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8-K - 8-K - Endurance International Group Holdings, Inc.d815223d8k.htm

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2014 Third Quarter Results

BURLINGTON, MA (November 4, 2014) — 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, 2014.

“We are pleased to report a quarter that exceeded expectations for revenue, adjusted EBITDA and unlevered free cash flow,” commented Hari Ravichandran, chief executive officer and founder of Endurance International Group. “During the quarter our paying subscribers increased by 94,000, or 12 percent over the third quarter of 2013, to more than 3.8 million total paying subscribers, and our average revenue per subscriber increased by 10 percent over the third quarter of 2013 to $14.49. We believe our results are a reflection of the effectiveness of our marketing and distribution platforms, which we expect will continue to propel our growth drivers and provide a solid basis for a sustainable, strong top line which will in turn drive healthy cash flows for the future.”

Third Quarter Financial Highlights

 

(in millions)

   Q3 2014 Actuals      Year over year growth  

Adjusted Revenue

   $ 164.9         23

Adjusted EBITDA

   $ 58.0         16

UFCF

   $ 50.1         17

 

    GAAP revenue was $160.2 million, an increase of approximately 21 percent compared to $132.9 million in the third quarter of 2013.

 

    Net loss attributable to Endurance International Group Holdings, Inc. was $7.9 million, or $(0.06) per diluted share, compared to a net loss of $27.0 million, or $(0.28) per diluted share, for the third quarter of 2013.

 

    Adjusted revenue was $164.9 million, an increase of approximately 23 percent compared to $134.2 million in the third quarter of 2013.

 

    Adjusted revenue, excluding the impact of Directi, which contributed $13.0 million to adjusted revenue for the quarter, was $152.0 million, an increase of over 13 percent over the third quarter of 2013.

 

    Adjusted EBITDA was $58.0 million, an increase of over 16 percent compared to $49.9 million in the third quarter of 2013.

 

    Unlevered free cash flow (UFCF) was $50.1 million, an increase of approximately 17 percent compared to $43.0 million in the same period a year ago.

 

    Free cash flow (FCF) was $35.8 million, an increase of over 72 percent compared to $20.8 million in the third quarter of 2013.


Third Quarter Operating Highlights

 

    Total paying subscribers increased by 94,000 in Q3 2014. Excluding the impact of Directi, total paying subscribers increased by 93,000.

 

    Total paying subscribers were approximately 3.841 million at the end of Q3 2014, an increase of 12 percent compared to approximately 3.440 million at the end of Q3 2013.

 

    Average revenue per subscriber (ARPS) was $14.49, an increase of 10 percent compared to $13.14 for Q3 2013. Excluding the impact of Directi, ARPS was $13.54, an increase of 3 percent compared to $13.14 for Q3 2013 and an increase of $0.19 over Q2 2014.

 

    During the quarter, the company acquired Webzai, Ltd. and the assets of BuyDomains. In addition, on October 31, 2014, the company acquired the assets of Arvixe, LLC. The total consideration for these acquisitions is expected to be approximately $77 million.

Fiscal Year 2014 Guidance

The company is providing the following guidance:

Full year 2014 ending December 31, 2014

 

(in millions)

   Prior Guidance
(at August 7, 2014)
   New Guidance
(at November 4, 2014)

Adjusted Revenue

   $639 - $643    $648 - $650

Year over year growth

   21% - 22%    23%

Adjusted EBITDA

   $230 - $235    $230 - $235

Year over year growth

   11% - 13%    11% - 13%

UFCF

   $180 - $190    $180 - $190

Year over year growth

   8% to 14%    8% to 14%

Adjusted revenue, adjusted EBITDA, UFCF, 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 adjusted revenue, adjusted EBITDA or UFCF guidance 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.

Conference Call and Webcast Information

Endurance International Group’s third quarter 2014 teleconference and webcast is scheduled to begin at 8:00 a.m. ET on Tuesday, November 4, 2014. 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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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 in this press release, and not to rely on any single financial measure to evaluate our business.

