Skip to main content

Web.com Reports Third Quarter 2008 Financial Results

November 6, 2008

  
   Increased Quarterly Cash Flow from Operations to a Record $6.2 Million
  
        Total Cash Balances Grew to Approximately $34 Million
  

JACKSONVILLE, Fla., Nov. 6, 2008 (GLOBE NEWSWIRE) -- Web.com Group, Inc. (Nasdaq:WWWW), a leading provider of online marketing for small businesses, today announced results for the third quarter ended September 30, 2008.

Summary of Third Quarter 2008 Results:

  
   --  Total revenue was $30.6 million for the third quarter of 2008, an
       increase of 72% compared to $17.8 million for the third quarter
       of 2007.
  
   --  Operating income, calculated in accordance with U.S. generally
       accepted accounting principles (GAAP), was $1.1 million for the
       third quarter of 2008, representing a GAAP operating margin of
       4%, and an increase of 41% from $0.8 million for the third
       quarter of 2007.
  
   --  GAAP net income 
  was $1.3 million for the third quarter of 2008,
       an increase of 230% from $0.4 million for the third quarter of
       2007. GAAP net income per diluted share was $0.04 per share for
       the third quarter of 2008, an increase of 100% from $0.02 per
       share for the third quarter of 2007.
  
   --  Non-GAAP operating income was a record $5.5 million for the third
       quarter of 2008, representing a non-GAAP operating margin of 18%,
       and an increase of 127% compared to $2.4 million for the third
       quarter of 2007.
  
   --  Non-GAAP net income was a record $5.7 million for the third
       quarter of 2008, an increase of 93% compared to $2.9 million for
       the third quarter of 2007. Non-GAAP net income per diluted share
       was $0.19 for the third quarter of 2008, an increase of 27%
       compared to $0.15 for the third quarter of 2007.
  
   --  Cash flows from operations were $6.2 
  million for the third
       quarter of 2008, an increase of 45% compared to $4.3 million for
       the third quarter of 2007.
  

"Web.com delivered third quarter results that were in-line with our expectations from a revenue and profitability perspective. While near-term market demand continues to face pressure due to the increasingly difficult macroeconomic environment, we believe the long-term earnings power of our company is evidenced by expanding non-GAAP operating margins and record non-GAAP operating profitability," said David Brown, Chairman and CEO of Web.com. "With a strong market position, balance sheet and profitability, combined with a growing base of influential channel partners, we believe Web.com has an opportunity to emerge from the current economic crisis in an even stronger position."

Other Highlights:

  
   --  Web.com's total net subscribers were 
  approximately 274,000 at the
       end of the third quarter, up from approximately 271,000 at the
       end of the previous quarter.
  
   --  Customer churn remained near record low levels at 4.0% in the
       third quarter, compared to 3.9% in the previous quarter and 5.2%
       on a combined basis in the third quarter of 2007.
  
   --  During the third quarter, the Company announced that the Board of
       Directors authorized the repurchase of up to $20 million of
       Web.com's outstanding common shares.
  
   --  On October 28, the Company announced an agreement with PowerPay
       to offer eCommerce customers payment processing solutions
       allowing for up to 25% cost savings for the customers and a new
       way to monetize our new and existing customers.
  
   --  On October 14, the Company announced an agreement with Yellowbook
       pursuant to which Web.com will create customized stand-alone
       
  websites for Yellowbook's advertising customers.
  
   --  On October 8, the Company announced an exclusive partnership with
       Bob Vila to leverage the Internet to match homeowners with
       contractors and home renovation experts.
  
   --  On September 23, the Company announced a partnership with
       MerchantCircle, the largest social network of local business
       owners in the nation, to provide local merchants with Web.com's
       online marketing solutions and professional website design
       services.
  

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 November 6, 2008, at 5:00 p.m. (Eastern Time). To access this call, dial 877-704-5378 (domestic) or 913-661-9178 (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 4133109. 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 2008. 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, and shopping cart 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.
  

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.
  
   --  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.
  
