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Endurance International Group Reports 2017 Third Quarter Results

  • GAAP revenue of $295.2 million
  • Net loss of $40.3 million
  • Adjusted EBITDA of $93.8 million
  • Cash flow from operations of $46.4 million
  • Free cash flow of $31.9 million
  • Total subscribers on platform were approximately 5.122 million at September 30, 2017

BURLINGTON, Mass., Oct. 31, 2017 (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, 2017.

“I am pleased to report third quarter results that reflect solid performance in both web presence and email marketing,” commented Jeffrey H. Fox, president and chief executive officer of Endurance International Group. “Our 2017 plan to deliver profitable growth while focusing on higher lifetime revenue customers has been demonstrated in our year to date performance. Our priorities for the rest of the year are to continue to simplify our operations and to invest in initiatives that we believe will drive future growth and long-term value for our customers."

Third Quarter 2017 Financial Highlights

  • Revenue for the third quarter of 2017 was $295.2 million, an increase of 1 percent compared to $291.2 million for the third quarter of 2016. Revenue for the third quarter of 2017 includes a contribution of $101.5 million from Constant Contact, as compared to a contribution of $95.9 million for the third quarter of 2016.
  • Net loss for the third quarter of 2017 was $40.3 million compared to net loss of $29.8 million for the third quarter of 2016.
  • Net loss attributable to Endurance International Group Holdings, Inc. for the third quarter of 2017 was $40.3 million, or $(0.29) per diluted share, compared to net loss of $31.7 million, or $(0.24) per diluted share, for the third quarter of 2016.
  • Adjusted EBITDA for the third quarter of 2017 was $93.8 million, an increase of 10 percent compared to $85.2 million for the third quarter of 2016. Third quarter 2017 adjusted EBITDA excludes the impact of an impairment of $14.4 million related to the reduction in value of certain intangibles, primarily associated with domain name assets, and an additional $8.0 million of accrued expense reserved in connection with ongoing discussions with the staff of the SEC to resolve potential claims arising from the SEC investigations initiated against Endurance and Constant Contact in December 2015.
  • Cash flow from operations for the third quarter of 2017 was $46.4 million, an increase of 28 percent compared to $36.2 million for the third quarter of 2016.
  • Free cash flow, defined as cash flow from operations less capital expenditures and capital lease obligations, for the third quarter of 2017 was $31.9 million, an increase of 21 percent compared to $26.4 million for the third quarter of 2016.

Third Quarter Operating Highlights

  • Total subscribers on platform at September 30, 2017 were approximately 5.122 million, compared to approximately 5.439 million subscribers at September 30, 2016 and 5.217 million subscribers at June 30, 2017. See “Total Subscribers” below.
  • Average revenue per subscriber, or ARPS, for the third quarter of 2017 was $19.03, compared to $17.78 for the third quarter of 2016 and $18.52 for the second quarter of 2017. Excluding the impact of Constant Contact, ARPS for the third quarter of 2017 was $13.91, compared to $13.25 for the third quarter of 2016 and $13.62 for the second quarter of 2017. See “Average Revenue Per Subscriber” below.

Fiscal 2017 Guidance

The company is increasing its adjusted EBITDA expectations for the year by approximately $8 million from the midpoint of prior guidance. As of the date of this release, October 31, 2017, for the full year ending December 31, 2017, the company now expects:

2016 Actual
as Reported
Prior Guidance
(as of August 1, 2017)*
Guidance
(as of October 31, 2017)*
GAAP revenue$1.111 billion5 - 5.5% increase5 - 5.5% increase
Adjusted EBITDA$288 million14 - 16% increase~18% increase
Free cash flow$112 million~25% increase~25% increase

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.

* Percentage increases shown in the "Prior Guidance" and "Guidance" columns represent percentage increases over 2016 figures shown in the "Actual as Reported" column.

Conference Call and Webcast Information

Endurance International Group’s third quarter 2017 financial results teleconference and webcast is scheduled to begin at 8:00 a.m. EDT on Tuesday, October 31, 2017. 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, SEC investigations reserve, (gain) loss of unconsolidated entities, and impairment of other long-lived assets. 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 third quarter of 2017.

