Notes to Consolidated Financial Statements
(unaudited)
1. Nature of Business
Formation and Nature of Business
Endurance International Group Holdings, Inc. (“Holdings”) is a Delaware corporation, which, together with its wholly owned subsidiary, EIG Investors Corp. (“EIG Investors”), its primary operating subsidiary, The Endurance International Group, Inc. (“EIG”), and other subsidiaries of EIG, collectively form the “Company.” The Company is a leading provider of cloud-based platform solutions designed to help small- and medium-sized businesses succeed online.
EIG and EIG Investors were incorporated in April 1997 and May 2007, respectively, and Holdings was originally formed as a limited liability company in October 2011 in connection with the acquisition of a controlling interest in EIG Investors, EIG and EIG's subsidiaries by investment funds and entities affiliated with Warburg Pincus and Goldman, Sachs & Co. ("Goldman") on December 22, 2011. On November 7, 2012, Holdings reorganized as a Delaware limited partnership and on June 25, 2013, Holdings converted into a Delaware C-corporation and changed its name to Endurance International Group Holdings, Inc.
On November 1, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Razorback Technology Intermediate Holdings, Inc., a Delaware corporation (the “Parent”), and Razorback Technology, Inc., a Delaware corporation and a wholly owned subsidiary of the Parent (the “Merger Sub”). See Note 19, Subsequent Events.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements, which include the accounts of Holdings and its subsidiaries, have been prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions were eliminated on consolidation.
Although the Company believes the disclosures included herein are adequate to ensure that the consolidated financial statements are fairly presented, certain information and footnote disclosures to the financial statements have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, the consolidated financial statements and the footnotes included herein should be read in conjunction with the audited financial statements and the footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Segment Information
Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker ("CODM"). The Company has determined that its chief executive officer is the Company's CODM.
The Company previously reported its financial results in three reportable segments: web presence, email marketing and domain. In conjunction with the process of simplifying the organization, the Company modified its internal reporting structure to reflect certain changes in its structure and leadership, and also changed the name of the email marketing segment to the "digital marketing" segment. This resulted in consolidation of its domain segment into the web presence segment. Starting with the three months ended March 31, 2020, the Company reports its financial results in two segments - web presence (including the former domain segment) and digital marketing. The Company recast the comparative information for the three and nine months ended September 30, 2019 to conform with the two-segment presentation.
The Company has identified two reportable segments: web presence and digital marketing. The Company has determined that it does not satisfy aggregation criteria for these operating segments, and that each segment meets the quantitative threshold of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 280, Segment Reporting. Therefore, both operating segments are reportable segments.
The Company's segments share certain resources, primarily related to sales and marketing, engineering and development, and general and administrative functions. Management allocates these costs to each respective segment based on a consistently applied methodology, primarily based on a percentage of revenue.
Use of Estimates
U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates, judgments and assumptions used in preparing the accompanying consolidated financial statements are based on the relevant facts and circumstances as of the date of the consolidated financial statements. Although the Company regularly assesses these estimates, judgments and assumptions used in preparing the consolidated financial statements, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known. The more significant estimates reflected in these consolidated financial statements include estimates of fair value of assets acquired and liabilities assumed under purchase accounting related to the Company’s acquisitions and when evaluating goodwill and long-lived assets for potential impairment, the estimated useful lives of intangible and depreciable assets, revenue recognition for multiple-element arrangements, stock-based compensation, contingent consideration, derivative instruments, certain accruals, reserves and deferred taxes.
A new strain of coronavirus that causes the disease known as COVID-19 was identified in late 2019 and has spread globally. In March 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic, based on the rapid increase in infections worldwide.
The COVID-19 pandemic continues to evolve as of the date of these consolidated financial statements. As such, the extent of the pandemic’s impact on the Company's financial condition, liquidity, and future results of operations is uncertain. Management is continuing to execute its 2020 operating plan while actively monitoring the impact of COVID-19 on the Company, including its customers, industry, operations, suppliers, workforce and liquidity. The Company expects to see tax-related liquidity benefits from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The Company is closely monitoring the impact of the COVID-19 pandemic on its business. To date, the Company believes that the pandemic has contributed to increased demand for its products and services, since many small- and medium-sized businesses have moved more of their business online due to COVID-19 related lockdowns and other restrictions. However, the Company cannot predict whether and to what extent this level of demand will continue.
Unaudited Interim Financial Information
The accompanying interim consolidated balance sheet as of September 30, 2020, and the related consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2020, the consolidated statements of cash flows for the nine months ended September 30, 2019 and 2020, the consolidated statements of changes in stockholders' equity for the three and nine months ended September 30, 2019 and 2020, and the notes to consolidated financial statements are unaudited. These unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. The unaudited consolidated financial statements include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of the Company’s financial position as of September 30, 2020, results of operations for the three and nine months ended September 30, 2019 and 2020, cash flows for the nine months ended September 30, 2019 and 2020, and changes in stockholders' equity for the three and nine months ended September 30, 2019 and 2020. The results in the consolidated statements of operations and comprehensive income (loss) are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2020.
Cash Equivalents
Cash and cash equivalents include all highly liquid investments with remaining maturities of three months or less at the date of purchase.
Restricted Cash
Restricted cash is composed of certificates of deposit and cash held by merchant banks and payment processors, which provide collateral against any chargebacks, fees, or other items that may be charged back to the Company by credit card companies and other merchants, and collateral for certain facility leases.
Accounts Receivable
Accounts receivable is primarily composed of cash due from credit card companies for unsettled transactions charged to customers’ credit cards. As these amounts reflect authenticated transactions that are fully collectible, the Company does not maintain an allowance for doubtful accounts. The Company also accrues for earned referral fees and commissions, which are governed by reseller or affiliate agreements, when the amount is reasonably estimable.
Prepaid Domain Name Registry Fees
Prepaid domain name registry fees represent amounts that are paid in full at the time a domain is registered by one of the Company’s registrars on behalf of a customer. The registry fees are recognized on a straight-line basis over the term of the domain registration period.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include cash equivalents, accounts receivable, accounts payable and certain accrued expenses, approximate their fair values due to their short maturities. The fair value of the Company's notes payable is based on the borrowing rates currently available to the Company for debt with similar terms and average maturities and approximates their carrying value.
Derivative Instruments and Hedging Activities
FASB ASC 815, Derivatives and Hedging, provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
In accordance with the FASB’s fair value measurement guidance in FASB Accounting Standards Update ("ASU") No. 2011-4, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Property and Equipment
Property and equipment is recorded at cost, or at fair value if the property and equipment is acquired in an acquisition. The Company also capitalizes the direct costs of constructing additional computer equipment for internal use, as well as upgrades to existing computer equipment which extend the useful life, capacity or operating efficiency of the equipment. Capitalized costs include the cost of materials, shipping and taxes. Materials used for repairs and maintenance of computer equipment are expensed and recorded as a cost of revenue. Materials on hand and construction-in-process are recorded as property and equipment. Assets recorded under equipment financing are depreciated over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows:
|
|
|
|
|
|
|
|
Building
|
Thirty-five years
|
|
Software
|
Two to three years
|
|
Computers and office equipment
|
Three years
|
|
Furniture and fixtures
|
Five years
|
|
Leasehold improvements
|
Shorter of useful life or remaining term of the lease
|
Software Development Costs
The Company accounts for software development costs for internal-use software under the provisions of FASB ASC 350-40, Internal-Use Software. Accordingly, certain costs to develop internal-use computer software are capitalized, provided these costs are expected to be recoverable. During the three and nine months ended September 30, 2019, the Company capitalized internal-use software development costs of $3.8 million and $11.1 million, respectively. During the three and nine
months ended September 30, 2020, the Company capitalized internal-use software development costs of $4.3 million and $13.7 million, respectively.
Goodwill
Goodwill relates to amounts that arose in connection with the Company’s various business combinations and represents the difference between the purchase price and the fair value of the identifiable intangible and tangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but is subject to periodic review for impairment. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in the equity value of the Company's business, a significant adverse change in agreements that would materially affect reported operating results, business climate or operational performance of the business and an adverse action or assessment by a regulator. Additionally, a reorganization or change in the number of reporting units could result in the reassignment of goodwill between reporting units and may trigger an impairment assessment.
In accordance with ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350), the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. Under U.S. GAAP, a reporting unit is either the equivalent of, or one level below, an operating segment. The Company performs its annual goodwill test as of October 31 of each fiscal year. As of December 31, 2019, the Company had identified a total of ten reporting units, and goodwill has been allocated to five of these reporting units. As of September 30, 2020, after the acquisition of WaJao, Inc., doing business as Retention Science ("Retention Science"), the Company identified a total of eleven reporting units and goodwill has been allocated to six of these reporting units. The Company also early adopted the provisions of ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350), which eliminates the second step of the goodwill impairment test. As a result, the Company's goodwill impairment test includes only one step, which is a comparison of the carrying value of each reporting unit to its fair value, and any excess carrying value, up to the amount of goodwill allocated, is impaired. Goodwill has been allocated to each reporting unit in accordance with ASC 350-20-40, which requires that goodwill be allocated based on the relative fair values of each reporting unit.
The carrying value of each reporting unit is based on the assignment of the appropriate assets and liabilities to each reporting unit. Assets and liabilities are assigned to each reporting unit if the assets or liabilities are employed in the operations of the reporting unit and the asset and liability is considered in the determination of the reporting unit's fair value. Certain assets and liabilities are shared by multiple reporting units, and are allocated to each reporting unit based on its relative size, primarily based on revenue.
The Company determines the fair value of each reporting unit by utilizing the income approach and the market approach. For the income approach, fair value is determined based on the present value of estimated future after-tax cash flows, discounted at an appropriate risk adjusted rate. The Company derives its discount rates by using a capital asset pricing model and analyzing published rates for industries relevant to its reporting units to estimate the weighted-average cost of capital. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in its business and in its internally developed forecasts. For fiscal year 2019, the Company used a discount rate of 10.5% for all but three of its reporting units. For two of these reporting units, which are experiencing declining cash flows, the Company used a discount rate of 13.0% and 13.5%, respectively, to adjust for the risk in the projected cash flows. For the remaining reporting unit, which had just been acquired in September 2019, the Company used a discount rate of 15.5%, to adjust for the risk in the projected cash flows. The Company also performed sensitivity analysis on its discount rates. The Company uses internal forecasts to estimate future after-tax cash flows, which include an estimate of long-term future growth rates based on the Company's view of the long-term outlook for each reporting unit. Actual results may differ from those assumed in the Company's forecasts.
For the market approach, the Company utilizes two different approaches: market multiples for publicly traded companies, and market multiples based on the acquisition value of comparable companies that were sold.
For the fiscal year 2019 goodwill impairment analysis, the Company compared the fair value from the income approach to the two market approaches, which included a valuation multiple of comparable public companies and a valuation multiple from sales of comparable companies. For three of the Company's reporting units, which represent approximately 97% of the Company's goodwill, the Company established the fair value based on the average fair value from all three valuation approaches. For two of the remaining reporting units, which represent approximately 3% of the Company's goodwill, the Company established fair value based on the income approach only, because these reporting units are experiencing declining cash flows. The Company calculated and recognized a partial impairment of $10.0 million for one of these reporting units and a full impairment of $2.3 million for the second of these reporting units, both of which were recorded as an operating expense in the consolidated statements of operations and other comprehensive income (loss) in the three months ended December 31, 2019. For the other two reporting units for which the income approach was used, the Company had just acquired one reporting unit (Ecomdash) in the three months ended September 30, 2019, and was in the process of disposing of the other reporting unit (SinglePlatform) through a sale in December 2019.
Goodwill as of December 31, 2019 was $1,835.3 million. The carrying value of goodwill that was allocated to the web presence and digital marketing segments was approximately $1,231.9 million and $603.4 million, respectively. The fair value of all but three reporting units with goodwill at December 31, 2019 exceeded each reporting unit's carrying value by at least 20%.
Of the other three reporting units with less than 20% excess of fair value over carrying value, one reporting unit is forecast to experience continuing negative growth in both revenue and cash flows. Given this fact pattern, the Company relied upon the income approach in order to quantify the impact of persistent negative growth expectations and to develop a fair value for this reporting unit. The goodwill allocated to this reporting unit as of December 31, 2019 was $52.0 million. The Company expects that cash flows for this unit will continue to decline, which could result in goodwill impairment charges for this reporting unit at some point in the future.
The second reporting unit with less than a 20% excess of fair value over carrying value was acquired in September 2019. Based on the short duration between the acquisition date and the testing date, and lacking indications of specific events that either positively or negatively impacted the carrying value, fair value on this reporting unit approximated the allocated goodwill. Goodwill for this reporting unit as of December 31, 2019 was approximately $7.0 million.
The third reporting unit represents a combination of different hosting brands, which the Company will continue to monitor in the future. Though near term cash flows are projected to decline for this unit, growth in the cash flows is expected to return after further investments in engineering and development and sales and marketing are made. This reporting unit's fair value was established using three valuation methods, equally weighted. As the reporting unit passed the goodwill impairment test with equal weight given to the three approaches, the Company did not adjust the weight given to the three valuation approaches. As of December 31, 2019, the fair value of this reporting unit, as estimated based upon its future projections, exceeded its carrying value by less than 4%. In the event the Company's investments in engineering and development and sales and marketing do not generate the anticipated improvement in future operating performance for this unit, then future impairments may be recognized for this reporting unit. Goodwill for this reporting unit as of December 31, 2019 was approximately $1.2 billion.
Because of the deterioration of economic conditions as a result of the COVID-19 pandemic, the Company reassessed its annual goodwill impairment test as of September 30, 2020. The Company performed a qualitative analysis, noting that the Company’s operating performance, both current and future based on updated projections, is in line with the projections used for the 2019 annual impairment test. The Company also noted that its market capitalization continues to exceed the book value of the stockholders’ equity. Based on the Company’s analysis, the Company has concluded that an impairment event has not been triggered, and as such, no impairment has been recorded.
Goodwill as of September 30, 2020 was $1,852.8 million. The carrying value of goodwill that was allocated to the web presence and digital marketing reporting segments was approximately $1,232.2 million and $620.6 million, respectively. For the three and nine months ended September 30, 2020, as noted above, no impairment triggering events were identified and no impairment has been recorded.
Long-Lived Assets
The Company’s long-lived assets consist primarily of intangible assets, including acquired subscriber relationships, trade names, intellectual property, developed technology and domain names available for sale. The Company also has long-lived tangible assets, primarily consisting of property and equipment. The majority of the Company’s intangible assets are recorded in connection with its various acquisitions. The Company’s intangible assets are recorded at fair value at the time of their acquisition. The Company amortizes intangible assets over their estimated useful lives.
