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Endurance International Group Holdings, Inc.$8.98($.07)(.77%)

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 Endurance International Group Reports 2018 First Quarter Results
   Tuesday, May 01, 2018 7:05:00 AM ET
  • GAAP revenue of $291.4 million
  • Net loss of $7.1 million
  • Adjusted EBITDA of $86.2 million
  • Cash flow from operations of $52.4 million
  • Free cash flow of $44.9 million 
  • Total subscribers on platform were approximately 5.011 million at March 31, 2018

BURLINGTON, Ma., May 01, 2018 (GLOBE NEWSWIRE) -- 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 first quarter ended March 31, 2018.



“We are pleased with our financial and operating progress in the first quarter,” commented Jeffrey H. Fox, president and chief executive officer of Endurance International Group.  "With a majority of the year still ahead of us, we remain focused on executing our integrated operating plan.  In 2018 we are investing to deliver increased customer value in our market-leading assets and simplify our operations to execute more effectively at scale."

First Quarter 2018 Financial Highlights

  • Revenue for the first quarter of 2018 was $291.4 million, a decrease of 1 percent compared to $295.1 million for the first quarter of 2017.
  • Net loss for the first quarter of 2018 was $7.1 million compared to net loss of $31.6 million for the first quarter of 2017.
  • Net loss attributable to Endurance International Group Holdings, Inc. for the first quarter of 2018 was $7.1 million, or $(0.05) per diluted share, compared to net loss of $35.4 million, or $(0.26) per diluted share, for the first quarter of 2017.
  • Adjusted EBITDA for the first quarter of 2018 was $86.2 million, an increase of 8 percent compared to $80.1 million for the first quarter of 2017.  First quarter 2018 adjusted EBITDA excludes the impact of a total of $8.5 million of accrued expense reserved in connection with our ongoing efforts to resolve two shareholder lawsuits, each brought as a class action against either Endurance or Constant Contact.  Any final settlement agreement reached with the plaintiffs in each case would be subject to court approval.  Thus, we can make no assurance that any final agreement will be reached, or that any final settlement agreement will be approved by the court.
  • Cash flow from operations for the first quarter of 2018 was $52.4 million, an increase of 55 percent compared to $33.7 million for the first quarter of 2017. 
  • Free cash flow, defined as cash flow from operations less capital expenditures and capital lease obligations, for the first quarter of 2018 was $44.9 million, an increase of 100 percent compared to $22.4 million for the first quarter of 2017. 

First Quarter Operating Highlights

  • Total subscribers on platform at March 31, 2018 were approximately 5.011 million, compared to approximately 5.304 million subscribers at March 31, 2017 and approximately 5.051 million subscribers at December 31, 2017.  See “Total Subscribers” below. 
  • Average revenue per subscriber, or ARPS, for the first quarter of 2018 was $19.30, compared to $18.43 for the first quarter of 2017 and $19.28 for the fourth quarter of 2017.  See “Average Revenue Per Subscriber” below.

 

Fiscal 2018 Guidance

The company’s prior guidance, announced on February 13, 2018, remains unchanged.  As of the date of this release, May 1, 2018, for the full year ending December 31, 2018, the company expects:

   
 2017 Actual
as Reported
Guidance
(as of May 1,  2018)
GAAP revenue$1.177 billion$1.140 to $1.160 billion
Adjusted EBITDA$351 million$310 to $330 million
Free cash flow$151 million~$120 million
   

Free cash flow guidance does not include the impact of potential settlements of pending legal proceedings.  Adjusted EBITDA and free cash flow are non-GAAP financial measures.  A reconciliation of these non-GAAP financial measures to their most comparable measure calculated in accordance with GAAP is provided in the financial statement tables included at the end of this press release.

Conference Call and Webcast Information

Endurance International Group’s first quarter 2018 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Tuesday, May 1, 2018. 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 .

Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, we use adjusted EBITDA and free cash flow, which are non-GAAP financial measures, to evaluate the operating and financial performance of our business, identify trends affecting our business, develop projections and make strategic business decisions.  A non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flow that excludes amounts that are included in the most directly comparable measure calculated and presented in accordance with GAAP or includes amounts that are excluded from the most directly comparable measure calculated and presented in accordance with GAAP.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. For example, adjusted EBITDA excludes interest expense, which has been and will continue to be for the foreseeable future a significant recurring expense in our business. The presentation of non-GAAP financial information is not meant to be considered in isolation from, or as a substitute for, the most directly comparable financial measures prepared in accordance with GAAP. We urge you to review the additional information about adjusted EBITDA and free cash flow shown below, including the reconciliations of these non-GAAP financial measures to their comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net (loss) income, excluding the impact of interest expense (net), income tax expense (benefit), depreciation, amortization of other intangible assets, stock-based compensation, restructuring expenses, transaction expenses and charges, (gain) loss of unconsolidated entities, impairment of other long-lived assets, SEC investigations reserve (with respect to fiscal year and third quarter 2017), and shareholder litigation reserve. We view adjusted EBITDA as a performance measure and believe it helps investors evaluate and compare our core operating performance from period to period.

Free Cash Flow, or FCF, is a non-GAAP financial measure that we calculate as cash flow from operations less capital expenditures and capital lease obligations. We believe that FCF provides investors with an indicator of our ability to generate positive cash flows after meeting our obligations with regard to capital expenditures (including capital lease obligations).

Key Operating Metrics

Total Subscribers - We define total subscribers as the approximate number of subscribers that, as of the end of a period, are identified as subscribing directly to our products on a paid basis, excluding accounts that access our solutions via resellers or that purchase only domain names from us. Subscribers of more than one brand, and subscribers with more than one distinct billing relationship or subscription with us, are counted as separate subscribers. Total subscribers for a period reflects adjustments to add or subtract subscribers as we integrate acquisitions and/or are otherwise able to identify subscribers that meet, or do not meet, this definition of total subscribers.  There were no adjustments for the first quarter of 2018.

Average Revenue Per Subscriber (ARPS) - We calculate ARPS as the amount of revenue we recognize in a period, including marketing development funds and other revenue not received from subscribers, divided by the average of the number of total subscribers at the beginning of the period and at the end of the period, which we refer to as average subscribers for the period, divided by the number of months in the period. See definition of “Total Subscribers” above.  ARPS does not represent an exact measure of the average amount a subscriber spends with us each month, since our calculation of ARPS is impacted by revenues generated by non-subscribers.

Forward-Looking Statements

This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements concerning our financial guidance for fiscal year 2018, our expectations regarding our investments to deliver increased customer value, simplify our operations, and operate more effectively at scale, and our expected financial and operational performance in general. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts, and statements identified by words such as “expects,” “believes,” “estimates,” “may,” “continue,” “positions,” “confident,” and variations of such words or words of similar meaning and the use of future dates. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that these plans, intentions, expectations, strategies or prospects 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: the possibility that our financial guidance may differ from expectations (including due to our payment of any potential settlements of pending legal proceedings); the possibility that our planned investment and operational initiatives will not result in the anticipated benefits to our business; the possibility that we will continue to experience decreases in our subscriber base; an adverse impact on our business from litigation or regulatory proceedings; an adverse impact on our business from our substantial indebtedness and the cost of servicing our debt; the rate of growth of the Small and Medium Business (“SMB”) market for our solutions; our inability to increase sales to our existing subscribers, or retain our existing subscribers; data breaches; system or Internet failures; our inability to maintain or improve our competitive position or market share; and other risks and uncertainties discussed in our filings with the SEC, including those set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the period ended December 31, 2017 filed with the SEC on February 22, 2018 and other reports we file with the SEC.

We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

About Endurance International Group

Endurance International Group Holdings, Inc. (NASDAQ:EIGI) (em)Powers millions of small businesses worldwide with products and technology to enhance their online web presence, email marketing, mobile business solutions, and more. The Endurance family of brands includes: Constant Contact, Bluehost, HostGator, Domain.com and SiteBuilder, among others. Headquartered in Burlington, Massachusetts, Endurance employs over 3,500 people across the United States, Brazil, India and the Netherlands. For more information, visit: www.endurance.com .