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. 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. 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 updated financial guidance for fiscal year 2017, our expectations regarding our planned investment initiatives, 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 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: the possibility that our updated financial guidance may differ from expectations; that our planned initiatives will not result in a positive return on investment; that we will be unable to successfully enhance the customer product and service experience and improve customer satisfaction and retention through operational and infrastructure improvements; that we will encounter difficulties or delays in our efforts to build brand awareness of our key brands; that we will be unable to drive revenue growth by increasing ARPS through cross-selling and other product-related initiatives; 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; system or Internet failures; our inability to maintain or improve our competitive position or market share; and other risks set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended June 30, 2017 filed with the SEC on August 4, 2017 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 vitalize their online web presence, email marketing, mobile business solutions, and more. The Endurance family of brands includes: Constant Contact, Bluehost, HostGator, iPage, Domain.com, BigRock, SiteBuilder and SinglePlatform, among others. Headquartered in Burlington, Massachusetts, Endurance employs over 3,600 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.

Endurance International Group Holdings, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
December 31, 2016 September 30, 2017
Assets
Current assets:
Cash and cash equivalents$53,596 $70,521
Restricted cash3,302 2,647
Accounts receivable13,088 13,984
Prepaid domain name registry fees55,444 55,742
Prepaid expenses and other current assets28,678 29,170
Total current assets154,108 172,064
Property and equipment—net95,272 88,557
Goodwill1,859,909 1,862,489
Other intangible assets—net612,057 496,036
Deferred financing costs4,932 3,645
Investments15,857 15,230
Prepaid domain name registry fees, net of current portion10,429 10,874
Other assets3,710 2,204
Total assets$2,756,274 $2,651,099
Liabilities, redeemable non-controlling interest and stockholders’ equity
Current liabilities:
Accounts payable$16,074 $13,397
Accrued expenses67,722 75,573
Accrued interest27,246 14,546
Deferred revenue355,190 368,613
Current portion of notes payable35,700 33,945
Current portion of capital lease obligations6,690 3,166
Deferred consideration—short term5,273 4,319
Other current liabilities2,890 3,605
Total current liabilities516,785 517,164
Long-term deferred revenue89,200 90,904
Notes payable—long term, net of original issue discounts of $25,853 and $26,880 and deferred financing costs of $43,342 and $39,194, respectively1,951,280 1,920,258
Capital lease obligations—long term512 1,485
Deferred tax liability39,943 46,203
Deferred consideration—long term7,444 3,493
Other liabilities8,974 9,889
Total liabilities2,614,138 2,589,396
Redeemable non-controlling interest17,753
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; 134,793,857 and 138,074,911 shares issued at December 31, 2016 and September 30, 2017, respectively; 134,793,857 and 138,074,911 outstanding at December 31, 2016 and September 30, 2017, respectively14 14
Additional paid-in capital868,228 917,655
Accumulated other comprehensive loss(3,666) (991)
Accumulated deficit(740,193) (854,975)
Total stockholders’ equity124,383 61,703
Total liabilities, redeemable non-controlling interest and stockholders’ equity$2,756,274 $2,651,099


Endurance International Group Holdings, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2016 2017 2016 2017
Revenue$291,193 $295,222 $819,019 $882,617
Cost of revenue149,427 158,865 438,980 454,197
Gross profit141,766 136,357 380,039 428,420
Operating expense:
Sales and marketing75,341 66,276 234,944 211,154
Engineering and development23,988 19,882 67,930 60,393
General and administrative33,399 51,269 108,508 130,929
Transaction expenses159 32,257 773
Total operating expense132,887 137,427 443,639 403,249
Income (loss) from operations8,879 (1,070) (63,600) 25,171
Other income (expense):
Other income (expense), net(4,845) (600) 6,565 (600)
Interest income162 203 438 506
Interest expense(41,208) (35,848) (112,573) (121,022)
Total other expense—net(45,891) (36,245) (105,570) (121,116)
Loss before income taxes and equity earnings of unconsolidated entities(37,012) (37,315) (169,170) (95,945)
Income tax expense (benefit)(7,387) 2,982 (121,220) 11,384
Loss before equity earnings of unconsolidated entities(29,625) (40,297) (47,950) (107,329)
Equity loss (income) of unconsolidated entities, net of tax173 (33) 1,197 (72)
Net loss$(29,798) $(40,264) $(49,147) $(107,257)
Net (loss) income attributable to non-controlling interest(1,206) (14,326) 277
Excess accretion of non-controlling interest3,145 3,145 7,247
Total net income (loss) attributable to non-controlling interest1,939 (11,181) 7,524
Net loss attributable to Endurance International Group Holdings, Inc.$(31,737) $(40,264) $(37,966) $(114,781)
Comprehensive income (loss):
Foreign currency translation adjustments112 1,070 994 2,984
Unrealized loss on cash flow hedge, net of taxes of $(65) and $48, and $(889) and $(182) for the three and nine months ended September 30, 2016 and 2017, respectively72 83 (1,866) (309)
Total comprehensive loss$(31,553) $(39,111) $(38,838) $(112,106)
Basic net loss per share attributable to Endurance International Group Holdings, Inc.$(0.24) $(0.29) $(0.29) $(0.84)
Diluted net loss per share attributable to Endurance International Group Holdings, Inc.$(0.24) $(0.29) $(0.29) $(0.84)
Weighted-average common shares used in computing net loss per share attributable to Endurance International Group Holdings, Inc.:
Basic 133,550,168 137,793,609 133,038,542 136,688,115
Diluted133,550,168 137,793,609 133,038,542 136,688,115


