Web.com Group, Inc.
May 4, 2017

Web.com Reports First Quarter 2017 Financial Results

JACKSONVILLE, Fla., May 04, 2017 (GLOBE NEWSWIRE) -- Web.com Group, Inc. (NASDAQ:WEB), a leading provider of Internet services and online marketing solutions for small businesses, today announced results for the first quarter ended March 31, 2017.   

"Web.com reported a strong start to the year with solid operating results exceeding our guidance on revenue and profitability.  Our first quarter performance is a reflection of the significant progress we have made carrying out our strategy, and we remain confident in our goal of reaccelerating growth in the second half of the year," said David L. Brown, chairman, chief executive officer and president of Web.com.

Brown added, "Our focus is on completing the final steps of the Yodle integration while continuing to invest in the growth areas of our business.  On that front, we are pleased with the continued growth at Web Brand Networks, our franchise and multi-location channel, and the results we are seeing with our initiatives around Leads by Web, our lead generation solution, and Torchx, our new real estate vertical market solution.  Realizing our long term growth and profitability goals will increase our already significant free cash flow and enable us to continue to delever, repurchase shares and invest for growth."

Summary of First Quarter 2017 Financial Results:

First Quarter and Recent Business Highlights:

Conference Call Information
Management will host a conference call today, May 4, 2017, at 5:00 p.m. ET, to discuss Web.com's first quarter financial results and current business outlook. There will be an accompanying slide presentation which will be available on the Investor Relations page of Web.com's website  (http://ir.web.com), along with a live webcast and replay of the call. To access the call, dial 800-756-4697 (domestic) or 913-312-0672 (international). A replay of this conference call will be available until May 18, 2017, at 844-512-2921 (domestic) or 412-317-6671 (international). The replay conference ID is 2765895.

About Web.com
Web.com Group, Inc. (Nasdaq:WEB) is a global provider of a full range of Internet services to small businesses to help them compete and succeed online. Web.com meets the needs of small businesses anywhere along their lifecycle with affordable, subscription-based solutions including domains, hosting, website design and management, search engine optimization, online marketing campaigns, local sales leads, social media, mobile products, eCommerce solutions and call center services. For more information, please visit www.web.com; follow the company on Twitter @webdotcom or on Facebook at www.facebook.com/web.com

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, in ways that management views or uses to assess the performance of the Company. Web.com's 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 Web.com presents, management further sets forth its rationale as follows:

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:

Forward-Looking Statements
This press release includes "forward-looking statements" including, without limitation, statements regarding the benefits of the final steps of the Yodle integration and investments in growth areas of Web.com's business and the effects resulting therefrom 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.  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, risks related to the successful offering of the products and services of Web.com; and other risks that may impact Web.com's business. 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, 2016 as filed with the Securities and Exchange Commission, which are 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 Comprehensive Income
(in thousands, except for per share data)
(unaudited)
 
 Three months ended March 31,
 2017 2016
    
Revenue$185,118  $144,798 
    
Cost of Revenue and Operating Expenses:   
Cost of revenue (excluding depreciation and amortization)57,922  50,051 
Sales and marketing50,911  42,428 
Technology and development17,001  12,626 
General and administrative19,843  16,732 
Restructuring expense322  136 
Asset Impairment143   
Depreciation and amortization18,433  15,913 
Total cost of revenue and operating expenses164,575  137,886 
Income from operations20,543  6,912 
    
Interest expense, net(7,891) (5,598)
Net income before income taxes12,652  1,314 
Income tax expense(6,134) (977)
Net income$6,518  $337 
    
Other comprehensive income:   
Foreign currency translation adjustments598  (316)
Unrealized gain on investments, net of tax1  28 
Total comprehensive income$7,117  $49 
    
Basic earnings per share:   
Net income per basic common share$0.13  $0.01 
Diluted earnings per share:   
Net income per diluted common share$0.13  $0.01 
    
(1) Included in the three months ended March 31, 2016 are adjustments for the correction of an immaterial error in the classification of infrastructure costs, which were previously classified within cost of revenue and were reclassified to technology and development. In addition, the Company changed its accounting classification to record infrastructure costs supporting administrative platforms to be included in general and administrative expense. These were previously recorded in technology and development expense.