Adjusted Net Income

Adjusted net income is a non-GAAP financial measure that we calculate as net income (loss) plus (i) changes in deferred revenue inclusive of purchase accounting adjustments related to acquisitions, amortization, stock-based compensation expense, loss of unconsolidated entities, net loss on sale of property and equipment, expenses related to integration of acquisitions and restructurings, any dividend-related payments accounted for as compensation expense, transaction expenses and charges including costs associated with certain litigation matters, and preparation for our initial public offering, less (ii) earnings of unconsolidated entities and net gain on sale of property and equipment and (iii) the estimated tax effects of the foregoing adjustments. Due to our history of acquisitions and financings, we have incurred accounting charges and expenses that obscure the operating performance of our business. We believe that adjusting for these items and the use of adjusted net income is useful to investors in evaluating the performance of our company.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we calculate as adjusted net income plus interest expense, depreciation, and income tax expense (benefit). 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 health of our business. Under GAAP, although subscription fees are paid in advance, we recognize the associated revenue over the subscription term, which does not fully reflect short-term trends in our operating results.

 

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Unlevered Free Cash Flow

Unlevered free cash flow, or UFCF, is a non-GAAP financial measure that we calculate as adjusted EBITDA plus change in operating assets and liabilities (other than deferred revenue) net of acquisitions, less capital expenditures and income taxes excluding deferred tax. 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. We also invest in marketing, our largest operating expense, which may increase or decrease in a given period, depending on the cost of attracting new subscribers to our solutions. We also believe that because our business has meaningful data center and related infrastructure requirements, the level of capital expenditures required to run our business is an important factor for investors to consider. We believe UFCF is a useful measure that captures the effects of these issues.

Free Cash Flow

Free cash flow, or FCF, is a non-GAAP financial measure that we calculate as UFCF less interest expense. We believe that this presentation of FCF provides investors with an additional indicator of our ability to generate positive cash flows after meeting our obligations with regard to payment of interest on our outstanding indebtedness.

Adjusted Revenue

Adjusted revenue is a non-GAAP financial measure that we calculate as GAAP revenue adjusted to exclude the impact of any fair value adjustments to deferred revenue resulting from acquisitions and to include the revenue generated from subscribers we added through business acquisitions. Historically, we 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 adjusted the amount of revenue to include the revenue generated from subscribers we add through business acquisitions from the 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, and that including revenue from acquired subscribers in this manner provides a helpful comparison of the revenues generated from our subscribers from period to period.

Total Subscribers

We define total subscribers as those that, as of the end of a period, are identified as subscribing directly to our web presence solutions on a paid basis. Historically, in calculating total subscribers, we include 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 presented. Since the first quarter of 2014, we have included subscribers we added through business acquisitions from the date of the relevant acquisition. We do not include in total subscribers accounts that access our solutions via resellers or purchase only domain names from us. Subscribers of more than one brand are counted as separate subscribers. We believe total subscribers is an indicator of the scale of our platform and our ability to expand our subscriber base, and is a critical factor in our ability to monetize the opportunity we have identified in serving the small- and medium-sized business (SMB) market. Total subscribers for a period may reflect adjustments to add or subtract subscribers as we integrate and/or are otherwise able to identify subscribers that meet this definition of total subscribers.

Average Revenue per Subscriber

Average revenue per subscriber, or ARPS, is a non-GAAP financial measure that we calculate as the amount of adjusted revenue we recognize in a period divided by the average of the number of total subscribers at the beginning of the period and at the end of the period. We believe ARPS is an indicator of our ability to optimize our mix of products and services and pricing, and sell products and services to new and existing subscribers.

