Q1 2020 Earnings Call

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Good morning, ladies and gentlemen, and welcome to the endurance International group 2021st quarter Financial results Conference call.

This time all participants are in listen only mode. Later, we will could that day question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero under Touchstone telephone as a reminder, at this conference call is being recorded I would now by turn the conference.

Her to your host Ms., Angela White VP of Investor Relations.

Thanks Ashley good.

Good morning, everyone My pleasure to welcome news or first quarter 2020 earnings call first we'll go through some prepared remarks, after which we'll turn to culinary.

Creditor presentation to accompany our common which is available on the Investor Relations section of our web site at IR thought insurance dotcom, well not necessary to follow along we recommend referencing the presentation slides alongside our prepared remarks.

Customary let me I'll read the Safe Harbor statement.

Statements made on today's call will include forward looking statements about endurances future expectations plans and prospects all such forward looking statements are subject to risks and uncertainties. Please refer to the cautionary language in today's earnings release and to our form 10-K filed with the I can see on February 14th 20, Penny for discussion of the risks and uncertainties that could cause our.

Actual results could be materially different from those contemplated in these forward looking statement.

Dresses ought to think any obligation to update any forward looking statements during the call.

I will reference several non-GAAP financial measures, including adjusted EBITDA free cash flow that debt and bank adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is available in the presentation located in the IR section of our website.

With that I'll turn the call over to Jeff block, our president and CEO.

Thank you Angela and good morning I.

I'm pleased with the results we delivered in the continued progress we made in the first quarter.

Obviously, no one we anticipate the impact covert 19 is having globally on all aspects of People's lives livelihoods and business operations.

Since the pandemic accelerated in early March we have operated with three guiding principles to help our organization remain focused and productive in this complex business environment.

The first principle is to focus on the safety of our employees and their family members is our top priority.

The third week of March we had all of our teams in a work from home model I could not be more proud of the way the team executed this unplanned to move with minimal disruption to our business and our customers.

Second we are fortunate the whole to position us to scale provider of digital marketing and web presence solutions in a large and growing market. We continue to see secular demand for services and we'll continue to invest in delivery competitively priced solutions that help our customers achieve their objectives.

Finally, we have a valuable set of assets and provide services to approximately 5 million customers. We have made considerable progress executing our strategy to invest in our market leading strategic brands.

Simplify our operational complexity and integrate our teams as we drive scale.

We remain focused on investing to grow both of our scale business segments.

Through April or execution has remained consistent with our 2020 growth plan. However, we know that it is too early to predict the extent of the Pandemics effect on all business for the remainder of the year.

Such we believe it's prudent to suspend our previously provided guidance for 2020, as we focus on delivering value to our customers in executing our plan.

Mark will discuss in more detail on his section.

Turning now to slide six.

Our GAAP revenue in the first quarter was 272.2 million.

Revenue.

Our digital marketing segment reflected year over year growth when adjusting for the December 2019 sale of single platform.

Our web presence segment continued to make progress toward revenue in collection by delivering another quarter of net unit growth.

We ended the quarter with 4.78 million subscribers on platform, which marks our third consecutive quarter of net subscriber growth when adjusting for the sale of single platform.

Adding 14000, net new subs, but.

Adjusted EBITDA was 72.5 million, which is down from 76.9 million in Q1 of 2019 adjusted for the sale of single platform.

Year over year, we increased investment in our product engineering and development teams, resulting in a 3 million dollar cost increase and we're pleased with the progress we made on our strategic brands.

Year to date, we repurchased approximately 8.7 million shares.

Of our stock for a total of $14.4 million.

At an average price per share of $1.66.

Our board authorization remains in place with remaining capacity of 25.5 million.

Turning now to slide so.

Before we go into our segment details it's important to note. The progress we have made operationalizing our to scale strategic platforms.

And as a reminder, we changed our reporting to reflect or simplified organization and the teams in both businesses excuse executed their plans in the first quarter.

Turning now to slide eight.

In our digital marketing segment, we continue to make.

