Endurance International Group Holdings, Inc. (NASDAQ:EIGI), a
leading provider of cloud-based platform solutions designed to help
small and medium-sized businesses succeed online, today reported
financial results for its third quarter ended September 30, 2017.
“I am pleased to report third quarter results that reflect solid
performance in both web presence and email marketing,” commented
Jeffrey H. Fox, president and chief executive officer of Endurance
International Group. “Our 2017 plan to deliver profitable
growth while focusing on higher lifetime revenue customers has been
demonstrated in our year to date performance. Our priorities
for the rest of the year are to continue to simplify our operations
and to invest in initiatives that we believe will drive future
growth and long-term value for our customers."
Third Quarter 2017 Financial Highlights
- Revenue for the third quarter of 2017 was $295.2 million, an
increase of 1 percent compared to $291.2 million for the third
quarter of 2016. Revenue for the third quarter of 2017 includes a
contribution of $101.5 million from Constant Contact, as compared
to a contribution of $95.9 million for the third quarter of
2016.
- Net loss for the third quarter of 2017 was $40.3 million
compared to net loss of $29.8 million for the third quarter of
2016.
- Net loss attributable to Endurance International Group
Holdings, Inc. for the third quarter of 2017 was $40.3 million, or
$(0.29) per diluted share, compared to net loss of $31.7 million,
or $(0.24) per diluted share, for the third quarter of 2016.
- Adjusted EBITDA for the third quarter of 2017 was $93.8
million, an increase of 10 percent compared to $85.2 million for
the third quarter of 2016. Third quarter 2017 adjusted EBITDA
excludes the impact of an impairment of $14.4 million related to
the reduction in value of certain intangibles, primarily associated
with domain name assets, and an additional $8.0 million of accrued
expense reserved in connection with ongoing discussions with the
staff of the SEC to resolve potential claims arising from the SEC
investigations initiated against Endurance and Constant Contact in
December 2015.
- Cash flow from operations for the third quarter of 2017 was
$46.4 million, an increase of 28 percent compared to $36.2 million
for the third quarter of 2016.
- Free cash flow, defined as cash flow from operations less
capital expenditures and capital lease obligations, for the third
quarter of 2017 was $31.9 million, an increase of 21 percent
compared to $26.4 million for the third quarter of 2016.
Third Quarter Operating Highlights
- Total subscribers on platform at September 30, 2017 were
approximately 5.122 million, compared to approximately 5.439
million subscribers at September 30, 2016 and 5.217 million
subscribers at June 30, 2017. See “Total Subscribers”
below.
- Average revenue per subscriber, or ARPS, for the third quarter
of 2017 was $19.03, compared to $17.78 for the third quarter of
2016 and $18.52 for the second quarter of 2017. Excluding the
impact of Constant Contact, ARPS for the third quarter of 2017 was
$13.91, compared to $13.25 for the third quarter of 2016 and $13.62
for the second quarter of 2017. See “Average Revenue Per
Subscriber” below.
Fiscal 2017 Guidance
The company is increasing its adjusted EBITDA expectations for
the year by approximately $8 million from the midpoint of prior
guidance. As of the date of this release, October 31, 2017,
for the full year ending December 31, 2017, the company now
expects:
|
|
2016 Actualas Reported |
Prior Guidance(as of August 1,
2017)* |
Guidance(as of October 31,
2017)* |
| GAAP revenue |
$1.111
billion |
5 -
5.5% increase |
5 -
5.5% increase |
| Adjusted EBITDA |
$288
million |
14 -
16% increase |
~18%
increase |
| Free cash flow |
$112
million |
~25%
increase |
~25%
increase |
| |
|
|
|
Adjusted EBITDA and free cash flow are non-GAAP financial
measures. A reconciliation of these non-GAAP financial
measures to their most comparable measure calculated in accordance
with GAAP is provided in the financial statement tables included at
the end of this press release.
* Percentage increases shown in the "Prior Guidance" and
"Guidance" columns represent percentage increases over 2016 figures
shown in the "Actual as Reported" column.
Conference Call and Webcast Information
Endurance International Group’s third quarter 2017 financial
results teleconference and webcast is scheduled to begin at 8:00
a.m. EDT on Tuesday, October 31, 2017. To participate on the live
call, analysts and investors should dial (888) 734-0328 at least
ten minutes prior to the call. Endurance International Group
will also offer a live and archived webcast of the conference call,
accessible from the Investor Relations section of the company’s
website at http://ir.endurance.com.
Non-GAAP Financial Measures
In addition to our financial information presented in accordance
with GAAP, we use adjusted EBITDA and free cash flow, which are
non-GAAP financial measures, to evaluate the operating and
financial performance of our business, identify trends affecting
our business, develop projections and make strategic business
decisions. A non-GAAP financial measure is a numerical
measure of a company’s operating performance, financial position or
cash flow that excludes amounts that are included in the most
directly comparable measure calculated and presented in accordance
with GAAP or includes amounts that are excluded from the most
directly comparable measure calculated and presented in accordance
with GAAP.