Determination of the estimated useful lives of the individual categories of intangible assets is based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with finite lives other than developed technology is recognized in accordance with their estimated projected cash flows.
The Company evaluates long-lived intangible and tangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment are present and undiscounted future cash flows are less than the carrying amount, the fair value of the assets is determined and compared to the carrying value. If the fair value is less than the carrying value, then the carrying value of the asset is reduced to the estimated fair value and an impairment loss is charged to expense in the period the impairment is identified.
Indefinite life intangible assets include domain names that are available for sale which are recorded at the cost to acquire. These assets are not being amortized and are being tested for impairment annually and whenever events or changes in circumstance indicate that their carrying value may not be recoverable. When a domain name is sold, the Company records the cost of the domain in cost of revenue.
During the three and nine months ended September 30, 2019, the Company recognized an impairment charge of $0.0 million and $17.9 million, respectively, relating primarily to premium domain name intangible assets acquired in 2014, which was recorded in cost of revenue in the consolidated statements of operations and comprehensive income (loss). The impairment resulted from market conditions that adversely impacted cash flows from these assets, and these market conditions are expected to continue. The Company valued its premium domain name assets based on a discounted projected cash flows from these assets using a discount rate of 11.6%, which resulted in an impairment of $16.2 million. The balance of the impairment charge was primarily related to developed technology intangible assets associated with the premium domain business which were valued using a relief from royalty approach. During the three and nine months ended September 30, 2020, the Company recorded no impairment charge associated with these intangible assets.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASC 606, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. Since then, the FASB has also issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations, ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing, and ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments, which further elaborate on the original ASU No. 2014-09. The Company adopted the guidance in ASC 606 on January 1, 2018. Revenue is recognized when control of the promised products or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to for those products and services. In general, the Company determines revenue recognition through the following steps:
•Identification of the contract, or contracts, with the customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, the Company satisfies a performance obligation
The Company provides cloud-based subscription services, which include web hosting and related add-ons, search engine optimization ("SEO") services, domain registration services and email marketing.
Web hosting gives customers access to an environment where the Company hosts a customer’s website. The related contract terms are generally for one year, but can range from 30 days to three years. Web hosting services are typically sold in bundled offerings that include web hosting, domain registration services and various add-ons. The Company recognizes revenue for web hosting and domain registration services over the term of the contract.
The main add-on services related to web hosting are domain privacy, website security, secure sockets layer security, site backup and restoration, and web builder tools. These services may be included in web hosting bundles, or they may be purchased on a standalone basis. Certain add-on services are provided by third parties. In cases where the Company is acting as an agent for the sale of third-party add-on services, the Company recognizes revenue on a net basis at the time of sale. In cases where the Company is acting as a principal for the sale of third-party add-on services (i.e., the Company has the primary responsibility to provide specific goods or services, it has discretion to establish prices and it may assume inventory risk), the Company recognizes revenue on a gross basis over the term of the contract. The revenue for Company-provided add-on services is primarily recognized over the term of the contract.
SEO services are monthly subscriptions that provide a customer with increased traffic to their website over the term of the subscription. Revenue from SEO services is recognized over the monthly term of the contract.
In the case of domain registration services, the Company is an accredited registrar and can provide registration services to the customer, or it can select an accredited third-party registrar to perform these duties. Domain registration services are generally annual subscriptions, but can cover multiple years. Revenue for these services is recognized over the life of the subscription.
Email marketing services provide customers with a cloud-based platform that can send broadcast emails to a contact list managed by the customer. Pricing is based on contact list volume from the prior monthly period, which determines the contractual billing price for the upcoming month. Revenue for this service is recognized over the monthly term of the contract.
Inventory management and marketplace listing services provide customers with a cloud-based platform that integrates standard inventory management features with order management and shipping management capabilities across multiple channels. Pricing is primarily based on order volume from the prior monthly period. For inventory management customers who subscribe to an annual plan, revenue is recognized ratably over the term of the contract. Inventory management professional services are also provided to customers on demand, and are recognized into revenue upon completion.
Retention Science provides customers with an artificial intelligence customer data platform and email marketing automation solutions. Pricing is primarily based on volume and the level of customization of the solution provided to the customer. Revenue, including revenue from professional services, is recognized ratably over the term of the contract, while overages are recognized one month in arrears.
Non-subscription-based services include certain professional services, primarily website design or re-design services, marketing development fund ("MDF") revenue, premium domain names and domain parking services.
Website design and re-design services are recognized when the service is complete.
Marketing development funds consist of commissions earned by the Company when a third party sells its products or services directly to the Company’s customers, and advertising revenue for third-party ads placed on Company websites. The Company records revenue when the service is provided and calculates it based on the contractual revenue share arrangement or over the term of the advertisement.
Domain parking allows the Company to monetize certain of its premium domain names by loaning them to specialized third parties that generate advertising revenue from these parked domains on a pay-per-click basis. Revenue is recognized when earned and calculated based on the revenue share arrangement with the third party.
Revenue from the sale of premium domains is recognized when persuasive evidence of an arrangement to sell such domains exists and delivery of an authorization key to access the domain name has occurred. Premium domain names are paid for in advance prior to the delivery of the domain name.
The contracts that the Company enters into typically do not contain any variable or non-cash consideration.
The Company maintains a reserve for refunds and chargebacks related to revenue that has been recognized and is expected to be refunded, as calculated based on observed historical trends. The Company had a refund and chargeback reserve of $0.3 million and $0.4 million as of December 31, 2019 and September 30, 2020, respectively. The portion of deferred revenue that was expected to be refunded at December 31, 2019 and September 30, 2020 was $1.9 million and $1.9 million, respectively. Based on refund history, approximately 84% of all refunds happen in the same fiscal month that the contract starts or renews, and approximately 95% of all refunds happen within 45 days of the contract start or renewal date.
The Company did not apply any practical expedients during its adoption of ASC 606. The Company elected to use the portfolio method in the calculation of the deferred contract assets.
Contracts with Multiple Performance Obligations
A considerable amount of the Company’s revenue is generated from transactions that are contracts with customers that may include web hosting plans, domain name registrations, and other cloud-based products and services. In these cases, the Company determines whether the products and services are distinct performance obligations that should be accounted for separately versus together. The Company allocates revenue to each performance obligation based on its relative standalone selling price ("SSP"), generally based on the price charged to customers. Web hosting services, domain name registrations, and other cloud-based products and services have distinct performance obligations and are often sold separately. If the promise is not distinct and therefore not a performance obligation, then the total transaction amount is allocated to the identified performance obligation based on a relative selling price hierarchy. When multiple performance obligations are included in a contract, the total transaction amount for the contract is allocated to the performance obligations based on a relative selling price hierarchy. The Company determines the relative selling price for a performance obligation based on SSP. The Company determines SSP by considering its observed SSPs, competitive prices in the marketplace and management judgment; these SSPs may vary depending upon the particular facts and circumstances related to each deliverable. The Company analyzes the SSPs used in its allocation of transaction amount, at a minimum, on a quarterly basis.
Deferred Revenue
The Company records deferred revenue when cash payments are received or are due in advance of the Company’s performance, including amounts that are refundable.
The following table provides a reconciliation of the Company's deferred revenue as of September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
Long-term
|
|
|
(unaudited, in thousands)
|
|
Balance at December 31, 2019
|
$
|
369,475
|
|
|
$
|
99,652
|
|
|
Recognition of beginning deferred revenue into revenue, as a result of performance obligations satisfied
|
(319,426)
|
|
|
—
|
|
|
Cash received in advance during the period
|
647,984
|
|
|
204,186
|
|
|
Recognition of cash received in the period into revenue, as a result of performance obligations satisfied
|
(505,181)
|
|
|
—
|
|
|
Increase to deferred revenue due to acquisition of Retention Science
|
404
|
|
|
—
|
|
|
Impact of foreign exchange rates
|
(3,176)
|
|
|
—
|
|
|
Reclassification between short-term and long-term
|
198,420
|
|
|
(198,420)
|
|
|
Balance at September 30, 2020
|
$
|
388,500
|
|
|
$
|
105,418
|
|
The difference between the opening and closing balances of the Company’s deferred revenue liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the nine months ended September 30, 2020, the Company recognized $319.4 million from beginning deferred revenue current balances existing at December 31, 2019, and $0.0 million from beginning period long-term balances existing at December 31, 2019. The Company did not recognize any revenue from performance obligations satisfied in prior periods.
The following table provides the remaining performance obligation amounts as of September 30, 2020. These amounts are equivalent to the ending deferred revenue balance of $493.9 million, which includes both short and long-term amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
Remaining performance obligation, short-term
|
$
|
332,020
|
|
|
$
|
56,480
|
|
|
$
|
388,500
|
|
|
Remaining performance obligation, long-term
|
105,412
|
|
|
6
|
|
|
105,418
|
|
|
Total
|
$
|
437,432
|
|
|
$
|
56,486
|
|
|
$
|
493,918
|
|
|
|
|
|
|
|
|
This backlog of revenue related to future performance obligations is prepaid by customers and supported by executed contracts with customers. The Company has established a reserve of $0.4 million for refunds and chargebacks, 95% of which is expected to materialize in the first 45 days after the contract start date or renewal date. The remainder of the deferred revenue is expected to be recognized in future periods.
Deferred Customer Acquisition Costs
As a result of the implementation of ASC 606, the Company capitalizes the incremental costs directly related to obtaining and fulfilling a contract (such as sales commissions and certain direct sales and marketing success-based costs), if these costs are expected to be recovered. These costs are amortized over the period the services are transferred to the customer, which is estimated based on customer churn rates for various segments of the business. The Company includes only those incremental costs that would not have been incurred if the contracts had not been entered into:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
Long-term
|
|
|
(unaudited, in thousands)
|
|
Balance at December 31, 2019
|
$
|
38,435
|
|
|
$
|
48,780
|
|
|
Deferred customer acquisition costs incurred in the period
|
20,197
|
|
|
35,191
|
|
|
Amounts recognized as expense in the period
|
(39,606)
|
|
|
—
|
|
|
Impact of foreign exchange rates
|
(163)
|
|
|
87
|
|
|
Adjustment resulting from sale of SinglePlatform business
|
—
|
|
|
(15)
|
|
|
Reclassification between short-term and long-term
|
23,179
|
|
|
(23,179)
|
|
|
Balance at September 30, 2020
|
$
|
42,042
|
|
|
$
|
60,864
|
|
As of September 30, 2020, the Company had a total of approximately $90.8 million and $12.1 million in deferred assets relating to costs incurred to obtain or fulfill contracts in its web presence and digital marketing segments, respectively. These deferred assets consist entirely of recoverable, specific, success-based sales commissions. During the nine months ended September 30, 2020, the Company recognized total amortization costs related to the above items of approximately $35.1
million and $4.5 million in its web presence and digital marketing segments, respectively, which were included in sales and marketing in the consolidated statements of operations and comprehensive income (loss).
Significant Judgments
The Company sells a number of third-party cloud-based services to enhance a customer’s overall web hosting experience. The Company exercises considerable judgment to determine if it is the principal or agent in each of these arrangements, and in some instances, has concluded that it is an agent of the third party and recognizes revenue at the time of the customer purchase in an amount that is net of the revenue share payable to the third party.
The Company exercises judgment to determine the SSP for each distinct performance obligation. In instances where the SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include a competitive market assessment approach and other observable inputs. The Company typically has more than one SSP for individual products and services.
Judgment is required to determine whether particular types of sales and marketing costs incurred, including commissions, are incremental and recoverable costs incurred to obtain and fulfill the customer contract. In addition, judgment is required to determine the life of the customer over which deferred customer acquisition costs are amortized.
Income Taxes
Income taxes are accounted for in accordance with FASB ASC 740, Accounting for Income Taxes ("ASC 740"). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the Company expects the differences to reverse. The Company reduces the deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that the Company will not realize some portion or all of the deferred tax assets. The Company considers relevant evidence, both positive and negative, to determine the need for a valuation allowance.
The Company establishes reserves when it believes that certain positions are likely to be challenged despite the Company’s assertion that its tax return positions are fully supportable. The calculation of the Company’s tax liabilities involves significant judgment based on individual facts, circumstances, and information available in addition to applying complex tax regulations in various jurisdictions.
Under U.S. GAAP, in order to recognize an uncertain tax benefit, the taxpayer must determine it is more likely than not the position will be sustained, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. Although the Company believes that it has adequately provided for liabilities resulting from tax assessment by taxing authorities, positions taken by these tax authorities could have an impact on the Company’s results of operations, financial position and/or cash flows. The Company recognizes the interest and penalties related to income taxes as a part of interest expense and operating expenses, respectively, in continuing operations in its consolidated statements of operations and comprehensive income (loss).
ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is more likely than not to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Stock-Based Compensation
The Company may issue restricted stock units, restricted stock awards and stock options which vest upon the satisfaction of a performance condition and/or a service condition. The Company follows the provisions of FASB ASC 718, Compensation—Stock Compensation, which requires employee stock-based payments to be accounted for under the fair value method. Under this method, the Company is required to record compensation cost based on the estimated fair value for stock-based awards granted over the requisite service periods for the individual awards, which generally equals the vesting periods, net of estimated forfeitures. The Company uses the straight-line amortization method for recognizing stock-based compensation expense. In addition, for stock-based awards where vesting is dependent upon achieving certain performance goals, the Company estimates the likelihood of achieving the performance goals against established performance targets.
The Company estimates the fair value of employee stock options on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective estimates and assumptions. For restricted stock awards and restricted stock units granted, the Company estimates the fair value of each restricted stock award or restricted stock unit based on the closing trading price of its common stock on the date of grant.
Treasury Stock
Treasury stock is accounted for at cost. Shares repurchased by the Company are held in treasury for general corporate purposes, including issuances under equity incentive and benefit plans. The reissuance of shares from treasury stock is based on the weighted-average purchase price of the shares.