 

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Forward-Looking Statements

This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for fiscal year 2014, our beliefs and expectations regarding the ability of our marketing and distribution platforms to propel our growth drivers and provide a basis for strong and sustainable future revenues and cash flows, and our future 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,” “confident,” “positions,” and variations of such words or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that 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 Annual Report on Form 10-K for the period ended December 31, 2013 filed with the Securities and Exchange Commission (SEC) on February 28, 2014 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 (NASDAQ: EIGI) helps small and medium-sized business owners establish, manage and grow their businesses by harnessing the power and promise of the web. As a leading provider of cloud-based platform solutions to help small and medium-sized business owners succeed online, Endurance, through its family of brands – including Bluehost, HostGator, iPage, Domain.com, A Small Orange, and ResellerClub – supports over 3.8 million subscribers and is able to tailor solutions for small businesses at every stage and level of sophistication. Endurance is headquartered in Burlington, Massachusetts, has a presence in Asia and the Americas, and employs over 2,400 people. For more information, visit endurance.com and follow us @ LinkedIn, Google+ or on twitter @EnduranceIntl.

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

 

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Press Contact:

Alan Wallace

Endurance International Group

(781) 852-3382

press@endurance.com

 

6


Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

 

     December 31,
2013
    September 30,
2014
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 66,815      $ 22,403   

Restricted cash

     1,983        1,910   

Accounts receivable

     7,160        10,934   

Deferred tax asset—short term

     12,981        15,368   

Prepaid domain name registry fees

     22,812        43,620   

Prepaid expenses and other current assets

     7,050        17,852   
  

 

 

   

 

 

 

Total current assets

     118,801        112,087   

Property and equipment—net

     49,715        59,486   

Goodwill

     984,207        1,093,820   

Other intangible assets—net

     406,140        428,466   

Deferred financing costs

     430        386   

Investments

     6,535        25,334   

Prepaid domain name registry fees, net of current portion

     4,295        5,240   

Other assets

     10,815        4,413   
  

 

 

   

 

 

 

Total assets

   $ 1,580,938      $ 1,729,232   
  

 

 

   

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 7,950      $ 10,125   

Accrued expenses

     35,433        41,331   

Deferred revenue

     194,196        250,608   

Current portion of notes payable

     10,500        71,500   

Current portion of capital lease obligations

     —         3,746   

Deferred consideration—short term

     24,437        27,168   

Other current liabilities

     6,796        10,115   
  

 

 

   

 

 

 

Total current liabilities

     279,312        414,593   

Long-term deferred revenue

     55,298        66,116   

Notes payable—long term

     1,036,875        1,029,000   

Capital lease obligations

     —         5,269   

Deferred tax liability—long term

     26,171        38,978   

Deferred consideration

     4,207        10,219   

Other liabilities

     3,041        2,843   
  

 

 

   

 

 

 

Total liabilities

   $ 1,404,904      $ 1,567,018   
  

 

 

   

 

 

 

Redeemable non-controlling interest

     20,772        17,958   

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; 124,788,853 and 127,575,465 shares issued at December 31, 2013 and September 30, 2014, respectively; 124,766,544 and 127,531,934 shares outstanding at December 31, 2013 and September 30, 2014, respectively

     13        13   

Additional paid-in capital

     754,061        783,881   

Accumulated other comprehensive loss

     (55     (250

Accumulated deficit

     (598,757     (639,388
  

 

 

   

 

 

 

Total stockholders’ equity

     155,262        144,256   
  

 

 

   

 

 

 

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

   $ 1,580,938      $ 1,729,232   
  

 

 

   

 

 

 

 

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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
September 30,
    Nine Months Ended
September 30,
 
     2013     2014     2013     2014  

Revenue

   $ 132,913      $ 160,167      $ 383,876      $ 457,909   

Cost of revenue

     87,165        97,416        262,345        279,218   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     45,748        62,751        121,531        178,691   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     28,932        34,761        87,231        114,610   

Engineering and development

     5,409        4,179        17,644        14,497   

General and administrative

     15,742        18,557        44,105        50,914   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     50,083        57,497        148,980        180,021   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (4,335     5,254        (27,449     (1,330
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense:

        

Interest income

     31        83        61        255   

Interest expense

     (22,572     (14,407     (66,111     (42,219
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (22,541     (14,324     (66,050     (41,964
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes and equity earnings of unconsolidated entities

     (26,876     (9,070     (93,499     (43,294

Income tax expense (benefit)

     244        289        (1,427     4,776   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of unconsolidated entities

     (27,120     (9,359     (92,072     (48,070

Equity (income) loss of unconsolidated entities, net of tax

     (93     84        (359     (26
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (27,027   $ (9,443   $ (91,713   $ (48,044
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to non-controlling interest

     —         (1,545     —         (7,413
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Endurance International Group Holdings, Inc.

