UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 17, 2016
Endurance International Group Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 001- 36131 | 46-3044956 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
10 Corporate Drive, Suite 300 Burlington, MA |
01803 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (781) 852-3200
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01. | Other Events. |
On February 9, 2016, EIG Investors Corp. (EIG Investors Corp.), a wholly owned subsidiary of Endurance International Group Holdings, Inc. (the Company), issued $350.0 million aggregate principal amount of its unsecured 10.875% senior notes due 2024 (the Notes) in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act). The Company plans to file (a) a Registration Statement on Form S-4 relating to an offer to exchange the Notes for new 10.875% senior notes due 2024 (the Exchange Notes) that will be registered under the Securities Act (the Exchange Registration Statement) and (b) a Registration Statement on Form S-3 relating to the registration of the Exchange Notes for resale in market-making transactions by one of its affiliates (together with the Exchange Registration statement, the Registration Statements).
In connection with the Registration Statements, the Company is filing this Current Report on Form 8-K for the purpose of including certain condensed consolidating financial information regarding the issuer, the guarantors and the non-guarantors of the Notes and the Exchange Notes required by Rule 3-10(d) of Regulation S-X, as well as unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2016 giving effect to the Companys acquisition of Constant Contact, Inc. (Acquisition).
Exhibit 99.1 to this report revises the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission (the SEC) on February 29, 2016 (as amended by Amendment No. 1 to Form 10-K filed with the SEC on June 28, 2016, the Form 10-K), to revise Notes 2 and 9 to reflect the application of ASU 2015-03, InterestImputation of Interest, Simplifying the Presentation of Debt Issuance Costs, which we adopted beginning on January 1, 2016 and retrospectively for all periods presented, and to include Note 19, Supplemental Guarantor Financial Information. Exhibit 99.2 to this report revises the unaudited condensed consolidated financial statements included in the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, filed with the SEC on November 4, 2016 (the Form 10-Q), to include Note 18, Supplemental Guarantor Financial Information. All other information in the Form 10-K and the Form 10-Q remain unchanged, and the information in this report should be read in conjunction with the Form 10-K and the Form 10-Q.
Item 9.01. | Financial Statements and Exhibits. |
(b) | Pro forma financial information |
Exhibit 99.3 to this report presents additional pro forma financial information of the Company relating to the Acquisition for the nine months ended September 30, 2016.
(d) | Exhibits |
23.1 | Consent of BDO USA, LLP, An Independent Registered Public Accounting Firm. | |
99.1 | Revised Audited Consolidated Financial Statements of Endurance International Group Holdings, Inc. as of December 31, 2014 and 2015 and for the three years ended December 31, 2015. | |
99.2 | Revised Unaudited Consolidated Financial Statements of Endurance International Group Holdings, Inc. as of December 31, 2015 and September 30, 2016 and for the three and nine months ended September 30, 2015 and 2016. | |
99.3 | Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2016. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENDURANCE INTERNATIONAL GROUP HOLDINGS, INC. | ||||||
Date: November 17, 2016 | By: | /s/ Marc Montagner | ||||
Name: Marc Montagner Title: Chief Financial Officer |
EXHIBIT INDEX
Exhibit No. |
Description | |
23.1 | Consent of BDO USA, LLP, An Independent Registered Public Accounting Firm. | |
99.1 | Revised Audited Consolidated Financial Statements of Endurance International Group Holdings, Inc. as of December 31 2014 and 2015 and for the three years ended December 31, 2015. | |
99.2 | Revised Unaudited Consolidated Financial Statements of Endurance International Group Holdings, Inc. as of December 31, 2015 and September 30, 2016 and for the three and nine months ended September 30, 2015 and 2016. | |
99.3 | Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2016. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
Exhibit 23.1
Endurance International Group Holdings, Inc.
Burlington, Massachusetts
We hereby consent to the incorporation by reference in Registration Statements on Form S-8 (No. 333-191894, No. 333-209680 and No. 333-213095) of Endurance International Group Holdings, Inc. of our report dated February 29, 2016 (except for the matters discussed in Notes 2, 9 and 19, as to which the date is November 17, 2016), relating to the consolidated financial statements of Endurance International Group Holdings, Inc., which appear in this Current Report on Form 8-K of Endurance International Group Holdings, Inc., dated November 17, 2016.
/s/ BDO USA, LLP
Boston, Massachusetts
November 17, 2016
Exhibit 99.1
ENDURANCE INTERNATIONAL GROUP HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
2 | ||||
3 | ||||
Consolidated Statements of Operations and Comprehensive Loss |
4 | |||
5 | ||||
6 | ||||
8 |
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Endurance International Group Holdings, Inc.
Burlington, Massachusetts
We have audited the accompanying consolidated balance sheets of Endurance International Group Holdings, Inc. as of December 31, 2014 and 2015 and the related consolidated statements of operations and comprehensive loss, changes in stockholders equity and cash flows for each of the three years in the period ended December 31, 2015. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Endurance International Group Holdings, Inc. as of December 31, 2014 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Endurance International Group Holdings, Inc.s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 29, 2016 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Boston, Massachusetts
February 29, 2016
(except for the matters discussed in Notes 2, 9 and 19, as to which the date is November 17, 2016)
2
Endurance International Group Holdings, Inc.
(in thousands, except share and per share amounts)
December 31, 2014 |
December 31, 2015 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 32,379 | $ | 33,030 | ||||
Restricted cash |
1,325 | 1,048 | ||||||
Accounts receivable |
10,201 | 12,040 | ||||||
Deferred tax assetshort term |
13,961 | | ||||||
Prepaid domain name registry fees |
49,605 | 55,793 | ||||||
Prepaid expenses and other current assets |
13,173 | 15,675 | ||||||
|
|
|
|
|||||
Total current assets |
120,644 | 117,586 | ||||||
Property and equipmentnet |
56,837 | 75,762 | ||||||
Goodwill |
1,105,023 | 1,207,255 | ||||||
Other intangible assetsnet |
410,338 | 359,786 | ||||||
Investments |
40,447 | 27,905 | ||||||
Prepaid domain name registry fees, net of current portion |
7,957 | 9,884 | ||||||
Other assets |
4,397 | 4,322 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,745,643 | $ | 1,802,500 | ||||
|
|
|
|
|||||
Liabilities, redeemable non-controlling interest and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 8,960 | $ | 12,280 | ||||
Accrued expenses |
38,275 | 50,869 | ||||||
Deferred revenue |
259,567 | 285,945 | ||||||
Current portion of notes payable |
60,500 | 77,500 | ||||||
Current portion of capital lease obligations |
3,793 | 5,866 | ||||||
Deferred considerationshort term |
13,917 | 51,488 | ||||||
Other current liabilities |
10,358 | 3,973 | ||||||
|
|
|
|
|||||
Total current liabilities |
395,370 | 487,921 | ||||||
Long-term deferred revenue |
65,850 | 79,682 | ||||||
Notes payablelong term |
1,025,975 | 1,014,885 | ||||||
Capital lease obligationslong term |
4,302 | 7,215 | ||||||
Deferred tax liabilitylong term |
35,579 | 28,786 | ||||||
Deferred considerationlong term |
10,722 | 813 | ||||||
Other liabilities |
2,806 | 3,524 | ||||||
|
|
|
|
|||||
Total liabilities |
1,540,604 | 1,622,826 | ||||||
|
|
|
|
|||||
Redeemable non-controlling interest |
30,543 | | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred Stockpar value $0.0001; 5,000,000 shares authorized; no shares issued or outstanding |
| | ||||||
Common Stockpar value $0.0001; 500,000,000 shares authorized; 130,959,113 and 132,024,558 shares issued at December 31, 2014 and December 31, 2015, respectively; 130,914,333 and 131,938,485 outstanding at December 31, 2014 and December 31, 2015, respectively |
14 | 14 | ||||||
Additional paid-in capital |
816,591 | 848,740 | ||||||
Accumulated other comprehensive loss |
(517 | ) | (1,718 | ) | ||||
Accumulated deficit |
(641,592 | ) | (667,362 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
174,496 | 179,674 | ||||||
|
|
|
|
|||||
Total liabilities, redeemable non-controlling interest and stockholders equity |
$ | 1,745,643 | $ | 1,802,500 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
3
Endurance International Group Holdings, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Year Ended December 31, 2013 |
Year Ended December 31, 2014 |
Year Ended December 31, 2015 |
||||||||||
Revenue |
$ | 520,296 | $ | 629,845 | $ | 741,315 | ||||||
Cost of revenue |
350,103 | 381,488 | 425,035 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
170,193 | 248,357 | 316,280 | |||||||||
|
|
|
|
|
|
|||||||
Operating expense: |
||||||||||||
Sales and marketing |
117,689 | 146,797 | 145,419 | |||||||||
Engineering and development |
23,205 | 19,549 | 26,707 | |||||||||
General and administrative |
92,347 | 69,533 | 90,968 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expense |
233,241 | 235,879 | 263,094 | |||||||||
|
|
|
|
|
|
|||||||
Income (loss) from operations |
(63,048 | ) | 12,478 | 53,186 | ||||||||
|
|
|
|
|
|
|||||||
Other income (expense): |
||||||||||||
Other income |
| | 5,440 | |||||||||
Interest income |
122 | 331 | 414 | |||||||||
Interest expense |
(98,449 | ) | (57,414 | ) | (58,828 | ) | ||||||
|
|
|
|
|
|
|||||||
Total other expensenet |
(98,327 | ) | (57,083 | ) | (52,974 | ) | ||||||
|
|
|
|
|
|
|||||||
Income (loss) before income taxes and equity earnings of unconsolidated entities |
(161,375 | ) | (44,605 | ) | 212 | |||||||
Income tax expense (benefit) |
(3,596 | ) | 6,186 | 11,342 | ||||||||
|
|
|
|
|
|
|||||||
Loss before equity earnings of unconsolidated entities |
(157,779 | ) | $ | (50,791 | ) | $ | (11,130 | ) | ||||
|
|
|
|
|
|
|||||||
Equity loss of unconsolidated entities, net of tax |
2,067 | 61 | 14,640 | |||||||||
|
|
|
|
|
|
|||||||
Net loss |
$ | (159,846 | ) | $ | (50,852 | ) | $ | (25,770 | ) | |||
|
|
|
|
|
|
|||||||
Net loss attributable to non-controlling interest |
(659 | ) | (8,017 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net loss attributable to Endurance International Group Holdings, Inc. |
$ | (159,187 | ) | $ | (42,835 | ) | $ | (25,770 | ) | |||
|
|
|
|
|
|
|||||||
Comprehensive loss: |
||||||||||||
Foreign currency translation adjustments |
(55 | ) | (462 | ) | (1,281 | ) | ||||||
Unrealized gain on cash flow hedge, net of taxes of $0, $0 and $46 for the years ended December 31, 2013, 2014 and 2015 |
| | 80 | |||||||||
|
|
|
|
|
|
|||||||
Total comprehensive loss |
$ | (159,242 | ) | $ | (43,297 | ) | $ | (26,971 | ) | |||
|
|
|
|
|
|
|||||||
Net loss per share attributable to Endurance International Group Holdings, Inc.basic and diluted |
$ | (1.55 | ) | $ | (0.34 | ) | $ | (0.20 | ) | |||
|
|
|
|
|
|
|||||||
Weighted-average number of common shares used in computing net loss per share attributable to Endurance International Group Holdings, Inc.basic and diluted |
102,698,773 | 127,512,346 | 131,340,557 | |||||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
Endurance International Group Holdings, Inc.
Consolidated Statements of Changes in Stockholders Equity
(in thousands, except share amounts)
Common Stock | Additional Paid-in Capital |
Accumulated Other Comprehensive Loss |
Accumulated Deficit |
Total Stock- holders Equity |
||||||||||||||||||||
Number | Amount | |||||||||||||||||||||||
BalanceDecember 31, 2012 |
96,745,992 | $ | 10 | $ | 509,715 | $ | | $ | (439,570 | ) | $ | 70,155 | ||||||||||||
Issuance of common stock in connection with initial public offering, net of issuance costs of $18,219,271 |
21,051,000 | 2 | 234,391 | | | 234,393 | ||||||||||||||||||
Fractional share payment |
(47 | ) | | (1 | ) | | | (1 | ) | |||||||||||||||
Vesting of restricted shares |
6,971,595 | 1 | (1 | ) | | | | |||||||||||||||||
Common stock returned to the Company |
(1,996 | ) | | | | | | |||||||||||||||||
Retirement of treasury stock |
| | (24 | ) | | | (24 | ) | ||||||||||||||||
Non-controlling interest accretion |
| | (123 | ) | | | (123 | ) | ||||||||||||||||
Other comprehensive loss |
| | | (55 | ) | | (55 | ) | ||||||||||||||||
Net loss |
| | (659 | ) | | (159,187 | ) | (159,846 | ) | |||||||||||||||
Stock-based compensation |
| | 10,763 | | | 10,763 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
BalanceDecember 31, 2013 |
124,766,544 | $ | 13 | $ | 754,061 | $ | (55 | ) | $ | (598,757 | ) | $ | 155,262 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Vesting of restricted shares |
866,820 | 1 | (1 | ) | | | | |||||||||||||||||
Exercise of stock options |
11,390 | | 137 | | | 137 | ||||||||||||||||||
Shares issued in connection with acquisitions |
2,269,579 | | 27,235 | | | 27,235 | ||||||||||||||||||
Shares issued in follow-on offering, net of issuance costs of $2,405,176 |
3,000,000 | | 41,095 | | | 41,095 | ||||||||||||||||||
Non-controlling interest accretion |
| | (13,962 | ) | | | (13,962 | ) | ||||||||||||||||
Other comprehensive loss |
| | | (462 | ) | | (462 | ) | ||||||||||||||||
Net loss |
| | (8,017 | ) | | (42,835 | ) | (50,852 | ) | |||||||||||||||
Stock-based compensation |
| | 16,043 | | | 16,043 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
BalanceDecember 31, 2014 |
130,914,333 | $ | 14 | $ | 816,591 | $ | (517 | ) | $ | (641,592 | ) | $ | 174,496 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Vesting of restricted shares |
838,809 | | | | | | ||||||||||||||||||
Exercise of stock options |
185,343 | | 2,224 | | | 2,224 | ||||||||||||||||||
Other comprehensive loss |
| | | (1,201 | ) | | (1,201 | ) | ||||||||||||||||
Net loss |
| | | | (25,770 | ) | (25,770 | ) | ||||||||||||||||
Stock-based compensation |
| | 29,925 | | | 29,925 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
BalanceDecember 31, 2015 |
131,938,485 | $ | 14 | $ | 848,740 | $ | (1,718 | ) | $ | (667,362 | ) | $ | 179,674 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
Endurance International Group Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31, 2013 |
Year Ended December 31, 2014 |
Year Ended December 31, 2015 |
||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (159,846 | ) | $ | (50,852 | ) | $ | (25,770 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||||||
Depreciation of property and equipment |
18,615 | 30,956 | 34,010 | |||||||||
Amortization of other intangible assets from acquisitions |
105,915 | 102,723 | 91,057 | |||||||||
Amortization of deferred financing costs |
2,768 | 83 | 82 | |||||||||
Amortization of net present value of deferred consideration |
1,590 | 183 | 1,264 | |||||||||
Stock-based compensation |
10,763 | 16,043 | 29,925 | |||||||||
Deferred tax expense (benefit) |
(4,777 | ) | 3,640 | 7,120 | ||||||||
(Gain) loss on sale of assets |
309 | (168 | ) | (155 | ) | |||||||
Gain from unconsolidated entities |
| | (5,440 | ) | ||||||||
Loss of unconsolidated entities |
2,067 | 61 | 14,640 | |||||||||
Dividend from minority interest |
| 167 | | |||||||||
(Gain) loss from change in deferred consideration |
(466 | ) | 384 | 1,174 | ||||||||
Financing costs expensed |
10,833 | | | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(1,075 | ) | (691 | ) | (1,659 | ) | ||||||
Prepaid expenses and other current assets |
(7,147 | ) | (25,675 | ) | (13,187 | ) | ||||||
Accounts payable and accrued expenses |
2,020 | (1,615 | ) | 9,926 | ||||||||
Deferred revenue |
51,047 | 67,654 | 34,241 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
32,616 | 142,893 | 177,228 | |||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities: |
||||||||||||
Businesses acquired in purchase transaction, net of cash acquired |
(38,659 | ) | (93,698 | ) | (97,795 | ) | ||||||
Purchases of property and equipment |
(33,523 | ) | (23,904 | ) | (31,243 | ) | ||||||
Cash paid for minority investment |
| (34,140 | ) | (8,475 | ) | |||||||
Proceeds from sale of property and equipment |
54 | 94 | 93 | |||||||||
Proceeds note receivable |
| | 3,454 | |||||||||
Proceeds from sale of assets |
23 | 100 | 191 | |||||||||
Purchases of intangible assets |
(751 | ) | (200 | ) | (76 | ) | ||||||
Net (deposits) and withdrawals of principal balances in restricted cash accounts |
(231 | ) | 433 | 50 | ||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(73,087 | ) | (151,315 | ) | (133,801 | ) | ||||||
|
|
|
|
|
|
6
Endurance International Group Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31, 2013 |
Year Ended December 31, 2014 |
Year Ended December 31, 2015 |
||||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from issuance of term loan |
1,145,000 | | | |||||||||
Repayment of term loan |
(1,212,625 | ) | (10,500 | ) | (10,500 | ) | ||||||
Proceeds from borrowing of revolver |
57,000 | 150,000 | 147,000 | |||||||||
Repayment of revolver |
(72,000 | ) | (100,000 | ) | (130,000 | ) | ||||||
Payment of financing costs |
(12,552 | ) | (53 | ) | | |||||||
Payment of deferred consideration |
(55,635 | ) | (98,318 | ) | (14,991 | ) | ||||||
Payment of redeemable non-controlling interest liability |
| (4,190 | ) | (30,543 | ) | |||||||
Principal payments on capital lease obligations |
| (3,608 | ) | (4,822 | ) | |||||||
Proceeds from exercise of stock options |
| 137 | 2,224 | |||||||||
Proceeds from issuance of common stock |
252,612 | 43,500 | | |||||||||
Issuance costs of common stock |
(17,512 | ) | (2,904 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) financing activities |
84,288 | (25,936 | ) | (41,632 | ) | |||||||
|
|
|
|
|
|
|||||||
Net effect of exchange rate on cash and cash equivalents |
(247 | ) | (78 | ) | (1,144 | ) | ||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
43,570 | (34,436 | ) | 651 | ||||||||
Cash and cash equivalents: |
||||||||||||
Beginning of period |
23,245 | 66,815 | 32,379 | |||||||||
|
|
|
|
|
|
|||||||
End of period |
$ | 66,815 | $ | 32,379 | $ | 33,030 | ||||||
|
|
|
|
|
|
|||||||
Supplemental cash flow information: |
||||||||||||
Interest paid |
$ | 100,856 | $ | 57,418 | $ | 57,338 | ||||||
Income taxes paid |
$ | 1,502 | $ | 2,615 | $ | 4,510 | ||||||
Supplemental disclosure of non-cash financing activities: |
||||||||||||
Shares issued in connection with the acquisition of Directi |
$ | | $ | 27,235 | $ | | ||||||
Assets acquired under capital lease |
$ | | $ | 11,704 | $ | 9,795 |
See accompanying notes to consolidated financial statements.
7
Endurance International Group Holdings, Inc.
Notes to Consolidated Financial Statements
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 company, EIG Investors Corp. (EIG Investors), its primary operating subsidiary company, The Endurance International Group, Inc. (EIG), and other subsidiary companies 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 by investment funds and entities affiliated with Warburg Pincus and Goldman, Sachs & Co. on December 22, 2011 of a controlling interest in EIG Investors, EIG and EIGs subsidiary companies. 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.
Stock Split and Restated Certificate of Incorporation
On October 23, 2013, immediately after giving effect to a 105,187.363-for-one stock split, the Company had 105,187,363 shares of common stock issued and outstanding. After giving effect to the Companys restated certificate of incorporation filed on October 23, 2013, the Companys authorized capital stock consists of 500,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share.
Corporate Reorganization
Pursuant to the terms of a corporate reorganization that was completed following the stock split and prior to the completion of the Companys initial public offering, as described below, the former direct owner of Holdings, a limited partnership, was dissolved and in liquidation distributed the shares of the Companys common stock to its limited partners. The distribution of common stock to the limited partners was determined by the value each partner would have received under the distribution provisions of the limited partnership agreement, valued by reference to the initial public offering price.
All share data in the consolidated financial statements retroactively reflects the shares of the Companys common stock after giving effect to the 105,187.363-for-one stock split and the filing of the restated certificate of incorporation.
Initial Public Offering
On October 30, 2013, the Company closed an initial public offering (IPO) of its common stock, which resulted in the sale of 21,051,000 shares of its common stock at a public offering price of $12.00 per share. The offering resulted in gross proceeds to the Company of $252.6 million and net proceeds to the Company of $232.1 million after deducting underwriting discounts, commissions and offering expenses payable by the Company. Offering expenses include both capitalized and non-capitalized expenses.
Follow-on Offerings
On November 26, 2014, the Company closed a follow-on offering of its common stock, in which the Company sold 3,000,000 shares of its common stock at a public offering price of $14.50 per share and selling stockholders
8
sold 10,000,000 shares of common stock. The underwriters also exercised their overallotment option to purchase an additional 1,950,000 shares of common stock from the selling stockholders. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The follow-on offering resulted in gross proceeds to the Company of $43.5 million and net proceeds to the Company of $41.1 million after deducting underwriting discounts and commissions of $1.7 million and other estimated offering expenses of approximately $0.7 million payable by the Company. The Company incurred an additional $0.3 million of offering expenses on behalf of the selling stockholders, which was included in general and administrative expense in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2014.
On March 11, 2015, the Company closed a follow-on offering of its common stock, in which selling stockholders sold 12,000,000 shares of common stock at a public offering price of $19.00 per share. The underwriter also exercised its overallotment option to purchase an additional 1,800,000 shares of common stock from the selling stockholders. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The Company incurred $0.7 million of offering expenses on behalf of the selling stockholders, which was included in general and administrative expense in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2015.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements, which include the accounts of the Company and its subsidiaries, have been prepared using accounting principles generally accepted in the United States of America (U.S. GAAP). All intercompany transactions have been eliminated on consolidation. The Company has reviewed the criteria of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 280-10, Segment Reporting, and determined that the Company is comprised of only one segment for reporting purposes.
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 Companys 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.
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 deposits and cash held by merchant banks and payment processors, which provide collateral against any charge-backs, fees, or other items that may be charged back to the Company by credit card companies and other merchants.
9
Accounts Receivable
Accounts receivable is primarily composed of cash due from credit card companies for unsettled transactions charged to subscribers 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 Companys 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 Companys financial instruments, which include cash equivalents, accounts receivable, accounts payable and certain accrued expenses, approximate their fair values due to their short maturities. The carrying amount of the Companys contingent consideration is recorded at fair value. The fair value of the Companys notes payable is based on the borrowing rates currently available to the Company for debt with similar terms and average maturities and approximate their carrying value.
Derivative Instruments and Hedging Activities
FASB ASC 815, Derivatives and Hedging (ASC 815), 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 entitys financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Companys 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 risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
In accordance with the FASBs fair value measurement guidance in ASU 2011-04, 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.
10
Concentrations of Credit and Other Risks
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash and cash equivalents are maintained at accredited financial institutions, and PayPal balances are at times without and in excess of federally insured limits. The Company has never experienced any losses related to these balances and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
For the years ended December 31, 2013, 2014 and 2015, no subscriber represented 10% or more of the Companys total revenue.
Property and Equipment
Property and equipment is recorded at cost or fair value if 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 capital lease 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 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 years ended December 31, 2013, 2014 and 2015, the Company capitalized internal-use software development costs of $1.2 million, $5.4 million and $5.5 million, respectively.
Investments
The Company has minority investments in several privately-held companies. Investments in privately-held companies, in which the Company has a voting interest between 20% and 50% and exercises significant influence are accounted for using the equity method of accounting. Under this method, the investment balance, originally recorded at cost, is adjusted to recognize the Companys share of net earnings or losses of the investee company as they occur, limited to the extent of the Companys investment in, advances to and commitments for the investee. The Companys share of net earnings or losses of the investee are reflected in equity losses of unconsolidated entities, net of tax, in the Companys accompanying consolidated statements of operations. Investments in which the Company has a voting interest of less than 20% and over which it does not have significant influence are accounted for under the cost method of accounting.
The Company assesses the need to record impairment losses on its investments and records such losses when the impairment of an investment is determined to be other than temporary in nature. On October 31, 2013 the Company reduced its 50% voting interest in one of the minority investments to 40% and recorded a $2.6 million impairment charge (see Note 8).
11
Goodwill
Goodwill relates to amounts that arose in connection with the Companys 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 business, a significant adverse change in certain 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, the 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 ASC 350, IntangiblesGoodwill and Other, or ASC 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 has determined it operates in one segment and its entire business represents one reporting unit. Historically, the Company has performed its annual impairment analysis during the fourth quarter of each year. The provisions of ASC 350 require that a two-step impairment test be performed for goodwill. In the first step, the Company compares the fair value of its reporting unit to which goodwill has been allocated to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting units goodwill. If the carrying value of a reporting units goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.
The Company assesses fair value based on current market capitalization. As of December 31, 2014 and, 2015, the fair value of the Companys reporting unit exceeded the carrying value of the reporting units net assets. Therefore, no impairment existed as of those dates.
Determining the fair value of a reporting unit, if applicable, requires the Company to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions relate to, among other things, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. The Company bases its fair value estimates on assumptions it believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
The Company had goodwill of $1,105.0 million and $1,207.3 million as of December 31, 2014 and 2015, respectively, and no impairment charges have been recorded.
Long-Lived Assets
The Companys long-lived assets consist primarily of intangible assets, including acquired subscriber relationships, trade names, intellectual property, developed technology, domain names available for sale and in-process research and development (IPR&D). The Company also has long-lived tangible assets, primarily consisting of property and equipment. The majority of the Companys intangible assets are recorded in connection with its various acquisitions. The Companys 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 is recognized in accordance with their estimated projected cash flows.
12
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. No such impairment losses have been identified for the years ended December 31, 2013, 2014 and 2015.
Indefinite life intangible assets include domain names that are available for sale which are recorded at 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.
Acquired In-Process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires that have not been completed at the date of acquisition. The acquired IPR&D is capitalized as an intangible asset and reviewed on a quarterly basis to determine future use. Any impairment loss of the acquired IPR&D is charged to expense in the period the impairment is identified. No such impairment losses have been identified for the years ended December 31, 2013, 2014 and 2015. Upon commercialization, the acquired fair value of the IPR&D will be amortized over its estimated useful life.
During 2014 the Company capitalized $4.6 million of IPR&D in connection with its acquisition of WebZai, Ltd. (Webzai). During the year ended December 31, 2015 $3.2 million was reclassified to developed technology as of December 31, 2015 and is being amortized over the estimated useful life of 4.0 years. During 2014, the Company did not capitalize any IPR&D in connection with its acquisitions of the web presence business of Directi (Directi), the domain name business, the assets of the BuyDomains business of Name Media, Inc. (BuyDomains) and the assets of Arvixe LLC (Arvixe). During 2015, the Company did not capitalize any IPR&D in connection with its acquisitions of the assets of the U.S. retail portion of the Verio business of NTT America, Inc. (Verio), the assets of World Wide Web Hosting, LLC (WWWH), the assets of Ace Data Centers, Inc. (Ace DC) and the ownership interests in Ace Holdings, LLC (Ace Holdings), (these acquired assets and ownership interests, collectively, Ace) and the assets of Ecommerce, LLC, (Ecommerce).
Revenue Recognition
The Company generates revenue primarily from selling subscriptions for cloud-based products and services. The subscriptions are similar across all of the Companys brands and are provided under contracts pursuant to which the Company has ongoing obligations to support the subscriber. These contracts are generally for service periods of up to 36 months and typically require payment in advance. The Company recognizes the associated revenue ratably over the service period, whether the associated revenue is derived from a direct subscriber or through a reseller. Deferred revenue represents the liability to subscribers for advance billings for services not yet provided and the fair value of the assumed liability outstanding for subscriber relationships purchased in an acquisition.
The Company sells domain name registrations that provide a subscriber with the exclusive use of a domain name. These domains are primarily obtained by one of the Companys registrars on the subscribers behalf, or to a lesser extent by the Company from third-party registrars on the subscribers behalf. Domain registration fees are non-refundable.
13
Revenue from the sale of a domain name registration by a registrar within the Company is recognized ratably over the subscribers service period as the Company has the obligation to provide support over the domain term. Revenue from the sale of a domain name registration purchased by the Company from a third-party registrar is recognized when the subscriber is billed on a gross basis as there are no remaining Company obligations once the sale to the subscriber occurs, and the Company has full discretion on the sales price and bears all credit risk.
Revenue from the sale of premium domains is recognized when persuasive evidence of an arrangement to sell such domains exists, delivery of an authorization key to access the domain name has occurred, the fee for the sale of the premium domain is fixed or determinable, and collection of the fee for the sale of the premium domain is deemed probable.
Revenue from the sale of non-term based applications and services, such as certain online security products and professional technical services, referral fees and commissions, is recognized when the product is purchased, the service is provided or the referral fee or commission is earned, respectively.
A substantial amount of the Companys revenue is generated from transactions that are multiple-element service arrangements that may include hosting plans, domain name registrations, and other cloud-based products and services.
The Company follows the provisions of the FASB, Accounting Standards Update (ASU) No. 2009-13 (ASU 2009-13), Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangementsa consensus of the FASB Emerging Issues Task Force and allocates revenue to each deliverable in a multiple-element service arrangement based on its respective relative selling price.
Under ASU 2009-13, to treat deliverables in a multiple-element service arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately. Hosting services, domain name registrations, cloud-based products and services have standalone value and are often sold separately.
When multiple deliverables included in a multiple-element service arrangement are separated into different units of accounting, the total transaction amount is allocated to the identified separate units based on a relative selling price hierarchy. The Company determines the relative selling price for a deliverable based on vendor specific objective evidence (VSOE) of fair value, if available, or best estimate of selling price (BESP), if VSOE is not available. The Company has determined that third-party evidence of selling price (TPE) is not a practical alternative due to differences in its multi-brand offerings compared to competitors and the lack of availability of relevant third-party pricing information. The Company has not established VSOE for its offerings due to lack of pricing consistency, the introduction of new products, services and other factors. Accordingly, the Company generally allocates revenue to the deliverables in the arrangement based on the BESP. The Company determines BESP by considering its relative selling prices, competitive prices in the marketplace and management judgment; these selling prices, however, may vary depending upon the particular facts and circumstances related to each deliverable. The Company analyzes the selling prices used in its allocation of transaction amount, at a minimum, on a quarterly basis. Selling prices are analyzed on a more frequent basis if a significant change in our business necessitates a more timely analysis.
The Company maintains a reserve for refunds and chargebacks related to revenue that has been recognized and is expected to be refunded. The Company had a refund and chargeback reserve of $0.6 million and $0.5 million as of December 31, 2014 and 2015, respectively. The portion of deferred revenue that is expected to be refunded at December 31, 2014 and 2015 was $2.2 million and $1.8 million, respectively. Based on refund history, a significant majority of refunds happen in the same fiscal month that the customer contract starts or renews. Approximately 80% of all refunds happen in the same fiscal month that the contract starts or renews, and approximately 92% of all refunds happen within 45 days of the contract start or renewal date.
14
Direct Costs of Revenue
The Companys direct costs of revenue include only those costs directly incurred in connection with the provision of its cloud-based products and services. The direct costs of registering domain names with registries are spread over the terms of the arrangement and the cost of reselling domains of other third-party registrars are expensed as incurred. Cost of revenue includes depreciation on data center equipment and support infrastructure and amortization expense related to the amortization of long-lived intangible assets.
Engineering and Development Costs
Engineering and development costs incurred in the development and maintenance of the Companys technology infrastructure are expensed as incurred.
Sales and Marketing Costs
The Company engages in sales and marketing through various online marketing channels, which include affiliate and search marketing as well as online partnerships. The Company expenses sales and marketing costs as incurred. For the years ended December 31, 2013, 2014 and 2015, the Companys sales and marketing costs were $117.7 million, $146.8 million and $145.4 million, respectively.
Foreign Currency
The Company has sales in a number of foreign currencies. In 2013, the Company commenced operations in foreign locations which report in the local currency. The assets and liabilities of the Companys foreign locations are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded as a separate component of stockholders equity and have not been material. Foreign currency transaction gains and losses relate to the settlement of assets or liabilities in another currency.
Foreign currency transaction losses were $1.2 million, $0.8 million and $1.9 million during the years ended December 31, 2013, 2014 and 2015, respectively. These amounts are recorded in general and administrative expense in the Companys consolidated statements of operations and comprehensive loss.
Income Taxes
Income taxes are accounted for in accordance with ASC 740, Accounting for Income Taxes, or 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 enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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. There were no unrecognized tax benefits in the years ended December 31, 2013, 2014 and 2015.
The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2013, 2014 and 2015, the Company did not recognize any interest and penalties related to unrecognized tax benefits.
15
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 ASC 718, CompensationStock Compensation, or ASC 718, 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 granted, the Company estimates the fair value of each restricted stock award based on the closing trading price of its common stock on the date of grant.
Net Loss per Share
The Company considered ASC 260-10, Earnings per Share, or ASC 260-10, which requires the presentation of both basic and diluted earnings per share in the consolidated statements of operations and comprehensive loss. The Companys basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, and, if there are dilutive securities, diluted income 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.
The Companys potentially dilutive shares of common stock are excluded from the diluted weighted-average number of shares of common stock outstanding as their inclusion in the computation would be anti-dilutive due to net losses. For the years ended December 31, 2013, 2014 and 2015, all non-vested shares granted prior to the Companys IPO in October 2013, stock options, restricted stock awards and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive as a result of the net losses for these periods.
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in thousands, except share amounts and per share data) |
||||||||||||
Computation of basic and diluted net loss per share: |
||||||||||||
Net loss attributable to Endurance International Group Holdings, Inc. |
$ | (159,187 | ) | $ | (42,835 | ) | $ | (25,770 | ) | |||
|
|
|
|
|
|
|||||||
Net loss per share attributable to Endurance International Group Holdings, Inc.: |
||||||||||||
Basic and diluted |
$ | (1.55 | ) | $ | (0.34 | ) | $ | (0.20 | ) | |||
|
|
|
|
|
|
|||||||
Weighted average number of common shares used in computing net loss per share attributable to Endurance International Group Holdings, Inc.: |
||||||||||||
Basic and diluted |
102,698,773 | 127,512,346 | 131,340,557 | |||||||||
|
|
|
|
|
|
16
Guarantees
The Company has the following guarantees and indemnifications:
In connection with its acquisitions of companies and assets from third parties, the Company may provide indemnification or guarantees to the sellers in the event of damages for breaches or other claims covered by such agreements.
In connection with various vendor contracts, including those by which a product or service of a third party is offered to subscribers of the Company, standard guaranty of subsidiary obligations and indemnification obligations exist.
As permitted under Delaware and other applicable law, the Companys charter and by-laws and those of its subsidiary companies provide that the Company shall indemnify its officers and directors for certain liabilities, including those incurred by reason of the fact that the officer or director is, was, or has agreed to serve as an officer or director of the Company. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited.
The Company leases office space and equipment under various operating leases. The Company has standard indemnification arrangements under these leases that require the Company to indemnify the lessor against losses, liabilities and claims incurred in connection with the premises or equipment covered by the Companys lease agreements, the Companys use of the premises, property damage or personal injury and breach of the agreement.
Through December 31, 2015, the Company had not experienced any losses related to these indemnification obligations and no claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and consequently concluded that the fair value of these obligations is negligible and no related liabilities were established.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgments and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In July 2015, the FASB approved a one-year deferral of the effective date to January 1, 2018, with early adoption to be permitted as of the original effective date of January 1, 2017. Once this standard becomes effective, companies may use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard.
In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, or ASU 2015-02. This new guidance provides a revised consolidation model that reporting entities use to evaluate partnerships and similar entities, evaluate service providers and decision makers as they relate to a variable interest entity, referred to as a VIE, and examine how related party interests in a VIE can affect the consolidation of that VIE. ASU 2015-02 is effective for annual reporting periods beginning after December 15, 2015 with early adoption permitted. The Company believes the adoption of ASU 2015-02 does not have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, InterestImputation of Interest, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. This new guidance changes the balance sheet presentation for deferred financing costs from being presented as an asset to being a deduction from the related recognized liability. The Company adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Cost, beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The unamortized value of deferred financing costs associated with our revolving credit facility were not affected by the ASU and continue to be presented as an asset on the Companys consolidated balance sheets.
17
In April 2015, the FASB issued ASU No. 2015-05, Intangibles Goodwill and OtherInternal Use Software (Subtopic 350-40): Customers Accounting for Fees Paid in a Cloud Computing Arrangement. This new guidance will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software. ASU 2015-05 is effective for annual reporting periods beginning after December 15, 2015. The Company believes the adoption of ASU 2015-05 does not have a material impact on its consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This new guidance requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer needs to record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the provisional amounts, calculated as if the accounting had been completed as of the acquisition date. ASU 2015-16 is effective for annual reporting periods beginning after December 15, 2015. The Company believe the adoption of ASU 2015-16 does not have a material effect on its accounting processes, however the ASU will affect its disclosures as the Company is required to disclose the adjustments made during the measurement period and their effect on the periods earnings.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, or ASU 2015-17. This new guidance requires that deferred tax liabilities and assets be classified as noncurrent in the balance sheet, in order to simplify the presentation of deferred income taxes. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016. The Company believes the adoption of ASU 2015-17 will not have a material impact on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements.
3. Acquisitions
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 IPR&D. 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 Companys 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. The fair value assigned to IPR&D is based on the cost approach. If applicable, the Company estimates the fair value of
18
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.
Acquisitions2013
During the year ended December 31, 2013, the Company made three small acquisitions. Under the terms of the purchase agreements, the Company acquired all of the outstanding shares of each entity for an aggregate purchase price of $5.4 million in cash plus deferred consideration payable of $5.5 million. The Company had estimated the fair value of the contingent deferred consideration of one acquisition to be $2.7 million. A full and final payment was subsequently made prior to December 31, 2013 for $2.0 million. The balance of the estimated earn-out payment of $0.7 million was written-down and recorded as an increase in earnings in general and administrative expense in the consolidated statements of operations for the year ended December 31, 2013. The deferred consideration of $2.8 million for one of the other acquisitions is payable three years after the acquisition date and was recorded as a long-term liability at December 31, 2014 and is recorded as a short-term liability at December 31, 2015. The purchase price of these acquisitions was allocated to long-lived intangible assets of $5.4 million and goodwill of $7.3 million.
During the year ended December 31, 2013, the Company made an initial investment of $8.8 million to acquire a 17.5% interest in a privately-held company based in the United Kingdom, JDI Backup Ltd. The agreement provided for the acquisition of additional equity interests from the shareholders of the non-controlling interest (NCI). In particular, it provided for a call option allowing the Company to acquire an additional equity interest during pre-specified call periods and a put option (only if the call option is exercised), for the then non-controlling interest shareholders (NCI shareholders) to put the remaining equity interest to the Company within pre-specified put periods, provided that the call option had been exercised during the appropriate call periods. In the fourth quarter of 2013, the Company exercised the call option in full for an additional $22.2 million in cash to acquire a controlling interest in JDI Backup.
Under the put option, the NCI shareholders can put their shares to the Company at a price calculated at the time of the exercise of the put option, subject to a minimum of $24.0 million. As the NCI is subject to a put option that is outside the control of the Company, it is deemed redeemable non-controlling interest and not recorded in permanent equity, and is being presented as mezzanine redeemable non-controlling interest on the consolidated balance sheet, and is subject to the SEC guidance under ASC 480-10-S99, Accounting for Redeemable Equity Securities.
Upon the exercise of the call option, the Company estimated the fair value of the assets and liabilities in accordance with the guidance for business combinations, and estimated that the value of the redeemable non-controlling interest on December 11, 2013 was $20.6 million. The difference between the initial fair value of the redeemable non-controlling interest and the value expected to be paid upon exercise of the put option is being accreted over the period commencing December 11, 2013, and up to the end of the first put option period, which commences on the eighteen-month anniversary of the acquisition date. During the year ended December 31, 2014, the Company paid $4.2 million to increase its investment in JDI Backup and entered into an amendment to the put option with the NCI shareholders, which proportionately reduced the value expected to be paid upon exercise. Adjustments to the carrying amount of the redeemable non-controlling interest are charged to additional paid-in capital. The estimated value of the redeemable non-controlling interest as of December 31, 2014 was $30.5 million and was $0 at December 31, 2015 as there was no longer a non-controlling interest. See Note 13 to the financial statements for additional information.
The estimated purchase price of $31.0 million and minority interest of $20.6 million was allocated primarily to goodwill of $38.0 million, long-lived intangible assets of $28.5 million and property and equipment of $0.3 million, which were offset by $9.3 million of deferred revenue, other liabilities of $2.6 million, deferred tax liabilities of $1.9 million and negative net working capital of $1.4 million. Goodwill allocated to the acquisition is not tax deductible.
19
Acquisitions2014
Directi
On January 23, 2014, the Company acquired the web presence business of Directi from Directi Web Technologies Holdings, Inc. (Directi Holdings). Directi provides web presence solutions to small and medium-sized businesses in various countries, including India, the United States, Turkey, China, Russia and Indonesia. The acquisition provides the Company with an established international presence focused on growing emerging markets as well as the ability to expand its geographic footprint by taking its existing portfolio of brands to international markets.
The final purchase price of $109.8 million consisted of cash payments of $82.6 million in aggregate and the issuance of 2,269,579 unregistered shares of the Companys common stock to Directi Holdings equivalent to $27.2 million or $12.00 per share. 2,123,039 shares of the Companys common stock were issued at closing and 146,540 shares of the Companys common stock were issued in May 2014. Cash payments consisted of a $5.0 million advance paid in August 2013, $20.5 million paid at the closing and $57.1 million in deferred consideration that was paid during the year ended December 31, 2014.
The purchase price of $109.8 million has been allocated to goodwill of $91.2 million, long-lived intangible assets consisting of subscriber relationships, developed technology, trade names and leasehold interests of $7.7 million, $6.4 million, $7.4 million and $0.3 million, respectively, property and equipment of $2.7 million, other assets of $4.7 million and working capital of $0.2 million, offset by deferred revenue of $3.0 million, other payables of $5.4 million and deferred tax liabilities of $2.4 million. The majority of the purchase price was allocated to goodwill, which is not deductible for tax purposes. The goodwill reflects the value of an established international business and infrastructure that enables the Company to increase its market penetration in emerging markets. The intangible assets are being amortized in accordance with their estimated projected cash flows. Subscriber relationships, developed technology, trade names and leasehold interests are being amortized over 17 years, 7 years, 5 years and 4 years, respectively.
Domain Name Business
In addition, in connection with the acquisition of Directi, the Company was initially obligated to make additional aggregate payments of up to approximately $62.0 million subject to specified terms, conditions and operational contingencies. Of this $62.0 million, the Company has committed a total of $36.2 million consisting of cash payments of $27.2 million and future earn-out payments of $9.0 million to purchase a domain name business from a company associated with the founders of Directi Holdings pursuant to agreements entered into during the year ended December 31, 2014. The estimated aggregate purchase price was $36.2 million, which was allocated on a preliminary basis to long-lived intangible assets of $26.6 million and goodwill of $9.6 million, all of which is deductible for tax purposes. The intangible assets are being amortized in accordance with their estimated projected cash flows, using the accelerated method. The goodwill reflects the value of an established domain portfolio business that enables the Company to monetize that domain portfolio.
During the year ended December 31, 2014 the fair value of the earn-out decreased by $47,000. The Company recorded this decrease in fair value in general and administrative expense.
Webzai
On August 12, 2014, the Company acquired Webzai, which provides the Company with a simple to use website builder and mobile website builder product, for an aggregate purchase price of $9.5 million, of which $7.0 million was paid in cash at the closing. The Company is also obligated to pay additional consideration of $3.0 million on the second anniversary of the acquisition if certain technological milestones are achieved. The net present value of the additional consideration is $2.8 million and is included in the aggregate purchase price and recorded as deferred consideration in the Companys consolidated balance sheet as of December 31, 2015. The remaining $0.2 million is being accreted as interest expense.
20
The purchase price of $9.5 million has been allocated to long-lived intangible assets consisting of developed technology and IPR&D of $4.6 million and $4.6 million, respectively, goodwill of $3.0 million, deferred tax liability of $2.6 million and negative working capital of $0.1 million. Goodwill related to the acquisition is not deductible for tax purposes.
BuyDomains
On September 18, 2014, the Company completed the acquisition of substantially all of the assets of the BuyDomains business of NameMedia, Inc. BuyDomains is a provider of premium domain products. The Company expects this acquisition will allow it to better serve its subscriber demand for higher priced premium domains.
The aggregate purchase price was $44.9 million, of which $41.1 million was paid in cash at the closing. The Company is also obligated to pay additional consideration of $4.5 million on the second anniversary of the acquisition. The net present value of the additional consideration is $4.3 million and is included in the aggregate purchase price and recorded as deferred consideration in the Companys consolidated balance sheet as of December 31, 2015. The remaining $0.3 million will be accreted as interest expense.
The purchase price of $44.9 million has been allocated to intangible assets consisting of developed technology, trade names and domains available for sale of $7.6 million, $1.9 million and $26.9 million, respectively, goodwill of $4.2 million, prepaid expenses and other current assets of $4.0 million and property and equipment of $0.3 million. Goodwill related to the acquisition is deductible for tax purposes.
Arvixe
On October 31, 2014, the Company completed the acquisition of substantially all of the assets of Arvixe, which is a web presence provider. The Company expects this acquisition will allow it to leverage its reach and size to generate better economies of scale.
The aggregate purchase price was $22.0 million, of which $17.6 million was paid in cash at the closing. The Company is also obligated to pay additional consideration of $4.4 million on the twelve-month anniversary of the acquisition.
The purchase price of $22.0 million has been allocated to intangible assets consisting of developed technology, trade names and subscriber relationships of $0.1 million, $1.2 million and $8.4 million, respectively and goodwill of $15.4 million, offset by deferred revenue of $3.1 million. Goodwill related to the acquisition is deductible for tax purposes.
Acquisitions2015
Verio
On May 26, 2015, the Company acquired the assets of the U.S. retail portion of the Verio business of NTT America, Inc., which is a provider of shared, virtual private server (VPS) and dedicated hosting services. The Company expects this acquisition to leverage its reach and generate better economies of scale.
The aggregate purchase price was $13.0 million, of which $10.5 million was paid in cash at the closing. The Company is obligated to pay the remaining cash consideration of $2.5 million on the first anniversary of the acquisition, less amounts used to satisfy any obligation determined to be owed to the Company for any indemnity pursuant to the asset purchase agreement.
The purchase price of $13.0 million has been allocated on a preliminary basis to intangible assets consisting of subscriber relationships and trade names of $13.1 million and $0.1 million, respectively, and goodwill of $1.2 million, offset by deferred revenue of $1.4 million. Goodwill related to the acquisition is deductible for tax purposes.
21
World Wide Web Hosting
On June 25, 2015, the Company acquired substantially all of the assets of WWWH, which is a provider of web presence solutions doing business under the brand name Site5. The Company previously had an equity interest in WWWH, which was originally acquired when the Company acquired Hostgator.com LLC on July 13, 2012. The Company expects this acquisition will allow it to leverage its reach and generate better economies of scale.
The aggregate purchase price was $34.9 million, $23.0 million of which is payable in cash and $11.9 million of which is the implied value of the pro rata interest in the acquired assets that the Company obtained upon the sellers redemption of its 40% equity interest in WWWH. The Company recognized a $5.4 million gain as a result of this redemption, which is recorded as other income in the Companys consolidated statement of operations and comprehensive loss. Of the $23.0 million payable in cash, $18.4 million was paid at the closing and the Company is obligated to pay the remaining cash consideration of $4.6 million on the first anniversary of the acquisition, less amounts used to satisfy any obligation determined to be owed to the Company for any indemnity pursuant to the asset purchase agreement.
The purchase price of $34.9 million has been allocated on a preliminary basis to intangible assets consisting of subscriber relationships and trade names of $11.0 million and $1.9 million, respectively, goodwill of $23.3 million, and prepaid expenses and other current assets of $1.2 million, offset by deferred revenue of $2.5 million. Goodwill related to the acquisition is deductible for tax purposes.
Ace Data Center and Ace Holdings
On September 21, 2015, the Company entered into a purchase agreement with Ace DC to acquire substantially all of the assets of Ace DC and with Ace Holdings and its owners to acquire all of the ownership interests in Ace Holdings. Ace DC is the manager of a data center that provides colocation, infrastructure and carrier-neutral connectivity services. This data center is the Companys largest data center. Ace Holdings owns the real property, improvements and building at and on which the data center is located, including certain non-systems equipment and personal property. The Company expects this acquisition will provide cost efficiencies and increased control over its largest data center.
The aggregate purchase price was $74.0 million, of which $44.4 million was paid in cash at the closing. Under the terms of the purchase agreement, within approximately 75 days of the closing date of the acquisition, the purchase consideration was subject to a working capital adjustment and a tax gross up adjustment, which resulted in an additional $0.7 million payment from the Company on December 2, 2015. The Company is obligated to pay the remaining cash consideration of $31.5 million on the first anniversary of the acquisition, less amounts used to satisfy any obligation determined to be owed to the Company for any indemnity pursuant to the asset purchase agreement. The net present value of the remaining cash consideration is $28.9 million, which was the amount used to calculate the $74.0 million aggregate purchase price above. An aggregate amount of $0.7 million for the accretion of the present value of the remaining cash consideration is included in interest expense for the year ended December 31, 2015, resulting in the net present value of the remaining cash consideration at December 31, 2015 of $29.6 million.
The purchase price of $74.0 million has been allocated on a preliminary basis to property and equipment, including real property, of $12.1 million, goodwill of $62.2 million, prepaid expenses and other current assets of $0.2 million and developed technology of $0.1 million, offset by other liabilities of $0.6 million. The goodwill reflects the value of estimated cost efficiencies gained for the Company by owning its own data center. Goodwill related to the acquisition is deductible for tax purposes.
22
Ecommerce
On November 2, 2015, the Company acquired the assets of Ecommerce, which is a provider of shared, VPS and cloud hosting services, domain registration services and add-on products. The Company expects this acquisition to leverage its reach and generate better economies of scale.
The aggregate purchase price was $28.0 million, of which $23.8 million was paid in cash at the closing. The Company is obligated to pay the remaining cash consideration of $4.2 million on the first anniversary of the acquisition, less amounts used to satisfy any obligation determined to be owed to the Company for any indemnity pursuant to the asset purchase agreement.
The purchase price of $28.0 million has been allocated on a preliminary basis to intangible assets consisting of subscriber relationships, intellectual property and trade names of $9.4 million, $4.4 million and $0.1 million, respectively, and goodwill of $16.7 million, offset by deferred revenue of $2.6 million. Goodwill related to the acquisition is deductible for tax purposes.
For the year ended December 31, 2015, $15.4 million of revenue attributable to 2015 acquisitions was included in the Companys consolidated statement of operations and comprehensive loss.