Net Income (Loss) per Share
The Company considered FASB ASC 260-10, Earnings per Share, which requires the presentation of both basic and diluted earnings per share in the consolidated statements of operations and comprehensive income (loss). The Company’s basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period, and, if there are dilutive securities, diluted income (loss) per share is computed by including common stock equivalents which includes shares issuable upon the exercise of stock options, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
|
(unaudited)
(in thousands, except share amounts and per share data)
|
|
Net income (loss)
|
$
|
7,816
|
|
|
$
|
6,674
|
|
|
$
|
(21,900)
|
|
|
$
|
9,028
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
(0.15)
|
|
|
$
|
0.06
|
|
|
Diluted
|
$
|
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
|
|
The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted income (loss) per share because the effect of including such potentially dilutive shares would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
|
(unaudited)
|
|
Restricted stock awards and units
|
9,310,082
|
|
|
10,222,093
|
|
|
3,977,996
|
|
|
12,196,533
|
|
|
Options
|
9,001,646
|
|
|
5,437,994
|
|
|
8,931,747
|
|
|
5,590,983
|
|
|
Total
|
18,311,728
|
|
|
15,660,087
|
|
|
12,909,743
|
|
|
17,787,516
|
|
Recent Accounting Pronouncements - Recently Adopted
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The new guidance provides for the deferral of implementation costs for cloud computing arrangements and expensing those costs over the term of the cloud services arrangement. The new guidance is effective for fiscal years beginning after December 15, 2019. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements - Recently Issued
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which amends existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of U.S. GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. The Company does not expect that the adoption of this new guidance will have a material impact on its consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic
321, Topic 323 and Topic 815. This ASU clarifies the interaction among the accounting standards for equity securities, equity method and certain derivatives. Specifically, the ASU clarifies that when applying the measurement alternative in ASC 321, Investments - Equity Securities, for instruments that do not have readily determinable fair values, an entity is required to consider observable transactions that result in applying (or discontinuing) the equity method. The ASU also clarifies that when assessing whether certain forward contracts and purchased options are in the scope of Subtopic 815-10, Certain Contracts on Debt and Equity Securities, entities should not assess whether the underlying securities upon settlement of the forward or exercise of the option would be accounted for under the equity method in ASC 323, Investments - Equity Method and Joint Ventures, or the fair value option in ASC 825, Financial Instruments. The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods therein. Early adoption is permitted, including in interim periods for which financial statements have not been issued or made available for issuance. The Company does not expect that the adoption of this new guidance will have a material impact on its consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions in which the reference LIBOR or another reference rate is expected to be discontinued as a result of the Reference Rate Reform. This ASU is intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The new guidance is effective from the beginning of an interim period that includes March 12, 2020, and through December 31, 2022. The Company is currently evaluating the timing of adoption and the expected impact of the new guidance.
In October 2020, the FASB issued ASU No. 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762, which provides for omission of financial statements with respect to guaranteed securities, if certain criteria are met. The new guidance is effective January 4, 2021. The Company is currently evaluating the timing of adoption of the new guidance.
3. Acquisitions/ Divestitures
The Company accounts for the acquisitions of businesses using the purchase method of accounting. The Company allocates the purchase price to the tangible and identifiable intangible assets and liabilities assumed based on their estimated fair values. Purchased identifiable intangible assets typically include subscriber relationships, trade names, domain names held for sale, developed technology and in-process research and development. The methodologies used to determine the fair value assigned to subscriber relationships and domain names held for sale are typically based on the excess earnings method that considers the return received from the intangible asset and includes certain expenses and also considers an attrition rate based on the Company’s internal subscriber analysis and an estimate of the average life of the subscribers. The fair value assigned to trade names is typically based on the income approach using a relief from royalty methodology that assumes that the fair value of a trade name can be measured by estimating the cost of licensing and paying a royalty fee for the trade name that the owner of the trade name avoids. The fair value assigned to developed technology typically uses the cost approach. If applicable, the Company estimates the fair value of contingent consideration payments in determining the purchase price. The contingent consideration is then adjusted to fair value in subsequent periods as an increase or decrease in current earnings in general and administrative expense in the consolidated statements of operations and comprehensive income (loss).
Acquisitions - 2020
Retention Science
On August 7, 2020, the Company acquired Retention Science. Retention Science is a provider of artificial intelligence ("AI") driven e-commerce email marketing services. The Company acquired 100% of the equity interest in Retention Science for a maximum potential purchase price of $35.0 million, consisting of approximately $17.5 million paid in cash upon closing, and up to $17.5 million to be paid in a combination of deferred consideration and contingent earn-outs over the next three years. As at August 7, 2020, the fair value of the deferred consideration and the contingent earn-outs was $13.8 million, which consisted of $8.0 million of deferred consideration, and $5.8 million of contingent earn-out consideration. The deferred consideration is made up of two installment payments that will be paid out over two years. The contingent earn-out consideration is based on the successful achievement of product milestones and specific revenue performance, and is payable in multiple installments over the course of 36 months post-closing. Transaction costs were expensed as incurred and amounted to $0.5 million. The Company has accounted for this transaction as a business combination in accordance with the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. The following table summarizes the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
|
|
|
|
August 7, 2020
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Working capital
|
$
|
390
|
|
|
Deferred revenue
|
(404)
|
|
|
Deferred tax liability
|
(814)
|
|
|
Goodwill
|
17,208
|
|
|
Developed technology
|
13,400
|
|
|
Subscriber relationships
|
1,950
|
|
|
Total
|
$
|
31,730
|
|
Goodwill related to the acquisition is not deductible for tax purposes.
The Company has not furnished pro forma financial information or the results of operations of Retention Science for the post-acquisition period, as the acquisition was not material, individually or in the aggregate, to the Company's consolidated financial statements.
Acquisitions - 2019
Ecomdash
On September 13, 2019, the Company acquired substantially all of the assets of LTD Software LLC, doing business as Ecomdash (“Ecomdash”), which is a software provider that offers inventory management and marketplace listing solutions for small and mid-sized businesses selling online. The aggregate purchase price was $9.6 million, of which approximately $8.9 million was paid in cash at the closing. The Company retained the remainder of the purchase price as a holdback to fund any working capital adjustment, if applicable, and to serve as security for the indemnification obligations of the seller under the asset purchase agreement. Subject to any indemnification claims, the Company would release the holdback funds, less a small working capital adjustment, to the seller, 12 months from the closing date. As of September 30, 2020, an indemnification claim is in process, and therefore the holdback has not been released to the seller. Transaction costs were expensed as incurred. The Company has accounted for this transaction as a business combination in accordance with the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. The following table summarizes the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
|
|
|
|
September 13, 2019
|
|
|
(in thousands)
|
|
Working capital
|
$
|
(187)
|
|
|
Goodwill
|
6,973
|
|
|
Developed technology
|
2,445
|
|
|
Subscriber relationships
|
390
|
|
|
Total
|
$
|
9,621
|
|
Goodwill related to the acquisition is deductible for tax purposes.
Summary of Deferred Consideration Related to Acquisitions
Components of short-term and long-term deferred consideration, including contingent earn-out consideration, as of December 31, 2019 and September 30, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
September 30, 2020
|
|
|
Short-term
|
Long-term
|
|
Short-term
|
Long-term
|
|
|
(in thousands)
|
|
AppMachine deferred consideration (acquired in 2016)
|
$
|
1,455
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
Ecomdash deferred consideration (acquired in 2019)
|
746
|
|
—
|
|
|
746
|
|
—
|
|
|
Retention Science deferred consideration (acquired in 2020)
|
—
|
|
—
|
|
|
4,661
|
|
3,437
|
|
|
Retention Science contingent earn-out consideration (acquired in 2020)
|
—
|
|
—
|
|
|
2,383
|
|
3,650
|
|
|
Total
|
$
|
2,201
|
|
$
|
—
|
|
|
$
|
7,790
|
|
$
|
7,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures - 2019
SinglePlatform
On December 5, 2019, the Company completed the sale of substantially all of its SinglePlatform digital storefront business, including all of the membership interests of its subsidiary SinglePlatform, LLC, to TripAdvisor LLC for consideration of approximately $51.0 million in cash. The Company recognized a pre-tax gain on the sale of $40.7 million during the three months ended December 31, 2019, which was recorded as an operating expense in the consolidated statements of operations and other comprehensive income (loss). SinglePlatform contributed $6.8 million and $20.6 million in revenue in the three and nine months ended September 30, 2019.
4. Property, Plant and Equipment
Components of property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
September 30, 2020
|
|
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Land
|
$
|
790
|
|
|
$
|
790
|
|
|
Building
|
8,285
|
|
|
8,308
|
|
|
Software
|
109,546
|
|
|
128,028
|
|
|
Computers and office equipment
|
187,056
|
|
|
205,380
|
|
|
Furniture and fixtures
|
18,918
|
|
|
18,566
|
|
|
Leasehold improvements
|
20,469
|
|
|
20,643
|
|
|
Construction in process
|
5,850
|
|
|
5,732
|
|
|
Property and equipment—at cost
|
350,914
|
|
|
387,447
|
|
|
Less: accumulated depreciation
|
(264,989)
|
|
|
(299,098)
|
|
|
Property and equipment—net
|
$
|
85,925
|
|
|
$
|
88,349
|
|
Depreciation expense related to property and equipment for the three months ended September 30, 2019 and 2020 was $11.3 million and $12.8 million, respectively. Depreciation expense related to property and equipment for the nine months ended September 30, 2019 and 2020 was $33.4 million and $38.3 million, respectively.
Financed equipment with a cost basis of $24.4 million was included in software as of September 30, 2020. The net carrying value of financed equipment as of September 30, 2020 was $3.7 million.
5. Leases
The Company has operating leases for data centers, corporate offices, data center equipment, and office equipment. The Company's leases have remaining lease terms of less than 1 year to 6.3 years, some of which include options to extend.
The Company's lease expense consisted entirely of operating leases and amounted to $6.9 million and $21.5 million for the three and nine months ended September 30, 2019, respectively, and $6.6 million and $20.3 million for the three and nine months ended September 30, 2020, respectively. Operating lease payments, which reduced operating cash flows, amounted to $6.7 million and $20.6 million for the three and nine months ended September 30, 2019, respectively, and $6.0 million and $18.4 million for the three and nine months ended September 30, 2020, respectively.
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
September 30, 2020
|
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Operating lease right-of-use assets
|
$
|
90,519
|
|
$
|
83,224
|
|
|
|
|
|
|
Operating lease liabilities—short term
|
$
|
21,193
|
|
$
|
18,090
|
|
|
Operating lease liabilities—long term
|
78,151
|
|
74,461
|
|
|
Total operating lease liabilities
|
$
|
99,344
|
|
$
|
92,551
|
|
As of September 30, 2020, the weighted-average remaining lease term was 4.97 years and the discount rate for the Company's leases was 6.84%.
Maturities for leases were as follows:
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Remainder of 2020
|
$
|
6,365
|
|
|
2021
|
22,749
|
|
|
2022
|
21,153
|
|
|
2023
|
19,938
|
|
|
2024
|
16,203
|
|
|
Thereafter
|
23,210
|
|
|
Total lease payments
|
$
|
109,618
|
|
|
Less: imputed interest
|
17,067
|
|
|
Total
|
$
|
92,551
|
|
6. Fair Value Measurements
The following valuation hierarchy is used for disclosure of the valuation inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
•Level 2 inputs are quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument
•Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
As of December 31, 2019 and September 30, 2020, the Company’s financial assets required to be measured on a recurring basis consisted of the 2018 interest rate cap and certain cash equivalents, which included money market instruments and bank time deposits. The Company has classified the interest rate caps, which are discussed in Note 7, Derivatives and Hedging Activities, below, within Level 2 of the fair value hierarchy. The Company has also classified these cash equivalents within Level 2 of the fair value hierarchy. The 2015 interest rate cap matured during the three months ended March 31, 2019.
As of December 31, 2019, the Company had no financial liabilities required to be measured on a recurring basis. As of September 30, 2020, the Company's financial liabilities required to be measured on a recurring basis consisted of accrued earn-out consideration payable in connection with the 2020 acquisition of Retention Science. The Company has classified its liabilities for contingent earn-out consideration related to the Retention Science acquisition within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which included probability weighted cash
flows. The earn-out consideration in the table below is included in total deferred consideration in the Company's consolidated balance sheets.
Basis of Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
Quoted Prices
in Active Markets
for Identical Items
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(in thousands)
|
|
Balance at December 31, 2019
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Cash equivalents (included in cash and cash equivalents)
|
$
|
2,834
|
|
|
$
|
—
|
|
|
$
|
2,834
|
|
|
$
|
—
|
|
|
Interest rate cap (included in other assets)
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
Total financial assets
|
$
|
2,840
|
|
|
$
|
—
|
|
|
$
|
2,840
|
|
|
$
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Contingent earn-out consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total financial liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
(unaudited)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Cash equivalents (included in cash and cash equivalents)
|
$
|
18,020
|
|
|
$
|
—
|
|
|
$
|
18,020
|
|
|
$
|
—
|
|
|
Interest rate cap (included in other assets)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total financial assets
|
$
|
18,020
|
|
|
$
|
—
|
|
|
$
|
18,020
|
|
|
$
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Contingent earn-out consideration
|
$
|
6,033
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,033
|
|
|
Total financial liabilities
|
$
|
6,033
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,033
|
|
The following table summarizes the changes in the financial liabilities measured on a recurring basis using Level 3 inputs as of September 30, 2020:
|
|
|
|
|
|
|
|
|
Amount
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Financial liabilities measured using Level 3 inputs at December 31, 2019
|
$
|
—
|
|
|
Establishment of contingent earn-out at fair value arising from the acquisition of Retention Science
|
5,800
|
|
|
Change in fair value of contingent earn-outs
|
233
|
|
|
Financial liabilities measured using Level 3 inputs at September 30, 2020
|
$
|
6,033
|
|
The carrying amounts of the Company's other financial assets and liabilities including cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization or settlement.
7. Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the
Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company has entered into two three-year interest rate caps as part of its risk management strategy, of which the first one matured in the three months ended March 31, 2019. The interest rate caps, designated as cash flow hedges of interest rate risk, provide for the payment to the Company of variable amounts if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Therefore, these derivatives limit the Company’s exposure if the interest rate rises, but also allow the Company to benefit when the interest rate falls.
In December 2015, the Company entered into a three-year interest rate cap with $500.0 million notional value outstanding. This interest rate cap was effective beginning on February 29, 2016 and matured on February 27, 2019.
In June 2018, the Company entered into a three-year interest rate cap with $800.0 million notional value outstanding. This interest rate cap was effective beginning on August 28, 2018. The fair value of this interest rate contract included in other assets on the consolidated balance sheet as of September 30, 2020 was $0.0 million, and the Company recognized $0.4 million and $1.3 million of interest expense in the Company’s consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020, respectively. The Company recognized a $1.3 million gain, net of a tax expense of $0.3 million, in Accumulated Other Comprehensive Income ("AOCI") for the nine months ended September 30, 2020. The Company estimates that $1.6 million will be reclassified from AOCI to interest expense (as an increase to interest expense) in the next twelve months.
The changes in the fair value of derivatives that qualify as cash flow hedges is recorded in AOCI, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.
