Web.com Reports First Quarter 2007 ResultsMay 3, 2007 Web.com Reports First Quarter 2007 Results
ATLANTA, May 3, 2007 (PRIME NEWSWIRE) -- Web.com, Inc. (Nasdaq:WWWW), a leading destination for websites and web services, today reported results for its first quarter ended March 31, 2007.
Summary of First Quarter 2007 Results:
- Total revenues for the quarter were $13.0 million, up from $12.3 million in the year-ago quarter.
- Net income for the quarter was $1.8 million, or $0.11 per share, versus a loss of $5.5 million, or $(0.34) per share, in the year- ago quarter, pending final tax treatment. The change in net income year over year includes a $3.4 million gain in discontinued operations and tax benefits, pending final tax treatment.
- Adjusted net income from continuing operations (1) was negative $0.2 million, versus $0.1 million in the year-ago quarter.
- Net subscribers totaled approximately 158,000 at March 31, 2007. Gross organic subscribers totaled a record 20,000 for the quarter, up approximately 6,000 gross subscribers, or 44%, from March 31, 2006.
"The first quarter marked significant improvement," stated Jeff Stibel, President and CEO, Web.com. "Compared to the fourth quarter of 2006, revenues were up, both gross and net subscribers were up, net income and adjusted net income improved, and average revenue per user (ARPU) was up. In aggregate, we had an excellent quarter and continued to execute on our business model and strategy."
The first quarter's net income was driven both by a favorable legal settlement and the positive early results of process and migration improvements. As a result of these process and migration improvements, in the first quarter the company has already saved approximately $1.5 million annualized. The company now expects annual savings in excess of $5.0 million as a result of these improvements which will be implemented over the next twelve months.
"We continue to streamline operations by eliminating less profitable systems and replacing them with a more profitable unified platform," stated Gonzalo Troncoso, Executive Vice President and Chief Financial Officer. "Coupled with our revenue growth and an estimated annualized savings rate of approximately $5.0 million for these consolidation efforts, we continue to feel that the company is well-positioned for long term profitability."
The financial statements included in this press release are subject to further review of the accounting treatment for the tax benefit associated with our gain on discontinued operations. The final determination of tax treatment will be reflected in our Form 10-Q which will be released on or before May 10, 2007.
Web.com, Inc. (Nasdaq:WWWW) is a leading destination for the simplest, yet most powerful solutions for websites and web services. Web.com offers do-it-yourself and professional website building, website hosting, ecommerce, web marketing, professional website design and e-mail. Since 1995, Web.com has been helping individuals and small businesses leverage the power of the Internet to build a web presence. More than 4 million websites have been built using Web.com's proprietary tools, services and patented technology. The company's web hosting and website building services can also be found under the Interland (www.interland.com) and Trellix (www.trellix.com) brands. For more information on the company, please visit www.web.com or call at 1-800-WEB-HOST.
Web.com will host a conference call today to discuss its quarterly results at 9:30AM ET (6:30AM PT). A live webcast of the call can be accessed on the investors section of the company's website at www.web.com/ir. A replay of the call will be available on the site for seven days.
(1) Adjusted net income (loss) from continuing operations is a non-GAAP financial measure and is defined as net income (loss) from continuing operations excluding interest income or expense, provision for income taxes, depreciation, amortization of intangibles, and stock-based compensation.
Note Regarding Use of Non-GAAP Financial Measures
This earnings release contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. Attached to this earnings release is a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measures.
Web.com, Inc. uses the non-GAAP measure adjusted net income (loss) from continuing operations to supplement the Consolidated Financial Statements presented in accordance with GAAP. This non-GAAP financial measure is used in addition to and in conjunction with the financial results presented in accordance with GAAP, and the presentation of this non-GAAP financial information should not be considered in isolation, or as a substitute for the GAAP conforming measures.