Web.com Group, Inc. 
Consolidated Balance Sheets 
(in thousands, except share amounts) 
      
  March 31, 2017 December 31, 2016 
Assets (unaudited)   
      
Current assets:     
Cash and cash equivalents $24,468  $20,447  
Accounts receivable, net of allowance of $1,645 and $1,695, respectively 18,281  20,567  
Prepaid expenses 17,118  12,311  
Deferred expenses 62,294  60,217  
Other current assets 1,926  1,872  
Total current assets 124,087  115,414  
      
Property and equipment, net 55,786  53,132  
Deferred expenses 49,322  49,127  
Goodwill 881,703  871,751  
Intangible assets, net 404,595  413,127  
Other assets 15,993  11,282  
Total assets $1,531,486  $1,513,833  
      
Liabilities and stockholders' equity     
Current liabilities:     
Accounts payable $13,955  $19,619  
Accrued expenses 16,657  14,475  
Accrued compensation and benefits 13,711  18,307  
Deferred revenue 239,604  230,206  
Current portion of debt 19,268  16,847  
Deferred consideration 22,690  20,244  
Other liabilities 4,414  5,034  
Total current liabilities 330,299  324,732  
      
Deferred revenue 197,044  195,859  
Long-term debt 652,775  647,294  
Deferred tax liabilities 59,105  80,135  
Other long-term liabilities 17,157  30,361  
Total liabilities 1,256,380  1,278,381  
Stockholders' equity:     
Common stock, $0.001 par value per share: 150,000,000 shares authorized, 51,112,867 and 50,278,137 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively 51  50  
Additional paid-in capital 577,909  578,486  
Treasury stock at cost, 2,161,065 shares as of March 31, 2017 and 3,146,012 shares as of December 31, 2016 (57,328) (62,430) 
Accumulated other comprehensive loss (3,421) (4,020) 
Accumulated deficit (1) (242,105) (276,634) 
Total stockholders' equity 275,106  235,452  
Total liabilities and stockholders' equity $1,531,486  $1,513,833  
  
(1) The Company adopted Accounting Standards Update ("ASU") 2016-09 on January 1, 2017 using the modified retrospective transition method and recorded a $28.0 million adjustment for previously unrecognized excess tax benefits in opening accumulated deficit on January 1, 2017. 


Web.com Group, Inc.
Reconciliations of GAAP to Non-GAAP Results
(in thousands, except for per share data)
(unaudited)
  
 Three months ended
March 31,
 2017 2016
    
Reconciliation of GAAP revenue to non-GAAP revenue   
GAAP revenue$185,118  $144,798 
  Fair value adjustment to deferred revenue1,710  8,558 
Non-GAAP revenue$186,828  $153,356 
    
Reconciliation of GAAP operating income to non-GAAP operating income   
GAAP operating income$20,543  $6,912 
  Amortization of intangibles12,880  11,303 
  Asset impairment143   
  Stock based compensation5,557  4,808 
  Restructuring expense322  136 
  Corporate development417  3,340 
  Fair value adjustment to deferred revenue1,710  8,558 
  Fair value adjustment to deferred expense57  58 
Non-GAAP operating income$41,629  $35,115 
    
Reconciliation of GAAP operating margin to non-GAAP operating margin   
GAAP operating margin11% 5%
  Amortization of intangibles7  7 
  Asset impairment   
  Stock based compensation3  3 
  Restructuring expense   
  Corporate development  2 
  Fair value adjustment to deferred revenue1  6 
  Fair value adjustment to deferred expense   
Non-GAAP operating margin22% 23%
    
  
Reconciliation of GAAP net income to adjusted EBITDA   
GAAP net income$6,518  $337 
  Depreciation and amortization18,433  15,913 
  Asset impairment143   
  Stock based compensation5,557  4,808 
  Restructuring expense322  136 
  Corporate development417  3,340 
  Fair value adjustment to deferred revenue1,710  8,558 
  Fair value adjustment to deferred expense57  58 
  Interest expense, net7,891  5,598 
  Income tax expense6,134  977 
Adjusted EBITDA$47,182  $39,725 
    
Reconciliation of GAAP net income margin to adjusted EBITDA margin   
GAAP net income margin4% %
  Depreciation and amortization9  10 
  Asset impairment   
  Stock based compensation3  3 
  Restructuring expense   
  Corporate development  2 
  Fair value adjustment to deferred revenue1  6 
  Fair value adjustment to deferred expense   
  Interest expense, net5  4 
  Income tax expense3  1 
Adjusted EBITDA margin25% 26%
    
    
Reconciliation of net cash provided by operating activities to free cash flow   
Net cash provided by operating activities$33,188  $14,475 
  Capital expenditures(5,179) (3,855)
Free cash flow$28,009  $10,620 
    
Net cash used in investing activities$(13,766) $(304,142)
Net cash (used in) provided by financing activities$(15,399) $282,963 
    
    
Reconciliation of GAAP cost of revenue (excluding depreciation and amortization) to non-GAAP cost of revenue (excluding depreciation and amortization)   
Cost of revenue (excluding depreciation and amortization)$57,922  $50,051 
  Less:  Fair value adjustment to deferred expenses(57) (58)
  Less:  Stock based compensation(270) (494)
Non-GAAP cost of revenue (excluding depreciation and amortization)$57,595  $49,499 
    
