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Endurance International Group Reports 2020 Third Quarter Results

Endurance International Group Holdings, Inc.
·21 min read
  • GAAP revenue of $278.4 million

  • Net income of $6.7 million

  • Adjusted EBITDA of $78.7 million

  • Cash flow from operations of $54.6 million

  • Free cash flow of $42.6 million

  • Total subscribers on platform were approximately 4.965 million at September 30, 2020

BURLINGTON, Mass., Nov. 02, 2020 (GLOBE NEWSWIRE) -- Endurance International Group Holdings, Inc. (NASDAQ: EIGI), a leading provider of cloud-based platform solutions designed to help small and medium-sized businesses succeed online, today reported financial results for its third quarter ended September 30, 2020.

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

Third Quarter 2020 Financial Highlights

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

  • Revenue for the third quarter of 2020 was $278.4 million, an increase of 3 percent compared to revenue of $270.4 million in the third quarter of 2019, excluding SinglePlatform. Revenue in the third quarter of 2019 was $277.2 million, including the contribution of approximately $6.8 million from SinglePlatform.

  • Net income for the third quarter of 2020 was $6.7 million, or $0.05 per diluted share, compared to net income of $7.8 million, or $0.05 per diluted share, for the third quarter of 2019.

  • Adjusted EBITDA for the third quarter of 2020 was $78.7 million, a decrease of 1 percent compared to third quarter 2019 adjusted EBITDA of $79.6 million, excluding SinglePlatform. Adjusted EBITDA in the third quarter of 2019 was $80.6 million, including the contribution of approximately $1.1 million from SinglePlatform.

  • Cash flow from operations for the third quarter of 2020 was $54.6 million, an increase of 33 percent compared to $41.0 million for the third quarter of 2019.

  • Free cash flow, defined as cash flow from operations less capital expenditures and financed equipment obligations, for the third quarter of 2020 was $42.6 million, an increase of 53 percent compared to $27.8 million for the third quarter of 2019.

  • Under its previously announced authorization, during 2020, the Company repurchased 8,708,720 shares for a total of $14.4 million, at an average price per share of $1.66. The Company did not make any repurchases during the third quarter of 2020.

Third Quarter 2020 Operating Highlights

  • Total subscribers on platform at September 30, 2020 were approximately 4.965 million, compared to approximately 4.780 million subscribers at September 30, 2019 and approximately 4.766 million subscribers at December 31, 2019. See “Total Subscribers” below.

  • Average revenue per subscriber, or ARPS, for the third quarter of 2020 was $18.86, compared to $19.35 for the third quarter 2019 and $19.34 for the fourth quarter of 2019. See “Average Revenue Per Subscriber” below.

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

About Endurance International Group

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

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

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

Press Contact:
Kristen Andrews
Endurance International Group
(781) 418-6716
press@endurance.com

Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, we use adjusted EBITDA and free cash flow, which are non-GAAP financial measures, to evaluate the operating and financial performance of our business, identify trends affecting our business, develop projections and make strategic business decisions. In this press release, we are also presenting the following additional non-GAAP financial measures for certain periods: revenue - excluding SinglePlatform and adjusted EBITDA - excluding SinglePlatform. A non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flow that excludes amounts that are included in the most directly comparable measure calculated and presented in accordance with GAAP or includes amounts that are excluded from the most directly comparable measure calculated and presented in accordance with GAAP.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. For example, adjusted EBITDA excludes interest expense, which has been and will continue to be for the foreseeable future a significant recurring expense in our business. The presentation of non-GAAP financial information is not meant to be considered in isolation from, or as a substitute for, the most directly comparable financial measures prepared in accordance with GAAP. We urge you to review the additional information about our non-GAAP measures shown below, including the reconciliations of these non-GAAP financial measures to their comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

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

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net (loss) income, excluding the impact of interest expense (net), income tax expense (benefit), depreciation, amortization of other intangible assets, stock-based compensation, restructuring expenses, transaction expenses and charges, gain on sale of business, (gain) loss of unconsolidated entities, impairment of goodwill and other long-lived assets, and shareholder litigation reserve. We view adjusted EBITDA as a performance measure and believe it helps investors evaluate and compare our core operating performance from period to period.