8. Goodwill and Other Intangible Assets
The following table summarizes the changes in the Company’s goodwill balances from December 31, 2019 to September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(in thousands)
|
|
Goodwill balance at December 31, 2019
|
$
|
1,231,896
|
|
|
$
|
603,414
|
|
|
$
|
1,835,310
|
|
|
Goodwill related to 2020 acquisitions
|
—
|
|
|
17,208
|
|
|
17,208
|
|
|
Foreign translation impact
|
262
|
|
|
—
|
|
|
262
|
|
|
Goodwill balance at September 30, 2020
|
$
|
1,232,158
|
|
|
$
|
620,622
|
|
|
$
|
1,852,780
|
|
In accordance with ASC 350, Intangibles - Goodwill and Other, the Company reviews goodwill and other indefinite-lived intangible assets for indicators of impairment on an annual basis and between tests if an event occurs or circumstances change that would more likely than not reduce the fair value of goodwill below its carrying amount.
As of December 31, 2019, other intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Weighted-
Average
Useful Life
|
|
|
(dollars in thousands)
|
|
|
|
Developed technology
|
$
|
280,330
|
|
|
$
|
207,844
|
|
|
$
|
72,486
|
|
|
7 years
|
|
Subscriber relationships
|
659,837
|
|
|
529,276
|
|
|
130,561
|
|
|
7 years
|
|
Trade names
|
134,046
|
|
|
94,982
|
|
|
39,064
|
|
|
8 years
|
|
Intellectual property
|
34,263
|
|
|
31,372
|
|
|
2,891
|
|
|
5 years
|
|
Domain names available for sale
|
18,160
|
|
|
18,160
|
|
|
—
|
|
|
Indefinite
|
|
Total December 31, 2019
|
$
|
1,126,636
|
|
|
$
|
881,634
|
|
|
$
|
245,002
|
|
|
|
As of September 30, 2020, other intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Weighted-
Average
Useful Life
|
|
|
(unaudited, dollars in thousands)
|
|
|
|
Developed technology
|
$
|
293,874
|
|
|
$
|
230,196
|
|
|
$
|
63,678
|
|
|
8 years
|
|
Subscriber relationships
|
661,488
|
|
|
552,435
|
|
|
109,053
|
|
|
7 years
|
|
Trade names
|
134,036
|
|
|
101,153
|
|
|
32,883
|
|
|
8 years
|
|
Intellectual property
|
33,483
|
|
|
31,518
|
|
|
1,965
|
|
|
5 years
|
|
Domain names available for sale
|
18,160
|
|
|
18,160
|
|
|
—
|
|
|
Indefinite
|
|
Total September 30, 2020
|
$
|
1,141,041
|
|
|
$
|
933,462
|
|
|
$
|
207,579
|
|
|
|
During the nine months ended September 30, 2019, the Company recorded an impairment charge of $17.9 million relating to premium domain name intangible assets acquired in 2014, which was recorded in cost of revenue in the consolidated statement of operations and comprehensive income (loss). During the nine months ended September 30, 2020, there were no impairment charges of intangible assets.
During the nine months ended September 30, 2020, the Company sold certain intellectual property assets for net proceeds of $2.7 million and a gain of $2.4 million, which was recorded as a gain on sale of intangible assets in the consolidated statements of operations and comprehensive income (loss).
The estimated useful lives of the individual categories of other intangible assets are based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with finite lives is recognized over the period of time the assets are expected to contribute to future cash flows. The Company amortizes finite-lived intangible assets over the period in which the economic benefits are expected to be realized based upon their estimated projected cash flows.
The Company’s amortization expense is included in cost of revenue in the consolidated statements of operations and comprehensive income (loss) in the aggregate amounts of $21.7 million and $17.8 million for the three months ended September 30, 2019 and 2020, respectively. The Company’s amortization expense is included in cost of revenue in the consolidated statements of operations and comprehensive income (loss) in the aggregate amounts of $64.1 million and $52.4 million for the nine months ended September 30, 2019 and 2020, respectively.
9. Notes Payable
As of December 31, 2019 and September 30, 2020, notes payable, net of original issue discounts and deferred financing costs, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
September 30, 2020
|
|
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Term Loan
|
$
|
1,347,056
|
|
|
$
|
1,329,531
|
|
|
Notes
|
334,417
|
|
|
325,246
|
|
|
Revolving credit facilities
|
—
|
|
|
—
|
|
|
Total notes payable
|
1,681,473
|
|
|
1,654,777
|
|
|
Current portion of notes payable
|
31,606
|
|
|
31,606
|
|
|
Notes payable - long term
|
$
|
1,649,867
|
|
|
$
|
1,623,171
|
|
First Lien Term Loan Facility
The First Lien Term Loan (the "Term Loan") was issued at par and automatically bears interest at an alternate base rate unless the Company gives notice to opt for the LIBOR-based interest rate. The LIBOR-based interest rate for the Term Loan is 3.75% per annum plus the greater of an adjusted LIBOR and 1.00%. The alternate base rate for the Term Loan is 2.75% per annum plus the greatest of the prime rate, the federal funds effective rate plus 0.50%, an adjusted LIBOR for a one-month interest period plus 1.00%, and 2.00%.
The Term Loan has a maturity date of February 9, 2023 and requires quarterly mandatory repayments of principal. During the nine months ended September 30, 2020, the Company made three mandatory repayments of $7.9 million each, for a total mandatory repayment of $23.7 million.
Interest is payable on maturity of the elected interest period for a term loan with a LIBOR-based interest rate, which interest period can be one, two, three or six months. Interest is payable at the end of each fiscal quarter for a term loan with an alternate base rate.
As of December 31, 2019 and September 30, 2020, the Term Loan had an outstanding balance of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
September 30, 2020
|
|
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Term Loan
|
$
|
1,374,022
|
|
|
$
|
1,350,318
|
|
|
Unamortized deferred financing costs
|
(14,331)
|
|
|
(11,047)
|
|
|
Unamortized original issue discount
|
(12,635)
|
|
|
(9,740)
|
|
|
Net Term Loan
|
1,347,056
|
|
|
1,329,531
|
|
|
Current portion of Term Loan
|
31,606
|
|
|
31,606
|
|
|
Term Loan - long term
|
$
|
1,315,450
|
|
|
$
|
1,297,925
|
|
Revolving Credit Facility
The Company has a revolving credit facility (the “Revolver”), which has an aggregate available amount of $165.0 million. As of December 31, 2019 and September 30, 2020, the Company did not have any balances outstanding under the Revolver and the full amount of the facility was unused and available.
The Revolver consists of a non-extended tranche of approximately $58.8 million and an extended tranche of approximately $106.2 million. The non-extended tranche has a maturity date of February 9, 2021. The extended tranche has a maturity date of June 20, 2023, with a "springing" maturity date of November 10, 2022 if the Term Loan has not been repaid in full or otherwise extended to September 19, 2023 or later prior to November 10, 2022.
The Company has the ability to draw down against the Revolver using a LIBOR-based interest rate or an alternate base rate. The LIBOR-based interest rate for a non-extended revolving loan is 4.00% per annum (subject to a leverage-based step-down) and for an extended revolving loan is 3.25% per annum (subject to a leverage-based step-down), in each case plus an adjusted LIBOR for a selected interest period. The alternate base rate for a non-extended revolving loan is 3.00% per annum (subject to a leverage-based step-down) and for an extended revolving loan is 2.25% per annum (subject to a leverage-based step-down), in each case plus the greatest of the prime rate, the federal funds rate plus 0.50% and an adjusted LIBOR for a one-month interest period plus 1.00%. There is also a non-refundable commitment fee, equal to 0.50% per annum (subject to a leverage-based step-down) of the average daily unused principal amount of the Revolver, which is payable in arrears on the last day of each fiscal quarter. Interest is payable on maturity of the elected interest period for a revolver loan with a LIBOR-based interest rate, which interest period can be one, two, three or six months. Interest is payable at the end of each fiscal quarter for a revolver loan with an alternate base rate.
Senior Notes
In connection with the acquisition of Constant Contact, Inc. ("Constant Contact") in February 2016, EIG Investors issued $350.0 million aggregate principal amount of senior notes (the "Senior Notes") with a maturity date of February 1, 2024. The Senior Notes were issued at a price of 98.065% of par and bear interest at the rate of 10.875% per annum. The Senior Notes have been fully and unconditionally guaranteed, on a senior unsecured basis, by Holdings and its subsidiaries that guarantee the Term Loan and the Revolver (including Constant Contact and certain of its subsidiaries). The Company has the right to redeem all or a part of the Senior Notes at any time for a discount or premium which is based on the applicable redemption date. The Company may, at any time and from time to time, seek to retire or purchase its outstanding Senior Notes through cash purchases, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as the Company may determine, and will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
During the nine months ended September 30, 2020, the Company redeemed a total of $12.2 million of the Senior Notes in voluntary, privately negotiated transactions. The redemptions were made at an average price of 96.5%, for an immaterial net loss on redemption of $0.1 million after recording a charge of $0.5 million (included in interest expense) to write off original issue discounts and deferred financing costs relating to the redemptions.
As of December 31, 2019 and September 30, 2020, the Senior Notes had an outstanding balance of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
September 30, 2020
|
|
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Senior Notes
|
$
|
350,000
|
|
|
$
|
337,770
|
|
|
Unamortized deferred financing costs
|
(11,359)
|
|
|
(9,163)
|
|
|
Unamortized original issue discount
|
(4,224)
|
|
|
(3,361)
|
|
|
Net Senior Notes
|
334,417
|
|
|
325,246
|
|
|
Current portion of Senior Notes
|
—
|
|
|
—
|
|
|
Senior Notes - long term
|
$
|
334,417
|
|
|
$
|
325,246
|
|
Interest on the Senior Notes is payable twice a year, on August 1st and February 1st.
Maturity of Notes Payable
The maturity of the notes payable at September 30, 2020 is as follows:
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
(unaudited)
|
|
Amounts maturing in:
|
(in thousands)
|
|
Remainder of 2020
|
$
|
7,902
|
|
|
2021
|
31,606
|
|
|
2022
|
31,606
|
|
|
2023
|
1,279,204
|
|
|
2024
|
337,770
|
|
|
Thereafter
|
—
|
|
|
Total
|
$
|
1,688,088
|
|
Interest
The Company recorded $36.1 million and $30.0 million in interest expense for the three months ended September 30, 2019 and 2020, respectively, and $110.3 million and $93.9 million for the nine months ended September 30, 2019 and 2020, respectively.
The following table provides a summary of interest rates and interest expense for the three and nine months ended September 30, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Three Months Ended September 30, 2020
|
|
Nine Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2020
|
|
|
(unaudited)
|
|
|
(percentage per annum)
|
|
Interest rate—LIBOR
|
5.88%-6.27%
|
|
4.75%-4.75%
|
|
5.88%-6.44%
|
|
4.75%-5.67%
|
|
Interest rate—alternate base rate
|
*
|
|
*
|
|
*
|
|
*
|
|
Interest rate—Senior Notes
|
10.875
|
%
|
|
10.875
|
%
|
|
10.875
|
%
|
|
10.875
|
%
|
|
Non-refundable fee—unused facility
|
0.50
|
%
|
|
0.50
|
%
|
|
0.50
|
%
|
|
0.50
|
%
|
|
|
(in thousands)
|
|
Interest expense and service fees
|
$
|
32,965
|
|
|
$
|
26,332
|
|
|
$
|
101,072
|
|
|
$
|
83,704
|
|
|
Amortization of deferred financing fees
|
1,822
|
|
|
1,978
|
|
|
5,331
|
|
|
5,770
|
|
|
Amortization of original issue discounts
|
1,138
|
|
|
1,255
|
|
|
3,336
|
|
|
3,622
|
|
|
Amortization of net present value of deferred consideration
|
23
|
|
|
331
|
|
|
143
|
|
|
376
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
83
|
|
|
Other interest expense
|
109
|
|
|
63
|
|
|
426
|
|
|
324
|
|
|
Total interest expense
|
$
|
36,057
|
|
|
$
|
29,959
|
|
|
$
|
110,308
|
|
|
$
|
93,879
|
|
* The Company did not have debt-bearing interest based on the alternate base rate for the three and nine months ended September 30, 2019 and 2020.
Debt Covenants
The Term Loan and Revolver (together, the "Senior Credit Facilities") require that the Company complies with a financial covenant to maintain a maximum ratio of consolidated senior secured net indebtedness to an adjusted consolidated EBITDA measure.
The Senior Credit Facilities also contain covenants that limit the Company's ability to, among other things, incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of capital stock; make other restricted payments; make certain investments; sell or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; and enter into certain transactions with affiliates. These covenants are subject to a number of important limitations and exceptions.
Additionally, the Senior Credit Facilities require the Company to comply with certain negative covenants and specify certain events of default that could result in amounts becoming payable, in whole or in part, prior to their maturity dates.
With the exception of certain equity interests and other excluded assets under the terms of the Senior Credit Facilities, substantially all of the Company's assets are pledged as collateral for the obligations under the Senior Credit Facilities.
The indenture with respect to the Senior Notes contains covenants that limit the Company's ability to, among other things, incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of capital stock; make other restricted payments; make certain investments; sell or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; and enter into certain transactions with affiliates. Upon a change of control as defined in the indenture, the Company must offer to repurchase the Senior Notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, up to, but not including, the repurchase date. These covenants are subject to a number of important limitations and exceptions.
The indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately.
The Company was in compliance with all covenants at September 30, 2020.
10. Stock-Based Compensation
The Company has two stock incentive plans, as described below.
2013 Stock Incentive Plan
The Amended and Restated 2013 Stock Incentive Plan (the “2013 Plan”) of the Company became effective upon the closing of its initial public offering. The 2013 Plan provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to employees, officers, directors, consultants and advisers of the Company. Under the 2013 Plan, the Company may issue up to 38,000,000 shares of the Company’s common stock. At September 30, 2020, there were 3,267,619 shares available for grant under the 2013 Plan.
2011 Stock Incentive Plan
As of February 9, 2016, the effective date of the acquisition of Constant Contact, the Company assumed and converted certain outstanding equity awards granted by Constant Contact under the Constant Contact 2011 Stock Incentive Plan (the “2011 Plan”) prior to the effective date of the acquisition (the “Assumed Awards”) into corresponding equity awards with respect to shares of the Company’s common stock. In addition, the Company assumed certain shares of Constant Contact common stock, par value $0.01 per share, available for issuance under the 2011 Plan (the “Available Shares”), which will be available for future issuance under the 2011 Plan in satisfaction of the vesting, exercise or other settlement of options and other equity awards that may be granted by the Company following the effective date of the acquisition of Constant Contact in reliance on the prior approval of the 2011 Plan by the stockholders of Constant Contact. The Assumed Awards were converted into 2,143,987 stock options and 2,202,846 restricted stock units with respect to the Company’s common stock and the Available Shares were converted into 10,000,000 shares of the Company’s common stock reserved for future awards under the 2011 Plan. At September 30, 2020, there were 9,098,318 shares available for grant under the 2011 Plan.
