Skip to main content

Web.com Reports First Quarter 2009 Financial Results

May 4, 2009

JACKSONVILLE, Fla., May 4, 2009 (GLOBE NEWSWIRE) -- Web.com Group, Inc. (Nasdaq:WWWW), a leading provider of online marketing for small businesses, today announced results for the first quarter ended March 31, 2009.

"We were pleased with the company's execution in the first quarter, which was highlighted by revenue and profitability that were above the high-end of our guidance. In addition, our customer churn remained at a record low level and we exited the quarter with approximately 265,000 customers, which was consistent with the end of the previous quarter," said David Brown, Chairman and CEO of Web.com. "Our continued focus on optimizing the company's efficiency is reflected by our strong adjusted EBITDA and cash flow generation. We are optimistic about Web.com's long-term growth opportunity and our emerging leadership position in the online marketing sector, which we believe is increasingly making Web.com the partner of choice for other influential companies focused on the small and medium-sized business market."

Summary of First Quarter 2009 Results:

 * Total revenue, calculated in accordance with U.S. generally
     accepted accounting principles (GAAP), was $27.8 million for the
     first quarter of 2009, above the high-end of the company's guidance
     and compared to $30.9 million for the first quarter of 2008.
  
   * For the first quarter, GAAP operating income was $877,000,
     representing an operating margin of 3.2% and compared to $938,000
     for the first quarter of 2008.
  
   * GAAP net income was $0.9 million for the first quarter of 2009,
     compared to $0.6 million in the first quarter of 2008.  GAAP net
     income per diluted share was $0.03 per share for the first quarter
     of 2009, an increase from $0.02 per share for the first quarter of
     2008.
  
   * Non-GAAP operating income was $4.8 million for the first quarter of
     2009, representing a non-GAAP operating margin of 17% and an
     increase from $4.6 million for the first quarter of 2008.
  
   * Non-GAAP net income was $4.8 million for the first quarter of 2009,
     consistent with the first quarter of 2008.  Non-GAAP net income per
     diluted share was $0.18 for the first quarter of 2009, above the
     high-end of the company's guidance and representing an increase
     from $0.16 per diluted share for the first quarter of 2008.
  
   * Adjusted EBITDA, which excludes the impact of stock-based
     compensation, restructuring charges and goodwill and asset
     impairment, was $5.6 million for the first quarter of 2009, an
     increase compared to $5.2 million for the first quarter of 2008.
  
   * Cash flows from operations were $5.7 million for the first quarter
     of 2009.  This represents an increase compared to ($1.0) million,
     and $2.9 million excluding the pay down of accrued restructuring
     expenses, for the first quarter of 2008.
  

Other Highlights:

 * Web.com's total net subscribers were approximately 265,000 at the
     end of the first quarter, consistent with the end of the prior
     quarter.
  
   * Customer churn remained at an all-time low of 3.9% in the first
     quarter.
  
   * The company repurchased 827,000 shares during the first quarter of
     2009, bringing the total number of shares repurchased to
     approximately 2,885,000 since the $20 million share repurchase
     program was authorized in the third quarter of 2008.  At the end of
     the first quarter, the company had reduced its common shares
     outstanding by 10% compared to the end of the third quarter 2008,
     and it continued to have approximately $10.5 million of available
     capacity in its share repurchase program.
  

Conference Call Information

Management will host a conference call to discuss Web.com's results and other matters related to the Company's business, including guidance related to future results, today May 4, 2009, at 5:00 p.m. (Eastern Time). To access this call, dial 888-686-9703 (domestic) or 913-312-6674 (international). A replay of this conference call will be available for a limited time at 888-203-1112 (domestic) or 719-457-0820 (international). The replay passcode is 9077410. A webcast of this conference call will also be available for a limited time on the "Investor Relations" page of the Company's Web site, www.web.com

All per share numbers for non-GAAP net income per share are expressed on a weighted-average diluted per share basis. Non-GAAP net income excludes stock-based compensation expense, amortization expense related to acquisitions, restructuring charges, the deferred revenue adjustment due to purchase accounting, income tax expense, and includes an estimated cash tax rate to be paid during 2009. Non-GAAP operating income excludes stock-based compensation expense, amortization expense related to acquisitions, restructuring charges, and the deferred revenue adjustment related to purchase accounting. A reconciliation of GAAP financial measures to non-GAAP financial measures results has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading "Use of Non-GAAP Financial Measures."