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

Free Cash Flow, or FCF, is a non-GAAP financial measure that we calculate as cash flow from operations less capital expenditures and financed equipment. We believe that FCF provides investors with an indicator of our ability to generate positive cash flows after meeting our obligations with regard to capital expenditures (including financed equipment).

Key Operating Metrics
Total Subscribers - We define total subscribers as the approximate number of subscribers that, as of the end of a period, are identified as subscribing directly to our products on a paid basis, excluding accounts that access our solutions via resellers or that purchase only domain names from us. Subscribers of more than one brand, and subscribers with more than one distinct billing relationship or subscription with us, are counted as separate subscribers. Total subscribers for a period reflects adjustments to add or subtract subscribers as we integrate acquisitions and/or are otherwise able to identify subscribers that meet, or do not meet, this definition of total subscribers. In the third quarter of 2020, no such adjustments were made.

Average Revenue Per Subscriber (ARPS) - We calculate ARPS as the amount of revenue we recognize in a period, including marketing development funds and other revenue not received from subscribers, divided by the average of the number of total subscribers at the beginning of the period and at the end of the period, which we refer to as average subscribers for the period, divided by the number of months in the period. See definition of “Total Subscribers” above. ARPS does not represent an exact measure of the average amount a subscriber spends with us each month, since our calculation of ARPS is impacted by revenues generated by non-subscribers.



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

December 31, 2019

September 30, 2020

Assets

(unaudited)

Current assets:

Cash and cash equivalents

$

111,265

$

167,315

Restricted cash

1,732

1,422

Accounts receivable

10,224

9,823

Prepaid domain name registry fees

55,237

58,377

Prepaid commissions

38,435

42,042

Prepaid and refundable taxes

6,810

5,175

Prepaid expenses and other current assets

23,883

22,748

Total current assets

247,586

306,902

Property and equipment—net

85,925

88,349

Operating lease right-of-use assets

90,519

83,224

Goodwill

1,835,310

1,852,780

Other intangible assets—net

245,002

207,579

Deferred financing costs—net

1,778

1,119

Investments

15,000

15,000

Prepaid domain name registry fees, net of current portion

11,107

12,808

Prepaid commissions, net of current portion

48,780

60,864

Deferred tax asset

64

232

Other assets

3,015

2,923

Total assets

$

2,584,086

$

2,631,780

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

10,054

$

13,670

Accrued expenses

64,560

72,534

Accrued taxes

251

461

Accrued interest

23,434

12,360

Deferred revenue

369,475

388,500

Operating lease liabilities—short term

21,193

18,090

Current portion of notes payable

31,606

31,606

Current portion of financed equipment

790

2,447

Deferred consideration—short term

2,201

7,790

Other current liabilities

2,165

2,846

Total current liabilities

525,729

550,304

Long-term deferred revenue

99,652

105,418

Operating lease liabilities—long term

78,151

74,461

Notes payable—long term, net of original issue discounts of $16,859 and $13,101 and deferred financing costs of $25,690 and $20,210, respectively

1,649,867

1,623,171

Financed equipment—long term

202

Deferred tax liability

27,097

34,864

Deferred consideration—long term

7,087

Other liabilities

6,636

13,552

Total liabilities

2,387,132

2,409,059

Stockholders’ equity:

Preferred Stock—par value $0.0001; 5,000,000 shares authorized; no shares issued or outstanding

Common Stock—par value $0.0001; 500,000,000 shares authorized; 146,259,868 and 147,570,072 shares issued at December 31, 2019 and September 30, 2020, respectively; 146,259,868 and 141,507,297 outstanding at December 31, 2019 and September 30, 2020, respectively

15

16

Additional paid-in capital

996,958

1,021,621

Treasury stock, at cost, 0 and 6,062,775 shares at December 31, 2019 and September 30, 2020, respectively