The Company has omitted earnings information related to its acquisitions as it does not separately track earnings from each of its acquisitions in a manner that would provide meaningful disclosure. The Company considers it to be impracticable to compile such information on an acquisition-by-acquisition basis since activities of integration and use of shared costs and services across the Companys business are not allocated to each acquisition and are not managed to provide separate identifiable earnings from the dates of acquisition.
For the intangible assets acquired in connection with all acquisitions completed during the year ended December 31, 2015, subscriber relationships, trademarks, intellectual property and developed technology have weighted average useful lives of 4.7 years, 3.0 years, 6.3 years and 2.7 years, respectively.
Pro Forma Disclosure
The Company has omitted pro forma disclosures related to its acquisitions completed during 2015 as the pro forma effect of including the results of these acquisitions since the beginning of 2014 would not be materially different than the actual results reported.
Summary of Deferred Consideration Related to Acquisitions
Components of deferred consideration short-term and long-term as of December 31, 2014, consisted of the following:
Short- term |
Long- term |
|||||||
(in thousands) | ||||||||
Mojoness, Inc. (Acquired in 2012) |
$ | 490 | $ | 1,370 | ||||
Typepad (Acquired in 2013) |
| 2,800 | ||||||
Domain name business (Acquired in 2014) |
9,027 | | ||||||
Webzai (Acquired 2014) |
| 2,617 | ||||||
BuyDomains (Acquired in 2014) |
| 3,935 | ||||||
Arvixe (Acquired in 2014) |
4,400 | | ||||||
|
|
|
|
|||||
Total |
$ | 13,917 | $ | 10,722 | ||||
|
|
|
|
23
Components of deferred consideration short-term and long-term as of December 31, 2015, consisted of the following:
Short- term |
Long- term |
|||||||
(in thousands) | ||||||||
Mojoness, Inc. (Acquired in 2012) |
$ | 657 | $ | 813 | ||||
Typepad (Acquired in 2013) |
2,800 | | ||||||
Webzai (Acquired 2014) |
2,848 | | ||||||
BuyDomains (Acquired in 2014) |
4,283 | | ||||||
Verio (Acquired in 2015) |
2,474 | | ||||||
WWWH (Acquired in 2015) |
4,600 | | ||||||
Ace (Acquired in 2015) |
29,626 | | ||||||
Ecommerce (Acquired in 2015) |
4,200 | | ||||||
|
|
|
|
|||||
Total |
$ | 51,488 | $ | 813 | ||||
|
|
|
|
4. Fair Value Measurements
The following valuation hierarchy is used for disclosure of the inputs to valuation 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 Companys own assumptions used to measure assets and liabilities at fair value. |
A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
As of December 31, 2014 and 2015, the Companys financial assets or liabilities required to be measured on a recurring basis are accrued earn-out consideration payable in connection with the 2012 acquisition of certain assets of Mojoness, Inc., or Mojo, and the 2014 acquisitions of a domain name business and the 2015 interest rate cap. The Company has classified its interest rate cap within Level 2 of the fair value hierarchy. The Company has classified its liabilities for contingent earn-out consideration related to these acquisitions 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 Company recorded a $0.7 million change in fair value of the earn-out consideration related to Mojo and one of the other 2012 acquisitions as of December 31, 2013 in the Companys general and administrative expense in the consolidated statement of operations and comprehensive income. During the year ended December 31, 2014, the Company paid $0.2 million related to the earn-out provisions for the Mojo acquisition and recorded $23.0 million related to the 2014 domain name business acquisition of which $14.0 million was paid during the year ended December 31, 2014. The Company recorded a $0.4 million change in fair value of the earn-out consideration related to Mojo and the 2014 domain name business during the year ended December 31, 2014. During the year ended December 31, 2015, the Company paid $0.5 million related to the earn-out provisions for the Mojo acquisition and paid $10.1 million related to the earn-out provisions of the 2014 domain name business acquisition. The Company recorded a $1.2 million change in fair value of the earn-out consideration related to the earn-out provisions of the Mojo and 2014 domain name business acquisitions during the year ended December 31, 2015. The earn-out consideration in the table below is included in total deferred consideration in the Companys consolidated balance sheets.
24
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, 2014: |
||||||||||||||||
Financial liabilities: |
||||||||||||||||
Contingent earn-out consideration |
$ | 10,887 | | | $ | 10,887 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | 10,887 | | | $ | 10,887 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2015: |
||||||||||||||||
Financial assets: |
||||||||||||||||
Interest rate cap (included in other assets) |
$ | 3,130 | | $ | 3,130 | $ | | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial assets |
$ | 3,130 | | $ | 3,130 | $ | | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Contingent earn-out consideration |
$ | 1,469 | | | $ | 1,469 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | 1,469 | | | $ | 1,469 | ||||||||||
|
|
|
|
|
|
|
|
The following table summarizes the changes in the financial liabilities measured on a recurring basis using Level 3 inputs as of December 31, 2014 and 2015:
Amount | ||||
(in thousands) | ||||
Financial liabilities measured using Level 3 inputs at January 1, 2014 |
$ | 1,655 | ||
Accrual of contingent earn-out related to 2014 acquisition |
22,987 | |||
Payment of contingent earn-out related to 22012 and 2014 acquisitions |
(14,158 | ) | ||
Change in fair value of contingent earn-outs |
403 | |||
|
|
|||
Financial liabilities measured using Level 3 inputs at December 31, 2014 |
$ | 10,887 | ||
Payment of contingent earn-outs related to 2012 and 2014 acquisitions |
(10,592 | ) | ||
Change in fair value of contingent earn-outs |
1,174 | |||
|
|
|||
Financial liabilities measured using Level 3 inputs at December 31, 2015 |
$ | 1,469 | ||
|
|
5. Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk 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 enters 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 Companys derivative financial instruments are used to manage differences in the amount, timing, and duration of the Companys known or expected cash receipts and its known or expected cash payments principally related to the Companys investments and borrowings.
25
Cash Flow Hedges of Interest Rate Risk
The Company entered into a three-year interest rate cap on December 9, 2015 as part of its risk management strategy. The objective of this interest rate cap, designated as cash flow hedges, involves the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Therefore, this derivative limits the Companys exposure if the rate rises, but also allows the Company to benefit when the rate falls.
The effective portion of changes in the fair value of derivatives that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (AOCI), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Companys variable-rate debt. Any ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. There was no ineffectiveness recorded in earnings for the year ended December 31, 2015.
As of December 31, 2015, the Company had one interest rate cap with $500.0 million notional outstanding that was designated as a cash flow hedge of interest rate risk. The fair value of the interest rate contracts on the consolidated balance sheet as of December 31, 2015 was $3.1 million, and there has been no effect on the Companys consolidated statement of operations. The Company recognized $0.1 million of gain in AOCI, of which the Company estimates that $7,894 will be reclassified as an increase to interest expense in the next twelve months.
6. Property and Equipment
Components of property and equipment consisted of the following:
As of December 31, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Land |
$ | | $ | 713 | ||||
Building |
| 5,091 | ||||||
Software |
22,550 | 40,336 | ||||||
Computers and office equipment |
76,274 | 97,332 | ||||||
Furniture and fixtures |
4,045 | 5,914 | ||||||
Leasehold improvements |
7,015 | 7,126 | ||||||
Construction in process |
2,378 | 6,137 | ||||||
|
|
|
|
|||||
Property and equipmentat cost |
112,262 | 162,649 | ||||||
Less accumulated depreciation |
(55,425 | ) | (86,887 | ) | ||||
|
|
|
|
|||||
Property and equipmentnet |
$ | 56,837 | $ | 75,762 | ||||
|
|
|
|
Depreciation expense related to property and equipment for the years ended December 31, 2013, 2014 and 2015, was $18.6 million, $31.0 million, and $34.0 million, respectively.
During the years ended December 31, 2014 and 2015, the Company entered into agreements to lease software licenses for use on certain data center server equipment for terms ranging from thirty-six months to thirty-nine months.
26
As of December 31, 2014 and 2015, the Companys software shown in the above table included the software assets under a capital lease as follows:
As of December 31, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Software |
$ | 11,704 | $ | 21,499 | ||||
Less accumulated depreciation |
(3,901 | ) | (8,412 | ) | ||||
|
|
|
|
|||||
Assets under capital leasenet |
$ | 7,803 | $ | 13,087 | ||||
|
|
|
|
At December 31, 2015, the expected future minimum lease payments under the capital lease discussed above were approximately as follows:
Amount | ||||
(in thousands) | ||||
2016 |
$ | 6,334 | ||
2017 |
6,895 | |||
2018 |
575 | |||
|
|
|||
Total minimum lease payments |
13,804 | |||
Less amount representing interest |
(723 | ) | ||
|
|
|||
Present value of minimum lease payments (capital lease obligation) |
13,081 | |||
Current portion |
5,866 | |||
|
|
|||
Long-term portion |
$ | 7,215 | ||
|
|
7. Goodwill and Other Intangible Assets
The following table summarizes the changes in the Companys goodwill balances as of December 31, 2014 and 2015:
Amount | ||||
(in thousands) | ||||
Goodwill balance at January 1, 2014 |
$ | 984,207 | ||
Goodwill adjustments related to 2013 acquisition |
(2,107 | ) | ||
Goodwill related to 2014 acquisitions |
123,452 | |||
Foreign translation impact |
(529 | ) | ||
|
|
|||
Goodwill balance at December 31, 2014 |
$ | 1,105,023 | ||
Goodwill related to 2015 acquisitions |
103,444 | |||
Foreign translation impact |
(1,212 | ) | ||
|
|
|||
Goodwill balance at December 31, 2015 |
$ | 1,207,255 | ||
|
|
During the year ended December 31, 2014, the Company completed the purchase accounting related to a 2013 acquisition and allocated an additional $2.1 million to long-lived intangible assets, which had been included in goodwill on a preliminary basis.
In accordance with ASC 350, 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. The Company completed its annual impairment test of goodwill and other indefinite-lived intangible assets as of December 31, and determined that there were no indicators of impairment as of December 31, 2014 and 2015.
27
At December 31, 2014, other intangible assets consisted of the following:
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Useful Life |
|||||||||||||
(dollars in thousands) | ||||||||||||||||
Developed technology |
$ | 202,654 | $ | 57,557 | $ | 145,097 | 7 years | |||||||||
Subscriber relationships |
364,724 | 204,950 | 159,774 | 5 years | ||||||||||||
Trade-names |
79,754 | 31,869 | 47,885 | 6 years | ||||||||||||
Intellectual property |
29,520 | 2,976 | 26,544 | 13 years | ||||||||||||
Domain names available for sale |
27,019 | 732 | 26,287 | Indefinite | ||||||||||||
Leasehold interests |
314 | 197 | 117 | 1 year | ||||||||||||
In-process research and development |
4,634 | | 4,634 | | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total December 31, 2014 |
$ | 708,619 | $ | 298,281 | $ | 410,338 | ||||||||||
|
|
|
|
|
|
At December 31, 2015, other intangible assets consisted of the following:
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Useful Life |
|||||||||||||
(dollars in thousands) | ||||||||||||||||
Developed technology |
$ | 205,925 | $ | 80,795 | $ | 125,130 | 7 years | |||||||||
Subscriber relationships |
397,791 | 256,461 | 141,330 | 5 years | ||||||||||||
Trade-names |
81,792 | 42,080 | 39,712 | 6 years | ||||||||||||
Intellectual property |
34,020 | 6,596 | 27,424 | 13 years | ||||||||||||
Domain names available for sale |
27,859 | 3,107 | 24,752 | Indefinite | ||||||||||||
Leasehold interests |
314 | 314 | | 1 years | ||||||||||||
In-process research and development |
1,438 | | 1,438 | | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total December 31, 2015 |
$ | 749,139 | $ | 389,353 | $ | 359,786 | ||||||||||
|
|
|
|
|
|
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 Companys amortization expense is included in cost of revenue in the aggregate amounts of $105.9 million, $102.7 million and $91.1 million, for the years ended December 31, 2013, 2014 and 2015, respectively.
At December 31, 2015, the expected future amortization of the other intangible assets, excluding indefinite life and in-process research and development intangibles, was approximately as follows:
Year Ending December 31, |
Amount | |||
(in thousands) | ||||
2016 |
$ | 75,000 | ||
2017 |
62,000 | |||
2018 |
51,000 | |||
2019 |
40,000 | |||
2020 |
34,000 | |||
Thereafter |
72,000 | |||
|
|
|||
Total |
$ | 334,000 | ||
|
|
28
8. Investments
As of December 31, 2014 and 2015, the Companys carrying value of investments in privately-held companies was $40.4 million and $27.9 million, respectively.
In January 2012, the Company made an initial investment of $0.3 million to acquire a 25% interest in BlueZone Labs, LLC (BlueZone), a provider of do-it-yourself tools and managed search engine optimization services.
The Company also has an agreement with BlueZone to purchase products and services. During the years ended December 31, 2014 and 2015, the Company purchased $0.9 million and $1.1 million, respectively, of products and services from BlueZone, which is included in the Companys consolidated statements of operations and comprehensive loss. As of December 31, 2014 and 2015, $0.1 million and $0.1 million, respectively, relating to our investment in BlueZone was included in accounts payable and accrued expense in the Companys consolidated balance sheet.
In July 2012, the Company assumed a 50% interest in WWWH, a provider of web presence solutions, with a fair value of $10.0 million. On October 31, 2013, the Company sold 20% of its ownership interest, or 10% of the capital stock of WWWH, reducing its equity interest to 40%, recorded an additional $1.5 million note receivable from the buyer for total notes receivable from the buyer of $3.5 million, and decreased its investment in WWWH by $1.5 million. The Company evaluated its remaining 40% ownership interest in WWWH and recognized a $2.6 million impairment on the remaining investment, which is recorded in equity (income) loss of unconsolidated entities, net of tax, in the Companys consolidated statements of operations and comprehensive loss for the year ended December 31, 2013.
On June 25, 2015, the Company acquired substantially all of the assets of WWWH. In connection with the asset purchase agreement dated June 25, 2015, the seller redeemed from the Company its 40% equity interest in exchange for a pro rata interest in the acquired assets, which had an estimated implied value of $11.9 million. The Company recognized a $5.4 million gain as a result of the redemption of its equity interest, which was recorded as other income for the year ended December 31, 2015 in the Companys consolidated statements of operations and comprehensive loss. In addition, the Company received a $3.5 million repayment of total notes receivable that were due to the Company from the seller of WWWH prior to the acquisition. For more detail, see Note 3 to the consolidated financial statements.
In June 2013, the Company made an initial investment of $8.8 million to acquire a 17.5% interest in JDI Backup Ltd., which provides online desktop backup services. The agreement also provided for a call option for the acquisition of additional equity interests which the Company exercised on December 11, 2013 to increase its investment in JDI Backup Ltd. to 60% for $22.2 million, which was paid in cash. On July 7, 2014, the Company paid an additional $4.2 million to increase its investment in JDI Backup Ltd. to 67%. On January 13, 2015, the Company entered into an agreement to increase its investment in JDI Backup Ltd. to 100% for $30.5 million, which was payable in three installments. For more detail see Notes 3 and 13 to the consolidated financial statements.
In May 2014, the Company made a strategic investment of $15.0 million in Automattic, Inc. (Automattic), which provides content management systems associated with WordPress. The investment represents less than 5% of the outstanding shares of Automattic and better aligns the Company with an important partner.
In August, 2014, the Company made an aggregate investment of $3.9 million for a joint venture with a 49% ownership interest in WZ UK Ltd., which is a provider of technology and sales marketing services associated with web builder solutions. The agreement provides for the acquisition of additional equity interests in WZ UK Ltd. at the option of the Company.
29
On January 6, 2016, the Company exercised an option to increase its stake in WZ UK Ltd., a provider of technology and sales marketing services associated with web builder solutions, from 49% to 57.5%. For more detail see Note 20 to the consolidated financial statements.
The Company has a license agreement with WZ UK Ltd. to license certain technology to WZ UK Ltd. to enable it to use, develop, market, distribute, host and support website builder applications. Under the terms of the license agreement, the Company receives a royalty payment in the amount of 4.5% of all billings in the previous month, net of any refunds, chargebacks and any other credits applied. During the years ended December 31, 2014 and 2015, the Company recognized $0.0 million and $0.4 million, respectively, of royalty revenue under the terms of the license agreement.
During the years ended December 31, 2014 and 2015, the Companys proportionate share of net loss from its investment in WZ UK Ltd. was $0.2 million and $13.9 million, respectively. On July 2, 2015, the Company and the majority investor made additional equity contributions to WZ UK Ltd. The Companys share of the incremental investments was approximately $7.4 million. On December 21, 2015, the Company and the majority investor made additional equity contributions to WZ UK Ltd. The Companys share of the incremental investment was $1.1 million.
The significance of the net loss of WZ UK Ltd., in comparison to the Companys net loss requires the disclosure of summarized financial information from the statement of operations and comprehensive loss for WZ UK Ltd. The following table presents a summary of the statement of operations and comprehensive loss for WZ UK Ltd. for the years ended December 31, 2014 and 2015:
For the years ended December 31, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Revenue |
$ | 1 | $ | 4,053 | ||||
Gross profit (loss) |
$ | (96 | ) | $ | 1,095 | |||
Operating loss |
$ | (694 | ) | $ | (28,439 | ) | ||
Net loss |
$ | (694 | ) | $ | (28,439 | ) |
As of December 31, 2014 and 2015, WZ UK Ltd. had total assets of $5.6 million and $2.1 million, respectively, and total liabilities of $6.3 million and $6.7 million, respectively.
In December 2014, the Company also made an aggregate investment of $15.2 million to acquire a 40% ownership interest in AppMachineBV (AppMachine), which is a developer of software that allows users to build mobile applications for smart devices such as phones and tablets. Under the terms of the investment agreement for AppMachine the Company is obligated to purchase the remaining 60% of AppMachine in three tranches of 20% within specified periods if AppMachine achieves a specified minimum revenue threshold within a designated timeframe. The consideration for each of the three tranches is calculated as the product of AppMachines revenue, as defined in the investment agreement, for the trailing twelve-month period prior to the applicable determination date times a specified multiple based upon year over year revenue growth multiplied by 20%. As of December 31, 2015 there is not a liability recorded related to the purchase obligation.
Investments in which the Companys interest is less than 20% and which are not classified as available-for-sale securities are carried at the lower of cost or net realizable value unless it is determined that the Company exercises significant influence over the investee company, in which case the equity method of accounting is used. For those investments in which the Companys voting interest is between 20% and 50%, the equity method of accounting is used. Under this method, the investment balance, originally recorded at cost, is adjusted to recognize the Companys share of net earnings or losses of the investee company, as they occur, limited to the extent of the Companys investment in, advances to and commitments for the investee. These adjustments are reflected in equity (income) loss of unconsolidated entities, net of tax in the Companys consolidated statements
30
of operations and comprehensive loss. The Company recognized net income of $0.5 million, net loss of $0.1 million and net loss of $14.6 million for the years ended December 31, 2013, 2014 and 2015, respectively, related to its investments.
From time to time, the Company may make new and follow-on investments and may receive distributions from investee companies. As of December 31, 2015, the Company was not obligated to fund any follow-on investments in these investee companies, other than AppMachine as described above.
As of December 31, 2014, the Company did not have an equity method investment in which the Companys proportionate share exceeded 10% of the Companys consolidated assets or income from continuing operations. As of December 31, 2015, the Companys proportionate share of the net losses of WZ UK Ltd. exceeded 20% of the Companys income from continuing operations.
9. Notes Payable
At December 31, 2014 and 2015 notes payable consisted of a first lien term loan facility with a principal amount outstanding of $1,036.9 million and $1,026.4 million, respectively, which bore interest at a LIBOR-based rate of 5.00%. The current portion of the first lien term loan as of December 31, 2014 and 2015 was $10.5 million in both periods. In addition, as of December 31, 2014, notes payable included a bank revolver loan (Revolver loan) of $50.0 million, which bore interest at a LIBOR-based rate of 7.75%. As of December 31, 2015, notes payable included a Revolver loan of $67.0 million, consisting of a loan of $59.0 million which bore interest at a LIBOR-based rate of 7.75% and a loan of $8.0 million, which bore interest at an alternate base rate of 8.50%. The amounts outstanding under the Revolver loan as of December 31, 2014 and December 31, 2015 of $50.0 million and $67.0 million respectively, were classified as current notes payable on the consolidated balance sheets.
November 9, 2012November 24, 2013
On November 9, 2012, the Company entered into the November Financing Amendment (November 2012 Financing Amendment) for a new first lien term loan in the original principal amount of $800.0 million (November 2012 First Lien), a Revolver loan facility in aggregate principal amount not to exceed $85.0 million and a new Second Lien credit agreement (November 2012 Second Lien), for an original principal amount of $315.0 million. In August 2013, the Company amended its November 2012 First Lien for an additional $90.0 million of incremental first lien term loan (August 2013 First Lien) before refinancing its debt in November 2013, as described below.
The Company concluded that the November 2012 Financing Amendment was a debt extinguishment in accordance with ASC 470-50, which requires the term loans be recorded at fair value. At the time of the November 2012 Financing Amendment, the April 2012 Term Loan, as modified by the July Financing Amendment, and the Second Lien facility had balances which equaled their fair value of $668.3 million and $140.0 million, respectively, and as such all expenses paid to and on behalf of the lender were expensed. Third-party financing related costs of $1.5 million were incurred and recorded as deferred financing costs with an amortization period based on the remaining terms of the loans. The Company concluded that the August 2013 First Lien was a debt modification in accordance with ASC 470-50, and as such all third-party costs incurred to modify the debt were expensed and additional financing costs of $1.3 million were incurred and recorded as deferred financing costs with an amortization period based on the remaining term of the loan.
The Company accrued interest on the LIBOR based November 2012 First Lien and November 2012 Second Lien of 7.75% and 10.25%, respectively. In addition, the Company accrued interest on LIBOR and reference-based Revolver loans of 7.75% and 8.50%, respectively.
During the nine months ended September 30, 2013, the Company made mandatory repayments on the term loan facilities in an aggregate amount of $6.2 million. For the year ended December 31, 2013, amortization of
31
$0.3 million was included in interest expense in the consolidated statements of operations and comprehensive loss related to deferred financing costs from the November 2012 Financing Amendment and the August 2013 First Lien.
In connection with the August 2013 First Lien, the interest rates for the term loan and the November 2012 Revolver remained the same as under the November 2012 First Lien.
Debt RefinancingNovember 25, 2013
In November 2013, following its IPO, the Company repaid in full its November 2012 Second Lien of $315.0 million and increased the first lien term loan facility (November 2013 First Lien) by $166.2 million to $1,050.0 million, thereby reducing its overall indebtedness by $148.8 million. The Company also increased its Revolver capacity by $40.0 million to $125.0 million, none of which was drawn down at the time of the increase. The mandatory repayment of principal on the November 2013 First Lien was increased to approximately $2.6 million at the end of each quarter. During the years ended December 31, 2013, 2014 and 2015, the Company made aggregate mandatory repayments on the November 2013 First Lien of $2.6 million, $10.5 million and $10.5 million, respectively. As of December 31, 2014 and 2015 the Company had $50.0 million and $67.0 million, respectively, outstanding under the Revolver loan. There was no change to the maturity dates of the first lien facility and Revolver loan, which mature on November 9, 2019 and December 22, 2016, respectively. The Company uses the Revolver loan to assist with cash payments for acquisitions and minority investments.
The Company concluded that the November 2013 First Lien was a debt extinguishment in accordance with ASC 470-50, which requires the term loans be recorded at fair value. The November 2013 First Lien modified the August 2013 First Lien and was recorded at face value which equaled fair value, and as such, all expenses paid to and on behalf of the lender were expensed. Third-party financing related costs of $0.4 million were incurred and recorded as deferred financing costs with an amortization period based on the remaining term of the loan.
The loans automatically bear interest at the banks reference rate unless the Company gives notice to opt for LIBOR-based interest rate loans. Effective November 25, 2013, the interest rate for a LIBOR based interest loan was reduced to 4.00% plus the greater of the LIBOR rate or 1.00%. The interest rate for a reference rate loan was reduced to 3.00% per annum plus the greater of the prime rate, the federal funds effective rate plus 0.50%, an Adjusted LIBOR rate or 2.00%. There was no change to the interest rates for a Revolver loan. The interest rate for an Alternate Base Rate (ABR) Revolver loan is 5.25% per annum plus the greater of the prime rate, the federal funds effective rate plus 0.50%, an adjusted LIBOR rate or 2.25%. The interest rate for a LIBOR based Revolver loan is 6.25% per annum plus the greater of the LIBOR rate or 1.50%. There is also a non-refundable fee, equal to 0.50% of the daily unused principal amount of the Revolver payable in arrears on the last day of each fiscal quarter.
Interest is payable on maturity of the elected interest period for a LIBOR-based interest loan, which can be one, two, three or six months. Interest is payable at the end of each fiscal quarter for a reference rate loan term loan or an ABR Revolver loan.
At December 31, 2014 and 2015, notes payable consisted of the following:
For the Year Ended December 31, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
LIBOR First Lien term loan |
$ | 1,036,875 | $ | 1,026,375 | ||||
LIBOR Revolver loan |
50,000 | 67,000 | ||||||
|
|
|
|
|||||
$ | 1,086,875 | $ | 1,093,375 | |||||
|
|
|
|
The Company adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. As such, the Company re-classed out of deferred financing costs the amounts of $0.4 million and $1.0 million for the periods ended December 31, 2014 and 2015, respectively, which are now presented net against notes payable-long term. These deferred financing costs are amortized over the term of the related debt agreement.
32
The maturity of the notes payable at December 31, 2015 is as follows:
Revolver | First Lien Term Loan |
Total | ||||||||||
(in thousands) | ||||||||||||
2016 |
$ | 67,000 | $ | 10,500 | $ | 77,500 | ||||||
2017 |
| 10,500 | 10,500 | |||||||||
2018 |
| 10,500 | 10,500 | |||||||||
2019 |
| 994,875 | 994,875 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 67,000 | $ | 1,026,375 | $ | 1,093,375 | ||||||
|
|
|
|
|
|
Interest
The Company recorded $98.5 million, $57.4 million and $58.8 million in interest expense for the years ended December 31, 2013, 2014 and 2015, respectively.
The following table provides a summary of loan interest rates incurred and interest expense for the years ended December 31, 2013, 2014 and 2015:
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(dollars in thousands) | ||||||||||||
Interest rateLIBOR |
5.00%-10.25 | % | 5.00%-7.75 | % | 5.00%-7.75 | % | ||||||
Interest ratereference |
8.50 | % | 8.50 | % | 8.50 | % | ||||||
Non-refundable feeunused facility |
0.50 | % | 0.50 | % | 0.50 | % | ||||||
Interest expense and service fees |
$ | 85,327 | $ | 56,247 | $ | 56,760 | ||||||
Amortization of deferred financing fees |
$ | 260 | $ | 83 | $ | 82 | ||||||
Amortization of net present value of deferred consideration |
$ | 1,590 | $ | 183 | $ | 1,264 | ||||||
Interest recorded on extinguishment of term loans |
$ | 10,833 | $ | | $ | | ||||||
Accretion of present value of deferred bonus payments |
$ | 111 | $ | 1 | $ | | ||||||
Interest expense for capital lease obligations |
$ | | $ | 503 | $ | 434 | ||||||
Interest expense for deferred consideration promissory note |
$ | 267 | $ | 280 | $ | 280 | ||||||
Other interest expense |
$ | 61 | $ | 117 | $ | 8 | ||||||
|
|
|
|
|
|
|||||||
Total interest expense |
$ | 98,449 | $ | 57,414 | $ | 58,828 | ||||||
|
|
|
|
|
|
Debt Covenants
The November 2013 First Lien term loan facility requires that the Company comply with a financial covenant to maintain a maximum ratio of net first lien debt to EBITDA (as defined in the existing credit agreement).
The November 2013 First Lien term loan facility contains covenants that limit the Companys 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. Additionally, the November 2013 First Lien term loan specifies certain events of default that could result in amounts becoming payable, in whole or in part, prior to their maturity dates. The Company was in compliance with all covenants at December 31, 2015.
With the exception of certain equity interests and other excluded assets under the terms of the November 2013 First Lien term loan, substantially all of the Companys assets are pledged as collateral for the obligations under the November 2013 First Lien term loan.
33
10. Stockholders Equity
Preferred Stock
The Company has 5,000,000 shares of authorized preferred stock, par value $0.0001. There were no preferred shares issued or outstanding as of December 31, 2014 and 2015.
Common Stock
The Company has 500,000,000 shares of authorized common stock, par value $0.0001.
Voting Rights
All holders of common stock are entitled to one vote per share.
11. Stock-Based Compensation
The Company follows the provisions of ASC 718, CompensationStock Compensation (ASC 718), 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. The Company uses the straight-line amortization method for recognizing stock-based compensation expense.
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 granted, the Company estimates the fair value of each restricted stock award based on the closing trading price of its common stock on the date of grant.
2012 Restricted Stock Awards
Unless otherwise determined by the Companys board of directors, stock-based awards granted prior to the IPO generally vest over a four-year period or had vesting that was dependent on the achievement of specified performance targets. The fair value of these stock-based awards was determined as of the grant date of each award using an option-pricing model and assuming no pre-vesting forfeiture of the awards.
Given the absence of an active trading market for the Companys common stock prior to the completion of its IPO, the fair value of the equity interests underlying stock-based awards was determined by the Companys management. In doing so, valuation analyses were prepared in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, and were used by the Companys management to assist in determining the fair value of the equity interests underlying its stock-based awards. Each equity interest was granted with a threshold amount meaning that the recipient of an equity security only participated to the extent that the Company appreciated in value from and after the date of grant of the equity interest (with the value of the entity as of the grant date being the threshold amount). The assumptions used in the valuation models were based on future expectations combined with managements judgment. In the absence of a public trading market, the Companys management exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of the stock-based awards as of the date of each award. These factors included:
| contemporaneous or retrospective valuations for the Company and its securities; |
| the rights, preferences, and privileges of the stock-based awards relative to each other as well as to the existing shareholders; |
| lack of marketability of the Companys equity securities; |
34
| historical operating and financial performance; |
| the Companys stage of development; |
| current business conditions and projections; |
| hiring of key personnel and the experience of the Companys management team; |
| risks inherent to the development of the Companys products and services and delivery of its solutions; |
| trends and developments in the Companys industry; |
| the threshold amount for the stock-based awards and the values at which the stock-based awards would vest; |
| the market performance of comparable publicly traded companies; |
| likelihood of achieving a liquidity event, such as an IPO or a merger or acquisition of the Company given prevailing market conditions; and |
| U.S. and global economic and capital market conditions. |
The Company completed its IPO in October 2013, and determined that the performance targets associated with the performance-based stock awards were met in full and consequently the performance-based stock awards would be fully vested. However, effective prior to the first day of public trading of the Companys common stock, the Company accelerated the vesting of 2,167,870 shares of common stock issued in respect of the time-based stock awards and modified the vesting of 3,574,637 shares issued in respect of the performance-based stock awards so that 2,580,271 shares of common stock were fully vested and 994,366 shares of common stock will follow the same vesting schedule as the time-based stock awards that were granted on the same date as such performance-based stock awards.
The Company recognized stock-based compensation expense of approximately $1.4 million for the shares of common stock issued in respect of the performance-based stock awards that vested at closing of its IPO and $2.4 million for the acceleration of vesting for a portion of the shares of common stock issued in respect of previously unvested time-based stock awards.
Total stock-based compensation expense recognized for the time-based vesting stock awards was $6.5 million for the year ended December 31, 2013. Total stock-based compensation expense recognized for the performance-based stock awards was $1.4 million for the year ended December 31, 2013, since the performance targets necessary for the performance-based stock awards were met prior to their expiration. The Company will recognize a recovery of expense if the actual forfeiture rate for the time-based stock awards is higher than estimated.
The following tables present a summary of the 2012 restricted stock awards activity for the year ended December 31, 2015 for restricted stock awards that were granted prior to the Companys IPO:
2012 Restricted Stock Awards | ||||
Non-Vested at December 31, 2014 |
759,122 | |||
Forfeitures |
(104,422 | ) | ||
Vested |
(608,055 | ) | ||
|
|
|||
Non-Vested at December 31, 2015 |
46,645 | |||
|
|
35
In connection with the IPO the Company granted restricted stock units under the prior equity plan. The following table provides a summary of the restricted stock units that were granted in connection with the IPO under this plan and the non-vested balance as of December 31, 2015:
Restricted Stock Units | Weighted Average Grant Date Fair Value |
|||||||
Non-vested at December 31, 2014 |
155,094 | $ | 12.00 | |||||
Vested and unissued |
(132,936 | ) | $ | 12.00 | ||||
|
|
|||||||
Non-vested at December 31, 2015 |
22,158 | $ | 12.00 | |||||
|
|
|
|
2013 Stock Incentive Plan
The 2013 Stock Incentive Plan (the 2013 Plan) of the Company became effective upon the closing of our IPO. The 2013 Plan of the Company 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 advisors of the Company. Under the 2013 Plan, the Company may issue up to 18,000,000 shares of the Companys common stock. At December 31, 2015, 5,119,592 shares were available for grant under the 2013 Plan.
For stock options issued under the 2013 Plan, the fair value of each option is estimated on the date of grant, and an estimated forfeiture rate is used when calculating stock-based compensation expense for the period. Unless otherwise approved by the Companys board of directors, stock options typically vest over four years and the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards and determine the related compensation expense. The weighted-average assumptions used to compute stock-based compensation expense for awards granted under the 2013 Stock Incentive Plan during the years ended December 31, 2013, 2014 and 2015 are as follows:
2013 | 2014 | 2015 | ||||||||||
Risk-free interest rate |
1.9 | % | 2.1 | % | 1.8 | % | ||||||
Expected volatility |
60 | % | 58.3 | % | 56.1 | % | ||||||
Expected life (in years) |
6.25 | 6.25 | 6.25 | |||||||||
Expected dividend yield |
| | |
The risk-free interest rate assumption was based on the U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The Company bases its estimate of expected volatility using volatility data from comparable public companies in similar industries and markets because there is currently limited public history for the Companys common stock, and therefore, a lack of market-based company-specific historical and implied volatility information. The weighted-average expected life for employee options reflects the application of the simplified method, which represents the average of the contractual term of the options and the weighted-average vesting period for all option tranches. The simplified method has been used since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to a limited history of stock option grants. The assumed dividend yield was based on the Companys expectation of not paying dividends in the foreseeable future. In addition, the Company has estimated expected forfeitures of stock options based on managements judgment due to the limited historical experience of forfeitures. The forfeiture rate was not material to the calculation of stock-based compensation expense.
36
The following table provides a summary of the Companys stock options as of December 31, 2015 and the stock option activity for all stock options granted under the 2013 Plan during the year ended December 31, 2015 (dollars in thousands except exercise price):
Stock Options |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (In years) |
Aggregate Intrinsic Value(3) |
|||||||||||||
Outstanding at December 31, 2014 |
5,407,959 | $ | 12.07 | |||||||||||||
Granted |
2,438,105 | $ | 17.97 | |||||||||||||
Exercised |
(185,343 | ) | $ | 12.00 | ||||||||||||
Canceled |
(709,863 | ) | $ | 15.08 | ||||||||||||
|
|
|||||||||||||||
Outstanding at December 31, 2015 |
6,950,858 | $ | 13.83 | 8.2 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable at December 31, 2015 |
2,768,853 | $ | 12.10 | 7.8 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Expected to vest after December 31, 2015(1) |
4,126,179 | $ | 14.95 | 8.4 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable as of December 31, 2015 and expected to vest thereafter(2) |
6,895,032 | $ | 13.80 | 8.2 | $ | | ||||||||||
|
|
|
|
|
|
|
|
(1) | This represents the number of unvested options outstanding as of December 31, 2015 that are expected to vest in the future, which have been reduced using an estimated forfeiture rate. |
(2) | This represents the number of vested options as of December 31, 2015 plus the number of unvested options outstanding as of December 31, 2015 that are expected to vest in the future, which have been reduced using an estimated forfeiture rate. |
(3) | The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Companys common stock on December 31, 2015 of $10.93 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options. |
Unless otherwise determined by the Companys board of directors, restricted stock awards granted under the 2013 Plan generally vest annually over a four-year period. Performance-based restricted stock awards are earned based on the achievement of performance criteria established by the Companys Compensation Committee and Board of Directors. The performance criteria are weighted and have threshold, target and maximum performance goals. The following table provides a summary of the Companys restricted stock award activity for the 2013 Plan during the year ended December 31, 2015:
Restricted Stock Awards | Weighted Average Grant Date Fair Value |
|||||||
Non-vested at December 31, 2014 |
695,312 | $ | 12.40 | |||||
Granted |
4,582,728 | $ | 15.56 | |||||
Vested |
(230,754 | ) | $ | 12.92 | ||||
Canceled |
(197,996 | ) | $ | 15.39 | ||||
|
|
|||||||
Non-vested at December 31, 2015 |
4,849,290 | $ | 15.24 | |||||
|
|
|
|
The performance-based award granted to the Companys chief executive officer during the year ended December 31, 2015 provides an opportunity for the participant to earn a fully vested right to up to 3,693,754 shares of the Companys common stock (collectively, the Award Shares) over a three-year period beginning July 1, 2015 and ending on June 30, 2018 (the Performance Period). Award shares may be earned based on the Company achieving pre-established, threshold, target and maximum performance metrics.
37
Award Shares may be earned during each calendar quarter during the Performance Period (each, a Performance Quarter) if the Company achieves a threshold, target or maximum level of the performance metric for the Performance Quarter. If the performance metric is less than the threshold level for a Performance Quarter, no Award Shares will be earned during the Performance Quarter. Award Shares that were not earned during a Performance Quarter may be earned later during the then current twelve-month period from July 1st to June 30th during the Performance Period (each, a Performance Year) at a threshold, target or maximum level of the performance metric for the Performance Year. No Award Shares were earned for the Performance Quarter ending September 30, 2015 because the threshold level for the performance metric was not met. Approximately 195,881 Award Shares were earned for the Performance Quarter ending December 31, 2015 because the target level for the performance metric was met.
This performance-based award is evaluated quarterly to determine the probability of its vesting and determine the amount of stock-based compensation to be recognized. During the year ended December 31, 2015 the Company recognized $5.9 million of stock-based compensation expense related to the performance-based award.
Unless otherwise determined by the Companys board of directors, restricted stock units granted under the 2013 Plan generally vest monthly over a four-year period. The following table provides a summary of the Companys restricted stock unit activity for the 2013 Plan during the year ended December 31, 2015:
Restricted Stock Units | Weighted Average Grant Date Fair Value |
|||||||
Non-vested at December 31, 2014 |
341,161 | $ | 12.00 | |||||
Vested and unissued |
(120,396 | ) | $ | 12.00 | ||||
|
|
|||||||
Non-vested at December 31, 2015 |
220,765 | $ | 12.00 | |||||
|
|
|
|
All Plans
The following table presents total stock-based compensation expense recorded in the consolidated statement of operations and comprehensive loss for all 2012 restricted stock awards and units issued prior to the Companys IPO in October 2013 and all awards granted under the 2013 Plan in connection with or subsequent to the IPO:
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in thousands) | ||||||||||||
Cost of revenue |
$ | 126 | $ | 547 | $ | 1,975 | ||||||
Sales and marketing |
459 | 1,585 | 3,285 | |||||||||
Engineering and development |
267 | 883 | 1,988 | |||||||||
General and administrative |
9,911 | 13,028 | 22,677 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expense |
$ | 10,763 | $ | 16,043 | $ | 29,925 | ||||||
|
|
|
|
|
|
As of December 31, 2015 the Company has approximately $30.1 million of unrecognized stock-based compensation expense related to option awards that will be recognized over 2.5 years and approximately $47.4 million of unrecognized stock-based compensation expense related to restricted stock awards to be recognized that will also be recognized over 2.5 years.
38
12. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive loss, net of tax were as follows:
Foreign Currency Translation Adjustments |
Unrealized Gains (Losses) on Cash Flow Hedges |
Total | ||||||||||
(in thousands) | ||||||||||||
Balance at December 31, 2013 |
$ | (55 | ) | $ | | $ | (55 | ) | ||||
Other comprehensive income (loss) |
(462 | ) | | (462 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2014 |
(517 | ) | | (517 | ) | |||||||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss) |
(1,281 | ) | 80 | (1,201 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2015 |
$ | (1,798 | ) | 80 | $ | (1,718 | ) | |||||
|
|
|
|
|
|
13. Redeemable Non-Controlling Interest
In connection with a 2013 equity investment in JDI Backup Ltd., where the Company acquired a controlling interest, the agreement provided for a put option for the then non-controlling interest (NCI) shareholders to put the remaining equity interest to the Company within pre-specified put periods. As the NCI was subject to a put option that was outside the control of the Company, it was deemed a redeemable non-controlling interest and not recorded in permanent equity, and was presented as mezzanine redeemable non-controlling interest on the consolidated balance sheet, and was subject to the guidance of the Securities and Exchange Commission (SEC) under ASC 480-10-S99, Accounting for Redeemable Equity Securities.
The difference between the $20.8 million initial fair value of the redeemable non-controlling interest and the value that was expected to be paid upon exercise of the put option was being accreted over the period commencing December 11, 2013 and up to the end of the first put option period, which commenced on the 18-month anniversary of the acquisition date. Adjustments to the carrying amount of the redeemable non-controlling interest were charged to additional paid-in capital.
Non-controlling interest arising from the application of the consolidation rules was classified within total stockholders equity with any adjustments charged to net loss attributable to non-controlling interest in a consolidated subsidiary in the consolidated statement of operations and comprehensive loss.
During the year ended December 31, 2014, the Company paid $4.2 million to increase its investment in JDI Backup Ltd. and entered into an amendment to the put option with the NCI shareholders. During the year ended December 31, 2014, due to the Companys assessment of the financial performance and forecasted profitability of JDI Backup Ltd., the Company changed its estimate of the expected exercise amount of the put option. The change in estimate resulted in the fair value of the put option increasing to $30.5 million as of December 31, 2014.
On January 13, 2015, the Company entered into an agreement to acquire the remaining interests owned by the NCI shareholders for $30.5 million, which was originally payable in three equal installments on January 13, 2015, June 15, 2015 and September 15, 2015. During the year ended December 31, 2015, the Company entered into amendments to change the dates of the second installment from June 15, 2015 to April 10, 2015 and the date of the third installment from September 15, 2015 to July 2, 2015. The Company will continue to consolidate JDI Backup Ltd. for financial reporting purposes, however, because the Company now owns 100% of JDI Backup Ltd., commencing on January 13, 2015, the Company no longer records a non-controlling interest in the consolidated statement of operations and comprehensive loss.
39
14. Income Taxes
The Company accounts for income taxes in accordance with authoritative guidance, which requires the use of the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply in the years in which the differences are expected to be reversed.
The domestic and foreign components of income (loss) before income taxes for the periods presented:
Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in thousands) | ||||||||||||
United States |
$ | (158,481 | ) | $ | (17,002 | ) | $ | 1,258 | ||||
Foreign |
(2,894 | ) | (27,603 | ) | (1,046 | ) | ||||||
|
|
|
|
|
|
|||||||
Total income (loss) before income taxes |
$ | (161,375 | ) | $ | (44,605 | ) | $ | 212 | ||||
|
|
|
|
|
|
The components of the provision (benefit) for income taxes consisted of the following:
Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in thousands) | ||||||||||||
Current: |
||||||||||||
U.S. federal |
$ | | $ | 781 | $ | 1,827 | ||||||
State |
267 | 183 | 696 | |||||||||
Foreign |
914 | 1,582 | 1,699 | |||||||||
|
|
|
|
|
|
|||||||
Total current provision |
1,181 | 2,546 | 4,222 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
U.S. federal |
(50,007 | ) | (581 | ) | (1,103 | ) | ||||||
State |
(8,852 | ) | (3,983 | ) | 1,952 | |||||||
Foreign |
(1,590 | ) | (5,310 | ) | (818 | ) | ||||||
Change in valuation allowance |
55,672 | 13,514 | 7,089 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred provision |
(4,777 | ) | 3,640 | 7,120 | ||||||||
|
|
|
|
|
|
|||||||
Total expense (benefit) |
$ | (3,596 | ) | $ | 6,186 | $ | 11,342 | |||||
|
|
|
|
|
|
During 2013, the Companys net deferred tax liability was eliminated due mainly to a reduction in a deferred liability related to definite-lived intangibles and for current period losses resulting in an increase to offsetting deferred tax assets. On December 22, 2011, the Company was acquired by Holdings. The Company recorded its intangible assets at fair value as a result of the acquisition. For U.S. GAAP purposes the definite-lived intangible assets have accelerated amortization, while for tax purposes the intangible assets maintained their historical basis and lives. As such, a deferred tax liability was established through purchase accounting. The reversal of the 2012 deferred tax liability in 2013 resulted in a deferred tax benefit in 2013. The Company established a valuation allowance on substantially all of their deferred tax assets during the year ended December 31, 2013. The benefit had been reduced after the establishment of the valuation allowance by the deferred tax expense associated with the tax amortization of assets that have an indefinite life for U.S. GAAP purposes. The state income tax is primarily driven by states who tax the Company based on a gross margin tax. The Company also has subsidiaries in Brazil and India that are generating taxable income and are driving the current foreign tax.
40
The following table presents a reconciliation of the statutory federal rate, and the Companys effective tax rate, for the periods presented:
Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
U.S. federal taxes at statutory rate |
34.0 | % | 34.0 | % | 34.0 | % | ||||||
State income taxes, net of federal benefit |
3.2 | 5.9 | 685.0 | |||||||||
Nondeductible stock-based compensation |
(0.7 | ) | (2.5 | ) | 827.3 | |||||||
Nondeductible transaction costs |
(1.1 | ) | (1.0 | ) | 856.5 | |||||||
Nontaxable gain on redemption of equity interest |
| | (674.9 | ) | ||||||||
Other foreign permanent differences |
| (2.5 | ) | 187.8 | ||||||||
Credits |
| 0.6 | | |||||||||
Foreign rate differential |
(0.2 | ) | (11.7 | ) | 299.7 | |||||||
Change in valuation allowanceU.S. |
(34.0 | ) | (23.2 | ) | 3,398.6 | |||||||
Change in valuation allowanceforeign |
(0.5 | ) | (7.0 | ) | (130.8 | ) | ||||||
Rate change |
0.4 | (1.1 | ) | 216.5 | ||||||||
Prior year true-up stock-based compensationU.S. |
| (2.0 | ) | (132.8 | ) | |||||||
Other |
1.1 | (3.4 | ) | (217.5 | ) | |||||||
|
|
|
|
|
|
|||||||
Total |
2.2 | % | (13.9 | )% | 5,349.4 | % | ||||||
|
|
|
|
|
|
The provision (benefit) for income taxes shown on the consolidated statements of operations differs from amounts that would result from applying the statutory tax rates to income before taxes primarily because of state income taxes, the impact of changes in state apportionment, jurisdiction mix of earnings, nondeductible expenses, as well as the application of valuation allowances against U.S. and foreign assets.
The significant components of the Companys deferred income tax assets and liabilities are as follows:
As of December 31, | ||||||||
2014 | 2015 | |||||||
Deferred income tax assets: |
||||||||
Net operating loss carry forward |
$ | 70,070 | $ | 43,698 | ||||
Credit carryforward |
724 | 2,190 | ||||||
Other |
910 | 6,612 | ||||||
Deferred compensation |
571 | 497 | ||||||
Deferred revenue |
18,385 | 21,327 | ||||||
Other reserves |
4,200 | 4,895 | ||||||
Stock-based compensation |
5,360 | 13,221 | ||||||
|
|
|
|
|||||
Total deferred income tax assets |
100,220 | 92,440 | ||||||
|
|
|
|
|||||
Deferred income tax liabilities: |
||||||||
Purchased intangible assets |
(32,315 | ) | (11,098 | ) | ||||
Goodwill |
(17,404 | ) | (26,062 | ) | ||||
Property and equipment |
(2,852 | ) | (8,361 | ) | ||||
|
|
|
|
|||||
Total deferred income tax liabilities |
(52,571 | ) | (45,521 | ) | ||||
Valuation allowance |
(69,271 | ) | (75,705 | ) | ||||
|
|
|
|
|||||
Net deferred income tax liabilities |
$ | (21,622 | ) | $ | (28,786 | ) | ||
|
|
|
|
The Company conducts business globally and, as a result, its subsidiaries file income tax returns in U.S. federal and state jurisdictions and various foreign jurisdictions. In the normal course of business, the Company may be subject to examination by taxing authorities throughout the world, including such major jurisdictions as Brazil, India, the United Kingdom and the United States.
41
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, the Company 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. The Company is currently under audit in India for fiscal year ended March 31, 2015 and Israel for the fiscal years ended December 31, 2012, 2013 and 2014.
The statute of limitations in the Companys other tax jurisdictions remains open for various periods between 2011 and the present. However, carryforward attributes from prior years may still be adjusted upon examination by tax authorities if they are used in an open period.
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 no unrecognized tax positions at December 31, 2014 and December 31, 2015 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.
The Company regularly assesses 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 (NOL) incurred from the Companys inception to December 31, 2015; |
| Expiration of various federal and state tax attributes; |
| Reversals of existing temporary differences; |
| Composition and cumulative amounts of existing temporary differences; and |
| Forecasted profit before tax. |
For the year ended December 31, 2015, the Company is in a pre-tax book income position. For the year ended December 31, 2015, the Company was in a cumulative pre-tax book loss position for the preceding three years. The Company has generated significant NOLs since inception, and as such, it has no U.S. loss carryback capacity. In addition, the Company has a history of expiring state NOLs. The Company scheduled out the future reversals of existing deferred tax assets and liabilities and concluded that these reversals did not generate sufficient future taxable income to offset the existing net operating losses. After consideration of the available evidence, both positive and negative, the Company has recorded a valuation allowance of $75.7 million as of December 31, 2015. This provision for income taxes results from a combination of the activities of the Companys domestic and foreign subsidiaries.
For the years ended December 31, 2013, 2014 and 2015, the Company has recognized a tax expense (benefit) of $(3.6) million, $6.2 million and $11.3 million, respectively, in the consolidated statements of operations and comprehensive loss. The income tax expense for the year ended December 31, 2015 is primarily attributable to a provision for federal and state current income taxes of $2.5 million, foreign current tax expense of $1.7 million, federal and state deferred tax expense of $0.8 million and attributable to a $7.1 million increase in the valuation allowance, partially offset by a foreign deferred benefit of $0.8 million related to the reductions of deferred liabilities created in purchase accounting.
The income tax expense for the year ended December 31, 2014 was primarily attributable to a provision for foreign taxes of $1.8 million, U.S. alternative minimum taxes of $0.5 million and $0.2 million of state taxes. The remaining balance of $3.6 million for the year ended December 31, 2014 was primarily attributable to an increase in U.S. deferred tax liabilities due to the differences in the accounting treatment of goodwill under U.S.
42
GAAP and the tax accounting treatment for goodwill of $5.8 million of U.S. federal and state deferred taxes, partially offset by a foreign deferred benefit of $2.2 million related to the reductions of deferred liabilities created in purchase accounting.