Reconciliation of GAAP revenue to non-GAAP subscription revenue used in ARPU   
GAAP revenue$185,118  $144,798 
Fair value adjustment to deferred revenue1,710  8,558 
Non-GAAP revenue$186,828  $153,356 
Professional services and other revenue(1,771) (1,606)
Non-GAAP subscription revenue used in ARPU$185,057  $151,750 
Average subscribers (in thousands)3,490  3,350 
ARPU (Non-GAAP subscription revenue per subscriber over 3 month period)$17.67  $15.10 


Web.com Group, Inc.  
Reconciliations of GAAP to Non-GAAP Results  
(in thousands, except for per share data)  
(unaudited)  
   
Reconciliation of GAAP revenue to non-GAAP subscription revenue used in ARPUThree months ended
December 31, 2016
  
GAAP revenue$187,203   
Fair value adjustment to deferred revenue1,658   
  Non-GAAP revenue$188,861   
  Professional services and other revenue(1,724)  
Non-GAAP subscription revenue used in ARPU$187,137   
  Average subscribers (in thousands)3,452   
ARPU (Non-GAAP subscription revenue per subscriber over 3 month period)$18.07   
    
Reconciliation of GAAP revenue to non-GAAP revenueGuidance for three
months ended March
31, 2017 as of
February 9, 2017
  
GAAP revenue$179,600 - $182,600  
Fair value adjustment to deferred revenue1,400  
Non-GAAP revenue$181,000 - $184,000  
    
Note that the Company has not reconciled Adjusted EBITDA guidance to GAAP net income (loss) because it does not provide guidance on GAAP net income (loss) or the reconciling items between Adjusted EBITDA and net income (loss) as a result of the substantial uncertainty regarding, and the potential substantial variability of, these items.  The actual amount of net income (loss) and such responding reconciling items will have a significant effect on Adjusted EBITDA.  Accordingly a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.


Web.com Group, Inc.
Supplemental Information
(in thousands, except for per share data)
(unaudited)
  
 Three months ended March 31,
 2017 2016
Stock based compensation   
  Cost of revenue$270  $494 
  Sales and marketing1,368  1,137 
  Technology and development1,001  693 
  General and administrative2,918  2,484 
Total$5,557  $4,808 
    
Revenue   
  Subscription$183,347  $143,192 
  Professional services and other1,771  1,606 
Total$185,118  $144,798 
    
Diluted weighted average shares   
Diluted shares:   
  Basic weighted average common shares49,076  49,376 
  Diluted stock options1,282  1,404 
  Diluted performance shares16   
  Diluted restricted stock426  326 
Total diluted weighted average common shares50,800  51,106 
    
Other Information   
Non-GAAP Operating Income$41,629  $35,115 
GAAP Interest Expense$7,891  $5,598 
Amortization of debt discounts and issuance costs$3,697  $2,998 
Income Tax Paid$361  $1,414 


Web.com Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
  
 Three months ended March 31,
 2017 2016
Cash flows from operating activities   
Net income6,518  $337 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization18,433  15,913 
Stock based compensation5,557  4,808 
Deferred income taxes5,674  813 
Amortization of debt discounts and issuance costs3,697  2,998 
Asset impairment143   
Changes in operating assets and liabilities:   
Accounts receivable, net2,985  (1,246)
Prepaid expenses and other assets(6,868) (11,015)
Deferred expenses(1,694) (2,948)
Accounts payable(6,156) (6,758)
Accrued expenses and other liabilities2,583  6,194 
Accrued compensation and benefits(5,286) (8,480)
Deferred revenue7,602  13,859 
Net cash provided by operating activities33,188  14,475 
    
Cash flows from investing activities   
Business acquisitions(8,587) (300,287)
Capital expenditures(5,179) (3,855)
Net cash used in investing activities(13,766) (304,142)
    
Cash flows from financing activities   
Stock issuance costs(3) (5)
Common stock repurchased(3,360) (3,206)
Payments of long-term debt(2,438) (12,500)
Proceeds from exercise of stock options4,416  539 
Deferred consideration payment(18,933)  
Proceeds from borrowings on long-term debt  200,000 
Proceeds from borrowings on revolving credit facility7,000  115,000 
Debt issuance costs  (5,700)
Common stock purchases under stock repurchase plan(2,081) (11,165)
Net cash (used in) provided by financing activities(15,399) 282,963 
    
Effect of exchange rate changes on cash(2) (11)
    
Net increase (decrease) in cash and cash equivalents4,021  (6,715)
Cash and cash equivalents, beginning of period20,447  18,706 
Cash and cash equivalents, end of period24,468  $11,991 
    
Supplemental cash flow information   
Interest paid$4,961  $2,322 
Income tax paid$361  $1,414 

 

Contacts
Investors:
Ira Berger
904-680-6909
Ira.Berger@web.com         

Media:
Brian Wright
904-371-6856
Brian.Wright@web.com