Progress transforming constant contact from an email marketing point solution into a digital marketing brand was significantly expanded solutions.

During the quarter, we increased revenue year over year by 2.2 million and are pleased with the net subscriber growth we delivered operationally our sales support marketing and engineering teams executed very effectively with increasing focus on customer success during the quarter, we made progress enhancing our core email.

Platform integrating our recently acquired E com dash business and enhancing our website builder logo in E commerce capabilities under the constant contact break.

In addition in response to covert 19, we launched the constant contact small business support kit, which provides action plans and guidance by industry to SMB customers looking for helpful resources as they navigate this crisis.

We are pleased with the team's effort in launching this dedicated site, which is part of our long term strategy to deliver capability as a complement our high value email marketing solution.

Turning now to our web presence segment.

Our results reflect continued revenue stabilization in our third consecutive quarter of positive net unit growth.

The team delivered these results by successfully executing our growth plan on our strategic brands complemented by excellent work by our teams in Latin America, India and Holland.

As a scale web presence solution provider, we had over a million new customers on an annual basis. Our 2020 plan remains unchanged and is focused on expanding our addressable market through investment solutions to complement our core hosting and domain products.

In Q1 or web presence teams did an excellent job pivoting quickly to address workover related challenges our global support centers continue to serve customers 24 by seven despite the complexities of moving agents to work from home status from a marketing perspective, we also launched portals across key.

Brands aimed at providing tool kits to help customers navigate through this disruptive period.

Turning now to slide 10 in Q1, we continued to make progress positioning our strategic brands for long term growth as we navigated challenged challenges introduced by the co bid 2019.

19 pandemic.

We are pleased with the execution by our branded platform teams and our investing to grow our business by delivering increased value to customers.

With that I'll turn the call over to Mark much in Asia discuss our financial results in more detail.

Thank you Jeff on Slide 12, I am pleased to review our first quarter 2020 resorts on the reported basis GAAP revenue was $272.2 million.

Adjusted EBITDA was 72.5 million dollar.

He goes through defined as cash from operation. This capital expenditure in fitness equipment was 23.7 million dollar.

Please note that in the same pure the Ugo revenue and adjusted EBITDA contribution from CDN platform was $7 million and $1.6 million respectively.

You will see platform would occur in December 2019.

Normalizing for these numbers revenue in the same period. So you go would have been to assumed $3.7 million, an adjusted EBITDA was $76.9 million.

Are you over you decline in adjusted EBITDA was due mostly to increase Liberty investment in engineering and increases in marketing expenses.

This was partially offset by benefits from lower support cost.

GAAP cash from operation in the first quarter was $34.9 million Capex was 11.2 million and free cash who was $23.7 million.

The year over year increases in cost who from operations and free cash flow, we mostly impacted by the timing of people in the first quarter of 19.

One term funding over security class action settlement in the first quarter of 19 and low bonus payment in the first quarter 2020.

Additionally, the first quarter of 2020, changing the food revenue increase you over you by $2.6 million to Hollywood cash collections.

Slide 13, we finished the first quarter 2020 was 4.7 million subscribers props.

Net subscriber additions for the first quarter were approximately 14000 positive.

We were very pleased proceed another quarter of positive subscriber addition.

The first quarter of 2020.

Buying of anew.

Average revenue per says club to ops was $19 in one sense.

In web presence. It was 13 50 and digital marketing 69 50.

Slide 14, we ended the first quarter was 1.713 billion going towards he knew that.

Including other the food purchase obligation and company to result, $9 million and toward caution the balance sheet over $114 million.

Total net debt at the end of the cured was $1.68 billion.

During the first quarter, we paid down approximately 8 million dollar of the principal on tumor owned it.

LTM Bank adjusted EBITDA for the period ended March 30 foods was $310.9 million.

A senior debt leverage wish who was 4.6 June and we means would it be or much elements you secure leverage wish who have six students.

On slide 15.

Jeff annuity section, we will suspending guidance for 2020.

We will focus on existing Oh original plan, but given the nature of our business.

