Web.com Reports Record Second Quarter 2011 Financial Results

Non-GAAP revenue and profitability exceed high-end of guidance

ARPU growth and record low customer churn levels continue in 2Q

Executed Agreement to Purchase Network Solutions

JACKSONVILLE, Fla., Aug. 3, 2011 (GLOBE NEWSWIRE) -- Web.com Group, Inc. (Nasdaq:WWWW), a leading provider of internet services and online marketing solutions for small businesses, today announced results for the second quarter ended June 30, 2011.   

"We are very pleased with the company's second quarter financial results, which were above the high-end of our expectations. The growing momentum of our business is reflected by our subscription revenue increasing at its highest organic sequential rate in more than three years," said David Brown, Chairman and CEO of Web.com. "Our improved revenue growth, in the midst of a still challenging economy, is further validation of our business model and acquisition strategy. In the year since we acquired Register.com, we have delivered on our goal to use our increased scale, much larger customer base and greater resources to drive increased adoption of our web services, online marketing, social media and mobile solutions with small businesses."

"Today we announced entering into an agreement to acquire privately-held Network Solutions, a leading provider of website services, online marketing and global domain name registration focused on the needs of SMB's (see separate press release issued on August 3, 2011). The acquisition would accelerate our growth strategy and improve our ability to capitalize on the $19 billion market opportunity associated with delivering online marketing solutions to small businesses. We anticipate that a combination with Network Solutions will more than double our revenue, triple the size of our customer base, quadruple our expected annual free cash flow and take our ability to invest in growth initiatives, cross-sell and upsell programs, and brand development to a different level," added Brown. "We believe that Web.com is creating an increasingly attractive financial profile, characterized by a recurring revenue model, significant scale and best in class profitability and free cash flow margins. We believe we are solidifying Web.com as an even stronger leader in delivering online marketing solutions across the full range of our customers."

Summary of Second Quarter 2011 Financial Results:

• Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $42.2 million for the second quarter of 2011, compared to $24.8 million for the second quarter of 2010. Non-GAAP revenue, which adds back the impact of the fair value adjustment to acquired deferred revenue, was $46.2 million for the second quarter of 2011, ahead of the company's guidance range of $45.0 million to $46.0 million. 

• Operating loss, calculated in accordance with GAAP, was $0.6 million for the second quarter of 2011 and included a $4.0 million negative impact related to the fair value adjustment to acquired deferred revenue and prepaid registry fees. For the second quarter of 2010, the company reported GAAP operating loss of $1.6 million.

• GAAP net loss from continuing operations was $2.0 million, or ($0.07) per diluted share, for the second quarter of 2011, and included the above mentioned impact related to the fair value adjustment to acquired deferred revenue and prepaid registry fees. GAAP net loss from continuing operations was $1.8 million, or ($0.07) per diluted share, in the second quarter of 2010. 

• Non-GAAP operating income was $9.1 million for the second quarter of 2011, representing a non-GAAP operating margin of 20% and an increase of 193% compared to $3.1 million for the second quarter of 2010.

• Non-GAAP net income from continuing operations was $8.1 million for the second quarter of 2011, or $0.26 per diluted share, an increase of 148% on a year-over-year basis. This exceeded the high-end of the company's guidance by two cents. Non-GAAP net income from continuing operations was $3.3 million, or $0.13 per diluted share, for the second quarter of 2010. 

• Adjusted EBITDA was $10.0 million for the second quarter of 2011, representing an adjusted EBITDA margin of 22% and an increase of 165% compared to $3.8 million for the second quarter of 2010. 

• Cash flow from operations was $5.3 million for the second quarter of 2011 and $6.0 million excluding the pay down of accrued restructuring expenses, assumed compensation liability and expenses associated with the Register.com acquisition. This compared to $3.7 million and $4.0 million, respectively, for the second quarter of 2010.

Second Quarter and Recent Business Highlights:

• Consolidated average revenue per user (ARPU) was $16.24 for the second quarter of 2011, a sequential increase of 4% from $15.64 in the first quarter of 2011.

• Customer churn was 1.7% for the second quarter of 2011, slightly improved from the first quarter of 2011.

• Web.com's total net subscribers were approximately 926,000 at the end of the second quarter of 2011. This net subscriber count reflects modest growth in Web.com's web services and value-add solutions' customer base, offset by a reduction in the number of domain name services customers. The reduction by 13,000 subscribers in the second quarter of 2011 represents the second consecutive quarter of improvement from the 20,000 customer loss per quarter level that Register.com experienced prior to the Web.com acquisition.