As of December 31, 2015, the Company had NOL carry-forwards available to offset future U.S. federal taxable income of approximately $97.8 million and future state taxable income of approximately $111.2 million. These NOL carry-forwards expire on various dates through 2034. Approximately $1.6 million of the U.S. federal NOL carry-forwards and $0.7 million of the state NOL carry-forwards are from excess stock-based compensation, for which the benefit will be recorded to additional paid-in capital when recognized. As of December 31, 2015, the Company had NOL carry-forwards in foreign jurisdictions available to offset future foreign taxable income by approximately $27.4 million. The Company has loss carry-forwards in India totaling $2.9 million that expire in 2021. The Company also has loss carry-forwards in the United Kingdom, Israel and Singapore of $23.4 million, $0.9 million, and $0.2 million, respectively, which have an indefinite carry-forward period.
Utilization of the NOL carry-forwards may be subject to an annual limitation due to the ownership percentage change limitations under Section 382 of the Internal Revenue Code (Section 382 limitation). Ownership changes can limit the amount of net operating loss and other tax attributes that a company can use each year to offset future taxable income and taxes payable. In connection with a change in control in 2011 the Company was subject to Section 382 annual limitations of $77.1 million against the balance of NOL carry-forwards generated prior to the change in control in 2011. Through December 31, 2013 the Company accumulated the unused amount of Section 382 limitations in excess of the amount of NOL carry-forwards that were originally subject to limitation. Therefore, these unused NOL carry-forwards are available for future use to offset taxable income. The Company has completed an analysis of changes in its ownership from 2011, through its IPO, to December 31, 2013. The Company concluded that there was not a Section 382 ownership change during this period and therefore any NOLs generated through December 31, 2013, are not subject to any new Section 382 annual limitations on NOL carry-forwards. On November 20, 2014, the Company completed a follow-on offering of 13,000,000 shares of common stock. The underwriters also exercised their overallotment option to purchase an additional 1,950,000 shares of common stock from the selling stockholders. The Company performed an analysis of the impact of this offering and determined that no Section 382 change in ownership had occurred.
On March 11, 2015, the Company closed a follow-on offering of its common stock, in which selling stockholders sold 12,000,000 shares of common stock at a public offering price of $19.00 per share. The underwriter also exercised its overallotment option to purchase an additional 1,800,000 shares of common stock from the selling stockholders. The Company is currently completing an analysis of its ownership changes from March 2015 through December 31, 2015, but does not believe the outcome of this analysis will result in an additional ownership change based on the information available at this time.
As a result, all unused NOL carry-forwards at December 31, 2015 are available for future use to offset taxable income.
Permanent Reinvestment of Foreign Earnings
The Company considers the operating earnings of its non-United States subsidiaries to be indefinitely invested outside the United States under ASC 740-30 based on estimates that future and domestic cash generation will be sufficient to meet future domestic cash needs. The Company has three cumulatively profitable foreign jurisdictions, Brazil, India and U.A.E., which have generated approximately $7.3 million of profits outside of the United States. If the Company were to repatriate these cumulative profits, there would be sufficient United States net operating losses to offset the tax impact of the repatriation. If the Company decides to repatriate foreign earnings, the Company would have to adjust the income tax provision in the period it determines that the earnings will no longer be indefinitely vested outside the United States. In 2015, the Company provided taxes for royalty fees paid to its U.A.E. subsidiary as Subpart F income subject to taxation under the U.S. Internal Revenue Code.
43
Except for Subpart F income, the Company has not provided taxes for the remaining $7.3 million of undistributed earnings of its foreign subsidiaries because we plan to keep these amounts permanently reinvested overseas except for instances where we can remit such earnings to the U.S. without an associated net tax cost. If the Company decides to repatriate the foreign earnings, it would need to adjust its income tax provision in the period it determines that the earnings will no longer be indefinitely invested outside the United States. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practicable to determine the unrecognized deferred tax liability relating to such amounts.
15. Severance and Other Exit Costs
In connection with acquisitions, the Company may evaluate its data center, sales and marketing, support and engineering operations and the general and administrative function in an effort to eliminate redundant costs. As a result, the Company may incur charges for employee severance, exiting facilities and restructuring data center commitments and other related costs.
During the year ended December 31, 2014, the Company implemented plans to further integrate and consolidate its data center, support and engineering operations, resulting in severance and facility exit costs. The severance charges were associated with eliminating approximately 90 positions across primarily support, engineering operations and sales and marketing. The Company incurred severance costs of $2.3 million in the year ended December 31, 2014 related to these restructuring activities. The employee-related charges associated with these restructurings were completed during the year ended December 31, 2014. As of December 31, 2015, the Company did not have any remaining accrued employee-severance related to these severance costs.
The Company had incurred facility costs associated with closing offices in Redwood City, California and Englewood, Colorado. At the time of closing these offices, the Company had remaining lease obligations of approximately $3.0 million for these vacated facilities through March 31, 2018. The Company recorded a facilities charge for these future lease payments, less expected sublease income, of $2.1 million during the year ended December 31, 2014. During the year ended December 31, 2015, the Company recorded an adjustment of $0.6 million as a result of entering an agreement for an early buyout of the lease agreement for the Englewood, Colorado facility.
The following table provides a summary of the activity for the year ended December 31, 2015 related to the Companys facilities exit costs accrual:
Facilities | ||||
(in thousands) | ||||
Balance at December 31, 2014 |
$ | 1,855 | ||
Cash paid |
(911 | ) | ||
Sublease income |
104 | |||
Adjustments |
(569 | ) | ||
|
|
|||
Balance at December 31, 2015 |
$ | 479 | ||
|
|
During the year ended December 31, 2015, the Company implemented plans to enhance operational efficiencies across the business, resulting in severance costs (the 2015 Restructuring Plan). The severance charges were associated with eliminating approximately 67 positions across the business. The Company incurred severance costs of $2.1 million during the year ended December 31, 2015 related to these restructuring activities. The Company completed employee-related charges associated with these restructurings during the year ended December 31, 2015. The Company has paid $0.9 million of severance costs during the year ended December 31, 2015 and accrued a severance liability of $1.2 million as of December 31, 2015. The Company expects payments to be completed during the year ended December 31, 2016 related to the 2015 Restructuring Plan.
44
The following table provides a summary of the activity for the year ended December 31, 2015 related to the Companys 2015 Restructuring Plan severance accrual:
2015 Plan Employee Severance |
||||
(in thousands) | ||||
Balance at December 31, 2014 |
$ | | ||
Severance charges |
2,058 | |||
Cash paid |
(857 | ) | ||
|
|
|||
Balance at December 31, 2015 |
$ | 1,201 | ||
|
|
The following table presents severance charges recorded in the consolidated statement of operations and comprehensive loss for the periods presented:
For the Year Ended December 31, |
||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Cost of revenue |
$ | 517 | $ | 524 | ||||
Sales and marketing |
301 | 555 | ||||||
Engineering and development |
960 | 636 | ||||||
General and administrative |
542 | 343 | ||||||
|
|
|
|
|||||
Total severance charges |
$ | 2,320 | $ | 2,058 | ||||
|
|
|
|
16. Commitments and Contingencies
Operating Leases
The Company has operating lease commitments for certain facilities and equipment that expire on various dates through 2026. The following table outlines future minimum annual rental payments under these leases at December 31, 2015:
Year Ending December 31, |
Amount | |||
(in thousands) | ||||
2016 |
$ | 9,247 | ||
2017 |
10,379 | |||
2018 |
8,601 | |||
2019 |
8,892 | |||
2020 |
8,663 | |||
Thereafter |
26,172 | |||
|
|
|||
Total minimum lease payments |
$ | 71,954 | ||
|
|
Total net rent expense incurred under non-cancellable operating leases for the years ended December 31, 2013, 2014 and 2015, were $8.9 million, $9.8 million and $8.2 million, respectively. Total sublease income for the year ended December 31, 2015 was $0.2 million.
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 a party to any legal proceedings that in the opinion of management, if determined adversely to the Company, would have a material adverse effect on its business, financial condition, operating results or cash flow. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
45
On May 4, 2015, Christopher Machado, a purported holder of the Companys stock, filed a civil action in the United States District Court for the District of Massachusetts against the Company and its chief executive officer and former chief financial officer, Machado v. Endurance International Group Holdings, Inc., et al, Civil Action No. 1:15-cv-11775-GAO. The plaintiff filed an amended complaint on December 8, 2015 and the plaintiff has recently been given leave to file a second amended the complaint, which will supersede the current complaint.
The Company received a subpoena dated December 10, 2015 from the Boston Regional Office of the SEC, requiring the production of certain documents, including, among other things, documents related to our financial reporting, including operating and non-GAAP metrics, refund, sales and marketing practices and transactions with related parties. The Company is fully cooperating with the SECs investigation, which is still in its preliminary stages. The Company can make no assurances as to the time or resources that will need to be devoted to this investigation or the final outcome, or the impact, if any, of this investigation on its business, financial condition, results of operations and cash flows.
Constant Contact
On October 30, 2015, the Company entered into a definitive agreement pursuant to which it agreed to acquire all of the outstanding shares of common stock of Constant Contact. The acquisition closed on February 9, 2016. Constant Contact contingencies are noted below.
On December 10, 2015, Constant Contact received a subpoena from the Boston Regional Office of the SEC, requiring the production of documents pertaining to Constant Contacts sales, marketing, and customer retention practices, and periodic public disclosure of financial and operating metrics. The Company is fully cooperating with the SECs investigation. The Company can make no assurances as to the time or resources that will need to be devoted to this investigation or its final outcome, or the impact, if any, of this investigation or any related legal or regulatory proceedings on the Companys business, financial condition, results of operations and cash flows.
On August 7, 2015, a purported class action lawsuit, William McGee v. Constant Contact, Inc., et al, was filed in the United States District Court for the District of Massachusetts against Constant Contact and two of its former officers. The lawsuit asserts claims under Sections 10(b) and 20(a) of the Exchange Act, and is premised on allegedly false and/or misleading statements, and non-disclosure of material facts, regarding Constant Contacts business, operations, prospects and performance during the proposed class period of October 23, 2014 to July 23, 2015. This litigation is in its very early stages. The Company and the individual defendants intend to vigorously defend all claims asserted. The Company cannot, however, make any assurances as to the outcome of this proceeding.
In September 2012, RPost Holdings, Inc., RPost Communications Limited and RMail Limited, or collectively, RPost, filed a complaint in the United States District Court for the Eastern District of Texas that named Constant Contact as a defendant in a lawsuit. The complaint alleged that certain elements of Constant Contacts email marketing technology infringe five patents held by RPost. RPost seeks an award for damages in an unspecified amount and injunctive relief. In February 2013, RPost amended its complaint to name five of Constant Contacts marketing partners as defendants. Under Constant Contacts contractual agreements with these marketing partners, it is obligated to indemnify them for claims related to patent infringement. Constant Contact filed a motion to sever and stay the claims against its partners and multiple motions to dismiss the claims against it. In January 2014, the case was stayed pending the resolution of certain state court and bankruptcy actions involving RPost, to which Constant Contact is not a party. The stay was extended by agreement of the parties in December 2014. This litigation is in its very early stages. The Company believes it has meritorious defenses to any claim of infringement and intends to defend against the lawsuit vigorously.
On December 11, 2015, a putative class action lawsuit relating to the Constant Contact acquisition, captioned Irfan Chawdry, Individually and On Behalf of All Others Similarly Situated v. Gail Goodman, et al.
46
Case No. 11797, or the Chawdry Complaint, and on December 21, 2015, a putative class action lawsuit relating to the acquisition captioned David V. Myers, Individually and On Behalf of All Others Similarly Situated v. Gail Goodman, et al. Case No. 11828, or the Myers Complaint (together with the Chawdry Complaint, the Complaints) filed in the Court of Chancery of the State of Delaware naming Constant Contact, each of Constant Contacts directors, Endurance and Paintbrush Acquisition Corporation as defendants. The Complaints generally allege, among other things, that in connection with the acquisition the directors of Constant Contact breached their fiduciary duties owed to the stockholders of Constant Contact by agreeing to sell Constant Contact for purportedly inadequate consideration, engaging in a flawed sales process, omitting material information necessary for stockholders to make an informed vote, and agreeing to a number of purportedly preclusive deal protection devices. The Complaints seek, among other things, to rescind the acquisition, as well as award of plaintiffs attorneys fees and costs in the action. The defendants have not yet answered or otherwise responded to either of these Complaints. The defendants believe the claims asserted in the Complaints are without merit and intend to defend against these lawsuits vigorously.
17. Employee Benefit Plans
The Company has a defined contribution plan established under Section 401(k) of the Internal Revenue Code (the 401(k) Plan), which covers substantially all employees. Employees are eligible to participate in the 401(k) Plan beginning on the first day of the month following commencement of their employment. The 401(k) Plan includes a salary deferral arrangement pursuant to which participants may elect to reduce their current compensation by up to the statutorily prescribed limit, equal to $18,000 in 2015, and have the amount of the reduction contributed to the 401(k) Plan. Beginning January 1, 2013, the Company matched 100% of each participants annual contribution to the 401(k) plan up to 3% of the participants salary and then 50% of each participants contribution up to 2% of each participants salary. The match immediately vests 100%. Matching contributions by the Company to the 401(k) Plan related to the 2013, 2014 and 2015 plan years were approximately $1.2 million, $2.2 million and $2.5 million, respectively.
In connection with an acquisition in 2011, the Company assumed a defined contribution plan established under Section 401(k) of the Internal Revenue Code (the Dotster 401(k) Plan), in which employees were eligible to participate upon the date of hire. Under the Dotster 401(k) Plan, the Company matched 100% of each participants annual contribution to the Dotster 401(k) Plan up to 3% of each participants salary and then 50% of each participants annual contribution to the Dotster 401(k) Plan up to 2% of each participants salary. The match immediately vested 100%. A matching contribution by the Company related to the 2013 plan year in the amount of $0.4 million was made to the Dotster 401(k) Plan. The Dotster 401(k) plan merged with the Companys 401(k) plan during the year ended December 31, 2014.
In connection with the HostGator acquisition in 2012, the Company assumed a defined contribution plan established under Section 401(k) of the Internal Revenue Code (the HostGator 401(k) Plan), in which employees were eligible to participate on the date of hire. Under the HostGator 401(k) Plan, the Company matched 25% of each participants annual contribution up to 4% of each participants salary, vesting 100% after three years of service. A matching contribution by the Company related to the 2013 plan year in the amount of $0.1 million was made to the HostGator 401(k) Plan. The HostGator 401(k) plan merged with the Companys 401(k) plan during the year ended December 31, 2014.
18. Related Party Transactions
The Company has various agreements in place with related parties. Below are details of related party transactions that occurred during the years ended December 31, 2013, 2014 and 2015.
Tregaron:
The Company has contracts with Tregaron India Holdings, LLC and its affiliates, including Diya Systems (Mangalore) Private Limited, Glowtouch Technologies Pvt. Ltd. and Touchweb Designs, LLC, (collectively,
47
Tregaron), for outsourced services, including email- and chat-based customer and technical support, network monitoring, engineering and development support and web design and web building services. These entities are owned directly or indirectly by family members of the Companys chief executive officer, who is also a director and stockholder of the Company.
During 2013 the Company expanded the services provided by Tregaron under the agreements to include support of a newly formed entity in India related to our acquisition of HostGator India. The Company inadvertently excluded the support of this Indian entity from its related party disclosures for 2013. The amount previously reported as expense for the Tregaron services for the year ended December 31, 2013 was $7.3 million, which is revised in providing prior period comparative amounts in the footnotes to the consolidated financial statements for the year ended December 31, 2015 to $8.6 million.
In addition, the Company has revised amounts reported in the related party disclosures for the quarterly periods during 2014. The full year amounts for Tregaron for 2014 were correctly reported. The following table includes the revised amounts of related party transactions recorded in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2013, 2014 and 2015 relating to services provided by Tregaron and its affiliates under these agreements:
For the Year Ended December 31, | ||||||||||||||||||||
2013 | 2013 | 2014 | 2014 | |||||||||||||||||
As Reported | As Revised | As Reported | As Revised | 2015 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cost of revenue |
$ | 5,200 | $ | 5,900 | $ | 7,400 | $ | 7,300 | $ | 10,200 | ||||||||||
Sales and marketing |
300 | 300 | 600 | 500 | 700 | |||||||||||||||
Engineering and development |
900 | 1,600 | 1,700 | 1,700 | 1,100 | |||||||||||||||
General and administrative |
900 | 800 | 700 | 900 | 300 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total related party transaction expense |
$ | 7,300 | $ | 8,600 | $ | 10,400 | $ | 10,400 | $ | 12,300 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The amounts reflected in the consolidated statement of operations and comprehensive loss, consolidated balance sheet and consolidated statement of cash flows for the Tregaron services for all periods during 2013, 2014 and 2015 were correctly reflected and do not require revision.
As of December 31, 2014, and 2015 approximately $1.4 million and $1.9 million, respectively, was included in accounts payable and accrued expense relating to services provided by Tregaron.
Innovative Business Services, LLC:
The Company also has agreements with Innovative Business Services, LLC, (IBS), which provides multi-layered third-party security applications that are sold by the Company. IBS is indirectly majority owned by the Companys chief executive officer and a director of the Company, each of whom are also stockholders of the Company. During the year ended December 31, 2014, the Companys principal agreement with this entity was amended which resulted in the accounting treatment of expenses being recorded against revenue.
During 2013 the Company expanded the services provided by IBS under the agreements across all of its entities. The Company inadvertently excluded the expenses related to the expanded relationship with IBS from related party disclosures for 2013 and 2014. For the year ended December 31, 2013, the Company previously reported cost of services related to the IBS services of $3.0 million, which is revised to $3.9 million in providing prior period comparative amounts in the footnote to the consolidated financial statements for the year ended December 31, 2015.
48
In addition, the Company has revised amounts reported in certain quarterly periods and the annual period during 2014. The following table includes the revised amounts of related party transactions recorded in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2013, 2014 and 2015 relating to services provided by IBS under these agreements:
For the Year Ended December 31, | ||||||||||||||||||||
2013 | 2013 | 2014 | 2014 | |||||||||||||||||
As Reported | As Revised | As Reported | As Revised | 2015 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Revenue |
$ | | $ | (100 | ) | $ | | $ | (400 | ) | $ | (1,300 | ) | |||||||
Revenue (contra) |
| | 600 | 600 | 7,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total related party transaction impact to revenue |
$ | | $ | (100 | ) | $ | 600 | $ | 200 | $ | 5,700 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of revenue |
3,000 | 4,000 | 4,800 | 4,600 | 600 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total related party transaction expense, net |
$ | 3,000 | $ | 3,900 | $ | 5,400 | $ | 4,800 | $ | 6,300 | ||||||||||
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2014, the Company previously reported net expenses related to the IBS services of $5.4 million, which is revised to $4.8 million, in providing prior period comparative amounts in the footnotes to the consolidated financial statements for the year ended December 31, 2015.
The amounts reflected in the consolidated statement of operations and comprehensive loss, consolidated balance sheet and consolidated statement of cash flows for the IBS services for all periods during 2013 and 2014 were correctly reflected and do not require revision.
As of December 31, 2014 and 2015, approximately $0.2 million and $0.2 million, respectively, was included in prepaid expenses and other current assets relating to the Companys agreements with IBS.
As of December 31, 2014 and 2015, approximately $0.9 million and $1.1 million, respectively was included in accounts payable and accrued expense relating to the Companys agreements with IBS.
As of December 31, 2014 and 2015, approximately $0.1 million and $0.3 million, respectively, was included in accounts receivable relating to the Companys agreements with IBS.
The Company entered into a three-year interest rate cap on December 9, 2015 with a subsidiary of Goldman Sachs. Goldman Sachs is a significant shareholder of the Company. For more detail refer to Note 5 in the consolidated financial statements.
19. Supplemental guarantor financial information
In February 2016, EIG Investors Corp., a wholly-owned subsidiary of the Company (the Issuer), issued $350.0 million aggregate principal amount of its 10.875% Senior Notes due 2024 (the Original Notes) (refer to Note 9 in the consolidated financial statements), which it expects to exchange for new 10.875% Senior Notes due 2024 (the Exchange Notes and together with the Original Notes, collectively, the Notes) pursuant to a registration statement on Form S-4. The Notes are, or will be, fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company, and the following wholly-owned subsidiaries: The Endurance International Group, Inc., Bluehost Inc., FastDomain Inc., Domain Name Holding Company, Inc., Endurance International Group West, Inc., HostGator.com LLC and A Small Orange, LLC (collectively, the Subsidiary Guarantors), subject to certain customary guarantor release conditions. The Companys other domestic subsidiaries and its foreign subsidiaries (collectively, the Non-Guarantor Subsidiaries) have not guaranteed the Notes.
The following tables present supplemental condensed consolidating balance sheet information of the Company (Parent), the Issuer, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of December 31, 2014 and December 31, 2015, and supplemental condensed consolidating results of operations and cash flow information for each of the years ended December 31, 2013, 2014 and 2015.
49
Condensed Consolidating Balance Sheets
December 31, 2014
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | $ | 4,347 | $ | 18,702 | $ | 9,329 | $ | | $ | 32,379 | ||||||||||||
Restricted cash |
| | 904 | 421 | | 1,325 | ||||||||||||||||||
Accounts receivable |
| | 7,245 | 2,956 | | 10,201 | ||||||||||||||||||
Prepaid domain name registry fees |
| | 27,943 | 21,662 | | 49,605 | ||||||||||||||||||
Prepaid expenses & other current assets |
1 | 14,022 | 7,438 | 6,239 | (566 | ) | 27,134 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
2 | 18,369 | 62,232 | 40,607 | (566 | ) | 120,644 | |||||||||||||||||
Intercompany receivables, net |
26,877 | 29,635 | 55,855 | (112,367 | ) | | | |||||||||||||||||
Property and equipment, net |
| | 55,191 | 1,646 | | 56,837 | ||||||||||||||||||
Goodwill |
| | 969,055 | 135,968 | | 1,105,023 | ||||||||||||||||||
Other intangible assets, net |
| | 365,735 | 44,603 | | 410,338 | ||||||||||||||||||
Investment in subsidiaries |
147,616 | 1,190,590 | 32,902 | | (1,371,108 | ) | | |||||||||||||||||
Other assets |
| | 49,615 | 3,186 | | 52,801 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 174,495 | $ | 1,238,594 | $ | 1,590,585 | $ | 113,643 | $ | (1,371,674 | ) | $ | 1,745,643 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities, redeemable non-controlling interest and stockholders equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 6,565 | $ | 2,395 | $ | | $ | 8,960 | ||||||||||||
Accrued expenses and other current liabilities |
| 4,503 | 31,833 | 12,863 | (566 | ) | 48,633 | |||||||||||||||||
Deferred revenue |
| | 207,722 | 51,845 | | 259,567 | ||||||||||||||||||
Current portion of notes payable |
| | 60,500 | | | 60,500 | ||||||||||||||||||
Current portion of capital lease obligations |
| | 3,793 | | | 3,793 | ||||||||||||||||||
Deferred consideration, short-term |
| | 13,437 | 480 | | 13,917 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
| 4,503 | 323,850 | 67,583 | (566 | ) | 395,370 | |||||||||||||||||
Deferred revenue, long-term |
| | 58,325 | 7,525 | | 65,850 | ||||||||||||||||||
Notes payable |
| 1,086,475 | (60,500 | ) | | | 1,025,975 | |||||||||||||||||
Capital lease obligations |
| | | 4,302 | | 4,302 | ||||||||||||||||||
Deferred consideration |
| | 9,352 | 1,370 | | 10,722 | ||||||||||||||||||
Other long-term liabilities |
| | 38,425 | (40 | ) | | 38,385 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
| 1,090,978 | 369,452 | 80,740 | (566 | ) | 1,540,604 | |||||||||||||||||
Redeemable non-controlling interest |
| | 30,543 | | | 30,543 | ||||||||||||||||||
Equity |
174,495 | 147,616 | 1,190,590 | 32,903 | (1,371,108 | ) | 174,496 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and equity |
$ | 174,495 | $ | 1,238,594 | $ | 1,590,585 | $ | 113,643 | $ | (1,371,674 | ) | $ | 1,745,643 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
50
Condensed Consolidating Balance Sheets
December 31, 2015
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 12 | $ | 67 | $ | 21,286 | $ | 11,665 | $ | | $ | 33,030 | ||||||||||||
Restricted cash |
| | 973 | 75 | | 1,048 | ||||||||||||||||||
Accounts receivable |
| | 7,120 | 4,920 | | 12,040 | ||||||||||||||||||
Prepaid domain name registry fees |
| | 29,250 | 26,878 | (335 | ) | 55,793 | |||||||||||||||||
Prepaid expenses & other current assets |
| 62 | 9,722 | 8,263 | (2,372 | ) | 15,675 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
12 | 129 | 68,351 | 51,801 | (2,707 | ) | 117,586 | |||||||||||||||||
Intercompany receivables, net |
29,092 | (10,324 | ) | 91,938 | (110,706 | ) | | | ||||||||||||||||
Property and equipment, net |
| | 66,011 | 9,751 | | 75,762 | ||||||||||||||||||
Goodwill |
| | 1,072,838 | 134,417 | | 1,207,255 | ||||||||||||||||||
Other intangible assets, net |
| | 328,922 | 30,864 | | 359,786 | ||||||||||||||||||
Investment in subsidiaries |
150,164 | 1,260,399 | 38,819 | | (1,449,382 | ) | | |||||||||||||||||
Other assets |
| 3,130 | 34,151 | 4,830 | | 42,111 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 179,268 | $ | 1,253,334 | $ | 1,701,030 | $ | 120,957 | $ | (1,452,089 | ) | $ | 1,802,500 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities, redeemable non-controlling interest and stockholders equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | 3,769 | $ | 7,269 | $ | 1,242 | $ | | $ | 12,280 | ||||||||||||
Accrued expenses and other current liabilities |
| 7,016 | 38,092 | 12,106 | (2,372 | ) | 54,842 | |||||||||||||||||
Deferred revenue |
| | 230,396 | 56,290 | (741 | ) | 285,945 | |||||||||||||||||
Current portion of notes payable |
| | 77,500 | | | 77,500 | ||||||||||||||||||
Current portion of capital lease obligations |
| | 5,866 | | | 5,866 | ||||||||||||||||||
Deferred consideration, short-term |
| | 50,840 | 648 | | 51,488 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
| 10,785 | 409,963 | 70,286 | (3,113 | ) | 487,921 | |||||||||||||||||
Deferred revenue, long-term |
| | 71,982 | 7,700 | | 79,682 | ||||||||||||||||||
Notes payable |
| 1,092,385 | (77,500 | ) | | | 1,014,885 | |||||||||||||||||
Capital lease obligations |
| | 7,215 | | | 7,215 | ||||||||||||||||||
Deferred consideration |
| | | 813 | | 813 | ||||||||||||||||||
Other long-term liabilities |
| | 28,970 | 3,340 | | 32,310 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
| 1,103,170 | 440,630 | 82,139 | (3,113 | ) | 1,622,826 | |||||||||||||||||
Redeemable non-controlling interest |
| | | | | | ||||||||||||||||||
Equity |
179,268 | 150,164 | 1,260,400 | 38,818 | (1,448,976 | ) | 179,674 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and equity |
$ | 179,268 | $ | 1,253,334 | $ | 1,701,030 | $ | 120,957 | $ | (1,452,089 | ) | $ | 1,802,500 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
51
Condensed Consolidating Statements of Operations and Comprehensive Loss
Year Ended December 31, 2013
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenue |
$ | | $ | | $ | 511,270 | $ | 9,026 | $ | | $ | 520,296 | ||||||||||||
Cost of revenue |
| | 343,852 | 6,251 | | 350,103 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 167,418 | 2,775 | | 170,193 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expense: |
||||||||||||||||||||||||
Sales & marketing |
| | 113,999 | 3,690 | | 117,689 | ||||||||||||||||||
Engineering and development |
| | 22,598 | 607 | | 23,205 | ||||||||||||||||||
General and administrative |
| 957 | 89,306 | 2,084 | | 92,347 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expense |
| 957 | 225,903 | 6,381 | | 233,241 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from operations |
| (957 | ) | (58,485 | ) | (3,606 | ) | | (63,048 | ) | ||||||||||||||
Interest expense, net |
| 96,414 | 1,930 | (17 | ) | | 98,327 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity earnings of unconsolidated entities |
| (97,371 | ) | (60,415 | ) | (3,589 | ) | | (161,375 | ) | ||||||||||||||
Income tax expense (benefit) |
| (4,511 | ) | 837 | 78 | | (3,596 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before equity earnings of unconsolidated entities |
| (92,860 | ) | (61,252 | ) | (3,667 | ) | | (157,779 | ) | ||||||||||||||
Equity loss of unconsolidated entities, net of tax |
159,187 | 66,328 | 5,734 | | (229,182 | ) | 2,067 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(159,187 | ) | (159,188 | ) | (66,986 | ) | (3,667 | ) | 229,182 | (159,846 | ) | |||||||||||||
Net loss attributable to non-controlling interest |
| | (659 | ) | | | (659 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to Endurance |
$ | (159,187 | ) | $ | (159,188 | ) | $ | (66,327 | ) | $ | (3,667 | ) | $ | 229,182 | $ | (159,187 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
||||||||||||||||||||||||
Foreign currency translation adjustments |
| | | (55 | ) | | (55 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive loss |
$ | (159,187 | ) | $ | (159,188 | ) | $ | (66,327 | ) | $ | (3,722 | ) | $ | 229,182 | $ | (159,242 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
52
Condensed Statements of Operations and Comprehensive Loss
Year Ended December 31, 2014
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenue |
$ | | $ | | $ | 559,434 | $ | 70,990 | $ | (579 | ) | $ | 629,845 | |||||||||||
Cost of revenue |
| | 327,225 | 54,500 | (237 | ) | 381,488 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 232,209 | 16,490 | (342 | ) | 248,357 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expense: |
||||||||||||||||||||||||
Sales & marketing |
| | 114,367 | 32,607 | (177 | ) | 146,797 | |||||||||||||||||
Engineering and development |
| | 16,805 | 2,744 | | 19,549 | ||||||||||||||||||
General and administrative |
| 232 | 61,291 | 8,010 | | 69,533 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expense |
| 232 | 192,463 | 43,361 | (177 | ) | 235,879 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from operations |
| (232 | ) | 39,746 | (26,871 | ) | (165 | ) | 12,478 | |||||||||||||||
Interest expense, net |
| 56,330 | 829 | (76 | ) | | 57,083 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity earnings of unconsolidated entities |
| (56,562 | ) | 38,917 | (26,795 | ) | (165 | ) | (44,605 | ) | ||||||||||||||
Income tax expense (benefit) |
| 6,163 | 613 | (590 | ) | | 6,186 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before equity earnings of unconsolidated entities |
| (62,725 | ) | 38,304 | (26,205 | ) | (165 | ) | (50,791 | ) | ||||||||||||||
Equity loss of unconsolidated entities, net of tax |
42,835 | (19,890 | ) | 26,500 | | (49,384 | ) | 61 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(42,835 | ) | (42,835 | ) | 11,804 | (26,205 | ) | 49,219 | (50,852 | ) | ||||||||||||||
Net loss attributable to non-controlling interest |
| | (8,017 | ) | | | (8,017 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to Endurance |
$ | (42,835 | ) | $ | (42,835 | ) | $ | 19,821 | $ | (26,205 | ) | $ | 49,219 | $ | (42,835 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
||||||||||||||||||||||||
Foreign currency translation adjustments |
| | | (462 | ) | | (462 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive loss |
$ | (42,835 | ) | $ | (42,835 | ) | $ | 19,821 | $ | (26,667 | ) | $ | 49,219 | $ | (43,297 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
53
Condensed Consolidating Statements of Operations and Comprehensive Loss
Year Ended December 31, 2015
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenue |
$ | | $ | | $ | 628,266 | $ | 113,766 | $ | (717 | ) | $ | 741,315 | |||||||||||
Cost of revenue |
| | 349,059 | 77,177 | (1,201 | ) | 425,035 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 279,207 | 36,589 | 484 | 316,280 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expense: |
||||||||||||||||||||||||
Sales & marketing |
| | 120,637 | 24,815 | (33 | ) | 145,419 | |||||||||||||||||
Engineering and development |
| | 23,019 | 3,688 | | 26,707 | ||||||||||||||||||
General and administrative |
| 177 | 80,548 | 10,132 | 111 | 90,968 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expense |
| 177 | 224,204 | 38,635 | 78 | 263,094 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from operations |
| (177 | ) | 55,003 | (2,046 | ) | 406 | 53,186 | ||||||||||||||||
Interest expense and other income, net |
| 56,843 | (3,554 | ) | (315 | ) | | 52,974 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity earnings of unconsolidated entities |
| (57,020 | ) | 58,557 | (1,731 | ) | 406 | 212 | ||||||||||||||||
Income tax expense (benefit) |
| 10,320 | 331 | 691 | | 11,342 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before equity earnings of unconsolidated entities |
| (67,340 | ) | 58,226 | (2,422 | ) | 406 | (11,130 | ) | |||||||||||||||
Equity loss of unconsolidated entities, net of tax |
26,176 | (41,164 | ) | 17,063 | | 12,565 | 14,640 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(26,176 | ) | (26,176 | ) | 41,163 | (2,422 | ) | (12,159 | ) | (25,770 | ) | |||||||||||||
Net loss attributable to non-controlling interest |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to Endurance |
$ | (26,176 | ) | $ | (26,176 | ) | $ | 41,163 | $ | (2,422 | ) | $ | (12,159 | ) | $ | (25,770 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
||||||||||||||||||||||||
Foreign currency translation adjustments |
| | | (1,281 | ) | | (1,281 | ) | ||||||||||||||||
Unrealized gain on cash flow hedge |
| 80 | | | | 80 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive loss |
$ | (26,176 | ) | $ | (26,096 | ) | $ | 41,163 | $ | (3,703 | ) | $ | (12,159 | ) | $ | (26,971 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
54
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2013
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | | $ | (97,851 | ) | $ | 129,007 | $ | 1,460 | $ | | $ | 32,616 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Businesses acquired in purchase transaction, net of cash acquired |
| | (31,274 | ) | (7,385 | ) | | (38,659 | ) | |||||||||||||||
Purchases of property and equipment |
| | (33,403 | ) | (120 | ) | | (33,523 | ) | |||||||||||||||
Proceeds from sale of property and equipment |
| | 54 | | | 54 | ||||||||||||||||||
Proceeds from sale of assets |
| | 23 | | | 23 | ||||||||||||||||||
Purchases of intangible assets |
| | (751 | ) | | | (751 | ) | ||||||||||||||||
Net (deposits) and withdrawals of principal balances in restricted cash accounts |
| | (220 | ) | (11 | ) | | (231 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
| | (65,571 | ) | (7,516 | ) | | (73,087 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Proceeds from issuance of notes payable and draws on revolver |
| 1,202,000 | | | | 1,202,000 | ||||||||||||||||||
Repayment of notes payable and revolver |
| (1,284,625 | ) | | | | (1,284,625 | ) | ||||||||||||||||
Payment of financing costs |
| (12,552 | ) | | | | (12,552 | ) | ||||||||||||||||
Payment of deferred consideration |
| | (53,272 | ) | (2,363 | ) | | (55,635 | ) | |||||||||||||||
Proceeds from issuance of common stock |
252,612 | | | | | 252,612 | ||||||||||||||||||
Issuance costs of common stock |
(17,512 | ) | | | | | (17,512 | ) | ||||||||||||||||
Intercompany advances and investments |
(235,099 | ) | 228,363 | (4,758 | ) | 11,494 | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
1 | 133,186 | (58,030 | ) | 9,131 | | 84,288 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net effect of exchange rate on cash and cash equivalents |
| | | (247 | ) | | (247 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
1 | 35,335 | 5,406 | 2,828 | | 43,570 | ||||||||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||||||
Beginning of period |
| 544 | 19,636 | 3,065 | | 23,245 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
End of period |
$ | 1 | $ | 35,879 | $ | 25,042 | $ | 5,893 | $ | | $ | 66,815 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
55
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2014
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | (1 | ) | $ | (63,853 | ) | $ | 215,212 | $ | (8,465 | ) | $ | | $ | 142,893 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Businesses acquired in purchase transaction, net of cash acquired |
| | (69,578 | ) | (24,120 | ) | | (93,698 | ) | |||||||||||||||
Purchases of property and equipment |
| | (22,850 | ) | (1,054 | ) | | (23,904 | ) | |||||||||||||||
Cash paid for minority investments |
| | (34,140 | ) | | | (34,140 | ) | ||||||||||||||||
Proceeds from sale of property and equipment |
| | 39 | 55 | | 94 | ||||||||||||||||||
Proceeds from sale of assets |
| | 100 | | | 100 | ||||||||||||||||||
Purchases of intangible assets |
| | (200 | ) | | | (200 | ) | ||||||||||||||||
Net (deposits) and withdrawals of principal balances in restricted cash accounts |
| | 191 | 242 | | 433 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
| | (126,438 | ) | (24,877 | ) | | (151,315 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Proceeds from issuance of notes payable and draws on revolver |
| 150,000 | | | | 150,000 | ||||||||||||||||||
Repayment of notes payable and revolver |
| (110,500 | ) | | | | (110,500 | ) | ||||||||||||||||
Payment of financing costs |
| (53 | ) | | | | (53 | ) | ||||||||||||||||
Payment of deferred consideration |
| | (41,244 | ) | (57,074 | ) | | (98,318 | ) | |||||||||||||||
Payment of redeemable non-controlling interest liability |
| | (4,190 | ) | | | (4,190 | ) | ||||||||||||||||
Principal payments on capital lease obligations |
| | (3,608 | ) | | | (3,608 | ) | ||||||||||||||||
Proceeds from exercise of stock options |
137 | | | | | 137 | ||||||||||||||||||
Proceeds from issuance of common stock |
43,500 | | | | | 43,500 | ||||||||||||||||||
Issuance costs of common stock |
(2,904 | ) | | | | | (2,904 | ) | ||||||||||||||||
Intercompany advances and investments |
(40,731 | ) | (7,126 | ) | (46,073 | ) | 93,930 | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
2 | 32,321 | (95,115 | ) | 36,856 | | (25,936 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net effect of exchange rate on cash and cash equivalents |
| | | (78 | ) | | (78 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
1 | (31,532 | ) | (6,341 | ) | 3,436 | | (34,436 | ) | |||||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||||||
Beginning of period |
| 35,879 | 25,043 | 5,893 | | 66,815 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
End of period |
$ | 1 | $ | 4,347 | $ | 18,702 | $ | 9,329 | $ | | $ | 32,379 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
56
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2015
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 2 | $ | (50,147 | ) | $ | 220,468 | $ | 6,905 | $ | | $ | 177,228 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Businesses acquired in purchase transaction, net of cash acquired |
| | (92,376 | ) | (5,419 | ) | | (97,795 | ) | |||||||||||||||
Purchases of property and equipment |
| | (28,058 | ) | (3,185 | ) | | (31,243 | ) | |||||||||||||||
Cash paid for minority investments |
| | (8,475 | ) | | | (8,475 | ) | ||||||||||||||||
Proceeds from sale of property and equipment |
| | 51 | 42 | | 93 | ||||||||||||||||||
Proceeds from note receivable |
| | 3,454 | | | 3,454 | ||||||||||||||||||
Proceeds from sale of assets |
| | 191 | | | 191 | ||||||||||||||||||
Purchases of intangible assets |
| | (76 | ) | | | (76 | ) | ||||||||||||||||
Net (deposits) and withdrawals of principal balances in restricted cash accounts |
| | (296 | ) | 346 | | 50 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
| | (125,585 | ) | (8,216 | ) | | (133,801 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Proceeds from issuance of notes payable and draws on revolver |
| 147,000 | | | | 147,000 | ||||||||||||||||||
Repayment of notes payable and revolver |
| (140,500 | ) | | | | (140,500 | ) | ||||||||||||||||
Payment of deferred consideration |
| | (14,503 | ) | (488 | ) | | (14,991 | ) | |||||||||||||||
Payment of redeemable non-controlling interest liability |
| | (30,543 | ) | | | (30,543 | ) | ||||||||||||||||
Principal payments on capital lease obligations |
| | (4,822 | ) | | | (4,822 | ) | ||||||||||||||||
Proceeds from exercise of stock options |
2,224 | | | | | 2,224 | ||||||||||||||||||
Intercompany advances and investments |
(2,215 | ) | 39,367 | (42,431 | ) | 5,279 | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
9 | 45,867 | (92,299 | ) | 4,791 | | (41,632 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net effect of exchange rate on cash and cash equivalents |
| | | (1,144 | ) | | (1,144 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
11 | (4,280 | ) | 2,584 | 2,336 | | 651 | |||||||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||||||
Beginning of period |
1 | 4,347 | 18,702 | 9,329 | | 32,379 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
End of period |
$ | 12 | $ | 67 | $ | 21,286 | $ | 11,665 | $ | | $ | 33,030 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
57
20. Subsequent Events
With respect to the consolidated financial statements as of and for the year ended December 31, 2015, the Company performed an evaluation of subsequent events through the date of this filing.
On January 6, 2016, the Company exercised an option to increase its stake in WZ UK Ltd., a provider of technology and sales marketing services associated with web builder solutions, from 49% to 57.5%, in exchange for a payment of approximately $2.1 million to the other shareholders of WZ UK Ltd. After certain performance milestones are met, the Company has an option to purchase, and the other shareholders of WZ UK Ltd. have an option to sell to the Company within three years, the remaining shares of WZ UK Ltd. at a per-share price to be determined based on a multiple of revenue.
On October 30, 2015, the Company entered into a definitive agreement pursuant to which it agreed to acquire all of the outstanding shares of common stock of Constant Contact for $32.00 per share in cash, for a total purchase price of approximately $1.1 billion. Constant Contact is a leading provider of online marketing tools that are designed for small organizations, including small businesses, associations and non-profits. The acquisition closed on February 9, 2016.
58
The purchase price of $1.1 billion is being allocated on a preliminary basis to intangible assets consisting of subscriber relationships, developed technology and trade names of $267.0 million, $88.0 million and $36.0 million, respectively, goodwill of $556.6 million, property and equipment of $32.0 million, working capital of $172.0 million and other assets of $0.3 million, offset by deferred revenue of $39.8 million.
In connection with and concurrently with the acquisition, the Company entered into a $735.0 million incremental first lien term loan facility and a $165.0 million revolving credit facility (which replaced its existing $125.0 million revolving credit facility) and issued $350.0 million of 10.875% senior notes due 2024.
The following unaudited information is as if the Constant Contact acquisition was as of January 1, 2014. The unaudited pro forma results are not necessarily indicative of the actual results that would have occurred had the transaction actually taken place at the beginning of the period indicated. Unaudited pro forma revenue for the years ended December 31, 2014 and 2015 is $960.9 million and $1,105.3 million, respectively. Unaudited pro forma net loss for the years ended December 31, 2014 and 2015 is $135.0 million and $113.0 million, respectively. The unaudited pro forma net loss includes adjustments for additional interest expense related to the debt incurred in connection with the acquisition of Constant Contact.
21. Geographic and Other Information
Revenue, classified by the major geographic areas in which our customers are located, was as follows:
Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in thousands) | ||||||||||||
United States |
$ | 359,889 | $ | 409,765 | $ | 465,446 | ||||||
International |
160,407 | 220,080 | 275,869 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 520,296 | $ | 629,845 | $ | 741,315 | ||||||
|
|
|
|
|
|
The following table presents the amount of tangible long-lived assets by geographic area:
2014 | 2015 | |||||||
(in thousands) | ||||||||
United States |
$ | 55,191 | $ | 72,025 | ||||
International |
1,646 | 3,737 | ||||||
|
|
|
|
|||||
Total |
$ | 56,837 | $ | 75,762 | ||||
|
|
|
|
The Companys revenues are generated primarily from products and services delivered on a subscription basis, which include web hosting, domains, website builders, search engine marketing and other similar services. The Company also generates non-subscription revenues through domain monetization and marketing development funds. Non-subscription revenues increased from $28.3 million, or 4% of total revenue for the year ended December 31, 2014 to $52.6 million, or 7% of revenue for the year ended December 31, 2015. The increase in non-subscription revenues is primarily due to the acquisitions of Directi and BuyDomains.
59
22. Quarterly Financial Data (unaudited)
The following table presents the Companys unaudited quarterly financial data:
For the three months ended | ||||||||||||||||||||||||||||||||
March 31, 2014 |
June 30, 2014 |
Sept. 30, 2014 |
Dec. 31, 2014 |
March 31, 2015 |
June 30, 2015 |
Sept. 30, 2015 |
Dec. 31, 2015 |
|||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||||||
Revenue |
$ | 145,750 | $ | 151,992 | $ | 160,167 | $ | 171,936 | $ | 177,318 | $ | 182,431 | $ | 188,523 | $ | 193,043 | ||||||||||||||||
Gross profit |
$ | 56,559 | $ | 59,381 | $ | 62,751 | $ | 69,666 | $ | 76,344 | $ | 77,494 | $ | 77,750 | $ | 84,692 | ||||||||||||||||
Income (loss) from operations |
$ | (5,499 | ) | $ | (1,085 | ) | $ | 5,254 | $ | 13,808 | $ | 17,199 | $ | 12,548 | $ | 9,113 | $ | 14,326 | ||||||||||||||
Net income (loss) attributable to Endurance International Group Holdings, Inc. |
$ | (19,285 | ) | $ | (13,448 | ) | $ | (7,898 | ) | $ | (2,204 | ) | $ | 884 | $ | (2,071 | ) | $ | (15,351 | ) | $ | (9,232 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Basic and diluted net income (loss) per share attributable to Endurance International Group Holdings, Inc. |
$ | (0.15 | ) | $ | (0.11 | ) | $ | (0.06 | ) | $ | (0.02 | ) | $ | 0.01 | $ | (0.02 | ) | $ | (0.12 | ) | $ | (0.07 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Exhibit 99.2
ENDURANCE INTERNATIONAL GROUP HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
Consolidated Balance Sheets as of December 31, 2015 and September 30, 2016 |
2 | |||
3 | ||||
Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2016 |
4 | |||
5 |
1
Endurance International Group Holdings, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
December 31, 2015 | September 30, 2016 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 33,030 | $ | 63,148 | ||||
Restricted cash |
1,048 | 3,483 | ||||||
Accounts receivable |
12,040 | 11,193 | ||||||
Prepaid domain name registry fees |
55,793 | 55,444 | ||||||
Prepaid expenses and other current assets |
15,675 | 32,274 | ||||||
|
|
|
|
|||||
Total current assets |
117,586 | 165,542 | ||||||
Property and equipmentnet |
75,762 | 97,093 | ||||||
Goodwill |
1,207,255 | 1,859,671 | ||||||
Other intangible assetsnet |
359,786 | 650,770 | ||||||
Deferred financing costs |
| 5,345 | ||||||
Investments |
27,905 | 20,710 | ||||||
Prepaid domain name registry fees, net of current portion |
9,884 | 10,114 | ||||||
Other assets |
4,322 | 4,428 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,802,500 | $ | 2,813,673 | ||||
|
|
|
|
|||||
Liabilities, redeemable non-controlling interest and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 12,280 | $ | 13,977 | ||||
Accrued expenses |
50,869 | 81,815 | ||||||
Deferred revenue |
285,945 | 356,747 | ||||||
Current portion of notes payable |
77,500 | 69,200 | ||||||
Current portion of capital lease obligations |
5,866 | 7,108 | ||||||
Deferred considerationshort term |
51,488 | 13,153 | ||||||
Other current liabilities |
3,973 | 3,507 | ||||||
|
|
|
|
|||||
Total current liabilities |
487,921 | 545,507 | ||||||
Long-term deferred revenue |
79,682 | 91,855 | ||||||
Notes payablelong term, net of original issue discounts of $0 and $26,707, and deferred financing costs of $990 and $44,681, respectively |
1,014,885 | 1,961,512 | ||||||
Capital lease obligationslong term |
7,215 | 2,082 | ||||||
Deferred tax liability |
28,786 | 31,081 | ||||||
Deferred considerationlong term |
813 | 7,324 | ||||||
Other liabilities |
3,524 | 9,892 | ||||||
|
|
|
|
|||||
Total liabilities |
1,622,826 | 2,649,253 | ||||||
|
|
|
|
|||||
Redeemable non-controlling interest |
| 14,129 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred Stockpar value $0.0001; 5,000,000 shares authorized; no shares issued or outstanding |
| | ||||||
Common Stockpar value $0.0001; 500,000,000 shares authorized; 132,024,558 and 133,786,885 shares issued at December 31, 2015 and September 30, 2016, respectively; 131,938,485 and 133,786,885 outstanding at December 31, 2015 and September 30, 2016, respectively |
14 | 14 | ||||||
Additional paid-in capital |
848,740 | 858,195 | ||||||
Accumulated other comprehensive loss |
(1,718 | ) | (2,589 | ) | ||||
Accumulated deficit |
(667,362 | ) | (705,329 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
179,674 | 150,291 | ||||||
|
|
|
|
|||||
Total liabilities, redeemable non-controlling interest and stockholders equity |
$ | 1,802,500 | $ | 2,813,673 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
2
Endurance International Group Holdings, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
Revenue |
$ | 188,523 | $ | 291,193 | $ | 548,272 | $ | 819,019 | ||||||||
Cost of revenue |
110,773 | 149,427 | 316,684 | 438,980 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
77,750 | 141,766 | 231,588 | 380,039 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expense: |
||||||||||||||||
Sales and marketing |
37,523 | 75,341 | 109,791 | 234,944 | ||||||||||||
Engineering and development |
7,902 | 23,988 | 19,906 | 67,930 | ||||||||||||
General and administrative |
21,751 | 33,399 | 58,429 | 108,508 | ||||||||||||
Transactions expenses |
1,461 | 159 | 4,602 | 32,257 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expense |
68,637 | 132,887 | 192,728 | 443,639 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from operations |
9,113 | 8,879 | 38,860 | (63,600 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other income (expense): |
||||||||||||||||
Other income (loss) |
| (4,845 | ) | 5,440 | 6,565 | |||||||||||
Interest income |
107 | 162 | 316 | 438 | ||||||||||||
Interest expense |
(14,624 | ) | (41,208 | ) | (42,956 | ) | (112,573 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other expensenet |
(14,517 | ) | (45,891 | ) | (37,200 | ) | (105,570 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes and equity earnings of unconsolidated entities |
(5,404 | ) | (37,012 | ) | 1,660 | (169,170 | ) | |||||||||
Income tax expense (benefit) |
5,397 | (7,387 | ) | 9,082 | (121,220 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before equity earnings of unconsolidated entities |
(10,801 | ) | (29,625 | ) | (7,422 | ) | (47,950 | ) | ||||||||
Equity loss of unconsolidated entities, net of tax |
4,550 | 173 | 9,116 | 1,197 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
(15,351 | ) | (29,798 | ) | (16,538 | ) | (49,147 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to non-controlling interest |
| (1,206 | ) | | (14,326 | ) | ||||||||||
Excess accretion of non-controlling interest |
| 3,145 | | 3,145 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net income (loss) attributable to non-controlling interest |
| 1,939 | | (11,181 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to Endurance International Group Holdings, Inc. |
$ | (15,351 | ) | $ | (31,737 | ) | $ | (16,538 | ) | $ | (37,966 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income (loss): |
||||||||||||||||
Foreign currency translation adjustments |
(836 | ) | 112 | (1,358 | ) | 994 | ||||||||||
Unrealized gain (loss) on cash flow hedge, net of taxes of $0 and ($65), and $0 and ($889) for the three and nine months ended September 30, 2015 and 2016, respectively |
| 72 | | (1,866 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive loss |
$ | (16,187 | ) | $ | (31,553 | ) | $ | (17,896 | ) | $ | (38,838 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Basic and Diluted net loss per share attributable to Endurance International Group Holdings, Inc. |
$ | (0.12 | ) | $ | (0.24 | ) | $ | (0.13 | ) | $ | (0.29 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average common shares used in computing net loss per share attributable to Endurance International Group Holdings, Inc.: |
||||||||||||||||
Basic and Diluted |
131,398,446 | 133,550,168 | 131,195,109 | 133,038,542 | ||||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
Endurance International Group Holdings, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended September 30, | ||||||||
2015 | 2016 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (16,538 | ) | $ | (49,147 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation of property and equipment |
24,649 | 46,942 | ||||||
Amortization of other intangible assets |
67,191 | 105,679 | ||||||
Impairment of long lived assets |
| 8,285 | ||||||
Amortization of deferred financing costs |
62 | 4,322 | ||||||
Amortization of net present value of deferred consideration |
488 | 2,426 | ||||||
Dividend from equity method investment |
| 50 | ||||||
Amortization of original issue discounts |
| 2,116 | ||||||
Stock-based compensation |
20,272 | 48,218 | ||||||
Deferred tax expense (benefit) |
5,621 | (124,547 | ) | |||||
Gain on sale of assets |
(155 | ) | (168 | ) | ||||
Gain from unconsolidated entities |
(5,440 | ) | (6,565 | ) | ||||
Loss of unconsolidated entities |
9,116 | 1,197 | ||||||
(Gain) loss from change in deferred consideration |
1,083 | (33 | ) | |||||
Changes in operating assets and liabilities, net of acquisitions: |
||||||||
Accounts receivable |
(1,742 | ) | 1,376 | |||||
Prepaid expenses and other current assets |
(9,254 | ) | (9,206 | ) | ||||
Accounts payable and accrued expenses |
9,257 | 12,294 | ||||||
Deferred revenue |
29,204 | 58,565 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
133,814 | 101,804 | ||||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Businesses acquired in purchase transactions, net of cash acquired |
(73,212 | ) | (889,634 | ) | ||||
Cash paid for minority investment |
(7,250 | ) | (5,600 | ) | ||||
Purchases of property and equipment |
(23,267 | ) | (29,317 | ) | ||||
Proceeds from note receivable |
3,454 | | ||||||
Proceeds from sale of assets |
284 | 242 | ||||||
Purchases of intangible assets |
(44 | ) | (27 | ) | ||||
Deposits (withdrawals) of principal balances in restricted cash accounts |
(109 | ) | (738 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(100,144 | ) | (925,074 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of term loan and notes, net of original issue discounts |
| 1,056,178 | ||||||
Repayments of term loans |
(7,875 | ) | (42,775 | ) | ||||
Proceeds from borrowing of revolver |
109,000 | 49,500 | ||||||
Repayment of revolver |
(89,000 | ) | (83,000 | ) | ||||
Payment of financing costs |
| (52,561 | ) | |||||
Payment of deferred consideration |
(10,591 | ) | (43,080 | ) | ||||
Payment of redeemable non-controlling interest |
(30,543 | ) | (33,425 | ) | ||||
Principal payments on capital lease obligations |
(2,827 | ) | (4,372 | ) | ||||
Capital investment from minority partner |
| 2,776 | ||||||
Proceeds from exercise of stock options |
1,147 | 2,304 | ||||||
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
(30,689 | ) | 851,545 | |||||
|
|
|
|
|||||
Net effect of exchange rate on cash and cash equivalents |
(1,198 | ) | 1,843 | |||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
1,783 | 30,118 | ||||||
Cash and cash equivalents: |
||||||||
Beginning of period |
32,379 | 33,030 | ||||||
|
|
|
|
|||||
End of period |
$ | 34,162 | $ | 63,148 | ||||
|
|
|
|
|||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 42,449 | $ | 91,181 | ||||
Income taxes paid |
$ | 3,974 | $ | 3,399 |
See accompanying notes to consolidated financial statements.