Early to assist in fact over the spend to make on a custom movies of approximately 5 million subscribers.

The demand for part of the services is consistent with our 2020 growth plan, but we're closely monitoring effectiveness program marketing spend and watching not shown weight.

We also taking a prudent financial approach not paying very close attention to what expenses.

The new kids, we live a positive impact on our free cash flow in 2020, we will be able to deferred to 2021 and 2020 to approximately 10 million dollar FICA taxes.

In addition.

Benefit from a temporary increase in federal tax deduction from Oc cushion to his FEMA 2019 and 2020.

This will reduce I'll sit and talk to by approximately 5 million during 2020, and also increase up and we'll balance at the end of 2019 by approximately $50 million.

Year to date, we repurchase approximately 8.7 million shares for totaled $14.4 million.

On an average price per share over those 66.

Verticals these purchases which occurred in the first quarter.

We also repurchased we renewed or how you note at an average discount of approximately 5% in the first quarter.

We ended the quarter was a $114 million dog caution on the balance sheet.

Managing a use of cash prudently given the unknown.

We also have accessed was $165 million revolving credit facility, which is Andrew.

We do not face any significant debt maturity in the near term.

We feel very comfortable with our liquidity position at this time.

Thank you for joining us they need to in the core but yes.

Thanks Mark.

I'm proud of the work the team is doing and we're pleased with our year to date results. The team is operating at scale with focus on customer value and enhancing our ability to serve more customers more effectively on a daily basis. Despite the global uncertainty, we will continue to execute our plan to grow our business by investing in.

Sales marketing product and engineering on our valuable strategic brands.

We look forward to our next update in the meantime stay healthy. Thank you for joining US. This morning, I'll turn the call back to the operator to begin QNX.

[noise], ladies and gentlemen, if you have to question at this time. Please press Star then apparel one on your catch John Telethon. If your question has been answered or you raised your maybe yourself and the Keith Please press the pound key.

Your first question comes from now that caught with Suntrust.

Yeah. Thanks for Dock Hope you all know state.

A couple of question than mine.

Oh, so after 11000 subscribers invalid and present any give us some more color on these customers are coming.

Domains are worse than what kind of a password you might be seeing too onto other offerings. There and then some of your peers came out talking about trends.

Giving us an update about what they're saying and it seems like out there might become I'm kind of pick up and new customer demand.

From people are nothing.

And just you know sort of business systems from.

And also a some incremental pick up and cancellations just curious to know what you might have the same on their end.

So so we don't really go into the details on the first question.

I think we tried need to be real clear that.

That we see.

An expanded solution opportunity on the front door.

Brands that were driving domain dotcom boils, hostgator and constant contact as the primary.

And and so we're not we're not going to separate out and start reporting on specific attach rates.

We feel like that would be just too too much granularity and we would we would never be evident to do that from an FCC are reporting perspective, our general plan, which are which I was speaking about yes, we still see the opportunity to take figure that sort of bring in and through the year continue to improve the yeah.

Her experience and the specificity of solutions that these users need to accomplish their objectives and whether its domains are hosting or car or email marketing.

Our plan for the rest in years to keep investing to to deliver a dismal solutions.

On your second question, we're saying the same thing I mean, the Google search trends would tell you that short term their secular demand I've tried to keep it simple for us because we look at it in and we believe that we have a secular demand.

Hi, tailwind that should help us.

I think we're in an unprecedented scenario, where nobody really knows how this healthcare situation plays out and therefore Halex society, just a function again, how things have or have not changed in terms.

Oh of what Scott Who's going to go back in the business or how they're going to do customers. So we're not a disagreement with anything that or you know appears to have said.

I feel like we see the same trends and were what I think mark referenced so close of a watching our cash our expenses and are are you know the value of the units were acquiring and the what's happening within our subscriber base.

And so we're watching very carefully.

And staying focused on the investments we think are right for the long term opportunity to grow.

That's helpful and maybe a quick follow up on the constant contact side of things out I understand it's a perfectly higher.

Arps.