Our non-GAAP financial measures may not provide information that
is directly comparable to that provided by other companies in our
industry, as other companies in our industry may calculate non-GAAP
financial results differently. In addition, there are limitations
in using non-GAAP financial measures because they are not prepared
in accordance with GAAP and exclude expenses that may have a
material impact on our reported financial results. For example,
adjusted EBITDA excludes interest expense, which has been and will
continue to be for the foreseeable future a significant recurring
expense in our business. The presentation of non-GAAP financial
information is not meant to be considered in isolation from, or as
a substitute for, the most directly comparable financial measures
prepared in accordance with GAAP. We urge you to review the
additional information about adjusted EBITDA and free cash flow
shown below, including the reconciliations of these non-GAAP
financial measures to their comparable GAAP financial measures, and
not to rely on any single financial measure to evaluate our
business.
Adjusted EBITDA is a non-GAAP financial measure
that we calculate as net (loss) income, excluding the impact of
interest expense (net), income tax expense (benefit), depreciation,
amortization of other intangible assets, stock-based compensation,
restructuring expenses, transaction expenses and charges, SEC
investigations reserve, (gain) loss of unconsolidated entities, and
impairment of other long-lived assets. We view adjusted EBITDA as a
performance measure and believe it helps investors evaluate and
compare our core operating performance from period to period.
Free Cash Flow, or FCF, is a non-GAAP financial
measure that we calculate as cash flow from operations less capital
expenditures and capital lease obligations. We believe that FCF
provides investors with an indicator of our ability to generate
positive cash flows after meeting our obligations with regard to
capital expenditures (including capital lease obligations).
Key Operating Metrics
Total Subscribers - We define total subscribers
as the approximate number of subscribers that, as of the end of a
period, are identified as subscribing directly to our products on a
paid basis, excluding accounts that access our solutions via
resellers or that purchase only domain names from us. Subscribers
of more than one brand, and subscribers with more than one distinct
billing relationship or subscription with us, are counted as
separate subscribers. Total subscribers for a period reflects
adjustments to add or subtract subscribers as we integrate
acquisitions and/or are otherwise able to identify subscribers that
meet, or do not meet, this definition of total subscribers.
There were no adjustments for the third quarter of 2017.
Average Revenue Per Subscriber (ARPS) - We
calculate ARPS as the amount of revenue we recognize in a period,
including marketing development funds and other revenue not
received from subscribers, divided by the average of the number of
total subscribers at the beginning of the period and at the end of
the period, which we refer to as average subscribers for the
period, divided by the number of months in the period. See
definition of “Total Subscribers” above. We believe ARPS is
an indicator of our ability to optimize our mix of products and
services and pricing and sell products and services to new and
existing subscribers. ARPS does not represent an exact
measure of the average amount a subscriber spends with us each
month, since our calculation of ARPS is impacted by revenues
generated by non-subscribers.
Forward-Looking Statements
This press release includes certain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended,
including statements concerning our updated financial guidance for
fiscal year 2017, our expectations regarding our planned investment
initiatives, and our expected financial and operational
performance in general. These forward-looking statements include,
but are not limited to, plans, objectives, expectations and
intentions and other statements contained in this press release
that are not historical facts, and statements identified by words
such as “expects,” “believes,” “estimates,” “may,” “continue,”
“positions,” “confident,” and variations of such words or words of
similar meaning and the use of future dates. These forward-looking
statements reflect our current views about our plans, intentions,
expectations, strategies and prospects, which are based on the
information currently available to us and on assumptions we have
made. Although we believe that our plans, intentions, expectations,
strategies and prospects as reflected in or suggested by those
forward-looking statements are reasonable, we can give no assurance
that these plans, intentions, expectations 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: the possibility
that our updated financial guidance may differ from expectations;
that our planned initiatives will not result in a positive return
on investment; that we will be unable to successfully enhance the
customer product and service experience and improve customer
satisfaction and retention through operational and infrastructure
improvements; that we will encounter difficulties or delays in our
efforts to build brand awareness of our key brands; that we
will be unable to drive revenue growth by increasing ARPS through
cross-selling and other product-related initiatives; that we will
continue to experience decreases in our subscriber base; an adverse
impact on our business from litigation or regulatory proceedings;
an adverse impact on our business from our substantial indebtedness
and the cost of servicing our debt; the rate of growth of the Small
and Medium Business (“SMB”) market for our solutions; our inability
to increase sales to our existing subscribers, or retain our
existing subscribers; system or Internet failures; our inability to
maintain or improve our competitive position or market share; and
other risks set forth under the caption “Risk Factors” in our
Quarterly Report on Form 10-Q for the period ended June 30, 2017
filed with the SEC on August 4, 2017 and other reports we file with
the SEC.
We assume no obligation to update any forward-looking statements
contained in this document as a result of new information, future
events or otherwise.
About Endurance International Group
Endurance International Group Holdings, Inc. (NASDAQ:EIGI)
(em)Powers millions of small businesses worldwide with products and
technology to vitalize their online web presence, email marketing,
mobile business solutions, and more. The Endurance family of brands
includes: Constant Contact, Bluehost, HostGator, iPage, Domain.com,
BigRock, SiteBuilder and SinglePlatform, among others.
Headquartered in Burlington, Massachusetts, Endurance employs
over 3,600 people across the United
States, Brazil, India and the Netherlands. For more
information, visit: www.endurance.com.
Endurance International Group and the compass logo are
trademarks of The Endurance International Group, Inc.