4
Endurance International Group Holdings, Inc.
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 company, EIG Investors Corp. (EIG Investors), its primary operating subsidiary company, The Endurance International Group, Inc. (EIG), and other subsidiary companies 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 by investment funds and entities affiliated with Warburg Pincus and Goldman, Sachs & Co. on December 22, 2011 of a controlling interest in EIG Investors, EIG and EIGs subsidiary companies. 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.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements, which include the accounts of the Company and its subsidiaries, have been prepared using accounting principles generally accepted in the United States of America (U.S. GAAP). All intercompany transactions have been eliminated on consolidation. The Company has reviewed the criteria of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 280-10, Segment Reporting, and determined that the Company is comprised of two operating segments, and those segments meet the aggregation criteria to be treated as one reportable segment.
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 Companys 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.
Unaudited Interim Financial Information
The accompanying interim consolidated balance sheet as of September 30, 2016, and the related consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2015 and 2016, cash flows for the nine months ended September 30, 2015 and 2016, 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 Companys financial position at September 30, 2016, results of operations for the three and nine months ended September 30, 2015 and 2016 and cash flows for the nine months ended September 30, 2015 and 2016. The consolidated results in the consolidated statements of operations and comprehensive loss are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2016.
Accounts Receivable
Accounts receivable is primarily composed of cash due from credit card companies for unsettled transactions charged to subscribers 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.
5
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 Companys registrars on behalf of a customer. The registry fees are recognized on a straight-line basis over the term of the domain registration period.
Derivative Instruments and Hedging Activities
FASB ASC 815, Derivatives and Hedging, or ASC 815, 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 entitys financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Companys 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 FASBs fair value measurement guidance in ASU 2011-04, 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 fair value if 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 capital lease 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 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. The Company capitalized internal-use software development costs of $1.7 million and $4.5 million, during the three and nine months ended September 30, 2015, respectively, and $2.9 million and $9.3 million, during the three and nine months ended September 30, 2016, respectively.
6
Goodwill
Goodwill relates to amounts that arose in connection with the Companys 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 business, a significant adverse change in certain 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, the 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 ASC 350, IntangiblesGoodwill and Other, or ASC 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. As of December 31, 2015, the Company determined that it had one reporting unit. Following the acquisition of Constant Contact, Inc. (Constant Contact), the Company determined it has two reporting units, Constant Contact, which consists of the goodwill pertaining to our acquisition of Constant Contact, and Flagship, which consists of the remaining goodwill balance of the Company. Historically, the Company has performed its annual impairment analysis during the fourth quarter of each year. The provisions of ASC 350 require that a two-step impairment test be performed for goodwill. In the first step, the Company compares the fair value of its reporting unit to which goodwill has been allocated to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting units goodwill. If the carrying value of a reporting units goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.
At December 31, 2015, the Company had one reporting unit. The goodwill impairment assessment as of December 31, 2015 was based on then-current market capitalization. As of December 31, 2015, the fair value of the Companys reporting unit exceeded the carrying value of the reporting units net assets. Therefore, no impairment existed as of that date. For the nine months ended September 30, 2016, the Company determined that there were no factors to indicate that the fair value of its reporting units could be impaired, therefore, no impairment testing was performed during this period.
Determining the fair value of a reporting unit, if applicable, requires the Company to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions relate to, among other things, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. The Company bases its fair value estimates on assumptions it believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
The Company had goodwill of $1,207.3 million and $1,859.7 million as of December 31, 2015 and September 30, 2016, respectively, and no impairment charges have been recorded.
Long-Lived Assets
The Companys long-lived assets consist primarily of intangible assets, including acquired subscriber relationships, trade names, intellectual property, developed technology, domain names available for sale and in-process research and development (IPR&D). The Company also has long-lived tangible assets, primarily consisting of property and equipment. The majority of the Companys intangible assets are recorded in connection with its various acquisitions. The Companys 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. Developed technology is amortized on a straight line basis over the estimated useful economic life which has a weighted average useful life of 7 years.
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.
7
During the nine months ended September 30, 2016, the Company determined that a portion of an internally developed software tool would not meet its needs following the acquisition of Constant Contact, resulting in an impairment charge of $2.0 million which was recorded in engineering and development expense in the consolidated statements of operations and comprehensive loss. Additionally, during the nine months ended September 30, 2016, the Company recognized an impairment charge of $0.5 million relating to internally developed software relating to Webzai Ltd. (Webzai), and another impairment charge of $4.4 million relating to developed technology acquired in the Webzai acquisition, for a total impairment charge relating to this software of $4.9 million, which was recorded in engineering and development expense in the consolidated statements of operations and comprehensive loss. Refer to Note 4: Property and Equipment and Capital Lease Obligations and Note 7: Goodwill and Other Intangible Assets for further details.
Furthermore, during the nine months ended September 30, 2016, the Company incurred impairment charges of $8.3 million, which includes the $2.0 million charge to abandon a portion of the internally developed software tool and the $4.9 million charge relating to the Webzai software and developed technology, both mentioned above, and a charge of $1.4 million to impair certain acquired IPR&D projects from the Webzai acquisition that were abandoned during the three months ended March 31, 2016. Refer to Note 4: Property and Equipment and Capital Lease Obligations, Note 7: Goodwill and Other Intangible Assets, and Acquired In-Process Research and Development (IPR&D) below for further details.
Indefinite life intangible assets include domain names that are available for sale which are recorded at 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.
Acquired In-Process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires in connection with business combinations that have not been completed at the date of acquisition. The acquired IPR&D is capitalized as an intangible asset and reviewed on a quarterly basis to determine future use. Any impairment loss of the acquired IPR&D is charged to expense in the period the impairment is identified. No such impairment loss was identified for the three and nine months ended September 30, 2015. In March 2016, the Company identified that the acquired fair value of the remaining IPR&D acquired in connection with its acquisition of Webzai was impaired. At that time, the Company recorded a $1.4 million impairment charge, which is reflected in engineering and development expense during the nine months ended September 30, 2016 in the Companys consolidated statements of operations and comprehensive loss.
Revenue Recognition
The Company generates revenue primarily from selling subscriptions for cloud-based products and services. The subscriptions are similar across all of the Companys brands and are provided under contracts pursuant to which the Company has ongoing obligations to support the subscriber. These contracts are generally for service periods of up to 36 months and typically require payment in advance. The Company recognizes the associated revenue ratably over the service period, whether the associated revenue is derived from a direct subscriber or through a reseller. Deferred revenue represents the liability to subscribers for advance billings for services not yet provided and the fair value of the assumed liability outstanding for subscriber relationships purchased in an acquisition.
The Company sells domain name registrations that provide a subscriber with the exclusive use of a domain name. These domains are primarily obtained by one of the Companys registrars on the subscribers behalf, or to a lesser extent by the Company from third-party registrars on the subscribers behalf. Domain registration fees are non-refundable.
Revenue from the sale of a domain name registration by a registrar within the Company is recognized ratably over the subscribers service period as the Company has the obligation to provide support over the domain term. Revenue from the sale of a domain name registration purchased by the Company from a third-party registrar is recognized when the subscriber is billed on a gross basis as there are no remaining Company obligations once the sale to the subscriber occurs, and the Company has full discretion on the sales price and bears all credit risk.
Revenue from the sale of premium domains is recognized when persuasive evidence of an arrangement to sell such domains exists, delivery of an authorization key to access the domain name has occurred, the fee for the sale of the premium domain is fixed or determinable, and collection of the fee for the sale of the premium domain is deemed probable.
8
Revenue from the sale of non-term based applications and services, such as certain online security products and professional technical services, referral fees and commissions, is recognized when the product is purchased, the service is provided or the referral fee or commission is earned, respectively.
A substantial amount of the Companys revenue is generated from transactions that are multiple-element service arrangements that may include hosting plans, domain name registrations, and other cloud-based products and services.
The Company follows the provisions of the FASB, Accounting Standards Update (ASU) No. 2009-13 (ASU 2009-13), Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangementsa consensus of the FASB Emerging Issues Task Force, and allocates revenue to each deliverable in a multiple-element service arrangement based on its respective relative selling price.
Under ASU 2009-13, to treat deliverables in a multiple-element service arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately. Hosting services, domain name registrations, and other cloud-based products and services have standalone value and are often sold separately.
When multiple deliverables included in a multiple-element service arrangement are separated into different units of accounting, the total transaction amount is allocated to the identified separate units based on a relative selling price hierarchy. The Company determines the relative selling price for a deliverable based on vendor specific objective evidence (VSOE) of fair value, if available, or best estimate of selling price (BESP), if VSOE is not available. The Company has determined that third-party evidence of selling price (TPE) is not a practical alternative due to differences in its multi-brand offerings compared to competitors and the lack of availability of relevant third-party pricing information. The Company has not established VSOE for its offerings due to lack of pricing consistency, the introduction of new products, services and other factors. Accordingly, the Company generally allocates revenue to the deliverables in the arrangement based on the BESP. The Company determines BESP by considering its relative selling prices, competitive prices in the marketplace and management judgment; these selling prices, however, may vary depending upon the particular facts and circumstances related to each deliverable. The Company analyzes the selling prices used in its allocation of transaction amount, at a minimum, on a quarterly basis. Selling prices are analyzed on a more frequent basis if a significant change in the business necessitates a more timely analysis.
The Company maintains a reserve for refunds and chargebacks related to revenue that has been recognized and is expected to be refunded. The Company had a refund and chargeback reserve of $0.5 million and $0.6 million as of December 31, 2015 and September 30, 2016, respectively. The portion of deferred revenue that is expected to be refunded at December 31, 2015 and September 30, 2016 was $1.8 million and $2.0 million, respectively. Based on refund history, approximately 80% of all refunds happen in the same fiscal month that the contract starts or renews, and approximately 92% of all refunds happen within 45 days of the contract start or renewal date.
Income Taxes
Income taxes are accounted for in accordance with ASC 740, Accounting for Income Taxes, or 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 enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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. There were no unrecognized tax benefits in the three or nine months ended September 30, 2015 and 2016.
The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the three and nine months ended September 30, 2015 and 2016, the Company did not recognize any interest and penalties related to unrecognized tax benefits.
9
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 ASC 718, CompensationStock Compensation, or ASC 718, 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 granted, the Company estimates the fair value of each restricted stock award based on the closing trading price of its common stock on the date of grant.
Net Loss per Share
The Company considered ASC 260-10, Earnings per Share, or ASC 260-10, which requires the presentation of both basic and diluted earnings per share in the consolidated statements of operations and comprehensive loss. The Companys basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, and, if there are dilutive securities, diluted income 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, |
|||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
(unaudited) | ||||||||||||||||
(in thousands, except share amounts and per share data) | ||||||||||||||||
Net loss attributable to Endurance International Group Holdings, Inc. |
$ | (15,351 | ) | $ | (31,737 | ) | $ | (16,538 | ) | $ | (37,966 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share attributable to Endurance International Group Holdings, Inc.: |
||||||||||||||||
Basic and diluted |
$ | (0.12 | ) | $ | (0.24 | ) | $ | (0.13 | ) | $ | (0.29 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average common shares outstanding used in computing net loss per share attributable to Endurance International Group Holdings, Inc. |
||||||||||||||||
Basic and diluted |
131,398,446 | 133,550,168 | 131,195,109 | 133,038,542 | ||||||||||||
|
|
|
|
|
|
|
|
The following number of weighted average potentially dilutive shares were excluded from the calculation of diluted 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, | |||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
(unaudited) | ||||||||||||||||
Restricted stock awards and units |
2,641,996 | 9,554,260 | 2,205,577 | 8,605,808 | ||||||||||||
Options |
7,340,592 | 12,050,726 | 6,511,464 | 10,673,967 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
9,982,588 | 21,604,986 | 8,717,041 | 19,279,775 | ||||||||||||
|
|
|
|
|
|
|
|
10
Reclassification
During the three months ended September 30, 2016, the Company reclassified a payment of $15.4 million made during the three months ended June 30, 2016, from Businesses acquired in purchase transactions, net of cash acquired to Payment of redeemable non-controlling interest. During the three months ended September 30, 2016, the Company also made an $18.0 million payment which is included in Payment of redeemable non-controlling interest. Each of these two payments, in the aggregate amount of $33.4 million, were paid as partial redemption of non-controlling interest in WZ (UK) Ltd. (WZ UK).
Recent Accounting Pronouncements
The Company adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Cost beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The unamortized value of deferred financing costs associated with our revolving credit facility were not affected by the ASU and continue to be presented as an asset on the Companys consolidated balance sheets.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. Since then, the FASB has also issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principals versus Agent Considerations and ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing, which further elaborate on the original ASU No. 2014-09. The core principle of these updates is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgments and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In July 2015, the FASB approved a one-year deferral of the effective date to January 1, 2018, with early adoption to be permitted as of the original effective date of January 1, 2017. Once this standard becomes effective, companies may use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, or ASU 2015-17. This new guidance requires that deferred tax liabilities and assets be classified as noncurrent in the balance sheet, in order to simplify the presentation of deferred income taxes. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016. The Company adopted ASU 2015-17 as of the fourth quarter in 2015, on a prospective basis, and it did not have a material impact on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-07, InvestmentsEquity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting. This new guidance removes the requirement for retroactive adjustment when an increase or decrease in the level of ownership qualifies an investment for the equity method. This amendment is effective for fiscal years beginning after December 15, 2016. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This new standard simplifies the accounting tax aspects, eliminates complex accounting for excess tax deductions, permits higher withholdings for cashless exercises, and eliminates the requirement to estimate a forfeiture rate. This amendment is effective for annual periods beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements.
11
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. This new standard clarifies certain statement of cash flow presentation issues. This amendment is effective for annual periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements.
3. Acquisitions
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 IPR&D. 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 Companys 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. The fair value assigned to IPR&D is based on 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 loss.
WZ (UK) Ltd.
In August 2014, the Company made an aggregate investment of $3.9 million for a joint venture with a 49% ownership interest in WZ UK, which is a provider of technology and sales and marketing services associated with web builder solutions. The Company and the other shareholders of WZ UK entered into a put and call option for the Company to acquire additional equity interests WZ UK under certain circumstances.
On January 6, 2016, the Company partially exercised this option, which increased its stake in WZ UK from 49% to 57.5%. Upon the exercise of the option, the Company estimated the fair value of the assets and liabilities in accordance with the guidance for business combinations and estimated that the value of the non-controlling interest (NCI) on January 6, 2016 was $10.8 million. The estimated aggregate purchase price of $22.2 million included a gain of $11.4 million that was calculated based on the implied fair value of the Companys 49% equity investment and the NCI of $10.8 million, which were allocated on a preliminary basis to goodwill of $21.6 million, intangible assets consisting of subscriber relationships of $4.9 million, and property, plant and equipment of $0.3 million, offset by deferred revenue of $3.3 million and negative working capital of $1.3 million. Goodwill related to the acquisition, which is part of the Companys Flagship reporting unit, is not deductible for tax purposes.
The Company recognized the $11.4 million gain in other income in the Companys consolidated statements of operations and comprehensive loss. As the NCI is subject to a put option that is outside the control of the Company, it is deemed a redeemable non-controlling interest and not recorded in permanent equity, and is being presented as mezzanine redeemable non-controlling interest on the consolidated balance sheet. The difference between the initial fair value of the redeemable non-controlling interest and the value expected to be paid on exercise, which is estimated to be $30.0 million, was being accreted over the period commencing January 6, 2016, and up to the end of the second call option period which was August 14, 2016. Adjustments to the carrying amount of the redeemable non-controlling interest were charged to additional paid-in capital.
On May 16, 2016, the Company amended the put and call option described above to allow it to acquire an additional equity interest in WZ UK earlier than August 2016. Pursuant to this amended option, on the same date the Company acquired an additional 20% stake in WZ UK for $15.4 million, thus increasing its ownership interest from 57.5% to 77.5%.
On July 13, 2016, WZ UK completed a restructuring pursuant to which the Company and the minority shareholders of Pseudio Limited and Resume Labs Limited sold their shares in these entities to WZ UK, in exchange for shares in WZ UK. As a result of the restructuring, Pseudio Limited and Resume Labs Limited became wholly-owned subsidiaries of WZ UK, and the Companys ownership of WZ UK was diluted from 77.5% to 76.4%. Immediately subsequent to the restructuring, the Company acquired an additional 10% equity interest in WZ UK for $18.0 million, thereby increasing the Companys ownership interest to 86.4%.
Concurrent with the restructuring, the Company amended the put and call option described above so as to allow the Company to acquire the remaining 13.6% equity interest in WZ UK for $25.0 million under certain circumstances. The put option is exercisable beginning on July 1, 2017. The Company started accreting to the $25.0 million starting in July 2016. Refer to Note 13: Redeemable for Non-controlling Interest for further details.
12
Constant Contact, Inc.
On October 30, 2015, the Company entered into a definitive agreement pursuant to which it agreed to acquire all of the outstanding shares of common stock of Constant Contact for $32.00 per share in cash, for a total purchase price of approximately $1.1 billion. Constant Contact is a leading provider of online marketing tools that are designed for small organizations, including small businesses, associations and non-profits. The acquisition closed on February 9, 2016.
The aggregate purchase price of $1.1 billion, which was paid in cash at the closing, is being allocated on a preliminary basis to intangible assets consisting of subscriber relationships, developed technology and trade names of $263.0 million, $83.0 million and $52.0 million, respectively, goodwill of $603.9 million, property and equipment of $40.7 million, and working capital of $184.2 million, offset by net a net deferred tax liability of $125.8 million and deferred revenue of $25.2 million. The goodwill reflects the value of expected synergies.
Goodwill related to the acquisition, which is included in the Companys Constant Contact reporting unit, is not deductible for tax purposes.
Pro Forma Disclosure
The Company acquired Constant Contact on February 9, 2016, and the results of Constant Contact have been included in the results of the Company since February 10, 2016. The following unaudited information is presented as if the Constant Contact acquisition was completed as of January 1, 2015. The Company has not presented unaudited pro forma results for the quarterly periods following March 31, 2016, as Constant Contact is included for the entire fiscal periods after that date. The unaudited pro forma results are not necessarily indicative of the actual results that would have occurred had the transaction actually taken place at the beginning of the period indicated. Unaudited pro forma revenue for the three months ended September 30, 2015 was $279.6 million. Unaudited pro forma net loss attributable to Endurance International Group Holdings, Inc. for the three months ended September 30, 2015 was $30.7 million.
Unaudited pro forma revenue for the nine months ended September 30, 2015 and 2016 was $819.7 million and $859.7 million, respectively. Unaudited pro forma net loss attributable to Endurance International Group Holdings, Inc. for the nine months ended September 30, 2015 and 2016 was $81.8 million and $24.2 million, respectively.
Unaudited pro forma net loss includes adjustments for additional interest expense related to the debt incurred in connection with the acquisition of Constant Contact.
Pro forma revenue for the three and nine months ended September 30, 2016 has been reduced by $0.6 million and $14.8 million, respectively, due to the application of purchase accounting for Constant Contact, which reduced the fair value of deferred revenue as of the closing date. Additionally, pro forma net loss for the three and nine months ended September 30, 2016 includes restructuring charges of approximately $5.7 million and $22.0 million, respectively, as the Company implemented plans to reduce the cost structure of the combined businesses.
AppMachine B.V.
In December 2014, the Company made an aggregate investment of $15.2 million to acquire a 40% ownership interest in AppMachine B.V. (AppMachine), which is a developer of software that allows users to build mobile applications for smart devices such as phones and tablets. Under the terms of the investment agreement for AppMachine, the Company was obligated to purchase the remaining 60% of AppMachine in three tranches of 20% within specified periods if AppMachine achieved a specified minimum revenue threshold within a designated timeframe. The consideration for each of those three tranches was to be calculated as the product of AppMachines revenue, as defined in that investment agreement, for the trailing twelve-month period prior to the applicable determination date times a specified multiple based upon year over year revenue growth multiplied by 20%.
On July 27, 2016, the Company acquired the remaining 60% equity interest in AppMachine, increasing the Companys stake to 100%. In connection with the acquisition, the parties terminated the prior investment agreement pursuant to which the Company was obligated to purchase the remaining shares in AppMachine in three tranches. The total consideration based on the new agreement was $22.5 million, of which $5.5 million was paid upon closing, and the remaining $17.0 million (which includes $4.0 million of post-acquisition compensation expense) will be paid in annual installments over a period of four years, commencing with June 21, 2017. The net present value of the additional consideration is $11.5 million, which is included in the aggregate purchase price and recorded as deferred consideration in the Companys consolidated balance sheets as of September 30, 2016. The remaining $1.5 million is being accreted as interest expense. The $4.0 million relating to retention bonuses is being accrued over the employment term associated with these employees.
13
On the date of acquisition, the Company recognized a loss of $4.9 million that was calculated based on the implied fair value of the investment, which was recorded in other income (expense) in the Companys consolidated statements of operations and comprehensive loss.
The purchase price of $25.7 million, which consists of the purchase consideration of $13.0 million, at a present value of $11.5 million, and the carrying value of the existing investment of $13.6 million, partially offset by the loss of $4.9 million, is being allocated on a preliminary basis to intangible assets consisting of subscriber relationships of $0.1 million, developed technology of $1.7 million, and technology in the process of development of $1.7 million, goodwill of $20.3 million, property and equipment of $0.6 million, and working capital of approximately $2.3 million, offset by a deferred tax liability of $0.6 million, deferred revenue of $0.2 million, and other long term liabilities of $0.1 million. Goodwill related to the acquisition, which is included in the Companys Flagship reporting unit, is not deductible for tax purposes. The goodwill reflects the value of expected synergies and technology know-how.
Financial Performance
The Company recorded revenue attributable to its 2016 acquisitions in its consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2016 of $99.4 million and $239.1 million, respectively. The acquisitions 2016 generated income (loss) for the three and nine months ended September 30, 2016 of $5.7 million and ($36.5) million which is recorded in the Companys consolidated statements of operations and comprehensive loss. The $32.3 million of transaction expenses in the Companys consolidated statements of operations and comprehensive loss included a $16.8 million charge related to the accelerated vesting of certain Constant Contact equity awards, and approximately $15.5 million in advisor, legal, and other acquisition-related fees.
For the intangible assets acquired in connection with all acquisitions completed during the three and nine months ended September 30, 2016, developed technology has a weighted-useful life of 4.1 years, subscriber relationships have a weighted-useful life of 4.4 years and trade names have a weighted-useful life of 4.7 years.
Summary of Deferred Consideration Related to Acquisitions
Components of short-term and long-tern deferred consideration as of December 31, 2015 and September 30, 2016, consisted of the following:
December 31, 2015 | September 30, 2016 | |||||||||||||||
Short- term |
Long- term |
Short- term |
Long- term |
|||||||||||||
(in thousands) | ||||||||||||||||
Mojoness, Inc. (Acquired in 2012) |
$ | 657 | $ | 813 | $ | 768 | | |||||||||
Typepad Holdings LLC (Acquired in 2013) |
2,800 | | 2,800 | | ||||||||||||
Webzai Ltd. (Acquired in 2014) |
2,848 | | | | ||||||||||||
BuyDomains (Acquired in 2014) |
4,283 | | | | ||||||||||||
Verio (Acquired in 2015) |
2,474 | | 1,051 | | ||||||||||||
World Wide Web Hosting (Acquired in 2015) |
4,600 | | | | ||||||||||||
Ace Data Center (Acquired in 2015) |
29,626 | | | | ||||||||||||
Ecommerce LLC (Acquired in 2015) |
4,200 | | 4,200 | | ||||||||||||
Social Booster (Acquired in 2016) |
| | 40 | 25 | ||||||||||||
AppMachine (Acquired in 2016) |
| | 4,294 | 7,299 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 51,488 | $ | 813 | $ | 13,153 | $ | 7,324 | ||||||||
|
|
|
|
|
|
|
|
14
4. Property and Equipment and Capital Lease Obligations
Components of property and equipment consisted of the following:
December 31, 2015 | September 30, 2016 | |||||||
(in thousands) | ||||||||
Land |
$ | 713 | $ | 713 | ||||
Building |
5,091 | 5,304 | ||||||
Software |
40,336 | 50,675 | ||||||
Computers and office equipment |
97,332 | 134,696 | ||||||
Furniture and fixtures |
5,914 | 10,705 | ||||||
Leasehold improvements |
7,126 | 21,314 | ||||||
Construction in process |
6,137 | 5,374 | ||||||
|
|
|
|
|||||
Property and equipmentat cost |
162,649 | 228,781 | ||||||
Less accumulated depreciation |
(86,887 | ) | (131,688 | ) | ||||
|
|
|
|
|||||
Property and equipmentnet |
$ | 75,762 | $ | 97,093 | ||||
|
|
|
|
Depreciation expense related to property and equipment for the three months ended September 30, 2015 and 2016 was $8.5 million and $17.0 million, respectively. Depreciation expense related to property and equipment for the nine months ended September 30, 2015 and 2016 was $24.6 million and $46.9 million, respectively.
The Company evaluates long-lived assets such as property plant and equipment 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. During the nine months ended September 30, 2016, the Company determined that a portion of an internally developed software tool would not meet its needs following the acquisition of Constant Contact. As a result, the Company recorded a $2.0 million impairment charge in engineering and development expense in the Companys consolidated statements of operations and comprehensive loss. Additionally, in the nine months ended September 30, 2016, the Company recorded an impairment charge of $0.5 million in engineering and development expense relating to internally developed software, developed after the Webzai acquisition, which closed in August 2014, after evaluating it for impairment in accordance with ASC 360, Property, Plant and Equipment. This software is also linked to certain developed technology that was acquired as part of the Webzai acquisition and was also determined to be impaired. Refer to Note 7: Goodwill and Other Intangible Assets for further details.
Property under capital lease with a cost basis of $21.5 million was included in software as of September 30, 2016. The net carrying value of property under capital lease as of September 30, 2016 was $8.3 million.
5. 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 Companys own assumptions used to measure assets and liabilities at fair value. |
A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
As of December 31, 2015 and September 30, 2016, the Companys financial assets or liabilities required to be measured on a recurring basis are accrued earn-out consideration payable in connection with the 2012 acquisition of certain assets of Mojoness, Inc., or Mojo, and the 2015 interest rate cap. The Company has classified its interest rate cap discussed in Note 6 below within Level 2 of the fair value hierarchy. The Company has classified its liabilities for contingent earn-out consideration related to Mojo within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which include probability weighted cash flows. During the nine months ended September 30, 2016, the Company paid $0.7 million related to the earn-out provisions for the Mojo acquisition.
15
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, 2015: |
||||||||||||||||
Financial assets: |
||||||||||||||||
Interest rate cap (included in other assets) |
$ | 3,130 | | $ | 3,130 | $ | | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial assets |
$ | 3,130 | $ | | $ | 3,130 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Contingent earn-out consideration (included in deferred consideration) |
$ | 1,469 | | | $ | 1,469 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | 1,469 | $ | | $ | | $ | 1,469 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2016: |
||||||||||||||||
Financial assets: |
||||||||||||||||
Interest rate cap (included in other assets) |
$ | 375 | | $ | 375 | $ | | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial assets |
$ | 375 | $ | | $ | 375 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Contingent earn-out consideration (included in deferred consideration) |
$ | 768 | | | $ | 768 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | 768 | $ | | $ | | $ | 768 | ||||||||
|
|
|
|
|
|
|
|
16
The following table summarizes the changes in the financial liabilities measured on a recurring basis using Level 3 inputs as of September 30, 2016:
Amount | ||||
(in thousands) | ||||
Financial liabilities measured using Level 3 inputs at December 31, 2015 |
$ | 1,469 | ||
Payment of contingent earn-outs related to 2012 acquisition |
(668 | ) | ||
Change in fair value of contingent earn-outs |
(33 | ) | ||
|
|
|||
Financial liabilities measured using Level 3 inputs at September 30, 2016 |
$ | 768 | ||
|
|
6. Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk 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 enters 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 Companys derivative financial instruments are used to manage differences in the amount, timing, and duration of the Companys known or expected cash receipts and its known or expected cash payments principally related to the Companys investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company entered into a three-year interest rate cap on December 9, 2015 as part of its risk management strategy. The objective of the interest rate cap, designated as a cash flow hedge, involves the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Therefore, this derivative limits the Companys exposure if the rate rises, but also allows the Company to benefit when the rate falls.
The effective portion of 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 Companys variable-rate debt. Any ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. There was no ineffectiveness recorded in earnings for the three and nine months ended September 30, 2016.
As of September 30, 2016, the Company had one interest rate cap with $500.0 million notional value outstanding that was designated as a cash flow hedge of interest rate risk. The fair value of the interest rate contracts included in other assets on the consolidated balance sheet as of September 30, 2016 was $0.4 million, and the Company recognized an immaterial amount of interest expense in the Companys consolidated statement of operations for the three and nine months ended September 30, 2016, respectively. The Company recognized a $1.9 million loss, net of a tax benefit of $0.9 million in AOCI for the nine months ended September 30, 2016, of which the Company estimates that $0.3 million will be reclassified as an increase to interest expense in the next twelve months.
17
7. Goodwill and Other Intangible Assets
The following table summarizes the changes in the Companys goodwill balances from December 31, 2015 to September 30, 2016 for the Companys two reporting units:
Flagship Unit | Constant Contact Unit |
Total | ||||||||||
Amount | Amount | Amount | ||||||||||
(in thousands) | (in thousands) | (in thousands) | ||||||||||
Goodwill balance at December 31, 2015 |
$ | 1,207,255 | $ | | $ | 1,207,255 | ||||||
Goodwill related to 2015 acquisitions |
5,978 | | 5,978 | |||||||||
Goodwill related to 2016 acquisitions |
41,887 | 603,892 | 645,779 | |||||||||
Foreign translation impact |
659 | | 659 | |||||||||
|
|
|
|
|
|
|||||||
Goodwill balance at September 30, 2016 |
$ | 1,255,779 | $ | 603,892 | $ | 1,859,671 | ||||||
|
|
|
|
|
|
In accordance with ASC 350, 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.
At December 31, 2015, other intangible assets consisted of the following:
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Useful Life |
|||||||||||||
(dollars in thousands) | ||||||||||||||||
Developed technology |
$ | 205,925 | $ | 80,795 | $ | 125,130 | 7 years | |||||||||
Subscriber relationships |
397,791 | 256,461 | 141,330 | 5 years | ||||||||||||
Trade-names |
81,792 | 42,080 | 39,712 | 6 years | ||||||||||||
Intellectual property |
34,020 | 6,596 | 27,424 | 13 years | ||||||||||||
Domain names available for sale |
27,859 | 3,107 | 24,752 | Indefinite | ||||||||||||
Leasehold interests |
314 | 314 | | 1 year | ||||||||||||
In-process research and development |
1,438 | | 1,438 | | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total December 31, 2015 |
$ | 749,139 | $ | 389,353 | $ | 359,786 | ||||||||||
|
|
|
|
|
|
During the nine months ended September 30, 2016, the Company wrote-off acquired in-process research and development of $1.4 million related to its acquisition of Webzai in 2014, as the Company had abandoned certain research and development projects in favor of other projects. Additionally, during the nine months ended September 30, 2016, the Company recorded an impairment charge of $4.4 million relating to developed technology from the Webzai acquisition, after evaluating it for impairment in accordance with ASC 350. This developed technology is also linked to certain internally developed software that was developed at Webzai after its acquisition by the Company which was also determined to be impaired. Refer to Note 4: Property and Equipment and Capital Lease Obligations, for further details.
At September 30, 2016, other intangible assets consisted of the following:
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Useful Life |
|||||||||||||
(dollars in thousands) | ||||||||||||||||
Developed technology |
$ | 283,455 | $ | 103,031 | $ | 180,424 | 7 years | |||||||||
Subscriber relationships |
660,080 | 321,696 | 338,384 | 7 years | ||||||||||||
Trade-names |
133,924 | 53,622 | 80,302 | 8 years | ||||||||||||
Intellectual property |
34,084 | 9,380 | 24,704 | 13 years | ||||||||||||
Domain names available for sale |
29,745 | 4,502 | 25,243 | Indefinite | ||||||||||||
Leasehold interests |
314 | 314 | | 1 year | ||||||||||||
In-process research and development |
1,713 | | 1,713 | | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total September 30, 2016 |
$ | 1,143,315 | $ | 492,545 | $ | 650,770 | ||||||||||
|
|
|
|
|
|
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.
18
The Companys amortization expense is included in cost of revenue in the aggregate amounts of $23.8 million and $38.0 million for the three months ended September 30, 2015 and 2016, respectively. The Companys amortization expense is included in cost of revenue in the aggregate amounts of $67.2 million and $105.7 million for the nine months ended September 30, 2015 and 2016, respectively.
8. Investments
As of December 31, 2015 and September 30, 2016, the Companys carrying value of investments in privately-held companies was $27.9 million and $20.7 million, respectively.
In January 2012, the Company made an initial investment of $0.3 million to acquire a 25% interest in BlueZone Labs, LLC (BlueZone), a provider of do-it-yourself tools and managed search engine optimization services.
The Company also has an agreement with BlueZone to purchase products and services. During the three months ended September 30, 2015 and 2016, the Company purchased $0.2 million and $0.4 million, respectively, of products and services from BlueZone, which is included in cost of revenue in the Companys consolidated statements of operations and comprehensive loss. During the nine months ended September 30, 2015 and 2016, the Company purchased $0.8 million and $1.2 million, respectively, of products and services from BlueZone, which is included in cost of revenue in the Companys consolidated statements of operations and comprehensive loss. As of December 30, 2015 and September 30, 2016, $0.1 million and $0.1 million, respectively, relating to the Companys investment in BlueZone was included in accounts payable and accrued expense in the Companys consolidated balance sheet.
In May 2014, the Company made a strategic investment of $15.0 million in Automattic, Inc. (Automattic), which provides content management systems associated with WordPress. The investment represents less than 5% of the outstanding shares of Automattic and better aligns the Company with an important partner.
In August 2014, the Company made an aggregate investment of $3.9 million for a joint venture with a 49% ownership interest in WZ UK, which is a provider of technology and sales marketing services associated with web builder solutions. On January 6, 2016, the Company exercised an option to increase its stake in WZ UK from 49% to 57.5%. Refer to Note 3: Acquisitions, for further details.
In December 2014, the Company made an aggregate investment of $15.2 million to acquire a 40% ownership interest in AppMachine B.V. (AppMachine), which is a developer of software that allows users to build mobile applications for smart devices such as phones and tablets. Under the terms of the investment agreement for AppMachine, the Company was obligated to purchase the remaining 60% of AppMachine in three tranches of 20% within specified periods if AppMachine achieved a specified minimum revenue threshold within a designated timeframe. The agreement was terminated in July 2016, when the Company negotiated and acquired the remaining 60% of the equity interest in AppMachine. Refer to Note 3: Acquisitions for further details.
On March 3, 2016, the Company purchased a $0.6 million convertible promissory note from a business that provides web and mobile money management solutions, with the potential for subsequent purchases of additional convertible notes.
On April 8, 2016, the Company made an investment of $5.0 million for a 33% equity interest in Fortifico Limited, a company providing a billing, CRM, and affiliate management solution to small and mid-sized businesses.
Investments in which the Companys interest is less than 20% and which are not classified as available-for-sale securities are carried at the lower of cost or net realizable value unless it is determined that the Company exercises significant influence over the investee company, in which case the equity method of accounting is used. For those investments in which the Companys voting interest is between 20% and 50%, the equity method of accounting is used. Under this method, the investment balance, originally recorded at cost, is adjusted to recognize the Companys share of net earnings or losses of the investee company, as they occur, limited to the extent of the Companys investment in, advances to and commitments for the investee. These adjustments are reflected in equity (income) loss of unconsolidated entities, net of tax in the Companys consolidated statements of operations and comprehensive loss. The Company recognized net losses of $4.6 million and $0.2 million for the three months ended September 30, 2015 and 2016, respectively, and net losses of $9.1 million and $1.2 million for the nine months ended September 30, 2015 and 2016, respectively, related to its investments.
19
From time to time, the Company may make new and follow-on investments and may receive distributions from investee companies. As of September 30, 2016, the Company was not obligated to fund any follow-on investments in these investee companies.
As of September 30, 2016, the Company did not have an equity method investment in which the Companys proportionate share of the investees net income or loss exceeded 10% of the Companys consolidated assets or income from continuing operations.
9. Notes Payable
In November 2013, following its initial public offering (IPO), the Company repaid in full its November 2012 second lien term loan facility of $315.0 million and increased its first lien term loan facility (November 2013 First Lien) by $166.2 million to $1,050.0 million. The Company also increased its revolving credit facility by $40.0 million to $125.0 million, none of which was drawn down at the time of the increase. The mandatory repayment of principal on the November 2013 First Lien was increased to approximately $2.6 million at the end of each quarter.
20
In connection with the acquisition of Constant Contact on February 9, 2016, the Company entered into a $735.0 million incremental first lien term loan facility and a new $165.0 million revolving credit facility (which replaced its existing $125.0 million revolving credit facility), and EIG Investors issued $350.0 million aggregate principal amount of 10.875% senior notes due 2024. The Company refers to the incremental first lien term loan facility and new revolving credit facility, together with its previously existing first lien term loan facility, as the Senior Credit Facilities, and to the 10.875% senior notes due 2024 as the Notes.
Incremental First Lien Term Loan Facility
On February 9, 2016, the Company entered into an incremental first lien term loan amendment to its existing credit agreement. Pursuant to this amendment, the Company obtained a seven-year $735.0 million incremental first lien term loan facility, which is in addition to its existing first lien term loan facility. The full amount of this incremental first lien term loan facility was drawn immediately following the effectiveness of the amendment.
This incremental first lien term loan facility will mature seven years from issuance, was issued at a price of 97% of par (subject to the payment of an additional upfront fee of 1.0% on February 28, 2016 under certain circumstances), bears interest at a rate of LIBOR plus 5.0% per annum, subject to a LIBOR floor of 1.0% per annum, and has scheduled amortization of 0.50% per quarter.
As a result of the most-favored nation pricing provision in the Companys existing credit agreement, the interest rate on its existing first lien term loan facility has increased to LIBOR plus 5.23% per annum (and was further stepped up to LIBOR plus 5.48% per annum on February 28, 2016 since certain circumstances materialized), subject to a LIBOR floor of 1.0% per annum. In addition, the Company is obligated to use commercially reasonable efforts to make voluntary prepayments on its existing first lien term loan facility to effectively double the amount of each scheduled amortization payment under that facility (which is 0.25% per quarter of the principal outstanding as of November 25, 2013).
Revolving Credit Facility
Also on February 9, 2016, the Company entered into a revolving facility amendment to its existing credit agreement. Pursuant to this amendment, the Company obtained a five-year $165.0 million revolving credit facility, which replaced its existing $125.0 million revolving credit facility. Loans under the facility will bear interest at a rate of LIBOR plus 4.0% per annum (subject to a leverage-based step-down), without a LIBOR floor. This revolving credit facility has a springing maturity date of August 10, 2019 unless the existing first lien term loan facility has been repaid in full or otherwise extended to at least 91 days after the maturity of the revolving credit facility.
Loans under the Senior Credit Facilities are also subject to a base rate option, with interest rate spreads of 1.0% per annum less than those applicable to LIBOR-based loans.
The Senior Credit Facilities have been fully and unconditionally guaranteed, an secured, by the Company and certain of its subsidiaries (including Constant Contact and certain of its subsidiaries).
10.875% Senior Notes due 2024
On February 9, 2016, EIG Investors issued $350.0 million aggregate principal amount of Notes. The Notes will mature in February 2024, were issued at a price of 98.065% of par and will bear interest at the rate of 10.875% per annum. The Notes have been fully and unconditionally guaranteed, on a senior unsecured basis, by the Company and its subsidiaries that guarantee the Senior Credit Facilities (including Constant Contact and certain of its subsidiaries).
In connection with the issuance of the Notes, the Company agreed to assist the initial purchasers of the Notes in marketing the Notes. In addition, the Company entered into a registration rights agreement with the initial purchasers of the Notes, which provides the holders of the Notes certain rights relating to registration of the Notes under the Securities Act.
Pursuant to the registration rights agreement, the Company will, among other obligations, use commercially reasonable efforts to file an exchange offer registration statement with respect to a registered offer, or the Exchange Offer, to exchange the Notes for substantially identical notes and consummate the Exchange Offer within 365 days after the issuance of the Notes. The Company will also use commercially reasonable efforts to cause to become effective a shelf registration statement to cover resales of the Notes by the beneficial owners thereof who satisfy certain conditions relating to the provision of information in connection with the shelf registration statement. A registration default will occur if, among other things, (1) the Company fails to consummate the Exchange Offer or have the shelf registration statement become effective on or before the date that is 365 days after the issue date or (2) the shelf registration statement becomes effective but thereafter ceases to be effective or usable in connection with the resale of Notes (subject to certain exceptions) during the periods specified in the registration rights agreement. If a registration default occurs with respect to the Notes, the annual interest rate of the Notes will be increased by 0.25% per annum and will increase again by 0.25% per annum 90 days thereafter until all registration defaults have been cured, up to a maximum amount of additional interest of 0.50% per annum. The Company will also use commercially reasonable efforts to cause to become effective a registration statement providing for the registration of certain secondary transactions in the Notes by Goldman, Sachs & Co. and its affiliates.
21
At December 31, 2015 and September 30, 2016, notes payable consisted of a first lien term loan facility with a principal amount outstanding of $1,026.4 million and $994.6 million, respectively, which bore interest at a LIBOR-based rate of 5.00% and 6.48%, respectively. The current portion of the first lien term loan as of December 31, 2015 and September 30, 2016 was $10.5 million and $21.0 million, respectively. In addition, as of September 30, 2016, notes payable included a $33.5 million outstanding on its revolving credit facility, consisting of two loans of $16.0 million and $17.0 million, which each bore interest at a LIBOR-based rate of 4.52% and 4.53%, respectively, and a loan of $0.5 million which bore interest at an alternate base rate of 6.50%. As of December 31, 2015, notes payable included a bank revolver loan (2015 Revolver loan) of $67.0 million, consisting of a loan of $59.0 million which bore interest at a LIBOR-based rate of 7.75% and a loan of $8.0 million which bore interest at an alternate base rate of 8.50%. The amount outstanding under the 2015 Revolver loan as of December 31, 2015 and the amount outstanding under the 2016 revolving credit facility as of September 30, 2016 were classified as current notes payable on the consolidated balance sheet.
In addition, as of September 30, 2016, the notes payable included $724.0 million, net of original issue discounts related to the incremental first lien term loan facility, which bore interest at a LIBOR-based rate of 6.0%. The current portion of the incremental first lien term loan as of September 30, 2016 was $14.7 million.
As of September 30, 2016, notes payable also included the $350.0 million of 10.875% senior notes due 2024, net of original issue discounts.
During the nine months ended September 30, 2015 and 2016, the Company made aggregate mandatory repayments on the November 2013 First Lien of $7.9 million and $15.8 million, respectively. Also, during the nine months ended September 30, 2016, the Company made a voluntary payment of $16.0 million on the November 2013 First Lien, two voluntary prepayments on the incremental first lien term loan facility of $7.4 million, and a mandatory payment on the incremental first lien term loan facility for $3.7 million. During the nine months ended September 30, 2015 and 2016, the Company had drawn down an aggregate amount of $109.0 million and $49.5 million, respectively, on its Revolver loan, and repaid an aggregate amount of $89.0 million and $83.0 million, respectively, of the amounts drawn down, resulting in $70.0 million and $33.5 million outstanding under the Revolver loan at September 30, 2015 and 2016, respectively. The maturity dates of the November 2013 First Lien, the incremental first lien term loan facility and the $350.0 million of 10.875% senior notes are November 9, 2019, February 9, 2023, and February 9, 2024, respectively. There is a springing maturity related to the revolving credit facility. If the Companys November 2013 First Lien has not been paid in full prior to August 10, 2019 and the final maturity has not been extended to May 11, 2021 or later, then the maturity date of the revolving credit facility is February 9, 2019.
Effective November 25, 2013, the interest rate for a LIBOR based interest loan was reduced to 4.00% plus the greater of the LIBOR rate or 1.00%. The interest rate for a reference rate loan was reduced to 3.00% per annum plus the greater of the prime rate, the federal funds effective rate plus 0.50%, an Adjusted LIBOR rate or 2.00%. Effective February 9, 2016, the interest rates for a revolver loan are subject to variability based on certain covenants.
Interest is payable on maturity of the elected interest period for a LIBOR-based interest loan, which can be one, two, three or six months. Interest is payable at the end of each fiscal quarter for a reference rate loan, term loan or an ABR revolver loan.
The Company adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The unamortized value of deferred financing costs associated with our revolving credit facility were not affected by the ASU and continue to be presented as an asset on the Companys consolidated balance sheets.
Future Debt Maturities
Aggregate principal payments, exclusive of any unamortized original discounts and deferred financing fees, due on long-term debt as of September 30, 2016 are as follows:
Maturity Date as of December 31, | (in thousands) | |||
(Remainder of) 2016 |
$ | 8,925 | ||
2017 |
$ | 35,700 | ||
2018 |
$ | 35,700 | ||
2019 |
$ | 962,075 | ||
2020 |
$ | 14,700 | ||
Thereafter |
$ | 1,011,500 | ||
|
|
|||
Total |
$ | 2,068,600 | ||
|
|
22
The table above excludes $33.5 million on the Companys revolving credit facility, which is outstanding as of September 30, 2016 and included in the current portion of notes payable in the Companys consolidated balance sheets. This table also excludes when the revolving credit facility due date is, which is August 2019.
Interest
The Company recorded $14.6 million and $41.2 million in interest expense for the three months ended September 30, 2015 and 2016, respectively, and $43.0 million and $112.6 million, respectively, for the nine months ended September 30, 2015 and 2016, respectively.
The following table provides a summary of interest rates and interest expense for the three and nine months ended September 30, 2015 and 2016:
Three Months Ended September 30, 2015 |
Three Months Ended September 30, 2016 |
Nine Months Ended September 30, 2015 |
Nine Months Ended September 30, 2016 |
|||||||||||||
(dollars in thousands) | ||||||||||||||||
Interest rateLIBOR |
5.00%-7.75 | % | 4.49%-6.48 | % | 5.00%-7.75 | % | 4.49%-7.75 | % | ||||||||
Interest ratereference |
8.50 | % | 6.50 | % | 8.50 | % | 6.50%-8.75 | % | ||||||||
Interest rateSenior notes |
| 10.875 | % | | 10.875 | % | ||||||||||
Non-refundable feeunused facility |
0.50 | % | 0.50 | % | 0.50 | % | 0.50 | % | ||||||||
Interest expense and service fees |
$ | 14,252 | $ | 37,603 | $ | 41,931 | $ | 103,111 | ||||||||
Amortization of deferred financing fees |
$ | 21 | $ | 1,760 | $ | 62 | $ | 4,322 | ||||||||
Amortization of original issue discounts |
| $ | 844 | | $ | 2,116 | ||||||||||
Amortization of net present value of deferred consideration |
$ | 207 | $ | 844 | $ | 488 | $ | 2,426 | ||||||||
Other interest expense |
$ | 144 | $ | 157 | $ | 475 | $ | 598 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest expense |
$ | 14,624 | $ | 41,208 | $ | 42,956 | $ | 112,573 | ||||||||
|
|
|
|
|
|
|
|
Debt Covenants
Senior Credit Facilities
The Senior Credit Facilities require the Company to comply with a financial covenant to maintain a maximum ratio of consolidated senior secured indebtedness to an EBITDA measure adjusted for bank purposes, as defined in the Companys existing credit agreement.