Management uses adjusted net income (loss) from continuing operations for financial and operational decision making, to evaluate management performance for compensation purposes, and as a means to provide comparable period-to-period operating results. This information is generally requested by investors and analysts. Web.com, Inc. believes that providing this non-GAAP measure provides greater transparency to investors to view the business through the eyes of management. We define adjusted net income (loss) from continuing operations as net income (loss) from continuing operations excluding (i) provision for income taxes, (ii) interest income or expense, (iii) depreciation, (iv) amortization of intangibles, and (v) stock based compensation. Management uses this non-GAAP financial measure as a primary measure in monitoring and evaluating the Company's ongoing operating results and trends in its operations. The Company believes that excluding income (loss) from discontinued operations provides a more relevant measure of the Company's present web services business. The Company's income (loss) from discontinued operations relates to the Company's prior business of manufacturing personal computers, which the Company sold in fiscal 2001, and is wholly unrelated to the Company's present web services business. By excluding these discontinued operations, the Company believes management and investors are better able to compare operating results of the Company's existing business over multiple periods. Management believes the exclusion of stock based compensation provides a more consistent comparison against prior year periods, since stock based compensation was not included in net income (loss) for prior fiscal years. Management believes that measuring the performance of the business without regard to discontinued operations and interest, taxes and depreciation and amortization can make trends in operating results more readily apparent, and when considered with other information, assist management and investors in evaluating the Company's ability to generate future earnings. A substantial portion of the Company's non-cash charges relate to historical transactions and capital expenditures that the current management may or may not have influenced. When considered with other performance metrics that alternatively include or exclude these charges, the Company believes the investor, like management, has a measure that provides both individual and collective management effectiveness. The Company believes that this non-GAAP measure is beneficial to management and investors for planning, budgeting and financial modeling purposes, as well as for comparison to its historical performance from period to period and to competitors' operating results. We believe both short and long term performance is transparent by providing GAAP and non-GAAP basis measurements to investors and analysts.
The limitations of use of the non-GAAP measure of adjusted net income (loss) from continuing operations as compared to net income (loss) in accordance with GAAP include the fact that the measure excludes some recurring costs such as depreciation and amortization and stock-based compensation, which are expected to continue as a significant recurring expense in the Company's business. Adjusted net income (loss) from continuing operations also does not take into account costs of doing business that can be substantial, such as income taxes and interest expense. Further, adjusted net income (loss) from continuing operations may not be comparable to similarly captioned information reported by other companies. The Company compensates for these limitations by providing specific information regarding the GAAP amounts excluded from this non-GAAP measure, by providing reconciliation to the most directly comparable GAAP financial measure and by evaluating adjusted net income (loss) from continuing operations together with net income (loss) and other financial measures calculated in accordance with GAAP.
Except for the historical information contained in this press release, statements in this press release may be considered forward-looking statements. These forward-looking statements include, but are not limited to, the ability to continue positive growth trends, increase customers and revenues, reduce expenses, recognize savings as a result of consolidation efforts and enter into strategic alliances with leading companies in the industry. Forward-looking statements are also identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," similar expressions, and variations or negatives of these words. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements are based on Web.com's current expectations, estimates, projections, beliefs and assumptions. These forward-looking statements speak only as of the date hereof and are based upon the information available to the Company at this time. Such information is subject to change, and the Company will not necessarily inform you of such changes. These statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, the Company's actual results could differ materially and adversely from those expressed in any forward-looking statement as a result of various factors. Factors which could affect these forward-looking statements, and Web.com's business, include but are not limited to: the availability of competing products and services with superior quality, functionality or price, the ability to operate within budgeted expense, the ability of the Company to improve customer satisfaction, reduce churn, reduce expenses and expand its customer base as planned, growing dependence on reseller and other indirect sales channels, general economic conditions, the impact of competition, quarterly fluctuations in operating results, the loss of customers with failing businesses and customer churn in general, customer acceptance of new products and services, the retention of key employees, possible disruptions for customers due to our data centers being maintained by third parties, and higher than expected costs of litigation. Certain of these and other risks associated with Web.com's business are discussed in more detail in its public filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company does not undertake to update its forward-looking statements.
