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8-K - FORM 8-K - Endurance International Group Holdings, Inc.d341948d8k.htm

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2016 Fourth Quarter

and Full Year Results

Fiscal Year 2016

 

    GAAP revenue of $1.111 billion

 

    Net loss of $81.2 million

 

    Adjusted EBITDA of $288.4 million

 

    Cash flow from operations of $155.0 million

 

    Free cash flow of $111.8 million

 

    Total subscribers on platform were approximately 5.371 million at year end 2016

Fourth Quarter 2016

 

    GAAP revenue of $292.1 million

 

    Net loss of $32.1 million

 

    Adjusted EBITDA of $87.0 million

 

    Cash flow from operations of $53.2 million

 

    Free cash flow of $43.7 million

BURLINGTON, MA (February 16, 2017) — 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, 2016.

“Our fourth quarter and fiscal year results exceeded our revised guidance for revenue, adjusted EBITDA and free cash flow, the result of continued strong performance from Constant Contact and a more disciplined approach to our marketing investments,” commented Hari Ravichandran, chief executive officer and founder of Endurance International Group. “For 2017, we plan to focus on driving improved performance from our key hosting brands, including Bluehost and Host Gator, and building on the solid


results we have seen with Constant Contact. We also plan to invest in building brand awareness for these and other key brands, as well as fund operational and infrastructure improvements to enhance the customer product and service experience. We believe this will position us to achieve long term profitable growth and increased free cash flow.”

Full Year and Fourth Quarter 2016 Financial Highlights

 

  For fiscal year 2016, revenue was $1.111 billion, an increase of 50 percent compared to $741.3 million in fiscal 2015. Revenue for the fourth quarter of 2016 was $292.1 million, an increase of 51 percent compared to $193.0 million in the fourth quarter of 2015. Revenue for the fiscal year and fourth quarter includes a contribution of $340.9 million and $101.8 million, respectively, from acquisitions, primarily Constant Contact.

 

  For fiscal year 2016, net loss was $81.2 million compared to a net loss of $25.8 million for fiscal 2015. Net loss for the fourth quarter of 2016 was $32.1 million compared to a net loss of $9.2 million for the fourth quarter of 2015.

 

  For fiscal year 2016, net loss attributable to Endurance International Group Holdings, Inc. was $72.8 million, or $(0.55) per diluted share, compared to a net loss of $25.8 million, or $(0.20) per diluted share, for fiscal 2015. Net loss attributable to Endurance International Group Holdings, Inc. for the fourth quarter of 2016 was $34.9 million, or $(0.26) per diluted share, compared to a net loss of $9.2 million, or $(0.07) per diluted share, for the fourth quarter of 2015.

 

  Adjusted EBITDA for fiscal year 2016 was $288.4 million, an increase of 32 percent compared to $219.2 million in fiscal 2015. Adjusted EBITDA for the fourth quarter of 2016 was $87.0 million, an increase of 39 percent compared to $62.5 million in the fourth quarter of 2015.

 

  Cash flow from operations for fiscal year 2016 was $155.0 million, a decrease of 13 percent compared to $177.2 million for fiscal 2015. Cash flow from operations for the fourth quarter of 2016 was $53.2 million, an increase of 23 percent compared to $43.4 million for the fourth quarter of 2015.

 

  Free cash flow, defined as cash flow from operations less capital expenditures and capital lease obligations, for fiscal year 2016 was $111.8 million, a decrease of 21 percent compared to $141.2 million in fiscal 2015. Free cash flow for the fourth quarter of 2016 was $43.7 million, an increase of 31 percent compared to $33.4 million for the fourth quarter of 2015.

 

  Cash flow from operations and free cash flow in fiscal year 2016 were both negatively impacted by an increase of $61.7 million in interest payments and approximately $60.0 million of transaction, restructuring and integration costs, primarily related to the acquisition of Constant Contact.

 

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Full Year and Fourth Quarter Operating Highlights

 

  Total subscribers on platform at December 31, 2016 were approximately 5.371 million, compared to approximately 5.439 million subscribers at September 30, 2016 and 4.669 million subscribers at December 31, 2015. See “Total Subscribers” below.

