Endurance International Group Reports 2020 Third Quarter Results

Endurance International Group Reports 2020 Third Quarter Results




Endurance International Group Reports 2020 Third Quarter Results

  • GAAP revenue of $278.4 million
  • Net income of $6.7 million
  • Adjusted EBITDA of $78.7 million
  • Cash flow from operations of $54.6 million
  • Free cash flow of $42.6 million
  • Total subscribers on platform were approximately 4.965 million at September 30, 2020

BURLINGTON, Mass., Nov. 02, 2020 (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 third quarter ended September 30, 2020.

In light of Endurance’s announcement this morning of its agreement to be acquired by affiliates of Clearlake Capital Group L.P., the Company does not intend to hold a conference call on Thursday, November 5, 2020 to discuss third quarter 2020 financial results as previously announced.

Third Quarter 2020 Financial Highlights

As previously disclosed, the Company completed the sale of SinglePlatform on December 5, 2019. For year over year comparative purposes, selected figures presented below do not adjust for the sale of SinglePlatform unless noted.

  • Revenue for the third quarter of 2020 was $278.4 million, an increase of 3 percent compared to revenue of $270.4 million in the third quarter of 2019, excluding SinglePlatform. Revenue in the third quarter of 2019 was $277.2 million, including the contribution of approximately $6.8 million from SinglePlatform.
  • Net income for the third quarter of 2020 was $6.7 million, or $0.05 per diluted share, compared to net income of $7.8 million, or $0.05 per diluted share, for the third quarter of 2019.
  • Adjusted EBITDA for the third quarter of 2020 was $78.7 million, a decrease of 1 percent compared to third quarter 2019 adjusted EBITDA of $79.6 million, excluding SinglePlatform. Adjusted EBITDA in the third quarter of 2019 was $80.6 million, including the contribution of approximately $1.1 million from SinglePlatform.
  • Cash flow from operations for the third quarter of 2020 was $54.6 million, an increase of 33 percent compared to $41.0 million for the third quarter of 2019.
  • Free cash flow, defined as cash flow from operations less capital expenditures and financed equipment obligations, for the third quarter of 2020 was $42.6 million, an increase of 53 percent compared to $27.8 million for the third quarter of 2019.
  • Under its previously announced authorization, during 2020, the Company repurchased 8,708,720 shares for a total of $14.4 million, at an average price per share of $1.66. The Company did not make any repurchases during the third quarter of 2020.

Third Quarter 2020 Operating Highlights

  • Total subscribers on platform at September 30, 2020 were approximately 4.965 million, compared to approximately 4.780 million subscribers at September 30, 2019 and approximately 4.766 million subscribers at December 31, 2019. See “Total Subscribers” below.
  • Average revenue per subscriber, or ARPS, for the third quarter of 2020 was $18.86, compared to $19.35 for the third quarter 2019 and $19.34 for the fourth quarter of 2019. See “Average Revenue Per Subscriber” below.

Adjusted EBITDA and free cash flow are non-GAAP financial measure. Please see “Non-GAAP Financial Measures” below.

About Endurance International Group

Endurance International Group Holdings, Inc. (NASDAQ:EIGI) helps millions of small businesses worldwide with products and technology to enhance their online web presence, email marketing, business solutions, and more. The Endurance family of brands includes: Constant Contact, Bluehost, HostGator and Domain.com, among others. Headquartered in Burlington, Massachusetts, Endurance employs approximately 3,800 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

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. In this press release, we are also presenting the following additional non-GAAP financial measures for certain periods: revenue – excluding SinglePlatform and adjusted EBITDA – excluding SinglePlatform. 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 our non-GAAP measures 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.

Revenue – excluding SinglePlatform is a non-GAAP financial measure that we calculate as revenue excluding revenue contributed by our SinglePlatform business, which we sold on December 5, 2019. We believe that this measure helps investors evaluate and compare our past performance excluding the impact of a non-core business that we have sold.

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 on sale of business, (gain) loss of unconsolidated entities, impairment of goodwill and other long-lived assets, 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.