(10,048

)

Accumulated other comprehensive loss

(4,088

)

(1,965

)

Accumulated deficit

(795,931

)

(786,903

)

Total stockholders’ equity

196,954

222,721

Total liabilities and stockholders’ equity

$

2,584,086

$

2,631,780



Endurance International Group Holdings, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(unaudited)
(in thousands, except share and per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2020

2019

2020

Revenue

$

277,193

$

278,426

$

836,080

$

824,607

Cost of revenue (including impairment of $0 and $17,892 for the three and nine months ended September 30, 2019, respectively)

120,755

116,662

384,196

345,991

Gross profit

156,438

161,764

451,884

478,616

Operating expense:

Sales and marketing

59,143

63,651

191,221

193,904

Engineering and development

28,257

28,425

77,299

79,958

General and administrative

30,309

31,160

92,826

90,937

Gain on sale of intangible assets

(2,365

)

Transaction expenses

461

461

Total operating expense

117,709

123,697

361,346

362,895

Income from operations

38,729

38,067

90,538

115,721

Other income (expense):

Interest income

305

153

910

485

Interest expense

(36,057

)

(29,959

)

(110,308

)

(93,879

)

Total other expense—net

(35,752

)

(29,806

)

(109,398

)

(93,394

)

Income (loss) before income taxes

2,977

8,261

(18,860

)

22,327

Income tax (benefit) expense

(4,839

)

1,587

3,040

13,299

Net income (loss)

$

7,816

$

6,674

(21,900

)

9,028

Comprehensive income (loss):

Foreign currency translation adjustments

(1,001

)

1,245

(1,054

)

1,122

Unrealized gain (loss) on cash flow hedge, net of tax benefit (expense) of $(70) and $200 for the three and nine months ended September 30, 2019, respectively, and $(92) and $(323) for the three and nine months ended September 30, 2020, respectively

240

286

(611

)

1,001

Total comprehensive income (loss)

$

7,055

$

8,205

$

(23,565

)

$

11,151

Basic net income (loss) per share

$

0.05

$

0.05

$

(0.15

)

$

0.06

Diluted net income (loss) per share

$

0.05

$

0.05

$

(0.15

)

$

0.06

Weighted-average common shares used in computing net income (loss) per share:

Basic

145,951,755

141,680,469

144,932,834

143,552,324

Diluted

146,301,595

147,178,734

144,932,834

147,334,403



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

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2020

2019

2020

Cash flows from operating activities:

Net income (loss)

$

7,816

$

6,674

$

(21,900

)

$

9,028

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation of property and equipment

11,280

12,824

33,385

38,266

Amortization of other intangible assets

21,668

17,813

64,137

52,406

Impairment of long-lived assets

17,892

Amortization of deferred financing costs

1,822

1,978

5,331

5,770

Amortization of net present value of deferred consideration

23

331

143

376

Amortization of original issue discounts

1,138

1,255

3,336

3,622

Stock-based compensation

9,143

9,547

27,513

28,978

Deferred tax expense

(685

)

1,012

1,942

6,467

Loss on sale of assets

(8

)

128

Gain on sale of intangible assets

(2,365

)

Loss on early extinguishment of debt

83

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

827

1,743

34

893

Prepaid and refundable taxes

(6,633

)

108

(5,908

)

1,620

Prepaid expenses and other current assets

2,780

(1,979

)

5,108

(20,069

)

Leases right-of-use asset, net

(258

)

201

395

519

Accounts payable and accrued expenses

(8,357

)

(3,858

)

(23,492

)

4,416

Deferred revenue

395

6,920

7,636

27,222

Net cash provided by operating activities

40,951

54,569

115,680

157,232

Cash flows from investing activities:

Businesses acquired in purchase transactions, net of cash acquired

(8,875

)

(16,998

)

(8,875

)

(16,998

)

Purchases of property and equipment

(10,632

)

(10,264

)

(26,796

)

(30,273

)