   --  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", "growing", "emerge" 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 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     Nine Months Ended
                                 September 30,          September 30,
                                2008        2007      2008       2007
                             (unaudited)(unaudited)(unaudited)(unaudited)
                              ---------  ---------  ---------  ---------
    Revenue:
     Subscription             $  29,224  $  16,820  $  89,224  $  48,006
     License                        560        383      2,128      2,095
     Professional services          822        613      2,093      1,539
                              ---------  ---------  ---------  ---------
      Total revenue              30,606     17,816     93,445     51,640
  
    
  Cost of revenue
     (excluding
     depreciation and
     amortization shown
     separately below):
  
     Subscription (a)            10,776      7,124     32,717     21,225
     License                        149        190        433        667
     Professional services          327        347        994        947
                              ---------  ---------  ---------  ---------
       Total cost of
        revenue                  11,252      7,661     34,144     22,839
                              ---------  ---------  ---------  ---------
  
   Gross profit                  19,354    10,155     59,301      28,801
  
   Operating expenses:
    Sales and marketing (a)       7,345      4,202     22,414     12,413
    Research and
     development (a)              2,394        915      7,825      2,637
    General and
     administrative (a)           4,557      3,271     15,057      9,348
    Restructuring charges  
           529        242        529        242
    Depreciation and
     amortization                 3,395        719      9,976      2,113
                              ---------  ---------  ---------  ---------
     Total operating
      expenses                   18,220      9,349     55,801     26,753
                              ---------  ---------  ---------  ---------
   Income from operations         1,134        806      3,500      2,048
  
   Other income:
    Interest, net                   188        528        635      1,539
                              ---------  ---------  ---------  ---------
   Income before income
    taxes                         1,322      1,334      4,135      3,587
   Income tax expense                30        942         96      2,011
                              ---------  ---------  ---------  ---------
   Net income                 $   1,292  $     392  $   4,039  $   
  1,576
                              =========  =========  =========  =========
  
   Net income per common
    share
   Basic                      $    0.05  $    0.02  $    0.15  $    0.09
                              =========  =========  =========  =========
   Diluted                    $    0.04  $    0.02  $    0.13  $    0.08
                              =========  =========  =========  =========
   Weighted-average
    number of shares
    used in per
    share amounts:
   Basic                         27,944     17,989     27,767     17,603
                              =========  =========  =========  =========
   Diluted                       30,169     19,944     30,416     19,768
                              =========  =========  =========  =========
  
   (a) Stock based compensation
     included above:
    Subscription (cost of
     revenue)                 $      93  $      57  $     257  $     168
    Sales 
  and marketing             256        175        695        508
    Research and
     development                    105         67        321        206
    General and
     administration                 879        618      2,229      1,718
                              ---------  ---------  ---------  ---------
   Total                      $   1,333  $     917  $   3,502  $   2,600
                              =========  =========  =========  =========
  
  
  
                            Web.com Group, Inc.
                        Consolidated Balance Sheets
                   (in thousands except per share data)
  
  
                                         September 30,       December 31,
                                             2008               2007
                                          (unaudited)         (audited)
                                         ------------       ------------
   Assets
   Current 
  assets:
    Cash and cash equivalents            $     33,615       $     29,746
    Restricted investments                         --              4,805
    Accounts receivable, net of
     allowance $678 and $791
     thousand, respectively                     6,197              6,204
    Inventories, net of reserves
     of $73 and $67, respectively                  50                 26
    Prepaid expenses                            1,231              4,248
    Prepaid marketing fees                        714                793
    Deferred taxes                              1,818              1,723
    Other current assets                          487                759
                                         ------------       ------------
   Total current assets                        44,112             48,304
  
   Restricted investments                         316              1,675
   Property and 
  equipment, net                  9,123              7,153
   Goodwill                                   111,783            107,933
   Intangible assets, net                      64,702             69,422
   Other assets                                   337                526
                                         ------------       ------------
   Total assets                          $    230,373       $    235,013
                                         ============       ============
  
   Liabilities and stockholders'
    equity
   Current liabilities:
    Accounts payable                     $      2,098       $      2,034
    Accrued expenses                            8,135              9,097
    Accrued restructuring costs
     and other reserves                         2,905             10,484
    Deferred revenue                            8,570              8,501
    Accrued marketing fees                 
         402                279
    Notes payable, current                         88              1,186
    Obligations under capital
     lease, current                                --                  1
    Other liabilities                             161                197
                                         ------------       ------------
   Total current liabilities                   22,359             31,779
  