Adjusted EBITDA – excluding SinglePlatform is a non-GAAP financial measure that we calculate as adjusted EBITDA less adjusted EBITDA contributed by our SinglePlatform business, which we sold on December 5, 2019. Adjusted EBITDA contributed by our SinglePlatform business excludes the impact of corporate costs that we had allocated to SinglePlatform. We believe that this measure helps investors evaluate and compare our past performance excluding the impact of a non-core business that we have sold.

Free Cash Flow, or FCF, is a non-GAAP financial measure that we calculate as cash flow from operations less capital expenditures and financed equipment. 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 financed equipment).

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. In the third quarter of 2020, no such adjustments were made.

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.


Endurance International Group Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)

  December 31, 2019   September 30, 2020
Assets     (unaudited)
Current assets:      
Cash and cash equivalents $ 111,265     $ 167,315  
Restricted cash 1,732     1,422  
Accounts receivable 10,224     9,823  
Prepaid domain name registry fees 55,237     58,377  
Prepaid commissions 38,435     42,042  
Prepaid and refundable taxes 6,810     5,175  
Prepaid expenses and other current assets 23,883     22,748  
Total current assets 247,586     306,902  
Property and equipment—net 85,925     88,349  
Operating lease right-of-use assets 90,519     83,224  
Goodwill 1,835,310     1,852,780  
Other intangible assets—net 245,002     207,579  
Deferred financing costs—net 1,778     1,119  
Investments 15,000     15,000  
Prepaid domain name registry fees, net of current portion 11,107     12,808  
Prepaid commissions, net of current portion 48,780     60,864  
Deferred tax asset 64     232  
Other assets 3,015     2,923  
Total assets $ 2,584,086     $ 2,631,780  
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable $ 10,054     $ 13,670  
Accrued expenses 64,560     72,534  
Accrued taxes 251     461  
Accrued interest 23,434     12,360  
Deferred revenue 369,475     388,500  
Operating lease liabilities—short term 21,193     18,090  
Current portion of notes payable 31,606     31,606  
Current portion of financed equipment 790     2,447  
Deferred consideration—short term 2,201     7,790  
Other current liabilities 2,165     2,846  
Total current liabilities 525,729     550,304  
Long-term deferred revenue 99,652     105,418  
Operating lease liabilities—long term 78,151     74,461  
Notes payable—long term, net of original issue discounts of $16,859 and $13,101 and deferred financing costs of $25,690 and $20,210, respectively 1,649,867     1,623,171  
Financed equipment—long term     202  
Deferred tax liability 27,097     34,864  
Deferred consideration—long term     7,087  
Other liabilities 6,636     13,552  
Total liabilities 2,387,132     2,409,059  
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; 146,259,868 and 147,570,072 shares issued at December 31, 2019 and September 30, 2020, respectively; 146,259,868 and 141,507,297 outstanding at December 31, 2019 and September 30, 2020, respectively 15     16  
Additional paid-in capital 996,958     1,021,621  
Treasury stock, at cost, 0 and 6,062,775 shares at December 31, 2019 and September 30, 2020, respectively     (10,048 )
Accumulated other comprehensive loss (4,088 )   (1,965 )
Accumulated deficit (795,931 )   (786,903 )
Total stockholders’ equity 196,954     222,721  
Total liabilities and stockholders’ equity $ 2,584,086     $ 2,631,780  