 

  Average revenue per subscriber, or ARPS, for fiscal year 2016 was $17.53, compared to $14.18 for fiscal year 2015. ARPS for the fourth quarter of 2016 was $18.02, compared to $14.03 for the fourth quarter of 2015. Excluding the impact of Constant Contact, ARPS for fiscal year 2016 was $13.65, compared to $14.18 for fiscal year 2015 and ARPS for fourth quarter of 2016 was $13.37, compared to $14.03 for the fourth quarter of 2015. See “Average Revenue Per Subscriber” below.

Fiscal 2017 Guidance

The company is providing the following guidance as of the date of this release, February 16, 2017. For the full year ending December 31, 2017, the company expects:

 

     2016 Actual
As reported
     Guidance
(as of February 16, 2017)*
 

GAAP revenue

   $ 1.111 billion         4 – 5% increase   

Adjusted EBITDA

   $ 288 million         12 – 14% increase   

Free cash flow

   $ 112 million         ~35% 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 “Guidance” column represent percentage increases over 2016 figures shown in the adjacent column.

Conference Call and Webcast Information

Endurance International Group’s fourth quarter and full year 2016 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Thursday, February 16, 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.

 

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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 includes or excludes amounts that are included or 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, (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).

 

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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.

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 financial guidance for fiscal year 2017, our anticipated focus areas for 2017, our plans to invest in building brand awareness for key brands and to fund operational and infrastructure improvements to enhance the customer product and service experience, our belief that these investments will position us to achieve long term profitable growth and increased free cash flow, 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,” “will,” “may”, “continue”, “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: that we will be unable to successfully enhance the customer product and service experience and improve customer satisfaction and retention through operational and infrastructure

 

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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 September 30, 2016 filed with the SEC on November 4, 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 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 more than 4,000 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.

Investor Contact:

Lynn Harrison

Endurance International Group

(781) 852-3450

ir@endurance.com

Press Contact:

Lark-Marie Antón

Endurance International Group

(646) 887-7272

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, 2015     December 31, 2016  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 33,030      $ 53,596   

Restricted cash

     1,048        3,302   

Accounts receivable

     12,040        13,088   

Prepaid domain name registry fees

     55,793        55,444   

Prepaid expenses and other current assets

     15,675        28,678   
  

 

 

   

 

 

 

Total current assets

     117,586        154,108   

Property and equipment—net

     75,762        95,272   

Goodwill

     1,207,255        1,859,909   

Other intangible assets—net

     359,786        612,057   

Deferred financing costs

     —          4,932   

Investments

     27,905        15,857   

Prepaid domain name registry fees, net of current portion

     9,884        10,429   

Other assets

     4,322        3,710   
  

 

 

   

 

 

 

Total assets

   $ 1,802,500      $ 2,756,274   
  

 

 

   

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 12,280      $ 16,074   

Accrued expenses

     45,779        67,722   

Accrued interest

     5,090        27,246   

Deferred revenue

     285,945        355,190   

Current portion of notes payable

     77,500        35,700   

Current portion of capital lease obligations

     5,866        6,690   

Deferred consideration—short term

     51,488        5,273   

Other current liabilities

     3,973        2,890   
  

 

 

   

 

 

 

Total current liabilities

     487,921        516,785   

Long-term deferred revenue

     79,682        89,200   

Notes payable—long term, net of original issue discounts of $0 and $25,853, and deferred financing costs of $990 and $43,342, respectively

     1,014,885        1,951,280   

Capital lease obligations—long term

     7,215        512   

Deferred tax liability

     28,786        39,943   

Deferred consideration—long term

     813        7,444   

Other liabilities

     3,524        8,974   
  

 

 

   

 

 

 

Total liabilities

     1,622,826        2,614,138   
  

 

 

   

 

 

 

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; 132,024,558 and 134,793,857 shares issued at December 31, 2015 and December 31, 2016, respectively; 131,938,485 and 134,793,857 outstanding at December 31, 2015 and December 31, 2016, respectively

     14        14   

Additional paid-in capital

     848,740        868,228   

Accumulated other comprehensive loss

     (1,718     (3,666

Accumulated deficit

     (667,362     (740,193
  

 

 

   

 

 

 

Total stockholders’ equity

     179,674        124,383   
  

 

 

   

 

 

 

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

   $ 1,802,500      $ 2,756,274   
  

 

 

   

 

 

 

 

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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,
 
     2015     2016     2015     2016  

Revenue

   $ 193,043      $ 292,123      $ 741,315      $ 1,111,142   

Cost of revenue

     108,351        145,011        425,035        583,991   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     84,692        147,112        316,280        527,151   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     35,628        68,567        145,419        303,511   