About Web.com

Web.com Group, Inc. (Nasdaq:WWWW) is a leading provider of online marketing for small businesses. Web.com offers a full range of online services, including Internet marketing and advertising, local search, search engine marketing, search engine optimization, lead generation, home contractor specific leads, website design and publishing, logo and brand development and eCommerce solutions, meeting the needs of small businesses anywhere along their lifecycle. For more information on the company, please visit http://www.web.com or call 1-800-GETSITE.

Note to Editors: Web.com is a registered trademark of Web.com Group, Inc.

Use of Non-GAAP Financial Measures

Some of the measures in this press release are non-GAAP financial measures within the meaning of the SEC Regulation G. Web.com believes presenting non-GAAP net income attributable to common stockholders, non-GAAP net income per share attributable to common stockholders and non-GAAP operating income is useful to investors, because it describes the operating performance of the company and helps investors gauge the company's ability to generate cash flow, excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with GAAP. Company management uses these non-GAAP measures as important indicators of the company's past performance and in planning and forecasting performance in future periods. The non-GAAP financial information Web.com presents may not be comparable to similarly-titled financial measures used by other companies, and investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP. You are encouraged to review the reconciliation of non-GAAP financial measures to GAAP financial measures included elsewhere in this press release.

Relative to each of the non-GAAP measures the company presents above, management further sets forth its rationale as follows:

 * Non-GAAP Operating Income.  The Company excludes from non-GAAP
     operating income amortization of intangibles, fair value adjustment
     to deferred revenue, restructuring charges and stock-based
     compensation charges.  Management believes that excluding these
     non-cash charges assists investors in evaluating period-over-period
     changes in the Company's operating income without the impact of
     items that are not a result of the Company's day-to-day business
     and operations.
  
   * Non-GAAP Net Income and Non-GAAP Net Income Per Share.  The Company
     excludes from non-GAAP net income and non-GAAP net income per share
     amortization of intangibles, income tax expense, fair value
     adjustment to deferred revenue, restructuring charges and 
     stock-based compensation, and includes cash income tax expense, 
     because management believes that excluding such measures helps 
     investors better understand the Company's operating activities.
  
   * Adjusted EBITDA. The Company excludes from Adjusted EBITDA
     depreciation expense, amortization of intangibles, income tax,
     interest expense, interest income, and stock-based compensation,
     because management believes that excluding such items helps
     investors better understand the Company's operating activities.
  

In respect of the foregoing, Web.com provides the following supplemental information to provide additional context for the use and consideration of the non-GAAP financial measures used elsewhere in this press release:

 * Stock-based compensation.   These expenses consist of expenses for
     employee stock options and employee stock purchases under SFAS
     123(R). The Company excludes stock-based compensation expenses from
     our non-GAAP measures primarily because they are non-cash expenses.
     Prior to the adoption of SFAS 123(R) in fiscal 2006, the Company
     did not include expenses related to employee stock options and
     employee stock purchases directly in its financial statements, but
     elected, as permitted by SFAS 123, to disclose such expenses in the
     footnotes to its financial statements. As the Company applies SFAS
     123(R), it believes that it is useful to its investors to
     understand the impact of the application of SFAS 123(R) to its
     operational performance, liquidity and its ability to invest in
     research and development and fund acquisitions and capital
     expenditures. While stock-based compensation expense calculated in
     accordance with SFAS 123(R) constitutes an ongoing and recurring
     expense, such expense is excluded from non-GAAP results because it
     is not an expense that typically requires or will require cash
     settlement by the Company and because such expense is not used by
     management to assess the core profitability of the Company's
     business operations. The Company further believes these measures
     are useful to investors in that they allow for greater transparency
     to certain line items in our financial statements. In addition,
     excluding this item from various non-GAAP measures facilitates
     comparisons to the Company's competitors' operating results.
  