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,
  2019   2020   2019   2020
Revenue $ 277,193     $ 278,426     $ 836,080     $ 824,607  
Cost of revenue (including impairment of $0 and $17,892 for the three and nine months ended September 30, 2019, respectively) 120,755     116,662     384,196     345,991  
Gross profit 156,438     161,764     451,884     478,616  
Operating expense:              
Sales and marketing 59,143     63,651     191,221     193,904  
Engineering and development 28,257     28,425     77,299     79,958  
General and administrative 30,309     31,160     92,826     90,937  
Gain on sale of intangible assets             (2,365 )
Transaction expenses     461         461  
Total operating expense 117,709     123,697     361,346     362,895  
Income from operations 38,729     38,067     90,538     115,721  
Other income (expense):              
Interest income 305     153     910     485  
Interest expense (36,057 )   (29,959 )   (110,308 )   (93,879 )
Total other expense—net (35,752 )   (29,806 )   (109,398 )   (93,394 )
Income (loss) before income taxes 2,977     8,261     (18,860 )   22,327  
Income tax (benefit) expense (4,839 )   1,587     3,040     13,299  
Net income (loss) $ 7,816     $ 6,674     (21,900 )   9,028  
Comprehensive income (loss):              
Foreign currency translation adjustments (1,001 )   1,245     (1,054 )   1,122  
Unrealized gain (loss) on cash flow hedge, net of tax benefit (expense) of $(70) and $200 for the three and nine months ended September 30, 2019, respectively, and $(92) and $(323) for the three and nine months ended September 30, 2020, respectively 240     286     (611 )   1,001  
Total comprehensive income (loss) $ 7,055     $ 8,205     $ (23,565 )   $ 11,151  
Basic net income (loss) per share $ 0.05     $ 0.05     $ (0.15 )   $ 0.06  
Diluted net income (loss) per share $ 0.05     $ 0.05     $ (0.15 )   $ 0.06  
Weighted-average common shares used in computing net income (loss) per share:              
Basic 145,951,755     141,680,469     144,932,834     143,552,324  
Diluted 146,301,595     147,178,734     144,932,834     147,334,403  



Endurance International Group Holdings, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)

  Three Months Ended September 30,   Nine Months Ended September 30,
  2019   2020   2019   2020
Cash flows from operating activities:              
Net income (loss) $ 7,816     $ 6,674     $ (21,900 )   $ 9,028  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
Depreciation of property and equipment 11,280     12,824     33,385     38,266  
Amortization of other intangible assets 21,668     17,813     64,137     52,406  
Impairment of long-lived assets         17,892      
Amortization of deferred financing costs 1,822     1,978     5,331     5,770  
Amortization of net present value of deferred consideration 23     331     143     376  
Amortization of original issue discounts 1,138     1,255     3,336     3,622  
Stock-based compensation 9,143     9,547     27,513     28,978  
Deferred tax expense (685 )   1,012     1,942     6,467  
Loss on sale of assets (8 )       128      
Gain on sale of intangible assets             (2,365 )
Loss on early extinguishment of debt             83  
Changes in operating assets and liabilities, net of acquisitions:              
Accounts receivable 827     1,743     34     893  
Prepaid and refundable taxes (6,633 )   108     (5,908 )   1,620  
Prepaid expenses and other current assets 2,780     (1,979 )   5,108     (20,069 )
Leases right-of-use asset, net (258 )   201     395     519  
Accounts payable and accrued expenses (8,357 )   (3,858 )   (23,492 )   4,416  
Deferred revenue 395     6,920     7,636     27,222  
Net cash provided by operating activities 40,951     54,569     115,680     157,232  
Cash flows from investing activities:              
Businesses acquired in purchase transactions, net of cash acquired (8,875 )   (16,998 )   (8,875 )   (16,998 )
Purchases of property and equipment (10,632 )   (10,264 )   (26,796 )   (30,273 )
Proceeds from sale of assets 1         1      
Proceeds from sale of intangible assets             2,705  
Net cash used in investing activities (19,506 )   (27,262 )   (35,670 )   (44,566 )
Cash flows from financing activities:              
Repayments of term loans (25,000 )   (7,902 )   (75,000 )   (23,705 )
Repayments of senior notes             (11,807 )
Purchase of treasury stock             (14,428 )
Principal payments on financed equipment (2,471 )   (1,749 )   (6,332 )   (4,723 )
Payment of deferred consideration         (2,500 )   (1,500 )
Proceeds from exercise of stock options 4     53     26     66  
Net cash used in financing activities (27,467 )   (9,598 )   (83,806 )   (56,097 )
Net effect of exchange rate on cash and cash equivalents and restricted cash (331 )   203     (483 )   (829 )
Net (decrease) increase in cash and cash equivalents and restricted cash (6,353 )   17,912     (4,279 )   55,740  
Cash and cash equivalents and restricted cash:              
Beginning of period 92,650     150,825     90,576     112,997  
End of period $ 86,297     $ 168,737     $ 86,297     $ 168,737  
Supplemental cash flow information:              
Interest paid $ 42,533     $ 35,169     $ 110,886     $ 93,773  
Income taxes paid $ 991     $ 1,091     $ 1,715     $ 4,296  
Assets acquired under equipment financing $     $     $     $ 7,704  