All Plans
The following table presents total stock-based compensation expense recorded in the consolidated statements of operations and comprehensive income (loss) for all awards granted under the Company’s 2013 Plan and 2011 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
|
(unaudited, in thousands)
|
|
Cost of revenue
|
$
|
738
|
|
|
$
|
683
|
|
|
$
|
2,620
|
|
|
$
|
2,163
|
|
|
Sales and marketing
|
1,807
|
|
|
1,694
|
|
|
5,388
|
|
|
5,415
|
|
|
Engineering and development
|
1,435
|
|
|
1,347
|
|
|
4,200
|
|
|
3,564
|
|
|
General and administrative
|
5,163
|
|
|
5,823
|
|
|
15,305
|
|
|
17,836
|
|
|
Total stock-based compensation expense
|
$
|
9,143
|
|
|
$
|
9,547
|
|
|
$
|
27,513
|
|
|
$
|
28,978
|
|
Under both the 2011 and 2013 Plans combined, as of September 30, 2020, the Company had approximately $2.6 million of unrecognized stock-based compensation expense related to option awards that will be recognized over 1.1 years and approximately $58.4 million of unrecognized stock-based compensation expense related to restricted stock awards and restricted stock units that will be recognized over 2.0 years.
2013 Stock Incentive Plan
The following table provides a summary of the Company’s stock options as of September 30, 2020 and the stock option activity during the nine months ended September 30, 2020 for all stock options granted under the 2013 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate
Intrinsic
Value(3)
(in thousands)
|
|
|
(unaudited)
|
|
Outstanding at December 31, 2019
|
5,276,679
|
|
|
$
|
10.57
|
|
|
|
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Forfeited
|
(2,814)
|
|
|
$
|
8.58
|
|
|
|
|
|
|
Expired
|
(164,818)
|
|
|
$
|
10.39
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
5,109,047
|
|
|
$
|
10.58
|
|
|
6.0
|
|
$
|
—
|
|
|
Exercisable at September 30, 2020
|
4,498,644
|
|
|
$
|
10.94
|
|
|
5.8
|
|
$
|
—
|
|
|
Expected to vest after September 30, 2020(1)
|
610,403
|
|
|
$
|
7.91
|
|
|
8.2
|
|
$
|
—
|
|
|
Exercisable as of September 30, 2020 and expected to vest (2)
|
5,109,047
|
|
|
$
|
10.58
|
|
|
6.0
|
|
$
|
—
|
|
(1)This represents the number of unvested options outstanding as of September 30, 2020 that are expected to vest in the future.
(2)This represents the number of vested options as of September 30, 2020 plus the number of unvested options outstanding as of September 30, 2020 that are expected to vest in the future.
(3)The aggregate intrinsic value was calculated based on the positive difference, if any, between the estimated fair value of the Company’s common stock on September 30, 2020 of $5.74 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options.
Restricted stock units granted under the 2013 Plan generally vest annually over a three-year period, unless otherwise determined by the Company’s board of directors. The following table provides a summary of the Company’s restricted stock unit activity for the 2013 Plan during the nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Units
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
(unaudited)
|
|
Non-vested at December 31, 2019
|
9,005,109
|
|
|
$
|
6.90
|
|
|
Granted
|
10,524,167
|
|
|
$
|
4.11
|
|
|
Vested
|
(3,550,214)
|
|
|
$
|
7.10
|
|
|
Canceled
|
(661,895)
|
|
|
$
|
5.88
|
|
|
Non-vested at September 30, 2020
|
15,317,167
|
|
|
$
|
4.98
|
|
Restricted stock awards granted under the 2013 Plan generally vest annually over a four-year period, unless otherwise determined by the Company’s board of directors. The following table provides a summary of the Company’s restricted stock award activity for the 2013 Plan during the nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Awards
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
(unaudited)
|
|
Non-vested at December 31, 2019
|
159,517
|
|
|
$
|
10.68
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
Vested
|
(141,164)
|
|
|
$
|
10.98
|
|
|
Canceled
|
(2,570)
|
|
|
$
|
10.09
|
|
|
Non-vested at September 30, 2020
|
15,783
|
|
|
$
|
8.08
|
|
2011 Stock Incentive Plan
The following table provides a summary of the Company’s stock options as of September 30, 2020 and the stock option activity during the nine months ended September 30, 2020 for all stock options granted under the 2011 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual Term
(in years)
|
|
Aggregate
Intrinsic
Value(3)
(in thousands)
|
|
|
(unaudited)
|
|
Outstanding at December 31, 2019
|
533,547
|
|
|
$
|
8.83
|
|
|
|
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Exercised
|
(12,398)
|
|
|
$
|
5.31
|
|
|
|
|
|
|
Forfeited
|
(1,277)
|
|
|
$
|
9.43
|
|
|
|
|
|
|
Expired
|
(211,697)
|
|
|
$
|
8.43
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
308,175
|
|
|
$
|
9.24
|
|
|
1.8
|
|
$
|
—
|
|
|
Exercisable at September 30, 2020
|
306,790
|
|
|
$
|
9.24
|
|
|
1.8
|
|
$
|
—
|
|
|
Expected to vest after September 30, 2020(1)
|
1,385
|
|
|
$
|
8.12
|
|
|
3.3
|
|
$
|
—
|
|
|
Exercisable as of September 30, 2020 and expected to vest (2)
|
308,175
|
|
|
$
|
9.24
|
|
|
1.8
|
|
$
|
—
|
|
(1)This represents the number of unvested options outstanding as of September 30, 2020 that are expected to vest in the future.
(2)This represents the number of vested options as of September 30, 2020 plus the number of unvested options outstanding as of September 30, 2020 that are expected to vest in the future.
(3)The aggregate intrinsic value was calculated based on the positive difference, if any, between the estimated fair value of the Company’s common stock on September 30, 2020 of $5.74 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options.
Unless otherwise determined by the Company’s board of directors, restricted stock units granted under the 2011 Plan generally vest annually over a three- or a four-year period. The following table provides a summary of the Company’s restricted stock unit activity for the 2011 Plan during the nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Units
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
(unaudited)
|
|
Non-vested at December 31, 2019
|
320,142
|
|
|
$
|
8.35
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
Vested
|
(252,373)
|
|
|
$
|
8.36
|
|
|
Canceled
|
(27,855)
|
|
|
$
|
8.66
|
|
|
Non-vested at September 30, 2020
|
39,914
|
|
|
$
|
8.08
|
|
11. Stockholders’ Equity
The Company’s restated certificate of incorporation authorizes the issuance of up to 500,000,000 shares of common stock and up to 5,000,000 shares of preferred stock, each having a par value of $0.0001 per share. All holders of common stock are entitled to one vote per share. Upon the issuance of preferred stock, if any, the voting, dividend and liquidation rights of the holders of the common stock will be subject to and qualified by the rights of the holders of the preferred stock. Preferred stock may be issued from time to time in one or more series. The Company's board of directors has the authority to establish voting powers, designations, preferences and other special rights, including dividend rights and liquidation preferences, to the full extent permitted by law for each series of preferred stock that may be issued.
There were no shares of preferred stock issued or outstanding as of December 31, 2019 and September 30, 2020.
Stock Repurchase Program
On March 10, 2020, the Company's board of directors authorized a share repurchase program for up to $40.0 million of the Company's common stock on the open market, in privately negotiated transactions or otherwise.
The Company will determine the timing and amount of shares repurchased, if any, depending on its evaluation of market and other conditions. The Company expects to fund any repurchases using cash on hand and cash generated from operations. The share repurchase program may be suspended or discontinued at any time.
Shares repurchased by the Company are held in treasury for general corporate purposes, including issuances under equity incentive plans. The reissuance of shares from treasury stock is based on the weighted average purchase price of the shares.
During the nine months ended September 30, 2020, the Company repurchased a total of approximately $14.4 million of its common stock under the program, of which approximately $7.0 million was repurchased in open market transactions pursuant to a 10b5-1 plan and $7.45 million was repurchased in a privately negotiated transaction with Okumus Fund Management Ltd., as discussed below.
As of September 30, 2020, of the $40.0 million authorized amount, the Company had $25.6 million remaining available under the share repurchase program.
Okumus Share Repurchase
Pursuant to the Company’s share repurchase program described above, on March 19, 2020, the Company entered into a stock repurchase agreement with Okumus Fund Management Ltd. (“Okumus”), a holder of more than 5% of the Company's capital stock. Under the agreement, the Company repurchased 5.0 million shares of its common stock from Okumus at a price of $1.49 per share, for an aggregate repurchase price of $7.45 million. The $1.49 per share repurchase price that the Company paid represented a discount to the closing price per share of its common stock on the trading day prior to its entry into the repurchase agreement, which was $1.55 per share.
12. Accumulated Other Comprehensive Loss
The following table presents the components of accumulated other comprehensive loss (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
Unrealized (Loss) Gain on Cash Flow Hedge
|
|
Total
|
|
|
|
(unaudited, in thousands)
|
|
Balance at December 31, 2019
|
|
$
|
(2,135)
|
|
|
$
|
(1,953)
|
|
|
$
|
(4,088)
|
|
|
Other comprehensive (loss) income
|
|
1,122
|
|
|
1,001
|
|
|
2,123
|
|
|
Balance at September 30, 2020
|
|
$
|
(1,013)
|
|
|
$
|
(952)
|
|
|
$
|
(1,965)
|
|
13. Revenue
During the three months ended September 30, 2019 and 2020, the Company recognized $277.2 million and $278.4 million of revenue, respectively, the majority of which was derived from contracts with customers. During the nine months ended September 30, 2019 and 2020, the Company recognized $836.1 million and $824.6 million, respectively, the majority of which was derived from contracts with customers.
During the three and nine months ended September 30, 2019 and 2020, the Company did not incur any impairment or credit losses on any receivables or contract assets arising from the Company’s contracts with customers.
In accordance with ASC 606, the Company disaggregates revenue from contracts with customers based on the timing of revenue recognition. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. As discussed in Note 18, Segment Information, the Company's business consists of the web presence and digital marketing segments. The following table presents disaggregated revenues by category for the three and nine months ended September 30, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
Subscription-based revenue
|
|
|
|
|
|
|
Direct revenue from subscriptions
|
$
|
146,213
|
|
|
$
|
101,302
|
|
|
$
|
247,515
|
|
|
Professional services
|
3,022
|
|
|
344
|
|
|
3,366
|
|
|
Reseller revenue
|
17,453
|
|
|
939
|
|
|
18,392
|
|
|
Total subscription-based revenue
|
$
|
166,688
|
|
|
$
|
102,585
|
|
|
$
|
269,273
|
|
|
|
|
|
|
|
|
|
Non-subscription-based revenue
|
|
|
|
|
|
|
MDF
|
$
|
1,986
|
|
|
$
|
180
|
|
|
$
|
2,166
|
|
|
Premium domains
|
4,466
|
|
|
—
|
|
|
4,466
|
|
|
Domain parking and monetization
|
1,288
|
|
|
—
|
|
|
1,288
|
|
|
Total non-subscription-based revenue
|
$
|
7,740
|
|
|
$
|
180
|
|
|
$
|
7,920
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
174,428
|
|
|
$
|
102,765
|
|
|
$
|
277,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
Subscription-based revenue
|
|
|
|
|
|
|
Direct revenue from subscriptions
|
$
|
442,243
|
|
|
$
|
303,596
|
|
|
$
|
745,839
|
|
|
Professional services
|
9,530
|
|
|
1,130
|
|
|
10,660
|
|
|
Reseller revenue
|
52,824
|
|
|
2,732
|
|
|
55,556
|
|
|
Total subscription-based revenue
|
$
|
504,597
|
|
|
$
|
307,458
|
|
|
$
|
812,055
|
|
|
|
|
|
|
|
|
|
Non-subscription-based revenue
|
|
|
|
|
|
|
MDF
|
$
|
5,923
|
|
|
$
|
526
|
|
|
$
|
6,449
|
|
|
Premium domains
|
13,520
|
|
|
—
|
|
|
13,520
|
|
|
Domain parking and monetization
|
4,056
|
|
|
—
|
|
|
4,056
|
|
|
Total non-subscription-based revenue
|
$
|
23,499
|
|
|
$
|
526
|
|
|
$
|
24,025
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
528,096
|
|
|
$
|
307,984
|
|
|
$
|
836,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
Subscription-based revenue
|
|
|
|
|
|
|
Direct revenue from subscriptions
|
$
|
149,556
|
|
|
$
|
98,417
|
|
|
$
|
247,973
|
|
|
Professional services
|
3,184
|
|
|
900
|
|
|
4,084
|
|
|
Reseller revenue
|
17,590
|
|
|
1,000
|
|
|
18,590
|
|
|
Total subscription-based revenue
|
$
|
170,330
|
|
|
$
|
100,317
|
|
|
$
|
270,647
|
|
|
|
|
|
|
|
|
|
Non-subscription-based revenue
|
|
|
|
|
|
|
MDF
|
$
|
1,580
|
|
|
$
|
45
|
|
|
$
|
1,625
|
|
|
Premium domains
|
4,669
|
|
|
—
|
|
|
4,669
|
|
|
Domain parking and monetization
|
1,485
|
|
|
—
|
|
|
1,485
|
|
|
Total non-subscription-based revenue
|
$
|
7,734
|
|
|
$
|
45
|
|
|
$
|
7,779
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
178,064
|
|
|
$
|
100,362
|
|
|
$
|
278,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
Subscription-based revenue
|
|
|
|
|
|
|
Direct revenue from subscriptions
|
$
|
445,117
|
|
|
$
|
290,603
|
|
|
$
|
735,720
|
|
|
Professional services
|
9,216
|
|
|
2,189
|
|
|
11,405
|
|
|
Reseller revenue
|
52,176
|
|
|
2,860
|
|
|
55,036
|
|
|
Total subscription-based revenue
|
$
|
506,509
|
|
|
$
|
295,652
|
|
|
$
|
802,161
|
|
|
|
|
|
|
|
|
|
Non-subscription-based revenue
|
|
|
|
|
|
|
MDF
|
$
|
4,671
|
|
|
$
|
241
|
|
|
$
|
4,912
|
|
|
Premium domains
|
13,518
|
|
|
—
|
|
|
13,518
|
|
|
Domain parking and monetization
|
4,016
|
|
|
—
|
|
|
4,016
|
|
|
Total non-subscription-based revenue
|
$
|
22,205
|
|
|
$
|
241
|
|
|
$
|
22,446
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
528,714
|
|
|
$
|
295,893
|
|
|
$
|
824,607
|
|
Subscription-based revenue is primarily recognized over time, when the services are performed, except for third-party products for which the Company acts as an agent. Revenue from third-party products for which the Company acts as an agent is recognized at a point in time, when the revenue is earned.