Endurance International Group Holdings, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2016 2017 2016 2017
Cash flows from operating activities:
Net loss$(29,798) $(40,264) $(49,147) $(107,257)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of property and equipment17,010 13,571 46,942 40,733
Amortization of other intangible assets37,982 35,347 105,679 104,554
Impairment of long lived assets 13,848 8,285 13,848
Impairment of investments 600 600
Amortization of deferred financing costs1,760 1,873 4,322 5,403
Amortization of net present value of deferred consideration844 127 2,426 504
Dividend from minority interest 50 50 100
Amortization of original issue discounts844 1,059 2,116 2,791
Stock-based compensation14,806 19,580 48,218 48,749
Deferred tax (benefit) expense(7,085) 2,096 (124,547) 6,442
Loss (gain) on sale of assets57 (189) (168) (317)
Loss (gain) from unconsolidated entities4,845 (33) (6,565) (72)
Loss of unconsolidated entities173 1,197
Gain from change in deferred consideration(54) (33)
Financing costs expensed 5,487
Loss on early extinguishment of debt 992
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable(170) (2,231) 1,376 (872)
Prepaid expenses and other current assets5,680 833 (9,206) (510)
Accounts payable and accrued expenses(14,223) 1,695 12,294 (7,309)
Deferred revenue3,518 (1,518) 58,565 15,000
Net cash provided by operating activities36,189 46,444 101,804 128,866
Cash flows from investing activities:
Businesses acquired in purchase transactions, net of cash acquired10,255 (889,634)
Cash paid for minority investment (5,600)
Purchases of property and equipment(8,356) (12,800) (29,317) (32,095)
Proceeds from sale of assets(10) 5 242 292
Purchases of intangible assets (286) (27) (1,966)
Deposits (withdrawals) of principal balances in restricted cash accounts30 755 (738) 655
Net cash provided by (used in) investing activities1,919 (12,326) (925,074) (33,114)
Cash flows from financing activities:
Proceeds from issuance of term loan and notes, net of original issue discounts 1,056,178 1,693,007
Repayments of term loans(8,925) (18,486) (42,775) (1,733,147)
Proceeds from borrowing of revolver33,500 49,500
Repayment of revolver (83,000)
Payment of financing costs(834) (244) (52,561) (6,304)
Payment of deferred consideration(42,373) (43,080) (5,408)
Payment of redeemable non-controlling interest(33,425) (25,000) (33,425) (25,000)
Principal payments on capital lease obligations(1,476) (1,771) (4,372) (5,679)
Capital investment from minority partner1,776 2,776
Proceeds from exercise of stock options976 416 2,304 1,548
Net cash (used in) provided by financing activities(50,781) (45,085) 851,545 (80,983)
Net effect of exchange rate on cash and cash equivalents229 79 1,843 2,156
Net increase (decrease) in cash and cash equivalents(12,444) (10,888) 30,118 16,925
Cash and cash equivalents:
Beginning of period75,592 81,409 33,030 53,596
End of period$63,148 $70,521 $63,148 $70,521
Supplemental cash flow information:
Interest paid$47,010 $38,154 $91,181 $118,276
Income taxes paid$951 $1,499 $3,399 $3,958

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
September 30,
Nine Months Ended
September 30,
2016 2017 2016 2017
Net income (loss)$(29,798) $(40,264) $(49,147) $(107,257)
Interest expense, net (1)41,046 35,645 112,135 120,516
Income tax expense (benefit)(7,387) 2,982 (121,220) 11,384
Depreciation17,010 13,571 46,942 40,733
Amortization of other intangible assets37,982 35,347 105,679 104,554
Stock-based compensation14,806 19,580 48,218 48,749
Restructuring expenses6,377 4,488 23,642 14,584
Transaction expenses and charges159 32,257 773
SEC investigations reserve 8,000 8,000
Loss (gain) of unconsolidated entities (2)5,018 (33) (5,368) (72)
Impairment of other long-lived assets (3) 14,448 8,285 14,448
Adjusted EBITDA$85,213 $93,764 $201,423 $256,412

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income. For the nine months ended September 30, 2017, it also includes $6.5 million of deferred financing costs and OID immediately expensed upon refinancing of our term loan in June 2017.