   * Amortization of intangibles.  The Company incurs amortization of
     acquired intangibles under SFAS 141. Acquired intangibles primarily
     consist of customer relationships, non-compete agreements, trade
     names, and developed technology. The Company expects to amortize
     for accounting purposes the fair value of the acquired intangibles
     based on the pattern in which the economic benefits of the
     intangible assets will be consumed as revenue is generated.
     Although the intangible assets generate revenue for the Company,
     the item is excluded because this expense is non-cash in nature and
     because the Company believes the non-GAAP financial measures
     excluding this item provide meaningful supplemental information
     regarding the Company's operational performance, liquidity and its
     ability to invest in research and development and fund acquisitions
     and capital expenditures. In addition, excluding this item from
     various non-GAAP measures facilitates management's internal
     comparisons to the Company's historical operating results and
     comparisons to the Company's competitors' operating results.
  
   * Depreciation expense.  The Company incurs depreciation expense
     associated with its fixed assets.  Although the fixed assets
     generate revenue for the Company, the item is excluded because this
     expense is non-cash in nature and because the Company believes the
     non-GAAP financial measures excluding this item provide meaningful
     supplemental information regarding the Company's operational
     performance, liquidity and its ability to invest in research and
     development and fund acquisitions and capital expenditures.  In
     addition, excluding this item from certain non-GAAP measures
     facilitates management's internal comparisons to the Company's
     historical operating results and comparisons to the Company's
     competitors' operating results.
  
   * Interest expense.  The Company incurs interest expense related to
     the indebtedness of the Company.  This item is excluded because the
     Company believes the non-GAAP measures excluding this item provide
     meaningful supplemental information regarding the Company's
     operational performance.  In addition, excluding this item from
     various non-GAAP measures facilitates management's internal
     comparisons to the Company's historical operating results and
     comparisons to the Company's competitors' operating results.
  
   * Interest income.  The Company earns interest income related to its
     cash and cash equivalents.  This item is excluded because the
     Company believes the non-GAAP measures excluding this item provide
     meaningful supplemental information regarding the Company's
     operational performance.  In addition, excluding this item from
     various non-GAAP measures facilitates management's internal
     comparisons to the Company's historical operating results and
     comparisons to the Company's competitors' operating results.
  
   * Restructuring charges.  The Company has recorded restructuring
     charges.  The Company excludes the impact of these expenses from
     its non-GAAP measures, because such expense is not used by
     management to assess the core profitability of the Company's
     business operations.
  
   * Income tax expense.  Due to the magnitude of the Company's
     historical net operating losses and related deferred tax asset, the
     Company excludes income tax expense from its non-GAAP measures
     primarily because they are not indicative of the cash tax paid by
     the Company and therefore are not reflective of ongoing operating
     results. Further, excluding this non-cash item from non-GAAP
     measures facilitates management's internal comparisons to the
     Company's historical operating results.  The Company also excludes
     income tax expense altogether from certain non-GAAP financial
     measures because the Company believes that the non-GAAP measures
     excluding this item provide meaningful supplemental information
     regarding the Company's operational performance and facilitates
     management's internal comparisons to the Company's historical
     operating results and comparisons to the Company's competitors'
     operating results.
  
   * Fair value adjustment to deferred revenue.  The Company has
     recorded a fair value adjustment to acquired deferred revenue in
     accordance with SFAS 141. The Company excludes the impact of this
     adjustment from its non-GAAP measures, because doing so results in
     non-GAAP revenue and non-GAAP net income which are reflective of
     ongoing operating results and more comparable to historical
     operating results, since the majority of the Company's revenue is
     recurring subscription revenue. Excluding the fair value adjustment
     to deferred revenue therefore facilitates management's internal
     comparisons to the Company's historical operating results.
  