Engineering and development

     6,801        19,671        26,707        87,601   

General and administrative

     22,957        34,587        81,386        143,095   

Transaction expenses

     4,980        27        9,582        32,284   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     70,366        122,852        263,094        566,491   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     14,326        24,260        53,186        (39,340
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Other income (loss), net

     —          (4,703     5,440        1,862   

Interest income

     98        138        414        576   

Interest expense

     (15,872     (40,315     (58,828     (152,888
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (15,774     (44,880     (52,974     (150,450
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (1,448     (20,620     212        (189,790

Income tax expense (benefit)

     2,260        11,362        11,342        (109,858
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of unconsolidated entities

     (3,708     (31,982     (11,130     (79,932
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity loss of unconsolidated entities, net of tax

     5,524        100        14,640        1,297   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (9,232   $ (32,082   $ (25,770   $ (81,229
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to non-controlling interest

     —          (841     —          (15,167

Excess accretion of non-controlling interest

     —          3,624        —          6,769   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net income (loss) attributable to non-controlling interest

     —          2,783        —          (8,398
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Endurance International Group Holdings, Inc.

   $ (9,232   $ (34,865   $ (25,770   $ (72,831
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss:

        

Foreign currency translation adjustments

     77        (1,591     (1,281     (597

Unrealized gain (loss) on cash flow hedge, net of taxes of $46 and $97, and $46 and ($792) for the three and twelve months ended December 31, 2015 and 2016, respectively

     80        515        80        (1,351
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (9,075   $ (35,941   $ (26,971   $ (74,779
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.07   $ (0.26   $ (0.20   $ (0.55
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     131,772,156        134,453,029        131,340,557        133,415,732   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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,
 
     2015     2016     2015     2016  

Cash flows from operating activities:

        

Net loss

   $ (9,232   $ (32,082   $ (25,770   $ (81,229

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

        

Depreciation of property and equipment

     9,361        13,418        34,010        60,360   

Amortization of other intangible assets from acquisitions

     23,866        37,883        91,057        143,562   

Amortization of deferred financing costs

     20        1,751        82        6,073   

Amortization of net present value of deferred consideration

     776        191        1,264        2,617   

Amortization of original issuance discount

     —          854        —          2,970   

Impairment of long lived assets

     —          754        —          9,039   

Stock-based compensation

     9,653        10,049        29,925        58,267   

Deferred tax expense (benefit)

     1,499        11,305        7,120        (113,242

Gain on sale of assets

     —          (75     (155     (243

(Gain) loss from unconsolidated entities

     —          4,703        (5,440     (1,862

Loss of unconsolidated entities

     5,524        100        14,640        1,297   

Dividend from minority interest

     —          50        —          100   

(Gain) loss from change in deferred consideration

     91        13        1,174        (20

Changes in operating assets and liabilities:

        

Accounts receivable

     83        (2,996     (1,659     (1,620

Prepaid expenses and other current assets

     (3,933     4,274        (13,187     (4,932

Accounts payable and accrued expenses

     669        7,164        9,926        19,458   

Deferred revenue

     5,037        (4,199     34,241        54,366   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     43,414        53,157        177,228        154,961   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Businesses acquired in purchase transaction, net of cash acquired

     (24,583     —          (97,795     (889,634

Purchases of property and equipment

     (7,976     (7,942     (31,243     (37,259

Cash paid for minority investment

     (1,225     —          (8,475     (5,600

Proceeds from sale of assets

     —          434        284        676   

Proceeds from note receivable

     —          —          3,454        —     

Purchases of intangible assets

     (32     —          (76     (27

Net (deposits) and withdrawals of principal balances in restricted cash accounts

     159        181        50        (557
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (33,657     (7,327     (133,801     (932,401
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from issuance of term loan

     —          —          —          1,056,178   

Repayment of term loan

     (2,625     (12,425     (10,500     (55,200

Proceeds from borrowing of revolver

     38,000        5,000        147,000        54,500   

Repayment of revolver

     (41,000     (38,500     (130,000     (121,500

Payment of financing costs

     —          —          —          (52,561

Payment of deferred consideration

     (4,400     (7,964     (14,991     (51,044

Payment of redeemable non-controlling interest liability

     —          —          (30,543     (33,425

Principal payments on capital lease obligations

     (1,995     (1,520     (4,822     (5,892

Proceeds from exercise of stock options

     1,077        260        2,224        2,564   

Capital investment from minority interest partner

     —          —          —          2,776   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (10,943     (55,149     (41,632     796,396   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of exchange rate on cash and cash equivalents

