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8-K - FORM 8-K - Endurance International Group Holdings, Inc.d67914d8k.htm
EX-10.1 - EX-10.1 - Endurance International Group Holdings, Inc.d67914dex101.htm
EX-99.2 - EX-99.2 - Endurance International Group Holdings, Inc.d67914dex992.htm

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2015 Second Quarter Results

BURLINGTON, MA (August 4, 2015) — 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 second quarter ended June 30, 2015.

“We are pleased with our second quarter performance, delivering results solidly within our expectations,” commented Hari Ravichandran, chief executive officer and founder of Endurance International Group. “We continue to anchor our approach to our two-pronged strategy of growing subscribers and average revenue per subscriber, whether through acquired means or our own gateway products such as hosting, web builders, mobile, content management and related products. Given the opportunity ahead of us, we will continue to work toward building a long-standing business through enhancing our gateway products and brands, and will be experimenting with new marketing programs through the rest of this year, with the firm belief that longer-term, our targets for revenue and profitability will benefit from these efforts.”

Second Quarter Financial Highlights

 

(in millions)

  

Prior Q2 2015 Guidance*

  

Q2 2015 Actuals

    

Year over year
growth

 

Adjusted Revenue

   $181 - $183    $ 183.3         15

Adjusted EBITDA

   $60 - $62    $ 61.6         9

UFCF (as reported)

   —      $ 55.3         27

 

* prior outlook provided by the Company on May 5, 2015

 

    GAAP revenue was $182.4 million, an increase of 20 percent compared to $152.0 million in the second quarter of 2014.

 

    Adjusted revenue was $183.3 million, an increase of 15 percent compared to $159.0 million in the second quarter of 2014.

 

    GAAP net loss attributable to Endurance International Group Holdings, Inc. was $(2.1) million, or $(0.02) per diluted share, compared to a net loss of $13.4 million, or $(0.11) per diluted share, for the second quarter of 2014.

 

    Adjusted EBITDA was $61.6 million, an increase of 9 percent compared to $56.5 million in the second quarter of 2014.

 

    GAAP cash from operations was $46.0 million, an increase of 62 percent compared to $28.4 million in the second quarter of 2014.

 

    Unlevered free cash flow (as reported) was $55.3 million, an increase of 27 percent compared to $43.7 million in the second quarter of 2014.


Second Quarter Operating Highlights

 

    Total subscribers on platform were approximately 4.394 million, including approximately 86,000 subscribers from businesses acquired during the quarter. See “Total Subscribers” below.

 

    Average revenue per subscriber (ARPS) was $14.30, compared to $14.33 for the second quarter of 2014.

 

    During the quarter, the company acquired assets of Verio and Site5. The total cash consideration for these acquisitions is expected to be approximately $36 million.

Fiscal Year 2015 and Third Quarter 2015 Guidance

The Company is providing the following guidance:

For the full year 2015 ending December 31, 2015, the company expects:

 

(in millions)

  

Prior Guidance

(at May 5, 2015)

  

Current Guidance

(at August 4, 2015)

Adjusted Revenue

   $745 - $755    $745 - $755

Year over year growth

   14% - 16%    14% - 16%

Adjusted EBITDA*

   $275 - $285    $275 - $285

Year over year growth

   17% - 21%    17% - 21%

UFCF (as reported)*

   $220 - $230    $220 - $230

Year over year growth

   14% - 19%    14% - 19%

For the third quarter ending September 30, 2015, the company expects:

 

(in millions)

  

Prior Guidance

  

New Guidance

(at August 4, 2015)

Adjusted Revenue

   —      $189 - $193

Year over year growth

      15% - 17%

Adjusted EBITDA*

   —      $66 - $69

Year over year growth

      14% - 19%

 

* See definitions for adjusted EBITDA and UFCF (as reported) in “Non-GAAP Financial Measures.”

Adjusted revenue, adjusted EBITDA, UFCF (as reported) 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 second quarter 2015 teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Tuesday, August 4, 2015. 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 & Other 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 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. 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 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 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. 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.

 

3


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 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 this definition of total subscribers. Approximately 17 percent of the increase in total subscribers in the second quarter of 2015 consists of these adjustments.

 

4


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 negatively impacted by our acquisitions since the acquired subscribers often have lower ARPS.