   $ (27,027   $ (7,898   $ (91,713   $ (40,631
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss:

        

Foreign currency translation adjustments

     (24     (243     (24     (195
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (27,051   $ (8,141   $ (91,737   $ (40,826
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.28   $ (0.06   $ (0.94   $ (0.32
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     98,206,616        127,475,305        97,618,972        127,053,560   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months
Ended
September 30,
    Nine Months
Ended
September 30,
 
     2013     2014     2013     2014  

Cash flows from operating activities:

      

Net loss

   $ (27,027   $ (9,443   $ (91,713   $ (48,044

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

      

Depreciation of property and equipment

     4,803        8,005        13,070        22,553   

Amortization of other intangible assets

     26,467        26,247        78,781        75,788   

Amortization of deferred financing costs

     83        19        189        57   

Amortization of net present value of deferred consideration

     225        —          1,393        5   

Stock-based compensation

     366        4,189        1,105        11,362   

Deferred tax expense (benefit)

     611        (406     (2,139     1,534   

Loss on sale of property and equipment

     —         4        332        78   

Gain on sale of assets

     —         (369     —         (369

Income of unconsolidated entities

     (93     84        (359     (26

Dividend from minority interest

     —         167        —         167   

Gain from change in deferred consideration

     —         398        —         420   

Changes in operating assets and liabilities:

      

Accounts receivable

     1,528        (910     (374     (1,401

Prepaid expenses and other current assets

     (3,385     (4,510     (10,422     (21,973

Accounts payable and accrued expenses

     2,032        2,648        4,119        2,444   

Deferred revenue

     10,844        12,015        44,495        61,932   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     16,454        38,138        38,477        104,527   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Business acquired in purchase transaction, net of cash acquired

     (4,951     (50,940     (7,385     (76,098

Proceeds from sale of assets

     —         100        23        100   

Cash paid for minority investment

     (175     (3,940     (8,935     (18,940

Purchases of property and equipment

     (7,437     (5,114     (25,384     (18,015

Proceeds from sale of property and equipment

     —         2        13        86   

Purchases of intangible assets

     (569     (100     (569     (200

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

     (577     (111     (284     73   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (13,709     (60,103     (42,521     (112,994
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Proceeds from issuance of term loan

     90,000        —         90,000        —    

Repayment of term loan

     (2,226     (2,625     (6,226     (7,875

Proceeds from borrowing of revolver

     23,000        52,000        57,000        107,000   

Repayment of revolver

     (46,000     (24,000     (72,000     (46,000

Payment of financing costs

     (1,280     —         (1,280     (12

Payment of deferred consideration

     (49,770     —         (53,106     (81,503

Partial settlement of redeemable non-controlling interest liability

     —         (4,190     —         (4,190

Principal payments on capital lease obligations

     —         (908     —         (2,690

Proceeds from exercise of stock options

     —         12        —         12   

Issuance costs of common stock

     —         —          —         (731
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     13,724        20,289        14,388        (35,989
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of exchange rate on cash and cash equivalents

     (70     132        (206     44   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     16,399        (1,544     10,138        (44,412

Cash and cash equivalents:

      

Beginning of period

     16,984        23,947        23,245        66,815   
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 33,383      $ 22,403      $ 33,383      $ 22,403   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

      

Interest paid

   $ 21,796      $ 14,309      $ 69,068      $ 42,578   

Income taxes paid

   $ 260      $ 546      $ 1,350      $ 1,497   

Supplemental disclosure of non-cash financing activities:

      

Shares issued in connection with the acquisition of Directi

   $ —       $ —       $ —       $ 27,235   

Assets acquired under capital lease

   $ —       $ —       $ —       $ 11,704   

 

 