The Senior Credit Facilities contain covenants that limit the Companys 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. 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. The Company was in compliance with all covenants at September 30, 2016.
With the exception of certain equity interests and other excluded assets under the terms of the Senior Credit Facilities, substantially all of the Companys assets are pledged as collateral for the obligations under the Senior Credit Facilities.
Notes
The indenture with respect to the Notes contains covenants that limit the Companys 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 or EIG Investors must offer to repurchase the 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.
23
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 Notes to be due and payable immediately.
10. Stockholders Equity
Voting Rights
All holders of common stock are entitled to one vote per share.
The following table presents the changes in total stockholders equity:
Total Stockholders Equity |
||||
(in thousands) | ||||
Balance, December 31, 2015 |
$ | 179,674 | ||
Stock-based compensation |
48,218 | |||
Stock option exercises |
2,304 | |||
Foreign currency translation adjustment |
994 | |||
Unrealized loss on derivative |
(1,866 | ) | ||
Non-controlling interest accretion |
(30,844 | ) | ||
Non-controlling interest accretion in excess over Fair Value |
(3,145 | ) | ||
Investment in Constant Contact |
5,395 | |||
Income tax from the exercise of stock options |
(1,292 | ) | ||
Net loss |
(49,147 | ) | ||
|
|
|||
Balance, September 30, 2016 |
$ | 150,291 | ||
|
|
11. Stock-Based Compensation
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 IPO. 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 advisors of the Company. Under the 2013 Plan, the Company may issue up to 38,000,000 shares of the Companys common stock. At September 30, 2016, there were 19,193,345 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 (2011 Plan) prior to the effective date of the acquisition (the Assumed Awards) into corresponding equity awards with respect to shares of the Companys 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 Companys common stock and the Available Shares were converted into 10,000,000 shares of the Companys common stock reserved for future awards under the 2011 Plan. At September 30, 2016, there were 10,961,108 shares available for grant under the 2011 Plan.
The Company calculated the fair value of the exchanged awards in accordance with the provisions of ASC 718 as of the acquisition date. The Company allocated the fair value of these awards between the pre-acquisition and post-acquisition stock-based compensation expense. The Company determined that the value of the awards under this plan was $22.3 million, of which $5.4 million was attributed to the pre-acquisition period and recognized as part of the purchase consideration for Constant Contact. The balance of $16.9 million has been attributed to the post-acquisition period, and was recognized in the Companys Consolidated Statement of Operations and Comprehensive Loss in the three months ending March 31, 2016.
24
The following table presents total stock-based compensation expense recorded in the consolidated statement of operations and comprehensive loss for all 2012 restricted stock awards and units issued prior to the IPO, and all awards granted under the Companys 2013 Plan and the 2011 Plan:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
Cost of revenue |
$ | 601 | $ | 1,643 | $ | 1,360 | $ | 4,116 | ||||||||
Sales and marketing |
1,107 | 1,850 | 2,342 | 6,249 | ||||||||||||
Engineering and development |
627 | 4,164 | 1,331 | 6,369 | ||||||||||||
General and administrative |
7,427 | 7,149 | 15,239 | 31,484 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation expense |
$ | 9,762 | $ | 14,806 | $ | 20,272 | $ | 48,218 | ||||||||
|
|
|
|
|
|
|
|
2012 Restricted Stock Awards
The following table provides a summary of the 2012 restricted stock awards activity for the nine months ended September 30, 2016 for restricted stock awards that were granted prior to the IPO, including the non-vested balance as of September 30, 2016:
2012 Restricted Stock Awards |
||||
Non-vested at December 31, 2015 |
46,645 | |||
Vested |
(46,348 | ) | ||
Canceled |
| |||
|
|
|||
Non-vested at September 30, 2016 |
297 | |||
|
|
The following table provides a summary of the activity for the nine months ended September 30, 2016 for the restricted stock units that were granted in connection with the IPO, including the non-vested balance as of September 30, 2016:
Restricted Stock Units |
Weighted Average Grant Date Fair Value |
|||||||
Non-vested at December 31, 2015 |
22,158 | $ | 12.00 | |||||
Vested and unissued |
(22,158 | ) | $ | 12.00 | ||||
|
|
|||||||
Non-vested at September 30, 2016 |
| | ||||||
|
|
2013 Stock Incentive Plan
The following table provides a summary of the Companys stock options as of September 30, 2016 and the stock option activity for all stock options granted under the 2013 Plan during the nine months ended September 30, 2016:
Stock Options |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (In Years) |
Aggregate Intrinsic Value(3) (in thousands) |
|||||||||||||
Outstanding at December 31, 2015 |
6,950,858 | $ | 13.83 | |||||||||||||
Granted |
3,412,499 | $ | 11.10 | |||||||||||||
Exercised |
| $ | | |||||||||||||
Forfeited |
(304,045 | ) | $ | 14.54 | ||||||||||||
Expired |
(295,326 | ) | $ | 13.09 | ||||||||||||
|
|
|||||||||||||||
Outstanding at September 30, 2016 |
9,763,986 | $ | 12.87 | 8.2 | $ | | ||||||||||
|
|
|||||||||||||||
Exercisable at September 30, 2016 |
4,056,081 | $ | 13.10 | 7.4 | $ | | ||||||||||
Expected to vest after September 30, 2016 (1) |
5,574,737 | $ | 12.73 | 8.8 | $ | | ||||||||||
Exercisable as of September 30, 2016 and expected to vest thereafter (2) |
9,630,818 | $ | 12.88 | 8.2 | $ | |
25
(1) | This represents the number of unvested options outstanding as of September 30, 2016 that are expected to vest in the future, which have been reduced using an estimated forfeiture rate. |
(2) | This represents the number of vested options as of September 30, 2016 plus the number of unvested options outstanding as of September 30, 2016 that are expected to vest in the future, which have been reduced using an estimated forfeiture rate. |
(3) | The aggregate intrinsic value was calculated based on the positive difference, if any, between the estimated fair value of the Companys common stock on September 30, 2016 of $8.75 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options. |
Unless otherwise determined by the Companys board of directors, restricted stock units granted under the 2013 Plan generally vest monthly over a four-year period. The following table provides a summary of the Companys restricted stock unit activity for the 2013 Plan during the nine months ended September 30, 2016:
Restricted Stock Units |
Weighted Average Grant Date Fair Value |
|||||||
Non-vested at December 31, 2015 |
220,765 | $ | 12.00 | |||||
Vested and unissued |
(90,297 | ) | $ | 12.00 | ||||
|
|
|||||||
Non-vested at September 30, 2016 |
130,468 | $ | 12.00 | |||||
|
|
Unless otherwise determined by the Companys board of directors, restricted stock awards granted under the 2013 Plan generally vest annually over a four-year period. Performance-based restricted stock awards are earned based on the achievement of performance criteria established by the Companys Compensation Committee and Board of Directors. The following table provides a summary of the Companys restricted stock award activity for the 2013 Plan during the nine months ended September 30, 2016:
Restricted Stock Awards |
Weighted Average Grant Date Fair Value |
|||||||
Non-vested at December 31, 2015 |
4,849,290 | $ | 15.24 | |||||
Granted |
3,209,688 | $ | 10.46 | |||||
Vested |
(341,270 | ) | $ | 15.76 | ||||
Canceled |
(167,453 | ) | $ | 12.85 | ||||
|
|
|||||||
Non-vested at September 30, 2016 |
7,550,255 | $ | 13.24 | |||||
|
|
2015 Performance Based Award
The performance-based restricted stock award granted to the Companys chief executive officer during 2015 provides an opportunity for the participant to earn a fully vested right to up to 3,693,754 shares of the Companys common stock (the Award Shares) over a three-year period beginning July 1, 2015 and ending on June 30, 2018 (the Performance Period). Award Shares may be earned based on the Company achieving pre-established, threshold, target and maximum performance metrics.
Award Shares may be earned during each calendar quarter during the Performance Period (each, a Performance Quarter) if the Company achieves a threshold, target or maximum level of the performance metric for the Performance Quarter. If the performance metric is less than the threshold level for a Performance Quarter, no Award Shares will be earned during the Performance Quarter. Award Shares that were not earned during a Performance Quarter may be earned later during the then current twelve-month period from July 1st to June 30th during the Performance Period (each, a Performance Year), at a threshold, target or maximum level of the performance metric for the Performance Year. No Award Shares were earned for the Performance Quarter ending September 30, 2016 because the threshold level for the performance metric was not met.
Any Award Shares that are earned during the Performance Period will vest on June 30, 2018, provided the chief executive officer is employed by the Company on such date. The requirement that the chief executive officer be employed by the Company on June 30, 2018 is waived in the event the executives employment is terminated due to death, disability or by the Company without cause, if the executive terminates employment with the Company for good reason, or if the executive is employed by the Company on the date of a change in control (as such terms are defined in the executives employment agreement). Upon the occurrence of any of the foregoing events, additional Award Shares may be earned, as provided for in the performance-based restricted stock agreement.
26
This performance-based award is evaluated quarterly to determine the probability of its vesting and determine the amount of stock-based compensation to be recognized. During the three and nine months ended September 30, 2016, the Company recognized $1.6 million and $9.5 million of stock-based compensation expense related to this performance-based award.
2016 Performance Based Awards
On February 16, 2016, the Compensation Committee of the Board of Directors of the Company approved the grant of performance-based restricted stock awards to the Companys Chief Financial Officer (CFO), Chief Operating Officer (COO) and Chief Administrative Officer (CAO).
The CFO performance-based restricted stock award provides an opportunity to earn a fully vested right to up to 223,214 shares of the Companys stock, with a target of 178,571 shares. The COO performance-based restricted stock award provides an opportunity to earn a fully vested right to up to 260,416 shares of the Companys stock, with a target of 208,333 shares. The CAO performance-based restricted stock award provides an opportunity to earn a fully vested right to up to 148,810 shares of the Companys stock, with a target of 119,048 shares.
The shares subject to the performance-based restricted stock awards will be earned based on the Companys Constant Contact brand achieving a pre-established level of adjusted revenue (weighted 50%), adjusted EBITDA (weighted 25%) and adjusted free cash flow (weighted 25%), each as defined in the award agreement and in each case for the twelve months ending December 31, 2016, assuming for this purpose that the Companys acquisition of Constant Contact had taken place on January 1, 2016 (the Performance Metric).
Each executive will earn from 0% to 125% of the target number of shares subject to their performance-based restricted stock award based on the level of achievement of the Performance Metric. Shares that are earned based on the achievement of the Performance Metric will vest on March 31, 2017 and any unearned shares as of that date will be forfeited.
These performance-based awards are evaluated quarterly to determine the probability of vesting and determine the amount of stock-based compensation to be recognized. During the three and nine months ended September 30, 2016, the Company recognized $1.2 million and $2.9 million of stock-based compensation expense related to these performance-based awards.
2011 Stock Incentive Plan
The following table provides a summary of the Companys stock options as of September 30, 2016 and the stock option activity for all stock options granted under the 2011 Plan during the nine months ended September 30, 2016:
Stock Options |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (In Years) |
Aggregate Intrinsic Value(3) (in thousands) |
|||||||||||||
Outstanding at December 31, 2015 |
| | ||||||||||||||
Granted/ Exchanged |
2,936,429 | $ | 8.29 | |||||||||||||
Exercised |
(351,668 | ) | $ | 6.55 | ||||||||||||
Forfeited |
(592,417 | ) | $ | 7.92 | ||||||||||||
|
|
|||||||||||||||
Outstanding at September 30, 2016 |
1,992,344 | $ | 8.71 | 5.4 | $ | 2,201 | ||||||||||
|
|
|||||||||||||||
Exercisable at September 30, 2016 |
432,227 | $ | 7.23 | 4.3 | $ | 871 | ||||||||||
Expected to vest after September 30, 2016 (1) |
1,229,789 | $ | 9.00 | 5.6 | $ | 1,157 | ||||||||||
Exercisable as of September 30, 2016 and expected to vest thereafter (2) |
1,662,016 | $ | 8.54 | 5.3 | $ | 2,028 |
(1) | This represents the number of unvested options outstanding as of September 30, 2016 that are expected to vest in the future, which have been reduced using an estimated forfeiture rate. |
(2) | This represents the number of vested options as of September 30, 2016 plus the number of unvested options outstanding as of September 30, 2016 that are expected to vest in the future, which have been reduced using an estimated forfeiture rate. |
(3) | The aggregate intrinsic value was calculated based on the positive difference, if any, between the estimated fair value of the Companys common stock on September 30, 2016 of $8.75 per share, or the date of exercise, as appropriate, and the exercise price of the underlying options. |
27
Unless otherwise determined by the Companys board of directors, restricted stock units granted under the 2011 Plan generally vest annually over a four-year period. The following table provides a summary of the Companys restricted stock unit activity for the 2011 Plan during the nine months ended September 30, 2016:
Restricted Stock Units |
Weighted Average Grant Date Fair Value |
|||||||
Non-vested at December 31, 2015 |
| $ | | |||||
Granted/ Exchanged |
3,103,033 | $ | 8.50 | |||||
Vested |
(1,109,114 | ) | $ | 7.69 | ||||
Canceled |
(368,694 | ) | $ | 8.11 | ||||
|
|
|||||||
Non-vested at September 30, 2016 |
1,625,225 | $ | 9.14 | |||||
|
|
12. Variable Interest Entity
The Company, through a subsidiary formed in China, has entered into various agreements with Shanghai Xiao Lan Network Technology Co., Ltd (Shanghai Xiao) and its shareholders that allow the Company to effectively control Shanghai Xiao, making it a variable interest entity (VIE). Shanghai Xiao has a technology license that allows it to provide local hosting services to customers located in China.
The shareholders of Shanghai Xiao cannot transfer their equity interests without the approval of the Company, and as a result, are considered de facto agents of the Company in accordance with ASC 810-10-25-43. The Company and its de facto agents acting together have the power to direct the activities that most significantly impact the entitys economic performance and they have the obligation to absorb losses and the right to receive benefits from the entity. In situations where a de facto agency relationship is present, one party is required to be identified as the primary beneficiary. The factors considered include the presence of a principal/agent relationship, the relationship and significance of activities to the reporting entity, the variability associated with the VIEs anticipated economics and the design of the VIE. The analysis is qualitative in nature and is based on weighting the relative importance on each of the factors in relation to the specifics of the VIE arrangement. Upon the execution of the agreements with Shanghai Xiao and its shareholders, the Company performed an analysis and concluded that the Company is the party that is most closely associated with Shanghai Xiao, as it is the most exposed to the variability of the VIEs economics and therefore is the primary beneficiary of the VIE.
As of September 30, 2016, the financial position and results of operations of Shanghai Xiao are consolidated within, but are not material to, the Companys consolidated financial position or results of operations.
13. Redeemable Non-controlling Interest
In connection with a 2014 equity investment in WZ UK, on January 6, 2016, the Company exercised its option to increase its stake in WZ UK from 49% to 57.5%, thereby acquiring a controlling interest, in exchange for a payment of approximately $2.1 million to the other shareholders of WZ UK. The agreement related to the transaction provides for a put option for the then NCI shareholders to put the remaining equity interest to the Company within pre-specified put periods. As the NCI is subject to a put option that is outside the control of the Company, it is deemed a redeemable non-controlling interest and is not recorded in permanent equity, and is presented as mezzanine redeemable non-controlling interest on the consolidated balance sheet, and is subject to the guidance of the Securities and Exchange Commission (SEC) under ASC 480-10-S99, Accounting for Redeemable Equity Securities. The difference between the $10.8 million fair value of the redeemable NCI and the $30.0 million value that is expected to be paid upon exercise of the put option was being accreted over the period commencing January 6, 2016 and up to the first put option period, which commenced on the 24-month anniversary of the acquisition date, August 14, 2016. Adjustments to the carrying amount of the redeemable non-controlling interest were charged to additional paid-in capital.
In January 2016, the Company obtained a controlling interest in Resume Labs Limited for $1.5 million and Pseudio Limited for $1.5 million.
The agreements related to these transactions provide for put options for the NCI shareholders of each company to put the remaining equity interest to the Company within pre-specified put periods. As the NCI for these entities are subject to put options that are outside the control of the Company, they are deemed redeemable non-controlling interests and are also not recorded in permanent equity, and are presented as part of the mezzanine redeemable non-controlling interest on the consolidated balance sheet.
On May 16, 2016, the Company amended the put option with respect to WZ UK to allow it to acquire an additional equity interest in WZ UK earlier than August 2016. Pursuant to this amended option, on the same date the Company acquired an additional 20% stake in WZ UK for $15.4 million, thus increasing its ownership interest from 57.5% to 77.5%.
28
On July 13, 2016, WZ UK completed a restructuring pursuant to which Pseudio Limited and Resume Labs became wholly-owned subsidiaries of WZ UK. As a result of the restructuring, WZ UK became the 100% owner of Pseudio Limited and Resume Labs Limited and the Companys ownership of WZ UK was diluted from 77.5% to 76.4%. Immediately subsequent to the restructuring, the Company acquired an additional 10% stake in WZ UK on July 13, 2016 for $18.0 million, bringing the Companys aggregate stake in WZ UK to 86.4%. The restructuring significantly reduced the amount of the potential redemption amount payable to the minority shareholders of WZ UK, and gave the Company the flexibility to reduce investments in this business. Based on these reduced investments, the estimated value of the non-controlling interest is below the expected redemption amount of $25.0 million, which will result in $14.2 million of excess accretion that will reduce income available to common shareholders for the period starting on the date of the restructuring through the redemption date of July 1, 2017. The Company recognized excess accretion of $3.1 million for the three and nine months ended September 30, 2016, which is reflected in net loss attributable to accretion of non-controlling interest in the Companys consolidated statements of operations and comprehensive loss. Prior to the third quarter of 2016, the Company did not have any accretion amounts in excess of fair value.
The following table presents changes in this redeemable non-controlling interest:
Redeemable noncontrolling Interest |
||||
(in thousands) | ||||
Balance as of December 31, 2015 |
$ | | ||
Additions to non-controlling interest upon acquisition |
12,790 | |||
Capital contribution from non-controlling interest |
1,775 | |||
Accretion to redemption value |
30,844 | |||
Accretion in excess of fair value |
3,145 | |||
Adjustment to non-controlling interest |
(1,000 | ) | ||
Redemption of non-controlling interest |
(33,425 | ) | ||
|
|
|||
Balance as of September 30, 2016 |
$ | 14,129 | ||
|
|
The Company starts accreting non-controlling interest to its redeemable value from the date the redemption of the non-controlling interest becomes probable through the earliest redemption date. If the non-controlling interest is redeemable at an amount higher than its fair value, the excess accretion is taken into consideration in the calculation of loss per share.
14. Income Taxes
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. The Company is currently under audit in India for fiscal years ended March 31, 2014 and 2015 and Israel for the fiscal years ended December 31, 2012, 2013 and 2014.
The statutes of limitations in the Companys other tax jurisdictions, United Kingdom and Brazil, remain open for various periods between 2011 and the present. However, carryforward attributes from prior years may still be adjusted upon examination by tax authorities if they are used in an open period. The Company does not expect material changes as a result of the audits.
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 no unrecognized tax positions at December 31, 2015 and September 30, 2016 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.
The Company regularly assesses 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 (NOL) incurred from the Companys inception to September 30, 2016; |
| Expiration of various federal and state tax attributes; |
| Reversals of existing temporary differences; |
| Composition and cumulative amounts of existing temporary differences; and |
| Forecasted profit before tax. |
29
Prior to the acquisition of Constant Contact, the Company maintained a valuation allowance against certain deferred tax assets. The acquisition of Constant Contacted resulted in a significant increase in deferred tax liabilities, which far exceeded pre-acquisition deferred tax assets. The Company, with the significant deferred tax liabilities resulting from Constant Contact acquisition, scheduled out the reversal of the consolidated US deferred tax assets and liabilities as of March 31, 2016, and determined that these reversals would be sufficient to realize most domestic deferred tax assets. The deferred tax liabilities supporting the realizability of these deferred tax assets in the acquisition will reverse in the same period, are in the same jurisdiction and are of the same character as the temporary differences that gave rise to these deferred tax assets. As a result, the Company recorded a tax benefit of $72.8 million to reverse valuation allowances during the nine months ended September 30, 2016.
For the three months ended September 30, 2015 and 2016, the Company recognized tax expense of $5.4 million and a tax benefit of $7.4 million, respectively, in the consolidated statements of operations and comprehensive loss. The income tax benefit for the three months ended September 30, 2016 was primarily attributable to a federal and state deferred tax benefit of $9.1 million, a benefit for federal and state current income taxes of $0.1 million, partially offset by a $1.6 million deferred tax expense for the reversal of the valuation allowance, a foreign deferred tax expense of $0.0 million, and a foreign current tax expense of $0.3 million. The income tax expense for the three months ended September 30, 2015 is primarily attributable to federal and state current income taxes of $1.1 million, foreign current tax expense of $0.7 million, federal and state deferred tax expense of $3.0 million related to an increase in deferred liabilities and a $0.6 million increase of the valuation allowance.
For the nine months ended September 30, 2015 and 2016, the Company recognized tax expense of $9.1 million and a tax benefit of $121.2 million, respectively, in the consolidated statements of operations and comprehensive loss. The income tax benefit for the nine months ended September 30, 2016 was primarily attributable to a $72.8 million reversal of the valuation allowance, a federal and state deferred tax benefit of $49.7 million, which includes the identification and recognition of $7.3 million of U.S. federal research and development tax credits, and a foreign deferred tax benefit of $2.1 million, partially offset by a provision for federal and state current income taxes of $1.4 million and foreign current tax expense of $2.0 million. The income tax expense for the nine months ended September 30, 2015 is primarily attributable to a provision for federal and state current income taxes of $2.1 million, foreign current tax expense of $1.4 million, federal and state deferred tax expense of $5.2 million, foreign deferred tax expense of $0.1 million related to increases in deferred liabilities, and attributable to a $0.3 million increase of the valuation allowance.
The provision for income taxes shown on the consolidated statements of operations and comprehensive loss differs from amounts that would result from applying the statutory tax rates to income before taxes primarily because of state income taxes and certain expenses that were non-deductible, as well as the application of valuation allowances against U.S. and foreign assets. As mentioned above, most of the Companys valuation allowance, on US deferred tax assets, was reversed in the first quarter of 2016.
As of December 31, 2015, the Company had NOL carry-forwards available to offset future U.S. federal taxable income of approximately $97.8 million and future state taxable income of approximately $111.2 million. These NOL carry-forwards expire on various dates through 2034. Approximately $1.6 million of the U.S. federal NOL carry-forwards and $0.7 million of the state NOL carry-forwards are from excess stock-based compensation, for which the benefit will be recorded to additional paid-in capital when recognized. As of December 31, 2015, the Company had NOL carry-forwards in foreign jurisdictions available to offset future foreign taxable income by approximately $27.4 million. The Company has loss carry-forwards in India totaling $2.9 million that begin to expire in 2021. The Company also has loss carry-forwards in the United Kingdom, Israel and Singapore of $23.4 million, $0.9 million, and $0.2 million, respectively, which have an indefinite carry-forward period.
Utilization of the NOL carry-forwards may be subject to an annual limitation due to the ownership percentage change limitations under Section 382 of the Internal Revenue Code (Section 382 limitation). Ownership changes can limit the amount of net operating loss and other tax attributes that a company can use each year to offset future taxable income and taxes payable. In connection with a change in control in 2011 the Company was subject to Section 382 limitations of $77.1 million against the balance of NOL carry-forwards generated prior to the change in control in 2011. Through December 31, 2013, the Company accumulated the unused amount of Section 382 limitations in excess of the amount of NOL carry-forwards that were originally subject to limitation. Therefore, these unused NOL carry-forwards are available for future use to offset taxable income. The Company has completed an analysis of changes in its ownership from 2011, through its IPO, to December 31, 2013. The Company concluded that there was not a Section 382 ownership change during this period and therefore any NOLs generated through December 31, 2013, are not subject to any new Section 382 limitations on NOL carry-forwards. On November 20, 2014, the Company completed a follow-on offering of 13,000,000 shares of common stock. The underwriters also exercised their overallotment option to purchase an additional 1,950,000 shares of common stock from the selling stockholders. The Company performed an analysis of the impact of this offering and determined that no Section 382 change in ownership had occurred.
On March 11, 2015, the Company completed a follow-on offering of its common stock, in which selling stockholders sold 12,000,000 shares of common stock at a public offering price of $19.00 per share. The underwriter also exercised its overallotment option to purchase an additional 1,800,000 shares of common stock from the selling stockholders. The Company completed an analysis of its ownership changes in the first half of 2016, which resulted in no ownership-change for tax purposes within the meaning of the Internal Revenue Code Section 382(g).
30
As of the date of the Companys acquisition of Constant Contact, Constant Contact had approximately $57.7 million and $31.9 million of federal and state NOLs, respectively, and approximately $10.8 million of U.S. federal research and development credits and $9.6 million of state credits.
15. Severance and Other Exit Costs
In connection with acquisitions, the Company may evaluate its data center, sales and marketing, support and engineering operations and the general and administrative function in an effort to eliminate redundant costs. As a result, the Company may incur charges for employee severance, exiting facilities and restructuring data center commitments and other related costs.
2014 Restructuring Plan
During the year ended December 31, 2014, the Company implemented plans to further integrate and consolidate its data center, support and engineering operations, resulting in severance and facility exit costs (the 2014 Restructuring Plan). The severance charges were associated with eliminating approximately 90 positions across primarily support, engineering operations and sales and marketing. The Company incurred severance costs of $2.3 million in the year ended December 31, 2014 related to these restructuring activities. The employee-related charges associated with these restructurings were completed during the year ended December 31, 2014. As of September 30, 2016, the Company did not have any remaining accrued employee-severance related to these severance costs.
The Company had incurred facility costs associated with closing offices in Redwood City, California and Englewood, Colorado. At the time of closing these offices, the Company had remaining lease obligations of approximately $3.0 million for these vacated facilities through March 31, 2018. The Company recorded a facilities charge for these future lease payments, less expected sublease income, of $2.1 million during the year ended December 31, 2014. During the nine months ended September 30, 2016, the Company recorded an adjustment of $0.2 million relating to the lease agreement for the Englewood, Colorado facility. There were no adjustments related to the 2014 Restructuring Plan during the three months ended September 30, 2016. The Company paid $0.7 million of facility costs related to the 2014 Restructuring Plan, during the nine months ended September 30, 2016 and had a remaining accrued facility liability of $0.3 million as of September 30, 2016. The Company expects payments related to the 2014 Restructuring Plan to be completed during the year ended December 31, 2018.
2015 Restructuring Plan
During the year ended December 31, 2015, the Company implemented plans to enhance operational efficiencies across the business, resulting in severance costs (the 2015 Restructuring Plan). The severance charges were associated with eliminating approximately 67 positions across the business. The Company incurred severance costs of $2.1 million during the year ended December 31, 2015 related to the 2015 Restructuring Plan. The Company completed employee-related charges associated with the 2015 Restructuring Plans during the year ended December 31, 2015. The Company paid $1.1 million of severance costs during the nine months ended September 30, 2016 and had a remaining accrued severance liability of $0.1 million as of September 30, 2016. The Company expects payments related to the 2015 Restructuring Plan be completed during the year ended December 31, 2016.
2016 Restructuring Plan
In connection with the Companys acquisition of Constant Contact on February 9, 2016, the Company implemented a plan to create operational efficiencies and synergies resulting in severance costs and facility exit costs (the 2016 Restructuring Plan).
The severance charges were associated with eliminating approximately 265 positions across the business. The Company incurred severance costs of $1.0 million and $11.3 million during the three and nine months ended September 30, 2016, respectively. The Company paid $8.5 million of severance costs during the nine months ended September 30, 2016 and had a remaining accrued severance liability of $2.8 million as of September 30, 2016.
The Companys 2016 Restructuring Plan includes a plan to close offices in San Francisco, California, Delray Beach, Florida, New York, New York United Kingdom, Porto Alegre, Brazil and Miami, Florida, and a plan to relocate certain employees to our Austin Office. The Company is also closing a portion of the Constant Contact offices in Waltham, Massachusetts. During the three and nine months ended September 30, 2016, the Company recorded a facilities charge for future lease payments of $8.3 million and $23.5 million, respectively, less expected sublease income of $3.5 million and $12.0 million, respectively. The Company also recorded $0.6 million in relocation charges during the three and nine months ended September 30, 2016 after closing these facilities.
31
The Company expects to incur all employee-related charges associated with the 2016 Restructuring Plan during the year ended December 31, 2016, and expects severance payments related to the 2016 Restructuring Plan to be completed during the year ended December 31, 2017.
The Company expects to complete facility-related charges associated with the 2016 Restructuring Plan during the year ended December 31, 2016, and expects to complete facility exit cost payments related to the plan during the year ended December 31, 2022.
The following table provides a summary of the aggregate activity for the nine months ended September 30, 2016 related to the Companys combined Restructuring Plans severance accrual:
Employee Severance | ||||
(in thousands) | ||||
Balance at December 31, 2015 |
$ | 1,201 | ||
Severance charges |
11,257 | |||
Cash paid |
(9,625 | ) | ||
|
|
|||
Balance at September 30, 2016 |
$ | 2,833 | ||
|
|
The following table provides a summary of the aggregate activity for the nine months ended September 30, 2016 related to the Companys combined Restructuring Plans facilities exit accrual:
Facilities | ||||
(in thousands) | ||||
Balance at December 31, 2015 |
$ | 479 | ||
Facility charges |
12,385 | |||
Sublease income received |
393 | |||
Cash paid |
(3,067 | ) | ||
|
|
|||
Balance at September 30, 2016 |
$ | 10,190 | ||
|
|
32
The following table presents restructuring charges recorded in the consolidated statements of operations and comprehensive loss for the periods presented:
For the Three Months Ended September 30, |
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Cost of revenue |
$ | 380 | $ | 3,127 | $ | 380 | $ | 8,729 | ||||||||
Sales and marketing |
288 | 1,189 | 288 | 6,357 | ||||||||||||
Engineering and development |
411 | 1,014 | 411 | 4,256 | ||||||||||||
General and administrative |
115 | 1,047 | 115 | 4,300 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total restructuring charges |
$ | 1,194 | $ | 6,377 | $ | 1,194 | $ | 23,642 | ||||||||
|
|
|
|
|
|
|
|
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. Neither the ultimate outcome of the matters listed below nor an estimate of any probable losses or any reasonably possible losses can be assessed at this time.
On May 4, 2015, Christopher Machado, a purported holder of the Companys common stock, filed a civil action in the United States District Court for the District of Massachusetts against the Company and its chief executive officer and former chief financial officer, Machado v. Endurance International Group Holdings, Inc., et al, Civil Action No. 1:15-cv-11775-GAO. In a second amended complaint, filed on March 18, 2016, the plaintiff alleged claims for violations of Section 10(b) and 20(a) of the Exchange Act, on behalf of a purported class of purchasers of the Companys securities between February 25, 2014 and February 29, 2016. Those claims challenged as false or misleading certain of the Companys disclosures about its total number of subscribers, average revenue per subscriber, the number of customers paying over $500 per year for the Companys products and services, the average number of products sold per subscriber, and customer churn. The plaintiff seeks, on behalf of himself and the purported class, compensatory damages and his costs and expenses of litigation. The Company filed a motion to dismiss on May 16, 2016, which remains pending. In August 2016, the parties in the Machado action and another potential claimant, who asserts that he purchased common stock in the Companys initial public offering, agreed to toll, as of July 1, 2016, the statutes of limitation and repose for all claims under the Securities Act of 1933 that the plaintiff and claimant might bring, individually or in a representative capacity, arising from alleged actions or omissions between September 9, 2013 and February 29, 2016. The Company and the individual defendants intend to deny any liability or wrongdoing and to vigorously defend all claims asserted. The Company cannot, however, make any assurances as to the outcome of the current proceeding or any additional claims if they are brought.
The Company received a subpoena dated December 10, 2015 from the Boston Regional Office of the SEC, requiring the production of certain documents, including, among other things, documents related to its financial reporting, including operating and non-GAAP metrics, refund, sales and marketing practices and transactions with related parties. The Company is fully cooperating with the SECs investigation. The Company can make no assurances as to the time or resources that will need to be devoted to this investigation or its final outcome, or the impact, if any, of this investigation or any related legal or regulatory proceedings on the Companys business, financial condition, results of operations and cash flows.
Constant Contact
On October 30, 2015, the Company entered into a definitive agreement pursuant to which it agreed to acquire all of the outstanding shares of common stock of Constant Contact. The acquisition closed on February 9, 2016. Constant Contact contingencies are noted below.
On December 10, 2015, Constant Contact received a subpoena from the Boston Regional Office of the SEC, requiring the production of documents pertaining to Constant Contacts sales, marketing, and customer retention practices, and periodic public disclosure of financial and operating metrics. The Company is fully cooperating with the SECs investigation. The Company can make no assurances as to the time or resources that will need to be devoted to this investigation or its final outcome, or the impact, if any, of this investigation or any related legal or regulatory proceedings on the Companys business, financial condition, results of operations and cash flows.
33
On August 7, 2015, a purported class action lawsuit, William McGee v. Constant Contact, Inc., et al, was filed in the United States District Court for the District of Massachusetts against Constant Contact and two of its former officers. The lawsuit asserts claims under Sections 10(b) and 20(a) of the Exchange Act, and is premised on allegedly false and/or misleading statements, and non-disclosure of material facts, regarding Constant Contacts business, operations, prospects and performance during the proposed class period of October 23, 2014 to July 23, 2015. This litigation remains in its early stages. The Company and the individual defendants intend to vigorously defend all claims asserted. The Company cannot, however, make any assurances as to the outcome of this proceeding.
In August 2012, RPost Holdings, Inc., RPost Communications Limited and RMail Limited, or collectively, RPost, filed a complaint in the United States District Court for the Eastern District of Texas that named Constant Contact as a defendant in a lawsuit. The complaint alleged that certain elements of Constant Contacts email marketing technology infringe five patents held by RPost. RPost seeks an award for damages in an unspecified amount and injunctive relief. In February 2013, RPost amended its complaint to name five of Constant Contacts marketing partners as defendants. Under Constant Contacts contractual agreements with these marketing partners, it is obligated to indemnify them for claims related to patent infringement. Constant Contact filed a motion to sever and stay the claims against its partners and multiple motions to dismiss the claims against it. In January 2014, the case was stayed pending the resolution of certain state court and bankruptcy actions involving RPost, to which Constant Contact is not a party. The case continues to be stayed pending the state court and bankruptcy actions. Meanwhile, RPost asserted the same patents asserted against Constant Contact in litigation against Go Daddy. In June 2016, Go Daddy succeeded in invalidating all of those RPost patents. RPost has appealed, and the appellate court is expected to hear oral argument on the appeal in the Spring of 2017. The litigation against Constant Contact remains stayed, and is in its early stages. The Company believes it has meritorious defenses to any claim of infringement and intends to defend against the lawsuit vigorously.
On December 11, 2015, a putative class action lawsuit relating to the Constant Contact acquisition, captioned Irfan Chawdry, Individually and On Behalf of All Others Similarly Situated v. Gail Goodman, et al. Case No. 11797, or the Chawdry Complaint, and on December 21, 2015, a putative class action lawsuit relating to the acquisition captioned David V. Myers, Individually and On Behalf of All Others Similarly Situated v. Gail Goodman, et al. Case No. 11828, or the Myers Complaint (together with the Chawdry Complaint, the Complaints) were filed in the Court of Chancery of the State of Delaware naming Constant Contact, each of Constant Contacts directors, Endurance and Paintbrush Acquisition Corporation as defendants. The Complaints generally allege, among other things, that in connection with the acquisition the directors of Constant Contact breached their fiduciary duties owed to the stockholders of Constant Contact by agreeing to sell Constant Contact for purportedly inadequate consideration, engaging in a flawed sales process, omitting material information necessary for stockholders to make an informed vote, and agreeing to a number of purportedly preclusive deal protection devices. The Complaints seek, among other things, to rescind the acquisition, as well as award of plaintiffs attorneys fees and costs in the action. The defendants have not yet answered or otherwise responded to either of these Complaints. The defendants believe the claims asserted in the Complaints are without merit and intend to defend against these lawsuits vigorously.
17. Related Party Transactions
The Company has various agreements in place with related parties. Below are details of related party transactions that occurred during the nine months ended September 30, 2015 and 2016.
Tregaron:
The Company has contracts with Tregaron India Holdings, LLC and its affiliates, including Diya Systems (Mangalore) Private Limited, Glowtouch Technologies Pvt. Ltd. and Touchweb Designs, LLC (collectively, Tregaron), for outsourced services, including email- and chat-based customer and technical support, network monitoring, engineering and development support and web design and web building services. These entities are owned directly or indirectly by family members of the Companys chief executive officer, who is also a director and stockholder of the Company.
The following table presents the amounts of related party transactions recorded in the consolidated statements of operations and comprehensive loss for the periods presented relating to services provided by Tregaron and its affiliates under these agreements:
As of December 31, 2015, approximately $1.9 million was included in accounts payable and accrued expense relating to services provided by Tregaron. As of September 30, 2016, approximately $2.2 million was included in accounts payable and accrued expense relating to services provided by Tregaron.
34
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
Cost of revenue |
$ | 2,500 | $ | 3,000 | $ | 7,500 | $ | 9,400 | ||||||||
Sales and marketing |
300 | 150 | 600 | 350 | ||||||||||||
Engineering and development |
100 | 300 | 800 | 900 | ||||||||||||
General and administrative |
100 | 100 | 300 | 200 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total related party transaction expense, net |
$ | 3,000 | $ | 3,550 | $ | 9,200 | $ | 10,850 | ||||||||
|
|
|
|
|
|
|
|
Innovative Business Services, LLC:
The Company also has agreements with Innovative Business Services, LLC (IBS), which provides multi-layered third-party security applications that are sold by the Company. IBS is indirectly majority owned by the Companys chief executive officer and a director of the Company, each of whom are also stockholders of the Company. During the year ended December 31, 2014, the Companys principal agreement with this entity was amended which resulted in the accounting treatment of expenses being recorded against revenue.
The following table presents the amounts of related party transactions recorded in the consolidated statements of operations and comprehensive loss for the periods presented relating to services provided by IBS and its affiliates under these agreements:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenue |
$ | (400 | ) | $ | (900 | ) | $ | (800 | ) | $ | (2,200 | ) | ||||
Revenue (contra) |
1,700 | 1,800 | 5,200 | 5,900 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total related party transaction impact to revenue |
$ | 1,300 | $ | 900 | $ | 4,400 | $ | 3,700 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of revenue |
200 | 150 | 500 | 500 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total related party transaction expense, net |
$ | 1,500 | $ | 1,050 | $ | 4,900 | $ | 4,200 | ||||||||
|
|
|
|
|
|
|
|
As of December 31, 2015 and September 30, 2016, approximately $0.2 million and $0.1 million, respectively, was included in prepaid expenses and other current assets relating to the Companys agreements with IBS.
As of December 31, 2015 and September 30, 2016, approximately $1.1 million and $1.1 million, respectively was included in accounts payable and accrued expense relating to the Companys agreements with IBS.
As of December 31, 2015 and September 30, 2016, approximately $0.3 million and $0.5 million, respectively, was included in accounts receivable relating to the Companys agreements with IBS.
Goldman, Sachs & Co.
The Company entered into a three-year interest rate cap on December 9, 2015 with a subsidiary of Goldman, Sachs & Co. Goldman, Sachs & Co. is a significant shareholder of the Company. Refer to Note 5: Fair Value Measurements, for further details.
In connection with and concurrently with the acquisition of Constant Contact in February 2016, the Company entered into the $735.0 million incremental first lien term loan facility and the $165.0 million revolving credit facility, and EIG Investors Corp. issued Notes in the aggregate principal amount of $350.0 million. An affiliate of Goldman, Sachs & Co. provided loans in the aggregate principal amount of $312.4 million under the incremental first lien term loan facility and a commitment in the aggregate principal amount of $57.6 million under the revolving credit facility, and Goldman, Sachs & Co. acted as a book-running manager in the Companys offering of the Notes and purchased approximately $148.8 million worth of the Notes. The foregoing financing arrangements were provided in accordance with a commitment letter the Company entered into with an affiliate of Goldman, Sachs & Co. and certain other investment banks in November 2015. Refer to Note 9: Notes Payable, for further details.
Goldman, Sachs & Co. also served as a financial advisor in connection with the acquisition of Constant Contact and in the nine months ended September 30, 2016, the Company paid approximately $8.6 million to Goldman, Sachs & Co. in connection with these services.
35
In connection with the issuance of the Notes, the Company agreed to assist the initial purchasers, including Goldman, Sachs & Co., in marketing the Notes. In the three months ended September 30, 2016, the Company incurred expenses on behalf of the initial purchasers of approximately $0.8 million.
18. Supplemental guarantor financial information
In February 2016, EIG Investors Corp., a wholly-owned subsidiary of the Company (the Issuer), issued $350.0 million aggregate principal amount of its 10.875% Senior Notes due 2024 (the Original Notes) (refer to Note 9 in the consolidated financial statements), which it expects to exchange for new 10.875% Senior Notes due 2024 (the Exchange Notes and together with the Original Notes, collectively, the Notes) pursuant to a registration statement on Form S-4. The Notes are, or will be, fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company, and the following wholly-owned subsidiaries: The Endurance International Group, Inc., Bluehost Inc., FastDomain Inc., Domain Name Holding Company, Inc., Endurance International Group West, Inc., HostGator.com LLC, A Small Orange, LLC, Constant Contact, Inc., SinglePlatform, LLC, CardStar, Inc. and CardStar Publishing, LLC (collectively, the Subsidiary Guarantors), subject to certain customary guarantor release conditions. The Companys other domestic subsidiaries and its foreign subsidiaries (collectively, the Non-Guarantor Subsidiaries) have not guaranteed the Notes.
The following tables present supplemental condensed consolidating balance sheet information of the Company (Parent), the Issuer, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of December 31, 2015 and September 30, 2016, and supplemental condensed consolidating results of operations and cash flow information for the nine months ended September 30, 2015 and 2016.