Constant Contact, the Constant Contact logo and other brand names
of Endurance International Group are trademarks of The Endurance
International Group, Inc. or its subsidiaries.
| |
| Endurance International Group Holdings,
Inc. |
| Consolidated Balance Sheets |
| (unaudited) |
| (in thousands, except share and per
share amounts) |
| |
|
|
December 31, 2016 |
|
September 30, 2017 |
|
Assets |
|
|
|
| Current assets: |
|
|
|
| Cash and
cash equivalents |
$ |
53,596 |
|
|
$ |
70,521 |
|
|
Restricted cash |
3,302 |
|
|
2,647 |
|
| Accounts
receivable |
13,088 |
|
|
13,984 |
|
| Prepaid
domain name registry fees |
55,444 |
|
|
55,742 |
|
| Prepaid
expenses and other current assets |
28,678 |
|
|
29,170 |
|
| Total current
assets |
154,108 |
|
|
172,064 |
|
| Property
and equipment—net |
95,272 |
|
|
88,557 |
|
|
Goodwill |
1,859,909 |
|
|
1,862,489 |
|
| Other
intangible assets—net |
612,057 |
|
|
496,036 |
|
| Deferred
financing costs |
4,932 |
|
|
3,645 |
|
|
Investments |
15,857 |
|
|
15,230 |
|
| Prepaid
domain name registry fees, net of current portion |
10,429 |
|
|
10,874 |
|
| Other
assets |
3,710 |
|
|
2,204 |
|
| Total assets |
$ |
2,756,274 |
|
|
$ |
2,651,099 |
|
| Liabilities,
redeemable non-controlling interest and stockholders’
equity |
|
|
|
| Current
liabilities: |
|
|
|
| Accounts
payable |
$ |
16,074 |
|
|
$ |
13,397 |
|
| Accrued
expenses |
67,722 |
|
|
75,573 |
|
| Accrued
interest |
27,246 |
|
|
14,546 |
|
| Deferred
revenue |
355,190 |
|
|
368,613 |
|
| Current
portion of notes payable |
35,700 |
|
|
33,945 |
|
| Current
portion of capital lease obligations |
6,690 |
|
|
3,166 |
|
| Deferred
consideration—short term |
5,273 |
|
|
4,319 |
|
| Other
current liabilities |
2,890 |
|
|
3,605 |
|
| Total current
liabilities |
516,785 |
|
|
517,164 |
|
| Long-term deferred
revenue |
89,200 |
|
|
90,904 |
|
| Notes payable—long
term, net of original issue discounts of $25,853 and $26,880 and
deferred financing costs of $43,342 and $39,194, respectively |
1,951,280 |
|
|
1,920,258 |
|
| Capital lease
obligations—long term |
512 |
|
|
1,485 |
|
| Deferred tax
liability |
39,943 |
|
|
46,203 |
|
| Deferred
consideration—long term |
7,444 |
|
|
3,493 |
|
| Other liabilities |
8,974 |
|
|
9,889 |
|
| Total liabilities |
2,614,138 |
|
|
2,589,396 |
|
| Redeemable
non-controlling interest |
17,753 |
|
|
— |
|
| Commitments and
contingencies |
|
|
|
| Stockholders’
equity: |
|
|
|
| Preferred
Stock—par value $0.0001; 5,000,000 shares authorized; no shares
issued or outstanding |
— |
|
|
— |
|
| Common
Stock—par value $0.0001; 500,000,000 shares authorized; 134,793,857
and 138,074,911 shares issued at December 31, 2016 and September
30, 2017, respectively; 134,793,857 and 138,074,911 outstanding at
December 31, 2016 and September 30, 2017, respectively |
14 |
|
|
14 |
|
|
Additional paid-in capital |
868,228 |
|
|
917,655 |
|
|
Accumulated other comprehensive loss |
(3,666 |
) |
|
(991 |
) |
|
Accumulated deficit |
(740,193 |
) |
|
(854,975 |
) |
| Total stockholders’
equity |
124,383 |
|
|
61,703 |
|
| Total liabilities,
redeemable non-controlling interest and stockholders’ equity |
$ |
2,756,274 |
|
|
$ |
2,651,099 |
|
| |
|
|
|
|
|
|
|
| Endurance International Group Holdings,
Inc. |
| Consolidated Statements of Operations and
Comprehensive Loss |
| (unaudited) |
| (in thousands, except share and per
share amounts) |
| |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2016 |
|
2017 |
|
2016 |
|
2017 |
| Revenue |
$ |
291,193 |
|
|
$ |
295,222 |
|
|
$ |
819,019 |
|
|
$ |
882,617 |
|
| Cost of revenue |
149,427 |
|
|
158,865 |
|
|
438,980 |
|
|
454,197 |
|
| Gross profit |
141,766 |
|
|
136,357 |
|
|
380,039 |
|
|
428,420 |
|
| Operating expense: |
|
|
|
|
|
|
|
| Sales and
marketing |
75,341 |
|
|
66,276 |
|
|
234,944 |
|
|
211,154 |
|
|
Engineering and development |
23,988 |
|
|
19,882 |
|
|
67,930 |
|
|
60,393 |
|
| General
and administrative |
33,399 |
|
|
51,269 |
|
|
108,508 |
|
|
130,929 |
|
|
Transaction expenses |
159 |
|
|
— |
|
|
32,257 |
|
|
773 |
|
| Total operating
expense |
132,887 |
|
|
137,427 |
|
|
443,639 |
|
|
403,249 |
|
| Income (loss) from
operations |
8,879 |
|
|
(1,070 |
) |
|
(63,600 |
) |
|
25,171 |
|
| Other income
(expense): |
|
|
|
|
|
|
|
| Other
income (expense), net |
(4,845 |
) |
|
(600 |
) |
|
6,565 |
|