GAAP to Non-GAAP Reconciliation – Adjusted EBITDA

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

  Three Months Ended September 30,   Nine Months Ended September 30,
  2019   2020   2019   2020
Net income (loss) $ 7,816     $ 6,674     $ (21,900 )   $ 9,028  
Interest expense, net(1) 35,752     29,806     109,398     93,394  
Income tax (benefit) expense (4,839 )   1,587     3,040     13,299  
Depreciation 11,280     12,824     33,385     38,266  
Amortization of other intangible assets 21,668     17,813     64,137     52,406  
Stock-based compensation 9,143     9,547     27,513     28,978  
Restructuring expenses (193 )   33     2,005     1,749  
Gain on sale of intangible assets             (2,365 )
Gain on sale of business              
Transaction expenses and charges     461         461  
Impairment of goodwill and other long-lived assets         17,892      
Shareholder litigation reserve              
Adjusted EBITDA $ 80,627     $ 78,745     $ 235,470     $ 235,216  

(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 September 30,   Nine Months Ended September 30,
  2019   2020   2019   2020
Cash flows from operations $ 40,951     $ 54,569     $ 115,680     $ 157,232  
Less:              
Capital expenditures and financed equipment obligations(1) (13,103 )   (12,013 )   (33,128 )   (34,996 )
Free cash flow $ 27,848     $ 42,556     $ 82,552     $ 122,236  

(1)     Capital expenditures during the three months ended September 30, 2019 and 2020 includes $2.5 million and $1.7 million, respectively, of principal payments under a three year agreement for equipment financing. Capital expenditures during the nine months ended September 30, 2019 and 2020 includes $6.3 million and $4.7 million, respectively, of principal payments under a three year agreement for equipment financing. The remaining balance on the equipment financing is $2.6 million as of September 30, 2020.

Average Revenue Per Subscriber – Calculation and Segment Detail
We report our financial results in two segments – web presence and digital marketing.

  • Web presence. The web presence segment consists of our web hosting brands, including Bluehost and HostGator, as well as our domain-focused brands such as Domain.com, ResellerClub and LogicBoxes. This segment includes web hosting, website security, website design tools and services, e-commerce products, domain names and domain privacy. It also includes the sale of domain management services to resellers and end users, as well as premium domain names, and generates advertising revenue from domain name parking. The results presented below for the web presence segment include the former domain segment, which was consolidated into the web presence segment beginning with the first quarter of 2020.
  • Digital marketing. The digital marketing segment consists of Constant Contact email marketing tools and related products. This segment also generates revenue from sales of our Constant Contact-branded website builder tool, our Ecomdash inventory management and marketplace listing solution, and our Retention Science solution. For most of 2019, the digital marketing segment also included the SinglePlatform digital storefront business, which was sold on December 5, 2019.

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 September 30,   Nine Months Ended September 30,
  2019   2020   2019   2020
Consolidated revenue $ 277,193     $ 278,426     $ 836,080     $ 824,607  
Consolidated total subscribers 4,780     4,965     4,780     4,965  
Consolidated average subscribers for the period 4,774     4,921     4,791     4,865  
Consolidated ARPS $ 19.35     $ 18.86     $ 19.39     $ 18.83  
               
Web presence revenue $ 174,428     $ 178,064     $ 528,096     $ 528,714  
Web presence subscribers 4,289     4,493     4,289     4,493  
Web presence average subscribers for the period 4,283     4,449     4,298     4,395  
Web presence ARPS $ 13.57     $ 13.34     $ 13.65     $ 13.37  
               
Digital marketing revenue $ 102,765     $ 100,362     $ 307,984     $ 295,893  
Digital marketing subscribers 491     472     491     472  
Digital marketing average subscribers for the period 491     472     493     470  
Digital marketing ARPS $ 69.79     $ 70.81     $ 69.40     $ 69.91  



