Web.com Group, Inc.
Aug 3, 2011

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:

Second Quarter and Recent Business Highlights:

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:

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.

Web.com Group, Inc.
Consolidated Statements of Operations
(in thousands except per share data)
(unaudited)
         
  Three Months Ended June 30,  Six Months Ended June 30, 
  2011  2010  2011  2010 
         
Revenue:        
Subscription  $ 41,465  $ 23,957  $ 80,245  $ 48,438
Professional services  776  820  1,477  1,468
Total revenue  42,241  24,777  81,722  49,906
         
Cost of revenue (excluding depreciation and amortization shown         
separately below):        
Subscription  17,287  9,652  34,616  19,686
Professional services  349  485  726  963
Total cost of revenue  17,636  10,137  35,342  20,649
         
Gross profit  24,605  14,640  46,380  29,257
         
Operating expenses:        
Sales and marketing  10,669  5,185  21,110  10,731
Research and development  3,389  2,225  6,938  4,496
General and administrative  6,256  5,572  12,702  9,347
Restructuring charges (credits)  149  (6)  245  54
Depreciation and amortization  4,696  3,313  9,517  6,593
Total operating expenses  25,159  16,289  50,512  31,221
Loss from operations  (554)  (1,649)  (4,132)  (1,964)
         
Other income:        
Interest (expense) income, net  (1,529)  58  (3,113)  98
Loss before income taxes from continuing operations  (2,083)  (1,591)  (7,245)  (1,866)
Income tax benefit (expense)  111  (217)  (462)  (687)
Net loss from continuing operations  (1,972)  (1,808)  (7,707)  (2,553)
         
Discontinued operations:        
Gain from discontinued operations, net of tax  125  125  250  116
Income from discontinued operations, net of tax  125  125  250  116
         
Net loss  $ (1,847)  $ (1,683)  $ (7,457)  $ (2,437)
         
Basic earnings per share:        
Loss from continuing operations attributable per common share  $ (0.07)  $ (0.07)  $ (0.28)  $ (0.10)
Income from discontinued operations attributable per common share  $ --   $ --   $ 0.01  $ -- 
Net loss per common share  $ (0.07)  $ (0.07)  $ (0.27)  $ (0.10)
         
Diluted earnings per share:        
Loss from continuing operations attributable per common share  $ (0.07)  $ (0.07)  $ (0.28)  $ (0.10)
Income from discontinued operations attributable per common share  $ --   $ --   $ 0.01  $ -- 
Net loss per common share  $ (0.07)  $ (0.07)  $ (0.27)  $ (0.10)
         
Weighted-average number of shares used in per share amounts:        
Basic  27,589  25,457  27,106  25,433
Diluted  27,589  25,457  27,106  25,433
 
 
Web.com Group, Inc.
Consolidated Balance Sheets
(in thousands except per share data)
     
     
  June 30, 2011  December 31, 2010 
  (unaudited)  (audited) 
Assets    
Current assets:    
 Cash and cash equivalents  $ 15,972  $ 16,307
 Restricted investments  301  300
 Accounts receivable, net of allowance $484 and $523, respectively  7,367  8,100
 Prepaid expenses  3,670  2,551
 Prepaid registry fees  14,604  14,193
 Deferred taxes  270  248
 Deferred financing fees and other current assets  1,324  1,221
Total current assets  43,508  42,920
     
Restricted investments  1,108  1,110
Property and equipment, net  8,918  8,765
Prepaid registry fees  12,736  13,569
Goodwill  123,186  122,512
Intangible assets, net  98,855  106,843
Other assets  3,004  3,770
Total assets  $ 291,315  $ 299,489
     
Liabilities and stockholders' equity    
Current liabilities:    
 Accounts payable  $ 2,033  $ 3,276
 Accrued expenses  4,030  5,276
 Accrued compensation and benefits  3,619  6,799
 Accrued restructuring costs and other reserves  581  2,325
 Deferred revenue  41,936  36,664
 Current portion of debt   10,627  9,533
 Other liabilities  1,104  1,180
Total current liabilities  63,930  65,053
     
Accrued rent expense  1,143  914
Deferred revenue  27,721  25,149
Long-term debt   79,757  93,623
Deferred tax liabilites  10,409  10,005
Other long-term liabilities  1,152  1,138
Total liabilities  184,112  195,882
     
     
Stockholders' equity    
Common stock, $0.001 par value per share; 150,000,000 shares authorized; 29,219,316 and 27,756,227 shares issued and 29,219,316 and 27,340,062 shares outstanding at June 30, 2011 and December 31, 2010, respectively  29  27
Additional paid-in capital  272,643  263,453
Treasury Stock, at cost, 0 and 416,165 shares at June 30, 2011 and December 31, 2010, respectively.  --   (1,896)
Accumulated other comprehensive loss, net of income tax benefit  (75)  (40)
Accumulated deficit  (165,394)  (157,937)
Total stockholders' equity  107,203  103,607
     
Total liabilities and stockholders' equity  $ 291,315  $ 299,489
 
 
Web.com Group, Inc.
Reconciliation of GAAP to Non-GAAP Results
(in thousands except per share data)
 (unaudited)
         