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 2015 (including the third quarter of fiscal year 2015), our ability to increase our subscriber base and grow ARPS, our ability to achieve our long-term growth and profitability goals, our ability to grow and enhance our products and brands, the outcome of our planned investments in gateway products and brands, the outcome of new marketing programs, the size of our market opportunity, our investment goals, 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,” “will,” “should,” “confident,” “positions,” “look forward to,” 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 Quarterly Report on Form 10-Q for the period ended March 31, 2015 filed with the Securities and Exchange Commission (SEC) on May 11, 2015 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 4.4 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 2,700 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.

 

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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

 

6


Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

 

     December 31,
2014
    June 30,
2015
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 32,379      $ 35,533   

Restricted cash

     1,325        1,401   

Accounts receivable

     10,201        10,030   

Deferred tax asset—short term

     13,961        13,961   

Prepaid domain name registry fees

     49,605        57,501   

Prepaid expenses and other current assets

     13,173        14,381   
  

 

 

   

 

 

 

Total current assets

     120,644        132,807   

Property and equipment—net

     56,837        55,135   

Goodwill

     1,105,023        1,131,244   

Other intangible assets—net

     410,338        391,819   

Deferred financing costs

     400        359   

Investments

     40,447        29,404   

Prepaid domain name registry fees, net of current portion

     7,957        5,348   

Other assets

     4,397        1,397   
  

 

 

   

 

 

 

Total assets

   $ 1,746,043      $ 1,747,513   
  

 

 

   

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 8,960      $ 11,765   

Accrued expenses

     38,275        44,623   

Deferred revenue

     259,567        279,617   

Current portion of notes payable

     60,500        45,500   

Current portion of capital lease obligations

     3,793        4,044   

Deferred consideration—short term

     13,917        22,336   

Other current liabilities

     10,358        9,279   
  

 

 

   

 

 

 

Total current liabilities

     395,370        417,164   

Long-term deferred revenue

     65,850        72,022   

Notes payable—long term

     1,026,375        1,021,125   

Capital lease obligations

     4,302        2,178   

Deferred tax liability—long term

     35,579        37,540   

Deferred consideration

     10,722        10,331   

Other liabilities

     2,806        3,204   
  

 

 

   

 

 

 

Total liabilities

   $ 1,541,004      $ 1,563,564   
  

 

 

   

 

 

 

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 131,305,352 shares issued at December 31, 2014 and June 30, 2015, respectively; 130,914,333 and 131,302,387 outstanding at December 31, 2014 and June 30, 2015, respectively

     14        14   

Additional paid-in capital

     816,591        827,753   

Accumulated other comprehensive loss

     (517     (1,039

Accumulated deficit

     (641,592     (642,779
  

 

 

   

 

 

 

Total stockholders’ equity

     174,496        183,949   
  

 

 

   

 

 

 

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

   $ 1,746,043      $ 1,747,513   
  

 

 

   

 

 

 

 

7


Endurance International Group Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)

(in thousands, except share and per share amounts)

 

     Three Months ended
June 30,
    Six Months Ended
June 30,
 
     2014     2015     2014     2015  

Revenue

   $ 151,992      $ 182,431      $ 297,742      $ 359,749   

Cost of revenue

     92,611        104,937        181,802        205,911   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     59,381        77,494        115,940        153,838   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     38,225        37,224        79,849        72,268   

Engineering and development

     5,365        6,633        10,318        12,004   

General and administrative

     16,876        21,089        32,357        39,819   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     60,466        64,946        122,524        124,091   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (1,085     12,548        (6,584     29,747   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Other income

     —          5,440        —          5,440   

Interest income

     89        117        172        209   

Interest expense

     (14,177     (14,011     (27,812     (28,332
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)—net

     (14,088     (8,454     (27,640     (22,683
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (15,173     4,094        (34,224     7,064   

Income tax expense

     1,048        2,707        4,487        3,685   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity earnings of unconsolidated entities

     (16,221     1,387        (38,711     3,379   

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

     (89     3,458        (110     4,566   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (16,132   $ (2,071   $ (38,601   $ (1,187
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to non-controlling interest

     (2,684     —          (5,868     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Endurance International Group Holdings, Inc.