(2) The loss (gain) of unconsolidated entities is reported on a net basis for the three and nine months ended September 30, 2016. The three months ended September 30, 2016 includes a loss of $4.8 million on our investment in AppMachine. This loss was generated on July 27, 2016, when we increased our ownership stake in AppMachine from 40.0% to 100.0%, which required a revaluation of our existing investment to its implied fair value. The three months ended September 30, 2016 also includes a net loss of $0.2 million from our proportionate share of net losses from unconsolidated entities. The nine months ended September 30, 2016 includes a gain of $11.4 million on our investment in WZ UK Ltd. This gain was generated on January 6, 2016, when we increased our ownership stake in WZ UK Ltd. from 49.0% to 57.5%, which required a revaluation of our existing investment to its implied fair value. This $11.4 million gain was partially offset by our proportionate shares of net losses from unconsolidated entities of $1.2 million.

(3) The impairment of other long-lived assets for the three and nine months ended September 30, 2016 includes $6.3 million of impairment charges related to developed and in-process technology related to the Webzai acquisition, and $2.0 million of internally developed software that was abandoned. The impairment of other long-lived assets for the three and nine months ended September 30, 3017 includes $13.8 million related to certain domain name intangible assets, and $0.6 million to write off a debt investment in a privately held entity.


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,
2016
2017
2016
2017
Cash flow from operations$36,189 $46,444 $101,804 $128,866
Less:
Capital expenditures and capital lease obligations (1)(9,832) (14,571) (33,689) (37,774)
Free cash flow$26,357 $31,873 $68,115 $91,092

(1) Capital expenditures during the three and nine months ended September 30, 2016 includes $1.5 million and $4.4 million, respectively, of principal payments under a two year capital lease for software. Capital expenditures during the three and nine months ended September 30, 2017 includes $1.8 million and $5.7 million, respectively, of principal payments under a three year capital lease for software. The remaining balance on the capital lease is $4.7 million as of September 30, 2017.


Average Revenue Per Subscriber - Calculation and Segment Detail

We present our financial results in two segments. Our web presence segment is our historical business before the acquisition of Constant Contact, and includes primarily our web hosting products, domains, website builders and related add-on products. Our email marketing segment consists of the Constant Contact business, including email marketing, event management, survey tools and the SinglePlatform digital storefront service.

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,
2016 2017 2016 2017
Consolidated revenue $291,193 $295,222 $819,019 $882,617
Consolidated total subscribers 5,439 5,122 5,439 5,122
Consolidated average subscribers for the period 5,460 5,170 5,296 5,247
Consolidated average revenue per subscriber (ARPS) $17.78 $19.03 $17.18 $18.69
Web presence revenue $195,275 $193,696 $589,364 $584,217
Web presence subscribers 4,893 4,599 4,893 4,599
Web presence average subscribers for the period 4,911 4,643 4,821 4,714
Web presence average revenue per subscriber (ARPS) $13.25 $13.91 $13.58 $13.77
Email marketing revenue $95,918 $101,526 $229,655 $298,400
Email marketing subscribers 546 523 546 523
Email marketing average subscribers for the period 549 527 475 533
Email marketing average revenue per subscriber (ARPS) $58.27 $64.26 $53.75 $62.16

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
September 30, 2016
Three Months Ended
September 30, 2017

Web
presence
Email
marketing
Total Web
presence
Email
marketing
Total
Revenue$195,275 $95,918 $291,193 $193,696 $101,526 $295,222
Gross profit89,059 52,707 141,766 71,071 65,286 136,357
Net income (loss)$(19,886) $(9,912) $(29,798) $(42,466) $2,202 $(40,264)
Interest expense, net (1)18,244 22,802 41,046 15,131 20,514 35,645
Income tax expense (benefit)(1,435) (5,952) (7,387) 1,659 1,323 2,982
Depreciation9,173 7,837 17,010 10,338 3,233 13,571
Amortization of other intangible assets19,729 18,253 37,982 16,577 18,770 35,347
Stock-based compensation12,703 2,103 14,806 17,912 1,668 19,580
Restructuring expenses541 5,836 6,377 3,806 682 4,488
Transaction expenses and charges159 159
SEC investigations reserve 5,249 2,751 8,000
(Gain) loss of unconsolidated entities (2)5,018 5,018 (33) (33)
Impairment of other long-lived assets (3) 14,448 14,448
Adjusted EBITDA$44,246 $40,967 $85,213 $42,621 $51,143 $93,764