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

Investor Contact:
Angela White
Endurance International Group
(781) 852-3450
ir@endurance.com

Press Contact:
Kristen Andrews
Endurance International Group
(781) 418-6716
press@endurance.com

 
 Endurance International Group Holdings, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
 
 December 31,
2017
 March 31,
2018
Assets   
Current assets:   
Cash and cash equivalents$66,493  $86,678 
Restricted cash2,625  1,772 
Accounts receivable15,945  13,493 
Prepaid domain name registry fees53,805  59,690 
Prepaid commissions  42,746 
Prepaid expenses and other current assets29,327  30,653 
Total current assets168,195  235,032 
Property and equipment—net95,452  87,653 
Goodwill1,850,582  1,851,209 
Other intangible assets—net455,440  429,797 
Deferred financing costs3,189  2,732 
Investments15,267  15,241 
Prepaid domain name registry fees, net of current portion10,806  11,889 
Prepaid commissions, net of current portion  41,164 
Other assets2,155  3,091 
Total assets$2,601,086  $2,677,808 
Liabilities, redeemable non-controlling interest and stockholders’ equity   
Current liabilities:   
Accounts payable$11,058  $19,118 
Accrued expenses79,991  81,065 
Accrued interest24,457  14,979 
Deferred revenue361,940  389,734 
Current portion of notes payable33,945  33,945 
Current portion of capital lease obligations7,630  7,281 
Deferred consideration—short term4,365  4,435 
Other current liabilities4,031  3,754 
Total current liabilities527,417  554,311 
Long-term deferred revenue90,972  96,718 
Notes payable—long term, net of original issue discounts of $25,811 and $24,752 and deferred financing costs of $37,736 and $36,299, respectively1,858,300  1,835,309 
Capital lease obligations—long term7,719  5,837 
Deferred tax liability19,696  27,679 
Deferred consideration—long term3,551  3,608 
Other liabilities10,426  10,157 
Total liabilities2,518,081  2,533,619 
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; 140,190,165 and 140,457,825 shares issued at December 31, 2017 and March 31, 2018     
   respectively; 140,190,695 and 140,457,825 outstanding at December 31, 2017 and March 31, 2018, respectively14  14 
Additional paid-in capital931,033  938,301 
Accumulated other comprehensive (loss) income(541) 1,080 
Accumulated deficit(847,501) (795,206)
Total stockholders’ equity83,005  144,189 
Total liabilities, redeemable non-controlling interest and stockholders’ equity$2,601,086  $2,677,808 
        

 

 
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
March 31,
 2017 2018
Revenue$295,137  $291,356 
Cost of revenue148,749  133,906 
Gross profit146,388  157,450 
Operating expense:   
Sales and marketing72,772  67,356 
Engineering and development20,362  19,917 
General and administrative39,080  38,775 
Transaction expenses580   
Total operating expense132,794  126,048 
Income from operations13,594  31,402 
Other income (expense):   
Interest income118  204 
Interest expense(39,516) (36,050)
Total other expense—net(39,398) (35,846)
(Loss) income before income taxes and equity earnings of unconsolidated entities(25,804) (4,444)
Income tax expense5,774  2,617 
(Loss) income before equity earnings of unconsolidated entities(31,578) (7,061)
Equity loss of unconsolidated entities, net of tax  27 
Net (loss) income$(31,578) $(7,088)
Net loss attributable to non-controlling interest226   
Excess accretion of non-controlling interest3,584   
Total net loss attributable to non-controlling interest3,810   
Net (loss) income attributable to Endurance International Group Holdings, Inc.$(35,388) $(7,088)
Comprehensive income (loss):   
Foreign currency translation adjustments686  580 
Unrealized (loss) gain on cash flow hedge, net of taxes of $38 and ($325) for the three months ended March 31, 2017 and 2018, respectively(216) 1,041 
Total comprehensive (loss) income$(34,918) $(5,467)
Basic net (loss) income per share attributable to Endurance International Group Holdings, Inc.$(0.26) $(0.05)
Diluted net (loss) income per share attributable to Endurance International Group Holdings, Inc.$(0.26) $(0.05)
Weighted-average common shares used in computing net loss per share attributable to Endurance International Group Holdings, Inc.:   
Basic134,935,153  140,457,487 
Diluted134,935,153  140,457,487 
      

 