Web.com, Inc. Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) For the Three Months Ended March 31, -------------------- 2007 2006 ---- ---- Revenues $ 13,032 $ 12,262 Operating costs and expenses: Network operating costs, exclusive of depreciation and amortization (a) 2,154 2,384 Sales and marketing 4,699 3,150 Technical support 1,289 1,722 General and administrative 5,079 9,912 Bad debt expense 562 277 Depreciation and amortization 1,072 1,134 Restructuring costs -- 43 Other expense (income), net (1) (1) -------- -------- Total operating costs and expenses 14,854 18,621 -------- -------- Operating loss (1,822) (6,359) Interest income (expense), net 255 261 -------- -------- Loss from continuing operations before income taxes (1,567) (6,098) Income tax benefit 1,108 854 -------- -------- Net loss from continuing operations (459) (5,244) Gain (loss) from discontinued operations, net of tax of $1,108 2,304 (259) -------- -------- Net income (loss) $ 1,845 $ (5,503) ======== ======== Net income (loss) per share, basic and diluted: Continuing operations $ (0.03) $ (0.32) Discontinued operations 0.14 (0.02) -------- -------- $ 0.11 $ (0.34) ======== ======== Number of shares used in per share calculation: Basic and diluted 16,703 16,395 (a) Excludes depreciation and amortization as follows: Network operating costs $ 752 $ 813 ======== ======== Web.com, Inc. Consolidated Balance Sheets (In thousands except par values) (Unaudited) As of ---------------------- March 31, December 31, 2007 2006 ---- ---- ASSETS Current assets Cash and cash equivalents $ 16,000 $ 13,288 Trade receivables, net of allowance of $189 and $160, respectively 1,170 2,074 Other receivables 380 525 Prepaids and other current assets 1,052 1,154 Restricted investments 166 162 --------- --------- Total current assets 18,768 17,203 Restricted investments 7,405 7,666 Property, plant and equipment, net 4,074 4,128 Goodwill 1,003 1,003 Intangibles, net 4,900 5,233 Other assets 3,243 3,195 --------- --------- Total assets $ 39,393 $ 38,428 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 1,425 $ 1,623 Accrued expenses 4,281 4,709 Accrued restructuring charges 2,091 2,345 Current portion of long-term debt and capital lease obligations 1,725 1,703 Deferred revenue 4,633 4,687 --------- --------- Total current liabilities 14,155 15,067 Long-term debt and capital lease obligations 1,511 1,971 Deferred revenue, long-term 264 314 Other liabilities 76 120 --------- --------- Total liabilities 16,006 17,472 --------- --------- Contingencies (note 8) -- -- Shareholders' equity Common stock, $.01 par value, authorized 26 million shares, issued and outstanding 16.8 and 16.8 million shares, respectively 168 168 Additional capital 332,535 331,949 Warrants 2,128 2,128 Note receivable from shareholder (735) (735) Accumulated deficit (310,709) (312,554) --------- --------- Total shareholders' equity 23,387 20,956 --------- --------- Total liabilities and shareholders' equity $ 39,393 $ 38,428 ========= ========= Web.com, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) For the Three Months Ended March 31, -------------------- 2007 2006 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,845 $ (5,503) Adjustments to reconcile net income (loss) to net cash provided by operating activities from continuing operations: (Gain) loss from discontinued operations (2,304) 259 Depreciation and amortization 1,072 1,134 Bad debt expense 562 277 Stock-based compensation 543 5,337 Restructuring costs -- 43 Changes in operating assets and liabilities: Receivables 487 450 Other current and long term assets 60 313 Accounts payable, accrued expenses and deferred revenue (994) (2,048) -------- -------- Net cash provided by operating activities of continuing operations 1,271 262 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant, and equipment (685) (931) Net change in restricted investments 257 446 Acquisition, net of cash acquired -- 14 -------- -------- Net cash used in investing activities of continuing operations (428) (471) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of debt and capital lease obligations (439) (450) Proceeds from issuance of common stock 43 103 -------- -------- Net cash used in financing activities of continuing operations (396) (347) -------- -------- Net cash provided by (used in) continuing operations 447 (556) -------- -------- Net cash provided by (used in) discontinued operations: Operating cash flows 2,265 (24) Investing cash flows -- -- Financing cash flows -- -- -------- -------- Total cash flows provided by (used in) discontinued operations 2,265 (24) -------- -------- Net increase (decrease) in cash and cash equivalents 2,712 (580) Cash and cash equivalents, beginning of period 13,288 17,370 -------- -------- Cash and cash equivalents, end of period $ 16,000 $ 16,790 ======== ========
Adjusted net income (loss) from continuing operations is defined as net income (loss) from continuing operations before (i) provision for income taxes, (ii) interest income or expense, and (iii) depreciation, (iv) amortization of intangibles, and (v) stock based compensation. Adjusted net income (loss) from continuing operations is not an indicator of financial performance under generally accepted accounting principles and may not be comparable to similarly captioned information reported by other companies. In addition, it does not replace net income (loss), operating income (loss), or cash flows from operating activities as indicators of operating performance.
The following table reflects the calculation of adjusted net income (loss) and a reconciliation to net income (loss):
For the Quarter Ended For the Quarter Ended --------------------- --------------------- 3/31/07 3/31/06 3/31/07 12/31/06 --------------------- --------------------- Net income (loss) $ 1,845 $(5,503) $ 1,845 $(1,914) Depreciation and amortization 1,072 1,134 1,072 1,042 Stock-based compensation 543 5,337 543 235 Interest income (255) (261) (255) (246) Income tax (benefit) expense (1,108) (854) (1,108) 22 (Gain) loss from discontinued operations, net of tax (2,304) 259 (2,304) 93 --------------------- --------------------- Adjusted net income (loss) from continued operations $ (207) $ 112 $ (207) $ (768) ===================== =====================