Proceeds from sale of assets

1

1

Proceeds from sale of intangible assets

2,705

Net cash used in investing activities

(19,506

)

(27,262

)

(35,670

)

(44,566

)

Cash flows from financing activities:

Repayments of term loans

(25,000

)

(7,902

)

(75,000

)

(23,705

)

Repayments of senior notes

(11,807

)

Purchase of treasury stock

(14,428

)

Principal payments on financed equipment

(2,471

)

(1,749

)

(6,332

)

(4,723

)

Payment of deferred consideration

(2,500

)

(1,500

)

Proceeds from exercise of stock options

4

53

26

66

Net cash used in financing activities

(27,467

)

(9,598

)

(83,806

)

(56,097

)

Net effect of exchange rate on cash and cash equivalents and restricted cash

(331

)

203

(483

)

(829

)

Net (decrease) increase in cash and cash equivalents and restricted cash

(6,353

)

17,912

(4,279

)

55,740

Cash and cash equivalents and restricted cash:

Beginning of period

92,650

150,825

90,576

112,997

End of period

$

86,297

$

168,737

$

86,297

$

168,737

Supplemental cash flow information:

Interest paid

$

42,533

$

35,169

$

110,886

$

93,773

Income taxes paid

$

991

$

1,091

$

1,715

$

4,296

Assets acquired under equipment financing

$

$

$

$

7,704



GAAP to Non-GAAP Reconciliation - Adjusted EBITDA

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

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2020

2019

2020

Net income (loss)

$

7,816

$

6,674

$

(21,900

)

$

9,028

Interest expense, net(1)

35,752

29,806

109,398

93,394

Income tax (benefit) expense

(4,839

)

1,587

3,040

13,299

Depreciation

11,280

12,824

33,385

38,266

Amortization of other intangible assets

21,668

17,813

64,137

52,406

Stock-based compensation

9,143

9,547

27,513

28,978

Restructuring expenses

(193

)

33

2,005

1,749

Gain on sale of intangible assets

(2,365

)

Gain on sale of business

Transaction expenses and charges

461

461

Impairment of goodwill and other long-lived assets

17,892

Shareholder litigation reserve

Adjusted EBITDA

$

80,627

$

78,745

$

235,470

$

235,216

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



GAAP to Non-GAAP Reconciliation – Free Cash Flow

The following table reflects the reconciliation of cash flow from operations to free cash flow (“FCF”) (all data in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2020

2019

2020

Cash flows from operations

$

40,951

$

54,569

$

115,680

$

157,232

Less:

Capital expenditures and financed equipment obligations(1)

(13,103

)

(12,013

)

(33,128

)

(34,996

)

Free cash flow

$

27,848

$

42,556

$

82,552

$

122,236

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



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

  • Web presence. The web presence segment consists of our web hosting brands, including Bluehost and HostGator, as well as our domain-focused brands such as Domain.com, ResellerClub and LogicBoxes. This segment includes web hosting, website security, website design tools and services, e-commerce products, domain names and domain privacy. It also includes the sale of domain management services to resellers and end users, as well as premium domain names, and generates advertising revenue from domain name parking. The results presented below for the web presence segment include the former domain segment, which was consolidated into the web presence segment beginning with the first quarter of 2020.

  • Digital marketing. The digital marketing segment consists of Constant Contact email marketing tools and related products. This segment also generates revenue from sales of our Constant Contact-branded website builder tool, our Ecomdash inventory management and marketplace listing solution, and our Retention Science solution. For most of 2019, the digital marketing segment also included the SinglePlatform digital storefront business, which was sold on December 5, 2019.

