Web.com Group, Inc.
Nov 2, 2010

Web.com Reports Third Quarter 2010 Financial Results

Web.com's integration of Register.com acquisition is off to a positive start

Non-GAAP revenue and net income per diluted share exceed guidance for third quarter

Company begins to pay down debt ahead of schedule

JACKSONVILLE, Fla., Nov. 2, 2010 (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, 2010.

David Brown, Chairman and CEO of Web.com, said, "We are pleased with the company's execution during the first partial quarter of combining Register.com's operations with Web.com. The performance of both companies was consistent with or better than our expectations, leading to third quarter non-GAAP revenue and profitability that was above the high-end of our guidance. Most important, we are pleased with the progress of our integration efforts and identification of sales and marketing strategies that we believe will enable Web.com to optimize our resources and cross-sale opportunities. There is still much work ahead of us, but all of the strategic reasons we moved ahead with the Register.com acquisition have been confirmed in the last few months."

Brown added, "During the third quarter, we began paying down debt related to the Register.com acquisition earlier than required, which is consistent with our commitment to use the strong cash flow of our combined company to de-lever the company as quickly as possible. We believe the expansion in our revenue, profitability and cash flow as a result of the Register.com acquisition will enable Web.com to generate substantial shareholder value over the next 12 to 18 months. We believe there is further upside potential as we increase our sales and marketing investments aggressively in 2011 to restore Web.com's long-term track record of growth."  

Summary of Third Quarter 2010 Financial Results:
 

Third Quarter and Recent Business Highlights:

Conference Call Information

Management will host a conference call to discuss Web.com's results and other matters related to the Company's business and guidance related to future results, today November 2, 2010, at 5:00 p.m. (Eastern Time). A live webcast of the call will be available at the "Investor Relations" page of the Company's website, http://www.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 358390. A replay of the webcast will also be available for a limited time at http://ir.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, corporate development expenses, the deferred revenue adjustment due to purchase accounting, income tax expense, and includes an estimated cash tax rate to be paid during 2010. Non-GAAP operating income excludes stock-based compensation expense, amortization expense related to acquisitions, restructuring charges, corporate development expenses 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 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 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, 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:

Forward-Looking Statements

This press release includes certain "forward-looking statements" including, without limitation, statements regarding the anticipated reach, capabilities and opportunities for the combined company following the Register.com acquisition, 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, Web.com's ability to integrate the Web.com and Register.com businesses, disruption from the transaction 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, 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 September 30,  Nine Months Ended September 30, 
  2010  2009  2010  2009 
  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
Revenue:    
Subscription $ 32,060 $ 25,209 $ 80,498 $ 76,665
Professional services 674 892 2,142 2,482
Other revenue --  --  --  1,000
Total revenue 32,734 26,101 82,640 80,147
     
Cost of revenue (excluding depreciation and amortization    
 shown separately below):    
Subscription 14,436 9,523 34,122 28,244
Professional services 519 629 1,482 1,504
Total cost of revenue 14,955 10,152 35,604 29,748
     
Gross profit 17,779 15,949 47,036 50,399
     
Operating expenses:    
Sales and marketing 8,274 5,980 19,005 17,625
Research and development 3,031 2,174 7,527 6,302
General and administrative 8,124 4,097 17,472 14,959
Depreciation and amortization 4,698 3,373 11,290 10,163
Restructuring charges 1,802 1,932 1,856 1,921
Total operating expenses 25,929 17,556 57,150 50,970
Loss from operations (8,150) (1,607) (10,114) (571)
     
Other income:    
Interest (expense) income, net (1,046) 39 (948) 143
Loss before income taxes from continuing operations (9,196) (1,568) (11,062) (428)
Income tax benefit (expense) 21,212 (27) 20,525 (70)
Net income (loss) from continuing operations 12,016 (1,595) 9,463 (498)
     
Discontinued operations:    
Income (loss) from discontinued operations, net of tax --  5 (9) 232
(Loss) gain on sale of discontinued operations, net of tax --  (1) 125 821
Income from discontinued operations, net of tax --  4 116 1,053
     
Net income (loss) $ 12,016 $ (1,591) $ 9,579 $ 555
     
Basic earnings per share:    
Income (loss) from continuing operations attributable per common share $ 0.47 $ (0.06) $ 0.38 $ (0.02)
Income from discontinued operations attributable per common share $ --  $ --  $ --  $ 0.04
Net income (loss) per common share $ 0.47 $ (0.06) $ 0.38 $ 0.02
     
Diluted earnings per share:    
Income (loss) from continuing operations attributable per common share $ 0.45 $ (0.06) $ 0.36 $ (0.02)
Income from discontinued operations attributable per common share $ --  $ --  $ --  $ 0.04
Net income (loss) per common share $ 0.45 $ (0.06) $ 0.36 $ 0.02
     
Weighted-average number of shares used in per share amounts:    
Basic 25,481 25,189 25,449 25,305
Diluted 26,839 25,189 26,961 25,305
     
Web.com Group, Inc.
Consolidated Balance Sheets
(in thousands except per share data)
   