• Web.com paid down approximately $8.2 million in debt in the second quarter, which was approximately $6 million more than required under terms of its debt agreement and the fourth quarter in a row of accelerated prepayment. Since the company acquired Register.com in the third quarter of 2010, it has used a portion of its cash flow to pay down approximately $25 million in debt.

Conference Call Information

Management will host a conference call today August 3, 2011, at 5:00 p.m. (Eastern Time), to discuss Web.com's second quarter financial results, the acquisition of Network Solutions, and other matters related to the Company's business and forward looking guidance. A live webcast of the call and a set of slides with additional details will be available at the "Investor Relations" page of the Company's website, http://ir.web.com. To access the call, dial 877-407-0784 (domestic) or 201-689-8560 (international). A replay of this conference call will be available for a limited time at 877-870-5176 (domestic) or 858-384-5517 (international). The replay conference ID is 375409. A replay of the webcast will also be available for a limited time at http://ir.web.com.

About Web.com

Web.com Group, Inc. (Nasdaq:WWWW) is a leading provider of internet services and online marketing solutions for small businesses. Web.com meets the needs of small businesses anywhere along their lifecycle by offering a full range of online services and support, including domain name registration services, website design, logo design, search engine optimization, search engine marketing and local sales leads, general contractor leads, franchise and homeowner association websites, shopping cart software, eCommerce web site design and call center services. 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 measures is useful to investors, because it describes the operating performance of the company, 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 Revenue.  We exclude from non-GAAP revenue the impact of the fair value adjustment to acquired deferred revenue because we believe that excluding such measures helps management and investors better understand our revenue trends.
• Non-GAAP Operating Income. The Company excludes from non-GAAP operating income amortization of intangibles, fair value adjustment to deferred revenue and prepaid registry fees, restructuring charges, corporate development expenses and stock-based compensation charges. Management believes that excluding these items 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 Diluted Share.  The Company excludes from non-GAAP net income and non-GAAP net income per diluted share amortization of intangibles, income tax expense, fair value adjustment to deferred revenue and prepaid registry fees, restructuring charges, corporate development expenses, amortization of financing fees, 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, stock-based compensation, corporate development expenses, and restructuring charges, 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 ASC 718-10. The Company excludes stock-based compensation expenses from our non-GAAP measures primarily because they are non-cash expenses. Prior to the adoption of ASC 718-10 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, to disclose such expenses in the footnotes to its financial statements. As the Company applies ASC 718-10, it believes that it is useful to its investors to understand the impact of the application of ASC 718-10 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 ASC 718-10 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 ASC 805-10-65. 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. 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.
• Amortization of deferred financing fees. The Company incurs amortization expense related to deferred financing fees. 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 and prepaid registry fees. The Company has recorded a fair value adjustment to acquired deferred revenue and prepaid registry fees in accordance with ASC 805-10-65. 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 and prepaid registry fees therefore facilitates management's internal comparisons to the Company's historical operating results.
• Corporate development expenses. The Company incurred professional fees to assist us in performing due diligence procedures for the acquisition of Register.com in July 2010. 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. 

Forward-Looking Statements

This press release includes certain "forward-looking statements" including, without limitation, statements regarding the anticipated positive impact of acquiring Network Solutions, expected growth from our investment in marketing initiatives, cost synergies resulting from our recent combination with Register.com, expected benefits to merchants and other customers, market opportunities, and expected customer base, 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," "potential," "will," "expect," "opportunities," 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 Web.com's 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, whether the acquisition of Network Solutions is approved by Web.com's stockholders and, assuming such approval, is consummated, Web.com's ability to integrate the Network Solutions business if the acquisition is consummated, Web.com's ability to further integrate the Web.com and Register.com businesses, disruption created by the Network Solutions acquisition and from integration efforts making it more difficult to maintain relationships with customers, employees or suppliers; risks related to the successful offering of the combined company's products and services; the risk that the anticipated benefits of the acquisition may not be realized; and other risks that may impact Web.com's and Register.com's businesses.  Other risk factors are set forth under the caption, "Risk Factors," in Web.com's Annual Report on Form 10-Q for the quarter ended March 30, 2011, 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.