 
Endurance International Group Holdings, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
 Three Months Ended March 31,
 2017 2018
Cash flows from operating activities:   
Net (loss) income$(31,578) $(7,088)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Depreciation of property and equipment13,111  12,068 
Amortization of other intangible assets34,267  25,735 
Amortization of deferred financing costs1,744  1,894 
Amortization of net present value of deferred consideration190  128 
Amortization of original issue discounts846  1,058 
Stock-based compensation12,924  6,992 
Deferred tax (benefit) expense3,440  492 
Loss (gain) on sale of assets(225) 48 
Loss (gain) from unconsolidated entities  27 
Changes in operating assets and liabilities, net of acquisitions:   
Accounts receivable2,392  2,448 
Prepaid expenses and other current assets(5,717) (2,697)
Accounts payable and accrued expenses(13,467) 595 
Deferred revenue15,747  10,660 
Net cash provided by operating activities33,674  52,360 
Cash flows from investing activities:   
Purchases of property and equipment(9,258) (5,254)
Proceeds from sale of assets251   
Purchases of intangible assets(33)  
Net cash provided by (used in) investing activities(9,040) (5,254)
Cash flows from financing activities:   
Repayments of term loans(8,925) (25,486)
Payment of financing costs(92)  
Payment of deferred consideration(818)  
Principal payments on capital lease obligations(2,037) (2,230)
Proceeds from exercise of stock options628  25 
Net cash used in financing activities(11,244) (27,691)
Net effect of exchange rate on cash and cash equivalents and restricted cash2,327  (83)
Net increase in cash and cash equivalents and restricted cash15,717  19,332 
Cash and cash equivalents and restricted cash:   
Beginning of period56,898  69,118 
End of period$72,615  $88,450 
Supplemental cash flow information:   
Interest paid$46,546  $42,091 
Income taxes paid$952  $603 
        

 

GAAP to Non-GAAP Reconciliation - Adjusted EBITDA

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

  
 Three Months Ended
March 31,
 2017 2018
Net (loss) income$(31,578) $(7,088)
Interest expense, net(1)39,398  35,846 
Income tax expense (benefit)5,774  2,617 
Depreciation13,111  12,068 
Amortization of other intangible assets34,267  25,735 
Stock-based compensation12,924  6,992 
Restructuring expenses5,627  1,529 
Transaction expenses and charges580   
Loss of unconsolidated entities  27 
Impairment of other long-lived assets   
Shareholder litigation reserve  8,500 
Adjusted EBITDA$80,103  $86,226 
        

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income.


GAAP to Non-GAAP Reconciliation – Free Cash Flow

The following table reflects the reconciliation of cash flow from operations to free cash flow (“FCF”) (all data in thousands):

  
 Three Months Ended March 31,
 2017  2018 
Cash flow from operations$33,674  $52,360 
Less:   
Capital expenditures and capital lease obligations(1)(11,295) (7,484)
Free cash flow$22,379  $44,876 
        

(1)   Capital expenditures during the three months ended March 31, 2017 and 2018 includes $2.0 million and $2.2 million, respectively, of principal payments under a three year capital lease for software. The remaining balance on the capital lease is $13.1 million as of March 31, 2018.


Average Revenue Per Subscriber - Calculation and Segment Detail

We present our financial results in the following three segments.

  • Web presence. The web presence segment consists primarily of our web hosting brands and related products such as website security, website design tools and services, and e-commerce products.

  • Email marketing. The email marketing segment consists of Constant Contact email marketing tools and related products and the SinglePlatform digital storefront product.

  • Domain. The domain segment consists of domain-focused brands and certain web hosting brands that are aligned with our domain-focused brands. This segment sells domain names and domain management services to resellers and end users, as well as premium domain names, and also generates advertising revenue from domain name parking.

