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8-K - FORM 8-K - Endurance International Group Holdings, Inc.d141766d8k.htm

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2015 Fourth Quarter

and Full Year Results

Fiscal Year 2015

 

    GAAP revenue increased 18 percent over the same period a year ago to $741.3 million

 

    Adjusted revenue increased 15 percent over the same period a year ago to $747.0 million

 

    GAAP net loss for the year was $25.8 million

 

    Adjusted EBITDA increased 14 percent over the same period a year ago to $267.5 million

 

    GAAP cash from operations increased 24 percent over the same period a year ago to $177.2 million

 

    Unlevered free cash flow (as reported) increased 14 percent over the same period a year ago to $221.7 million

 

    Free cash flow increased 23 percent over the same period a year ago to $141.2 million

Fourth Quarter 2015

 

    GAAP revenue increased 12 percent over the same period a year ago to $193.0 million

 

    Adjusted revenue increased 11 percent over the same period a year ago to $194.7 million

 

    GAAP net loss for the quarter was $9.2 million

 

    Adjusted EBITDA increased 16 percent over the same period a year ago to $71.8 million

 

    GAAP cash from operations increased 13 percent over the same period a year ago to $43.4 million

 

    Unlevered free cash flow (as reported) increased 9 percent over the same period a year ago to $55.2 million

 

    Free cash flow increased 6 percent over the same period a year ago to $33.4 million

BURLINGTON, MA (February 18, 2016) — 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 fourth quarter and fiscal year ended December 31, 2015.

“Our fiscal 2015 results reflect another year of commitment to our core initiatives, investment for the future, and continued operational focus,” commented Hari Ravichandran, chief executive officer and founder of Endurance International Group. “In addition, just over a week ago, we closed the Constant Contact transaction. Our teams worked diligently to reach the first of many steps in the acquisition, and we are looking forward to the benefits we believe the combination of the two companies will bring. As we start fiscal 2016, we are optimistic about our business and the opportunity we see ahead of us as we continue to focus on serving a healthy SMB market.”


Full Year and Fourth Quarter 2015 Financial Highlights

 

    For fiscal year 2015, GAAP revenue was $741.3 million, an increase of 18 percent compared to $629.8 million in fiscal 2014. GAAP revenue for the fourth quarter of 2015 was $193.0 million, an increase of 12 percent compared to $171.9 million in the fourth quarter of 2014.

 

    Adjusted revenue for fiscal year 2015 was $747.0 million, an increase of 15 percent compared to $651.9 million in fiscal year 2014. Adjusted revenue for the fourth quarter was $194.7 million, an increase of 11 percent compared to $175.2 million in the fourth quarter of 2014.

 

    For fiscal year 2015, net loss attributable to Endurance International Group Holdings, Inc. was $25.8 million, or $(0.20) per diluted share, compared to a net loss of $42.8 million, or $(0.34) per diluted share, for fiscal 2014. Net loss attributable to Endurance International Group Holdings, Inc. for the fourth quarter was $9.2 million, or $(0.07) per diluted share, compared to a net loss of $2.2 million, or $(0.02) per diluted share, for the fourth quarter of 2014.

 

    Adjusted EBITDA for fiscal year 2015 was $267.5 million, an increase of 14 percent compared to $235.6 million in fiscal 2014. Adjusted EBITDA for the fourth quarter was $71.8 million, an increase of 16 percent compared to $62.0 million in the fourth quarter of 2014.

 

    GAAP cash from operations for fiscal year 2015 was $177.2 million, an increase of 24 percent compared to $142.9 million for fiscal 2014. GAAP cash from operations in the fourth quarter was $43.4 million, an increase of 13 percent compared to $38.4 million for the fourth quarter of 2014.

 

    Unlevered free cash flow (“UFCF” as reported”), for fiscal year 2015 was $221.7 million, an increase of 14 percent compared to $194.0 million in fiscal year 2014. UFCF (as reported) for the fourth quarter was $55.2 million, an increase of 9 percent compared to $50.6 million in the same period a year ago.

