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8-K - FORM 8-K - Endurance International Group Holdings, Inc.d10383d8k.htm

Exhibit 99.1

 

LOGO

Endurance International Group Reports 2015 Third Quarter Results

 

    GAAP revenue for the quarter increased 18 percent over the same period a year ago to $188.5 million

 

    Adjusted revenue for the quarter increased 15 percent over the same period a year ago to $190.3 million

 

    Adjusted EBITDA for the quarter increased 15 percent over the same period a year ago to $66.6 million

 

    GAAP net loss for the quarter was $15.4 million

 

    Subscribers on platform reached approximately 4.5 million

BURLINGTON, MA (November 2, 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 third quarter ended September 30, 2015.

“We are very pleased at our core business execution, and are excited about the acquisition we announced earlier today. We believe that both reaffirm our strengths in attracting small businesses to our platform through multiple gateways, offering a complete online source of end-to-end solutions,” commented Hari Ravichandran, chief executive officer and founder of Endurance International Group. “Our third quarter demonstrates our ability to continue to deliver strong results as we roll out new initiatives. We believe that these initiatives are important for future growth, and will continue to invest behind them. We were pleased to see our adjusted EBITDA in the third quarter return to 15 percent growth year over year, and are excited about the many possibilities ahead. We firmly believe that a combination of our growth initiatives, focus on the core business, and accretive M&A will create scale benefits and result in long-term shareholder value creation.”

Third Quarter Financial Highlights

 

    GAAP revenue was $188.5 million, an increase of 18 percent compared to $160.2 million in the third quarter of 2014.

 

    Adjusted revenue was $190.3 million, an increase of 15 percent compared to $164.9 million in the third quarter of 2014. Excluding foreign currency impact, adjusted revenue would have been $1.2 million higher.

 

    GAAP net loss attributable to Endurance International Group Holdings, Inc. was $15.4 million, or $(0.12) per diluted share, compared to a net loss of $7.9 million, or $(0.06) per diluted share, for the third quarter of 2014.

 

    Adjusted EBITDA was $66.6 million, an increase of 15 percent compared to $58.0 million in the third quarter of 2014. Excluding foreign currency impact, adjusted EBITDA would have been $0.9 million higher.

 

    GAAP cash from operations was $37.6 million, a decrease of 1 percent compared to $38.1 million in the third quarter of 2014 due primarily to restructuring costs and transaction-related and legal expenses.


    Free cash flow, defined as GAAP cash from operations, less capital expenditures and capital lease obligations, was $27.9 million, a decrease of 13 percent compared to $31.9 million in the third quarter of 2014. The decrease was due primarily to restructuring costs and transaction-related and legal expenses.

 

    Unlevered free cash flow (as reported) was $51.2 million, an increase of 2 percent compared to $50.1 million in the third quarter of 2014.

Third Quarter Operating Highlights

 

    Total subscribers on platform were approximately 4.482 million. See “Total Subscribers” below.

 

    Average revenue per subscriber (ARPS) was $14.29, compared to $14.49 for the third quarter of 2014.

 

    During the quarter, the company acquired its largest co-located data center from ACE Data Centers. The total cash consideration for this acquisition is expected to be approximately $76.0 million, including $31.5 million in 2016 deferred consideration.

 

    Subsequent to quarter end, the company entered into a definitive agreement to acquire outstanding shares of Constant Contact, in an all cash deal valued at $1.1 billion.

Fiscal Year 2015 and Fiscal 2016 Guidance for Endurance (Standalone):

The Company is providing the following guidance as of the date of this release, November 2, 2015. This guidance does not reflect any impact of the announced acquisition of Constant Contact.

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

 

(in millions)

   Prior Guidance
(at August 4,
2015)
   Current Guidance
(at November 2,
2015)

Adjusted Revenue

   $745 - $755    $745 - $750

Year over year growth

   14% - 16%    14% - 15%

Adjusted EBITDA

   $275 - $285    $265 - $270

Year over year growth

   17% - 21%    12% - 15%

UFCF (as reported)

   $220 - $230    $220 - $230

Year over year growth

   14% - 19%    14% - 19%

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

 

Adjusted Revenue    ~11% to 13% year over year growth
Adjusted EBITDA    ~11% to 13% year over year growth
Capital Expenditures    ~5% of adjusted revenue
Free Cash Flow    ~15% to 20% year over year growth

Adjusted revenue, adjusted EBITDA, UFCF (as reported), free cash flow, 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, UFCF (as reported) or FCF 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.