Forward-Looking Statements

This press release includes certain "forward-looking statements" including, without limitation, statements regarding Web.com's expectations about its future financial performance and market position, that are subject to risks, uncertainties and other factors that could cause actual results or outcomes to differ materially from those contemplated by the forward-looking statements These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this presentation that are not historical facts. These statements are sometimes identified by words such as "believe" or words of similar meaning. As a result of the ultimate outcome of such risks and uncertainties, Web.com's actual results could differ materially from those anticipated in these forward-looking statements. These statements are based on our current beliefs or expectations, and there are a number of important factors that could cause the actual results or outcomes to differ materially from those indicated by these forward-looking statements, including, without limitation, our ability to integrate Web.com businesses, our ability to maintain our sales efficiency, our ability to maintain our existing, and develop new, strategic relationships, the number of our net subscriber additions and our monthly customer turnover. These and other risk factors are set forth under the caption "Risk Factors" in Web.com's Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission, which is available on a website maintained by the Securities and Exchange Commission at www.sec.gov. Web.com expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein as a result of new information, future events or otherwise.

                         Web.com Group, Inc.
                   Consolidated Statements of Operations
                   (in thousands except per share data)
  
  
                                                  Three Months Ended
                                                       March 31,
                                                ------------------------
                                                    2009        2008
                                                (unaudited)  (unaudited)
                                                -----------  -----------
   Revenue:
    Subscription                                $   26,017   $   29,731
    License                                          1,266          449
    Professional services                              553          681
                                                -----------  -----------
      Total revenue                                 27,836       30,861
  
   Cost of revenue (excluding depreciation
    and amortization shown separately below):
  
    Subscription (a)                                 9,309       10,903
    License                                             87           93
    Professional services                              300          375
                                                -----------  -----------
      Total cost of revenue                          9,696       11,371
                                                -----------  -----------
   Gross profit                                     18,140       19,490
  
   Operating expenses:
    Sales and marketing (a)                          5,775        7,463
    Research and development (a)                     2,076        2,638
    General and administrative (a)                   6,062        5,102
    Depreciation and amortization                    3,350        3,349
                                                -----------  -----------
      Total operating expenses                      17,263       18,552
                                                -----------  -----------
   Income from operations                              877          938
  
   Other income:
    Interest, net                                       63          256
                                                -----------  -----------
   Income before income taxes                          940        1,194
   Income tax expense                                   18          644
                                                -----------  -----------
   Net income                                   $      922   $      550
                                                ===========  ===========
  
   Net income per common share
  
   Basic                                        $     0.04   $     0.02
                                                ===========  ===========
   Diluted                                      $     0.03   $     0.02
                                                ===========  ===========
   Weighted-average number of shares
    used in per share amounts:
  
   Basic                                            25,603       27,549
   Diluted                                          26,429       30,619
  
   (a) Stock based compensation included above:
       Subscription (cost of revenue)           $      105   $       80
       Sales and marketing                             225          210
       Research and development                        125          103
       General and administration                      869          538
                                                -----------  -----------
   Total                                        $    1,324   $      931
                                                ===========  ===========
  
                           Web.com Group, Inc.
                         Consolidated Balance Sheets
                    (in thousands except per share data)
  
  
                                                 March 31,     Dec. 31,
                                                   2009          2008
                                                (unaudited)   (audited)
                                                -----------  -----------
   Assets
   Current assets:
    Cash and cash equivalents                   $   36,891   $   34,127
    Accounts receivable, net of allowance
     $554 and $645, respectively                     3,928        5,019
    Inventories, net of reserves of $84 and $78,
     respectively                                       27           39
    Prepaid expenses                                 1,597        1,430
    Prepaid marketing fees                             642          665
    Deferred taxes                                   1,094        1,093
    Other current assets                               129          134
                                                -----------  -----------
   Total current assets                             44,308       42,507
   Restricted investments                              316          316
   Property and equipment, net                       7,665        8,204
   Goodwill                                          9,225        9,000
   Intangible assets, net                           59,472       62,085
   Other assets                                        585          383
                                                -----------  -----------
   Total assets                                 $  121,571   $  122,495
                                                ===========  ===========
  