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The following table reflects the reconciliation of Adjusted Net Income, Adjusted EBITDA, UFCF and FCF to net loss calculated in accordance with GAAP (all data in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2014     2013     2014  

Net loss

   $ (27,027   $ (9,443   $ (91,713   $ (48,044

Stock-based compensation

     366        4,189        1,105        11,362   

Loss on sale of property and equipment

     —          4        332        78   

Gain on sale of asset

     —          (369     —          (369

(Gain) loss of unconsolidated entities

     (93     84        (359     (26

Amortization of intangible assets

     26,467        26,247        78,781        75,788   

Amortization of deferred financing costs

     83        19        189        57   

Changes in deferred revenue (inclusive of impact of purchase accounting)

     10,844        7,760        44,495        45,340   

Transaction expenses and charges

     2,799        1,786        11,157        3,906   

Integration and restructuring expenses

     8,946        5,166        40,226        16,337   

Tax-affected impact of adjustments

     (1,455     (855     (5,173     (5,487
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

   $ 20,930      $ 34,588      $ 79,040      $ 98,942   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation

     4,803        8,005        13,070        22,553   

Income tax expense

     1,699        1,144        3,746        10,263   

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

     22,458        14,305        65,861        41,907   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 49,890      $ 58,042      $ 161,717      $ 173,665   
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in operating assets and liabilities, net of acquisitions(1)

     175        (1,220     (6,677     (7,041

Capital expenditures (2)

     (7,437     (6,022     (25,384     (20,705

Income tax (excluding deferred tax)

     367        (695     (712     (3,242
  

 

 

   

 

 

   

 

 

   

 

 

 

Unlevered free cash flow

   $ 42,995      $ 50,105      $ 128,944      $ 142,677   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash interest paid (net of change in accrued loan interest)

     (22,216     (14,306     (64,373     (41,902
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ 20,779      $ 35,799      $ 64,571      $ 100,775   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) In the three and nine months ended September 30, 2014 we have decreased the change in operating assets and liabilities by $2.7 million of accrued employee severance and facility costs related to closing offices in Redwood City, California and Englewood, Colorado that are included in integration and restructuring expenses.
(2) Capital expenditures during the three and nine months ended September 30, 2014 includes $0.9 million and $2.7 million, respectively, of payments under a three year capital lease for software of $11.7 million beginning in January 2014. The remaining balance on the capital lease is $9.0 million as of September 30, 2014.

The following table reflects the reconciliation of cash flows from operating activities, or operating cash flow, to FCF (all data in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2014     2013     2014  

Operating cash flow

   $ 16,454      $ 38,138      $ 38,477      $ 104,527   

Less:

        

Dividend from minority interest

     —          (167     —          (167

Capital expenditures and capital lease obligations

     (7,437     (6,022     (25,384     (20,705

Plus:

        

Costs excluded in FCF net of costs also excluded in operating cash flow:

        

Transaction expenses and charges

     2,816        1,387        11,252        3,486   

Integration and restructuring expenses

     8,946        2,463        40,226        13,634   
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ 20,779      $ 35,799      $ 64,571      $ 100,775   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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
September 30,
     Nine Months Ended
September 30,
 
     2013      2014      2013      2014  

Revenue

   $ 132,913       $ 160,167       $ 383,876       $ 457,909   

Purchase accounting adjustment

     1,307         4,763         6,782         18,830   

Pre-acquisition revenue from acquired properties

     —          —          512         —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted revenue

   $ 134,220       $ 164,930       $ 391,170       $ 476,739   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total subscribers

     3,440         3,841         3,440         3,841   

ARPS

   $ 13.14       $ 14.49       $ 13.02       $ 14.35   

Adjusted revenue attributable to Directi

     —          12,976         —          35,286   

Adjusted revenue excluding Directi

   $ 134,220       $ 151,954       $ 391,170       $ 441,453   

Total subscribers excluding Directi

     3,440         3,788         3,440         3,788   

ARPS excluding Directi

   $ 13.14       $ 13.54       $ 13.02       $ 13.46   

 

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