|
(600 |
) |
| Interest
income |
162 |
|
|
203 |
|
|
438 |
|
|
506 |
|
| Interest
expense |
(41,208 |
) |
|
(35,848 |
) |
|
(112,573 |
) |
|
(121,022 |
) |
| Total other
expense—net |
(45,891 |
) |
|
(36,245 |
) |
|
(105,570 |
) |
|
(121,116 |
) |
| Loss before income
taxes and equity earnings of unconsolidated entities |
(37,012 |
) |
|
(37,315 |
) |
|
(169,170 |
) |
|
(95,945 |
) |
| Income tax expense
(benefit) |
(7,387 |
) |
|
2,982 |
|
|
(121,220 |
) |
|
11,384 |
|
| Loss before equity
earnings of unconsolidated entities |
(29,625 |
) |
|
(40,297 |
) |
|
(47,950 |
) |
|
(107,329 |
) |
| Equity loss (income) of
unconsolidated entities, net of tax |
173 |
|
|
(33 |
) |
|
1,197 |
|
|
(72 |
) |
| Net loss |
$ |
(29,798 |
) |
|
$ |
(40,264 |
) |
|
$ |
(49,147 |
) |
|
$ |
(107,257 |
) |
| Net (loss) income
attributable to non-controlling interest |
(1,206 |
) |
|
— |
|
|
(14,326 |
) |
|
277 |
|
| Excess accretion of
non-controlling interest |
3,145 |
|
|
— |
|
|
3,145 |
|
|
7,247 |
|
| Total net income (loss)
attributable to non-controlling interest |
1,939 |
|
|
— |
|
|
(11,181 |
) |
|
7,524 |
|
| Net loss attributable
to Endurance International Group Holdings, Inc. |
$ |
(31,737 |
) |
|
$ |
(40,264 |
) |
|
$ |
(37,966 |
) |
|
$ |
(114,781 |
) |
| Comprehensive income
(loss): |
|
|
|
|
|
|
|
| Foreign
currency translation adjustments |
112 |
|
|
1,070 |
|
|
994 |
|
|
2,984 |
|
|
Unrealized loss on cash flow hedge, net of taxes of $(65) and $48,
and $(889) and $(182) for the three and nine months ended September
30, 2016 and 2017, respectively |
72 |
|
|
83 |
|
|
(1,866 |
) |
|
(309 |
) |
| Total comprehensive
loss |
$ |
(31,553 |
) |
|
$ |
(39,111 |
) |
|
$ |
(38,838 |
) |
|
$ |
(112,106 |
) |
| Basic net loss per
share attributable to Endurance International Group Holdings,
Inc. |
$ |
(0.24 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.84 |
) |
| Diluted net loss per
share attributable to Endurance International Group Holdings,
Inc. |
$ |
(0.24 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.84 |
) |
| Weighted-average common
shares used in computing net loss per share attributable to
Endurance International Group Holdings, Inc.: |
|
|
|
|
|
|
|
| Basic |
133,550,168 |
|
|
137,793,609 |
|
|
133,038,542 |
|
|
136,688,115 |
|
| Diluted |
133,550,168 |
|
|
137,793,609 |
|
|
133,038,542 |
|
|
136,688,115 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Endurance International Group Holdings,
Inc. |
| Consolidated Statements of Cash
Flows |
| (unaudited) |
| (in thousands) |
| |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2016 |
|
2017 |
|
2016 |
|
2017 |
| Cash flows from
operating activities: |
|
|
|
|
|
|
|
| Net
loss |
$ |
(29,798 |
) |
|
$ |
(40,264 |
) |
|
$ |
(49,147 |
) |
|
$ |
(107,257 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
Depreciation of property and equipment |
17,010 |
|
|
13,571 |
|
|
46,942 |
|
|
40,733 |
|
|
Amortization of other intangible assets |
37,982 |
|
|
35,347 |
|
|
105,679 |
|
|
104,554 |
|
|
Impairment of long lived assets |
— |
|
|
13,848 |
|
|
8,285 |
|
|
13,848 |
|
|
Impairment of investments |
— |
|
|
600 |
|
|
— |
|
|
600 |
|
|
Amortization of deferred financing costs |
1,760 |
|
|
1,873 |
|
|
4,322 |
|
|
5,403 |
|
|
Amortization of net present value of deferred consideration |
844 |
|
|
127 |
|
|
2,426 |
|
|
504 |
|
| Dividend
from minority interest |
— |
|
|
50 |
|
|
50 |
|
|
100 |
|
|
Amortization of original issue discounts |
844 |
|
|
1,059 |
|
|
2,116 |
|
|
2,791 |
|
|
Stock-based compensation |
14,806 |
|
|
19,580 |
|
|
48,218 |
|
|
48,749 |
|
| Deferred
tax (benefit) expense |
(7,085 |
) |
|
2,096 |
|
|
(124,547 |
) |
|
6,442 |
|
| Loss
(gain) on sale of assets |
57 |
|
|
(189 |
) |
|
(168 |
) |
|
(317 |
) |
| Loss
(gain) from unconsolidated entities |
4,845 |
|
|
(33 |
) |
|
(6,565 |
) |
|
(72 |
) |
| Loss of
unconsolidated entities |
173 |
|
|
— |
|
|
1,197 |
|
|
— |
|
| Gain from
change in deferred consideration |
(54 |
) |
|
— |
|
|
(33 |
) |
|
— |
|
| Financing
costs expensed |
— |
|
|
— |
|
|
— |
|
|
5,487 |
|
| Loss on
early extinguishment of debt |
— |
|
|
— |
|
|
— |
|
|
992 |
|
| Changes
in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
| Accounts
receivable |
(170 |
) |
|
(2,231 |
) |
|
1,376 |
|
|
(872 |
) |
| Prepaid
expenses and other current assets |