Revenue, classified by the major geographic areas in which the Company’s customers are located, was as follows for the three and nine months ended September 30, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
Domestic
|
$
|
108,100
|
|
|
$
|
95,068
|
|
|
$
|
203,168
|
|
|
International
|
66,328
|
|
|
7,697
|
|
|
74,025
|
|
|
Total
|
$
|
174,428
|
|
|
$
|
102,765
|
|
|
$
|
277,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
Domestic
|
$
|
327,113
|
|
|
$
|
284,540
|
|
|
$
|
611,653
|
|
|
International
|
200,983
|
|
|
23,444
|
|
|
224,427
|
|
|
Total
|
$
|
528,096
|
|
|
$
|
307,984
|
|
|
$
|
836,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
Domestic
|
$
|
109,113
|
|
|
$
|
93,016
|
|
|
$
|
202,129
|
|
|
International
|
68,951
|
|
|
7,346
|
|
|
76,297
|
|
|
Total
|
$
|
178,064
|
|
|
$
|
100,362
|
|
|
$
|
278,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
Domestic
|
$
|
325,337
|
|
|
$
|
273,785
|
|
|
$
|
599,122
|
|
|
International
|
203,377
|
|
|
22,108
|
|
|
225,485
|
|
|
Total
|
$
|
528,714
|
|
|
$
|
295,893
|
|
|
$
|
824,607
|
|
14. Income Taxes
For the three months ended September 30, 2019 and 2020, the Company recognized a tax benefit of $4.8 million and tax expense of $1.6 million, respectively, in the consolidated statements of operations and comprehensive income (loss). For the nine months ended September 30, 2019 and 2020, the Company recognized a tax expense of $3.0 million and $13.3 million, respectively, in the consolidated statements of operations and comprehensive income (loss).
The components of the expense for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
|
(unaudited, in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
U.S. Federal and State
|
$
|
(3,254)
|
|
|
$
|
577
|
|
|
$
|
599
|
|
|
$
|
4,156
|
|
|
Foreign
|
(1,091)
|
|
|
(1)
|
|
|
499
|
|
|
2,676
|
|
|
Total current (benefit) expense
|
(4,345)
|
|
|
576
|
|
|
1,098
|
|
|
6,832
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
U.S. Federal and State
|
(580)
|
|
|
1,042
|
|
|
1,986
|
|
|
6,643
|
|
|
Foreign
|
86
|
|
|
(31)
|
|
|
(44)
|
|
|
(176)
|
|
|
Total deferred (benefit) expense
|
(494)
|
|
|
1,011
|
|
|
1,942
|
|
|
6,467
|
|
|
Total (benefit) expense
|
$
|
(4,839)
|
|
|
$
|
1,587
|
|
|
$
|
3,040
|
|
|
$
|
13,299
|
|
The expense for income taxes shown on the consolidated statements of operations and comprehensive income (loss) differs considerably from amounts that would result from applying the statutory tax rates to income before taxes primarily due to tax rules and attributes that are available to each of the jurisdictions in which the Company operates. In addition, due to the recent changes in U.S. tax law based on the Tax Cuts and Job Act (the "TCJA") and the CARES Act, there are a number of provisions that impact the Company’s overall tax result, a significant item being the limitation on the deductibility of interest expenses. These new laws may create variability from period to period, especially when the Company is assessing whether its deferred tax assets and liabilities are more likely than not to be realized.
The Company is required to assess its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence the Company considered included:
•Net operating losses ("NOLs") incurred from the Company’s inception to date
•Expiration of various federal, state and foreign tax attributes
•Reversals of existing temporary differences
•Composition and cumulative amounts of existing temporary differences and
•Current year forecasted profit before tax
After consideration of all positive and negative evidence, the Company believes that it is more likely than not that a portion of its deferred tax assets will not be realized. The Company has recorded a valuation allowance at December 31, 2019 and September 30, 2020 of $44.1 million and $50.6 million, respectively, against its U.S. deferred tax assets. The increase in valuation allowance is primarily due to the change in the timing of when the existing temporary differences are expected to reverse in the future. The Company has recorded a valuation allowance at December 31, 2019 against its foreign deferred tax assets of $6.0 million, of which $3.5 million is in the Netherlands, $1.5 million is in Brazil, and $1.0 million is in various other foreign jurisdictions. The Company has recorded a valuation allowance at September 30, 2020 against its foreign deferred tax assets of $6.3 million, of which $3.4 million is in the Netherlands, $1.9 million is in Brazil, and $1.0 million is in various other foreign jurisdictions.
The CARES Act was enacted on March 27, 2020. The CARES Act is an emergency economic stimulus package that includes spending and tax cuts to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company’s financial statements include increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted TCJA. As of September 30, 2020, the Company recognized a benefit of $1.7 million as a component of income tax expense from continuing operations related to the CARES Act. Based on the Company's assessments, the Company anticipates that the CARES Act will allow the Company to defer its 2020 tax payments; defer the payment of the employer portion of its FICA taxes to 2021 and 2022; fully deduct its interest expense for 2019; accelerate a refund of its available alternative minimum tax credits; and increase its permitted level of 2019 federal net operating loss carry-forwards from approximately $26.9 million to $77.0 million.
The Company establishes reserves when the Company believes that certain positions are likely to be challenged despite the Company’s assertion that its tax return positions are fully supportable. The calculation of the Company’s tax liabilities involves significant judgment based on individual facts, circumstances and information available in addition to applying complex tax regulations in various jurisdictions. The Company recognizes, in its consolidated financial statements, the effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company has recorded unrecognized tax benefits at December 31, 2019 and September 30, 2020 of $4.7 million and $5.5 million, respectively, that would affect its effective tax rate. The Company does not expect a significant change in the liability for unrecognized tax benefits in the next 12 months.
As of December 31, 2019, the Company had recorded the following tax attributes available to be carried forward:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jurisdiction
|
Amount
|
|
Year Loss Carry-forwards Expire
|
|
|
(in millions)
|
|
|
|
Domestic
|
|
|
|
|
Federal
|
$
|
26.9
|
|
|
2037
|
|
State
|
78.0
|
|
|
various dates through 2039
|
|
Foreign
|
|
|
|
|
China
|
0.9
|
|
|
2021
|
|
Brazil
|
4.4
|
|
|
indefinite
|
|
Netherlands
|
12.4
|
|
|
2022
|
|
India
|
0.6
|
|
|
2022
|
|
Singapore
|
0.4
|
|
|
indefinite
|
|
Total NOL carry-forwards
|
$
|
123.6
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
Federal
|
$
|
25.2
|
|
|
2034
|
|
State
|
15.5
|
|
|
various dates
|
|
Total tax credit carry-forwards
|
$
|
40.7
|
|
|
|
|
|
|
|
|
|
Total tax attributes available
|
$
|
164.3
|
|
|
|
As of December 31, 2019 and September 30, 2020, the Company has recorded interest expense that can be carried forward indefinitely due to provisions of the TCJA, of $114.9 million and $56.8 million, respectively.
The Company files income tax returns in the United States for federal income taxes and in various state jurisdictions. The Company also files in several foreign jurisdictions. In the normal course of business, the Company is subject to examination by tax authorities throughout the world. Since the Company is in a loss carry-forward position, it is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carry-forward is utilized.
15. Severance and Other Exit Costs
The Company evaluates its data center, sales and marketing, support and engineering operations and the general and administrative function on an ongoing basis in an effort to optimize its cost structure. As a result, the Company may incur charges for employee severance, exiting facilities and restructuring data center commitments and other related costs.
2020 Restructuring Plan
During the three months ended March 31, 2020, the Company announced plans to eliminate approximately 47 positions, located primarily in Massachusetts, in order to streamline overall operations (the "2020 Restructuring Plan"). During the three and nine months ended September 30, 2020, the Company incurred severance costs of $0.0 million and $1.6 million, respectively, paid $0.4 million and $1.5 million, respectively, and had a remaining accrued severance liability of $0.1 million as of September 30, 2020 in connection with the 2020 Restructuring Plan. The Company expects to complete severance payments related to the 2020 Restructuring Plan during the year ending December 31, 2020.
2019 Restructuring Plan
In January 2019, the Company announced plans to eliminate approximately 40 positions located primarily in the southwest United States, and further consolidate a Massachusetts facility, in order to streamline operations and create operational efficiencies (the "2019 Restructuring Plan"). During the three months ended March 31, 2020, the Company completed severance payments related to the 2019 Restructuring Plan and had no remaining accrued severance liability as of September 30, 2020.
In connection with the 2019 Restructuring Plan, the Company reduced the amount of space leased for an office in Massachusetts. During the three and nine months ended September 30, 2020, the Company incurred facility exit costs of $0.0 million and $0.1 million, respectively, and paid $0.1 million and $0.2 million, respectively. The Company had a remaining facility exit cost accrual of $1.1 million as of September 30, 2020 in connection with the 2019 Restructuring Plan.
2018 Restructuring Plan
In January 2018, the Company announced plans to eliminate approximately 71 positions, later increased to approximately 95 positions, primarily in the Asia Pacific region and to a lesser extent in the U.S., in order to streamline operations and create operational efficiencies (the "2018 Restructuring Plan"). The Company completed all payments relating to the 2018 Restructuring Plan during the year ended December 31, 2019.
In connection with the 2018 Restructuring Plan, the Company closed offices in Ohio. During the three and nine months ended September 30, 2020, the Company incurred no facility charges and made payments of $0.0 million, and $0.1 million, respectively. The Company had a remaining accrued facility liability of $0.1 million as of September 30, 2020 in connection with the 2018 Restructuring Plan.
Activity of Combined Restructuring Plans
The following table provides a summary of the aggregate activity for the nine months ended September 30, 2020 related to the severance accrual for the Company’s combined restructuring plans:
|
|
|
|
|
|
|
|
|
Employee
Severance
|
|
|
(unaudited,
in thousands)
|
|
Balance at December 31, 2019
|
$
|
44
|
|
|
Severance charges
|
1,646
|
|
|
Cash paid
|
(1,543)
|
|
|
Balance at September 30, 2020
|
$
|
147
|
|
The following table provides a summary of the aggregate activity for the nine months ended September 30, 2020 related to the facilities exit accrual for the Company’s combined restructuring plans:
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
(unaudited,
in thousands)
|
|
Balance at December 31, 2019
|
$
|
2,369
|
|
|
Facility charges
|
103
|
|
|
Sublease income received
|
126
|
|
|
Cash paid
|
(713)
|
|
|
Balance at September 30, 2020
|
$
|
1,885
|
|
The following table presents restructuring charges recorded in the consolidated statements of operations and comprehensive income (loss) for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
|
(unaudited, in thousands)
|
|
Cost of revenue
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
1,430
|
|
|
$
|
155
|
|
|
Sales and marketing
|
17
|
|
|
6
|
|
|
241
|
|
|
581
|
|
|
Engineering and development
|
28
|
|
|
16
|
|
|
449
|
|
|
480
|
|
|
General and administrative
|
(245)
|
|
|
4
|
|
|
(115)
|
|
|
533
|
|
|
Total restructuring charges
|
$
|
(193)
|
|
|
$
|
33
|
|
|
$
|
2,005
|
|
|
$
|
1,749
|
|
16. Commitments and Contingencies
From time to time, the Company is involved in legal proceedings or subject to claims arising in the ordinary course of its business. The Company is not presently involved in any such legal proceeding or subject to any such claim that, in the opinion of its management, would have a material adverse effect on its business, operating results or financial condition. However, the results of such legal proceedings or claims cannot be predicted with certainty, and regardless of the outcome, can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
17. Related Party Transactions
The Company has various agreements in place with related parties. Below are details of significant related party transactions that occurred during the nine months ended September 30, 2019 and 2020.
SiteLock, LLC:
The Company has an agreement with SiteLock, LLC ("SiteLock"), which provides multi-layered third-party security and website performance applications that are sold by the Company. During the nine months ended September 30, 2020, a director of the Company continued to hold a material financial interest in SiteLock.
The Company records revenue on the sale of SiteLock products on a net basis, since the Company views SiteLock as the primary obligor to deliver these services. As a result, the revenue share paid by the Company to SiteLock is recorded as contra-revenue. Further, SiteLock pays the Company a fee on sales made by SiteLock directly to customers of the Company. The Company records these fees as revenue.
The following table presents the amounts of related party transactions recorded in the consolidated statements of operations and comprehensive income (loss) for the periods presented relating to the Company's agreement with SiteLock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
|
(unaudited, in thousands)
|
|
Revenue
|
$
|
(1,400)
|
|
|
$
|
(880)
|
|
|
$
|
(4,140)
|
|
|
$
|
(2,720)
|
|
|
Revenue (contra)
|
1,190
|
|
|
2,040
|
|
|
5,180
|
|
|
5,410
|
|
|
Total related party transaction impact to revenue
|
$
|
(210)
|
|
|
$
|
1,160
|
|
|
$
|
1,040
|
|
|
$
|
2,690
|
|
|
Cost of revenue
|
180
|
|
|
85
|
|
|
500
|
|
|
260
|
|
|
Total related party transaction expense, net
|
$
|
(30)
|
|
|
$
|
1,245
|
|
|
$
|
1,540
|
|
|
$
|
2,950
|
|
As of December 31, 2019 and September 30, 2020, no amounts were included in prepaid expenses and other current assets relating to the Company’s agreement with SiteLock.
As of December 31, 2019 and September 30, 2020, approximately $0.4 million and $0.7 million, respectively, was included in accounts payable and accrued expense relating to the Company’s agreement with SiteLock.
As of December 31, 2019 and September 30, 2020, approximately $0.3 million and $0.3 million, respectively, was included in accounts receivable relating to the Company’s agreement with SiteLock.
Okumus Share Repurchase:
Pursuant to the Company’s share repurchase program announced on March 10, 2020, on March 19, 2020, the Company entered into a stock repurchase agreement with Okumus, a holder of more than 5% of the Company's capital stock. Under the agreement, the Company repurchased 5.0 million shares of its common stock from Okumus at a price of $1.49 per share, for an aggregate repurchase price of $7.45 million. The $1.49 per share repurchase price that the Company paid represented a discount to the closing price per share of its common stock on the trading day prior to its entry into the repurchase agreement, which was $1.55 per share.
18. Segment Information
The Company has two reportable segments: web presence and digital marketing. The products and services included in each of the two reportable segments are as follows:
Web Presence. The web presence segment consists of the Company's web hosting brands, including Bluehost and HostGator, as well as its 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.