Are you seeing greater use as well this product as doesn't just trying to stay in debt to their customers or are you seeing Laura pick up in cancellations, how <unk> or any kind of trends to gone out on that side.

Yeah. So so so we definitely have seen a platform used more which which were encouraged by right. So just a reminder, right for those that really don't.

Followed the industry email marketing as a very high return on investment.

Marketing solution.

And it's it you know we've been doing it for 20 years, we were actually a one one could argue we were actually the the first really big player training people on email marketing if so the data. It's a great question. It's a great call out we did see the customers we have.

Using our platform more I mean, obviously not all of them, but we saw very much increased usage, which is logical given that the complexity of of the pandemic and how it came on and how much people needed to communicate and well we'll need to communicate so we're very pleased with that we're glad we've been investing.

And in that platform.

As it relates to customers. We you know we're trying to keep it really simple light, which is we need to grow our net customers and we need to grow the value those customers get.

Over time and those are.

I will now we're not we don't report on the differences between gross and net in any of our businesses I'm just to avoid the complexity of micro disclosure for us.

But we're very pleased with the quarter we had.

In our email marketing segment and feel like there was a lot more we can do over time with some of the investments, we're making and intend to make.

Great. Thank you Jeff.

No. Thank you.

And again for any questions. Please press Star then one I know telephone keypad and your next question comes from Brent till they Jefferies.

Hi, everyone does that sound interbank, Bill I'm, hoping level.

Just wanted to follow up on your previous question is there any other color maybe you could share on what's going on in late March through April intensive customer behavior.

Products that seem to be.

Yeah, you know when demand over the same way interest and it's kinda defendant like you had seen previously and then I had a follow up thank you.

<unk> so.

I'll defer to secular demand.

Right, which we think we think some folks are.

No I mean.

We think folks are using tools and have time to to use these tools and so we think this has been a net benefit for anybody that supplies anything we did whether it's just buying a domain.

Buying a domain and hooking up G suite are obviously 65 or just you know a lower price.

E Mail only solution right, we see we see people figuring out you really need to do these things we've definitely seen the main street folks have to get very creative with marketing inventory management potentially listing on multiple marketplaces. So we're seeing a pull forward.

Because of the crisis of the exploration and utilization of tools and capabilities that we we provide along with a lot of other folks right. So when I say secular demand that's what we're describing.

Specificity of that we definitely think there's been more demand for some things that were not as exposed to but it's.

What you will hear from US is is that we're working really hard to increase our exposure to things.

The things, we can attached to a domain.

Customer or web hosting customer or email marketing customer those are our three primary exposures.

But our whole investment strategy on our strategic brands was down to be able to take people to join us.

With the first purchase thing on one of those brands and make sure that they can do more things like E commerce build a web sites.

Post on.

Facebook or or less you integrate with Facebook pull down there shopify data and manage mold cry.

Marketplace listings are E com Dev solution, so I'm elaborating a little bit to just make sure you know that we know where we make our money we feel like secular demand. This is a good thing.

We feel like we're in trying to increase in 2020, our exposure to things beyond just our core capabilities and that's our you are holistic strategy that works.

Great appreciate the color there.

Then just a quick follow up on the arts or.

What do you need to what president size to that that is down again is there any dynamic behind it is just more introductory promotional offer or anything tweaks.

Two.

They know the trends in clinics for web presence.

No. It's it's it's the accumulated effect of some some high hi.

Hi, I'm low value customers that are trading on on legacy brands versus this or that but we're not managing to an arps number on on a on either side of our business, we're managing to customer success.

And a good return on our cost to acquire Bert and building lifetime revenue strategy. So work. It's a result, it's not the number we're managing too.

We we intended to grow our young our strategy is to grow our units grow our revenue and grow our profitability because we feel like we have an aggregate scale profitable exposure to growing markets.

Thank you that's helpful.

Okay.

And again for any questions. Please press Star then it number one I know telephone keypad.

At this time I'm showing no further questions that does conclude today's conference. We thank you for your participating and you may now disconnect.

Thank you.

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