36
Condensed Consolidating Balance Sheets
December 31, 2015
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 12 | $ | 67 | $ | 21,286 | $ | 11,665 | $ | | $ | 33,030 | ||||||||||||
Restricted cash |
| | 973 | 75 | | 1,048 | ||||||||||||||||||
Accounts receivable |
| | 7,120 | 4,920 | | 12,040 | ||||||||||||||||||
Prepaid domain name registry fees |
| | 29,250 | 26,878 | (335 | ) | 55,793 | |||||||||||||||||
Prepaid expenses & other current assets |
| 62 | 9,722 | 8,263 | (2,372 | ) | 15,675 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
12 | 129 | 68,351 | 51,801 | (2,707 | ) | 117,586 | |||||||||||||||||
Intercompany receivables, net |
29,092 | (10,324 | ) | 91,938 | (110,706 | ) | | | ||||||||||||||||
Property and equipment, net |
| | 66,011 | 9,751 | | 75,762 | ||||||||||||||||||
Goodwill |
| | 1,072,838 | 134,417 | | 1,207,255 | ||||||||||||||||||
Other intangible assets, net |
| | 328,922 | 30,864 | | 359,786 | ||||||||||||||||||
Investment in subsidiaries |
150,164 | 1,260,399 | 38,819 | | (1,449,382 | ) | | |||||||||||||||||
Other assets |
| 3,130 | 34,151 | 4,830 | | 42,111 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 179,268 | $ | 1,253,334 | $ | 1,701,030 | $ | 120,957 | $ | (1,452,089 | ) | $ | 1,802,500 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities, redeemable non-controlling interest and stockholders equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | 3,769 | $ | 7,269 | $ | 1,242 | $ | | $ | 12,280 | ||||||||||||
Accrued expenses and other current liabilities |
| 7,016 | 38,092 | 12,106 | (2,372 | ) | 54,842 | |||||||||||||||||
Deferred revenue |
| | 230,396 | 56,290 | (741 | ) | 285,945 | |||||||||||||||||
Current portion of notes payable |
| | 77,500 | | | 77,500 | ||||||||||||||||||
Current portion of capital lease obligations |
| | 5,866 | | | 5,866 | ||||||||||||||||||
Deferred consideration, short-term |
| | 50,840 | 648 | | 51,488 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
| 10,785 | 409,963 | 70,286 | (3,113 | ) | 487,921 | |||||||||||||||||
Deferred revenue, long-term |
| | 71,982 | 7,700 | | 79,682 | ||||||||||||||||||
Notes payable |
| 1,092,385 | (77,500 | ) | | | 1,014,885 | |||||||||||||||||
Capital lease obligations |
| | 7,215 | | | 7,215 | ||||||||||||||||||
Deferred consideration |
| | | 813 | | 813 | ||||||||||||||||||
Other long-term liabilities |
| | 28,970 | 3,340 | | 32,310 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
| 1,103,170 | 440,630 | 82,139 | (3,113 | ) | 1,622,826 | |||||||||||||||||
Redeemable non-controlling interest |
| | | | | | ||||||||||||||||||
Equity |
179,268 | 150,164 | 1,260,400 | 38,818 | (1,448,976 | ) | 179,674 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and equity |
$ | 179,268 | $ | 1,253,334 | $ | 1,701,030 | $ | 120,957 | $ | (1,452,089 | ) | $ | 1,802,500 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
37
Condensed Consolidating Balance Sheets
September 30, 2016
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 3 | $ | 14 | $ | 47,739 | $ | 15,392 | $ | | $ | 63,148 | ||||||||||||
Restricted cash |
| | 2,620 | 863 | | 3,483 | ||||||||||||||||||
Accounts receivable |
| | 8,565 | 2,628 | | 11,193 | ||||||||||||||||||
Prepaid domain name registry fees |
| | 31,964 | 23,493 | (13 | ) | 55,444 | |||||||||||||||||
Prepaid expenses & other current assets |
| 27 | 19,172 | 13,441 | (366 | ) | 32,274 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
3 | 41 | 110,060 | 55,817 | (379 | ) | 165,542 | |||||||||||||||||
| ||||||||||||||||||||||||
Intercompany receivables, net |
31,404 | 860,777 | (754,286 | ) | (137,895 | ) | | | ||||||||||||||||
Property and equipment, net |
| | 84,827 | 12,266 | | 97,093 | ||||||||||||||||||
Goodwill |
| | 1,682,369 | 177,302 | | 1,859,671 | ||||||||||||||||||
Other intangible assets, net |
| | 626,780 | 23,990 | | 650,770 | ||||||||||||||||||
Investment in subsidiaries |
117,916 | 1,299,753 | 52,039 | | (1,469,708 | ) | | |||||||||||||||||
Other assets |
| 5,720 | 24,721 | 10,156 | | 40,597 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 149,323 | $ | 2,166,291 | $ | 1,826,510 | $ | 141,636 | $ | (1,470,087 | ) | $ | 2,813,673 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities, redeemable non-controlling interest and stockholders equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 12,007 | $ | 1,970 | $ | | $ | 13,977 | ||||||||||||
Accrued expenses and other current liabilities |
| 17,662 | 57,270 | 10,390 | | 85,322 | ||||||||||||||||||
Deferred revenue |
| | 297,184 | 60,909 | (1,346 | ) | 356,747 | |||||||||||||||||
Current portion of notes payable |
| 69,200 | | | | 69,200 | ||||||||||||||||||
Current portion of capital lease obligations |
| | 7,108 | | | 7,108 | ||||||||||||||||||
Deferred consideration, short-term |
| | 12,354 | 799 | | 13,153 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
| 86,862 | 385,923 | 74,068 | (1,346 | ) | 545,507 | |||||||||||||||||
Deferred revenue, long-term |
| | 78,330 | 13,525 | | 91,855 | ||||||||||||||||||
Notes payable |
| 1,961,512 | | | | 1,961,512 | ||||||||||||||||||
Capital lease obligations |
| | 2,082 | | | 2,082 | ||||||||||||||||||
Deferred consideration |
| | 7,299 | 25 | | 7,324 | ||||||||||||||||||
Other long-term liabilities |
| | 38,994 | 1,979 | | 40,973 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
| 2,048,374 | 512,628 | 89,597 | (1,346 | ) | 2,649,253 | |||||||||||||||||
Redeemable non-controlling interest |
| | 14,129 | | | 14,129 | ||||||||||||||||||
Equity |
149,323 | 117,917 | 1,299,753 | 52,039 | (1,468,741 | ) | 150,291 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and equity |
$ | 149,323 | $ | 2,166,291 | $ | 1,826,510 | $ | 141,636 | $ | (1,470,087 | ) | $ | 2,813,673 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
38
Condensed Consolidating Statements of Operations and Compehensive Loss
Three Months Ended September 30, 2015
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenue |
$ | | $ | | $ | 159,855 | $ | 28,931 | $ | (263 | ) | $ | 188,523 | |||||||||||
Cost of revenue |
| | 91,374 | 19,714 | (315 | ) | 110,773 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 68,481 | 9,217 | 52 | 77,750 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expense: |
||||||||||||||||||||||||
Sales & marketing |
| | 31,091 | 6,392 | 40 | 37,523 | ||||||||||||||||||
Engineering and development |
| | 6,901 | 1,001 | | 7,902 | ||||||||||||||||||
General and administrative |
| 45 | 20,232 | 2,935 | | 23,212 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expense |
| 45 | 58,224 | 10,328 | 40 | 68,637 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from operations |
| (45 | ) | 10,257 | (1,111 | ) | 12 | 9,113 | ||||||||||||||||
Interest expense and other income, net |
| 14,272 | 339 | (94 | ) | | 14,517 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity earnings of unconsolidated entities |
| (14,317 | ) | 9,918 | (1,017 | ) | 12 | (5,404 | ) | |||||||||||||||
Income tax expense (benefit) |
| 4,475 | 112 | 810 | | 5,397 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before equity earnings of unconsolidated entities |
| (18,792 | ) | 9,806 | (1,827 | ) | 12 | (10,801 | ) | |||||||||||||||
Equity loss of unconsolidated entities, net of tax |
15,362 | (3,431 | ) | 6,376 | | (13,757 | ) | 4,550 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(15,362 | ) | (15,361 | ) | 3,430 | (1,827 | ) | 13,769 | (15,351 | ) | ||||||||||||||
Net loss attributable to non-controlling interest |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to Endurance |
$ | (15,362 | ) | $ | (15,361 | ) | $ | 3,430 | $ | (1,827 | ) | $ | 13,769 | $ | (15,351 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
||||||||||||||||||||||||
Foreign currency translation adjustments |
| | | (836 | ) | | (836 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive loss |
$ | (15,362 | ) | $ | (15,361 | ) | $ | 3,430 | $ | (2,663 | ) | $ | 13,769 | $ | (16,187 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
39
Condensed Consolidating Statements of Operations and Comprehensive Loss
Nine Months Ended September 30, 2015
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenue |
$ | | $ | | $ | 465,494 | $ | 83,258 | $ | (480 | ) | $ | 548,272 | |||||||||||
Cost of revenue |
| | 260,734 | 56,490 | (540 | ) | 316,684 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 204,760 | 26,768 | 60 | 231,588 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expense: |
||||||||||||||||||||||||
Sales & marketing |
| | 93,248 | 16,570 | (27 | ) | 109,791 | |||||||||||||||||
Engineering and development |
| | 17,416 | 2,490 | | 19,906 | ||||||||||||||||||
General and administrative |
| 133 | 55,408 | 7,490 | | 63,031 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expense |
| 133 | 166,072 | 26,550 | (27 | ) | 192,728 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from operations |
| (133 | ) | 38,688 | 218 | 87 | 38,860 | |||||||||||||||||
Interest expense and other income, net |
| 41,992 | (4,567 | ) | (225 | ) | | 37,200 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity earnings of unconsolidated entities |
| (42,125 | ) | 43,255 | 443 | 87 | 1,660 | |||||||||||||||||
Income tax expense (benefit) |
| 7,507 | 240 | 1,335 | | 9,082 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before equity earnings of unconsolidated entities |
| (49,632 | ) | 43,015 | (892 | ) | 87 | (7,422 | ) | |||||||||||||||
Equity loss of unconsolidated entities, net of tax |
16,625 | (33,008 | ) | 10,007 | | 15,492 | 9,116 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(16,625 | ) | (16,624 | ) | 33,008 | (892 | ) | (15,405 | ) | (16,538 | ) | |||||||||||||
Net loss attributable to non-controlling interest |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to Endurance |
$ | (16,625 | ) | $ | (16,624 | ) | $ | 33,008 | $ | (892 | ) | $ | (15,405 | ) | $ | (16,538 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
||||||||||||||||||||||||
Foreign currency translation adjustments |
| | | (1,358 | ) | | (1,358 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive loss |
$ | (16,625 | ) | $ | (16,624 | ) | $ | 33,008 | $ | (2,250 | ) | $ | (15,405 | ) | $ | (17,896 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
40
Condensed Consolidating Statements of Operations and Comprehensive Loss
Three Months Ended September 30, 2016
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenue |
$ | | $ | | $ | 258,367 | $ | 34,213 | $ | (1,387 | ) | $ | 291,193 | |||||||||||
Cost of revenue |
| | 127,750 | 23,191 | (1,514 | ) | 149,427 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 130,617 | 11,022 | 127 | 141,766 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expense: |
||||||||||||||||||||||||
Sales & marketing |
| | 62,737 | 12,614 | (10 | ) | 75,341 | |||||||||||||||||
Engineering and development |
| | 21,802 | 2,186 | | 23,988 | ||||||||||||||||||
General and administrative |
| 67 | 29,640 | 3,692 | | 33,399 | ||||||||||||||||||
Transaction expenses |
| | 159 | | | 159 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expense |
| 67 | 114,338 | 18,492 | (10 | ) | 132,887 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from operations |
| (67 | ) | 16,279 | (7,470 | ) | 137 | 8,879 | ||||||||||||||||
Interest expense and other income, net |
| 40,206 | 5,738 | (53 | ) | | 45,891 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity earnings of unconsolidated entities |
| (40,273 | ) | 10,541 | (7,417 | ) | 137 | (37,012 | ) | |||||||||||||||
Income tax expense (benefit) |
| (13,971 | ) | 6,401 | 183 | | (7,387 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before equity earnings of unconsolidated entities |
| (26,302 | ) | 4,140 | (7,600 | ) | 137 | (29,625 | ) | |||||||||||||||
Equity loss of unconsolidated entities, net of tax |
31,875 | 5,573 | 7,772 | 110 | (45,157 | ) | 173 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(31,875 | ) | (31,875 | ) | (3,632 | ) | (7,710 | ) | 45,294 | (29,798 | ) | |||||||||||||
Net loss attributable to non-controlling interest |
| | 1,939 | | | 1,939 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to Endurance |
$ | (31,875 | ) | $ | (31,875 | ) | $ | (5,571 | ) | $ | (7,710 | ) | $ | 45,294 | $ | (31,737 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
||||||||||||||||||||||||
Foreign currency translation adjustments |
| | | 112 | | 112 | ||||||||||||||||||
Unrealized gain on cash flow hedge |
| 72 | | | | 72 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive loss |
$ | (31,875 | ) | $ | (31,803 | ) | $ | (5,571 | ) | $ | (7,598 | ) | $ | 45,294 | $ | (31,553 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
41
Condensed Consolidating Statements of Operations and Comprehensive Loss
Nine Months Ended September 30, 2016
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenue |
$ | | $ | | $ | 720,149 | $ | 101,913 | $ | (3,043 | ) | $ | 819,019 | |||||||||||
Cost of revenue |
| | 374,010 | 68,548 | (3,578 | ) | 438,980 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 346,139 | 33,365 | 535 | 380,039 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expense: |
||||||||||||||||||||||||
Sales & marketing |
| | 179,714 | 55,256 | (26 | ) | 234,944 | |||||||||||||||||
Engineering and development |
| | 55,583 | 12,347 | | 67,930 | ||||||||||||||||||
General and administrative |
| 187 | 97,694 | 10,627 | | 108,508 | ||||||||||||||||||
Transaction expenses |
| | 32,257 | | | 32,257 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expense |
| 187 | 365,248 | 78,230 | (26 | ) | 443,639 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from operations |
| (187 | ) | (19,109 | ) | (44,865 | ) | 561 | (63,600 | ) | ||||||||||||||
Interest expense and other income, net |
| 109,548 | (3,840 | ) | (138 | ) | | 105,570 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes and equity earnings of unconsolidated entities |
| (109,735 | ) | (15,269 | ) | (44,727 | ) | 561 | (169,170 | ) | ||||||||||||||
Income tax expense (benefit) |
| (40,841 | ) | (80,036 | ) | (343 | ) | | (121,220 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before equity earnings of unconsolidated entities |
| (68,894 | ) | 64,767 | (44,384 | ) | 561 | (47,950 | ) | |||||||||||||||
Equity loss of unconsolidated entities, net of tax |
38,528 | (30,366 | ) | 45,581 | 202 | (52,748 | ) | 1,197 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(38,528 | ) | (38,528 | ) | 19,186 | (44,586 | ) | 53,309 | (49,147 | ) | ||||||||||||||
Net loss attributable to non-controlling interest |
| | (11,181 | ) | | | (11,181 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to Endurance |
$ | (38,528 | ) | $ | (38,528 | ) | $ | 30,367 | $ | (44,586 | ) | $ | 53,309 | $ | (37,966 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
||||||||||||||||||||||||
Foreign currency translation adjustments |
| | | 994 | | 994 | ||||||||||||||||||
Unrealized gain on cash flow hedge |
| (1,866 | ) | | | | (1,866 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive loss |
$ | (38,528 | ) | $ | (40,394 | ) | $ | 30,367 | $ | (43,592 | ) | $ | 53,309 | $ | (38,838 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
42
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2015
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 1 | $ | (47,505 | ) | $ | 168,374 | $ | 12,944 | $ | | $ | 133,814 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Businesses acquired in purchase transaction, net of cash acquired |
| | (67,793 | ) | (5,419 | ) | | (73,212 | ) | |||||||||||||||
Purchases of property and equipment |
| | (22,145 | ) | (1,122 | ) | | (23,267 | ) | |||||||||||||||
Cash paid for minority investments |
| | (7,250 | ) | | | (7,250 | ) | ||||||||||||||||
Proceeds from note receivable |
| | 3,454 | | | 3,454 | ||||||||||||||||||
Proceeds from sale of assets |
| | 242 | 42 | | 284 | ||||||||||||||||||
Purchases of intangible assets |
| | (44 | ) | | | (44 | ) | ||||||||||||||||
Net (deposits) and withdrawals of principal balances in restricted cash accounts |
| | (154 | ) | 45 | | (109 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
| | (93,690 | ) | (6,454 | ) | | (100,144 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Proceeds from issuance of notes payable and draws on revolver |
| 109,000 | | | | 109,000 | ||||||||||||||||||
Repayment of notes payable and revolver |
| (96,875 | ) | | | | (96,875 | ) | ||||||||||||||||
Payment of deferred consideration |
| | (10,103 | ) | (488 | ) | | (10,591 | ) | |||||||||||||||
Payment of redeemable non-controlling interest liability |
| | (30,543 | ) | | | (30,543 | ) | ||||||||||||||||
Principal payments on capital lease obligations |
| | (2,827 | ) | | | (2,827 | ) | ||||||||||||||||
Proceeds from exercise of stock options |
1,147 | | | | | 1,147 | ||||||||||||||||||
Intercompany advances and investments |
(1,135 | ) | 31,053 | (30,409 | ) | 491 | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
12 | 43,178 | (73,882 | ) | 3 | | (30,689 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net effect of exchange rate on cash and cash equivalents |
| | | (1,198 | ) | | (1,198 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
13 | (4,327 | ) | 802 | 5,295 | | 1,783 | |||||||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||||||
Beginning of period |
1 | 4,347 | 18,702 | 9,329 | | 32,379 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
End of period |
$ | 14 | $ | 20 | $ | 19,504 | $ | 14,624 | $ | | $ | 34,162 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
43
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2016
Parent | Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | | $ | (54,904 | ) | $ | 187,068 | $ | (30,360 | ) | $ | | $ | 101,804 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Businesses acquired in purchase transaction, net of cash acquired |
| | (889,634 | ) | | | (889,634 | ) | ||||||||||||||||
Purchases of property and equipment |
| | (25,362 | ) | (3,955 | ) | | (29,317 | ) | |||||||||||||||
Cash paid for minority investments |
| | (5,600 | ) | | | (5,600 | ) | ||||||||||||||||
Proceeds from sale of assets |
| | 240 | 2 | | 242 | ||||||||||||||||||
Purchases of intangible assets |
| | (10 | ) | (17 | ) | | (27 | ) | |||||||||||||||
Net (deposits) and withdrawals of principal balances in restricted cash accounts |
| | (347 | ) | (391 | ) | | (738 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
| | (920,713 | ) | (4,361 | ) | | (925,074 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Proceeds from issuance of notes payable and draws on revolver |
| 1,105,678 | | | | 1,105,678 | ||||||||||||||||||
Repayment of notes payable and revolver |
| (125,775 | ) | | | | (125,775 | ) | ||||||||||||||||
Payment of financing costs |
| (52,561 | ) | | | | (52,561 | ) | ||||||||||||||||
Payment of deferred consideration |
| | (42,411 | ) | (669 | ) | | (43,080 | ) | |||||||||||||||
Payment of redeemable non-controlling interest liability |
| | (33,425 | ) | | | (33,425 | ) | ||||||||||||||||
Principal payments on capital lease obligations |
| | (4,372 | ) | | | (4,372 | ) | ||||||||||||||||
Proceeds from exercise of stock options |
2,304 | | | | | 2,304 | ||||||||||||||||||
Capital investment from minority partner |
| | | 2,776 | | 2,776 | ||||||||||||||||||
Intercompany advances and investments |
(2,313 | ) | (872,490 | ) | 840,305 | 34,498 | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
(9 | ) | 54,852 | 760,097 | 36,605 | | 851,545 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net effect of exchange rate on cash and cash equivalents |
| | | 1,843 | | 1,843 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
(9 | ) | (52 | ) | 26,452 | 3,727 | | 30,118 | ||||||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||||||
Beginning of period |
12 | 67 | 21,286 | 11,665 | | 33,030 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
End of period |
$ | 3 | $ | 15 | $ | 47,738 | $ | 15,392 | $ | | $ | 63,148 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
44
19. Subsequent Events
The Company evaluated all subsequent events occurring through November 4, 2016, to determine if any such events should be reflected in these financial statements. There were no material recognized subsequent events recorded in the September 30, 2016 financial statements.
45
Exhibit 99.3
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial information is based upon the historical consolidated financial information of Endurance International Group Holdings, Inc. (hereinafter referred to as Endurance, we, our, us and similar terms unless the context indicates otherwise) and Constant Contact, Inc. (Constant Contact), and has been prepared to give effect to the acquisition of Constant Contact by Endurance (the Acquisition) and entry into a $735.0 million first lien incremental term loan facility (the Incremental First Lien Term Loan Facility), a $165.0 million revolving credit facility (the Revolving Credit Facility) (which replaced our existing $125.0 million senior secured revolving credit facility), and the issuance of $350.0 million aggregate principal amount of 10.875% Senior Notes due 2024 (the notes and together with the Acquisition, the Incremental First Lien Term Loan Facility and the Revolving Credit Facility, the Transactions). The unaudited pro forma condensed combined statements of operations data for the nine months ended September 30, 2016 give effect to the Transactions as if they had occurred as of January 1, 2015. The historical consolidated financial information has been adjusted to give effect to estimated pro forma events that are (1) directly attributable to the Transactions, (2) factually supportable and (3) with respect to statement of operations information, expected to have a continuing impact on the combined results of operations.
The unaudited pro forma condensed combined financial information is unaudited and is presented for illustrative purposes only. This financial information (including the pro forma adjustments) is preliminary and based upon available information and various adjustments and assumptions set forth in the accompanying notes, and is not necessarily an indication of the consolidated financial position or results of operations of Endurance that would have been achieved had the Transactions been completed as of the dates indicated or that may be achieved in the future.
1
The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by Endurance. These accounting policies are similar in most material respects to those of Constant Contact before the consummation of the Acquisition, except for the accounting for amortization of intangible assets. The unaudited pro forma condensed combined financial information reflects the amortization of intangible assets as a cost of revenue, which is consistent with our historical accounting policy for this item. The unaudited pro forma condensed combined statements of operations do not reflect any integration activities or cost savings from operating efficiencies, synergies, asset dispositions or other restructurings that may or may not result from the Acquisition.
The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes and assumptions, as well as the audited consolidated financial statements and accompanying notes of Endurance for the year ended December 31, 2015 from our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 29, 2016; the audited consolidated financial statements and accompanying notes of Constant Contact for the year ended December 31, 2015 from our Current Report on Form 8-K/A filed with the SEC on March 31, 2016 (as amended by the 8-K/A filed with the SEC on May 13, 2016); and the unaudited consolidated financial statements and accompanying notes of Endurance for the nine months ended September 30, 2016 from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 filed with the SEC on November 4, 2016.
Endurance International Group, Inc. and Constant Contact, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended September 30, 2016
(in thousands)
Historical | ||||||||||||||||
Endurance | Constant Contact* |
Pro Forma Adjustments |
Pro Forma Combined |
|||||||||||||
Revenue |
$ | 819,019 | $ | 41,088 | $ | (395 | )(C) | $ | 859,712 | |||||||
Cost of revenue |
438,980 | 11,639 | 7,865 | (B)(C) | 458,484 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
380,039 | 29,449 | (8,260 | ) | 401,228 | |||||||||||
Operating expense: |
||||||||||||||||
Sales and marketing |
234,944 | 16,433 | (394 | )(B)(C) | 250,983 | |||||||||||
Engineering and development |
67,930 | 7,026 | (680 | )(D) | 74,276 | |||||||||||
General and administrative |
108,508 | 2,757 | | 111,265 | ||||||||||||
Transaction costs |
32,257 | 17,281 | (48,401 | )(E) | 1,137 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expense |
443,639 | 43,497 | (49,475 | ) | 437,661 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(63,600 | ) | (14,048 | ) | 41,215 | (36,433 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Other income (expense): |
||||||||||||||||
Interest income |
438 | | | 438 | ||||||||||||
Interest expense |
(112,573 | ) | | (11,355 | )(A) | (123,928 | ) | |||||||||
Other income (expense), net |
6,565 | (13 | ) | | 6,552 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other expense, net |
(105,570 | ) | (13 | ) | (11,355 | ) | (116,938 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes and equity earnings of unconsolidated entities |
(169,170 | ) | (14,061 | ) | 29,860 | (153,371 | ) | |||||||||
Income tax benefit |
(121,220 | ) | (6,023 | ) | 8,062 | (F) | (119,181 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before equity earnings of unconsolidated entities |
(47,950 | ) | (8,038 | ) | 21,798 | (34,190 | ) | |||||||||
Equity loss of unconsolidated entities, net of tax |
1,197 | | | 1,197 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
(49,147 | ) | (8,038 | ) | 21,798 | (35,387 | ) | |||||||||
Net loss attributable to non-controlling interest |
(11,181 | ) | | | (11,181 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to Endurance International Group Holdings, Inc. |
$ | (37,966 | ) | $ | (8,038 | ) | $ | 21,798 | $ | (24,206 | ) | |||||
|
|
|
|
|
|
|
|
* | Historical consolidated financial information of Constant Contact presented for the period from January 1, 2016 through the acquisition date, February 9, 2016. |
2
Notes to Unaudited Condensed Combined Pro Forma Financial Information
Note 1Basis of Presentation
The unaudited pro forma condensed combined statements of operations data for the nine months ended September 30, 2016 give effect to the Transactions as if they had occurred as of January 1, 2015. The historical consolidated financial information has been adjusted to give effect to estimated pro forma events that are (1) directly attributable to the Transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results of operations.
We have accounted for the Acquisition using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations (ASC 805). In accordance with ASC 805, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.
The pro forma adjustments described below were developed based on Endurances assumptions and estimates, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from Constant Contact based on preliminary estimates of fair value. The final purchase price allocation may differ from what is currently reflected in the unaudited pro forma condensed combined financial information after final valuation procedures are performed and amounts are finalized. Additionally, the Acquisition and related transaction costs were funded primarily by new debt consisting of the 10.875% Senior Notes due 2024 and borrowings under the Incremental First Lien Term Loan Facility, and to a lesser extent, cash, cash equivalents and short-term marketable securities of Endurance and Constant Contact.
The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the Acquisition occurred on the date assumed, nor are they necessarily indicative of future consolidated results of operations or financial position.
The unaudited pro forma condensed combined financial information does not reflect any integration activities or cost savings from operating efficiencies, synergies, asset dispositions or other restructurings that may or may not result from the Acquisition.
As part of the definitive agreement pursuant to which we agreed to acquire all of the outstanding shares of common stock of Constant Contact (the Merger Agreement), we accelerated all or a portion of the vesting of certain Constant Contact equity awards. This acceleration resulted in a compensation charge of approximately $16.8 million recorded in the statement of operations of Endurance immediately following the Acquisition. Additionally, pursuant to and in accordance with the terms and conditions of the Merger Agreement, Endurance assumed certain unvested Constant Contact equity awards and converted them into equity awards in respect of common stock of Endurance. The value of these converted awards is estimated to be approximately $22.3 million. Approximately $5.4 million of this value has been attributed to the pre-Acquisition period, which has been accounted for as additional consideration to acquire Constant Contact. The balance of $16.9 million has been attributed to the post-Acquisition period and is being recorded as compensation expense over the future service period of each individual holding such an award. Included in these converted awards are awards valued at approximately $3.2 million which provide for full acceleration of vesting if the holder leaves Endurance other than for cause at any time before April 7, 2017.
Endurance historically has recorded all amortization expense related to acquired intangible assets as a cost of revenue, which differs from the historical treatment of these expenses by Constant Contact, which historically recorded amortization expense as either cost of revenue or sales and marketing expense. The unaudited combined condensed financial information reflects all amortization expense related to intangible assets as a cost of revenue.
Note 2Preliminary Allocation of Merger Consideration
Pursuant to the Merger Agreement, we paid $32.00 per share, or $1,087.1 million, in cash, to acquire all outstanding equity interests of Constant Contact. In addition, we assumed certain Constant Contact unvested equity awards and converted them to equity awards in Endurance common stock. We determined that the value of these awards was $22.3 million, of which $5.4 million was attributed to the pre-acquisition period and recognized as part of the purchase consideration for Constant Contact. As a result, the total purchase consideration paid to acquire Constant Contact was $1,092.6 million. Included in the purchase consideration is approximately $16.8 million related to the acceleration of vesting of certain Constant Contact equity awards which was expensed by Endurance immediately following the closing of the Acquisition. The remaining purchase consideration of $1,075.8 million was allocated to the acquired assets and liabilities.
3
The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed based on their fair values on the acquisition date:
Preliminary purchase price allocation |
||||
(in thousands) | ||||
Working capital |
$ | (5,947 | ) | |
Property, plant and equipment |
40,699 | |||
Trademarks |
52,000 | |||
Customer relationships |
263,000 | |||
Developed technology |
83,000 | |||
Goodwill |
603,892 | |||
Deferred taxes |
(125,773 | ) | ||
Deferred revenue |
(25,170 | ) | ||
Other long term liabilities |
(98 | ) | ||
|
|
|||
Total consideration, net of cash acquired |
885,603 | |||
Cash acquired |
190,170 | |||
|
|
|||
Total purchase consideration |
$ | 1,075,773 | ||
|
|
The purchase price is preliminary and the purchase price will be final when we have completed the valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.
Note 3Sources and Uses, and New Debt
The Acquisition was financed primarily by new debt consisting of the notes and borrowings under the Incremental First Lien Term Loan Facility, and to a lesser extent, cash, cash equivalents and short-term marketable securities acquired from Constant Contact. The tables below provide an estimate of the sources and uses as of the closing date:
Sources of proceeds |
||||
(in thousands) | ||||
Use of cash from Endurance and Constant Contact |
$ | 187,692 | ||
Endurance stock awards issued at closing |
5,394 | |||
Incremental First Lien Term Loan Facility, net of original issue discounts |
712,950 | |||
10.875% Senior Notes due 2024, net of original issue discounts |
343,228 | |||
|
|
|||
$ | 1,249,264 | |||
|
|
|||
Use of proceeds |
||||
(in thousands) | ||||
Acquisition of Constant Contact |
$ | 1,075,773 | ||
Repayment of outstanding advances on existing revolving credit facility |
67,000 | |||
Transaction costs of Acquisition |
37,327 | |||
Cash out of Constant Contact stock awards accelerated at closing |
16,765 | |||
Deferred financing costs of new debt |
52,399 | |||
|
|
|||
$ | 1,249,264 | |||
|
|
The Incremental First Lien Term Loan Facility requires us to repay approximately $3.7 million of principal per quarter, or $14.7 million per year.
Note 4Pro Forma Adjustments
(A) | Adjustments to reflect the new debt, including interest rates as noted below: |
Amount | Rate | Interest | ||||||||||
For the nine months ended September 30, 2016: | ||||||||||||
Interest Expense on new debt: |
||||||||||||
(in thousands) | ||||||||||||
Incremental First Lien Term Loan Facility |
$ | 735,000 | 6.00 | % | $ | 4,846 | ||||||
10.875% Senior Notes due 2024 |
350,000 | 10.88 | % | 4,183 | ||||||||
Revolving Credit Facilityunused commitment fee |
165,000 | 0.50 | % | 91 | ||||||||
Increased interest on existing debt |
1,026,375 | 1.48 | % | 1,669 | ||||||||
Interest savings on refinanced revolver balance |
(692 | ) | ||||||||||
Amortization of deferred financing costs and original issue discount |
1,258 | |||||||||||
|
|
|||||||||||
$ | 11,355 | |||||||||||
|
|
4
Our existing debt agreement provides for increased interest rates when certain new debt arrangements exceed a specified interest rate. As a result of this provision, we incurred an increase of approximately 1.48% to the interest rates on our existing debt.
Deferred financing fees and original issue discounts are amortized to interest expense over the life of each respective instrument. We incurred a total of $54.0 million in deferred financing costs and $28.8 million of original issue discounts. Deferred financing fees are primarily comprised of underwriting fees.
(B) | Adjustments to reflect increases in amortization of intangible assets as noted below (amounts in thousands, except life): |
Cost | Life in Years |
First Year Amortization |
||||||||||
For the nine months ended September 30, 2016: | ||||||||||||
Trademarks |
$ | 52,000 | 10 | $ | 868 | |||||||
Customer relationships |
263,000 | 15 | 5,824 | |||||||||
Developed technology |
83,000 | 7 | 1,312 | |||||||||
Eliminate historical amortization of Constant Contactcost of revenue |
(82 | ) | ||||||||||
|
|
|||||||||||
Subtotaladjustment to cost of sales |
7,922 | |||||||||||
Eliminate historical amortization of Constant Contactsales and marketing |
(57 | ) | ||||||||||
|
|
|||||||||||
Total adjustment to amortization |
$ | 7,865 | ||||||||||
|
|
5
(C) | Elimination of intercompany transactions from the statement of operations (in thousands): |
Nine months ended September 30, 2016: | ||||
Revenue |
$ | (395 | ) | |
Cost of revenue |
57 | |||
Sales and marketing |
338 | |||
|
|
|||
Net impact |
$ | | ||
|
|
(D) | Reduction in depreciation expense due to revaluation of property, plant and equipment. |
(E) | Elimination of transaction expenses (in thousands): |
Nine months ended September 30, 2016 | ||||
Endurance |
$ | 31,120 | ||
Constant Contact |
17,281 | |||
|
|
|||
$ | 48,401 | |||
|
|
(F) | The pro forma tax adjustments reflect the benefits from income tax at the weighted average estimated statutory income tax rates applicable to the jurisdictions in which the pro forma adjustments are expected to be recorded. |
6
Document and Entity Information |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Document And Entity Information [Abstract] | |
Document Type | 8-K |
Amendment Flag | false |
Document Period End Date | Dec. 31, 2015 |
Trading Symbol | EIGI |
Entity Registrant Name | Endurance International Group Holdings, Inc. |
Entity Central Index Key | 0001237746 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Dec. 31, 2015 |
Dec. 31, 2014 |
Oct. 23, 2013 |
---|---|---|---|
Statement of Financial Position [Abstract] | |||
Preferred stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 | |
Preferred stock, shares outstanding | 0 | 0 | |
Common stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 500,000,000 | 500,000,000 | 500,000,000 |
Common stock, shares issued | 132,024,558 | 130,959,113 | 105,187,363 |
Common stock, shares outstanding | 131,938,485 | 130,914,333 | 105,187,363 |
Consolidated Statements of Operations and Comprehensive Loss (Parenthetical) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Income Statement [Abstract] | |||
Unrealized gain (loss) arising during period, tax | $ 46 | $ 0 | $ 0 |
Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Issuance costs of common stock in connection with initial public offering | $ 2,405,176 | $ 18,219,271 |
Common Stock [Member] | ||
Issuance costs of common stock in connection with initial public offering | 2,405,176 | 18,219,271 |
Additional Paid-in Capital [Member] | ||
Issuance costs of common stock in connection with initial public offering | $ 2,405,176 | $ 18,219,271 |
Nature of Business |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Business | 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 company, EIG Investors Corp. (“EIG Investors”), its primary operating subsidiary company, The Endurance International Group, Inc. (“EIG”), and other subsidiary companies 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 by investment funds and entities affiliated with Warburg Pincus and Goldman, Sachs & Co. on December 22, 2011 of a controlling interest in EIG Investors, EIG and EIG’s subsidiary companies. 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. Stock Split and Restated Certificate of Incorporation On October 23, 2013, immediately after giving effect to a 105,187.363-for-one stock split, the Company had 105,187,363 shares of common stock issued and outstanding. After giving effect to the Company’s restated certificate of incorporation filed on October 23, 2013, the Company’s authorized capital stock consists of 500,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share. Corporate Reorganization Pursuant to the terms of a corporate reorganization that was completed following the stock split and prior to the completion of the Company’s initial public offering, as described below, the former direct owner of Holdings, a limited partnership, was dissolved and in liquidation distributed the shares of the Company’s common stock to its limited partners. The distribution of common stock to the limited partners was determined by the value each partner would have received under the distribution provisions of the limited partnership agreement, valued by reference to the initial public offering price. All share data in the consolidated financial statements retroactively reflects the shares of the Company’s common stock after giving effect to the 105,187.363-for-one stock split and the filing of the restated certificate of incorporation. Initial Public Offering On October 30, 2013, the Company closed an initial public offering (“IPO”) of its common stock, which resulted in the sale of 21,051,000 shares of its common stock at a public offering price of $12.00 per share. The offering resulted in gross proceeds to the Company of $252.6 million and net proceeds to the Company of $232.1 million after deducting underwriting discounts, commissions and offering expenses payable by the Company. Offering expenses include both capitalized and non-capitalized expenses. Follow-on Offerings On November 26, 2014, the Company closed a follow-on offering of its common stock, in which the Company sold 3,000,000 shares of its common stock at a public offering price of $14.50 per share and selling stockholders sold 10,000,000 shares of common stock. The underwriters also exercised their overallotment option to purchase an additional 1,950,000 shares of common stock from the selling stockholders. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The follow-on offering resulted in gross proceeds to the Company of $43.5 million and net proceeds to the Company of $41.1 million after deducting underwriting discounts and commissions of $1.7 million and other estimated offering expenses of approximately $0.7 million payable by the Company. The Company incurred an additional $0.3 million of offering expenses on behalf of the selling stockholders, which was included in general and administrative expense in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2014. On March 11, 2015, the Company closed a follow-on offering of its common stock, in which selling stockholders sold 12,000,000 shares of common stock at a public offering price of $19.00 per share. The underwriter also exercised its overallotment option to purchase an additional 1,800,000 shares of common stock from the selling stockholders. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The Company incurred $0.7 million of offering expenses on behalf of the selling stockholders, which was included in general and administrative expense in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2015. |
Summary of Significant Accounting Policies |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies |
Basis of Preparation The accompanying consolidated financial statements, which include the accounts of the Company and its subsidiaries, have been prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions have been eliminated on consolidation. The Company has reviewed the criteria of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280-10, Segment Reporting, and determined that the Company is comprised of only one segment for reporting purposes. 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. 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 deposits and cash held by merchant banks and payment processors, which provide collateral against any charge-backs, fees, or other items that may be charged back to the Company by credit card companies and other merchants.
Accounts Receivable Accounts receivable is primarily composed of cash due from credit card companies for unsettled transactions charged to subscribers’ 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 carrying amount of the Company’s contingent consideration is recorded at fair value. 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 approximate their carrying value. Derivative Instruments and Hedging Activities FASB ASC 815, Derivatives and Hedging (“ASC 815”), 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 risk, 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 ASU 2011-04, 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.
Concentrations of Credit and Other Risks Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash and cash equivalents are maintained at accredited financial institutions, and PayPal balances are at times without and in excess of federally insured limits. The Company has never experienced any losses related to these balances and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. For the years ended December 31, 2013, 2014 and 2015, no subscriber represented 10% or more of the Company’s total revenue. Property and Equipment Property and equipment is recorded at cost or fair value if 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 capital lease 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:
Software Development Costs The Company accounts for software development costs for internal use software under the provisions of 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 years ended December 31, 2013, 2014 and 2015, the Company capitalized internal-use software development costs of $1.2 million, $5.4 million and $5.5 million, respectively. Investments The Company has minority investments in several privately-held companies. Investments in privately-held companies, in which the Company has a voting interest between 20% and 50% and exercises significant influence are accounted for using the equity method of accounting. Under this method, the investment balance, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee company as they occur, limited to the extent of the Company’s investment in, advances to and commitments for the investee. The Company’s share of net earnings or losses of the investee are reflected in equity losses of unconsolidated entities, net of tax, in the Company’s accompanying consolidated statements of operations. Investments in which the Company has a voting interest of less than 20% and over which it does not have significant influence are accounted for under the cost method of accounting. The Company assesses the need to record impairment losses on its investments and records such losses when the impairment of an investment is determined to be other than temporary in nature. On October 31, 2013 the Company reduced its 50% voting interest in one of the minority investments to 40% and recorded a $2.6 million impairment charge (see Note 8).
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 business, a significant adverse change in certain 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, the 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 ASC 350, Intangibles—Goodwill and Other, or ASC 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 has determined it operates in one segment and its entire business represents one reporting unit. Historically, the Company has performed its annual impairment analysis during the fourth quarter of each year. The provisions of ASC 350 require that a two-step impairment test be performed for goodwill. In the first step, the Company compares the fair value of its reporting unit to which goodwill has been allocated to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference. The Company assesses fair value based on current market capitalization. As of December 31, 2014 and, 2015, the fair value of the Company’s reporting unit exceeded the carrying value of the reporting unit’s net assets. Therefore, no impairment existed as of those dates. Determining the fair value of a reporting unit, if applicable, requires the Company to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions relate to, among other things, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. The Company bases its fair value estimates on assumptions it believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. The Company had goodwill of $1,105.0 million and $1,207.3 million as of December 31, 2014 and 2015, respectively, and no impairment charges have 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, domain names available for sale and in-process research and development (“IPR&D”). 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 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. No such impairment losses have been identified for the years ended December 31, 2013, 2014 and 2015. Indefinite life intangible assets include domain names that are available for sale which are recorded at 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. Acquired In-Process Research and Development (IPR&D) Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires that have not been completed at the date of acquisition. The acquired IPR&D is capitalized as an intangible asset and reviewed on a quarterly basis to determine future use. Any impairment loss of the acquired IPR&D is charged to expense in the period the impairment is identified. No such impairment losses have been identified for the years ended December 31, 2013, 2014 and 2015. Upon commercialization, the acquired fair value of the IPR&D will be amortized over its estimated useful life. During 2014 the Company capitalized $4.6 million of IPR&D in connection with its acquisition of WebZai, Ltd. (“Webzai”). During the year ended December 31, 2015 $3.2 million was reclassified to developed technology as of December 31, 2015 and is being amortized over the estimated useful life of 4.0 years. During 2014, the Company did not capitalize any IPR&D in connection with its acquisitions of the web presence business of Directi (“Directi”), the domain name business, the assets of the BuyDomains business of Name Media, Inc. (“BuyDomains”) and the assets of Arvixe LLC (“Arvixe”). During 2015, the Company did not capitalize any IPR&D in connection with its acquisitions of the assets of the U.S. retail portion of the Verio business of NTT America, Inc. (“Verio”), the assets of World Wide Web Hosting, LLC (“WWWH”), the assets of Ace Data Centers, Inc. (“Ace DC”) and the ownership interests in Ace Holdings, LLC (“Ace Holdings”), (these acquired assets and ownership interests, collectively, “Ace”) and the assets of Ecommerce, LLC, (“Ecommerce”). Revenue Recognition The Company generates revenue primarily from selling subscriptions for cloud-based products and services. The subscriptions are similar across all of the Company’s brands and are provided under contracts pursuant to which the Company has ongoing obligations to support the subscriber. These contracts are generally for service periods of up to 36 months and typically require payment in advance. The Company recognizes the associated revenue ratably over the service period, whether the associated revenue is derived from a direct subscriber or through a reseller. Deferred revenue represents the liability to subscribers for advance billings for services not yet provided and the fair value of the assumed liability outstanding for subscriber relationships purchased in an acquisition. The Company sells domain name registrations that provide a subscriber with the exclusive use of a domain name. These domains are primarily obtained by one of the Company’s registrars on the subscriber’s behalf, or to a lesser extent by the Company from third-party registrars on the subscriber’s behalf. Domain registration fees are non-refundable.
Revenue from the sale of a domain name registration by a registrar within the Company is recognized ratably over the subscriber’s service period as the Company has the obligation to provide support over the domain term. Revenue from the sale of a domain name registration purchased by the Company from a third-party registrar is recognized when the subscriber is billed on a gross basis as there are no remaining Company obligations once the sale to the subscriber occurs, and the Company has full discretion on the sales price and bears all credit risk. Revenue from the sale of premium domains is recognized when persuasive evidence of an arrangement to sell such domains exists, delivery of an authorization key to access the domain name has occurred, the fee for the sale of the premium domain is fixed or determinable, and collection of the fee for the sale of the premium domain is deemed probable. Revenue from the sale of non-term based applications and services, such as certain online security products and professional technical services, referral fees and commissions, is recognized when the product is purchased, the service is provided or the referral fee or commission is earned, respectively. A substantial amount of the Company’s revenue is generated from transactions that are multiple-element service arrangements that may include hosting plans, domain name registrations, and other cloud-based products and services. The Company follows the provisions of the FASB, Accounting Standards Update (“ASU”) No. 2009-13 (“ASU 2009-13”), Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force and allocates revenue to each deliverable in a multiple-element service arrangement based on its respective relative selling price. Under ASU 2009-13, to treat deliverables in a multiple-element service arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately. Hosting services, domain name registrations, cloud-based products and services have standalone value and are often sold separately. When multiple deliverables included in a multiple-element service arrangement are separated into different units of accounting, the total transaction amount is allocated to the identified separate units based on a relative selling price hierarchy. The Company determines the relative selling price for a deliverable based on vendor specific objective evidence (“VSOE”) of fair value, if available, or best estimate of selling price (“BESP”), if VSOE is not available. The Company has determined that third-party evidence of selling price (“TPE”) is not a practical alternative due to differences in its multi-brand offerings compared to competitors and the lack of availability of relevant third-party pricing information. The Company has not established VSOE for its offerings due to lack of pricing consistency, the introduction of new products, services and other factors. Accordingly, the Company generally allocates revenue to the deliverables in the arrangement based on the BESP. The Company determines BESP by considering its relative selling prices, competitive prices in the marketplace and management judgment; these selling prices, however, may vary depending upon the particular facts and circumstances related to each deliverable. The Company analyzes the selling prices used in its allocation of transaction amount, at a minimum, on a quarterly basis. Selling prices are analyzed on a more frequent basis if a significant change in our business necessitates a more timely analysis. The Company maintains a reserve for refunds and chargebacks related to revenue that has been recognized and is expected to be refunded. The Company had a refund and chargeback reserve of $0.6 million and $0.5 million as of December 31, 2014 and 2015, respectively. The portion of deferred revenue that is expected to be refunded at December 31, 2014 and 2015 was $2.2 million and $1.8 million, respectively. Based on refund history, a significant majority of refunds happen in the same fiscal month that the customer contract starts or renews. Approximately 80% of all refunds happen in the same fiscal month that the contract starts or renews, and approximately 92% of all refunds happen within 45 days of the contract start or renewal date.
Direct Costs of Revenue The Company’s direct costs of revenue include only those costs directly incurred in connection with the provision of its cloud-based products and services. The direct costs of registering domain names with registries are spread over the terms of the arrangement and the cost of reselling domains of other third-party registrars are expensed as incurred. Cost of revenue includes depreciation on data center equipment and support infrastructure and amortization expense related to the amortization of long-lived intangible assets. Engineering and Development Costs Engineering and development costs incurred in the development and maintenance of the Company’s technology infrastructure are expensed as incurred. Sales and Marketing Costs The Company engages in sales and marketing through various online marketing channels, which include affiliate and search marketing as well as online partnerships. The Company expenses sales and marketing costs as incurred. For the years ended December 31, 2013, 2014 and 2015, the Company’s sales and marketing costs were $117.7 million, $146.8 million and $145.4 million, respectively. Foreign Currency The Company has sales in a number of foreign currencies. In 2013, the Company commenced operations in foreign locations which report in the local currency. The assets and liabilities of the Company’s foreign locations are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded as a separate component of stockholders’ equity and have not been material. Foreign currency transaction gains and losses relate to the settlement of assets or liabilities in another currency. Foreign currency transaction losses were $1.2 million, $0.8 million and $1.9 million during the years ended December 31, 2013, 2014 and 2015, respectively. These amounts are recorded in general and administrative expense in the Company’s consolidated statements of operations and comprehensive loss. Income Taxes Income taxes are accounted for in accordance with ASC 740, Accounting for Income Taxes, or 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 enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 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. There were no unrecognized tax benefits in the years ended December 31, 2013, 2014 and 2015. The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2013, 2014 and 2015, the Company did not recognize any interest and penalties related to unrecognized tax benefits.
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 ASC 718, Compensation—Stock Compensation, or ASC 718, 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 granted, the Company estimates the fair value of each restricted stock award based on the closing trading price of its common stock on the date of grant. Net Loss per Share The Company considered ASC 260-10, Earnings per Share, or ASC 260-10, which requires the presentation of both basic and diluted earnings per share in the consolidated statements of operations and comprehensive loss. The Company’s basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, and, if there are dilutive securities, diluted income 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. The Company’s potentially dilutive shares of common stock are excluded from the diluted weighted-average number of shares of common stock outstanding as their inclusion in the computation would be anti-dilutive due to net losses. For the years ended December 31, 2013, 2014 and 2015, all non-vested shares granted prior to the Company’s IPO in October 2013, stock options, restricted stock awards and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive as a result of the net losses for these periods.
Guarantees The Company has the following guarantees and indemnifications: In connection with its acquisitions of companies and assets from third parties, the Company may provide indemnification or guarantees to the sellers in the event of damages for breaches or other claims covered by such agreements. In connection with various vendor contracts, including those by which a product or service of a third party is offered to subscribers of the Company, standard guaranty of subsidiary obligations and indemnification obligations exist. As permitted under Delaware and other applicable law, the Company’s charter and by-laws and those of its subsidiary companies provide that the Company shall indemnify its officers and directors for certain liabilities, including those incurred by reason of the fact that the officer or director is, was, or has agreed to serve as an officer or director of the Company. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company leases office space and equipment under various operating leases. The Company has standard indemnification arrangements under these leases that require the Company to indemnify the lessor against losses, liabilities and claims incurred in connection with the premises or equipment covered by the Company’s lease agreements, the Company’s use of the premises, property damage or personal injury and breach of the agreement. Through December 31, 2015, the Company had not experienced any losses related to these indemnification obligations and no claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and consequently concluded that the fair value of these obligations is negligible and no related liabilities were established. Recent Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgments and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In July 2015, the FASB approved a one-year deferral of the effective date to January 1, 2018, with early adoption to be permitted as of the original effective date of January 1, 2017. Once this standard becomes effective, companies may use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard. In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, or ASU 2015-02. This new guidance provides a revised consolidation model that reporting entities use to evaluate partnerships and similar entities, evaluate service providers and decision makers as they relate to a variable interest entity, referred to as a VIE, and examine how related party interests in a VIE can affect the consolidation of that VIE. ASU 2015-02 is effective for annual reporting periods beginning after December 15, 2015 with early adoption permitted. The Company believes the adoption of ASU 2015-02 does not have a material impact on its consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. This new guidance changes the balance sheet presentation for deferred financing costs from being presented as an asset to being a deduction from the related recognized liability. The Company adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Cost, beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The unamortized value of deferred financing costs associated with our revolving credit facility were not affected by the ASU and continue to be presented as an asset on the Company’s consolidated balance sheets.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles Goodwill and Other—Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This new guidance will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software. ASU 2015-05 is effective for annual reporting periods beginning after December 15, 2015. The Company believes the adoption of ASU 2015-05 does not have a material impact on its consolidated financial statements. In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This new guidance requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer needs to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the provisional amounts, calculated as if the accounting had been completed as of the acquisition date. ASU 2015-16 is effective for annual reporting periods beginning after December 15, 2015. The Company believe the adoption of ASU 2015-16 does not have a material effect on its accounting processes, however the ASU will affect its disclosures as the Company is required to disclose the adjustments made during the measurement period and their effect on the period’s earnings. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, or ASU 2015-17. This new guidance requires that deferred tax liabilities and assets be classified as noncurrent in the balance sheet, in order to simplify the presentation of deferred income taxes. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016. The Company believes the adoption of ASU 2015-17 will not have a material impact on its consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements. |
Acquisitions |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | 3. Acquisitions 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 IPR&D. 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. The fair value assigned to IPR&D is based on 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. Acquisitions—2013 During the year ended December 31, 2013, the Company made three small acquisitions. Under the terms of the purchase agreements, the Company acquired all of the outstanding shares of each entity for an aggregate purchase price of $5.4 million in cash plus deferred consideration payable of $5.5 million. The Company had estimated the fair value of the contingent deferred consideration of one acquisition to be $2.7 million. A full and final payment was subsequently made prior to December 31, 2013 for $2.0 million. The balance of the estimated earn-out payment of $0.7 million was written-down and recorded as an increase in earnings in general and administrative expense in the consolidated statements of operations for the year ended December 31, 2013. The deferred consideration of $2.8 million for one of the other acquisitions is payable three years after the acquisition date and was recorded as a long-term liability at December 31, 2014 and is recorded as a short-term liability at December 31, 2015. The purchase price of these acquisitions was allocated to long-lived intangible assets of $5.4 million and goodwill of $7.3 million. During the year ended December 31, 2013, the Company made an initial investment of $8.8 million to acquire a 17.5% interest in a privately-held company based in the United Kingdom, JDI Backup Ltd. The agreement provided for the acquisition of additional equity interests from the shareholders of the non-controlling interest (“NCI”). In particular, it provided for a call option allowing the Company to acquire an additional equity interest during pre-specified call periods and a put option (only if the call option is exercised), for the then non-controlling interest shareholders (“NCI shareholders”) to put the remaining equity interest to the Company within pre-specified put periods, provided that the call option had been exercised during the appropriate call periods. In the fourth quarter of 2013, the Company exercised the call option in full for an additional $22.2 million in cash to acquire a controlling interest in JDI Backup. Under the put option, the NCI shareholders can put their shares to the Company at a price calculated at the time of the exercise of the put option, subject to a minimum of $24.0 million. As the NCI is subject to a put option that is outside the control of the Company, it is deemed redeemable non-controlling interest and not recorded in permanent equity, and is being presented as mezzanine redeemable non-controlling interest on the consolidated balance sheet, and is subject to the SEC guidance under ASC 480-10-S99, Accounting for Redeemable Equity Securities. Upon the exercise of the call option, the Company estimated the fair value of the assets and liabilities in accordance with the guidance for business combinations, and estimated that the value of the redeemable non-controlling interest on December 11, 2013 was $20.6 million. The difference between the initial fair value of the redeemable non-controlling interest and the value expected to be paid upon exercise of the put option is being accreted over the period commencing December 11, 2013, and up to the end of the first put option period, which commences on the eighteen-month anniversary of the acquisition date. During the year ended December 31, 2014, the Company paid $4.2 million to increase its investment in JDI Backup and entered into an amendment to the put option with the NCI shareholders, which proportionately reduced the value expected to be paid upon exercise. Adjustments to the carrying amount of the redeemable non-controlling interest are charged to additional paid-in capital. The estimated value of the redeemable non-controlling interest as of December 31, 2014 was $30.5 million and was $0 at December 31, 2015 as there was no longer a non-controlling interest. See Note 13 to the financial statements for additional information. The estimated purchase price of $31.0 million and minority interest of $20.6 million was allocated primarily to goodwill of $38.0 million, long-lived intangible assets of $28.5 million and property and equipment of $0.3 million, which were offset by $9.3 million of deferred revenue, other liabilities of $2.6 million, deferred tax liabilities of $1.9 million and negative net working capital of $1.4 million. Goodwill allocated to the acquisition is not tax deductible.
Acquisitions—2014 Directi On January 23, 2014, the Company acquired the web presence business of Directi from Directi Web Technologies Holdings, Inc. (“Directi Holdings”). Directi provides web presence solutions to small and medium-sized businesses in various countries, including India, the United States, Turkey, China, Russia and Indonesia. The acquisition provides the Company with an established international presence focused on growing emerging markets as well as the ability to expand its geographic footprint by taking its existing portfolio of brands to international markets. The final purchase price of $109.8 million consisted of cash payments of $82.6 million in aggregate and the issuance of 2,269,579 unregistered shares of the Company’s common stock to Directi Holdings equivalent to $27.2 million or $12.00 per share. 2,123,039 shares of the Company’s common stock were issued at closing and 146,540 shares of the Company’s common stock were issued in May 2014. Cash payments consisted of a $5.0 million advance paid in August 2013, $20.5 million paid at the closing and $57.1 million in deferred consideration that was paid during the year ended December 31, 2014. The purchase price of $109.8 million has been allocated to goodwill of $91.2 million, long-lived intangible assets consisting of subscriber relationships, developed technology, trade names and leasehold interests of $7.7 million, $6.4 million, $7.4 million and $0.3 million, respectively, property and equipment of $2.7 million, other assets of $4.7 million and working capital of $0.2 million, offset by deferred revenue of $3.0 million, other payables of $5.4 million and deferred tax liabilities of $2.4 million. The majority of the purchase price was allocated to goodwill, which is not deductible for tax purposes. The goodwill reflects the value of an established international business and infrastructure that enables the Company to increase its market penetration in emerging markets. The intangible assets are being amortized in accordance with their estimated projected cash flows. Subscriber relationships, developed technology, trade names and leasehold interests are being amortized over 17 years, 7 years, 5 years and 4 years, respectively. Domain Name Business In addition, in connection with the acquisition of Directi, the Company was initially obligated to make additional aggregate payments of up to approximately $62.0 million subject to specified terms, conditions and operational contingencies. Of this $62.0 million, the Company has committed a total of $36.2 million consisting of cash payments of $27.2 million and future earn-out payments of $9.0 million to purchase a domain name business from a company associated with the founders of Directi Holdings pursuant to agreements entered into during the year ended December 31, 2014. The estimated aggregate purchase price was $36.2 million, which was allocated on a preliminary basis to long-lived intangible assets of $26.6 million and goodwill of $9.6 million, all of which is deductible for tax purposes. The intangible assets are being amortized in accordance with their estimated projected cash flows, using the accelerated method. The goodwill reflects the value of an established domain portfolio business that enables the Company to monetize that domain portfolio. During the year ended December 31, 2014 the fair value of the earn-out decreased by $47,000. The Company recorded this decrease in fair value in general and administrative expense. Webzai On August 12, 2014, the Company acquired Webzai, which provides the Company with a simple to use website builder and mobile website builder product, for an aggregate purchase price of $9.5 million, of which $7.0 million was paid in cash at the closing. The Company is also obligated to pay additional consideration of $3.0 million on the second anniversary of the acquisition if certain technological milestones are achieved. The net present value of the additional consideration is $2.8 million and is included in the aggregate purchase price and recorded as deferred consideration in the Company’s consolidated balance sheet as of December 31, 2015. The remaining $0.2 million is being accreted as interest expense.
The purchase price of $9.5 million has been allocated to long-lived intangible assets consisting of developed technology and IPR&D of $4.6 million and $4.6 million, respectively, goodwill of $3.0 million, deferred tax liability of $2.6 million and negative working capital of $0.1 million. Goodwill related to the acquisition is not deductible for tax purposes. BuyDomains On September 18, 2014, the Company completed the acquisition of substantially all of the assets of the BuyDomains business of NameMedia, Inc. BuyDomains is a provider of premium domain products. The Company expects this acquisition will allow it to better serve its subscriber demand for higher priced premium domains. The aggregate purchase price was $44.9 million, of which $41.1 million was paid in cash at the closing. The Company is also obligated to pay additional consideration of $4.5 million on the second anniversary of the acquisition. The net present value of the additional consideration is $4.3 million and is included in the aggregate purchase price and recorded as deferred consideration in the Company’s consolidated balance sheet as of December 31, 2015. The remaining $0.3 million will be accreted as interest expense. The purchase price of $44.9 million has been allocated to intangible assets consisting of developed technology, trade names and domains available for sale of $7.6 million, $1.9 million and $26.9 million, respectively, goodwill of $4.2 million, prepaid expenses and other current assets of $4.0 million and property and equipment of $0.3 million. Goodwill related to the acquisition is deductible for tax purposes. Arvixe On October 31, 2014, the Company completed the acquisition of substantially all of the assets of Arvixe, which is a web presence provider. The Company expects this acquisition will allow it to leverage its reach and size to generate better economies of scale. The aggregate purchase price was $22.0 million, of which $17.6 million was paid in cash at the closing. The Company is also obligated to pay additional consideration of $4.4 million on the twelve-month anniversary of the acquisition. The purchase price of $22.0 million has been allocated to intangible assets consisting of developed technology, trade names and subscriber relationships of $0.1 million, $1.2 million and $8.4 million, respectively and goodwill of $15.4 million, offset by deferred revenue of $3.1 million. Goodwill related to the acquisition is deductible for tax purposes. Acquisitions—2015 Verio On May 26, 2015, the Company acquired the assets of the U.S. retail portion of the Verio business of NTT America, Inc., which is a provider of shared, virtual private server (“VPS”) and dedicated hosting services. The Company expects this acquisition to leverage its reach and generate better economies of scale. The aggregate purchase price was $13.0 million, of which $10.5 million was paid in cash at the closing. The Company is obligated to pay the remaining cash consideration of $2.5 million on the first anniversary of the acquisition, less amounts used to satisfy any obligation determined to be owed to the Company for any indemnity pursuant to the asset purchase agreement. The purchase price of $13.0 million has been allocated on a preliminary basis to intangible assets consisting of subscriber relationships and trade names of $13.1 million and $0.1 million, respectively, and goodwill of $1.2 million, offset by deferred revenue of $1.4 million. Goodwill related to the acquisition is deductible for tax purposes.
