Endurance International Group Reports 2014 Fourth Quarter and Full Year Results

BURLINGTON, Mass., Feb. 23, 2015 (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 fourth quarter and fiscal year ended December 31, 2014.

"We are excited to have finished our fiscal 2014 with results that exceeded expectations. Our results reinforce our confidence in our two-pronged strategy to increase our subscriber base and grow average revenue per subscriber, which positions us well to capture more of what we believe is a large opportunity," commented Hari Ravichandran, chief executive officer and founder of Endurance International Group. "We ended the fiscal year with a milestone 4.1 million subscribers, an increase of 17 percent over the end of 2013, and continued to see an increase in average revenue per subscriber, to $14.48, or 11 percent growth over last fiscal year."

Below is a summary of our fiscal 2014 results and guidance for fiscal 2015.

Full Year & Fourth Quarter Financial Highlights

• For the fiscal year 2014, GAAP revenue was $629.8 million, an increase of 21 percent compared to $520.3 million in fiscal 2013. GAAP revenue for the fourth quarter was $171.9 million, an increase of 26 percent compared to $136.4 million in the fourth quarter of 2013. 
• For the fiscal year 2014, net loss attributable to Endurance International Group Holdings, Inc. was $42.8 million, or $(0.34) per diluted share compared to a net loss of $159.2 million, or $(1.55) per diluted share, for fiscal 2013. Net loss attributable to Endurance International Group Holdings, Inc. for the fourth quarter was $2.2 million, or $(0.02) per diluted share, compared to a net loss of $67.5 million, or $(0.57) per diluted share, for the fourth quarter of 2013.
• Adjusted revenue for the fiscal year 2014 was $651.9 million, an increase of 23 percent compared to $528.1 million in fiscal year 2013. Adjusted revenue for the fourth quarter was $175.2 million, an increase of 28 percent compared to $136.9 million in the fourth quarter of 2013. 
• Adjusted revenue for the fiscal year 2014 excluding the impact of Directi, which contributed $48.5 million of adjusted revenue for the fiscal year, was $603.4 million, an increase of 14 percent over fiscal year 2013. Adjusted revenue excluding the impact of Directi, which contributed $13.2 million of adjusted revenue for the quarter, was $162.0 million, an increase of 18 percent over the fourth quarter of 2013.
• Adjusted EBITDA for the fiscal year 2014 was $235.6 million, an increase of 13 percent compared to $207.9 million in fiscal 2013. Adjusted EBITDA for the fourth quarter was $62.0 million, an increase of 34 percent compared to $46.2 million in the fourth quarter of 2013. 
• Unlevered free cash flow ("UFCF") for the fiscal year 2014 was $193.4 million, an increase of 16 percent compared to $166.5 million in fiscal 2013. UFCF for the fourth quarter was $50.7 million, an increase of 35 percent compared to $37.5 million in the same period a year ago. 
• Free cash flow ("FCF") for the fiscal year was $136.6 million, an increase of 64 percent compared to $83.4 million in fiscal 2013. FCF for the fourth quarter was $35.8 million, an increase of 90 percent compared to $18.9 million in the fourth quarter of 2013.  

Full Year & Fourth Quarter Operating Highlights

• Total subscribers increased by over 380,000 in fiscal 2014. Excluding the impact of Directi, total subscribers increased by 374,000 in fiscal 2014. Total subscribers increased by 91,000 for the fourth quarter. Excluding the impact of Directi, total subscribers increased by 88,000 in the fourth quarter. 
• Total subscribers were 4.087 million at the end of the fiscal year 2014, an increase of 17 percent compared to 3.502 million at the end of fiscal year 2013. The subscriber base increase consisted of the over 380,000 subscriber net adds, which were added through normal business operations, and approximately 200,000 subscribers on-boarded via acquisitions.
• For the year, average revenue per subscriber ("ARPS") was $14.48, an increase of 11 percent compared to $13.09 in fiscal 2013. Excluding the impact of Directi, ARPS was $13.58, an increase of 4 percent compared to $13.09 in fiscal 2013. ARPS was $14.78 for the fourth quarter, an increase of 12 percent compared to $13.15 for fourth quarter 2013. Excluding the impact of Directi, ARPS was $13.86, an increase of 5 percent compared to $13.15 for fourth quarter 2013. 
• On December 31, 2014, the company made an equity investment of $15.2 million, representing an ownership position of 40 percent in AppMachine BV, a Dutch developer of mobile applications.