     54        (233     (1,144     1,610   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (1,132     (9,552     651        20,566   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents:

        

Beginning of period

     34,162        63,148        32,379        33,030   
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 33,030      $ 53,596      $ 33,030      $ 53,596   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 14,889      $ 27,882      $ 57,338      $ 119,063   

Income taxes paid

   $ 536      $ 879      $ 4,510      $ 4,278   

Supplemental disclosure of non-cash financing activities:

        

Shares issued in connection with the acquisition of Directi

   $ —        $ —        $ —        $ —     

Assets acquired under capital lease

   $ 9,795      $ —        $ 9,795      $ —     

 

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GAAP to Non-GAAP reconciliation - Adjusted EBITDA

The following table presents a reconciliation of net loss calculated in accordance with GAAP to adjusted EBITDA (all data in thousands):

 

     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 
     2015      2016      2015      2016  

Net loss

   $ (9,232    $ (32,082    $ (25,770    $ (81,229

Interest expense, net (including impact of amortization of deferred financing costs and original issuance discount)

     15,774         40,177         58,414         152,312   

Income tax expense (benefit)

     2,260         11,362         11,342         (109,858

Depreciation

     9,361         13,418         34,010         60,360   

Amortization of other intangible assets

     23,866         37,883         91,057         143,562   

Stock-based compensation

     9,653         10,049         29,925         58,267   

Restructuring expenses

     295         582         1,489         24,224   

Transaction expenses and charges

     4,980         27         9,582         32,284   

(Gain) loss of unconsolidated entities(1)

     5,524         4,803         9,200         (565

Impairment of other long lived assets

     —           754         —           9,039   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 62,481       $ 86,973       $ 219,249       $ 288,396   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The (gain) loss of unconsolidated entities is reported on a net basis for the three and twelve months ended December 31, 2015 and 2016. The three months ended December 31, 2016 includes a loss of $4.7 million on the impairment of our 33% equity investment in Fortifico Limited. The three months ended December 31, 2016 also includes a net loss of $0.1 million from our proportionate share of net losses from unconsolidated entities. The twelve months ended December 31, 2016 includes an $11.4 million gain on our investment in WZ UK, Ltd. This gain was generated on January 6, 2016, when we increased our ownership stake in WZ UK from 49% to 57.5%, which required a revaluation of our existing investment to its implied fair value. The twelve months ended also includes a loss of $4.8 million on our investment in AppMachine B.V. This loss was generated on July 27, 2016, when we increased our ownership stake in AppMachine from 40% to 100%, which required a revaluation of our existing investment to its implied fair value. These were also offset by the loss of $4.7 million on Fortifico Limited previously mentioned in this paragraph, and by our proportionate share of net losses from unconsolidated entities of $1.3 million.

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.

 

10


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
December 31,
     Twelve Months Ended
December 31,
 
     2015      2016      2015      2016  

Cash flow from operations

   $ 43,414       $ 53,157       $ 177,228       $ 154,961   

Less:

           

Capital expenditures and capital lease obligations (1)

     (9,971      (9,462      (36,065      (43,151
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 33,443       $ 43,695       $ 141,163       $ 111,810   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Capital expenditures during the three and twelve months ended December 31, 2015 includes $2.0 million and $4.8 million of principal payments under a three year capital lease for software. Capital expenditures during the three and twelve months ended December 31, 2016 includes $1.5 million and $5.9 million of principal payments under a two year capital lease for software. The remaining balance on the capital lease is $7.2 million as of December 31, 2016.

Average Revenue Per Subscriber - Calculation and Segment Detail

Starting with the fourth quarter of 2016, we will 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.