 

    Free cash flow (“FCF”), defined as GAAP cash from operations less capital expenditures and capital lease obligations, for fiscal year 2015 was $141.2 million, an increase of 23 percent compared to $115.2 million in fiscal 2014. FCF for the fourth quarter was $33.4 million, an increase of 6 percent compared to $31.6 million in the fourth quarter of 2014.

Full Year and Fourth Quarter Operating Highlights

 

    Total subscribers on platform were approximately 4.669 million, including approximately 72,000 subscribers from the IX Web Hosting acquisition completed during the fourth quarter. See “Total Subscribers” below.

 

    Average revenue per subscriber (ARPS) for fiscal year 2015 was $14.29, compared to $14.48 for fiscal 2014. ARPS for the fourth quarter was $14.15, compared to $14.78 for the same period a year ago.

 

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    During the quarter, the company acquired the assets of Ecommerce, LLC (IX Web Hosting). The total consideration for this acquisition is approximately $28.0 million, of which $23.8 million was paid at closing.

 

    Subsequent to the quarter end, on January 6, 2016, the company exercised an option to increase its stake in WZ UK Ltd., a provider of technology and sales marketing services associated with web builder solutions, from 49 percent to 57.5 percent, in exchange for a payment of approximately $2.1 million to the other shareholders of WZ UK Ltd.

Also subsequent to the quarter end, on February 9, 2016, the company acquired the outstanding shares of Constant Contact in a cash deal valued at $1.1 billion.

Fiscal 2016 Guidance:

The company is providing the following guidance as of the date of this release, February 18, 2016. This guidance includes the impact of the acquisition of Constant Contact.

For the full year ending December 31, 2016, the company expects:

 

    

Combined Entity

Pro Forma Basis*

  

Combined Entity – Closing Date Basis

(based on close date of February 9, 2016)

Adjusted Revenue

   > $1,225 million    > $1,175 million

Adjusted EBITDA

   ~ $405 million    ~ $400 million

Capital Expenditures

   n/a    ~ $60 million

Free Cash Flow

   n/a   

$180-$190 million (before Constant Contact transaction expenses) and

$140-$150 million (after Constant Contact transaction expenses)

 

* Represents guidance for 2016 as if the acquisition of Constant Contact had occurred on January 1, 2016. Does not represent “pro forma” amounts determined in accordance with the SEC’s rules and regulations, including Article 11 of Regulation S-X, and should not be taken to represent how Endurance would have performed on a historical basis if Constant Contact’s operations had been included beginning on January 1, 2016.

Adjusted revenue, adjusted EBITDA, UFCF (as reported), free cash flow (FCF), 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.” We have not reconciled our guidance for adjusted revenue, adjusted EBITDA or FCF (whether before or after the impact of Constant Contact transaction expenses) to the most comparable GAAP metrics because we do not provide guidance for the reconciling items between these non-GAAP metrics and the most comparable GAAP metrics, as certain of these items are out of our control and/or cannot be reasonably predicted.

 

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Conference Call and Webcast Information

Endurance International Group’s fourth quarter and full year 2015 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EST on Thursday, February 18, 2016. 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.

Use of Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, we use certain “non-GAAP financial measures” described below to evaluate the operating and financial performance of our business, identify trends affecting our business, develop projections and make strategic business decisions. 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, particularly related to adjustments for integration and restructuring expenses. 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. Furthermore, interest expense, which is excluded from some of our non-GAAP measures, 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 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 below, 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 income (loss) plus (i) changes in deferred revenue, depreciation, amortization, stock-based compensation expense, loss of unconsolidated entities, net loss on sale of assets, expenses related to integration of acquisitions and restructurings, transaction expenses and charges, certain legal advisory expenses, interest expense and income tax expense, less (ii) earnings of unconsolidated entities, net gain on sale of assets and the impact of purchase accounting related to reduced fair value of deferred domain registration costs. We view adjusted EBITDA as a performance measure. Due to our history of acquisitions and financings, we have incurred and will continue to incur charges for integration, restructuring and transaction expenses that primarily relate to the process of acquiring another business and integrating that business into our support and/ or technical platforms. We believe that