Fiscal Year 2015 and First Quarter 2015 Guidance (at February 23, 2015)

The company is providing the following guidance:

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

For the first quarter ending March 31, 2015, the company expects:

The company's first quarter 2015 guidance for adjusted EBITDA growth reflects the seasonally strong investment in marketing relative to subsequent quarters of the fiscal year.  Additionally, the company will be providing UFCF guidance on an annual basis only.

Adjusted revenue, adjusted EBITDA, UFCF, FCF and ARPS are non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to their most comparable measure calculated in accordance with GAAP is provided in the financial statement tables included at the end of this press release. An explanation of these measures is also provided below under the heading "Use of Non-GAAP Financial Measures." We have not reconciled our adjusted revenue, adjusted EBITDA or UFCF guidance to the most comparable GAAP metrics because we do not provide guidance for the reconciling items between these non-GAAP metrics and the most comparable GAAP metrics, as certain of these items are out of our control and/or cannot be reasonably predicted.

Conference Call and Webcast Information

Endurance International Group's fourth quarter 2014 teleconference and webcast is scheduled to begin at 5:00 p.m. ET on Monday, February 23, 2015. To participate on the live call, analysts and investors should dial (888) 734-0328 at least ten minutes prior to the call. Endurance International Group will also offer a live and archived webcast of the conference call, accessible from the Investor Relations section of the company's website at http://ir.endurance.com/.

Use of Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, we use certain "non-GAAP financial measures" described below to evaluate the operating and financial performance of our business, identify trends affecting our business, develop projections and make strategic business decisions. Generally, a non-GAAP financial measure is a numerical measure of a company's operating performance, financial position or cash flow that includes or excludes amounts that are included or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor the non-GAAP financial measures described below, and we believe they are helpful to investors, because we believe they reflect the operating performance of our business and help management and investors gauge our ability to generate cash flow, excluding some recurring and non-recurring expenses that are included in the most directly comparable measures calculated and presented in accordance with GAAP.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to adjustments for integration and restructuring expenses. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact on our reported financial results. Furthermore, interest expense, which is excluded from some of our non-GAAP measures, has been and will continue to be for the foreseeable future a significant recurring expense in our business. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included in this press release, and not to rely on any single financial measure to evaluate our business.

Adjusted Net Income

Adjusted net income is a non-GAAP financial measure that we calculate as net income (loss) plus (i) changes in deferred revenue, amortization, stock-based compensation expense, loss of unconsolidated entities, net loss on sale of assets, expenses related to integration of acquisitions and restructurings, transaction expenses and charges including costs associated with certain litigation matters, preparation for our IPO and any dividend-related payments accounted for as compensation expense, less (ii) earnings of unconsolidated entities, net gain on sale of assets and the impact of purchase accounting related to reduced fair value of deferred domain registration costs and (iii) the estimated tax effects of the foregoing adjustments. Due to our history of acquisitions and financings, we have incurred accounting charges and expenses that obscure the operating performance of our business. We believe that adjusting for these items and the use of adjusted net income is useful to investors in evaluating the performance of our company.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we calculate as adjusted net income plus interest expense, depreciation, and income tax expense (benefit). We manage our business based on the cash collected from our subscribers and the cash required to acquire and service those subscribers. We believe highlighting cash collected and cash spent in a given period provides insight to an investor to gauge the overall health of our business. Under GAAP, although subscription fees are paid in advance, we recognize the associated revenue over the subscription term, which does not fully reflect short-term trends in our operating results. In order to capture these trends and report our performance consistently with how we manage our business, we include the change in deferred revenue for the period reported in our calculation of adjusted EBITDA for that period.

Free Cash Flow

Free cash flow, or FCF, is a non-GAAP financial measure that we calculate as cash flow from operations less capital expenditures and capital lease obligations and dividend from minority interest, plus certain transaction and integration and restructuring expenses. We believe that this presentation of FCF provides investors with an additional indicator of our ability to generate positive cash flows after meeting our obligations with regard to payment of interest on our outstanding indebtedness.