   Accrued rent expense                           378                105
   Deferred revenue                               140                147
   Notes payable, long term                        --                 59
   Accrued restructuring costs
    and other reserves, long term               1,533              3,116
   Deferred tax liabilities, long
    term                                        3,351              3,351
   Other long term liabilities                     94                 
  25
                                         ------------       ------------
   Total liabilities                           27,855             38,582
  
  
   Stockholders' equity
  
   Common stock, $0.001 par
    value; 150,000,000 shares
    authorized;  27,837,371
    shares and 27,472,686 shares
    issued and outstanding at
    September 30, 2008 and
    December 31, 2007,
    respectively.                                  28                 27
   Additional paid-in capital                 258,737            254,208
   Treasury Stock, at cost,
    438,934 shares                             (2,482)                --
   Accumulated deficit                        (53,765)           (57,804)
                                         ------------       ------------
   Total stockholders' equity                 202,518            196,431
                                         ------------       ------------
  
   Total liabilities 
  and
    stockholders' equity                 $    230,373       $    235,013
                                         ============       ============
  
  
                            Web.com Group, Inc.
                Reconciliation of GAAP to Non-GAAP Results
                   (in thousands except per share data)
                                (unaudited)
  
                                  Three Months Ended   Nine Months Ended
                                    September 30,        September 30,
                                    2008      2007      2008      2007
                                  --------  --------  --------  --------
   Reconciliation of GAAP
    revenue to non-GAAP
    revenue
   GAAP revenue                   $ 30,606  $ 17,816  $ 93,445  $ 51,640
   Fair value adjustment
    to deferred revenue                 42        32       267       105
                                  --------  --------  
  --------  --------
   Non-GAAP revenue               $ 30,648  $ 17,848  $ 93,712  $ 51,745
                                  ========  ========  ========  ========
  
   Reconciliation of GAAP
    net income attributable
    to common stockholders
    to non-GAAP net income
   GAAP Net income                 $ 1,292     $ 392   $ 4,039   $ 1,576
   Amortization of
    intangibles                      2,507       448     7,620     1,322
   Income tax expense                   30       942        96     2,011
   Cash income tax expense             (72)      (38)     (157)      (92)
   Fair value adjustment to
    deferred revenue                    42        32       267       105
   Restructure expense                 529       242       529       242
   Stock based compensation          1,333       917     3,502     2,600
                                  --------  --------  --------  --------
   Non-GAAP net income       
       $  5,661  $  2,935  $ 15,896  $  7,764
                                  ========  ========  ========  ========
  
   Reconciliation of GAAP
    basic net income per
    share to non-GAAP net
    income per share
   Basic GAAP net income
    (loss) per share              $   0.05  $   0.02  $   0.15  $   0.09
   Amortization of
    intangibles per share             0.09      0.03      0.27      0.08
   Income tax expense per
    share                             0.00      0.05      0.00      0.11
   Cash income tax expense
    per share                        (0.00)    (0.00)    (0.01)    (0.01)
   Fair value adjustment
    to deferred revenue
    per share                         0.00      0.00      0.01      0.01
   Restructure expense per
    share                             0.02      0.01      0.02      0.01
   Stock based compensation
    per share                         0.04      0.05      0.13      0.15
              
                      --------  --------  --------  --------
   Basic Non-GAAP net
    income per share              $   0.20  $   0.16  $   0.57  $   0.44
                                  ========  ========  ========  ========
  
   Reconciliation of GAAP
    diluted net income per
    share to non-GAAP net
    income per share
  
   Fully diluted shares:
  
   Common stock                     27,944    17,989    27,767    17,603
   Diluted stock options             1,954     1,485     2,333     1,695
   Warrants                            133       193       177       192
   Escrow shares                       138       277       139       278
                                  --------  --------  --------  --------
       Total                        30,169    19,944    30,416    19,768
                                  ========  ========  ========  ========
  