 

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adjusting for these items is useful to investors in evaluating the post integration performance of our company. 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 provides insight to an investor to gauge the overall performance 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. In order to capture these trends and report our performance consistently with how we manage our business, we include the change in deferred revenue for the period in our calculation of adjusted EBITDA for that 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 and dividend from minority interest. 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 and payment of interest on our outstanding indebtedness.

Unlevered Free Cash Flow, or UFCF, is a non-GAAP financial measure that we calculate as FCF plus interest paid. We believe the most useful indicator of our operating performance is the cash generating potential of our company prior to any accounting charges related to our acquisitions and after investment in capital expenditures to operate our technology platform. Given our substantial bank debt, we believe it is important to present to our investors the cash generation potential of our business prior to interest payments.

Unlevered Free Cash Flow (as reported), or UFCF (as reported), is a non-GAAP financial measure that we calculate as UFCF plus integration and restructuring expenses, transaction expenses and charges, certain legal advisory expenses, and dividend related payments. We believe that this presentation provides investors with an alternative view of UFCF by adding back expenses that primarily relate to the process of acquiring another business and integrating that business into our support and/or technical platforms, which we believe is useful to investors in evaluating the post integration performance of our company. UFCF (as reported) also adds back certain legal advisory and dividend related expenses that we believe do not reflect our ongoing operating performance.

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. Historically, we also adjusted the amount of revenue 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. Since the first quarter of 2014, we have included the revenue we add through business acquisitions from the closing date of the relevant acquisition. We believe that excluding fair value adjustments to deferred revenue is useful to investors because it shows our revenue prior to purchase accounting charges related to our acquisitions.

Total Subscribers - We define total subscribers as those 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. Historically, in calculating total subscribers, we included the number of end-of-period subscribers we added through business acquisitions as if those subscribers had subscribed with us since the beginning of the period

 

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presented. Since the first quarter of 2014, we have included subscribers we added through business acquisitions from the closing date of the relevant acquisition. Additionally, in the fourth quarter of 2014, we modified our definition of total subscribers to better reflect our expanding product mix by including paid subscribers to all of our subscription-based products, rather than limiting the definition to paid subscribers to our hosted web presence solutions. Subscribers of more than one brand 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. Approximately 29 percent and 15 percent of the increase in total subscribers in the fourth quarter and full year 2015, respectively, consists of these adjustments. Of the approximately 582,000 increase in our total subscribers from December 31, 2014 to December 31, 2015, approximately 158,000 consisted of pre-acquisition subscriber bases of companies we acquired during 2015.

Average Revenue Per Subscriber, or ARPS, is a non-GAAP financial measure that we calculate as the amount of adjusted 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. 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. As we on-board new subscribers, we typically on-board them at introductory prices, which negatively impacts ARPS. Furthermore, ARPS can be impacted by our acquisitions since the acquired subscribers may have higher or lower than average ARPS.

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 financial guidance for fiscal year 2016; the expected benefits associated with the combination of the Endurance and Constant Contact businesses; our opportunity to continue to serve a healthy SMB market; 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,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “should,” “confident,” “positions,” “look forward to,” 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, risks set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended September 30, 2015 filed with the Securities and Exchange

 

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Commission (SEC) on November 6, 2015, our most recent Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 27, 2015, our Form 8-K/A filed with the SEC on January 21, 2016 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 is a publicly traded (NASDAQ: EIGI) technology company that helps power small and medium-sized businesses online. Through its proprietary cloud platform, Endurance provides web presence solutions including web hosting, eCommerce, eMarketing and mobile business tools to approximately 4.7 million subscribers around the globe. The company’s world-class family of brands includes Bluehost, HostGator, iPage, Domain.com, A Small Orange, MOJO Marketplace, BigRock and ResellerClub, among others. Headquartered in Burlington, Massachusetts, Endurance employs more than 2,500 people across the United States in Utah, Texas, Washington and Arizona and in the United Kingdom, India, Israel and Brazil. For more information on how Endurance can help grow your business, visit endurance.com, follow us on Twitter @EnduranceIntl and like us on Facebook at www.facebook.com/EnduranceInternational.