The following table presents the calculation of ARPS, on a consolidated basis and by segment (all data in thousands, except ARPS data):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2020

2019

2020

Consolidated revenue

$

277,193

$

278,426

$

836,080

$

824,607

Consolidated total subscribers

4,780

4,965

4,780

4,965

Consolidated average subscribers for the period

4,774

4,921

4,791

4,865

Consolidated ARPS

$

19.35

$

18.86

$

19.39

$

18.83

Web presence revenue

$

174,428

$

178,064

$

528,096

$

528,714

Web presence subscribers

4,289

4,493

4,289

4,493

Web presence average subscribers for the period

4,283

4,449

4,298

4,395

Web presence ARPS

$

13.57

$

13.34

$

13.65

$

13.37

Digital marketing revenue

$

102,765

$

100,362

$

307,984

$

295,893

Digital marketing subscribers

491

472

491

472

Digital marketing average subscribers for the period

491

472

493

470

Digital marketing ARPS

$

69.79

$

70.81

$

69.40

$

69.91



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

Three Months Ended September 30, 2019

Web presence

Digital marketing

Total

Revenue

$

174,428

$

102,765

$

277,193

Gross profit

$

82,675

$

73,763

$

156,438

Net (loss) income

$

(4,730

)

$

12,546

$

7,816

Interest expense, net(1)

17,153

18,599

35,752

Income tax (benefit) expense

(3,044

)

(1,795

)

(4,839

)

Depreciation

9,166

2,114

11,280

Amortization of other intangible assets

10,115

11,553

21,668

Stock-based compensation

5,842

3,301

9,143

Restructuring expenses

(36

)

(157

)

(193

)

Gain on sale of intangible assets

Gain on sale of business

Transaction expenses and charges

Impairment of goodwill and other long-lived assets

Shareholder litigation reserve

Adjusted EBITDA

$

34,466

$

46,161

$

80,627

*



Three Months Ended September 30, 2020

Web presence

Digital marketing

Total

Revenue

$

178,064

$

100,362

$

278,426

Gross profit

$

88,788

$

72,976

$

161,764

Net (loss) income

$

(27

)

$

6,701

$

6,674

Interest expense, net(1)

13,952

15,854

29,806

Income tax (benefit) expense

1,015

572

1,587

Depreciation

10,312

2,512

12,824

Amortization of other intangible assets

7,653

10,160

17,813

Stock-based compensation

6,006

3,541

9,547

Restructuring expenses

33

33

Gain on sale of intangible assets

Gain on sale of business

Transaction expenses and charges

461

461

Impairment of goodwill and other long-lived assets

Shareholder litigation reserve

Adjusted EBITDA

$

38,911

$

39,834

$

78,745

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

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



Nine Months Ended September 30, 2019

Web presence

Digital marketing

Total

Revenue

$

528,096

$

307,984

$

836,080

Gross profit

$

230,485

$

221,399

$

451,884

Net (loss) income

$

(44,548

)

$

22,648

$

(21,900

)

Interest expense, net(1)

54,295

55,103

109,398

Income tax expense

1,938

1,102

3,040

Depreciation

26,718

6,667

33,385

Amortization of other intangible assets

29,893

34,244

64,137

Stock-based compensation

17,907

9,606

27,513

Restructuring expenses

785

1,220

2,005

Gain on sale of intangible assets

Gain on sale of business

Transaction expenses and charges

Impairment of goodwill and other long-lived assets

17,892

17,892

Shareholder litigation reserve

Adjusted EBITDA

$

104,880

$

130,590

$

235,470

*



Nine Months Ended September 30, 2020

Web presence

Digital marketing

Total

Revenue

$

528,714

$

295,893

$

824,607

Gross profit

$

261,524

$

217,092

$

478,616

Net (loss) income

$

(9,277

)

$

18,305

$

9,028

Interest expense, net(1)

44,422

48,972

93,394

Income tax expense

8,551

4,748

13,299

Depreciation

31,099

7,167

38,266

Amortization of other intangible assets

22,804

29,602

52,406

Stock-based compensation

18,916

10,062

28,978

Restructuring expenses

1,032

717

1,749

Gain on sale of intangible assets

(2,365

)

(2,365

)

Gain on sale of business

Transaction expenses and charges

461

461

Impairment of goodwill and other long-lived assets

Shareholder litigation reserve

Adjusted EBITDA

$

115,182

$

120,034

$

235,216

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

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