   $ (13,448   $ (2,071   $ (32,733   $ (1,187
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

        

Foreign currency translation adjustments

     26        94        48        (522
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income loss

   $ (13,422   $ (1,977   $ (32,685   $ (1,709
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per share attributable to Endurance International Group Holdings, Inc. common stockholders

   $ (0.11   $ (0.02   $ (0.26   $ (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic and diluted

     127,225,196        131,186,382        126,844,111        131,091,756   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

8


Endurance International Group Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2014     2015     2014     2015  

Cash flows from operating activities:

        

Net loss

   $ (16,132   $ (2,071   $ (38,601   $ (1,187

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

        

Depreciation of property and equipment

     7,502        8,229        14,548        16,095   

Amortization of other intangible assets

     25,462        22,135        49,541        43,433   

Amortization of deferred financing costs

     19        21        38        41   

Amortization of net present value of deferred consideration

     —          143        5        281   

Stock-based compensation

     3,629        6,539        7,173        10,510   

Deferred tax expense

     963        1,580        1,940        1,961   

Loss (gain) on sale of assets

     68        (4     74        36   

Gain from unconsolidated entities

     —          (5,440     —          (5,440

(Income) loss of unconsolidated entities

     (89     3,458        (110     4,566   

Loss from change in deferred consideration

     34        887        22        1,083   

Changes in operating assets and liabilities:

        

Accounts receivable

     198        (1,592     (491     193   

Prepaid expenses and other current assets

     (9,332     (2,061     (17,463     (6,802

Accounts payable and accrued expenses

     (2,443     6,554        (204     8,898   

Deferred revenue

     18,523        7,631        49,917        22,564   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     28,402        46,009        66,389        96,232   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Business acquired in purchase transaction, net of cash acquired

     (7,130     (28,914     (25,158     (28,914

Cash paid for minority investment

     (15,000     —          (15,000     —     

Purchases of property and equipment

     (6,698     (7,262     (12,901     (14,511

Proceeds from note receivable

     —          3,454        —          3,454   

Proceeds from sale of assets

     4        38        84        64   

Purchases of intangible assets

     —          (8     (100     (8

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

     513        36        184        (302
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (28,311     (32,656     (52,891     (40,217
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Repayment of term loan

     (2,625     (2,625     (5,250     (5,250

Proceeds from borrowing of revolver

     55,000        31,000        55,000        38,000   

Repayment of revolver

     (22,000     (17,000     (22,000     (53,000

Payment of financing costs

     —          —          (12     —     

Payment of deferred consideration

     (56,987     (10,103     (81,503     (10,591

Payment of redeemable non-controlling interest liability

     —          (10,181     —          (20,362

Principal payments on capital lease obligations

     (897     (943     (1,782     (1,873

Proceeds from exercise of stock options

     —          299        —          652   

Issuance costs of common stock

     (153     —          (731     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (27,662     (9,553     (56,278     (52,424
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of exchange rate on cash and cash equivalents

     (266     69        (88     (437
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (27,837     3,869        (42,868     3,154   

Cash and cash equivalents:

        

Beginning of period

     51,784        31,664        66,815        32,379   
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 23,947        35,533      $ 23,947      $ 35,533   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 14,174        13,885      $ 28,269      $ 28,111   

Income taxes paid

   $ 704        1,715      $ 951      $ 2,417   

Supplemental disclosure of non-cash financing activities:

        

Shares issued in connection with the acquisition of Directi

   $ 1,759        —        $ 27,235        —     

Assets acquired under capital lease

   $ —          —        $ 11,704        —     

 

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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 June 30,      Six Months Ended June 30,  
     2014      2015      2014      2015  

Net loss

   $ (16,132    $ (2,071    $ (38,601    $ (1,187

Stock-based compensation

     3,629         6,539         7,173         10,510   

Loss (gain) on sale of assets

     68         (4      74         36   

Gain of unconsolidated entities (1)

     (89      (1,982      (110      (874

Amortization of intangible assets

     25,462         22,135         49,541         43,433   

Amortization of deferred financing costs

     19         21         38         41   

Changes in deferred revenue

     18,523         7,631         49,917         22,564   

Impact of reduced fair value of deferred domain registration costs

     (6,335      (525      (12,337      (1,203

Transaction expenses and charges

     757         1,618         2,120         3,141   

Integration and restructuring expenses

     7,975         2,325         11,171         3,743   

Legal advisory expenses (2)