Endurance International Group and the compass logo are trademarks of The Endurance International Group, Inc. Other brand names of Endurance International Group are trademarks of The Endurance International Group, Inc. or its subsidiaries.

Investor Contact:

Angela White

Endurance International Group

(781) 852-3450

ir@endurance.com

Press Contact:

Dani LaSalvia

Endurance International Group

(781) 852-3212

press@endurance.com

 

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Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

 

     December 31,
2014
    December 31,
2015
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 32,379      $ 33,030   

Restricted cash

     1,325        1,048   

Accounts receivable

     10,201        12,040   

Deferred tax asset—short term

     13,961        —    

Prepaid domain name registry fees

     49,605        55,793   

Prepaid expenses and other current assets

     13,173        15,675   
  

 

 

   

 

 

 

Total current assets

     120,644        117,586   

Property and equipment—net

     56,837        75,762   

Goodwill

     1,105,023        1,207,255   

Other intangible assets—net

     410,338        359,786   

Deferred financing costs

     400        990   

Investments

     40,447        27,905   

Prepaid domain name registry fees, net of current portion

     7,957        9,884   

Other assets

     4,397        4,322   
  

 

 

   

 

 

 

Total assets

   $ 1,746,043      $ 1,803,490   
  

 

 

   

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 8,960      $ 12,280   

Accrued expenses

     38,275        50,869   

Deferred revenue

     259,567        285,945   

Current portion of notes payable

     60,500        77,500   

Current portion of capital lease obligations

     3,793        5,866   

Deferred consideration—short term

     13,917        51,488   

Other current liabilities

     10,358        3,973   
  

 

 

   

 

 

 

Total current liabilities

     395,370        487,921   

Long-term deferred revenue

     65,850        79,682   

Notes payable—long term

     1,026,375        1,015,875   

Capital lease obligations—long term

     4,302        7,215   

Deferred tax liability—long term

     35,579        28,786   

Deferred consideration—long term

     10,722        813   

Other liabilities

     2,806        3,524   
  

 

 

   

 

 

 

Total liabilities

   $ 1,541,004      $ 1,623,816   
  

 

 

   

 

 

 

Redeemable non-controlling interest

     30,543        —    

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; 130,959,113 and 132,024,558 shares issued at December 31, 2014 and December 31, 2015, respectively; 130,914,333 and 131,938,485 outstanding at December 31, 2014 and December 31, 2015, respectively

     14        14   

Additional paid-in capital

     816,591        848,740   

Accumulated other comprehensive loss

     (517     (1,718

Accumulated deficit

     (641,592     (667,362
  

 

 

   

 

 

 

Total stockholders’ equity

     174,496        179,674   
  

 

 

   

 

 

 

Total liabilities, redeemable non-controlling interest and stockholders’ equity

   $ 1,746,043      $ 1,803,490   
  

 

 

   

 

 

 

 

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Endurance International Group Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)

 

     Three Months ended
December 31,
    Twelve Months Ended
December 31,
 
     2014     2015     2014     2015  

Revenue

   $ 171,936      $ 193,043      $ 629,845      $ 741,315   

Cost of revenue

     102,270        108,351        381,488        425,035   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     69,666        84,692        248,357        316,280   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     32,187        35,628        146,797        145,419   

Engineering and development

     5,052        6,801        19,549        26,707   

General and administrative

     18,619        27,937        69,533        90,968   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     55,858        70,366        235,879        263,094   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     13,808        14,326        12,478        53,186   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Other income