    
  September 30, 2010  December 31, 2009 
  (unaudited)  (audited) 
Assets  
Current assets:  
Cash and cash equivalents $ 17,824 $ 39,427
Restricted investments 300 545
Accounts receivable, net of allowance $294 and $428, respectively 8,268 4,561
Prepaid expenses 2,646 2,315
Prepaid registry fees 15,185 -- 
Deferred taxes --  1,482
Deferred financing fees and other current assets 1,192 95
Total current assets 45,415 48,425
   
Restricted investments 2,210 927
Property and equipment, net 10,497 7,388
Prepaid registry fees 12,739 -- 
Goodwill 128,156 12,895
Intangible assets, net 110,781 53,059
Other assets 4,043 191
Total assets $ 313,841 $ 122,885
   
Liabilities and stockholders' equity  
Current liabilities:  
Accounts payable $ 2,498 $ 1,306
Accrued expenses 13,524 6,931
Accrued restructuring costs 3,192 1,064
Deferred revenue 33,512 6,172
Current portion of debt and capital lease obligations 9,025 223
Other current liabilities 2,250 558
Total current liabilities 64,001 16,254
   
Accrued rent expense 833 676
Deferred revenue 23,357 159
Long-term debt and capital lease obligations 100,215 198
Deferred tax liabilites 7,461 1,429
Other liabilities 1,236 473
Total liabilities 197,103 19,189
   
   
Stockholders' equity  
Common stock, $0.001 par value; 150,000,000 shares authorized; 27,758,690 and
27,796,824 shares issued and 26,793,212 and 26,176,967 shares outstanding at
September 30, 2010 and December 31, 2009, respectively.
 27 26
Additional paid-in capital 262,285 260,552
Treasury Stock, at cost, 965,478 and 1,619,857 shares at September 30, 2010 and
December 31, 2009, respectively.
 (3,637) (5,477)
Accumulated other comprehensive loss (111) -- 
Accumulated deficit (141,826) (151,405)
Total stockholders' equity 116,738 103,696
   
Total liabilities and stockholders' equity $ 313,841 $ 122,885
   
Web.com Group, Inc.
Reconciliation of GAAP to Non-GAAP Results
(in thousands except per share data)
 (unaudited)
     
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2010  2009  2010  2009 
Reconciliation of GAAP revenue to non-GAAP
revenue
    
GAAP revenue $ 32,734 $ 26,101 $ 82,640 $ 80,147
Fair value adjustment to deferred revenue 5,726 8 5,742 58
Non-GAAP revenue $ 38,460 $ 26,109 $ 88,382 $ 80,205
     
Reconciliation of GAAP net income (loss) to non-
GAAP net income
    
GAAP net income (loss) $ 12,016 $ (1,591) $ 9,579 $ 555
Amortization of intangibles 3,660 2,612 8,942 7,913
Loss on sale of assets 4 5 4 5
Stock based compensation 1,188 1,144 3,393 3,663
Income tax expense (21,212) 27 (20,525) 70
Restructuring charges 1,802 1,932 1,856 1,921
Corporate development 2,111 --  3,020 -- 
Amortization of deferred financing fees 178 --  178 -- 
Cash income tax expense (126) (22) (234) (205)
Fair value adjustment to deferred revenue 5,726 8 5,742 58
Fair value adjustment to prepaid registry fees (44) --  (44) -- 
Non-GAAP net income $ 5,303 $ 4,115 $ 11,911 $ 13,980
     
Reconciliation of GAAP basic net income (loss)
per share to non-GAAP basic net income per share
    
Basic GAAP net income (loss) per share $ 0.47 $ (0.06) $ 0.38 $ 0.02
Amortization of intangibles per share 0.14 0.10 0.35 0.31
Loss on sale of assets per share --  --  --  -- 
Stock based compensation per share 0.05 0.05 0.13 0.15
Income tax expense per share (0.83) --  (0.81) -- 
Restructuring charges per share 0.07 0.07 0.07 0.08
Corporate development per share 0.08 --  0.12 -- 
Amortization of deferred financing fees per share 0.01 --  0.01 -- 
Cash income tax expense per share --  --  (0.01) (0.01)
Fair value adjustment to deferred revenue per share 0.22 --  0.23 -- 
Fair value adjustment to prepaid registry fees --  --  --  -- 
Basic Non-GAAP net income per share  $ 0.21 $ 0.16 $ 0.47 $ 0.55
     
Reconciliation of GAAP diluted net income (loss)
per share to non-GAAP net income per share
    
Fully diluted shares:    
Common stock 25,481 25,189 25,449 25,305
Diluted stock options 1,059 1,733 1,195 1,407
Diluted restricted stock 299 382 317 164
Warrants --  --  --  3
Total 26,839 27,304 26,961 26,879
     