Digital Marketing. The digital marketing segment consists of Constant Contact email marketing tools and related products. This segment also generates revenue from sales of the Company's Constant Contact-branded website builder tool, its Ecomdash inventory management and marketplace listing solution which was acquired in the third quarter of
2019, and its Retention Science solution, which was acquired in the third quarter of 2020. For most of 2019, the digital marketing segment also included the SinglePlatform digital storefront business, which was sold on December 5, 2019.
The Company measures profitability of these segments based on revenue, gross profit, and adjusted EBITDA. The Company's segments share certain resources, primarily related to sales and marketing, engineering and development, and general and administrative functions. Management allocates these costs to each respective segment based on a consistently applied methodology.
The CODM does not use asset information to allocate resources or make operating decisions.
The accounting policies of each segment are the same as those described in the summary of significant accounting policies; please refer to Note 2, Summary of Significant Accounting Policies, for further details. The Company recast the comparative information for the three and nine months ended September 30, 2019 to conform with the two-segment presentation. The following tables contain financial information for each reportable segment for the three and nine months ended September 30, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
Web presence
|
|
Digital marketing
|
|
Total
|
|
|
(unaudited, in thousands)
|
|
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 issue discounts and interest income.
19. Subsequent Events
The Company evaluated all subsequent events occurring through November 9, 2020 to determine if any such events should be reflected in these consolidated financial statements. There were no material recognized subsequent events recorded in the September 30, 2020 consolidated financial statements.
On November 1, 2020, the Company entered into the Merger Agreement with the Parent and the Merger Sub. The Merger Agreement provides for the acquisition of the Company by the Parent at a price of $9.50 per share of the Company’s common stock in cash, without interest (the “Merger Consideration”), through the merger of the Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of the Parent. The Parent and the Merger Sub are owned by funds managed by affiliates of Clearlake Capital Group, L.P. (collectively, the “Sponsor”). The Company’s board of directors has unanimously approved the Merger and the Merger Agreement and recommended that stockholders adopt and approve the Merger Agreement, and the Company has agreed to hold a stockholders meeting to submit the Merger Agreement to its stockholders for their consideration.
If the Merger is completed, at the effective time of the Merger (the “Effective Time”):
•each share of the Company’s common stock that is issued and outstanding immediately prior to the Effective Time (other than shares held in the treasury of the Company, owned by any subsidiary of the Company, the Merger Sub, the Parent or any other subsidiary of the Parent immediately prior to the Effective Time (all of which will be canceled) and shares held by any holder who is entitled to, and who has perfected, appraisal rights under Delaware law) will be automatically converted into the right to receive the Merger Consideration;
•each then-outstanding and unexercised Company stock option shall vest in full and automatically be canceled and converted into the right to receive the excess, if any, of the Merger Consideration over the exercise price per share of such stock option; provided that, in the event that the exercise price of any such stock option is equal to or greater than the Merger Consideration, such stock option will be canceled, without any consideration being payable in respect thereof and have no further force or effect;
•each Company restricted stock unit that is then outstanding and unvested shall vest in full and automatically be canceled and converted into the right to receive the Merger Consideration (with exceptions for certain of such units granted in 2020 that shall convert into the right to receive cash equal to the Merger Consideration upon the service and vesting terms in such units, subject to certain acceleration); and
•each Company restricted stock award that is then outstanding and unvested shall vest in full and automatically be canceled and converted into the right to receive the Merger Consideration.
The Merger Agreement contains customary representations and warranties from both the Company, on the one hand, and the Parent and the Merger Sub, on the other hand. It also contains customary covenants, including covenants providing for each of the Company and the Parent to use its reasonable best efforts to cause the Merger to be consummated, and covenants requiring the Company, among other things, (i) to use commercially reasonable efforts to conduct its business in the ordinary course during the interim period between the execution of the Merger Agreement and the Effective Time, (ii) not to engage in specified types of transactions during such period, and (iii) not to solicit proposals, engage in discussions relating to alternative acquisition proposals or change the recommendation of the Company’s board of directors to the Company’s stockholders regarding the Merger Agreement, in each case except as otherwise permitted by the Merger Agreement, including in connection with the compliance by the Company’s board of directors with its fiduciary duties under applicable law.
Completion of the Merger is subject to customary closing conditions, including (i) approval of the Merger Agreement by the Company’s stockholders, (ii) the expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (iii) the absence of governmental injunctions or other legal restraints prohibiting the Merger. In addition, the obligation of each party to consummate the Merger is conditioned upon, among other things, the accuracy of the representations and warranties of the other party (subject to certain materiality exceptions), and material compliance by the other party with its covenants under the Merger Agreement. The Parent’s obligations under the Merger Agreement are not subject to any financing condition.
The Parent has obtained equity and debt financing commitments for the transactions contemplated by the Merger Agreement. J.P. Morgan, BofA Securities, Deutsche Bank Securities, and UBS Investment Bank have agreed to provide debt financing for the transactions, subject to the terms and conditions set forth in a debt commitment letter delivered to the Parent. In addition, certain funds managed by affiliates of the Sponsor have delivered an equity commitment letter to the Parent, pursuant to which, upon the terms and subject to the conditions set forth therein, such funds have committed to capitalize the Parent at or prior to the closing of the Merger with the equity contributions. The Merger Agreement requires the Parent to use its reasonable best efforts to arrange and obtain the financing on the terms and conditions described in the equity and debt financing commitments.
The Merger Agreement may be terminated, subject to the terms and conditions of the Merger Agreement: (i) by mutual written consent of the Parent and the Company; (ii) by either the Company or the Parent, if a governmental injunction or other legal restraint prevents the consummation of the Merger; (iii) by either the Company or the Parent, if the requisite vote of the Company’s stockholders has not been obtained; or (iv) by either the Company or the Parent upon the other party’s uncured material breach of any representation, warranty, covenant or agreement under the Merger Agreement. The Merger Agreement may also be terminated (A) by the Parent if the Company’s board of directors fails to recommend or changes its recommendation regarding the Merger, or (B) by the Company, in order to enter into a definitive agreement with respect to a superior proposal, subject to specified limitations. Subject to certain conditions, the Company may terminate the Merger Agreement if, after the marketing period of eighteen consecutive business days has ended (unless waived by the Parent), all of the conditions to the Parent’s obligations to close are satisfied and the Parent fails to consummate the Merger within three Business Days after notice from the Company that the conditions to the Company’s obligations to close have been satisfied.
In addition to the foregoing termination rights, and subject to certain limitations, either party may terminate the Merger Agreement if the Merger is not consummated by April 30, 2021.
If the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, the Company will be required to pay the Parent a termination fee of $37,393,000 (including under specified circumstances in connection with the Company’s entry into an agreement with respect to a superior proposal). The Merger Agreement also provides that the Parent will be required to pay the Company a reverse termination fee of $119,656,000 under certain specified circumstances set forth in the Merger Agreement. The Sponsor has provided the Company with a limited guarantee in favor of the Company guaranteeing the Parent’s obligation to pay the reverse termination fee and certain other payment obligations of the Parent and the Merger Sub pursuant to the Merger Agreement.
For additional information related to the Merger Agreement, refer to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2020, which includes the full text of the Merger Agreement as Exhibit 2.1.
20. Supplemental Guarantor Financial Information
In February 2016, EIG Investors (the “Issuer”) issued $350.0 million aggregate principal amount of its 10.875% Senior Notes due 2024 (see Note 9, Notes Payable), which it exchanged for new 10.875% Senior Notes due 2024 pursuant to a registration statement on Form S-4. The registered exchange offer for the Senior Notes was completed on January 30, 2017. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Holdings, the Issuer, and the following wholly-owned subsidiaries: EIG, Bluehost Inc., FastDomain Inc., Domain Name Holding Company, Inc., Endurance International Group – West, Inc., HostGator.com LLC, A Small Orange, LLC, Constant Contact, and P.D.R
Solutions (U.S.) LLC (collectively, the “Subsidiary Guarantors”), subject to certain customary guarantor release conditions. Holdings’ other domestic subsidiaries and its foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) have not guaranteed the Senior Notes.
SinglePlatform, LLC ceased being a Subsidiary Guarantor on December 5, 2019 due to the Company's sale of the SinglePlatform business, including SinglePlatform, LLC.
The following tables present supplemental condensed consolidating balance sheet information of Holdings (“Parent”), the Issuer, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of December 31, 2019 and September 30, 2020, and supplemental condensed consolidating results of operations for the three and nine months ended September 30, 2019 and 2020:
Condensed Consolidating Balance Sheets
December 31, 2019
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Issuer
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
195
|
|
$
|
1
|
|
$
|
80,642
|
|
$
|
30,427
|
|
$
|
—
|
|
$
|
111,265
|
|
|
Restricted cash
|
—
|
|
—
|
|
1,732
|
|
—
|
|
—
|
|
1,732
|
|
|
Accounts receivable
|
—
|
|
—
|
|
8,762
|
|
1,462
|
|
—
|
|
10,224
|
|
|
Prepaid domain name registry fees
|
—
|
|
—
|
|
48,943
|
|
6,294
|
|
—
|
|
55,237
|
|
|
Prepaid commissions
|
—
|
|
—
|
|
37,910
|
|
525
|
|
—
|
|
38,435
|
|
|
Prepaid expenses and other current assets
|
—
|
|
90
|
|
26,847
|
|
3,756
|
|
—
|
|
30,693
|
|
|
Total current assets
|
195
|
|
91
|
|
204,836
|
|
42,464
|
|
—
|
|
247,586
|
|
|
Intercompany receivables—net
|
32,845
|
|
172,807
|
|
(87,398)
|
|
(118,254)
|
|
—
|
|
—
|
|
|
Property and equipment—net
|
—
|
|
—
|
|
72,751
|
|
13,174
|
|
—
|
|
85,925
|
|
|
Operating lease right-of-use assets
|
—
|
|
—
|
|
86,111
|
|
4,408
|
|
—
|
|
90,519
|
|
|
Goodwill
|
—
|
|
—
|
|
1,677,587
|
|
157,723
|
|
—
|
|
1,835,310
|
|
|
Other intangible assets—net
|
—
|
|
—
|
|
243,994
|
|
1,008
|
|
—
|
|
245,002
|
|
|
Investment in subsidiaries
|
163,934
|
|
1,693,565
|
|
61,023
|
|
—
|
|
(1,918,522)
|
|
—
|
|
|
Prepaid commissions, net of current portion
|
—
|
|
—
|
|
48,289
|
|
491
|
|
—
|
|
48,780
|
|
|
Other assets
|
—
|
|
1,784
|
|
27,215
|
|
1,965
|
|
—
|
|
30,964