 

The following table presents the calculation of ARPS, on a consolidated basis and by segment (all data in thousands, except ARPS data):

  
 Three Months Ended March 31,
 2017 2018
Consolidated revenue$295,137  $291,356 
Consolidated total subscribers5,304  5,011 
Consolidated average subscribers for the period5,338  5,031 
Consolidated ARPS$18.43  $19.30 
    
Web presence revenue$164,009  $155,017 
Web presence subscribers4,135  3,811 
Web presence average subscribers for the period4,167  3,829 
Web presence ARPS$13.12  $13.49 
    
Email marketing revenue$97,789  $102,447 
Email marketing subscribers537  518 
Email marketing average subscribers for the period541  519 
Email marketing ARPS$60.31  $65.83 
    
Domain revenue$33,339  $33,892 
Domain subscribers632  682 
Domain average subscribers for the period630  683 
Domain ARPS$17.63  $16.54 
        

 

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

  
 Three Months Ended
March 31, 2017
 Web presence Email
marketing
 Domain Total
 Revised(2)
Revenue$164,009  $97,789  $33,339  $295,137 
Gross profit$77,870  $59,772  $8,746  $146,388 
        
Net (loss) income$(19,018) $(7,952) $(4,608) $(31,578)
Interest expense, net(1)16,390  22,519  489  39,398 
Income tax expense (benefit)8,493  (4,777) 2,058  5,774 
Depreciation8,419  3,873  819  13,111 
Amortization of other intangible assets14,551  18,362  1,354  34,267 
Stock-based compensation9,790  1,824  1,310  12,924 
Restructuring expenses2,128  3,292  207  5,627 
Transaction expenses and charges  580    580 
(Gain) loss of unconsolidated entities       
Impairment of other long-lived assets       
Shareholder litigation reserve       
Adjusted EBITDA$40,753  $37,721  $1,629  $80,103 
        
 Three Months Ended
March 31, 2018
 Web presence Email
marketing
 Domain Total
Revenue$155,017  $102,447  $33,892  $291,356 
Gross profit$74,373  $72,177  $10,900  $157,450 
        
Net (loss) income$(17,108) $15,129  $(5,109) $(7,088)
Interest expense, net(1)16,986  16,409  2,451  35,846 
Income tax expense (benefit)6,321  (5,607) 1,903  2,617 
Depreciation7,977  3,146  945  12,068 
Amortization of other intangible assets12,008  13,093  634  25,735 
Stock-based compensation5,073  1,408  511  6,992 
Restructuring expenses812  162  555  1,529 
Transaction expenses and charges       
Loss of unconsolidated entities27      27 
Impairment of other long-lived assets       
Shareholder litigation reserve5,745  1,500  1,255  8,500 
Adjusted EBITDA$37,841  $45,240  $3,145  $86,226 
                

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income.
(2) We have revised the allocation for our 2016 and 2017 full year and adjusted EBITDA between our web presence and domain segment to correct a misallocation of domain registration costs in our previously reported segment figures. This correction resulted in the reallocation of adjusted EBITDA from the domain segment to the web presence segment of $1.1 million for the period ending March 31, 2017.  Consolidated adjusted EBITDA figures for these periods were not affected by this correction.


GAAP to Non-GAAP Reconciliation of Fiscal Year 2018 Guidance (as of May 1, 2018) - Adjusted EBITDA

The following table reflects the reconciliation of fiscal year 2018 estimated net loss calculated in accordance with GAAP to fiscal year 2018 guidance for adjusted EBITDA. All figures shown are approximate.

  
 Twelve Months Ending
($ in millions)December 31, 2018
Estimated net loss$(19.5)$(4.5)
Estimated interest expense (net) 135  135 
Estimated income tax expense (benefit) 4  4 
Estimated depreciation 50  52 
Estimated amortization of acquired intangible assets 100  100 
Estimated stock-based compensation 30  32 
Estimated restructuring expenses 2  3 
Estimated transaction expenses and charges    
Estimated (gain) loss of unconsolidated entities    
Estimated impairment of other long-lived assets    
Estimated shareholder litigation reserve 8.5  8.5 
Adjusted EBITDA guidance$310 $330 
       

 

GAAP to Non-GAAP Reconciliation of Fiscal Year 2018 Guidance (as of May 1, 2018) - Free Cash Flow

The following table reflects the reconciliation of fiscal year 2018 estimated cash flow from operations calculated in accordance with GAAP to fiscal year 2018 guidance for free cash flow. All figures shown are approximate.

  
 Twelve Months
 Ending
($ in millions)December 31, 2018
Estimated cash flow from operations$178 
Estimated capital expenditures and capital lease obligations (58)
Free cash flow guidance$120 
    

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Source: Endurance International Group Holdings, Inc.


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