Diluted GAAP net income (loss) per share $ 0.45 $ (0.06) $ 0.36 $ 0.02
Amortization of intangibles per share 0.14 0.10 0.32 0.29
Loss on sale of assets per share --  --  --  -- 
Stock based compensation per share 0.04 0.04 0.13 0.14
Income tax expense per share (0.80) --  (0.77) -- 
Restructuring charges per share 0.07 0.07 0.07 0.08
Corporate development 0.08 --  0.11 -- 
Amortization of deferred financing fees per share 0.01 --  0.01 -- 
Cash income tax expense per share --  --  (0.01) (0.01)
Fair value adjustment to deferred revenue per share 0.21 --  0.22 -- 
Fair value adjustment to prepaid registry fees per share --  --  --  -- 
Diluted Non-GAAP net income per share  $ 0.20 $ 0.15 $ 0.44 $ 0.52
     
Reconciliation of GAAP operating loss to non-
GAAP operating income
    
GAAP operating loss $ (8,150) $ (1,607) $ (10,114) $ (571)
Amortization of intangibles 3,660 2,612 8,942 7,913
Stock based compensation 1,188 1,144 3,393 3,663
Restructuring charges 1,802 1,932 1,856 1,921
Corporate development 2,111 --  3,020 -- 
Fair value adjustment to deferred revenue 5,726 8 5,742 58
Fair value adjustment to prepaid registry fees (44) --  (44) -- 
Non-GAAP operating income $ 6,293 $ 4,089 $ 12,795 $ 12,984
     
Reconciliation of GAAP operating margin to non-
GAAP operating margin
    
GAAP operating margin -25% -6% -12% -1%
Amortization of intangibles 10% 10% 11% 10%
Restructuring charges 5% 7% 2% 2%
Corporate development 5% 0% 4% 0%
Fair value adjustment to deferred revenue 18% 0% 5% 0%
Fair value adjustment to prepaid registry fees 0% 0% 0% 0%
Stock based compensation 3% 5% 4% 5%
Non-GAAP operating margin 16% 16% 14% 16%
     
Reconciliation of GAAP operating loss to adjusted
EBITDA
    
GAAP operating loss $ (8,150) $ (1,607) $ (10,114) $ (571)
Depreciation and amortization 4,698 3,373 11,290 10,163
Stock based compensation 1,188 1,144 3,393 3,663
Restructuring charges 1,802 1,932 1,856 1,921
Corporate development 2,111 --  3,020 -- 
Fair value adjustment to deferred revenue 5,726 8 5,742 58
Fair value adjustment to prepaid registry fees (44) --  (44) -- 
Adjusted EBITDA $ 7,331 $ 4,850 $ 15,143 $ 15,234
     
Web.com Group, Inc.
Stock Based Compensation Expense
(in thousands)
     
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2010  2009  2010  2009 
Stock based compensation    
 Subscription (cost of revenue) $ 141 $ 106 $ 425 $ 315
 Sales and marketing 185 210 494 645
 Research and development 141 121 447 370
 General and administration 721 707 2,027 2,333
 Restructuring charges --  1,183 --  1,183
Total $ 1,188 $ 2,327 $ 3,393 $ 4,846
     
     
Web.com Group, Inc.
Consolidated Statement of Cash Flows
(in thousands)
   
  Nine Months Ended September 30, 
  2010  2009 
 (unaudited)(unaudited)
Cash flows from operating activities  
   
Net income  $ 9,579 $ 555
   
   
Adjustments to reconcile net income to net cash provided by operating activities:  
Gain on sale of discontinued operations, net of tax (125) (821)
Depreciation and amortization 11,290 10,163
Stock-based compensation expense 3,393 3,663
Deferred income taxes (21,176) 36
Restructuring charges 1,856 1,921
Other non cash expenses 179 5
Changes in operating assets and liabilities:  
 Accounts receivable (511) 912
 Prepaid expenses and other assets 473 131
 Net change in restricted cash 546 (6)
 Accounts payable, accrued expenses and other liabilities (1,778) (3,449)
 Deferred revenue 5,214 (1,507)
Net cash provided by operating activities 8,940 11,603
   
Cash flows from investing activities  
   
Business acquisitions (127,053) (3,490)
Proceeds from gain on sale of discontinued operations 125 821
Purchase of property and equipment (1,056) (867)
Investment in intangible assets (1,396) (4)
Net cash used in investing activities (129,380) (3,540)
   
Cash flows from financing activities  
   
Stock issuance costs (11) (14)
Stock repurchased (53) (5,637)
Issuance of long term debt 110,000 -- 
Payment of debt obligations (6,181) (397)
Deferred financing fees (5,162) -- 
Proceeds from exercise of stock options 244 1,173
Net cash provided by (used in) financing activities 98,837 (4,875)
   
Net decrease in cash and cash equivalents (21,603) 3,188
Cash and cash equivalents, beginning of period 39,427 34,127
Cash and cash equivalents, end of period $ 17,824 $ 37,315
   
Supplemental cash flow information:  
 Interest paid $ 926 $ 35
 Income tax paid $ 133 $ 318
   
Supplemental disclosure of non-cash transactions:  
 Acquisition-related note payable $ 5,000 $ -- 
   
CONTACT:  Web.com
          Press
          Susan Datz Edelman
          904-680-6909
          sedelman@web.com

          ICR for Web.com
          Investors
          Kori Doherty
          617-956-6730
          Kori.doherty@icrinc.com

(C) Copyright 2010 GlobeNewswire, Inc. All rights reserved.