 

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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
December 31,
     Twelve Months Ended
December 31,
 
     2015      2016      2015      2016  

Consolidated revenue

   $ 193,043       $ 292,123       $ 741,315       $ 1,111,142   

Consolidated total subscribers

     4,669         5,371         4,669         5,371   

Consolidated average subscribers for the period

     4,587         5,405         4,358         5,283   

Consolidated average revenue per subscriber (ARPS)

   $ 14.03       $ 18.02       $ 14.18       $ 17.53   
  

 

 

    

 

 

    

 

 

    

 

 

 

Web Presence revenue

     —         $ 194,970         —         $ 784,334   

Web Presence subscribers

     —           4,827         —           4,827   

Web Presence average subscribers

     —           4,860         —           4,789   

Web Presence ARPS

   $ —         $ 13.37       $ —         $ 13.65   
  

 

 

    

 

 

    

 

 

    

 

 

 

Email Marketing revenue

     —         $ 97,153         —         $ 326,808   

Email Marketing subscribers

     —           544         —           544   

Email Marketing average subscribers

     —           545         —           494   

Email Marketing ARPS

   $ —         $ 59.43       $ —         $ 55.11   

The following table presents a reconciliation by segment of net loss calculated in accordance with GAAP to adjusted EBITDA (all data in thousands):

 

     Three Months Ended
December 31, 2016
    Twelve Months Ended
December 31, 2016
 
     Web
Presence
    Email
Marketing
    Total     Web
Presence
    Email
Marketing
    Total  

Revenue

   $ 194,970      $ 97,153      $ 292,123      $ 784,334      $ 326,808      $ 1,111,142   

Gross profit

     88,379        58,733        147,112        353,988        173,163        527,151   

Adjusted EBITDA

   $ 46,075      $ 40,898      $ 86,973      $ 172,135      $ 116,261      $ 288,396   

Interest expense, net

     17,504        22,673        40,177        70,843        81,469        152,312   

Income tax expense (benefit)

     13,718        (2,356     11,362        (76,315     (33,543     (109,858

Depreciation

     9,364        4,054        13,418        36,613        23,747        60,360   

Amortization of other intangible assets

     19,630        18,253        37,883        78,883        64,679        143,562   

Stock-based compensation

     8,084        1,965        10,049        45,864        12,403        58,267   

Restructuring expenses

     349        233        582        1,845        22,379        24,224   

Transaction expenses and charges

     27        —          27        31,300        984        32,284   

(Gain) loss of unconsolidated entities(1)

     4,803        —          4,803        (565     —          (565

Impairment of other long lived assets

     754        —          754        9,039        —          9,039   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (28,158   $ (3,924   $ (32,082   $ (25,372   $ (55,857   $ (81,229
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) The (gain) loss of unconsolidated entities is reported on a net basis for the three and twelve months ended December 31, 2015 and 2016. The three months ended December 31, 2016 includes a loss of $4.7 million on the impairment of our 33% equity investment in Fortifico Limited. The three months ended December 31, 2016 also includes a net loss of $0.1 million from our proportionate share of net losses from unconsolidated entities. The twelve months ended December 31, 2016 includes an $11.4 million gain on our investment in WZ UK, Ltd. This gain was generated on January 6, 2016, when we increased our ownership stake in WZ UK from 49% to 57.5%, which required a revaluation of our existing investment to its implied fair value. The twelve months ended also includes a loss of $4.8 million on our investment in AppMachine B.V. This loss was generated on July 27, 2016, when we increased our ownership stake in AppMachine from 40% to 100%, which required a revaluation of our existing investment to its implied fair value. These were also offset by the loss of $4.7 million on Fortifico Limited previously mentioned in this paragraph, and by our proportionate share of net losses from unconsolidated entities of $1.3 million.

 

13


GAAP to Non-GAAP Reconciliation of Fiscal Year 2017 Guidance (as of February 16, 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 at the high end of the guidance range (i.e. assuming a 12% increase over 2016 adjusted EBITDA as reported). All figures shown are approximate.

 

($ in millions)

   Twelve Months Ending
December 31, 2017
 

Estimated net loss

   $ (91   

Estimated interest expense (net)

     148      

Estimated income tax expense (benefit)

     10      

Estimated depreciation

     56      

Estimated amortization of acquired intangible assets

     137      

Estimated stock-based compensation

     57      

Estimated restructuring expenses

     8      

Estimated transaction expenses and charges

     —        

Estimated (gain) loss of unconsolidated entities

     —        

Estimated impairment of other long-lived assets

     —        
  

 

 

    

Adjusted EBITDA guidance

  

   $ 325   

GAAP to Non-GAAP Reconciliation of Fiscal Year 2017 Guidance (as of February 16, 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

   $ 205      

Estimated capital expenditures and capital lease obligations

     (55   
  

 

 

    

Free cash flow guidance

  

   $ 150   

 

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