   Liabilities and stockholders' equity
   Current liabilities:
    Accounts payable                            $    1,677   $    1,406
    Accrued expenses                                 6,580        6,230
    Accrued restructuring costs and other
     reserves                                        2,372        2,619
    Deferred revenue                                 7,288        7,831
    Accrued marketing fees                             229          263
    Notes payable                                       30           59
    Other current liabilities                          140          128
                                                -----------  -----------
   Total current liabilities                        18,316       18,536
  
   Accrued rent expense                                564          535
   Deferred revenue                                    161          180
   Accrued restructuring costs and other
    reserves                                           907        1,214
   Deferred tax liabilites                           2,712        2,712
   Other liabilities                                    25           25
                                                -----------  -----------
   Total liabilities                                22,685       23,202
  
  
   Stockholders' equity
   Common stock, $0.001 par value;
    150,000,000 shares authorized; 28,093,759
    and 28,093,759 shares issued and 26,371,451
    and 26,633,436 shares outstanding at
    March 31, 2009 and December 31, 2008,
    respectively                                        26           27
   Additional paid-in capital                      256,699      256,763
   Treasury Stock, at cost, 1,722,308 and
    1,460,323 shares at March 31, 2009 and
    December 31, 2008, respectively                 (4,747)      (3,483)
   Accumulated deficit                            (153,092)    (154,014)
                                                -----------  -----------
   Total stockholders' equity                       98,886       99,293
                                                -----------  -----------
   Total liabilities and stockholders' equity   $  121,571   $  122,495
                                                ===========  ===========
  
                           Web.com Group, Inc.
                 Reconciliation of GAAP to Non-GAAP Results
                    (in thousands except per share data)
                                 (unaudited)
  
                                                  Three Months Ended
                                                         March 31,
                                                ------------------------
                                                   2009          2008
                                                -----------  -----------
   Reconciliation of GAAP net income to
     non-GAAP net income
  
   GAAP net income                              $      922   $      550
   Amortization of intangibles                       2,613        2,617
   Loss on disposal of fixed assets                      4           --
   Income tax expense                                   18          644
   Cash income tax expense                             (92)         (59)
   Fair value adjustment to deferred revenue            30          140
   Stock based compensation                          1,324          931
                                                -----------  -----------
   Non-GAAP net income                          $    4,819   $    4,823
                                                ===========  ===========
   
   Reconciliation of GAAP basic net income 
    per share to non-GAAP basic net income 
    per share
  
   Basic GAAP net income per share              $     0.04   $     0.02
   Amortization of intangibles per share              0.10         0.10
   Loss on disposal of fixed assets per share         0.00           --
   Income tax expense per share                       0.00         0.02
   Cash income tax expense per share                 (0.00)       (0.00)
   Fair value adjustment to deferred
     revenue per share                                0.00         0.01
   Stock based compensation per share                 0.05         0.03
                                                -----------  -----------
   Basic Non-GAAP net income per share          $     0.19   $     0.18
                                                ===========  ===========
   
   Reconciliation of GAAP diluted net income
    per share to non-GAAP net income per share
  
   Fully diluted shares:
   Common stock                                     25,603       27,549
   Diluted stock options                               804        2,730
   Diluted restricted stock                             21           --
   Warrants                                             --          201
   Escrow shares                                         1          139
                                                -----------  -----------
       Total                                        26,429       30,619
                                                ===========  ===========
   