5,680 |
|
|
833 |
|
|
(9,206 |
) |
|
(510 |
) |
| Accounts
payable and accrued expenses |
(14,223 |
) |
|
1,695 |
|
|
12,294 |
|
|
(7,309 |
) |
| Deferred
revenue |
3,518 |
|
|
(1,518 |
) |
|
58,565 |
|
|
15,000 |
|
| Net cash provided by
operating activities |
36,189 |
|
|
46,444 |
|
|
101,804 |
|
|
128,866 |
|
| Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
Businesses acquired in purchase transactions, net of cash
acquired |
10,255 |
|
|
— |
|
|
(889,634 |
) |
|
— |
|
| Cash paid
for minority investment |
— |
|
|
— |
|
|
(5,600 |
) |
|
— |
|
| Purchases
of property and equipment |
(8,356 |
) |
|
(12,800 |
) |
|
(29,317 |
) |
|
(32,095 |
) |
| Proceeds
from sale of assets |
(10 |
) |
|
5 |
|
|
242 |
|
|
292 |
|
| Purchases
of intangible assets |
— |
|
|
(286 |
) |
|
(27 |
) |
|
(1,966 |
) |
| Deposits
(withdrawals) of principal balances in restricted cash
accounts |
30 |
|
|
755 |
|
|
(738 |
) |
|
655 |
|
| Net cash provided by
(used in) investing activities |
1,919 |
|
|
(12,326 |
) |
|
(925,074 |
) |
|
(33,114 |
) |
| Cash flows from
financing activities: |
|
|
|
|
|
|
|
| Proceeds
from issuance of term loan and notes, net of original issue
discounts |
— |
|
|
— |
|
|
1,056,178 |
|
|
1,693,007 |
|
|
Repayments of term loans |
(8,925 |
) |
|
(18,486 |
) |
|
(42,775 |
) |
|
(1,733,147 |
) |
| Proceeds
from borrowing of revolver |
33,500 |
|
|
— |
|
|
49,500 |
|
|
— |
|
| Repayment
of revolver |
— |
|
|
— |
|
|
(83,000 |
) |
|
— |
|
| Payment
of financing costs |
(834 |
) |
|
(244 |
) |
|
(52,561 |
) |
|
(6,304 |
) |
| Payment
of deferred consideration |
(42,373 |
) |
|
— |
|
|
(43,080 |
) |
|
(5,408 |
) |
| Payment
of redeemable non-controlling interest |
(33,425 |
) |
|
(25,000 |
) |
|
(33,425 |
) |
|
(25,000 |
) |
| Principal
payments on capital lease obligations |
(1,476 |
) |
|
(1,771 |
) |
|
(4,372 |
) |
|
(5,679 |
) |
| Capital
investment from minority partner |
1,776 |
|
|
— |
|
|
2,776 |
|
|
— |
|
| Proceeds
from exercise of stock options |
976 |
|
|
416 |
|
|
2,304 |
|
|
1,548 |
|
| Net cash (used in)
provided by financing activities |
(50,781 |
) |
|
(45,085 |
) |
|
851,545 |
|
|
(80,983 |
) |
| Net effect of exchange
rate on cash and cash equivalents |
229 |
|
|
79 |
|
|
1,843 |
|
|
2,156 |
|
| Net increase (decrease)
in cash and cash equivalents |
(12,444 |
) |
|
(10,888 |
) |
|
30,118 |
|
|
16,925 |
|
| Cash and cash
equivalents: |
|
|
|
|
|
|
|
| Beginning
of period |
75,592 |
|
|
81,409 |
|
|
33,030 |
|
|
53,596 |
|
| End of
period |
$ |
63,148 |
|
|
$ |
70,521 |
|
|
$ |
63,148 |
|
|
$ |
70,521 |
|
| Supplemental cash flow
information: |
|
|
|
|
|
|
|
| Interest paid |
$ |
47,010 |
|
|
$ |
38,154 |
|
|
$ |
91,181 |
|
|
$ |
118,276 |
|
| Income taxes paid |
$ |
951 |
|
|
$ |
1,499 |
|
|
$ |
3,399 |
|
|
$ |
3,958 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP to Non-GAAP reconciliation - Adjusted
EBITDA
The following table presents a reconciliation of net income
(loss) calculated in accordance with GAAP to adjusted EBITDA (all
data in thousands):
| |
Three Months Ended September
30, |
|
Nine Months Ended September 30, |
| |
2016 |
|
2017 |
|
2016 |
|
2017 |
| Net income
(loss) |
$ |
(29,798 |
) |
|
$ |
(40,264 |
) |
|
$ |
(49,147 |
) |
|
$ |
(107,257 |
) |
| Interest expense, net
(1) |
41,046 |
|
|
35,645 |
|
|
112,135 |
|
|
120,516 |
|
| Income tax expense
(benefit) |
(7,387 |
) |
|
2,982 |
|
|
(121,220 |
) |
|
11,384 |
|
| Depreciation |
17,010 |
|
|
13,571 |
|
|
46,942 |
|
|
40,733 |
|
| Amortization of other
intangible assets |
37,982 |
|
|
35,347 |
|
|
105,679 |
|
|
104,554 |
|
| Stock-based
compensation |
14,806 |
|
|
19,580 |
|
|
48,218 |
|
|
48,749 |
|
| Restructuring
expenses |
6,377 |
|
|
4,488 |
|
|
23,642 |
|
|
14,584 |
|
| Transaction expenses
and charges |
159 |
|
|
— |
|
|
32,257 |
|
|
773 |
|
| SEC investigations
reserve |
— |
|
|
8,000 |
|
|
— |
|
|
8,000 |
|
| Loss (gain) of
unconsolidated entities (2) |
5,018 |
|
|
(33 |
) |
|
(5,368 |
) |
|
(72 |
) |
| Impairment of other
long-lived assets (3) |
— |
|
|
14,448 |
|
|
8,285 |
|
|
14,448 |
|
| Adjusted
EBITDA |
$ |
85,213 |
|
|
$ |
93,764 |
|
|
$ |
201,423 |
|
|
$ |
256,412 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Interest expense includes impact of amortization of deferred
financing costs, original issuance discounts and interest income.