     —           1,055         —           1,055   

Depreciation

     7,502         8,229         14,548         16,095   

Income tax expense

     1,048         2,707         4,487         3,685   

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

     14,069         13,873         27,602         28,082   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 56,496       $ 61,551       $ 115,623       $ 129,121   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The gain of unconsolidated entities is reported on a net basis for the three and six months ended June 30, 2015. The three months ended June 30, 2015 includes a $5.4 million gain for the redemption of our equity interest in World Wide Web Hosting (Site5), partially offset by our proportionate share of net losses from unconsolidated entities of $3.5 million. The six months ended June 30, 2015 includes the $5.4 million gain for the redemption of our equity interest in World Wide Web Hosting (Site5), partially offset by our proportionate share of net losses from unconsolidated entities of $4.6 million.
(2) Consists of legal and related advisory expense associated with matters that are the subject of a class action lawsuit filed against the Company in May 2015.

 

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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 June 30,      Six Months Ended June 30,  
     2014      2015      2014      2015  

GAAP Cash Flow from Operations

   $ 28,402       $ 46,009       $ 66,389       $ 96,232   

Less:

           

Capital expenditures and capital lease obligations (1)

     (7,595      (8,205      (14,683      (16,384
  

 

 

    

 

 

    

 

 

    

 

 

 

Free Cash Flow

   $ 20,807       $ 37,804       $ 51,706       $ 79,848   
  

 

 

    

 

 

    

 

 

    

 

 

 

Plus:

           

Interest paid

     14,174         13,885         28,269         28,111   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unlevered Free Cash Flow

   $ 34,981       $ 51,689       $ 79,975       $ 107,959   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjustments

Plus:

           

Transaction expenses and charges

     723         732         2,099         2,577   

Integration and restructuring expenses

     7,975         2,373         11,171         4,304   

Legal advisory expenses (2)

     —           462         —           462   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unlevered Free Cash Flow (as reported) (3)

   $ 43,679       $ 55,256       $ 93,245       $ 115,302   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Capital expenditures during the three and six months ended June 30, 2014 and June 30, 2015 includes $1.8 million and $1.9 million 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 $6.2 million as of June 30, 2015.
(2) Consists of legal and related advisory expense associated with matters that are the subject of a class action lawsuit filed against the Company in May 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 interest income. If we used the previous method, the Unlevered Free Cash Flow (as reported) amounts for the three months ended June 30, 2014 and 2015 would be $43.6 million and $55.1 million, respectively and the amounts reported for the six months ended June 30, 2014 and 2015 would be $92.6 million and $115.0 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 June 30,      Six Months Ended June 30,  
     2014      2015      2014      2015  

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

   $ 1,048       $ 2,707       $ 4,487       $ 3,685   

Less: non-cash deferred tax expense

     (963      (1,580      (1,940      (1,961

Plus: decrease (increase) in accrued income taxes

     619         588         (1,596      693   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income taxes paid in consolidated statements of cash flows

   $ 704       $ 1,715       $ 951       $ 2,417   
  

 

 

    

 

 

    

 

 

    

 

 

 

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).

 

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     Three Months Ended June 30,      Six Months Ended June 30,  
     2014      2015      2014      2015  

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

   $ 14,069       $ 13,873       $ 27,602       $ 28,082   

Amortization of deferred financing costs

     19         21         38         41   

Other income

     —          (5,440      —           (5,440
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 14,088       $ 8,454       $ 27,640       $ 22,683   
  

 

 

    

 

 

    

 

 

    

 

 

 

Add:

           

Other income

     —           5,440         —           5,440   

Less:

           

Amortization of deferred financing costs

     (19      (21      (38      (41

Amortization of net present value of deferred consideration

     —           (143      (5      (281

(Increase) decrease in accrued interest

     16         38         500         101   

Interest income

     89         117         172         209   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest paid in consolidated statements of cash flows

   $ 14,174       $ 13,885       $ 28,269       $ 28,111   
  

 

 

    

 

 

    

 

 

    

 

 

 

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
June 30,
     Six Months Ended
June 30,
 
     2014      2015      2014      2015  

Revenue

   $ 151,992       $ 182,431       $ 297,742       $ 359,749   

Purchase accounting adjustment

     7,046         856         14,067         2,251   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted revenue

   $ 159,038       $ 183,287       $ 311,809       $ 362,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total subscribers

     3,747         4,394         3,747         4,394   

Average subscribers for the period

     3,701         4,272         3,643         4,205   

ARPS

   $ 14.33       $ 14.30       $ 14.26       $ 14.35   

 

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