   Diluted GAAP net income per share            $     0.03   $     0.02
   Amortization of intangibles per share              0.10         0.09
   Loss on disposal of fixed assets per share         0.00           --
   Income tax expense per share                       0.00         0.02
   Cash income tax expense per share                 (0.00)       (0.00)
   Fair value adjustment to deferred revenue
     per share                                        0.00         0.00
   Stock based compensation per share                 0.05         0.03
                                                -----------  -----------
   Diluted Non-GAAP net income per share              0.18     $   0.16
                                                ===========  ===========
   
   Reconciliation of GAAP operating income
     to non-GAAP operating income
   GAAP operating income                        $      877   $      938
   Amortization of intangibles                       2,613        2,617
   Loss on disposal of fixed assets                      4           --
   Fair value adjustment to deferred revenue            30          140
   Stock based compensation                          1,324          931
                                                -----------  -----------
   Non-GAAP operating income                    $    4,848   $    4,626
                                                ===========  ===========
   
   Reconciliation of GAAP operating margin
    to non-GAAP operating margin
  
   GAAP operating margin                                 3%           3%
   Amortization of intangibles                           9%           8%
   Loss on disposal of fixed assets                      0%           0%
   Fair value adjustment to deferred revenue             0%           1%
   Stock based compensation                              5%           3%
                                                -----------  -----------
   Non-GAAP operating margin                            17%          15%
                                                ===========  ===========
   
   Reconciliation of GAAP operating income
    to adjusted EBITDA
  
   GAAP operating income                        $      877   $      938
   Depreciation and amortization                     3,350        3,349
   Stock based compensation                          1,324          931
                                                -----------  -----------
   Adjusted EBITDA                              $    5,551   $    5,218
                                                ===========  ===========
  
                           Web.com Group, Inc.
                    Consolidated Statement of Cash Flows
                               (in thousands)
  
  
                                                   Three Months Ended
                                                        March 31,
                                                ------------------------
                                                    2009        2008
                                                (unaudited)   (audited)
                                                -----------  -----------
   Cash flows from operating activities
  
   Net income                                   $      922   $      550
   Adjustments to reconcile net income to
    net cash provided by (used in)
    operating activities:
   Depreciation and amortization                     3,350        3,349
   Loss on disposal of assets                            4            3
   Stock-based compensation expense                  1,324          931
   Deferred income tax                                  --          586
   Changes in operating assets and liabilities:
     Accounts receivable                             1,091         (360)
     Inventories                                        12            3
     Prepaid expenses and other assets                (341)       2,818
     Accounts payable, accrued expenses
       and other liabilities                          (110)      (9,084)
     Deferred revenue                                 (562)         185
                                                -----------  -----------
   Net cash provided by (used in)
    operating activities                             5,690       (1,019)
  
   Cash flows from investing activities
  
   Business acquisition, net of cash received           --           (8)
   Proceeds from sale of investment                     --        5,500
   Purchase of investment                               --         (996)
   Change in restricted investments                     --        1,228
   Purchase of property and equipment                 (242)        (522)
   Investment in intangible assets                      (2)          (1)
                                                -----------  -----------
   Net cash (used in) provided by investing
    activities                                        (244)       5,201
  
   Cash flows from financing activities
  
   Stock issuance costs                                 (5)          (5)
   Common stock repurchased                         (2,669)          --
   Payment of debt obligations                         (29)      (1,106)
   Proceeds from exercise of stock options              21          737
                                                -----------  -----------
   Net cash (used in) financing activities          (2,682)        (374)
                                                -----------  -----------
   Net increase in cash and cash equivalents         2,764        3,808
   Cash and cash equivalents, beginning
    of period                                       34,127       29,746
                                                -----------  -----------
   Cash and cash equivalents, end of period     $   36,891   $   33,554
                                                -----------  -----------
   Supplemental cash flow information:
  
    Interest paid                               $        1   $       21
                                                ===========  ===========
    Income tax paid                             $       36   $       73
                                                ===========  ===========
  
CONTACT:  ICR
            Kori Doherty
            617-956-6730
            kori.doherty@icrinc.com
  

 

© Copyright 2009 GlobeNewswire, Inc. All rights reserved.