   Diluted GAAP net income
    per share                     $   
  0.04  $   0.02  $   0.13  $   0.08
   Amortization of
    intangibles per share             0.08      0.02      0.25      0.07
   Income tax expense per
    share                             0.00      0.05      0.00      0.10
   Cash income tax expense
    per share                        (0.00)    (0.00)    (0.01)    (0.00)
   Fair value adjustment
    to deferred revenue
    per share                         0.00      0.00      0.01      0.01
   Restructure expense per
    share                             0.02      0.01      0.02      0.01
   Stock based compensation
    per share                         0.05      0.05      0.12      0.12
                                  --------  --------  --------  --------
   Diluted Non-GAAP net
    income per share              $   0.19  $   0.15  $   0.52  $   0.39
                                  ========  ========  ========  ========
  
   Reconciliation of GAAP
    operating 
  income to
    non-GAAP operating
    income
   GAAP operating income          $  1,134  $    806   $ 3,500  $  2,048
   Amortization of
    intangibles                      2,507       448     7,620     1,322
   Fair value adjustment to
    deferred revenue                    42        32       267       105
   Restructuring charges               529       242       529       242
   Stock based compensation          1,333       917     3,502     2,600
                                  --------  --------  --------  --------
   Non-GAAP operating
    income                        $  5,545  $  2,445  $ 15,418  $  6,317
                                  ========  ========  ========  ========
  
   Reconciliation of GAAP
    operating margin to
    non-GAAP operating margin
   GAAP operating margin                4%        5%        4%        4%
   Amortization of
    intangibles                         8%        3%        7%       
   3%
   Fair value adjustment
    to deferred revenue                 0%        0%        0%        0%
   Restructuring charges                2%        1%        1%        0%
   Stock based compensation             4%        5%        4%        5%
                                  --------  --------  --------  --------
   Non-GAAP operating margin           18%       14%       16%       12%
                                  ========  ========  ========  ========
  
  
                           Web.com Group, Inc.
                   Consolidated Statement of Cash Flows
                              (in thousands)
  
  
                                                    Nine Months Ended
                                                       September 30,
                                                   2008            2007
                                              (unaudited)     (unaudited)
                           
                      ---------       ---------
   Cash flows from operating activities
  
   Net income                                  $   4,039       $   1,576
   Adjustments to reconcile net income
    to net cash (used in) provided by
    operating activities:
   Depreciation and amortization                   9,976           2,113
   Gain on disposal of assets                         (1)             --
   Stock-based compensation expense                3,502           2,600
   Restructuring charges                             529             242
   Deferred income tax                               (95)          1,875
   Changes in operating assets and
    liabilities:
      Accounts receivable                             52             (13)
      Inventories                                    (24)             39
      Prepaid expenses and other assets            3,108              (2)
      Accounts payable, accrued 
  expenses
       and other liabilities                     (10,551)             84
      Deferred revenue                              (326)            341
                                               ---------       ---------
   Net cash provided by operating
    activities                                    10,209           8,855
  
   Cash flows from investing activities
  
   Business acquisition, net of cash
    received                                      (4,573)          7,812
   Proceeds from sale of investment                8,500              --
   Purchase of investment                         (3,502)             --
   Change in restricted investments                1,228              --
   Purchase of property and equipment             (4,436)         (3,190)
   Investment in intangible assets                  (945)           (102)
                                               ---------       ---------
   
  Net cash (used in) provided by
    investing activities                          (3,728)          4,520
  
   Cash flows from financing activities
  
   Stock issuance costs                              (19)             --
   Common Stock Repurchased                       (2,482)             --
   Payment of debt obligations                    (1,158)           (156)
   Proceeds from exercise of stock
    options                                        1,047           1,248
                                               ---------       ---------
   Net cash (used in) provided by
    financing activities                          (2,612)          1,092
                                               ---------       ---------
  
   Net increase in cash and cash
    equivalents                                    3,869          14,467
   Cash and cash equivalents, beginning
    of period                                     29,746 
           42,155
                                               ---------       ---------
   Cash and cash equivalents, end of
    period                                     $  33,615       $  56,622
                                               =========       =========
   Supplemental cash flow information:
  
       Interest paid                           $      25       $      13
                                               =========       =========
  
       Income tax paid                         $     126       $     199
                                               =========       =========
  
CONTACT:  ICR
            Kori Doherty
            617-956-6730
            kori.doherty@icrinc.com
  
            Web.com
            Peter Delgrosso
            904-680-6696
            pdelgrosso@web.com
  

(C) Copyright 2008 GlobeNewswire, Inc. All rights reserved.