World Wide Web Hosting On June 25, 2015, the Company acquired substantially all of the assets of WWWH, which is a provider of web presence solutions doing business under the brand name Site5. The Company previously had an equity interest in WWWH, which was originally acquired when the Company acquired Hostgator.com LLC on July 13, 2012. The Company expects this acquisition will allow it to leverage its reach and generate better economies of scale. The aggregate purchase price was $34.9 million, $23.0 million of which is payable in cash and $11.9 million of which is the implied value of the pro rata interest in the acquired assets that the Company obtained upon the seller’s redemption of its 40% equity interest in WWWH. The Company recognized a $5.4 million gain as a result of this redemption, which is recorded as other income in the Company’s consolidated statement of operations and comprehensive loss. Of the $23.0 million payable in cash, $18.4 million was paid at the closing and the Company is obligated to pay the remaining cash consideration of $4.6 million on the first anniversary of the acquisition, less amounts used to satisfy any obligation determined to be owed to the Company for any indemnity pursuant to the asset purchase agreement. The purchase price of $34.9 million has been allocated on a preliminary basis to intangible assets consisting of subscriber relationships and trade names of $11.0 million and $1.9 million, respectively, goodwill of $23.3 million, and prepaid expenses and other current assets of $1.2 million, offset by deferred revenue of $2.5 million. Goodwill related to the acquisition is deductible for tax purposes. Ace Data Center and Ace Holdings On September 21, 2015, the Company entered into a purchase agreement with Ace DC to acquire substantially all of the assets of Ace DC and with Ace Holdings and its owners to acquire all of the ownership interests in Ace Holdings. Ace DC is the manager of a data center that provides colocation, infrastructure and carrier-neutral connectivity services. This data center is the Company’s largest data center. Ace Holdings owns the real property, improvements and building at and on which the data center is located, including certain non-systems equipment and personal property. The Company expects this acquisition will provide cost efficiencies and increased control over its largest data center. The aggregate purchase price was $74.0 million, of which $44.4 million was paid in cash at the closing. Under the terms of the purchase agreement, within approximately 75 days of the closing date of the acquisition, the purchase consideration was subject to a working capital adjustment and a tax gross up adjustment, which resulted in an additional $0.7 million payment from the Company on December 2, 2015. The Company is obligated to pay the remaining cash consideration of $31.5 million on the first anniversary of the acquisition, less amounts used to satisfy any obligation determined to be owed to the Company for any indemnity pursuant to the asset purchase agreement. The net present value of the remaining cash consideration is $28.9 million, which was the amount used to calculate the $74.0 million aggregate purchase price above. An aggregate amount of $0.7 million for the accretion of the present value of the remaining cash consideration is included in interest expense for the year ended December 31, 2015, resulting in the net present value of the remaining cash consideration at December 31, 2015 of $29.6 million. The purchase price of $74.0 million has been allocated on a preliminary basis to property and equipment, including real property, of $12.1 million, goodwill of $62.2 million, prepaid expenses and other current assets of $0.2 million and developed technology of $0.1 million, offset by other liabilities of $0.6 million. The goodwill reflects the value of estimated cost efficiencies gained for the Company by owning its own data center. Goodwill related to the acquisition is deductible for tax purposes.
Ecommerce On November 2, 2015, the Company acquired the assets of Ecommerce, which is a provider of shared, VPS and cloud hosting services, domain registration services and add-on products. The Company expects this acquisition to leverage its reach and generate better economies of scale. The aggregate purchase price was $28.0 million, of which $23.8 million was paid in cash at the closing. The Company is obligated to pay the remaining cash consideration of $4.2 million on the first anniversary of the acquisition, less amounts used to satisfy any obligation determined to be owed to the Company for any indemnity pursuant to the asset purchase agreement. The purchase price of $28.0 million has been allocated on a preliminary basis to intangible assets consisting of subscriber relationships, intellectual property and trade names of $9.4 million, $4.4 million and $0.1 million, respectively, and goodwill of $16.7 million, offset by deferred revenue of $2.6 million. Goodwill related to the acquisition is deductible for tax purposes. For the year ended December 31, 2015, $15.4 million of revenue attributable to 2015 acquisitions was included in the Company’s consolidated statement of operations and comprehensive loss. The Company has omitted earnings information related to its acquisitions as it does not separately track earnings from each of its acquisitions in a manner that would provide meaningful disclosure. The Company considers it to be impracticable to compile such information on an acquisition-by-acquisition basis since activities of integration and use of shared costs and services across the Company’s business are not allocated to each acquisition and are not managed to provide separate identifiable earnings from the dates of acquisition. For the intangible assets acquired in connection with all acquisitions completed during the year ended December 31, 2015, subscriber relationships, trademarks, intellectual property and developed technology have weighted average useful lives of 4.7 years, 3.0 years, 6.3 years and 2.7 years, respectively. Pro Forma Disclosure The Company has omitted pro forma disclosures related to its acquisitions completed during 2015 as the pro forma effect of including the results of these acquisitions since the beginning of 2014 would not be materially different than the actual results reported. Summary of Deferred Consideration Related to Acquisitions Components of deferred consideration short-term and long-term as of December 31, 2014, consisted of the following:
Components of deferred consideration short-term and long-term as of December 31, 2015, consisted of the following:
|
Fair Value Measurements |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | 4. Fair Value Measurements The following valuation hierarchy is used for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
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, 2014 and 2015, the Company’s financial assets or liabilities required to be measured on a recurring basis are accrued earn-out consideration payable in connection with the 2012 acquisition of certain assets of Mojoness, Inc., or Mojo, and the 2014 acquisitions of a domain name business and the 2015 interest rate cap. The Company has classified its interest rate cap within Level 2 of the fair value hierarchy. The Company has classified its liabilities for contingent earn-out consideration related to these acquisitions 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 Company recorded a $0.7 million change in fair value of the earn-out consideration related to Mojo and one of the other 2012 acquisitions as of December 31, 2013 in the Company’s general and administrative expense in the consolidated statement of operations and comprehensive income. During the year ended December 31, 2014, the Company paid $0.2 million related to the earn-out provisions for the Mojo acquisition and recorded $23.0 million related to the 2014 domain name business acquisition of which $14.0 million was paid during the year ended December 31, 2014. The Company recorded a $0.4 million change in fair value of the earn-out consideration related to Mojo and the 2014 domain name business during the year ended December 31, 2014. During the year ended December 31, 2015, the Company paid $0.5 million related to the earn-out provisions for the Mojo acquisition and paid $10.1 million related to the earn-out provisions of the 2014 domain name business acquisition. The Company recorded a $1.2 million change in fair value of the earn-out consideration related to the earn-out provisions of the Mojo and 2014 domain name business acquisitions during the year ended December 31, 2015. 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
The following table summarizes the changes in the financial liabilities measured on a recurring basis using Level 3 inputs as of December 31, 2014 and 2015:
|
Derivatives and Hedging Activities |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivatives and Hedging Activities | 5. Derivatives and Hedging Activities Risk Management Objective of Using Derivatives The Company is exposed to certain risk 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 enters 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 entered into a three-year interest rate cap on December 9, 2015 as part of its risk management strategy. The objective of this interest rate cap, designated as cash flow hedges, involves the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Therefore, this derivative limits the Company’s exposure if the rate rises, but also allows the Company to benefit when the rate falls. The effective portion of changes in the fair value of derivatives that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (“AOCI”), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Any ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. There was no ineffectiveness recorded in earnings for the year ended December 31, 2015. As of December 31, 2015, the Company had one interest rate cap with $500.0 million notional outstanding that was designated as a cash flow hedge of interest rate risk. The fair value of the interest rate contracts on the consolidated balance sheet as of December 31, 2015 was $3.1 million, and there has been no effect on the Company’s consolidated statement of operations. The Company recognized $0.1 million of gain in AOCI, of which the Company estimates that $7,894 will be reclassified as an increase to interest expense in the next twelve months. |
Property and Equipment |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment | 6. Property and Equipment Components of property and equipment consisted of the following:
Depreciation expense related to property and equipment for the years ended December 31, 2013, 2014 and 2015, was $18.6 million, $31.0 million, and $34.0 million, respectively. During the years ended December 31, 2014 and 2015, the Company entered into agreements to lease software licenses for use on certain data center server equipment for terms ranging from thirty-six months to thirty-nine months.
As of December 31, 2014 and 2015, the Company’s software shown in the above table included the software assets under a capital lease as follows:
At December 31, 2015, the expected future minimum lease payments under the capital lease discussed above were approximately as follows:
|
Goodwill and Other Intangible Assets |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Other Intangible Assets | 7. Goodwill and Other Intangible Assets The following table summarizes the changes in the Company’s goodwill balances as of December 31, 2014 and 2015:
During the year ended December 31, 2014, the Company completed the purchase accounting related to a 2013 acquisition and allocated an additional $2.1 million to long-lived intangible assets, which had been included in goodwill on a preliminary basis. In accordance with ASC 350, 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. The Company completed its annual impairment test of goodwill and other indefinite-lived intangible assets as of December 31, and determined that there were no indicators of impairment as of December 31, 2014 and 2015.
At December 31, 2014, other intangible assets consisted of the following:
At December 31, 2015, other intangible assets consisted of the following:
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 aggregate amounts of $105.9 million, $102.7 million and $91.1 million, for the years ended December 31, 2013, 2014 and 2015, respectively. At December 31, 2015, the expected future amortization of the other intangible assets, excluding indefinite life and in-process research and development intangibles, was approximately as follows:
|
Investments |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | 8. Investments As of December 31, 2014 and 2015, the Company’s carrying value of investments in privately-held companies was $40.4 million and $27.9 million, respectively. In January 2012, the Company made an initial investment of $0.3 million to acquire a 25% interest in BlueZone Labs, LLC (“BlueZone”), a provider of “do-it-yourself” tools and managed search engine optimization services. The Company also has an agreement with BlueZone to purchase products and services. During the years ended December 31, 2014 and 2015, the Company purchased $0.9 million and $1.1 million, respectively, of products and services from BlueZone, which is included in the Company’s consolidated statements of operations and comprehensive loss. As of December 31, 2014 and 2015, $0.1 million and $0.1 million, respectively, relating to our investment in BlueZone was included in accounts payable and accrued expense in the Company’s consolidated balance sheet. In July 2012, the Company assumed a 50% interest in WWWH, a provider of web presence solutions, with a fair value of $10.0 million. On October 31, 2013, the Company sold 20% of its ownership interest, or 10% of the capital stock of WWWH, reducing its equity interest to 40%, recorded an additional $1.5 million note receivable from the buyer for total notes receivable from the buyer of $3.5 million, and decreased its investment in WWWH by $1.5 million. The Company evaluated its remaining 40% ownership interest in WWWH and recognized a $2.6 million impairment on the remaining investment, which is recorded in equity (income) loss of unconsolidated entities, net of tax, in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2013. On June 25, 2015, the Company acquired substantially all of the assets of WWWH. In connection with the asset purchase agreement dated June 25, 2015, the seller redeemed from the Company its 40% equity interest in exchange for a pro rata interest in the acquired assets, which had an estimated implied value of $11.9 million. The Company recognized a $5.4 million gain as a result of the redemption of its equity interest, which was recorded as other income for the year ended December 31, 2015 in the Company’s consolidated statements of operations and comprehensive loss. In addition, the Company received a $3.5 million repayment of total notes receivable that were due to the Company from the seller of WWWH prior to the acquisition. For more detail, see Note 3 to the consolidated financial statements. In June 2013, the Company made an initial investment of $8.8 million to acquire a 17.5% interest in JDI Backup Ltd., which provides online desktop backup services. The agreement also provided for a call option for the acquisition of additional equity interests which the Company exercised on December 11, 2013 to increase its investment in JDI Backup Ltd. to 60% for $22.2 million, which was paid in cash. On July 7, 2014, the Company paid an additional $4.2 million to increase its investment in JDI Backup Ltd. to 67%. On January 13, 2015, the Company entered into an agreement to increase its investment in JDI Backup Ltd. to 100% for $30.5 million, which was payable in three installments. For more detail see Notes 3 and 13 to the consolidated financial statements. In May 2014, the Company made a strategic investment of $15.0 million in Automattic, Inc. (“Automattic”), which provides content management systems associated with WordPress. The investment represents less than 5% of the outstanding shares of Automattic and better aligns the Company with an important partner. In August, 2014, the Company made an aggregate investment of $3.9 million for a joint venture with a 49% ownership interest in WZ UK Ltd., which is a provider of technology and sales marketing services associated with web builder solutions. The agreement provides for the acquisition of additional equity interests in WZ UK Ltd. at the option of the Company.
On January 6, 2016, the Company exercised an option to increase its stake in WZ UK Ltd., a provider of technology and sales marketing services associated with web builder solutions, from 49% to 57.5%. For more detail see Note 20 to the consolidated financial statements. The Company has a license agreement with WZ UK Ltd. to license certain technology to WZ UK Ltd. to enable it to use, develop, market, distribute, host and support website builder applications. Under the terms of the license agreement, the Company receives a royalty payment in the amount of 4.5% of all billings in the previous month, net of any refunds, chargebacks and any other credits applied. During the years ended December 31, 2014 and 2015, the Company recognized $0.0 million and $0.4 million, respectively, of royalty revenue under the terms of the license agreement. During the years ended December 31, 2014 and 2015, the Company’s proportionate share of net loss from its investment in WZ UK Ltd. was $0.2 million and $13.9 million, respectively. On July 2, 2015, the Company and the majority investor made additional equity contributions to WZ UK Ltd. The Company’s share of the incremental investments was approximately $7.4 million. On December 21, 2015, the Company and the majority investor made additional equity contributions to WZ UK Ltd. The Company’s share of the incremental investment was $1.1 million. The significance of the net loss of WZ UK Ltd., in comparison to the Company’s net loss requires the disclosure of summarized financial information from the statement of operations and comprehensive loss for WZ UK Ltd. The following table presents a summary of the statement of operations and comprehensive loss for WZ UK Ltd. for the years ended December 31, 2014 and 2015:
As of December 31, 2014 and 2015, WZ UK Ltd. had total assets of $5.6 million and $2.1 million, respectively, and total liabilities of $6.3 million and $6.7 million, respectively. In December 2014, the Company also made an aggregate investment of $15.2 million to acquire a 40% ownership interest in AppMachineBV (“AppMachine”), which is a developer of software that allows users to build mobile applications for smart devices such as phones and tablets. Under the terms of the investment agreement for AppMachine the Company is obligated to purchase the remaining 60% of AppMachine in three tranches of 20% within specified periods if AppMachine achieves a specified minimum revenue threshold within a designated timeframe. The consideration for each of the three tranches is calculated as the product of AppMachine’s revenue, as defined in the investment agreement, for the trailing twelve-month period prior to the applicable determination date times a specified multiple based upon year over year revenue growth multiplied by 20%. As of December 31, 2015 there is not a liability recorded related to the purchase obligation. Investments in which the Company’s interest is less than 20% and which are not classified as available-for-sale securities are carried at the lower of cost or net realizable value unless it is determined that the Company exercises significant influence over the investee company, in which case the equity method of accounting is used. For those investments in which the Company’s voting interest is between 20% and 50%, the equity method of accounting is used. Under this method, the investment balance, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee company, as they occur, limited to the extent of the Company’s investment in, advances to and commitments for the investee. These adjustments are reflected in equity (income) loss of unconsolidated entities, net of tax in the Company’s consolidated statements of operations and comprehensive loss. The Company recognized net income of $0.5 million, net loss of $0.1 million and net loss of $14.6 million for the years ended December 31, 2013, 2014 and 2015, respectively, related to its investments. From time to time, the Company may make new and follow-on investments and may receive distributions from investee companies. As of December 31, 2015, the Company was not obligated to fund any follow-on investments in these investee companies, other than AppMachine as described above. As of December 31, 2014, the Company did not have an equity method investment in which the Company’s proportionate share exceeded 10% of the Company’s consolidated assets or income from continuing operations. As of December 31, 2015, the Company’s proportionate share of the net losses of WZ UK Ltd. exceeded 20% of the Company’s income from continuing operations. |
Notes Payable |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable | 9. Notes Payable At December 31, 2014 and 2015 notes payable consisted of a first lien term loan facility with a principal amount outstanding of $1,036.9 million and $1,026.4 million, respectively, which bore interest at a LIBOR-based rate of 5.00%. The current portion of the first lien term loan as of December 31, 2014 and 2015 was $10.5 million in both periods. In addition, as of December 31, 2014, notes payable included a bank revolver loan (“Revolver loan”) of $50.0 million, which bore interest at a LIBOR-based rate of 7.75%. As of December 31, 2015, notes payable included a Revolver loan of $67.0 million, consisting of a loan of $59.0 million which bore interest at a LIBOR-based rate of 7.75% and a loan of $8.0 million, which bore interest at an alternate base rate of 8.50%. The amounts outstanding under the Revolver loan as of December 31, 2014 and December 31, 2015 of $50.0 million and $67.0 million respectively, were classified as current notes payable on the consolidated balance sheets. November 9, 2012—November 24, 2013 On November 9, 2012, the Company entered into the November Financing Amendment (“November 2012 Financing Amendment”) for a new first lien term loan in the original principal amount of $800.0 million (“November 2012 First Lien”), a Revolver loan facility in aggregate principal amount not to exceed $85.0 million and a new Second Lien credit agreement (“November 2012 Second Lien”), for an original principal amount of $315.0 million. In August 2013, the Company amended its November 2012 First Lien for an additional $90.0 million of incremental first lien term loan (“August 2013 First Lien”) before refinancing its debt in November 2013, as described below. The Company concluded that the November 2012 Financing Amendment was a debt extinguishment in accordance with ASC 470-50, which requires the term loans be recorded at fair value. At the time of the November 2012 Financing Amendment, the April 2012 Term Loan, as modified by the July Financing Amendment, and the Second Lien facility had balances which equaled their fair value of $668.3 million and $140.0 million, respectively, and as such all expenses paid to and on behalf of the lender were expensed. Third-party financing related costs of $1.5 million were incurred and recorded as deferred financing costs with an amortization period based on the remaining terms of the loans. The Company concluded that the August 2013 First Lien was a debt modification in accordance with ASC 470-50, and as such all third-party costs incurred to modify the debt were expensed and additional financing costs of $1.3 million were incurred and recorded as deferred financing costs with an amortization period based on the remaining term of the loan. The Company accrued interest on the LIBOR based November 2012 First Lien and November 2012 Second Lien of 7.75% and 10.25%, respectively. In addition, the Company accrued interest on LIBOR and reference-based Revolver loans of 7.75% and 8.50%, respectively. During the nine months ended September 30, 2013, the Company made mandatory repayments on the term loan facilities in an aggregate amount of $6.2 million. For the year ended December 31, 2013, amortization of $0.3 million was included in interest expense in the consolidated statements of operations and comprehensive loss related to deferred financing costs from the November 2012 Financing Amendment and the August 2013 First Lien. In connection with the August 2013 First Lien, the interest rates for the term loan and the November 2012 Revolver remained the same as under the November 2012 First Lien. Debt Refinancing—November 25, 2013 In November 2013, following its IPO, the Company repaid in full its November 2012 Second Lien of $315.0 million and increased the first lien term loan facility (“November 2013 First Lien”) by $166.2 million to $1,050.0 million, thereby reducing its overall indebtedness by $148.8 million. The Company also increased its Revolver capacity by $40.0 million to $125.0 million, none of which was drawn down at the time of the increase. The mandatory repayment of principal on the November 2013 First Lien was increased to approximately $2.6 million at the end of each quarter. During the years ended December 31, 2013, 2014 and 2015, the Company made aggregate mandatory repayments on the November 2013 First Lien of $2.6 million, $10.5 million and $10.5 million, respectively. As of December 31, 2014 and 2015 the Company had $50.0 million and $67.0 million, respectively, outstanding under the Revolver loan. There was no change to the maturity dates of the first lien facility and Revolver loan, which mature on November 9, 2019 and December 22, 2016, respectively. The Company uses the Revolver loan to assist with cash payments for acquisitions and minority investments. The Company concluded that the November 2013 First Lien was a debt extinguishment in accordance with ASC 470-50, which requires the term loans be recorded at fair value. The November 2013 First Lien modified the August 2013 First Lien and was recorded at face value which equaled fair value, and as such, all expenses paid to and on behalf of the lender were expensed. Third-party financing related costs of $0.4 million were incurred and recorded as deferred financing costs with an amortization period based on the remaining term of the loan. The loans automatically bear interest at the bank’s reference rate unless the Company gives notice to opt for LIBOR-based interest rate loans. Effective November 25, 2013, the interest rate for a LIBOR based interest loan was reduced to 4.00% plus the greater of the LIBOR rate or 1.00%. The interest rate for a reference rate loan was reduced to 3.00% per annum plus the greater of the prime rate, the federal funds effective rate plus 0.50%, an Adjusted LIBOR rate or 2.00%. There was no change to the interest rates for a Revolver loan. The interest rate for an Alternate Base Rate (“ABR”) Revolver loan is 5.25% per annum plus the greater of the prime rate, the federal funds effective rate plus 0.50%, an adjusted LIBOR rate or 2.25%. The interest rate for a LIBOR based Revolver loan is 6.25% per annum plus the greater of the LIBOR rate or 1.50%. There is also a non-refundable fee, equal to 0.50% of the daily unused principal amount of the Revolver payable in arrears on the last day of each fiscal quarter. Interest is payable on maturity of the elected interest period for a LIBOR-based interest loan, which can be one, two, three or six months. Interest is payable at the end of each fiscal quarter for a reference rate loan term loan or an ABR Revolver loan. At December 31, 2014 and 2015, notes payable consisted of the following:
The Company adopted ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. As such, the Company re-classed out of deferred financing costs the amounts of $0.4 million and $1.0 million for the periods ended December 31, 2014 and 2015, respectively, which are now presented net against notes payable-long term. These deferred financing costs are amortized over the term of the related debt agreement.
The maturity of the notes payable at December 31, 2015 is as follows:
Interest The Company recorded $98.5 million, $57.4 million and $58.8 million in interest expense for the years ended December 31, 2013, 2014 and 2015, respectively. The following table provides a summary of loan interest rates incurred and interest expense for the years ended December 31, 2013, 2014 and 2015:
Debt Covenants The November 2013 First Lien term loan facility requires that the Company comply with a financial covenant to maintain a maximum ratio of net first lien debt to EBITDA (as defined in the existing credit agreement). The November 2013 First Lien term loan facility 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. Additionally, the November 2013 First Lien term loan specifies certain events of default that could result in amounts becoming payable, in whole or in part, prior to their maturity dates. The Company was in compliance with all covenants at December 31, 2015. With the exception of certain equity interests and other excluded assets under the terms of the November 2013 First Lien term loan, substantially all of the Company’s assets are pledged as collateral for the obligations under the November 2013 First Lien term loan. |
Stockholders' Equity |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Equity [Abstract] | |
Stockholders' Equity | 10. Stockholders’ Equity Preferred Stock The Company has 5,000,000 shares of authorized preferred stock, par value $0.0001. There were no preferred shares issued or outstanding as of December 31, 2014 and 2015. Common Stock The Company has 500,000,000 shares of authorized common stock, par value $0.0001. Voting Rights All holders of common stock are entitled to one vote per share. |
Stock-Based Compensation |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | 11. Stock-Based Compensation The Company follows the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), 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. The Company uses the straight-line amortization method for recognizing stock-based compensation expense. 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 granted, the Company estimates the fair value of each restricted stock award based on the closing trading price of its common stock on the date of grant. 2012 Restricted Stock Awards Unless otherwise determined by the Company’s board of directors, stock-based awards granted prior to the IPO generally vest over a four-year period or had vesting that was dependent on the achievement of specified performance targets. The fair value of these stock-based awards was determined as of the grant date of each award using an option-pricing model and assuming no pre-vesting forfeiture of the awards. Given the absence of an active trading market for the Company’s common stock prior to the completion of its IPO, the fair value of the equity interests underlying stock-based awards was determined by the Company’s management. In doing so, valuation analyses were prepared in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, and were used by the Company’s management to assist in determining the fair value of the equity interests underlying its stock-based awards. Each equity interest was granted with a “threshold amount” meaning that the recipient of an equity security only participated to the extent that the Company appreciated in value from and after the date of grant of the equity interest (with the value of the entity as of the grant date being the “threshold amount”). The assumptions used in the valuation models were based on future expectations combined with management’s judgment. In the absence of a public trading market, the Company’s management exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of the stock-based awards as of the date of each award. These factors included:
The Company completed its IPO in October 2013, and determined that the performance targets associated with the performance-based stock awards were met in full and consequently the performance-based stock awards would be fully vested. However, effective prior to the first day of public trading of the Company’s common stock, the Company accelerated the vesting of 2,167,870 shares of common stock issued in respect of the time-based stock awards and modified the vesting of 3,574,637 shares issued in respect of the performance-based stock awards so that 2,580,271 shares of common stock were fully vested and 994,366 shares of common stock will follow the same vesting schedule as the time-based stock awards that were granted on the same date as such performance-based stock awards. The Company recognized stock-based compensation expense of approximately $1.4 million for the shares of common stock issued in respect of the performance-based stock awards that vested at closing of its IPO and $2.4 million for the acceleration of vesting for a portion of the shares of common stock issued in respect of previously unvested time-based stock awards. Total stock-based compensation expense recognized for the time-based vesting stock awards was $6.5 million for the year ended December 31, 2013. Total stock-based compensation expense recognized for the performance-based stock awards was $1.4 million for the year ended December 31, 2013, since the performance targets necessary for the performance-based stock awards were met prior to their expiration. The Company will recognize a recovery of expense if the actual forfeiture rate for the time-based stock awards is higher than estimated. The following tables present a summary of the 2012 restricted stock awards activity for the year ended December 31, 2015 for restricted stock awards that were granted prior to the Company’s IPO:
In connection with the IPO the Company granted restricted stock units under the prior equity plan. The following table provides a summary of the restricted stock units that were granted in connection with the IPO under this plan and the non-vested balance as of December 31, 2015:
2013 Stock Incentive Plan The 2013 Stock Incentive Plan (the “2013 Plan”) of the Company became effective upon the closing of our IPO. The 2013 Plan of the Company 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 advisors of the Company. Under the 2013 Plan, the Company may issue up to 18,000,000 shares of the Company’s common stock. At December 31, 2015, 5,119,592 shares were available for grant under the 2013 Plan. For stock options issued under the 2013 Plan, the fair value of each option is estimated on the date of grant, and an estimated forfeiture rate is used when calculating stock-based compensation expense for the period. Unless otherwise approved by the Company’s board of directors, stock options typically vest over four years and the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards and determine the related compensation expense. The weighted-average assumptions used to compute stock-based compensation expense for awards granted under the 2013 Stock Incentive Plan during the years ended December 31, 2013, 2014 and 2015 are as follows:
The risk-free interest rate assumption was based on the U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The Company bases its estimate of expected volatility using volatility data from comparable public companies in similar industries and markets because there is currently limited public history for the Company’s common stock, and therefore, a lack of market-based company-specific historical and implied volatility information. The weighted-average expected life for employee options reflects the application of the simplified method, which represents the average of the contractual term of the options and the weighted-average vesting period for all option tranches. The simplified method has been used since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to a limited history of stock option grants. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. In addition, the Company has estimated expected forfeitures of stock options based on management’s judgment due to the limited historical experience of forfeitures. The forfeiture rate was not material to the calculation of stock-based compensation expense.
The following table provides a summary of the Company’s stock options as of December 31, 2015 and the stock option activity for all stock options granted under the 2013 Plan during the year ended December 31, 2015 (dollars in thousands except exercise price):
Unless otherwise determined by the Company’s board of directors, restricted stock awards granted under the 2013 Plan generally vest annually over a four-year period. Performance-based restricted stock awards are earned based on the achievement of performance criteria established by the Company’s Compensation Committee and Board of Directors. The performance criteria are weighted and have threshold, target and maximum performance goals. The following table provides a summary of the Company’s restricted stock award activity for the 2013 Plan during the year ended December 31, 2015:
The performance-based award granted to the Company’s chief executive officer during the year ended December 31, 2015 provides an opportunity for the participant to earn a fully vested right to up to 3,693,754 shares of the Company’s common stock (collectively, the “Award Shares”) over a three-year period beginning July 1, 2015 and ending on June 30, 2018 (the “Performance Period”). Award shares may be earned based on the Company achieving pre-established, threshold, target and maximum performance metrics.
Award Shares may be earned during each calendar quarter during the Performance Period (each, a “Performance Quarter”) if the Company achieves a threshold, target or maximum level of the performance metric for the Performance Quarter. If the performance metric is less than the threshold level for a Performance Quarter, no Award Shares will be earned during the Performance Quarter. Award Shares that were not earned during a Performance Quarter may be earned later during the then current twelve-month period from July 1st to June 30th during the Performance Period (each, a “Performance Year”) at a threshold, target or maximum level of the performance metric for the Performance Year. No Award Shares were earned for the Performance Quarter ending September 30, 2015 because the threshold level for the performance metric was not met. Approximately 195,881 Award Shares were earned for the Performance Quarter ending December 31, 2015 because the target level for the performance metric was met. This performance-based award is evaluated quarterly to determine the probability of its vesting and determine the amount of stock-based compensation to be recognized. During the year ended December 31, 2015 the Company recognized $5.9 million of stock-based compensation expense related to the performance-based award. Unless otherwise determined by the Company’s board of directors, restricted stock units granted under the 2013 Plan generally vest monthly over a four-year period. The following table provides a summary of the Company’s restricted stock unit activity for the 2013 Plan during the year ended December 31, 2015:
All Plans The following table presents total stock-based compensation expense recorded in the consolidated statement of operations and comprehensive loss for all 2012 restricted stock awards and units issued prior to the Company’s IPO in October 2013 and all awards granted under the 2013 Plan in connection with or subsequent to the IPO:
As of December 31, 2015 the Company has approximately $30.1 million of unrecognized stock-based compensation expense related to option awards that will be recognized over 2.5 years and approximately $47.4 million of unrecognized stock-based compensation expense related to restricted stock awards to be recognized that will also be recognized over 2.5 years. |
Accumulated Other Comprehensive Income (Loss) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss) | 12. Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive loss, net of tax were as follows:
|
Redeemable Non-Controlling Interest |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Noncontrolling Interest [Abstract] | |
Redeemable Non-Controlling Interest | 13. Redeemable Non-Controlling Interest In connection with a 2013 equity investment in JDI Backup Ltd., where the Company acquired a controlling interest, the agreement provided for a put option for the then non-controlling interest (“NCI”) shareholders to put the remaining equity interest to the Company within pre-specified put periods. As the NCI was subject to a put option that was outside the control of the Company, it was deemed a redeemable non-controlling interest and not recorded in permanent equity, and was presented as mezzanine redeemable non-controlling interest on the consolidated balance sheet, and was subject to the guidance of the Securities and Exchange Commission (“SEC”) under ASC 480-10-S99, Accounting for Redeemable Equity Securities. The difference between the $20.8 million initial fair value of the redeemable non-controlling interest and the value that was expected to be paid upon exercise of the put option was being accreted over the period commencing December 11, 2013 and up to the end of the first put option period, which commenced on the 18-month anniversary of the acquisition date. Adjustments to the carrying amount of the redeemable non-controlling interest were charged to additional paid-in capital. Non-controlling interest arising from the application of the consolidation rules was classified within total stockholders’ equity with any adjustments charged to net loss attributable to non-controlling interest in a consolidated subsidiary in the consolidated statement of operations and comprehensive loss. During the year ended December 31, 2014, the Company paid $4.2 million to increase its investment in JDI Backup Ltd. and entered into an amendment to the put option with the NCI shareholders. During the year ended December 31, 2014, due to the Company’s assessment of the financial performance and forecasted profitability of JDI Backup Ltd., the Company changed its estimate of the expected exercise amount of the put option. The change in estimate resulted in the fair value of the put option increasing to $30.5 million as of December 31, 2014. On January 13, 2015, the Company entered into an agreement to acquire the remaining interests owned by the NCI shareholders for $30.5 million, which was originally payable in three equal installments on January 13, 2015, June 15, 2015 and September 15, 2015. During the year ended December 31, 2015, the Company entered into amendments to change the dates of the second installment from June 15, 2015 to April 10, 2015 and the date of the third installment from September 15, 2015 to July 2, 2015. The Company will continue to consolidate JDI Backup Ltd. for financial reporting purposes, however, because the Company now owns 100% of JDI Backup Ltd., commencing on January 13, 2015, the Company no longer records a non-controlling interest in the consolidated statement of operations and comprehensive loss. |
Income Taxes |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | 14. Income Taxes The Company accounts for income taxes in accordance with authoritative guidance, which requires the use of the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply in the years in which the differences are expected to be reversed. The domestic and foreign components of income (loss) before income taxes for the periods presented:
The components of the provision (benefit) for income taxes consisted of the following:
During 2013, the Company’s net deferred tax liability was eliminated due mainly to a reduction in a deferred liability related to definite-lived intangibles and for current period losses resulting in an increase to offsetting deferred tax assets. On December 22, 2011, the Company was acquired by Holdings. The Company recorded its intangible assets at fair value as a result of the acquisition. For U.S. GAAP purposes the definite-lived intangible assets have accelerated amortization, while for tax purposes the intangible assets maintained their historical basis and lives. As such, a deferred tax liability was established through purchase accounting. The reversal of the 2012 deferred tax liability in 2013 resulted in a deferred tax benefit in 2013. The Company established a valuation allowance on substantially all of their deferred tax assets during the year ended December 31, 2013. The benefit had been reduced after the establishment of the valuation allowance by the deferred tax expense associated with the tax amortization of assets that have an indefinite life for U.S. GAAP purposes. The state income tax is primarily driven by states who tax the Company based on a gross margin tax. The Company also has subsidiaries in Brazil and India that are generating taxable income and are driving the current foreign tax.
The following table presents a reconciliation of the statutory federal rate, and the Company’s effective tax rate, for the periods presented:
The provision (benefit) for income taxes shown on the consolidated statements of operations differs from amounts that would result from applying the statutory tax rates to income before taxes primarily because of state income taxes, the impact of changes in state apportionment, jurisdiction mix of earnings, nondeductible expenses, as well as the application of valuation allowances against U.S. and foreign assets. The significant components of the Company’s deferred income tax assets and liabilities are as follows:
The Company conducts business globally and, as a result, its subsidiaries file income tax returns in U.S. federal and state jurisdictions and various foreign jurisdictions. In the normal course of business, the Company may be subject to examination by taxing authorities throughout the world, including such major jurisdictions as Brazil, India, the United Kingdom and the United States.
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, the Company 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. The Company is currently under audit in India for fiscal year ended March 31, 2015 and Israel for the fiscal years ended December 31, 2012, 2013 and 2014. The statute of limitations in the Company’s other tax jurisdictions remains open for various periods between 2011 and the present. However, carryforward attributes from prior years may still be adjusted upon examination by tax authorities if they are used in an open period. 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 no unrecognized tax positions at December 31, 2014 and December 31, 2015 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. The Company regularly assesses 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:
For the year ended December 31, 2015, the Company is in a pre-tax book income position. For the year ended December 31, 2015, the Company was in a cumulative pre-tax book loss position for the preceding three years. The Company has generated significant NOLs since inception, and as such, it has no U.S. loss carryback capacity. In addition, the Company has a history of expiring state NOLs. The Company scheduled out the future reversals of existing deferred tax assets and liabilities and concluded that these reversals did not generate sufficient future taxable income to offset the existing net operating losses. After consideration of the available evidence, both positive and negative, the Company has recorded a valuation allowance of $75.7 million as of December 31, 2015. This provision for income taxes results from a combination of the activities of the Company’s domestic and foreign subsidiaries. For the years ended December 31, 2013, 2014 and 2015, the Company has recognized a tax expense (benefit) of $(3.6) million, $6.2 million and $11.3 million, respectively, in the consolidated statements of operations and comprehensive loss. The income tax expense for the year ended December 31, 2015 is primarily attributable to a provision for federal and state current income taxes of $2.5 million, foreign current tax expense of $1.7 million, federal and state deferred tax expense of $0.8 million and attributable to a $7.1 million increase in the valuation allowance, partially offset by a foreign deferred benefit of $0.8 million related to the reductions of deferred liabilities created in purchase accounting. The income tax expense for the year ended December 31, 2014 was primarily attributable to a provision for foreign taxes of $1.8 million, U.S. alternative minimum taxes of $0.5 million and $0.2 million of state taxes. The remaining balance of $3.6 million for the year ended December 31, 2014 was primarily attributable to an increase in U.S. deferred tax liabilities due to the differences in the accounting treatment of goodwill under U.S. GAAP and the tax accounting treatment for goodwill of $5.8 million of U.S. federal and state deferred taxes, partially offset by a foreign deferred benefit of $2.2 million related to the reductions of deferred liabilities created in purchase accounting. As of December 31, 2015, the Company had NOL carry-forwards available to offset future U.S. federal taxable income of approximately $97.8 million and future state taxable income of approximately $111.2 million. These NOL carry-forwards expire on various dates through 2034. Approximately $1.6 million of the U.S. federal NOL carry-forwards and $0.7 million of the state NOL carry-forwards are from excess stock-based compensation, for which the benefit will be recorded to additional paid-in capital when recognized. As of December 31, 2015, the Company had NOL carry-forwards in foreign jurisdictions available to offset future foreign taxable income by approximately $27.4 million. The Company has loss carry-forwards in India totaling $2.9 million that expire in 2021. The Company also has loss carry-forwards in the United Kingdom, Israel and Singapore of $23.4 million, $0.9 million, and $0.2 million, respectively, which have an indefinite carry-forward period. Utilization of the NOL carry-forwards may be subject to an annual limitation due to the ownership percentage change limitations under Section 382 of the Internal Revenue Code (“Section 382 limitation”). Ownership changes can limit the amount of net operating loss and other tax attributes that a company can use each year to offset future taxable income and taxes payable. In connection with a change in control in 2011 the Company was subject to Section 382 annual limitations of $77.1 million against the balance of NOL carry-forwards generated prior to the change in control in 2011. Through December 31, 2013 the Company accumulated the unused amount of Section 382 limitations in excess of the amount of NOL carry-forwards that were originally subject to limitation. Therefore, these unused NOL carry-forwards are available for future use to offset taxable income. The Company has completed an analysis of changes in its ownership from 2011, through its IPO, to December 31, 2013. The Company concluded that there was not a Section 382 ownership change during this period and therefore any NOLs generated through December 31, 2013, are not subject to any new Section 382 annual limitations on NOL carry-forwards. On November 20, 2014, the Company completed a follow-on offering of 13,000,000 shares of common stock. The underwriters also exercised their overallotment option to purchase an additional 1,950,000 shares of common stock from the selling stockholders. The Company performed an analysis of the impact of this offering and determined that no Section 382 change in ownership had occurred. On March 11, 2015, the Company closed a follow-on offering of its common stock, in which selling stockholders sold 12,000,000 shares of common stock at a public offering price of $19.00 per share. The underwriter also exercised its overallotment option to purchase an additional 1,800,000 shares of common stock from the selling stockholders. The Company is currently completing an analysis of its ownership changes from March 2015 through December 31, 2015, but does not believe the outcome of this analysis will result in an additional ownership change based on the information available at this time. As a result, all unused NOL carry-forwards at December 31, 2015 are available for future use to offset taxable income. Permanent Reinvestment of Foreign Earnings The Company considers the operating earnings of its non-United States subsidiaries to be indefinitely invested outside the United States under ASC 740-30 based on estimates that future and domestic cash generation will be sufficient to meet future domestic cash needs. The Company has three cumulatively profitable foreign jurisdictions, Brazil, India and U.A.E., which have generated approximately $7.3 million of profits outside of the United States. If the Company were to repatriate these cumulative profits, there would be sufficient United States net operating losses to offset the tax impact of the repatriation. If the Company decides to repatriate foreign earnings, the Company would have to adjust the income tax provision in the period it determines that the earnings will no longer be indefinitely vested outside the United States. In 2015, the Company provided taxes for royalty fees paid to its U.A.E. subsidiary as Subpart F income subject to taxation under the U.S. Internal Revenue Code.
Except for Subpart F income, the Company has not provided taxes for the remaining $7.3 million of undistributed earnings of its foreign subsidiaries because we plan to keep these amounts permanently reinvested overseas except for instances where we can remit such earnings to the U.S. without an associated net tax cost. If the Company decides to repatriate the foreign earnings, it would need to adjust its income tax provision in the period it determines that the earnings will no longer be indefinitely invested outside the United States. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practicable to determine the unrecognized deferred tax liability relating to such amounts. |
Severance and Other Exit Costs |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Severance and Other Exit Costs | 15. Severance and Other Exit Costs In connection with acquisitions, the Company may evaluate its data center, sales and marketing, support and engineering operations and the general and administrative function in an effort to eliminate redundant costs. As a result, the Company may incur charges for employee severance, exiting facilities and restructuring data center commitments and other related costs. During the year ended December 31, 2014, the Company implemented plans to further integrate and consolidate its data center, support and engineering operations, resulting in severance and facility exit costs. The severance charges were associated with eliminating approximately 90 positions across primarily support, engineering operations and sales and marketing. The Company incurred severance costs of $2.3 million in the year ended December 31, 2014 related to these restructuring activities. The employee-related charges associated with these restructurings were completed during the year ended December 31, 2014. As of December 31, 2015, the Company did not have any remaining accrued employee-severance related to these severance costs. The Company had incurred facility costs associated with closing offices in Redwood City, California and Englewood, Colorado. At the time of closing these offices, the Company had remaining lease obligations of approximately $3.0 million for these vacated facilities through March 31, 2018. The Company recorded a facilities charge for these future lease payments, less expected sublease income, of $2.1 million during the year ended December 31, 2014. During the year ended December 31, 2015, the Company recorded an adjustment of $0.6 million as a result of entering an agreement for an early buyout of the lease agreement for the Englewood, Colorado facility. The following table provides a summary of the activity for the year ended December 31, 2015 related to the Company’s facilities exit costs accrual:
During the year ended December 31, 2015, the Company implemented plans to enhance operational efficiencies across the business, resulting in severance costs (the “2015 Restructuring Plan”). The severance charges were associated with eliminating approximately 67 positions across the business. The Company incurred severance costs of $2.1 million during the year ended December 31, 2015 related to these restructuring activities. The Company completed employee-related charges associated with these restructurings during the year ended December 31, 2015. The Company has paid $0.9 million of severance costs during the year ended December 31, 2015 and accrued a severance liability of $1.2 million as of December 31, 2015. The Company expects payments to be completed during the year ended December 31, 2016 related to the 2015 Restructuring Plan.
The following table provides a summary of the activity for the year ended December 31, 2015 related to the Company’s 2015 Restructuring Plan severance accrual:
The following table presents severance charges recorded in the consolidated statement of operations and comprehensive loss for the periods presented:
|
Commitments and Contingencies |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | 16. Commitments and Contingencies Operating Leases The Company has operating lease commitments for certain facilities and equipment that expire on various dates through 2026. The following table outlines future minimum annual rental payments under these leases at December 31, 2015:
Total net rent expense incurred under non-cancellable operating leases for the years ended December 31, 2013, 2014 and 2015, were $8.9 million, $9.8 million and $8.2 million, respectively. Total sublease income for the year ended December 31, 2015 was $0.2 million. 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 a party to any legal proceedings that in the opinion of management, if determined adversely to the Company, would have a material adverse effect on its business, financial condition, operating results or cash flow. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
On May 4, 2015, Christopher Machado, a purported holder of the Company’s stock, filed a civil action in the United States District Court for the District of Massachusetts against the Company and its chief executive officer and former chief financial officer, Machado v. Endurance International Group Holdings, Inc., et al, Civil Action No. 1:15-cv-11775-GAO. The plaintiff filed an amended complaint on December 8, 2015 and the plaintiff has recently been given leave to file a second amended the complaint, which will supersede the current complaint. The Company received a subpoena dated December 10, 2015 from the Boston Regional Office of the SEC, requiring the production of certain documents, including, among other things, documents related to our financial reporting, including operating and non-GAAP metrics, refund, sales and marketing practices and transactions with related parties. The Company is fully cooperating with the SEC’s investigation, which is still in its preliminary stages. The Company can make no assurances as to the time or resources that will need to be devoted to this investigation or the final outcome, or the impact, if any, of this investigation on its business, financial condition, results of operations and cash flows. Constant Contact On October 30, 2015, the Company entered into a definitive agreement pursuant to which it agreed to acquire all of the outstanding shares of common stock of Constant Contact. The acquisition closed on February 9, 2016. Constant Contact contingencies are noted below. On December 10, 2015, Constant Contact received a subpoena from the Boston Regional Office of the SEC, requiring the production of documents pertaining to Constant Contact’s sales, marketing, and customer retention practices, and periodic public disclosure of financial and operating metrics. The Company is fully cooperating with the SEC’s investigation. The Company can make no assurances as to the time or resources that will need to be devoted to this investigation or its final outcome, or the impact, if any, of this investigation or any related legal or regulatory proceedings on the Company’s business, financial condition, results of operations and cash flows. On August 7, 2015, a purported class action lawsuit, William McGee v. Constant Contact, Inc., et al, was filed in the United States District Court for the District of Massachusetts against Constant Contact and two of its former officers. The lawsuit asserts claims under Sections 10(b) and 20(a) of the Exchange Act, and is premised on allegedly false and/or misleading statements, and non-disclosure of material facts, regarding Constant Contact’s business, operations, prospects and performance during the proposed class period of October 23, 2014 to July 23, 2015. This litigation is in its very early stages. The Company and the individual defendants intend to vigorously defend all claims asserted. The Company cannot, however, make any assurances as to the outcome of this proceeding. In September 2012, RPost Holdings, Inc., RPost Communications Limited and RMail Limited, or collectively, RPost, filed a complaint in the United States District Court for the Eastern District of Texas that named Constant Contact as a defendant in a lawsuit. The complaint alleged that certain elements of Constant Contact’s email marketing technology infringe five patents held by RPost. RPost seeks an award for damages in an unspecified amount and injunctive relief. In February 2013, RPost amended its complaint to name five of Constant Contact’s marketing partners as defendants. Under Constant Contact’s contractual agreements with these marketing partners, it is obligated to indemnify them for claims related to patent infringement. Constant Contact filed a motion to sever and stay the claims against its partners and multiple motions to dismiss the claims against it. In January 2014, the case was stayed pending the resolution of certain state court and bankruptcy actions involving RPost, to which Constant Contact is not a party. The stay was extended by agreement of the parties in December 2014. This litigation is in its very early stages. The Company believes it has meritorious defenses to any claim of infringement and intends to defend against the lawsuit vigorously. On December 11, 2015, a putative class action lawsuit relating to the Constant Contact acquisition, captioned Irfan Chawdry, Individually and On Behalf of All Others Similarly Situated v. Gail Goodman, et al. Case No. 11797, or the Chawdry Complaint, and on December 21, 2015, a putative class action lawsuit relating to the acquisition captioned David V. Myers, Individually and On Behalf of All Others Similarly Situated v. Gail Goodman, et al. Case No. 11828, or the Myers Complaint (together with the Chawdry Complaint, the Complaints) filed in the Court of Chancery of the State of Delaware naming Constant Contact, each of Constant Contact’s directors, Endurance and Paintbrush Acquisition Corporation as defendants. The Complaints generally allege, among other things, that in connection with the acquisition the directors of Constant Contact breached their fiduciary duties owed to the stockholders of Constant Contact by agreeing to sell Constant Contact for purportedly inadequate consideration, engaging in a flawed sales process, omitting material information necessary for stockholders to make an informed vote, and agreeing to a number of purportedly preclusive deal protection devices. The Complaints seek, among other things, to rescind the acquisition, as well as award of plaintiffs’ attorneys’ fees and costs in the action. The defendants have not yet answered or otherwise responded to either of these Complaints. The defendants believe the claims asserted in the Complaints are without merit and intend to defend against these lawsuits vigorously. |
Employee Benefit Plans |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Compensation and Retirement Disclosure [Abstract] | |
Employee Benefit Plans | 17. Employee Benefit Plans The Company has a defined contribution plan established under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”), which covers substantially all employees. Employees are eligible to participate in the 401(k) Plan beginning on the first day of the month following commencement of their employment. The 401(k) Plan includes a salary deferral arrangement pursuant to which participants may elect to reduce their current compensation by up to the statutorily prescribed limit, equal to $18,000 in 2015, and have the amount of the reduction contributed to the 401(k) Plan. Beginning January 1, 2013, the Company matched 100% of each participant’s annual contribution to the 401(k) plan up to 3% of the participant’s salary and then 50% of each participant’s contribution up to 2% of each participant’s salary. The match immediately vests 100%. Matching contributions by the Company to the 401(k) Plan related to the 2013, 2014 and 2015 plan years were approximately $1.2 million, $2.2 million and $2.5 million, respectively. In connection with an acquisition in 2011, the Company assumed a defined contribution plan established under Section 401(k) of the Internal Revenue Code (the “Dotster 401(k) Plan”), in which employees were eligible to participate upon the date of hire. Under the Dotster 401(k) Plan, the Company matched 100% of each participant’s annual contribution to the Dotster 401(k) Plan up to 3% of each participant’s salary and then 50% of each participant’s annual contribution to the Dotster 401(k) Plan up to 2% of each participant’s salary. The match immediately vested 100%. A matching contribution by the Company related to the 2013 plan year in the amount of $0.4 million was made to the Dotster 401(k) Plan. The Dotster 401(k) plan merged with the Company’s 401(k) plan during the year ended December 31, 2014. In connection with the HostGator acquisition in 2012, the Company assumed a defined contribution plan established under Section 401(k) of the Internal Revenue Code (the “HostGator 401(k) Plan”), in which employees were eligible to participate on the date of hire. Under the HostGator 401(k) Plan, the Company matched 25% of each participant’s annual contribution up to 4% of each participant’s salary, vesting 100% after three years of service. A matching contribution by the Company related to the 2013 plan year in the amount of $0.1 million was made to the HostGator 401(k) Plan. The HostGator 401(k) plan merged with the Company’s 401(k) plan during the year ended December 31, 2014. |
Related Party Transactions |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions | 18. Related Party Transactions The Company has various agreements in place with related parties. Below are details of related party transactions that occurred during the years ended December 31, 2013, 2014 and 2015. Tregaron: The Company has contracts with Tregaron India Holdings, LLC and its affiliates, including Diya Systems (Mangalore) Private Limited, Glowtouch Technologies Pvt. Ltd. and Touchweb Designs, LLC, (collectively, “Tregaron”), for outsourced services, including email- and chat-based customer and technical support, network monitoring, engineering and development support and web design and web building services. These entities are owned directly or indirectly by family members of the Company’s chief executive officer, who is also a director and stockholder of the Company. During 2013 the Company expanded the services provided by Tregaron under the agreements to include support of a newly formed entity in India related to our acquisition of HostGator India. The Company inadvertently excluded the support of this Indian entity from its related party disclosures for 2013. The amount previously reported as expense for the Tregaron services for the year ended December 31, 2013 was $7.3 million, which is revised in providing prior period comparative amounts in the footnotes to the consolidated financial statements for the year ended December 31, 2015 to $8.6 million. In addition, the Company has revised amounts reported in the related party disclosures for the quarterly periods during 2014. The full year amounts for Tregaron for 2014 were correctly reported. The following table includes the revised amounts of related party transactions recorded in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2013, 2014 and 2015 relating to services provided by Tregaron and its affiliates under these agreements:
The amounts reflected in the consolidated statement of operations and comprehensive loss, consolidated balance sheet and consolidated statement of cash flows for the Tregaron services for all periods during 2013, 2014 and 2015 were correctly reflected and do not require revision. As of December 31, 2014, and 2015 approximately $1.4 million and $1.9 million, respectively, was included in accounts payable and accrued expense relating to services provided by Tregaron. Innovative Business Services, LLC: The Company also has agreements with Innovative Business Services, LLC, (“IBS”), which provides multi-layered third-party security applications that are sold by the Company. IBS is indirectly majority owned by the Company’s chief executive officer and a director of the Company, each of whom are also stockholders of the Company. During the year ended December 31, 2014, the Company’s principal agreement with this entity was amended which resulted in the accounting treatment of expenses being recorded against revenue. During 2013 the Company expanded the services provided by IBS under the agreements across all of its entities. The Company inadvertently excluded the expenses related to the expanded relationship with IBS from related party disclosures for 2013 and 2014. For the year ended December 31, 2013, the Company previously reported cost of services related to the IBS services of $3.0 million, which is revised to $3.9 million in providing prior period comparative amounts in the footnote to the consolidated financial statements for the year ended December 31, 2015.