For the nine months ended September 30, 2017, it also includes $6.5
million of deferred financing costs and OID immediately expensed
upon refinancing of our term loan in June 2017.
(2) The loss (gain) of unconsolidated entities is reported
on a net basis for the three and nine months ended September 30,
2016. The three months ended September 30, 2016 includes a loss of
$4.8 million on our investment in AppMachine. This loss was
generated on July 27, 2016, when we increased our ownership stake
in AppMachine from 40.0% to 100.0%, which required a revaluation of
our existing investment to its implied fair value. The three months
ended September 30, 2016 also includes a net loss of $0.2 million
from our proportionate share of net losses from unconsolidated
entities. The nine months ended September 30, 2016 includes a gain
of $11.4 million on our investment in WZ UK Ltd. This gain
was generated on January 6, 2016, when we increased our ownership
stake in WZ UK Ltd. from 49.0% to 57.5%, which required a
revaluation of our existing investment to its implied fair
value. This $11.4 million gain was partially offset by our
proportionate shares of net losses from unconsolidated entities of
$1.2 million.
(3) The impairment of other long-lived assets for the three
and nine months ended September 30, 2016 includes $6.3 million of
impairment charges related to developed and in-process technology
related to the Webzai acquisition, and $2.0 million of internally
developed software that was abandoned. The impairment of
other long-lived assets for the three and nine months ended
September 30, 3017 includes $13.8 million related to certain domain
name intangible assets, and $0.6 million to write off a debt
investment in a privately held entity.
GAAP to Non-GAAP reconciliation – Free Cash
Flow
The following table reflects the reconciliation of cash flow
from operations to free cash flow (“FCF”) (all data in
thousands):
| |
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| |
2016 |
|
2017 |
|
2016 |
|
2017 |
| Cash flow from
operations |
$ |
36,189 |
|
|
$ |
46,444 |
|
|
$ |
101,804 |
|
|
$ |
128,866 |
|
| Less: |
|
|
|
|
|
|
|
| Capital expenditures
and capital lease obligations (1) |
(9,832 |
) |
|
(14,571 |
) |
|
(33,689 |
) |
|
(37,774 |
) |
| Free cash
flow |
$ |
26,357 |
|
|
$ |
31,873 |
|
|
$ |
68,115 |
|
|
$ |
91,092 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Capital expenditures during the three and nine months ended
September 30, 2016 includes $1.5 million and $4.4 million,
respectively, of principal payments under a two year capital lease
for software. Capital expenditures during the three and nine months
ended September 30, 2017 includes $1.8 million and $5.7 million,
respectively, of principal payments under a three year capital
lease for software. The remaining balance on the capital lease is
$4.7 million as of September 30, 2017.
Average Revenue Per Subscriber - Calculation and Segment
Detail
We present our financial results in two segments. Our web
presence segment is our historical business before the acquisition
of Constant Contact, and includes primarily our web hosting
products, domains, website builders and related add-on
products. Our email marketing segment consists of the
Constant Contact business, including email marketing, event
management, survey tools and the SinglePlatform digital storefront
service.