Unlevered Free Cash Flow

Unlevered free cash flow, or UFCF, is a non-GAAP financial measure that we calculate as free cash flow plus cash interest paid, net of change in accrued loan interest. We believe the most useful indicator of our operating performance is the cash generating potential of our company prior to any accounting charges related to our acquisitions. We also invest in marketing, our largest operating expense, which may increase or decrease in a given period, depending on the cost of attracting new subscribers to our solutions. We also believe that because our business has meaningful data center and related infrastructure requirements, the level of capital expenditures required to run our business is an important factor for investors to consider. We believe UFCF is a useful measure that captures the effects of these issues.

Adjusted Revenue

Adjusted revenue is a non-GAAP financial measure that we calculate as GAAP revenue adjusted to exclude the impact of any fair value adjustments to deferred revenue resulting from acquisitions. Historically, we also adjusted the amount of revenue to include the revenue we generated from subscribers added through business acquisitions as if those acquired subscribers had been our subscribers since the beginning of the period presented. Since the first quarter of 2014, we have included the revenue we add through business acquisitions from the closing date of the relevant acquisition. We believe that excluding fair value adjustments to deferred revenue is useful to investors because it shows our revenue prior to purchase accounting charges related to our acquisitions.

Total Subscribers

We define total subscribers as those that, as of the end of a period, are identified as subscribing directly to our products on a paid basis.  Historically, in calculating total subscribers, we included the number of end-of-period subscribers we added through business acquisitions as if those subscribers had subscribed with us since the beginning of the period presented.  Since the first quarter of 2014, we have included subscribers we added through business acquisitions from the closing date of the relevant acquisition.  Additionally, in the fourth quarter of 2014, we modified our definition of total subscribers to better reflect our expanding product mix by including paid subscribers to all of our subscription-based products, rather than limiting the definition to paid subscribers to our web presence solutions. We do not include in total subscribers accounts that access our solutions via resellers or that purchase only domain names from us. Subscribers of more than one brand are counted as separate subscribers.  We believe total subscribers is an indicator of the scale of our platform and our ability to expand our subscriber base, and is a critical factor in our ability to monetize the opportunity we have identified in serving the small- and medium-sized business (SMB) market. Total subscribers for a period may reflect adjustments to add or subtract subscribers as we integrate and/or are otherwise able to identify subscribers that meet this definition of total subscribers. 

Average Revenue per Subscriber

Average revenue per subscriber, or ARPS, is a non-GAAP financial measure that we calculate as the amount of adjusted revenue we recognize in a period divided by the average of the number of total subscribers at the beginning of the period and at the end of the period. We believe ARPS is an indicator of our ability to optimize our mix of products and services and pricing, and sell products and services to new and existing subscribers.

Forward-Looking Statements

This press release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for fiscal year 2015 (including the first quarter of fiscal year 2015), our beliefs and expectations regarding the success of our strategy to increase our subscriber base and grow ARPS, the size of our market opportunity, and our future financial and operational performance in general.  These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts, and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "confident," "positions," and variations of such words or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that these plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q for the period ending September 30, 2014 filed with the Securities and Exchange Commission (SEC) on November 7, 2014 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 (Nasdaq:EIGI) helps small and medium-sized business owners establish, manage and grow their businesses by harnessing the power and promise of the web. As a leading provider of cloud-based platform solutions to help small and medium-sized business owners succeed online, Endurance, through its family of brands – including Bluehost, HostGator, iPage, Domain.com, A Small Orange, and ResellerClub – supports approximately 4.1 million subscribers and is able to tailor solutions for small businesses at every stage and level of sophistication. Endurance is headquartered in Burlington, Massachusetts, has a presence in Asia and the Americas, and employs over 2,500 people.  For more information, visit endurance.com.

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

The following table reflects the reconciliation of Adjusted Net Income and Adjusted EBITDA to net loss calculated in accordance with GAAP (all data in thousands):

The following table reflects the reconciliation of cash flows from operating activities, or operating cash flow, to FCF to UFCF (all data in thousands):

The following table provides a reconciliation of income tax expense (benefit) included in the adjusted EBITDA table above to the income tax expense (benefit) in our consolidated statements of operations and comprehensive loss and to the income taxes paid amount in our consolidated statements of cash flows (all data in thousands).

The following table provides a reconciliation of net interest expense included in the adjusted EBITDA table above to the net interest expense in our consolidated statements of operations and comprehensive loss and to interest paid in our consolidated statements of cash flows (all data in thousands).

The following table reflects the reconciliation of ARPS to revenue calculated in accordance with GAAP (all data in thousands, except ARPS data):