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
========= =========