The following table presents the calculation of ARPS, on a
consolidated basis and by segment (all data in thousands, except
ARPS data):
| |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
| Consolidated
revenue |
|
$ |
291,193 |
|
|
$ |
295,222 |
|
|
$ |
819,019 |
|
|
$ |
882,617 |
|
| Consolidated total
subscribers |
|
5,439 |
|
|
5,122 |
|
|
5,439 |
|
|
5,122 |
|
| Consolidated average
subscribers for the period |
|
5,460 |
|
|
5,170 |
|
|
5,296 |
|
|
5,247 |
|
| Consolidated
average revenue per subscriber (ARPS) |
|
$ |
17.78 |
|
|
$ |
19.03 |
|
|
$ |
17.18 |
|
|
$ |
18.69 |
|
| |
|
|
|
|
|
|
|
|
| Web presence
revenue |
|
$ |
195,275 |
|
|
$ |
193,696 |
|
|
$ |
589,364 |
|
|
$ |
584,217 |
|
| Web presence
subscribers |
|
4,893 |
|
|
4,599 |
|
|
4,893 |
|
|
4,599 |
|
| Web presence average
subscribers for the period |
|
4,911 |
|
|
4,643 |
|
|
4,821 |
|
|
4,714 |
|
| Web presence
average revenue per subscriber (ARPS) |
|
$ |
13.25 |
|
|
$ |
13.91 |
|
|
$ |
13.58 |
|
|
$ |
13.77 |
|
| |
|
|
|
|
|
|
|
|
| Email marketing
revenue |
|
$ |
95,918 |
|
|
$ |
101,526 |
|
|
$ |
229,655 |
|
|
$ |
298,400 |
|
| Email marketing
subscribers |
|
546 |
|
|
523 |
|
|
546 |
|
|
523 |
|
| Email marketing average
subscribers for the period |
|
549 |
|
|
527 |
|
|
475 |
|
|
533 |
|
| Email marketing
average revenue per subscriber (ARPS) |
|
$ |
58.27 |
|
|
$ |
64.26 |
|
|
$ |
53.75 |
|
|
$ |
62.16 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents revenue, gross profit, and a
reconciliation by segment of net income (loss) calculated in
accordance with GAAP to adjusted EBITDA (all data in
thousands):
| |
Three Months Ended September 30,
2016 |
|
Three Months Ended September 30,
2017 |
| |
Web presence |
|
Email marketing |
|
Total |
|
Web presence |
|
Email marketing |
|
Total |
|
Revenue |
$ |
195,275 |
|
|
$ |
95,918 |
|
|
$ |
291,193 |
|
|
$ |
193,696 |
|
|
$ |
101,526 |
|
|
$ |
295,222 |
|
| Gross
profit |
89,059 |
|
|
52,707 |
|
|
141,766 |
|
|
71,071 |
|
|
65,286 |
|
|
136,357 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) |
$ |
(19,886 |
) |
|
$ |
(9,912 |
) |
|
$ |
(29,798 |
) |
|
$ |
(42,466 |
) |
|
$ |
2,202 |
|
|
$ |
(40,264 |
) |
| Interest expense, net
(1) |
18,244 |
|
|
22,802 |
|
|
41,046 |
|
|
15,131 |
|
|
20,514 |
|
|
35,645 |
|
| Income tax expense
(benefit) |
(1,435 |
) |
|
(5,952 |
) |
|
(7,387 |
) |
|
1,659 |
|
|
1,323 |
|
|
2,982 |
|
| Depreciation |
9,173 |
|
|
7,837 |
|
|
17,010 |
|
|
10,338 |
|
|
3,233 |
|
|
13,571 |
|
| Amortization of other
intangible assets |
19,729 |
|
|
18,253 |
|
|
37,982 |
|
|
16,577 |
|
|
18,770 |
|
|
35,347 |
|
| Stock-based
compensation |
12,703 |
|
|
2,103 |
|
|
14,806 |
|
|
17,912 |
|
|
1,668 |
|
|
19,580 |
|
| Restructuring
expenses |
541 |
|
|
5,836 |
|
|
6,377 |
|
|
3,806 |
|
|
682 |
|
|
4,488 |
|
| Transaction expenses
and charges |
159 |
|
|
— |
|
|
159 |
|
|
— |
|
|
— |
|
|
— |
|
| SEC investigations
reserve |
— |
|
|
— |
|
|
— |
|
|
5,249 |
|
|
2,751 |
|
|
8,000 |
|
| (Gain) loss of
unconsolidated entities (2) |
5,018 |
|
|
— |
|
|
5,018 |
|
|
(33 |
) |
|
— |
|
|
(33 |
) |
| Impairment of other
long-lived assets (3) |
— |
|
|
— |
|
|
— |
|
|
14,448 |
|
|
— |
|
|
14,448 |
|
| Adjusted
EBITDA |
$ |
44,246 |
|
|
$ |
40,967 |
|
|
$ |
85,213 |
|
|
$ |
42,621 |
|
|
$ |
51,143 |
|
|
$ |
93,764 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Nine Months Ended September 30,
2016 |
|
Nine Months Ended September 30,
2017 |
| |
Web presence |
|
Email marketing |
|
Total |
|
Web presence |
|
Email marketing |
|
Total |
|
Revenue |
$ |
589,364 |
|
|
$ |
229,655 |
|
|
$ |
819,019 |
|
|
$ |
584,217 |
|
|
$ |
298,400 |
|
|
$ |
882,617 |
|
| Gross
profit |
265,610 |
|
|
114,429 |
|
|
380,039 |
|
|
240,239 |
|
|
188,181 |
|
|
428,420 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) |
$ |
2,787 |
|
|
$ |
(51,934 |
) |
|
$ |
(49,147 |
) |
|
$ |
(99,232 |
) |
|
$ |
(8,025 |
) |
|
$ |
(107,257 |
) |
| Interest expense, net
(1) |
53,337 |
|
|
58,798 |
|
|
112,135 |
|
|
52,304 |
|
|
68,212 |
|
|
120,516 |
|
| Income tax expense
(benefit) |
(90,033 |
) |
|
(31,187 |
) |
|
(121,220 |
) |
|
16,203 |
|
|
(4,819 |
) |
|
11,384 |
|
| Depreciation |
27,248 |
|
|
19,694 |
|
|
46,942 |
|
|
30,101 |
|
|
10,632 |
|
|
40,733 |
|
| Amortization of other
intangible assets |
59,252 |
|
|
46,427 |
|
|
105,679 |
|
|
48,857 |
|
|
55,697 |
|
|
104,554 |
|
| Stock-based
compensation |
37,778 |
|
|
10,440 |
|
|
48,218 |
|
|
43,357 |
|
|
5,392 |
|
|
48,749 |
|