 

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Conference Call and Webcast Information

Endurance International Group’s third quarter 2015 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EST on Monday, November 2, 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.

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 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

 

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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.

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.

 

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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 9 percent of the increase in total subscribers in the third quarter of 2015 consists of these adjustments.

Average Revenue Per Subscriber, or ARPS, is a non-GAAP financial measure that we calculate as the amount of adjusted revenue we recognize in a period, including marketing development funds and other revenue not received from subscribers, divided by the average of the number of total subscribers at the beginning of the period and at the end of the period, which we refer to as average subscribers for the period. We believe ARPS is an indicator of our ability to optimize our mix of products and services and pricing and sell products and services to new and existing subscribers. As we on-board new subscribers, we typically on-board them at introductory prices, which negatively impacts ARPS. Furthermore, ARPS can be impacted by our acquisitions since the acquired subscribers may have higher or lower than average ARPS.

Forward-Looking Statements

This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements concerning our financial guidance for fiscal year 2015 and fiscal year 2016; the impact of new initiatives on our future growth; our ability to achieve scale benefits and create long-term shareholder value through growth initiatives, focus on our core business and accretive M&A; the amount of cash consideration for the data center acquisition; 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 and the use of future dates. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that these plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, risks set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended June 30, 2015 filed with the Securities and Exchange Commission (SEC) on August 7, 2015 and most recent Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 27, 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 4.5 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

 

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Endurance International Group Holdings, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

 

     December 31,
2014
    September 30,
2015
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 32,379      $ 34,162   

Restricted cash

     1,325        1,207   

Accounts receivable

     10,201        12,112   

Deferred tax asset—short term

     13,961        13,961   

Prepaid domain name registry fees

     49,605        59,130   

Prepaid expenses and other current assets

     13,173        16,121   
  

 

 

   

 

 

 

Total current assets

     120,644        136,693   

Property and equipment—net

     56,837        67,885   

Goodwill

     1,105,023        1,190,451   

Other intangible assets—net

     410,338        368,039   

Deferred financing costs

     400        339   

Investments

     40,447        32,205   

Prepaid domain name registry fees, net of current portion

     7,957        5,273   

Other assets

     4,397        1,432   
  

 

 

   

 

 

 

Total assets

   $ 1,746,043      $ 1,802,317   
  

 

 

   

 

 

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 8,960      $ 11,230   

Accrued expenses

     38,275        47,656   

Deferred revenue

     259,567        282,877   

Current portion of notes payable

     60,500        80,500   

Current portion of capital lease obligations

     3,793        4,173   

Deferred consideration—short term

     13,917        48,137   

Other current liabilities

     10,358        7,047   
  

 

 

   

 

 

 

Total current liabilities

     395,370        481,620   

Long-term deferred revenue

     65,850        75,027   

Notes payable—long term

     1,026,375        1,018,500   

Capital lease obligations

     4,302        1,096   

Deferred tax liability—long term

     35,579        41,253   

Deferred consideration

     10,722        3,498   

Other liabilities

     2,806        3,304   
  

 

 

   

 

 

 

Total liabilities

   $ 1,541,004      $ 1,624,298   
  

 

 

   

 

 

 

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 131,506,256 shares issued at December 31, 2014 and September 30, 2015, respectively; 130,914,333 and 131,504,177 outstanding at December 31, 2014 and September 30, 2015, respectively

     14        14   

Additional paid-in capital

     816,591        838,010   

Accumulated other comprehensive loss

     (517     (1,875

Accumulated deficit

     (641,592     (658,130
  

 

 

   

 

 

 

Total stockholders’ equity

     174,496        178,019   
  

 

 

   

 

 

 

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

   $ 1,746,043      $ 1,802,317   
  

 

 

   

 

 

 

 

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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
September 30,
    Nine Months Ended
September 30,
 
     2014     2015     2014     2015  

Revenue

   $ 160,167      $ 188,523      $ 457,909      $ 548,272   

Cost of revenue

     97,416        110,773        279,218        316,684   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     62,751        77,750        178,691        231,588   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Sales and marketing

     34,761        37,523        114,610        109,791   

Engineering and development

     4,179        7,902        14,497        19,906   

General and administrative

     18,557        23,212        50,914        63,031   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     57,497        68,637        180,021        192,728   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     5,254        9,113        (1,330     38,860   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Other income

     —         —         —         5,440   

Interest income

     83        107        255        316   

Interest expense

     (14,407     (14,624     (42,219     (42,956
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense—net

     (14,324     (14,517     (41,964     (37,200
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (9,070     (5,404     (43,294     1,660   

Income tax expense

     289        5,397        4,776        9,082   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of unconsolidated entities

     (9,359     (10,801     (48,070     (7,422

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

     84        4,550        (26     9,116   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (9,443   $ (15,351   $ (48,044   $ (16,538
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to non-controlling interest

     (1,545     —         (7,413     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Endurance International Group Holdings, Inc.