In addition, the Company has revised amounts reported in certain quarterly periods and the annual period during 2014. The following table includes the revised amounts of related party transactions recorded in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2013, 2014 and 2015 relating to services provided by IBS under these agreements:
For the year ended December 31, 2014, the Company previously reported net expenses related to the IBS services of $5.4 million, which is revised to $4.8 million, in providing prior period comparative amounts in the footnotes to the consolidated financial statements for the year ended December 31, 2015. The amounts reflected in the consolidated statement of operations and comprehensive loss, consolidated balance sheet and consolidated statement of cash flows for the IBS services for all periods during 2013 and 2014 were correctly reflected and do not require revision. As of December 31, 2014 and 2015, approximately $0.2 million and $0.2 million, respectively, was included in prepaid expenses and other current assets relating to the Company’s agreements with IBS. As of December 31, 2014 and 2015, approximately $0.9 million and $1.1 million, respectively was included in accounts payable and accrued expense relating to the Company’s agreements with IBS. As of December 31, 2014 and 2015, approximately $0.1 million and $0.3 million, respectively, was included in accounts receivable relating to the Company’s agreements with IBS. The Company entered into a three-year interest rate cap on December 9, 2015 with a subsidiary of Goldman Sachs. Goldman Sachs is a significant shareholder of the Company. For more detail refer to Note 5 in the consolidated financial statements. |
Supplemental Guarantor Financial Information |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Financial Information of Parent Company Only Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Guarantor Financial Information | 19. Supplemental guarantor financial information In February 2016, EIG Investors Corp., a wholly-owned subsidiary of the Company (the “Issuer”), issued $350.0 million aggregate principal amount of its 10.875% Senior Notes due 2024 (the “Original Notes”) (refer to Note 9 in the consolidated financial statements), which it expects to exchange for new 10.875% Senior Notes due 2024 (the “Exchange Notes” and together with the Original Notes, collectively, the “Notes”) pursuant to a registration statement on Form S-4. The Notes are, or will be, fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company, and the following wholly-owned subsidiaries: The Endurance International Group, Inc., Bluehost Inc., FastDomain Inc., Domain Name Holding Company, Inc., Endurance International Group – West, Inc., HostGator.com LLC and A Small Orange, LLC (collectively, the “Subsidiary Guarantors”), subject to certain customary guarantor release conditions. The Company’s other domestic subsidiaries and its foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) have not guaranteed the Notes. The following tables present supplemental condensed consolidating balance sheet information of the Company (“Parent”), the Issuer, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of December 31, 2014 and December 31, 2015, and supplemental condensed consolidating results of operations and cash flow information for each of the years ended December 31, 2013, 2014 and 2015.
Condensed Consolidating Balance Sheets December 31, 2014
Condensed Consolidating Balance Sheets December 31, 2015
Condensed Consolidating Statements of Operations and Comprehensive Loss Year Ended December 31, 2013
Condensed Statements of Operations and Comprehensive Loss Year Ended December 31, 2014
Condensed Consolidating Statements of Operations and Comprehensive Loss Year Ended December 31, 2015
Condensed Consolidating Statements of Cash Flows Year Ended December 31, 2013
Condensed Consolidating Statements of Cash Flows Year Ended December 31, 2014
Condensed Consolidating Statements of Cash Flows Year Ended December 31, 2015
|
Subsequent Events |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Subsequent Events [Abstract] | |
Subsequent Events | 20. Subsequent Events With respect to the consolidated financial statements as of and for the year ended December 31, 2015, the Company performed an evaluation of subsequent events through the date of this filing. On January 6, 2016, the Company exercised an option to increase its stake in WZ UK Ltd., a provider of technology and sales marketing services associated with web builder solutions, from 49% to 57.5%, in exchange for a payment of approximately $2.1 million to the other shareholders of WZ UK Ltd. After certain performance milestones are met, the Company has an option to purchase, and the other shareholders of WZ UK Ltd. have an option to sell to the Company within three years, the remaining shares of WZ UK Ltd. at a per-share price to be determined based on a multiple of revenue. On October 30, 2015, the Company entered into a definitive agreement pursuant to which it agreed to acquire all of the outstanding shares of common stock of Constant Contact for $32.00 per share in cash, for a total purchase price of approximately $1.1 billion. Constant Contact is a leading provider of online marketing tools that are designed for small organizations, including small businesses, associations and non-profits. The acquisition closed on February 9, 2016.
The purchase price of $1.1 billion is being allocated on a preliminary basis to intangible assets consisting of subscriber relationships, developed technology and trade names of $267.0 million, $88.0 million and $36.0 million, respectively, goodwill of $556.6 million, property and equipment of $32.0 million, working capital of $172.0 million and other assets of $0.3 million, offset by deferred revenue of $39.8 million. In connection with and concurrently with the acquisition, the Company entered into a $735.0 million incremental first lien term loan facility and a $165.0 million revolving credit facility (which replaced its existing $125.0 million revolving credit facility) and issued $350.0 million of 10.875% senior notes due 2024. The following unaudited information is as if the Constant Contact acquisition was as of January 1, 2014. The unaudited pro forma results are not necessarily indicative of the actual results that would have occurred had the transaction actually taken place at the beginning of the period indicated. Unaudited pro forma revenue for the years ended December 31, 2014 and 2015 is $960.9 million and $1,105.3 million, respectively. Unaudited pro forma net loss for the years ended December 31, 2014 and 2015 is $135.0 million and $113.0 million, respectively. The unaudited pro forma net loss includes adjustments for additional interest expense related to the debt incurred in connection with the acquisition of Constant Contact. |
Geographic and Other Information |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Text Block [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Geographic and Other Information | 21. Geographic and Other Information Revenue, classified by the major geographic areas in which our customers are located, was as follows:
The following table presents the amount of tangible long-lived assets by geographic area:
The Company’s revenues are generated primarily from products and services delivered on a subscription basis, which include web hosting, domains, website builders, search engine marketing and other similar services. The Company also generates non-subscription revenues through domain monetization and marketing development funds. Non-subscription revenues increased from $28.3 million, or 4% of total revenue for the year ended December 31, 2014 to $52.6 million, or 7% of revenue for the year ended December 31, 2015. The increase in non-subscription revenues is primarily due to the acquisitions of Directi and BuyDomains. |
Quarterly Financial Data (unaudited) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Data (unaudited) | 22. Quarterly Financial Data (unaudited) The following table presents the Company’s unaudited quarterly financial data:
|
Summary of Significant Accounting Policies (Policies) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Preparation | Basis of Preparation The accompanying consolidated financial statements, which include the accounts of the Company and its subsidiaries, have been prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions have been eliminated on consolidation. The Company has reviewed the criteria of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280-10, Segment Reporting, and determined that the Company is comprised of only one segment for reporting purposes. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Use of Estimates | 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. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Equivalents | 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 Restricted cash is composed of certificates of deposits and cash held by merchant banks and payment processors, which provide collateral against any charge-backs, fees, or other items that may be charged back to the Company by credit card companies and other merchants. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Receivable | Accounts Receivable Accounts receivable is primarily composed of cash due from credit card companies for unsettled transactions charged to subscribers’ 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 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 | 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 carrying amount of the Company’s contingent consideration is recorded at fair value. 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 approximate their carrying value. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities FASB ASC 815, Derivatives and Hedging (“ASC 815”), 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 risk, 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 ASU 2011-04, 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. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Concentrations of Credit and Other Risks | Concentrations of Credit and Other Risks Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash and cash equivalents are maintained at accredited financial institutions, and PayPal balances are at times without and in excess of federally insured limits. The Company has never experienced any losses related to these balances and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. For the years ended December 31, 2013, 2014 and 2015, no subscriber represented 10% or more of the Company’s total revenue. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment | Property and Equipment Property and equipment is recorded at cost or fair value if 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 capital lease 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:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Software Development Costs | Software Development Costs The Company accounts for software development costs for internal use software under the provisions of 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 years ended December 31, 2013, 2014 and 2015, the Company capitalized internal-use software development costs of $1.2 million, $5.4 million and $5.5 million, respectively. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Investments The Company has minority investments in several privately-held companies. Investments in privately-held companies, in which the Company has a voting interest between 20% and 50% and exercises significant influence are accounted for using the equity method of accounting. Under this method, the investment balance, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee company as they occur, limited to the extent of the Company’s investment in, advances to and commitments for the investee. The Company’s share of net earnings or losses of the investee are reflected in equity losses of unconsolidated entities, net of tax, in the Company’s accompanying consolidated statements of operations. Investments in which the Company has a voting interest of less than 20% and over which it does not have significant influence are accounted for under the cost method of accounting. The Company assesses the need to record impairment losses on its investments and records such losses when the impairment of an investment is determined to be other than temporary in nature. On October 31, 2013 the Company reduced its 50% voting interest in one of the minority investments to 40% and recorded a $2.6 million impairment charge (see Note 8). |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | 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 business, a significant adverse change in certain 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, the 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 ASC 350, Intangibles—Goodwill and Other, or ASC 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 has determined it operates in one segment and its entire business represents one reporting unit. Historically, the Company has performed its annual impairment analysis during the fourth quarter of each year. The provisions of ASC 350 require that a two-step impairment test be performed for goodwill. In the first step, the Company compares the fair value of its reporting unit to which goodwill has been allocated to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference. The Company assesses fair value based on current market capitalization. As of December 31, 2014 and, 2015, the fair value of the Company’s reporting unit exceeded the carrying value of the reporting unit’s net assets. Therefore, no impairment existed as of those dates. Determining the fair value of a reporting unit, if applicable, requires the Company to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions relate to, among other things, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. The Company bases its fair value estimates on assumptions it believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. The Company had goodwill of $1,105.0 million and $1,207.3 million as of December 31, 2014 and 2015, respectively, and no impairment charges have been recorded. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Lived Assets | Long-Lived Assets The Company’s long-lived assets consist primarily of intangible assets, including acquired subscriber relationships, trade names, intellectual property, developed technology, domain names available for sale and in-process research and development (“IPR&D”). 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 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. No such impairment losses have been identified for the years ended December 31, 2013, 2014 and 2015. Indefinite life intangible assets include domain names that are available for sale which are recorded at 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. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquired In-Process Research and Development (IPR&D) | Acquired In-Process Research and Development (IPR&D) Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires that have not been completed at the date of acquisition. The acquired IPR&D is capitalized as an intangible asset and reviewed on a quarterly basis to determine future use. Any impairment loss of the acquired IPR&D is charged to expense in the period the impairment is identified. No such impairment losses have been identified for the years ended December 31, 2013, 2014 and 2015. Upon commercialization, the acquired fair value of the IPR&D will be amortized over its estimated useful life. During 2014 the Company capitalized $4.6 million of IPR&D in connection with its acquisition of WebZai, Ltd. (“Webzai”). During the year ended December 31, 2015 $3.2 million was reclassified to developed technology as of December 31, 2015 and is being amortized over the estimated useful life of 4.0 years. During 2014, the Company did not capitalize any IPR&D in connection with its acquisitions of the web presence business of Directi (“Directi”), the domain name business, the assets of the BuyDomains business of Name Media, Inc. (“BuyDomains”) and the assets of Arvixe LLC (“Arvixe”). During 2015, the Company did not capitalize any IPR&D in connection with its acquisitions of the assets of the U.S. retail portion of the Verio business of NTT America, Inc. (“Verio”), the assets of World Wide Web Hosting, LLC (“WWWH”), the assets of Ace Data Centers, Inc. (“Ace DC”) and the ownership interests in Ace Holdings, LLC (“Ace Holdings”), (these acquired assets and ownership interests, collectively, “Ace”) and the assets of Ecommerce, LLC, (“Ecommerce”). |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition | Revenue Recognition The Company generates revenue primarily from selling subscriptions for cloud-based products and services. The subscriptions are similar across all of the Company’s brands and are provided under contracts pursuant to which the Company has ongoing obligations to support the subscriber. These contracts are generally for service periods of up to 36 months and typically require payment in advance. The Company recognizes the associated revenue ratably over the service period, whether the associated revenue is derived from a direct subscriber or through a reseller. Deferred revenue represents the liability to subscribers for advance billings for services not yet provided and the fair value of the assumed liability outstanding for subscriber relationships purchased in an acquisition. The Company sells domain name registrations that provide a subscriber with the exclusive use of a domain name. These domains are primarily obtained by one of the Company’s registrars on the subscriber’s behalf, or to a lesser extent by the Company from third-party registrars on the subscriber’s behalf. Domain registration fees are non-refundable.
Revenue from the sale of a domain name registration by a registrar within the Company is recognized ratably over the subscriber’s service period as the Company has the obligation to provide support over the domain term. Revenue from the sale of a domain name registration purchased by the Company from a third-party registrar is recognized when the subscriber is billed on a gross basis as there are no remaining Company obligations once the sale to the subscriber occurs, and the Company has full discretion on the sales price and bears all credit risk. Revenue from the sale of premium domains is recognized when persuasive evidence of an arrangement to sell such domains exists, delivery of an authorization key to access the domain name has occurred, the fee for the sale of the premium domain is fixed or determinable, and collection of the fee for the sale of the premium domain is deemed probable. Revenue from the sale of non-term based applications and services, such as certain online security products and professional technical services, referral fees and commissions, is recognized when the product is purchased, the service is provided or the referral fee or commission is earned, respectively. A substantial amount of the Company’s revenue is generated from transactions that are multiple-element service arrangements that may include hosting plans, domain name registrations, and other cloud-based products and services. The Company follows the provisions of the FASB, Accounting Standards Update (“ASU”) No. 2009-13 (“ASU 2009-13”), Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force and allocates revenue to each deliverable in a multiple-element service arrangement based on its respective relative selling price. Under ASU 2009-13, to treat deliverables in a multiple-element service arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately. Hosting services, domain name registrations, cloud-based products and services have standalone value and are often sold separately. When multiple deliverables included in a multiple-element service arrangement are separated into different units of accounting, the total transaction amount is allocated to the identified separate units based on a relative selling price hierarchy. The Company determines the relative selling price for a deliverable based on vendor specific objective evidence (“VSOE”) of fair value, if available, or best estimate of selling price (“BESP”), if VSOE is not available. The Company has determined that third-party evidence of selling price (“TPE”) is not a practical alternative due to differences in its multi-brand offerings compared to competitors and the lack of availability of relevant third-party pricing information. The Company has not established VSOE for its offerings due to lack of pricing consistency, the introduction of new products, services and other factors. Accordingly, the Company generally allocates revenue to the deliverables in the arrangement based on the BESP. The Company determines BESP by considering its relative selling prices, competitive prices in the marketplace and management judgment; these selling prices, however, may vary depending upon the particular facts and circumstances related to each deliverable. The Company analyzes the selling prices used in its allocation of transaction amount, at a minimum, on a quarterly basis. Selling prices are analyzed on a more frequent basis if a significant change in our business necessitates a more timely analysis. The Company maintains a reserve for refunds and chargebacks related to revenue that has been recognized and is expected to be refunded. The Company had a refund and chargeback reserve of $0.6 million and $0.5 million as of December 31, 2014 and 2015, respectively. The portion of deferred revenue that is expected to be refunded at December 31, 2014 and 2015 was $2.2 million and $1.8 million, respectively. Based on refund history, a significant majority of refunds happen in the same fiscal month that the customer contract starts or renews. Approximately 80% of all refunds happen in the same fiscal month that the contract starts or renews, and approximately 92% of all refunds happen within 45 days of the contract start or renewal date. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Direct Costs of Revenue | Direct Costs of Revenue The Company’s direct costs of revenue include only those costs directly incurred in connection with the provision of its cloud-based products and services. The direct costs of registering domain names with registries are spread over the terms of the arrangement and the cost of reselling domains of other third-party registrars are expensed as incurred. Cost of revenue includes depreciation on data center equipment and support infrastructure and amortization expense related to the amortization of long-lived intangible assets. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Engineering and Development Costs | Engineering and Development Costs Engineering and development costs incurred in the development and maintenance of the Company’s technology infrastructure are expensed as incurred. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sales and Marketing Costs | Sales and Marketing Costs The Company engages in sales and marketing through various online marketing channels, which include affiliate and search marketing as well as online partnerships. The Company expenses sales and marketing costs as incurred. For the years ended December 31, 2013, 2014 and 2015, the Company’s sales and marketing costs were $117.7 million, $146.8 million and $145.4 million, respectively. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Currency | Foreign Currency The Company has sales in a number of foreign currencies. In 2013, the Company commenced operations in foreign locations which report in the local currency. The assets and liabilities of the Company’s foreign locations are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded as a separate component of stockholders’ equity and have not been material. Foreign currency transaction gains and losses relate to the settlement of assets or liabilities in another currency. Foreign currency transaction losses were $1.2 million, $0.8 million and $1.9 million during the years ended December 31, 2013, 2014 and 2015, respectively. These amounts are recorded in general and administrative expense in the Company’s consolidated statements of operations and comprehensive loss. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes Income taxes are accounted for in accordance with ASC 740, Accounting for Income Taxes, or 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 enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 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. There were no unrecognized tax benefits in the years ended December 31, 2013, 2014 and 2015. The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2013, 2014 and 2015, the Company did not recognize any interest and penalties related to unrecognized tax benefits. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | 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 ASC 718, Compensation—Stock Compensation, or ASC 718, 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 granted, the Company estimates the fair value of each restricted stock award based on the closing trading price of its common stock on the date of grant. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss per Share | Net Loss per Share The Company considered ASC 260-10, Earnings per Share, or ASC 260-10, which requires the presentation of both basic and diluted earnings per share in the consolidated statements of operations and comprehensive loss. The Company’s basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, and, if there are dilutive securities, diluted income 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. The Company’s potentially dilutive shares of common stock are excluded from the diluted weighted-average number of shares of common stock outstanding as their inclusion in the computation would be anti-dilutive due to net losses. For the years ended December 31, 2013, 2014 and 2015, all non-vested shares granted prior to the Company’s IPO in October 2013, stock options, restricted stock awards and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive as a result of the net losses for these periods.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guarantees | Guarantees The Company has the following guarantees and indemnifications: In connection with its acquisitions of companies and assets from third parties, the Company may provide indemnification or guarantees to the sellers in the event of damages for breaches or other claims covered by such agreements. In connection with various vendor contracts, including those by which a product or service of a third party is offered to subscribers of the Company, standard guaranty of subsidiary obligations and indemnification obligations exist. As permitted under Delaware and other applicable law, the Company’s charter and by-laws and those of its subsidiary companies provide that the Company shall indemnify its officers and directors for certain liabilities, including those incurred by reason of the fact that the officer or director is, was, or has agreed to serve as an officer or director of the Company. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company leases office space and equipment under various operating leases. The Company has standard indemnification arrangements under these leases that require the Company to indemnify the lessor against losses, liabilities and claims incurred in connection with the premises or equipment covered by the Company’s lease agreements, the Company’s use of the premises, property damage or personal injury and breach of the agreement. Through December 31, 2015, the Company had not experienced any losses related to these indemnification obligations and no claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and consequently concluded that the fair value of these obligations is negligible and no related liabilities were established. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgments and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In July 2015, the FASB approved a one-year deferral of the effective date to January 1, 2018, with early adoption to be permitted as of the original effective date of January 1, 2017. Once this standard becomes effective, companies may use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard. In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, or ASU 2015-02. This new guidance provides a revised consolidation model that reporting entities use to evaluate partnerships and similar entities, evaluate service providers and decision makers as they relate to a variable interest entity, referred to as a VIE, and examine how related party interests in a VIE can affect the consolidation of that VIE. ASU 2015-02 is effective for annual reporting periods beginning after December 15, 2015 with early adoption permitted. The Company believes the adoption of ASU 2015-02 does not have a material impact on its consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. This new guidance changes the balance sheet presentation for deferred financing costs from being presented as an asset to being a deduction from the related recognized liability. The Company adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Cost, beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The unamortized value of deferred financing costs associated with our revolving credit facility were not affected by the ASU and continue to be presented as an asset on the Company’s consolidated balance sheets.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles Goodwill and Other—Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This new guidance will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software. ASU 2015-05 is effective for annual reporting periods beginning after December 15, 2015. The Company believes the adoption of ASU 2015-05 does not have a material impact on its consolidated financial statements. In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This new guidance requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer needs to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the provisional amounts, calculated as if the accounting had been completed as of the acquisition date. ASU 2015-16 is effective for annual reporting periods beginning after December 15, 2015. The Company believe the adoption of ASU 2015-16 does not have a material effect on its accounting processes, however the ASU will affect its disclosures as the Company is required to disclose the adjustments made during the measurement period and their effect on the period’s earnings. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, or ASU 2015-17. This new guidance requires that deferred tax liabilities and assets be classified as noncurrent in the balance sheet, in order to simplify the presentation of deferred income taxes. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016. The Company believes the adoption of ASU 2015-17 will not have a material impact on its consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements. |
Summary of Significant Accounting Policies (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Estimated Useful Lives | Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Calculation of Basic and Diluted Net Loss Per Share | The Company’s potentially dilutive shares of common stock are excluded from the diluted weighted-average number of shares of common stock outstanding as their inclusion in the computation would be anti-dilutive due to net losses. For the years ended December 31, 2013, 2014 and 2015, all non-vested shares granted prior to the Company’s IPO in October 2013, stock options, restricted stock awards and restricted stock units were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive as a result of the net losses for these periods.
|
Acquisitions (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Deferred Consideration Related to Acquisition | Summary of Deferred Consideration Related to Acquisitions Components of deferred consideration short-term and long-term as of December 31, 2014, consisted of the following:
Components of deferred consideration short-term and long-term as of December 31, 2015, consisted of the following:
|
Fair Value Measurements (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Fair Value Measurements | Basis of Fair Value Measurements
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Unobservable Inputs (Level 3) [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Changes in the Financial Liabilities Measured on a Recurring Basis Using Level 3 Inputs | The following table summarizes the changes in the financial liabilities measured on a recurring basis using Level 3 inputs as of December 31, 2014 and 2015:
|
Property and Equipment (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Property and Equipment | Components of property and equipment consisted of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Software Assets under Capital Lease | As of December 31, 2014 and 2015, the Company’s software shown in the above table included the software assets under a capital lease as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Future Minimum Lease Payments under Capital Lease | At December 31, 2015, the expected future minimum lease payments under the capital lease discussed above were approximately as follows:
|
Goodwill and Other Intangible Assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Goodwill Balances | The following table summarizes the changes in the Company’s goodwill balances as of December 31, 2014 and 2015:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Other Intangible Assets | At December 31, 2014, other intangible assets consisted of the following:
At December 31, 2015, other intangible assets consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Expected Future Amortization of Other Intangible Assets | At December 31, 2015, the expected future amortization of the other intangible assets, excluding indefinite life and in-process research and development intangibles, was approximately as follows:
|
Investments (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Statement of Operations and Comprehensive Loss for Equity Method Investment | The following table presents a summary of the statement of operations and comprehensive loss for WZ UK Ltd. for the years ended December 31, 2014 and 2015:
|
Notes Payable (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Notes Payable | At December 31, 2014 and 2015, notes payable consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Maturity of the Notes Payable | The maturity of the notes payable at December 31, 2015 is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Interest Rates and Interest Expense | The following table provides a summary of loan interest rates incurred and interest expense for the years ended December 31, 2013, 2014 and 2015:
|
Stock-Based Compensation (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of 2012 Restricted Stock Awards Activity for Restricted Stock Awards that were Granted Prior to Company's IPO | The following tables present a summary of the 2012 restricted stock awards activity for the year ended December 31, 2015 for restricted stock awards that were granted prior to the Company’s IPO:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Restricted Stock Units that were Granted in Connection with IPO and the Non-Vested Balance | The following table provides a summary of the restricted stock units that were granted in connection with the IPO under this plan and the non-vested balance as of December 31, 2015:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Incentive Plan | The weighted-average assumptions used to compute stock-based compensation expense for awards granted under the 2013 Stock Incentive Plan during the years ended December 31, 2013, 2014 and 2015 are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Total Stock-Based Compensation Expense | The following table presents total stock-based compensation expense recorded in the consolidated statement of operations and comprehensive loss for all 2012 restricted stock awards and units issued prior to the Company’s IPO in October 2013 and all awards granted under the 2013 Plan in connection with or subsequent to the IPO:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 Stock Incentive Plan [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Options | The following table provides a summary of the Company’s stock options as of December 31, 2015 and the stock option activity for all stock options granted under the 2013 Plan during the year ended December 31, 2015 (dollars in thousands except exercise price):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock Awards [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Restricted Stock Awards and Restricted Stock Units | The following table provides a summary of the Company’s restricted stock award activity for the 2013 Plan during the year ended December 31, 2015:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock Units [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Restricted Stock Awards and Restricted Stock Units | The following table provides a summary of the Company’s restricted stock unit activity for the 2013 Plan during the year ended December 31, 2015:
|
Accumulated Other Comprehensive Income (Loss) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Accumulated Other Comprehensive Loss, Net of Tax | The components of accumulated other comprehensive loss, net of tax were as follows:
|
Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Income (Loss) Before Income Taxes | The domestic and foreign components of income (loss) before income taxes for the periods presented:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Income Taxes Benefit and Expenses | The components of the provision (benefit) for income taxes consisted of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Statutory Federal Rate | The following table presents a reconciliation of the statutory federal rate, and the Company’s effective tax rate, for the periods presented:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of the Company's Deferred Income Tax Assets and Liabilities | The significant components of the Company’s deferred income tax assets and liabilities are as follows:
|
Severance and Other Exit Costs (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Total Severance Charges Recorded in the Consolidated Statement of Operations and Comprehensive Loss | The following table presents severance charges recorded in the consolidated statement of operations and comprehensive loss for the periods presented:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2015 Plan Employee Severance [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Activity Related to Company's Facilities Exit Costs Accrual and Severance Accrual | The following table provides a summary of the activity for the year ended December 31, 2015 related to the Company’s 2015 Restructuring Plan severance accrual:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Closing Office Facility in Redwood City [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Activity Related to Company's Facilities Exit Costs Accrual and Severance Accrual | The following table provides a summary of the activity for the year ended December 31, 2015 related to the Company’s facilities exit costs accrual:
|
Commitments and Contingencies (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Future Minimum Annual Rental Payments Under these Leases | The Company has operating lease commitments for certain facilities and equipment that expire on various dates through 2026. The following table outlines future minimum annual rental payments under these leases at December 31, 2015:
|
Related Party Transactions (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Immediate Family Member of Management or Principal Owner [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Related Party Transactions | The following table includes the revised amounts of related party transactions recorded in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2013, 2014 and 2015 relating to services provided by Tregaron and its affiliates under these agreements:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Director [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Related Party Transactions | The following table includes the revised amounts of related party transactions recorded in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2013, 2014 and 2015 relating to services provided by IBS under these agreements:
|
Supplemental Guarantor Financial Information (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Financial Information of Parent Company Only Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Condensed Consolidating Balance Sheets | Condensed Consolidating Balance Sheets December 31, 2014
Condensed Consolidating Balance Sheets December 31, 2015
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Condensed Consolidating Statements of Operations and Comprehensive Loss | Condensed Consolidating Statements of Operations and Comprehensive Loss Year Ended December 31, 2013
Condensed Statements of Operations and Comprehensive Loss Year Ended December 31, 2014
Condensed Consolidating Statements of Operations and Comprehensive Loss Year Ended December 31, 2015
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Condensed Consolidating Statements of Cash Flows | Condensed Consolidating Statements of Cash Flows Year Ended December 31, 2013
Condensed Consolidating Statements of Cash Flows Year Ended December 31, 2014
Condensed Consolidating Statements of Cash Flows Year Ended December 31, 2015
|
Geographic and Other Information (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Text Block [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues Classified by Major Geographic Areas | Revenue, classified by the major geographic areas in which our customers are located, was as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Tangible Long-Lived Assets | The following table presents the amount of tangible long-lived assets by geographic area:
|
Quarterly Financial Data (unaudited) (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Condensed Income Statement | The following table presents the Company’s unaudited quarterly financial data:
|
Summary of Significant Accounting Policies - Summary of Estimated Useful Lives (Detail) |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Building [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment useful life | 35 years |
Software [Member] | Minimum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment useful life | 2 years |
Software [Member] | Maximum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment useful life | 3 years |
Computers and Office Equipment [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment useful life | 3 years |
Furniture and Fixtures [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment useful life | 5 years |
Leasehold Improvements [Member] | |
Property, Plant and Equipment [Line Items] | |
Leasehold improvements | Shorter of useful life or remaining term of the lease |
Summary of Significant Accounting Policies - Summary of Calculation of Basic and Diluted Net Loss Per Share (Detail) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Accounting Policies [Abstract] | |||||||||||
Net loss attributable to Endurance International Group Holdings, Inc. | $ (9,232) | $ (15,351) | $ (2,071) | $ 884 | $ (2,204) | $ (7,898) | $ (13,448) | $ (19,285) | $ (25,770) | $ (42,835) | $ (159,187) |
Net loss per share attributable to Endurance International Group Holdings, Inc.: Basic and diluted | $ (0.07) | $ (0.12) | $ (0.02) | $ 0.01 | $ (0.02) | $ (0.06) | $ (0.11) | $ (0.15) | $ (0.20) | $ (0.34) | $ (1.55) |
Weighted average number of common shares used in computing net loss per share attributable to Endurance International Group Holdings, Inc.: Basic and diluted | 131,340,557 | 127,512,346 | 102,698,773 |
Fair Value Measurements - Basis of Fair Value Measurements (Detail) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Financial assets: | ||
Interest rate cap (included in other assets) | $ 3,130 | |
Total financial assets | 3,130 | |
Financial liabilities: | ||
Contingent earn-out consideration | 1,469 | $ 10,887 |
Total financial liabilities | 1,469 | 10,887 |
Significant Other Observable Inputs (Level 2) [Member] | ||
Financial assets: | ||
Interest rate cap (included in other assets) | 3,130 | |
Total financial assets | 3,130 | |
Significant Unobservable Inputs (Level 3) [Member] | ||
Financial liabilities: | ||
Contingent earn-out consideration | 1,469 | 10,887 |
Total financial liabilities | $ 1,469 | $ 10,887 |
Fair Value Measurements - Summary of Changes in the Financial Liabilities Measured on a Recurring Basis Using Level 3 Inputs (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Accrual of contingent earn-out | $ 51,488 | $ 13,917 |
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Financial liabilities measured using Level 3 inputs, Opening balance | 10,887 | 1,655 |
Accrual of contingent earn-out | 22,987 | |
Payment of contingent earn-out related to 2012 and 2014 acquisitions | (10,592) | (14,158) |
Change in fair value of contingent earn-outs | 1,174 | 403 |
Financial liabilities measured using Level 3 inputs, Ending balance | $ 1,469 | $ 10,887 |
Derivatives And Hedging Activities - Additional Information (Detail) |
12 Months Ended | |
---|---|---|
Dec. 09, 2015 |
Dec. 31, 2015
USD ($)
Agreement
|
|
Derivative Instruments, Gain (Loss) [Line Items] | ||
Interest rate cap agreement period | 3 years | |
Gain on interest rate cash flow hedge ineffectiveness | $ 0 | |
Fair value of the interest rate contracts | 3,100,000 | |
Reclassification out of Accumulated Other Comprehensive Income [Member] | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Derivative gain to be reclassified as increase to interest expense in the next twelve months | $ 7,894 | |
Cash Flow Hedging [Member] | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Number of interest rate cap agreements | Agreement | 1 | |
Notional amount outstanding | $ 500,000,000 | |
Cash Flow Hedging [Member] | Designated as Hedging Instrument [Member] | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Recognized gain | $ 100,000 |
Property and Equipment - Additional Information (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Property, Plant and Equipment [Line Items] | |||
Depreciation expense | $ 34,010 | $ 30,956 | $ 18,615 |
Term of lease | 39 months | 36 months | |
Property and Equipment [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Depreciation expense | $ 34,000 | $ 31,000 | $ 18,600 |
Property and Equipment - Summary of Software Assets under Capital Lease (Detail) - Software [Member] - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Property, Plant and Equipment [Line Items] | ||
Software | $ 21,499 | $ 11,704 |
Less accumulated depreciation | (8,412) | (3,901) |
Assets under capital lease-net | $ 13,087 | $ 7,803 |
Property and Equipment - Summary of Future Minimum Lease Payments under Capital Lease (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
2016 | $ 6,334 | |
2017 | 6,895 | |
2018 | 575 | |
Total minimum lease payments | 13,804 | |
Less amount representing interest | (723) | |
Present value of minimum lease payments (capital lease obligation) | 13,081 | |
Current portion | 5,866 | $ 3,793 |
Long-term portion | 7,215 | $ 4,302 |
Present value of minimum lease payments (capital lease obligation) | $ 13,081 |
Goodwill and Other Intangible Assets - Changes in Goodwill Balances (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Goodwill [Line Items] | ||
Goodwill, beginning balance | $ 1,105,023 | $ 984,207 |
Foreign translation impact | (1,212) | (529) |
Goodwill, ending balance | 1,207,255 | 1,105,023 |
Acquisitions 2013 [Member] | ||
Goodwill [Line Items] | ||
Goodwill adjustments | (2,107) | |
2014 Acquisitions [Member] | ||
Goodwill [Line Items] | ||
Goodwill related to acquisitions | $ 123,452 | |
2015 Acquisitions [Member] | ||
Goodwill [Line Items] | ||
Goodwill related to acquisitions | $ 103,444 |
Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Finite-Lived Intangible Assets [Line Items] | |||
Amortization expense included in cost of revenue | $ 91,057 | $ 102,723 | $ 105,915 |
Acquisitions 2013 [Member] | |||
Finite-Lived Intangible Assets [Line Items] | |||
Goodwill related to acquisitions | $ (2,107) |
Goodwill and Other Intangible Assets - Summary of Expected Future Amortization of Other Intangible Assets (Detail) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | |
2016 | $ 75,000 |
2017 | 62,000 |
2018 | 51,000 |
2019 | 40,000 |
2020 | 34,000 |
Thereafter | 72,000 |
Total | $ 334,000 |
Investments - Summary of Statement of Operations and Comprehensive Loss for Equity Method Investment (Detail) - WZ (UK) Ltd. [Member] - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Schedule of Equity Method Investments [Line Items] | ||
Revenue | $ 4,053 | $ 1 |
Gross profit (loss) | 1,095 | (96) |
Operating loss | (28,439) | (694) |
Net loss | $ (28,439) | $ (694) |
Notes Payable - Schedule of Notes Payable (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Proforma Debt Instrument [Line Items] | ||
Notes payable | $ 1,093,375 | $ 1,086,875 |
LIBOR First Lien Term Loan [Member] | ||
Proforma Debt Instrument [Line Items] | ||
Notes payable | 1,026,375 | 1,036,875 |
LIBOR Revolver Loan [Member] | ||
Proforma Debt Instrument [Line Items] | ||
Notes payable | $ 67,000 | $ 50,000 |
Notes Payable - Summary of Maturity of the Notes Payable (Detail) - Notes Payable, Other Payables [Member] $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Long-Term Debt [Line Items] | |
2016 | $ 77,500 |
2017 | 10,500 |
2018 | 10,500 |
2019 | 994,875 |
Total | 1,093,375 |
First Lien Term Loan [Member] | |
Long-Term Debt [Line Items] | |
2016 | 10,500 |
2017 | 10,500 |
2018 | 10,500 |
2019 | 994,875 |
Total | 1,026,375 |
Bank Revolver Loans [Member] | |
Long-Term Debt [Line Items] | |
2016 | 67,000 |
Total | $ 67,000 |
Stockholders' Equity - Additional Information (Detail) - $ / shares |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Oct. 23, 2013 |
|
Equity [Abstract] | |||
Preferred stock, shares authorized | 5,000,000 | 5,000,000 | 5,000,000 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Preferred stock, shares issued | 0 | 0 | |
Preferred stock, shares outstanding | 0 | 0 | |
Common stock, shares authorized | 500,000,000 | 500,000,000 | 500,000,000 |
Common stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Number of vote per share | $ 1 |
Stock-Based Compensation - Summary of 2012 Restricted Stock Awards Activity for Restricted Stock Awards that were Granted Prior to Company's IPO (Detail) - 2012 Restricted Stock Awards [Member] - Restricted Stock Awards [Member] |
12 Months Ended |
---|---|
Dec. 31, 2015
shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Non-vested, Beginning balance | 759,122 |
Forfeitures | (104,422) |
Vested | (608,055) |
Non-vested, Ending balance | 46,645 |
Stock-Based Compensation - Summary of Restricted Stock Units that were Granted in Connection with IPO and the Non-Vested Balance (Detail) - Prior Equity Plan [Member] - Restricted Stock Units [Member] |
12 Months Ended |
---|---|
Dec. 31, 2015
$ / shares
shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Non-vested, Beginning balance | shares | 155,094 |
Vested and unissued | shares | (132,936) |
Non-vested, Ending balance | shares | 22,158 |
Weighted Average Grant Date Fair Value, Non-vested, Beginning balance | $ / shares | $ 12.00 |
Weighted Average Grant Date Fair Value, Vested and unissued | $ / shares | 12.00 |
Weighted Average Grant Date Fair Value, Non-vested, Ending balance | $ / shares | $ 12.00 |
Stock-Based Compensation - Stock Incentive Plan (Detail) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||
Risk-free interest rate | 1.80% | 2.10% | 1.90% |
Expected volatility | 56.10% | 58.30% | 60.00% |
Expected life (in years) | 6 years 3 months | 6 years 3 months | 6 years 3 months |
Expected dividend yield | 0.00% | 0.00% | 0.00% |
Stock-Based Compensation - Summary of Stock Options (Parenthetical) (Detail) |
12 Months Ended |
---|---|
Dec. 31, 2015
$ / shares
| |
2013 Stock Incentive Plan [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Estimated fair value of the Company's common stock | $ 10.93 |
Accumulated Other Comprehensive Income (Loss) - Components of Accumulated Other Comprehensive Loss, Net of Tax (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Beginning balance | $ (517) | $ (55) | |
Other comprehensive income (loss) | (1,201) | (462) | $ (55) |
Ending balance | (1,718) | (517) | (55) |
Foreign Currency Translation Adjustments [Member] | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Beginning balance | (517) | (55) | |
Other comprehensive income (loss) | (1,281) | (462) | |
Ending balance | (1,798) | $ (517) | $ (55) |
Unrealized Gains (Losses) on Cash Flow Hedges [Member] | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Other comprehensive income (loss) | 80 | ||
Ending balance | $ 80 |
Redeemable Non-Controlling Interest - Additional Information (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||||
---|---|---|---|---|---|
Jan. 13, 2015 |
Jul. 07, 2014 |
Dec. 11, 2013 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Redeemable Noncontrolling Interest [Line Items] | |||||
Redeemable non-controlling interest | $ 20,800 | $ 30,543 | |||
Partial settlement of redeemable non-controlling interest liability | $ 30,543 | 4,190 | |||
JDI Backup Ltd. [Member] | |||||
Redeemable Noncontrolling Interest [Line Items] | |||||
Partial settlement of redeemable non-controlling interest liability | 4,200 | ||||
Change in estimated fair value | $ 30,500 | ||||
Cost of acquisition | $ 30,500 | $ 4,200 | $ 22,200 | ||
Ownership percentage | 100.00% | 67.00% | 60.00% | 100.00% |
Income Taxes - Components of Income (Loss) Before Income Taxes (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Income Tax Disclosure [Abstract] | |||
United States | $ 1,258 | $ (17,002) | $ (158,481) |
Foreign | (1,046) | (27,603) | (2,894) |
Total income (loss) before income taxes | $ 212 | $ (44,605) | $ (161,375) |
Income Taxes - Components of Income Taxes Benefit and Expenses (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Income Tax Disclosure [Abstract] | |||
U.S. federal | $ 1,827 | $ 781 | |
State | 696 | 183 | $ 267 |
Foreign | 1,699 | 1,582 | 914 |
Total current provision | 4,222 | 2,546 | 1,181 |
U.S. federal | (1,103) | (581) | (50,007) |
State | 1,952 | (3,983) | (8,852) |
Foreign | (818) | (5,310) | (1,590) |
Change in valuation allowance | 7,089 | 13,514 | 55,672 |
Total deferred provision | 7,120 | 3,640 | (4,777) |
Total expense (benefit) | $ 11,342 | $ 6,186 | $ (3,596) |
Income Taxes - Reconciliation of Statutory Federal Rate (Detail) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Income Tax Benefit [Line Items] | |||
U.S. federal taxes at statutory rate | 34.00% | 34.00% | 34.00% |
State income taxes, net of federal benefit | 685.00% | 5.90% | 3.20% |
Nondeductible stock-based compensation | 827.30% | (2.50%) | (0.70%) |
Nondeductible transaction costs | 856.50% | (1.00%) | (1.10%) |
Nontaxable gain on redemption of equity interest | (674.90%) | ||
Credits | 0.60% | ||
Foreign rate differential | 299.70% | (11.70%) | (0.20%) |
Rate change | 216.50% | (1.10%) | 0.40% |
Prior year true-up stock-based compensation-U.S. | (132.80%) | (2.00%) | |
Other | (217.50%) | (3.40%) | 1.10% |
Total | 5349.40% | (13.90%) | 2.20% |
Foreign Tax Authority [Member] | |||
Income Tax Benefit [Line Items] | |||
Other foreign permanent differences | 187.80% | (2.50%) | |
Change in valuation allowance-foreign | (130.80%) | (7.00%) | (0.50%) |
Domestic Tax Authority [Member] | |||
Income Tax Benefit [Line Items] | |||
Change in valuation allowance-foreign | 3398.60% | (23.20%) | (34.00%) |
Income Taxes - Components of the Company's Deferred Income Tax Assets and Liabilities (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Income Tax Disclosure [Abstract] | ||
Net operating loss carry forward | $ 43,698 | $ 70,070 |
Credit carryforward | 2,190 | 724 |
Other | 6,612 | 910 |
Deferred compensation | 497 | 571 |
Deferred revenue | 21,327 | 18,385 |
Other reserves | 4,895 | 4,200 |
Stock-based compensation | 13,221 | 5,360 |
Total deferred income tax assets | 92,440 | 100,220 |
Purchased intangible assets | (11,098) | (32,315) |
Goodwill | (26,062) | (17,404) |
Property and equipment | (8,361) | (2,852) |
Total deferred income tax liabilities | (45,521) | (52,571) |
Valuation allowance | (75,705) | (69,271) |
Net deferred income tax liabilities | $ (28,786) | $ (21,622) |
Severance and Other Exit Costs - Summary of Activity Related to Company's Facilities Exit Costs Accrual (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Restructuring Cost and Reserve [Line Items] | ||
Severance charges | $ 2,300 | |
Closing Office Facility in Redwood City [Member] | ||
Restructuring Cost and Reserve [Line Items] | ||
Beginning Balance | $ 1,855 | |
Cash paid | (911) | |
Sublease income | 104 | |
Adjustments | (569) | |
Ending Balance | 479 | $ 1,855 |
2015 Plan Employee Severance [Member] | ||
Restructuring Cost and Reserve [Line Items] | ||
Severance charges | 2,058 | |
Cash paid | (857) | |
Ending Balance | $ 1,201 |
Severance and Other Exit Costs - Summary of Total Severance Charges Recorded in the Consolidated Statement of Operations and Comprehensive Loss (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Restructuring Cost and Reserve [Line Items] | ||
Total severance charges | $ 2,058 | $ 2,320 |
Cost of Revenue [Member] | ||
Restructuring Cost and Reserve [Line Items] | ||
Total severance charges | 524 | 517 |
Sales and Marketing [Member] | ||
Restructuring Cost and Reserve [Line Items] | ||
Total severance charges | 555 | 301 |
Engineering and Development [Member] | ||
Restructuring Cost and Reserve [Line Items] | ||
Total severance charges | 636 | 960 |
General and Administrative [Member] | ||
Restructuring Cost and Reserve [Line Items] | ||
Total severance charges | $ 343 | $ 542 |
Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Commitments and Contingencies Disclosure [Abstract] | |||
Operating leases due date | 2026 | ||
Total net rent expense | $ 8.2 | $ 9.8 | $ 8.9 |
Total sublease income | $ 0.2 |
Commitments and Contingencies - Summary of Future Minimum Annual Rental Payments Under these Leases (Detail) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2016 | $ 9,247 |
2017 | 10,379 |
2018 | 8,601 |
2019 | 8,892 |
2020 | 8,663 |
Thereafter | 26,172 |
Total minimum lease payments | $ 71,954 |
Supplemental Guarantor Financial Information - Additional Information (Detail) - Constant Contact, Inc. [Member] - Senior Notes Due 2024 [Member] - USD ($) $ in Millions |
Feb. 09, 2016 |
Oct. 30, 2015 |
---|---|---|
Condensed Financial Statements, Captions [Line Items] | ||
Senior Notes due | $ 350.0 | |
Interest rate on senior notes | 10.875% | |
Subsequent Event [Member] | ||
Condensed Financial Statements, Captions [Line Items] | ||
Senior Notes due | $ 350.0 | |
Interest rate on senior notes | 10.875% |
Geographic and Other Information - Revenues Classified by Major Geographical Areas (Detail) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Segment Reporting Information [Line Items] | |||||||||||
Revenue | $ 193,043 | $ 188,523 | $ 182,431 | $ 177,318 | $ 171,936 | $ 160,167 | $ 151,992 | $ 145,750 | $ 741,315 | $ 629,845 | $ 520,296 |
United States [Member] | |||||||||||
Segment Reporting Information [Line Items] | |||||||||||
Revenue | 465,446 | 409,765 | 359,889 | ||||||||
International [Member] | |||||||||||
Segment Reporting Information [Line Items] | |||||||||||
Revenue | $ 275,869 | $ 220,080 | $ 160,407 |
Geographic and Other Information - Schedule of Tangible Long-Lived Assets (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Geographic Information [Line Items] | ||
International | $ 75,762 | $ 56,837 |
United States [Member] | ||
Geographic Information [Line Items] | ||
International | 72,025 | 55,191 |
International [Member] | ||
Geographic Information [Line Items] | ||
International | $ 3,737 | $ 1,646 |
Geographic and Other Information - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Segment Reporting Information [Line Items] | |||||||||||
Revenue | $ 193,043 | $ 188,523 | $ 182,431 | $ 177,318 | $ 171,936 | $ 160,167 | $ 151,992 | $ 145,750 | $ 741,315 | $ 629,845 | $ 520,296 |
Directi and BuyDomains [Member] | |||||||||||
Segment Reporting Information [Line Items] | |||||||||||
Revenue | $ 52,600 | $ 28,300 | |||||||||
Percentage of revenue | 7.00% | 4.00% |
Quarterly Financial Data - Schedule of Condensed Income Statement (Detail) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Quarterly Financial Information Disclosure [Abstract] | |||||||||||
Revenue | $ 193,043 | $ 188,523 | $ 182,431 | $ 177,318 | $ 171,936 | $ 160,167 | $ 151,992 | $ 145,750 | $ 741,315 | $ 629,845 | $ 520,296 |
Gross profit | 84,692 | 77,750 | 77,494 | 76,344 | 69,666 | 62,751 | 59,381 | 56,559 | 316,280 | 248,357 | 170,193 |
Income (loss) from operations | 14,326 | 9,113 | 12,548 | 17,199 | 13,808 | 5,254 | (1,085) | (5,499) | 53,186 | 12,478 | (63,048) |
Net income (loss) attributable to Endurance International Group Holdings, Inc. | $ (9,232) | $ (15,351) | $ (2,071) | $ 884 | $ (2,204) | $ (7,898) | $ (13,448) | $ (19,285) | $ (25,770) | $ (42,835) | $ (159,187) |
Basic and diluted net income (loss) per share attributable to Endurance International Group Holdings, Inc. | $ (0.07) | $ (0.12) | $ (0.02) | $ 0.01 | $ (0.02) | $ (0.06) | $ (0.11) | $ (0.15) | $ (0.20) | $ (0.34) | $ (1.55) |
% USA*_+:XMD^UI;66H8.3+!:J;A(WMW2+>W-='60.;*<7Z.4DJRC1PY
MRT!RTXDSR03GT3099RY(S,7>$%* ;@GX?[Q^ K!5 ),SF]=7HDA=
M"3Y&8CJ,@9@S1UNL=^X8Z61D;);L=AE$7=WJ/,DJ<#-$#N9UPB0S)O=A]BZF
M6#! >UB,) $CB27 ,T'I)\ ! FP)TIE@X\UDC4DWR"^2!D32M0B&KD@_;<6$
M*2P&^B6R@$3F2""OQ(3)+08C:#Z_4!X0RAVAQ$]0! B*9XZL#!"4C@/L3;5<
M[691;E*_RB:@LG%4'A"8BG]<)/"93%&PSI#C(O/F.H.F@O$YRO\#4$L#!!0 ( &J+<4DZ[9'HHP$ +$# 9
M >&PO=V]R:W-H965T
Y>*MYPNK_.>
MQYZ
;
MC)R#T QS'# T8E83@GCU*07]=XHCO:+39?KZAL-UI&]&A]ME@
M",0L[NIG4P