|
|
|
Total assets
|
$
|
196,974
|
|
$
|
1,868,247
|
|
$
|
2,334,408
|
|
$
|
102,979
|
|
$
|
(1,918,522)
|
|
$
|
2,584,086
|
|
|
Liabilities and stockholders' equity
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
$
|
—
|
|
$
|
9,474
|
|
$
|
580
|
|
$
|
—
|
|
$
|
10,054
|
|
|
Accrued expenses and other current liabilities
|
20
|
|
23,554
|
|
59,695
|
|
7,141
|
|
—
|
|
90,410
|
|
|
Deferred revenue
|
—
|
|
—
|
|
345,116
|
|
24,359
|
|
—
|
|
369,475
|
|
|
Operating lease liabilities—short term
|
—
|
|
—
|
|
18,513
|
|
2,680
|
|
—
|
|
21,193
|
|
|
Current portion of notes payable
|
—
|
|
31,606
|
|
—
|
|
—
|
|
—
|
|
31,606
|
|
|
Current portion of financed equipment
|
—
|
|
—
|
|
790
|
|
—
|
|
—
|
|
790
|
|
|
Deferred consideration—short term
|
—
|
|
—
|
|
2,201
|
|
—
|
|
—
|
|
2,201
|
|
|
Total current liabilities
|
20
|
|
55,160
|
|
435,789
|
|
34,760
|
|
—
|
|
525,729
|
|
|
Deferred revenue—long term
|
—
|
|
—
|
|
94,471
|
|
5,181
|
|
—
|
|
99,652
|
|
|
Operating lease liabilities—long term
|
—
|
|
—
|
|
76,166
|
|
1,985
|
|
—
|
|
78,151
|
|
|
Notes payable
|
—
|
|
1,649,867
|
|
—
|
|
—
|
|
—
|
|
1,649,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
—
|
|
(714)
|
|
34,417
|
|
30
|
|
—
|
|
33,733
|
|
|
Total liabilities
|
20
|
|
1,704,313
|
|
640,843
|
|
41,956
|
|
—
|
|
2,387,132
|
|
|
Equity
|
196,954
|
|
163,934
|
|
1,693,565
|
|
61,023
|
|
(1,918,522)
|
|
196,954
|
|
|
Total liabilities and stockholders' equity
|
$
|
196,974
|
|
$
|
1,868,247
|
|
$
|
2,334,408
|
|
$
|
102,979
|
|
$
|
(1,918,522)
|
|
$
|
2,584,086
|
|
Condensed Consolidating Balance Sheets
September 30, 2020
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Issuer
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3,263
|
|
$
|
1
|
|
$
|
119,748
|
|
$
|
44,303
|
|
$
|
—
|
|
$
|
167,315
|
|
|
Restricted cash
|
—
|
|
—
|
|
1,422
|
|
—
|
|
—
|
|
1,422
|
|
|
Accounts receivable
|
—
|
|
—
|
|
7,752
|
|
2,071
|
|
—
|
|
9,823
|
|
|
Prepaid domain name registry fees
|
—
|
|
—
|
|
51,366
|
|
7,011
|
|
—
|
|
58,377
|
|
|
Prepaid commissions
|
—
|
|
—
|
|
41,346
|
|
696
|
|
—
|
|
42,042
|
|
|
Prepaid expenses and other current assets
|
—
|
|
27
|
|
23,903
|
|
3,993
|
|
—
|
|
27,923
|
|
|
Total current assets
|
3,263
|
|
28
|
|
245,537
|
|
58,074
|
|
—
|
|
306,902
|
|
|
Intercompany receivables—net
|
14,147
|
|
41,218
|
|
81,520
|
|
(136,884)
|
|
(1)
|
|
—
|
|
|
Property and equipment—net
|
—
|
|
—
|
|
76,079
|
|
12,270
|
|
—
|
|
88,349
|
|
|
Operating lease right-of-use assets
|
—
|
|
—
|
|
74,605
|
|
8,619
|
|
—
|
|
83,224
|
|
|
Goodwill
|
—
|
|
—
|
|
1,677,587
|
|
175,193
|
|
—
|
|
1,852,780
|
|
|
Other intangible assets, net
|
—
|
|
—
|
|
191,966
|
|
15,610
|
|
3
|
|
207,579
|
|
|
Investment in subsidiaries
|
205,311
|
|
1,829,785
|
|
86,651
|
|
—
|
|
(2,121,747)
|
|
—
|
|
|
Prepaid commissions, net of current portion
|
—
|
|
—
|
|
60,153
|
|
711
|
|
—
|
|
60,864
|
|
|
Other assets
|
—
|
|
1,119
|
|
28,631
|
|
2,332
|
|
—
|
|
32,082
|
|
|
Total assets
|
$
|
222,721
|
|
$
|
1,872,150
|
|
$
|
2,522,729
|
|
$
|
135,925
|
|
$
|
(2,121,745)
|
|
$
|
2,631,780
|
|
|
Liabilities and stockholders' equity
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
$
|
—
|
|
$
|
13,167
|
|
$
|
503
|
|
$
|
—
|
|
$
|
13,670
|
|
|
Accrued expenses and other current liabilities
|
—
|
|
12,455
|
|
67,820
|
|
7,926
|
|
—
|
|
88,201
|
|
|
Deferred revenue
|
—
|
|
—
|
|
361,991
|
|
26,509
|
|
—
|
|
388,500
|
|
|
Operating lease liabilities—short term
|
—
|
|
—
|
|
16,255
|
|
1,835
|
|
—
|
|
18,090
|
|
|
Current portion of notes payable
|
—
|
|
31,606
|
|
—
|
|
—
|
|
—
|
|
31,606
|
|
|
Current portion of financed equipment
|
—
|
|
—
|
|
2,447
|
|
—
|
|
—
|
|
2,447
|
|
|
Deferred consideration—short term
|
—
|
|
—
|
|
7,790
|
|
—
|
|
—
|
|
7,790
|
|
|
Total current liabilities
|
—
|
|
44,061
|
|
469,470
|
|
36,773
|
|
—
|
|
550,304
|
|
|
Deferred revenue—long term
|
—
|
|
—
|
|
99,841
|
|
5,577
|
|
—
|
|
105,418
|
|
|
Operating lease liabilities—long term
|
—
|
|
—
|
|
67,548
|
|
6,913
|
|
—
|
|
74,461
|
|
|
Notes payable
|
—
|
|
1,623,171
|
|
—
|
|
—
|
|
—
|
|
1,623,171
|
|
|
Financed equipment, long-term
|
—
|
|
—
|
|
202
|
|
—
|
|
—
|
|
202
|
|
|
Deferred consideration—long term
|
—
|
|
—
|
|
7,087
|
|
—
|
|
—
|
|
7,087
|
|
|
Other long-term liabilities
|
—
|
|
(391)
|
|
48,798
|
|
9
|
|
—
|
|
48,416
|
|
|
Total liabilities
|
—
|
|
1,666,841
|
|
692,946
|
|
49,272
|
|
—
|
|
2,409,059
|
|
|
Equity
|
222,721
|
|
205,309
|
|
1,829,783
|
|
86,653
|
|
(2,121,745)
|
|
222,721
|
|
|
Total liabilities and stockholders' equity
|
$
|
222,721
|
|
$
|
1,872,150
|
|
$
|
2,522,729
|
|
$
|
135,925
|
|
$
|
(2,121,745)
|
|
$
|
2,631,780
|
|
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three Months Ended September 30, 2019
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Issuer
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
|
Revenue
|
$
|
—
|
|
$
|
—
|
|
$
|
265,165
|
|
$
|
15,196
|
|
$
|
(3,168)
|
|
$
|
277,193
|
|
|
Cost of revenue
|
—
|
|
—
|
|
113,787
|
|
10,136
|
|
(3,168)
|
|
120,755
|
|
|
Gross profit
|
—
|
|
—
|
|
151,378
|
|
5,060
|
|
—
|
|
156,438
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
Sales and marketing
|
—
|
|
—
|
|
56,595
|
|
2,548
|
|
—
|
|
59,143
|
|
|
Engineering and development
|
—
|
|
—
|
|
25,954
|
|
2,303
|
|
—
|
|
28,257
|
|
|
General and administrative
|
401
|
|
58
|
|
29,880
|
|
(30)
|
|
—
|
|
30,309
|
|
|
Total operating expense
|
401
|
|
58
|
|
112,429
|
|
4,821
|
|
—
|
|
117,709
|
|
|
(Loss) income from operations
|
(401)
|
|
(58)
|
|
38,949
|
|
239
|
|
—
|
|
38,729
|
|
|
Interest expense and other income—net
|
—
|
|
35,925
|
|
(38)
|
|
(135)
|
|
—
|
|
35,752
|
|
|
(Loss) income before income taxes and equity earnings of unconsolidated entities
|
(401)
|
|
(35,983)
|
|
38,987
|
|
374
|
|
—
|
|
2,977
|
|
|
Income tax (benefit) expense
|
—
|
|
(8,563)
|
|
3,616
|
|
108
|
|
—
|
|
(4,839)
|
|
|
(Loss) income before equity earnings of unconsolidated entities
|
(401)
|
|
(27,420)
|
|
35,371
|
|
266
|
|
—
|
|
7,816
|
|
|
Equity (income) loss of unconsolidated entities, net of tax
|
(8,217)
|
|
(35,635)
|
|
(267)
|
|
—
|
|
44,119
|
|
—
|
|
|
Net income (loss)
|
$
|
7,816
|
|
$
|
8,215
|
|
$
|
35,638
|
|
$
|
266
|
|
$
|
(44,119)
|
|
$
|
7,816
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
(1,001)
|
|
—
|
|
(1,001)
|
|
|
Unrealized gain (loss) on cash flow hedge, net of taxes
|
—
|
|
240
|
|
—
|
|
—
|
|
—
|
|
240
|
|
|
Total comprehensive income (loss)
|
$
|
7,816
|
|
$
|
8,455
|
|
$
|
35,638
|
|
$
|
(735)
|
|
$
|
(44,119)
|
|
$
|
7,055
|
|
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Nine Months Ended September 30, 2019
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Issuer
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
|
Revenue
|
$
|
—
|
|
$
|
—
|
|
$
|
799,637
|
|
$
|
46,059
|
|
$
|
(9,616)
|
|
$
|
836,080
|
|
|
Cost of revenue (including impairment of $17,892)
|
—
|
|
—
|
|
363,049
|
|
30,763
|
|
(9,616)
|
|
384,196
|
|
|
Gross profit
|
—
|
|
—
|
|
436,588
|
|
15,296
|
|
—
|
|
451,884
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
Sales and marketing
|
—
|
|
—
|
|
181,901
|
|
9,320
|
|
—
|
|
191,221
|
|
|
Engineering and development
|
—
|
|
—
|
|
70,471
|
|
6,828
|
|
—
|
|
77,299
|
|
|
General and administrative
|
1,226
|
|
175
|
|
90,494
|
|
932
|
|
(1)
|
|
92,826
|
|
|
Total operating expense
|
1,226
|
|
175
|
|
342,866
|
|
17,080
|
|
(1)
|
|
361,346
|
|
|
(Loss) income from operations
|
(1,226)
|
|
(175)
|
|
93,722
|
|
(1,784)
|
|
1
|
|
90,538
|
|
|
Interest expense and other income—net
|
—
|
|
109,776
|
|
34
|
|
(412)
|
|
—
|
|
109,398
|
|
|
(Loss) income before income taxes and equity earnings of unconsolidated entities
|
(1,226)
|
|
(109,951)
|
|
93,688
|
|
(1,372)
|
|
1
|
|
(18,860)
|
|
|
Income tax (benefit) expense
|
—
|
|
(26,167)
|
|
27,649
|
|
1,558
|
|
—
|
|
3,040
|
|
|
(Loss) income before equity earnings of unconsolidated entities
|
(1,226)
|
|
(83,784)
|
|
66,039
|
|
(2,930)
|
|
1
|
|
(21,900)
|
|
|
Equity loss (income) of unconsolidated entities, net of tax
|
20,674
|
|
(63,106)
|
|
2,930
|
|
—
|
|
39,502
|
|
—
|
|
|
Net (loss) income
|
$
|
(21,900)
|
|
$
|
(20,678)
|
|
$
|
63,109
|
|
$
|
(2,930)
|
|
$
|
(39,501)
|
|
$
|
(21,900)
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
(1,054)
|
|
—
|
|
(1,054)
|
|
|
Unrealized gain (loss) on cash flow hedge, net of taxes
|
—
|
|
(611)
|
|
—
|
|
—
|
|
—
|
|
(611)
|
|
|
Total comprehensive (loss) income
|
$
|
(21,900)
|
|
$
|
(21,289)
|
|
$
|
63,109
|
|
$
|
(3,984)
|
|
$
|
(39,501)
|
|
$
|
(23,565)
|
|
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three Months Ended September 30, 2020
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Issuer
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
|
Revenue
|
$
|
—
|
|
$
|
—
|
|
$
|
264,896
|
|
$
|
16,670
|
|
$
|
(3,140)
|
|
$
|
278,426
|
|
|
Cost of revenue
|
—
|
|
—
|
|
107,923
|
|
11,879
|
|
(3,140)
|
|
116,662
|
|
|
Gross profit
|
—
|
|
—
|
|
156,973
|
|
4,791
|
|
—
|
|
161,764
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
Sales and marketing
|
—
|
|
—
|
|
60,897
|
|
2,754
|
|
—
|
|
63,651
|
|
|
Engineering and development
|
—
|
|
—
|
|
23,926
|
|
4,499
|
|
—
|
|
28,425
|
|
|
General and administrative
|
347
|
|
61
|
|
30,095
|
|
657
|
|
—
|
|
31,160
|
|
|
Gain on sale of intangible assets
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Transaction expenses
|
—
|
|
—
|
|
461
|
|
—
|
|
—
|
|
461
|
|
|
Total operating expense
|
347
|
|
61
|
|
115,379
|
|
7,910
|
|
—
|
|
123,697
|
|
|
(Loss) income from operations
|
(347)
|
|
(61)
|
|
41,594
|
|
(3,119)
|
|
—
|
|
38,067
|
|
|
Interest expense and other income—net
|
—
|
|
29,565
|
|
351
|
|
(110)
|
|
—
|
|
29,806
|
|
|
(Loss) income before income taxes and equity earnings of unconsolidated entities
|
(347)
|
|
(29,626)
|
|
41,243
|
|
(3,009)
|
|
—
|
|
8,261
|
|
|
Income tax (benefit) expense
|
—
|
|
(7,051)
|
|
8,864
|
|
(226)
|
|
—
|
|
1,587
|
|
|
(Loss) income before equity earnings of unconsolidated entities
|
(347)
|
|
(22,575)
|
|
32,379
|
|
(2,783)
|
|
—
|
|
6,674
|
|
|
Equity (income) loss of unconsolidated entities, net of tax
|
(7,021)
|
|
(29,593)
|
|
2,782
|
|
1
|
|
33,831
|
|
—
|
|
|
Net income (loss)
|
$
|
6,674
|
|
$
|
7,018
|
|
$
|
29,597
|
|
$
|
(2,784)
|
|
$
|
(33,831)
|
|
$
|
6,674
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
1,245
|
|
—
|
|
1,245
|
|
|
Unrealized gain (loss) on cash flow hedge, net of taxes
|
—
|
|
286
|
|
—
|
|
—
|
|
—
|
|
286
|
|
|
Total comprehensive income (loss)
|
$
|
6,674
|
|
$
|
7,304
|
|
$
|
29,597
|
|
$
|
(1,539)
|
|
$
|
(33,831)
|
|
$
|
8,205
|
|
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Nine Months Ended September 30, 2020
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Issuer
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
|
Revenue
|
$
|
—
|
|
$
|
—
|
|
$
|
788,830
|
|
$
|
46,617
|
|
$
|
(10,840)
|
|
$
|
824,607
|
|
|
Cost of revenue
|
—
|
|
—
|
|
321,864
|
|
34,967
|
|
(10,840)
|
|
345,991
|
|
|
Gross profit
|
—
|
|
—
|
|
466,966
|
|
11,650
|
|
—
|
|
478,616
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
Sales and marketing
|
—
|
|
—
|
|
187,356
|
|
6,548
|
|
—
|
|
193,904
|
|
|
Engineering and development
|
—
|
|
—
|
|
69,563
|
|
10,395
|
|
—
|
|
79,958
|
|
|
General and administrative
|
1,244
|
|
183
|
|
90,042
|
|
(532)
|
|
—
|
|
90,937
|
|
|
Gain on sale of intangible assets
|
—
|
|
—
|
|
(2,365)
|
|
—
|
|
—
|
|
(2,365)
|
|
|
Transaction expenses
|
—
|
|
—
|
|
461
|
|
—
|
|
—
|
|
461
|
|
|
Total operating expense
|
1,244
|
|
183
|
|
345,057
|
|
16,411
|
|
—
|
|
362,895
|
|
|
(Loss) income from operations
|
(1,244)
|
|
(183)
|
|
121,909
|
|
(4,761)
|
|
—
|
|
115,721
|
|
|
Interest expense and other income—net
|
—
|
|
93,181
|
|
549
|
|
(336)
|
|
—
|
|
93,394
|
|
|
(Loss) income before income taxes and equity earnings of unconsolidated entities
|
(1,244)
|
|
(93,364)
|
|
121,360
|
|
(4,425)
|
|
—
|
|
22,327
|
|
|
Income tax (benefit) expense
|
—
|
|
(22,219)
|
|
33,581
|
|
1,937
|
|
—
|
|
13,299
|
|
|
(Loss) income before equity earnings of unconsolidated entities
|
(1,244)
|
|
(71,145)
|
|
87,779
|
|
(6,362)
|
|
—
|
|
9,028
|
|
|
Equity (income) loss of unconsolidated entities, net of tax
|
(10,272)
|
|
(81,416)
|
|
6,363
|
|
1
|
|
85,324
|
|
—
|
|
|
Net income (loss)
|
$
|
9,028
|
|
$
|
10,271
|
|
$
|
81,416
|
|
$
|
(6,363)
|
|
$
|
(85,324)
|
|
$
|
9,028
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
1,122
|
|
—
|
|
1,122
|
|
|
Unrealized gain (loss) on cash flow hedge, net of taxes
|
—
|
|
1,001
|
|
—
|
|
—
|
|
—
|
|
1,001
|
|
|
Total comprehensive income (loss)
|
$
|
9,028
|
|
$
|
11,272
|
|
$
|
81,416
|
|
$
|
(5,241)
|
|
$
|
(85,324)
|
|
$
|
11,151
|
|