Constant Contact Earnings: Results Were Good Year-On-Year But Fell Short Of Guidance

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Constant Contact (NASDAQ:CTCT) decided to cancel its earnings call this quarter in light of the company’s newly announced takeover deal with Endurance International. The Waltham-based email marketing company performed marginally better this quarter in comparison to last quarter, however, the figures fell short of the guidance range. The company didn’t meet analyst expectations in terms of revenues or EPS. Analyst consensus for EPS was around $0.38, while revenues were expected to touch $92.86 million. In comparison, the company reported an EPS of $0.19 (half that of the consensus) and revenues of $91.90 million (falling short of expectations despite a 10% year-on-year growth). [1] In spite of an overall below average quarter, the EBITDA margin managed to find its way to the higher end of the guidance range (21.8% to 22.1%), coming in at 22.1%. [2]

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On November 2, Endurance International Group Holdings Inc. (EIGI) announced the acquisition of Constant Contact in a move to increase their product range and customer base. This acquisition is the largest of the 40-plus acquisitions Endurance has undertaken over the years. This deal is going to add about 650,000 customers to Endurance’s 4.5 million existing customers, apart from increasing the product range, which will now include all of Constant Contact’s email marketing, event management, and contact management products. The main goal of both companies is to provide small businesses (SMBs) with the tools to grow and compete better. [3]

Endurance International serves SMBs by hosting their websites and providing certain additional services including easy-to-use site design tools. The company has acquired over 40 smaller internet hosting companies since its inception and has grown significantly over time, becoming the second largest internet hosting company in the U.S. today (according to Wall Street analyst Stephen Morea). Some of its more popular brands include HostGator and Domain.com. [4]

The company has agreed to pay $32 per outstanding share (a 32.6% premium over last week’s closing price), of which there are about 32 million shares. This brings the deal’s price to roughly $1.1 billion. The acquisition is being financed through debt and is going to be paid in cash. To put the company’s potential in terms of numbers, we can take a look at the revenues for each. Endurance reported revenues of about $652 million in FY 2014, while Constant Contact had revenues of about $332 million. The combined pro forma revenue for FY 2015 will stand at around $1.1 billion, with a further growth in the lower double digits in FY  2016. In terms of adjusted EBITDA, the combined pro forma figure will stand at about $350 million in FY 2015, while Endurance expects this figure to jump to $400 million by the end of FY 2016. Despite the positive outlooks, however, the Endurance stock took a hit after the announcement, falling by about 16.5% on Monday.

The combination of the two companies will help small businesses not only begin operations, by hosting their websites, but also provide its customers with the tools to grow their businesses further through Constant Contact’s integrated marketing solutions.

It would also be worthwhile to mention that since its listing Endurance has consistently produced annual losses. But this deal may just turn things around for the company, going forward. It seems likely that after the deal is finalized, Endurance will possess the potential to best serve its customers by providing them a unique and consolidated product package, which could increase customers and hence, revenues. However, everything concerning the deal and its outcome is all speculation. Will Endurance actually turn things around next year? We’ll just have to wait and see.

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Notes:
  1. Constant Contact Announces Quarterly Earnings Results, moneyflowindex.com []
  2. Constant Contact Q3 2015 Press Release, constantcontact.com []
  3. EIGI Q3 2015 Earnings Call Transcript, seekingalpha.com []
  4. Burlington’s Endurance Buys Constant Contact, betaboston.com []
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