| Restructuring
expenses |
1,501 |
|
|
22,141 |
|
|
23,642 |
|
|
9,842 |
|
|
4,742 |
|
|
14,584 |
|
| Transaction expenses
and charges |
31,273 |
|
|
984 |
|
|
32,257 |
|
|
— |
|
|
773 |
|
|
773 |
|
| SEC investigations
reserve |
— |
|
|
— |
|
|
— |
|
|
5,249 |
|
|
2,751 |
|
|
8,000 |
|
| (Gain) loss of
unconsolidated entities (2) |
(5,368 |
) |
|
— |
|
|
(5,368 |
) |
|
(72 |
) |
|
— |
|
|
(72 |
) |
| Impairment of other
long-lived assets (3) |
8,285 |
|
|
— |
|
|
8,285 |
|
|
14,448 |
|
|
— |
|
|
14,448 |
|
| Adjusted
EBITDA |
$ |
126,060 |
|
|
$ |
75,363 |
|
|
$ |
201,423 |
|
|
$ |
121,057 |
|
|
$ |
135,355 |
|
|
$ |
256,412 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Interest expense includes impact of amortization of deferred
financing costs, original issuance discounts and interest income.
For the nine months ended September 30, 2017, it also includes $6.5
million of deferred financing costs and original issuance discounts
immediately expensed upon refinancing of our term loan in June
2017.
(2) The loss (gain) of unconsolidated entities is reported on a
net basis for the three and nine months ended September 30, 2016.
The three months ended September 30, 2016 includes a loss of $4.8
million on our investment in AppMachine. This loss was generated on
July 27, 2016, when we increased our ownership stake in AppMachine
from 40.0% to 100.0%, which required a revaluation of our existing
investment to its implied fair value. The three months ended
September 30, 2016 also includes a net loss of $0.2 million from
our proportionate share of net losses from unconsolidated entities.
The nine months ended September 30, 2016 includes a gain of $11.4
million on our investment in WZ UK Ltd. This gain was
generated on January 6, 2016, when we increased our ownership stake
in WZ UK Ltd. from 49.0% to 57.5%, which required a revaluation of
our existing investment to its implied fair value. This $11.4
million gain was partially offset by our proportionate shares of
net losses from unconsolidated entities of $1.2 million.
(3) The impairment of other long-lived assets for the three and
nine months ended September 30, 2016 includes $6.3 million of
impairment charges related to developed and in-process technology
related to the Webzai acquisition, and $2.0 million of internally
developed software that was abandoned. The impairment of
other long-lived assets for the three and nine months ended
September 30, 3017 includes $13.8 million related to certain domain
name intangible assets, and $0.6 million to write off a debt
investment in a privately held entity.
GAAP to Non-GAAP Reconciliation of Fiscal Year 2017
Guidance (as of October 31, 2017) - Adjusted EBITDA
The following table reflects the reconciliation of fiscal year
2017 estimated net loss calculated in accordance with GAAP to
fiscal year 2017 guidance for adjusted EBITDA (i.e. assuming an
increase of approximately 18% from 2016 adjusted EBITDA as
reported). All figures shown are approximate.
|
($ in millions) |
Twelve Months Ending December 31,
2017 |
| Estimated net
loss |
$ |
(121 |
) |
|
|
| Estimated interest
expense (net) |
156 |
|
|
|
| Estimated income tax
expense (benefit) |
12 |
|
|
|
| Estimated
depreciation |
55 |
|
|
|
| Estimated amortization
of acquired intangible assets |
139 |
|
|
|
| Estimated stock-based
compensation |
60 |
|
|
|
| Estimated restructuring
expenses |
16 |
|
|
|
| Estimated transaction
expenses and charges |
1 |
|
|
|
| Estimated SEC
investigations reserve |
8 |
|
|
|
| Estimated (gain) loss
of unconsolidated entities |
- |
|
|
|
| Estimated impairment of
other long-lived assets |
14 |
|
|
|
|
Adjusted EBITDA guidance |
$ |
340 |
|
GAAP to Non-GAAP Reconciliation of Fiscal Year 2017
Guidance (as of October 31, 2017) - Free Cash Flow
The following table reflects the reconciliation of fiscal year
2017 estimated cash flow from operations calculated in accordance
with GAAP to fiscal year 2017 guidance for free cash flow. All
figures shown are approximate.
|
($ in millions) |
Twelve Months Ending December 31,
2017 |
| Estimated cash
flow from operations |
$ |
190 |
|
|
|
| Estimated capital
expenditures and capital lease obligations |
(50 |
) |
|
|
|
Free cash flow guidance |
$ |
140 |
|
|
|
|
|
|
Investor Contact:Angela WhiteEndurance
International Group(781) 852-3450ir@endurance.com
Press Contact:Kristen AndrewsEndurance
International Group(781) 482-5809press@endurance.com
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