |
13 |
Purchases of intangible
assets |
— |
(569) |
— |
(569) |
Net (deposits) and withdrawals
of principal balances in restricted cash accounts |
27 |
(577) |
232 |
(284) |
Net cash used in investing
activities |
(298,687) |
(63,479) |
(316,370) |
(95,627) |
Cash flows from financing activities: |
|
|
|
|
Proceeds from issuance of term
loan |
275,000 |
90,000 |
810,000 |
90,000 |
Proceeds from borrowing of
revolver |
— |
23,000 |
— |
57,000 |
Repayment of term
loan |
(1,675) |
(2,226) |
(351,675) |
(6,226) |
Repayment of
revolver |
— |
(46,000) |
— |
(72,000) |
Payment of financing
costs |
(12,865) |
(1,280) |
(22,698) |
(1,280) |
Proceeds from issuance of
common stock to parent |
— |
— |
100 |
— |
Issuance costs of series E
preferred stock |
(53) |
— |
(53) |
— |
Redemption of series E
preferred stock |
— |
— |
(150,000) |
— |
Dividends paid on series E
preferred stock |
— |
— |
(5,963) |
— |
Net cash provided by financing
activities |
260,407 |
63,494 |
279,711 |
67,494 |
Net effect of exchange rate on cash and cash
equivalents |
— |
(70) |
— |
(206) |
Net increase (decrease) in cash and cash
equivalents |
(28,534) |
16,399 |
5,950 |
10,138 |
Cash and cash equivalents: |
|
|
|
|
Beginning of period |
51,437 |
16,984 |
16,953 |
23,245 |
End of period |
$22,903 |
$33,383 |
$22,903 |
$33,383 |
Supplemental cash flow information: |
|
|
|
|
Interest paid |
$15,509 |
$21,796 |
$32,800 |
$69,068 |
Income taxes paid |
$191 |
$260 |
$829 |
$1,350 |
|
|
|
|
|
Reconciliation of U.S. GAAP to Non-GAAP Financial
Measures
The following table reflects the reconciliation of adjusted net
income, adjusted EBITDA and unlevered free cash flow to net loss
calculated in accordance with GAAP (unaudited; all data in
thousands).
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
|
|
|
2012 |
2013 |
2012 |
2013 |
|
|
|
|
|
Net loss |
$(27,692) |
$(27,027) |
$(66,708) |
$(91,713) |
Stock-based compensation |
456 |
366 |
1,485 |
1,105 |
Amortization of long-lived assets related to
acquisitions |
25,699 |
26,467 |
57,272 |
78,781 |
Amortization of deferred financing
costs |
1,739 |
83 |
3,813 |
189 |
Changes in deferred revenue (inclusive of
impact of purchase accounting) |
26,136 |
10,844 |
93,574 |
44,495 |
Transaction expenses |
8,186 |
1,523 |
10,399 |
6,387 |
Integration and restructuring
expenses |
— |
8,877 |
— |
40,157 |
Severance |
207 |
69 |
294 |
69 |
Legal and professional expenses |
— |
1,275 |
250 |
4,770 |
Tax-affected impact of adjustments |
(24,146) |
(1,455) |
(64,306) |
(5,173) |
Adjusted net
income |
$10,585 |
$21,022 |
$36,073 |
$79,067 |
Depreciation |
1,610 |
4,803 |
3,985 |
13,070 |
Current and deferred tax benefit |
7,946 |
2,066 |
26,677 |
3,034 |
Interest expense, net (net of impact of
amortization of deferred financing costs) |
17,008 |
22,458 |
33,774 |
65,861 |
Adjusted EBITDA |
$37,149 |
$50,349 |
$100,509 |
$161,032 |
Change in operating assets and liabilities,
net of acquisitions |
(2,485) |
175 |
(14,300) |
(6,677) |
Capital expenditures |
(5,478) |
(7,437) |
(11,893) |
(25,384) |
Unlevered free cash
flow |
$29,186 |
$43,087 |
$74,316 |
$128,971 |
|
|
|
|
|
The following table reflects the reconciliation of ARPS and
adjusted revenue to revenue calculated in accordance with GAAP
(unaudited; all data in thousands, except ARPS data):
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
|
|
|
2012 |
2013 |
2012 |
2013 |
|
|
|
|
|
Revenue |
$83,353 |
$132,913 |
$175,121 |
$383,876 |
Purchase accounting adjustment |
23,691 |
1,307 |
57,307 |
6,782 |
Pre-acquisition revenue from acquired
properties |
13,131 |
— |
116,437 |
512 |
Adjusted revenue |
$120,175 |
$134,220 |
$348,865 |
$391,170 |
Total subscribers |
3,114 |
3,440 |
3,114 |
3,440 |
ARPS |
$12.95 |
$13.14 |
$12.84 |
$13.02 |
|
|
|
|
|
CONTACT: Investor Contacts:
Blake Cunneen
Endurance International Group
ir@endurance.com
Jonathan Schaffer
The Blueshirt Group
(212) 871-3953
ir@endurance.com
Press Contacts:
Laurie Coots
Endurance International Group
(781) 852-3400
press@endurance.com
Kim Hughes
The Blueshirt Group
(415) 516-6187
press@endurance.com
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