Nine Months Ended
September 30, 2016
Nine Months Ended
September 30, 2017

Web
presence
Email
marketing
Total Web
presence
Email
marketing
Total
Revenue$589,364 $229,655 $819,019 $584,217 $298,400 $882,617
Gross profit265,610 114,429 380,039 240,239 188,181 428,420
Net income (loss)$2,787 $(51,934) $(49,147) $(99,232) $(8,025) $(107,257)
Interest expense, net (1)53,337 58,798 112,135 52,304 68,212 120,516
Income tax expense (benefit)(90,033) (31,187) (121,220) 16,203 (4,819) 11,384
Depreciation27,248 19,694 46,942 30,101 10,632 40,733
Amortization of other intangible assets59,252 46,427 105,679 48,857 55,697 104,554
Stock-based compensation37,778 10,440 48,218 43,357 5,392 48,749
Restructuring expenses1,501 22,141 23,642 9,842 4,742 14,584
Transaction expenses and charges31,273 984 32,257 773 773
SEC investigations reserve 5,249 2,751 8,000
(Gain) loss of unconsolidated entities (2)(5,368) (5,368) (72) (72)
Impairment of other long-lived assets (3)8,285 8,285 14,448 14,448
Adjusted EBITDA$126,060 $75,363 $201,423 $121,057 $135,355 $256,412

(1) Interest expense includes impact of amortization of deferred financing costs, original issuance discounts and interest income. For the nine months ended September 30, 2017, it also includes $6.5 million of deferred financing costs and original issuance discounts immediately expensed upon refinancing of our term loan in June 2017.

(2) The loss (gain) of unconsolidated entities is reported on a net basis for the three and nine months ended September 30, 2016. The three months ended September 30, 2016 includes a loss of $4.8 million on our investment in AppMachine. This loss was generated on July 27, 2016, when we increased our ownership stake in AppMachine from 40.0% to 100.0%, which required a revaluation of our existing investment to its implied fair value. The three months ended September 30, 2016 also includes a net loss of $0.2 million from our proportionate share of net losses from unconsolidated entities. The nine months ended September 30, 2016 includes a gain of $11.4 million on our investment in WZ UK Ltd. This gain was generated on January 6, 2016, when we increased our ownership stake in WZ UK Ltd. from 49.0% to 57.5%, which required a revaluation of our existing investment to its implied fair value. This $11.4 million gain was partially offset by our proportionate shares of net losses from unconsolidated entities of $1.2 million.

(3) The impairment of other long-lived assets for the three and nine months ended September 30, 2016 includes $6.3 million of impairment charges related to developed and in-process technology related to the Webzai acquisition, and $2.0 million of internally developed software that was abandoned. The impairment of other long-lived assets for the three and nine months ended September 30, 3017 includes $13.8 million related to certain domain name intangible assets, and $0.6 million to write off a debt investment in a privately held entity.


GAAP to Non-GAAP Reconciliation of Fiscal Year 2017 Guidance (as of October 31, 2017) - Adjusted EBITDA

The following table reflects the reconciliation of fiscal year 2017 estimated net loss calculated in accordance with GAAP to fiscal year 2017 guidance for adjusted EBITDA (i.e. assuming an increase of approximately 18% from 2016 adjusted EBITDA as reported). All figures shown are approximate.

($ in millions)Twelve Months Ending
December 31, 2017
Estimated net loss$(121)
Estimated interest expense (net)156
Estimated income tax expense (benefit)12
Estimated depreciation55
Estimated amortization of acquired intangible assets139
Estimated stock-based compensation60
Estimated restructuring expenses16
Estimated transaction expenses and charges1
Estimated SEC investigations reserve8
Estimated (gain) loss of unconsolidated entities-
Estimated impairment of other long-lived assets14
Adjusted EBITDA guidance$340


GAAP to Non-GAAP Reconciliation of Fiscal Year 2017 Guidance (as of October 31, 2017) - Free Cash Flow

The following table reflects the reconciliation of fiscal year 2017 estimated cash flow from operations calculated in accordance with GAAP to fiscal year 2017 guidance for free cash flow. All figures shown are approximate.

($ in millions)Twelve Months Ending
December 31, 2017
Estimated cash flow from operations$190
Estimated capital expenditures and capital lease obligations(50)
Free cash flow guidance$140

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

Press Contact:
Kristen Andrews
Endurance International Group
(781) 482-5809
press@endurance.com

Source:Endurance International Group Holdings, Inc.