     —         —         —         5,440   

Interest income

     76        98        331        414   

Interest expense

     (15,195     (15,872     (57,414     (58,828
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (15,119     (15,774     (57,083     (52,974
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (1,311     (1,448     (44,605     212   

Income tax expense

     1,410        2,260        6,186        11,342   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of unconsolidated entities

     (2,721     (3,708   $ (50,791   $ (11,130

Equity loss of unconsolidated entities, net of tax

     87        5,524        61        14,640   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (2,808   $ (9,232   $ (50,852   $ (25,770
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to non-controlling interest

     (604     —         (8,017     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Endurance International Group Holdings, Inc.

   $ (2,204   $ (9,232   $ (42,835   $ (25,770
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss:

        

Foreign currency translation adjustments

     (267     77        (462     (1,281

Unrealized gain on cash flow hedge, net of taxes of $0 and $46 for the three and twelve months ended December 31, 2014 and 2015

     —         80        —         80   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (2,471   $ (9,075   $ (43,297   $ (26,971
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to Endurance International Group Holdings, Inc. common stockholders—basic and diluted

   $ (0.02   $ (0.07   $ (0.34   $ (0.20
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares used in computing net loss per share attributable to Endurance International Group Holdings, Inc —basic and diluted.

     128,939,943        131,772,156        127,512,346        131,340,557   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2014     2015     2014     2015  

Cash flows from operating activities:

        

Net loss

   $ (2,808   $ (9,232   $ (50,852   $ (25,770

Adjustments to reconcile net loss to net cash provided by operating activities:

        

Depreciation of property and equipment

     8,403        9,361        30,956        34,010   

Amortization of other intangible assets from acquisitions

     26,935        23,866        102,723        91,057   

Amortization of deferred financing costs

     26        20        83        82   

Amortization of net present value of deferred consideration

     178        776        183        1,264   

Stock-based compensation

     4,681        9,653        16,043        29,925   

Deferred tax expense

     2,106        1,499        3,640        7,120   

(Gain) loss on sale of assets

     123        —          (168     (155

Gain from unconsolidated entities

     —          —          —         (5,440

Loss of unconsolidated entities

     87        5,524        61        14,640   

Dividend from minority interest

     —          —         167        —    

(Gain) loss from change in deferred consideration

     (36     91       384        1,174   

Changes in operating assets and liabilities:

        

Accounts receivable

     710        83        (691     (1,659

Prepaid expenses and other current assets

     (3,702     (3,933     (25,675     (13,187

Accounts payable and accrued expenses

     (4,059     669        (1,615     9,926   

Deferred revenue

     5,722        5,037        67,654        34,241   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     38,366        43,414        142,893        177,228   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Business acquired in purchase transaction, net of cash acquired

     (17,600     (24,583     (93,698     (97,795

Purchases of property and equipment

     (5,889     (7,976     (23,904     (31,243

Cash paid for minority investment

     (15,200     (1,225     (34,140     (8,475

Proceeds from sale of property and equipment

     8        —          94        93   

Proceeds from note receivable

     —          —          —          3,454   

Proceeds from sale of assets

     —          —          100        191   

Purchases of intangible assets

     —          (32     (200     (76

Net withdrawals of principal balances in restricted cash accounts

     360        159        433        50   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (38,321     (33,657     (151,315     (133,801
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Repayment of term loan

     (2,625     (2,625     (10,500     (10,500

Proceeds from borrowing of revolver

     43,000        38,000        150,000        147,000   

Repayment of revolver

     (54,000     (41,000     (100,000     (130,000

Payment of financing costs

     (41     —         (53     —    

Payment of deferred consideration

     (16,815     (4,400 )     (98,318     (14,991

Payment of redeemable non-controlling interest liability

     —         —         (4,190     (30,543

Principal payments on capital lease obligations

     (918     (1,995     (3,608     (4,822

Proceeds from exercise of stock options

     125        1,077        137        2,224   

Proceeds from issuance of common stock

     43,500       —         43,500        —    

Issuance costs of common stock

     (2,173 )     —         (2,904     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by cash (used in) financing activities