   $ (7,898   $ (15,351   $ (40,631   $ (16,538
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss:

        

Foreign currency translation adjustments

     (243     (836     (195     (1,358
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (8,141   $ (16,187   $ (40,826   $ (17,896
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.06   $ (0.12   $ (0.32   $ (0.13
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic and diluted

     127,475,305        131,398,446        127,053,560        131,195,109   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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,
 
     2014     2015     2014     2015  

Cash flows from operating activities:

        

Net loss

   $ (9,443   $ (15,351   $ (48,044   $ (16,538

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

        

Depreciation of property and equipment

     8,005        8,554        22,553        24,649   

Amortization of other intangible assets

     26,247        23,758        75,788        67,191   

Amortization of deferred financing costs

     19        21        57        62   

Amortization of net present value of deferred consideration

     —          207        5        488   

Stock-based compensation

     4,189        9,762        11,362        20,272   

Deferred tax expense

     (406     3,660        1,534        5,621   

(Gain) loss on sale of assets

     (365     (191     (291     (155

Gain from unconsolidated entities

     —          —          —         (5,440

(Income) loss of unconsolidated entities

     84        4,550        (26     9,116   

Dividend from minority interest

     167        —         167        —    

(Gain) loss from change in deferred consideration

     398        —         420        1,083   

Changes in operating assets and liabilities:

        

Accounts receivable

     (910     (1,935     (1,401     (1,742

Prepaid expenses and other current assets

     (4,510     (2,452     (21,973     (9,254

Accounts payable and accrued expenses

     2,648        359        2,444        9,257   

Deferred revenue

     12,015        6,640        61,932        29,204   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     38,138        37,582        104,527        133,814   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Business acquired in purchase transaction, net of cash acquired

     (50,940     (44,298     (76,098     (73,212

Cash paid for minority investment

     (3,940     (7,250 )     (18,940     (7,250

Purchases of property and equipment

     (5,114     (8,756     (18,015     (23,267

Proceeds from sale of property and equipment

     2        93        86        93   

Proceeds from note receivable

     —          —          —          3,454   

Proceeds from sale of assets

     100        127        100        191   

Purchases of intangible assets

     (100 )     (36     (200     (44

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

     (111     193        73        (109
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (60,103     (59,927     (112,994     (100,144
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Repayment of term loan

     (2,625     (2,625     (7,875     (7,875

Proceeds from borrowing of revolver

     52,000        71,000        107,000        109,000   

Repayment of revolver

     (24,000     (36,000     (46,000     (89,000

Payment of financing costs

     —         —         (12     —    

Payment of deferred consideration

     —         —         (81,503     (10,591

Payment of redeemable non-controlling interest liability

     (4,190     (10,181     (4,190     (30,543

Principal payments on capital lease obligations

     (908     (954     (2,690     (2,827

Proceeds from exercise of stock options

     12        495        12        1,147   

Issuance costs of common stock

     —         —         (731     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by cash (used in) financing activities

     20,289        21,735        (35,989     (30,689
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of exchange rate on cash and cash equivalents

     132        (761     44        (1,198
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (1,544     (1,371     (44,412     1,783   

Cash and cash equivalents:

        

Beginning of period

     23,947        35,533        66,815        32,379   
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 22,403        34,162      $ 22,403      $ 34,162   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

        

Interest paid

   $ 14,309        14,338      $ 42,578      $ 42,449   

Income taxes paid

   $ 546        1,557      $ 1,497      $ 3,974   

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        —    

 

9


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
September 30,
     Nine Months Ended
September 30,
 
     2014      2015      2014      2015  

Net loss

   $ (9,443    $ (15,351    $ (48,044    $ (16,538

Stock-based compensation

     4,189         9,762         11,362         20,272   

Gain on sale of assets

     (365      (191      (291      (155

Gain of unconsolidated entities (1)

     84         4,550         (26      3,676   

Amortization of intangible assets

     26,247         23,758         75,788         67,191   

Amortization of deferred financing costs

     19         21         57         62   

Changes in deferred revenue

     12,015         6,640         61,932         29,204   

Impact of reduced fair value of deferred domain registration costs

     (4,255      (442      (16,592      (1,645

Transaction expenses and charges

     1,786         1,461         3,906         4,602   

Integration and restructuring expenses

     5,166         7,770         16,337         11,513   

Legal advisory expenses (2)

