Endurance International Group Reports 2018 First Quarter Results

 

 

  • 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 cash 2,625     1,772  
Accounts receivable 15,945     13,493  
Prepaid domain name registry fees 53,805     59,690  
Prepaid commissions     42,746  
Prepaid expenses and other current assets 29,327     30,653  
Total current assets 168,195     235,032  
Property and equipment—net 95,452     87,653  
Goodwill 1,850,582     1,851,209  
Other intangible assets—net 455,440     429,797  
Deferred financing costs 3,189     2,732  
Investments 15,267     15,241  
Prepaid domain name registry fees, net of current portion 10,806     11,889  
Prepaid commissions, net of current portion     41,164  
Other assets 2,155     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 expenses 79,991     81,065  
Accrued interest 24,457     14,979  
Deferred revenue 361,940     389,734  
Current portion of notes payable 33,945     33,945  
Current portion of capital lease obligations 7,630     7,281  
Deferred consideration—short term 4,365     4,435  
Other current liabilities 4,031     3,754  
Total current liabilities 527,417     554,311  
Long-term deferred revenue 90,972     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, respectively 1,858,300     1,835,309  
Capital lease obligations—long term 7,719     5,837  
Deferred tax liability 19,696     27,679  
Deferred consideration—long term 3,551     3,608  
Other liabilities 10,426     10,157  
Total liabilities 2,518,081     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, respectively 14     14  
Additional paid-in capital 931,033     938,301  
Accumulated other comprehensive (loss) income (541 )   1,080  
Accumulated deficit (847,501 )   (795,206 )
Total stockholders' equity 83,005     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 revenue 148,749     133,906  
Gross profit 146,388     157,450  
Operating expense:      
Sales and marketing 72,772     67,356  
Engineering and development 20,362     19,917  
General and administrative 39,080     38,775  
Transaction expenses 580      
Total operating expense 132,794     126,048  
Income from operations 13,594     31,402  
Other income (expense):      
Interest income 118     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 expense 5,774     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 interest 226      
Excess accretion of non-controlling interest 3,584      
Total net loss attributable to non-controlling interest 3,810      
Net (loss) income attributable to Endurance International Group Holdings, Inc. $ (35,388 )   $ (7,088 )
Comprehensive income (loss):      
Foreign currency translation adjustments 686     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.:      
Basic 134,935,153     140,457,487  
Diluted 134,935,153     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 equipment 13,111     12,068  
Amortization of other intangible assets 34,267     25,735  
Amortization of deferred financing costs 1,744     1,894  
Amortization of net present value of deferred consideration 190     128  
Amortization of original issue discounts 846     1,058  
Stock-based compensation 12,924     6,992  
Deferred tax (benefit) expense 3,440     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 receivable 2,392     2,448  
Prepaid expenses and other current assets (5,717 )   (2,697 )
Accounts payable and accrued expenses (13,467 )   595  
Deferred revenue 15,747     10,660  
Net cash provided by operating activities 33,674     52,360  
Cash flows from investing activities:      
Purchases of property and equipment (9,258 )   (5,254 )
Proceeds from sale of assets 251      
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 options 628     25  
Net cash used in financing activities (11,244 )   (27,691 )
Net effect of exchange rate on cash and cash equivalents and restricted cash 2,327     (83 )
Net increase in cash and cash equivalents and restricted cash 15,717     19,332  
Cash and cash equivalents and restricted cash:      
Beginning of period 56,898     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  
Depreciation 13,111     12,068  
Amortization of other intangible assets 34,267     25,735  
Stock-based compensation 12,924     6,992  
Restructuring expenses 5,627     1,529  
Transaction expenses and charges 580      
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 subscribers 5,304     5,011  
Consolidated average subscribers for the period 5,338     5,031  
Consolidated ARPS $ 18.43     $ 19.30  
       
Web presence revenue $ 164,009     $ 155,017  
Web presence subscribers 4,135     3,811  
Web presence average subscribers for the period 4,167     3,829  
Web presence ARPS $ 13.12     $ 13.49  
       
Email marketing revenue $ 97,789     $ 102,447  
Email marketing subscribers 537     518  
Email marketing average subscribers for the period 541     519  
Email marketing ARPS $ 60.31     $ 65.83  
       
Domain revenue $ 33,339     $ 33,892  
Domain subscribers 632     682  
Domain average subscribers for the period 630     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  
Depreciation 8,419     3,873     819     13,111  
Amortization of other intangible assets 14,551     18,362     1,354     34,267  
Stock-based compensation 9,790     1,824     1,310     12,924  
Restructuring expenses 2,128     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  
Depreciation 7,977     3,146     945     12,068  
Amortization of other intangible assets 12,008     13,093     634     25,735  
Stock-based compensation 5,073     1,408     511     6,992  
Restructuring expenses 812     162     555     1,529  
Transaction expenses and charges              
Loss of unconsolidated entities 27             27  
Impairment of other long-lived assets              
Shareholder litigation reserve 5,745     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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