     10,053        (10,943     (25,936     (41,632
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of exchange rate on cash and cash equivalents

     (122     54        (78     (1,144
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     9,976        (1,132     (34,436     651   

 

10


     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 
     2014      2015      2014      2015  

Cash and cash equivalents:

           

Beginning of period

     22,403         34,162         66,815         32,379   
  

 

 

    

 

 

    

 

 

    

 

 

 

End of period

   $ 32,379         33,030       $ 32,379       $ 33,030   
  

 

 

    

 

 

    

 

 

    

 

 

 

Supplemental cash flow information:

           

Interest paid

   $ 14,840       $ 14,889       $ 57,418       $ 57,338   

Income taxes paid

   $ 1,118       $ 536       $ 2,615       $ 4,510   

Supplemental disclosure of non-cash financing activities:

           

Shares issued in connection with the acquisition of Directi

   $ —          —        $ 27,235       $ —    

Assets acquired under capital lease

   $ —        $ 9,795       $ 11,704       $ 9,795   

The following table reflects the reconciliation of Adjusted EBITDA to net income (loss) calculated in accordance with GAAP (all data in thousands):

 

     Three Months Ended
December 30,
     Twelve Months Ended
December 30,
 
     2014      2015      2014      2015  

Net loss

   $ (2,808    $ (9,232    $ (50,852    $ (25,770

Stock-based compensation

     4,681         9,653         16,043         29,925   

(Gain) loss on sale of assets

     123         —           (168      (155

Loss of unconsolidated entities (1)

     87         5,524         61         9,200   

Amortization of intangible assets

     26,935         23,866         102,723         91,057   

Amortization of deferred financing costs

     26         20         83         82   

Changes in deferred revenue

     5,722         5,037         67,654         34,241   

Impact of reduced fair value of deferred domain registration costs

     (2,190      (360      (18,782      (2,005

Transaction expenses and charges

     881         4,980         4,787         9,582   

Integration and restructuring expenses

     3,590         4,749         19,927         16,262   

Legal advisory expenses (2)

     —           161         —           1,349   

Depreciation

     8,403         9,361         30,956         34,010   

Income tax expense

     1,410         2,260         6,186         11,342   

Interest expense, net (excluding amortization of deferred financing costs)

     15,093         15,754         57,000         58,332   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 61,953       $ 71,773       $ 235,618       $ 267,452   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The loss of unconsolidated entities is reported on a net basis for the year ended December 31, 2015. The twelve months ended December 31, 2015 includes a $5.4 million gain for the redemption of our equity interest in World Wide Web Hosting, offset by our proportionate share of net losses from unconsolidated entities of $14.6 million.
(2) Consists of legal and related advisory expenses associated with matters that are the subject of a class action lawsuit filed against the Company in May 2015 and the SEC subpoena received by the Company in December 2015.

The following table reflects the reconciliation of cash flows from net cash provided by operating activities to Free Cash Flow (“FCF”) and Unlevered Free Cash Flow (“UFCF”) and Unlevered Free Cash Flow as reported (all data in thousands):

 

     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 
     2014      2015      2014      2015  

GAAP Cash Flow from Operations

     38,366         43,414         142,893         177,228   

Less:

           

Dividend from minority interest

     —          —          (167      —    

 

11


     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 
     2014      2015      2014      2015  

Capital expenditures and capital lease obligations (1)

     (6,807      (9,971      (27,512      (36,065
  

 

 

    

 

 

    

 

 

    

 

 

 

Free Cash Flow

   $ 31,559       $ 33,443       $ 115,214       $ 141,163   
  

 

 

    

 

 

    

 

 

    

 

 

 

Plus:

           

Interest paid

     14,840         14,889         57,418         57,338   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unlevered Free Cash Flow

   $ 46,399       $ 48,332       $ 172,632       $ 198,501   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjustments

Plus:

           

Transaction expenses and charges

     399         1,332         3,885         5,033   

Integration and restructuring expenses

     3,845         5,544         17,479         16,948   

Legal advisory expenses (2)

     —           16         —           1,203   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unlevered Free Cash Flow (as reported) (3)

   $ 50,643       $ 55,224       $ 193,996       $ 221,685   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Capital expenditures include payments under capital leases for software of $21.5 million. During the three months ended December 31, 2014 and December 31, 2015, these payments amounted to $0.9 million and $2.0 million, respectively. During the twelve months ended December 31, 2014 and December 31, 2015, these payments amounted to $3.6 million and $4.8 million, respectively. The remaining balance on the capital lease is $13.1 million as of December 31, 2015.
(2) Consists of legal and related advisory expenses associated with matters that are the subject of a class action lawsuit filed against the Company in May 2015 and the SEC subpoena received by the Company in December 2015.
(3) Interest paid in the above table is disclosed in the consolidated statement of cash flows. As previously reported, interest paid in the FCF/UFCF reconciliation table was net of accrued loan interest and net interest income. If we used the previous method, the Unlevered Free Cash Flow (as reported) amounts for the three months ended December 31, 2014 and 2015 would be $50.7 million and $55.3 million, respectively and the amounts reported for the twelve months ended December 31, 2014 and 2015 would be $193.4 million and $221.4 million, respectively.

The following table provides a reconciliation of income tax expense included in the Adjusted EBITDA table above and in our consolidated statements of operations and comprehensive loss to the income taxes paid amount in our consolidated statements of cash flows (all data in thousands).

 

     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 
     2014      2015      2014      2015  

Income tax expense in consolidated statement of operations and comprehensive income (loss)

   $ 1,410       $ 2,260       $ 6,186       $ 11,342   

Less: non-cash deferred tax expense

     (2,106      (1,499      (3,640      (7,120

Plus: decrease (increase) in accrued income taxes

     1,814         (225      69         288   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income taxes paid in consolidated statements of cash flows

   $ 1,118       $ 536       $ 2,615       $ 4,510   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides a reconciliation of net interest expense included in the adjusted EBITDA table above to net interest expense in our consolidated statements of operations and comprehensive loss and to interest paid in our consolidated statements of cash flows (all data in thousands).

 

12


     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 
     2014      2015      2014      2015  

Interest expense, net (excluding amortization of deferred financing costs)

   $ 15,093       $ 15,754       $ 57,000       $ 58,332   

Amortization of deferred financing costs

     26         20         83         82   

Other income

     —          —          —          (5,440
  

 

 

    

 

 

    

 

 

    

 

 

 

Other (income) expense, net in consolidated statements of operations and comprehensive loss

   $ 15,119       $ 15,774       $ 57,083       $ 52,974   
  

 

 

    

 

 

    

 

 

    

 

 

 

Add:

           

Other income

     —          —           —          5,440   

Less:

           

Amortization of deferred financing costs

     (26      (20      (83      (82

Amortization of net present value of deferred consideration

     (178      (776      (183      (1,264

(Increase) decrease in accrued interest

     (151      (187      270         (144

Interest income

     76         98         331         414   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest paid in consolidated statements of cash flows

   $ 14,840       $ 14,889       $ 57,418       $ 57,338   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table reflects the reconciliation of ARPS to revenue calculated in accordance with GAAP (all data in thousands, except ARPS data):

 

     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 
     2014      2015      2014      2015  

Revenue

   $ 171,936       $ 193,043       $ 629,845       $ 741,315   

Purchase accounting adjustment

     3,270         1,700         22,100         5,724   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted revenue

   $ 175,206       $ 194,743       $ 651,945       $ 747,039   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total subscribers

     4,087         4,669         4,087         4,669   

Average subscribers for the period

     3,951         4,587         3,753         4,358   

ARPS

   $ 14.78       $ 14.15       $ 14.48       $ 14.29   

 

13