     —           133         —           1,188   

Depreciation

     8,005         8,554         22,553         24,649   

Income tax expense

     289         5,397         4,776         9,082   

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

     14,305         14,496         41,907         42,578   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 58,042       $ 66,558       $ 173,665       $ 195,679   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The gain of unconsolidated entities is reported on a net basis for the nine months ended September 30, 2015. The nine months ended September 30, 2015 includes a $5.4 million gain for the redemption of our equity interest in World Wide Web Hosting, partially offset by our proportionate share of net losses from unconsolidated entities $9.1 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.

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):

 

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     Three Months Ended
September30,
     Nine Months Ended
September 30,
 
     2014      2015      2014      2015  

GAAP Cash Flow from Operations

     38,138         37,582         104,527         133,814   

Less:

           

Dividend from minority interest

     (167      —           (167      —     

Capital expenditures and capital lease obligations (1)

     (6,022      (9,710      (20,705      (26,094
  

 

 

    

 

 

    

 

 

    

 

 

 

Free Cash Flow

   $ 31,949       $ 27,872       $ 83,655       $ 107,720   
  

 

 

    

 

 

    

 

 

    

 

 

 

Plus:

           

Interest paid

     14,309         14,338         42,578         42,449   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unlevered Free Cash Flow

   $ 46,258       $ 42,210       $ 126,233       $ 150,169   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjustments

Plus:

           

Transaction expenses and charges

     1,387         1,124         3,486         3,701   

Integration and restructuring expenses

     2,463         7,099         13,634         11,404   

Legal advisory expenses (2)

     —           725         —           1,187   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unlevered Free Cash Flow (as reported) (3)

   $ 50,108       $ 51,158       $ 143,353       $ 166,461   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Capital expenditures include payments under a three year capital lease for software of $11.7 million beginning in January 2014. During the three months ended September 30, 2014 and September 30, 2015, these payments amounted to $0.9 million and $1.0 million, respectively. During the nine months ended September 30, 2014 and September 30, 2015, these payments amounted to $2.7 million and $2.8 million, respectively. The remaining balance on the capital lease is $5.3 million as of September 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 net interest income. If we used the previous method, the Unlevered Free Cash Flow (as reported) amounts for the three months ended September 30, 2014 and 2015 would be $50.1 million and $51.1 million, respectively and the amounts reported for the nine months ended September 30, 2014 and 2015 would be $142.7 million and $166.1 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 September 30,      Nine Months Ended September 30,  
     2014      2015      2014      2015  

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

   $ 289       $ 5,397       $ 4,776       $ 9,082   

Less: non-cash deferred tax expense

     406         (3,660      (1,534      (5,621

Plus: decrease (increase) in accrued income taxes

     (149      (180      (1,745      513   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income taxes paid in consolidated statements of cash flows

   $ 546       $ 1,557       $ 1,497       $ 3,974   
  

 

 

    

 

 

    

 

 

    

 

 

 

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).

 

11


     Three Months Ended September 30,      Nine Months Ended September 30,  
     2014      2015      2014      2015  

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

   $ 14,305       $ 14,496       $ 41,907       $ 42,578   

Amortization of deferred financing costs

     19         21         57         62   

Other income

     —          —          —          (5,440
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 14,324       $ 14,517       $ 41,964       $ 37,200   
  

 

 

    

 

 

    

 

 

    

 

 

 

Add:

           

Other income

     —          —           —          5,440   

Less:

           

Amortization of deferred financing costs

     (19      (21      (57      (62

Amortization of net present value of deferred consideration

     —           (207      (5      (488

(Increase) decrease in accrued interest

     (79      (58      421         43   

Interest income

     83         107         255         316   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest paid in consolidated statements of cash flows

   $ 14,309       $ 14,338       $ 42,578       $ 42,449   
  

 

 

    

 

 

    

 

 

    

 

 

 

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,
 
     2014      2015      2014      2015  

Revenue

   $ 160,167       $ 188,523       $ 457,909       $ 548,272   

Purchase accounting adjustment

     4,763         1,773         18,830         4,024   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted revenue

   $ 164,930       $ 190,296       $ 476,739       $ 552,296   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total subscribers

     3,841         4,482         3,841         4,482   

Average subscribers for the period

     3,794         4,438         3,693         4,275   

ARPS

   $ 14.49       $ 14.29       $ 14.35       $ 14.36   

 

12