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

  Three Months Ended September 30, 2019
  Web presence   Digital marketing   Total
Revenue $ 174,428     $ 102,765     $ 277,193  
Gross profit $ 82,675     $ 73,763     $ 156,438  
           
Net (loss) income $ (4,730 )   $ 12,546     $ 7,816  
Interest expense, net(1) 17,153     18,599     35,752  
Income tax (benefit) expense (3,044 )   (1,795 )   (4,839 )
Depreciation 9,166     2,114     11,280  
Amortization of other intangible assets 10,115     11,553     21,668  
Stock-based compensation 5,842     3,301     9,143  
Restructuring expenses (36 )   (157 )   (193 )
Gain on sale of intangible assets          
Gain on sale of business          
Transaction expenses and charges          
Impairment of goodwill and other long-lived assets          
Shareholder litigation reserve          
Adjusted EBITDA $ 34,466     $ 46,161     $ 80,627 *

  Three Months Ended September 30, 2020
  Web presence   Digital marketing   Total
Revenue $ 178,064     $ 100,362     $ 278,426  
Gross profit $ 88,788     $ 72,976     $ 161,764  
           
Net (loss) income $ (27 )   $ 6,701     $ 6,674  
Interest expense, net(1) 13,952     15,854     29,806  
Income tax (benefit) expense 1,015     572     1,587  
Depreciation 10,312     2,512     12,824  
Amortization of other intangible assets 7,653     10,160     17,813  
Stock-based compensation 6,006     3,541     9,547  
Restructuring expenses     33     33  
Gain on sale of intangible assets          
Gain on sale of business          
Transaction expenses and charges     461     461  
Impairment of goodwill and other long-lived assets          
Shareholder litigation reserve          
Adjusted EBITDA $ 38,911     $ 39,834     $ 78,745  

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

* Excluding SinglePlatform, which contributed approximately $1.1 million in adjusted EBITDA (excluding the impact of corporate cost allocations) in the three months ended September 30, 2019, adjusted EBITDA would have been approximately $79.6 million.

  Nine Months Ended September 30, 2019
  Web presence   Digital marketing   Total
Revenue $ 528,096     $ 307,984     $ 836,080  
Gross profit $ 230,485     $ 221,399     $ 451,884  
           
Net (loss) income $ (44,548 )   $ 22,648     $ (21,900 )
Interest expense, net(1) 54,295     55,103     109,398  
Income tax expense 1,938     1,102     3,040  
Depreciation 26,718     6,667     33,385  
Amortization of other intangible assets 29,893     34,244     64,137  
Stock-based compensation 17,907     9,606     27,513  
Restructuring expenses 785     1,220     2,005  
Gain on sale of intangible assets          
Gain on sale of business          
Transaction expenses and charges          
Impairment of goodwill and other long-lived assets 17,892         17,892  
Shareholder litigation reserve          
Adjusted EBITDA $ 104,880     $ 130,590     $ 235,470 *

  Nine Months Ended September 30, 2020
  Web presence   Digital marketing   Total
Revenue $ 528,714     $ 295,893     $ 824,607  
Gross profit $ 261,524     $ 217,092     $ 478,616  
           
Net (loss) income $ (9,277 )   $ 18,305     $ 9,028  
Interest expense, net(1) 44,422     48,972     93,394  
Income tax expense 8,551     4,748     13,299  
Depreciation 31,099     7,167     38,266  
Amortization of other intangible assets 22,804     29,602     52,406  
Stock-based compensation 18,916     10,062     28,978  
Restructuring expenses 1,032     717     1,749  
Gain on sale of intangible assets (2,365 )       (2,365 )
Gain on sale of business          
Transaction expenses and charges     461     461  
Impairment of goodwill and other long-lived assets          
Shareholder litigation reserve          
Adjusted EBITDA $ 115,182     $ 120,034     $ 235,216  

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

* Excluding SinglePlatform, which contributed approximately $3.7 million in adjusted EBITDA (excluding the impact of corporate cost allocations) in the nine months ended September 30, 2019, adjusted EBITDA would have been approximately $231.8 million.