  Three Months Ended June 30,  Six Months Ended June 30, 
  2011  2010  2011  2010 
Reconciliation of GAAP revenue to non-GAAP revenue        
GAAP revenue  $ 42,241  $ 24,777  $ 81,722  $ 49,906
Fair value adjustment to deferred revenue  3,953  5  9,572  16
Non-GAAP revenue  $ 46,194  $ 24,782  $ 91,294  $ 49,922
         
Reconciliation of GAAP net loss to non-GAAP net income        
GAAP net loss  $ (1,847)  $ (1,683)  $ (7,457)  $ (2,437)
Amortization of intangibles  3,837  2,664  7,774  5,283
Gain on sale of assets  --   --   (2)  -- 
Stock based compensation  1,693  1,200  3,226  2,205
Income tax (benefit) expense  (111)  217  462  687
Restructuring charges  149  (6)  245  54
Corporate development  --   909  13  909
Amortization of deferred financing fees  318  --   626  -- 
Cash income tax benefit (expense)  26  (44)  (148)  (109)
Fair value adjustment to deferred revenue  3,953  5  9,572  16
Fair value adjustment to prepaid registry fees  65  --   157  -- 
Non-GAAP net income  $ 8,083  $ 3,262  $ 14,468  $ 6,608
         
Reconciliation of GAAP basic net loss per share to non-GAAP basic net income per share        
Basic GAAP net loss per share  $ (0.07)  $ (0.07)  $ (0.27)  $ (0.10)
Amortization of intangibles per share  0.14  0.10  0.28  0.20
Gain on sale of assets per share   --   --   --   -- 
Stock based compensation per share  0.06  0.05  0.12  0.09
Income tax expense per share  --   0.01  0.02  0.03
Restructuring charges per share  0.01  --   0.01  -- 
Corporate development per share  --   0.04  --   0.04
Amortization of deferred financing fees per share  0.01  --   0.02  -- 
Cash income tax expense per share  --   --   (0.01)  -- 
Fair value adjustment to deferred revenue per share  0.14  --   0.35  -- 
Fair value adjustment to prepaid registry fees  --   --   0.01  -- 
Basic Non-GAAP net income per share   $ 0.29  $ 0.13  $ 0.53  $ 0.26
         
Reconciliation of GAAP diluted net loss per share to non-GAAP net income per share        
Fully diluted shares:        
Common stock  27,589  25,457  27,106  25,433
Diluted stock options  2,451  1,091  2,532  1,259
Diluted restricted stock  1,018  258  1,037  316
Total  31,058  26,806  30,675  27,008
         
Diluted GAAP net loss per share  $ (0.07)  $ (0.07)  $ (0.27)  $ (0.10)
 Diluted equity per share  0.01  --   0.03  -- 
Amortization of intangibles per share  0.12  0.11  0.24  0.20
Gain on sale of assets per share  --   --   --   -- 
Stock based compensation per share  0.05  0.05  0.11  0.08
Income tax expense per share  --   0.01  0.02  0.03
Restructuring charges per share  --   --   0.01  -- 
Corporate development per share   --   0.03  --   0.03
Amortization of deferred financing fees per share  0.01  --   0.02  -- 
Cash income tax expense per share  --   --   (0.01)  -- 
Fair value adjustment to deferred revenue per share  0.14  --   0.31  -- 
Fair value adjustment to prepaid registry fees per share  --   --   0.01  -- 
Diluted Non-GAAP net income per share   $ 0.26  $ 0.13  $ 0.47  $ 0.24
         
Reconciliation of GAAP operating loss to non-GAAP operating income        
GAAP operating loss  $ (554)  $ (1,649)  $ (4,132)  $ (1,964)
Amortization of intangibles  3,837  2,664  7,774  5,283
Stock based compensation  1,693  1,200  3,226  2,205
Restructuring charges (credits)  149  (6)  245  54
Corporate development  --   909  13  909
Fair value adjustment to deferred revenue  3,953  5  9,572  16
Fair value adjustment to prepaid registry fees  65  --   157  -- 
Non-GAAP operating income  $ 9,143  $ 3,123  $ 16,855  $ 6,503
         
Reconciliation of GAAP operating margin to non-GAAP operating margin        
GAAP operating margin -1% -7% -5% -4%
Amortization of intangibles 8% 11% 9% 11%
Restructuring charges 0% 0% 0% 0%
Corporate development 0% 4% 0% 2%
Fair value adjustment to deferred revenue 9% 0% 10% 0%
Fair value adjustment to prepaid registry fees 0% 0% 0% 0%
Stock based compensation 4% 5% 4% 4%
Non-GAAP operating margin 20% 13% 18% 13%
         
Reconciliation of GAAP operating loss to adjusted EBITDA        
GAAP operating loss  $ (554)  $ (1,649)  $ (4,132)  $ (1,964)
Depreciation and amortization  4,696  3,313  9,517  6,593
Stock based compensation  1,693  1,200  3,226  2,205
Restructuring charges (credits)   149  (6)  245  54
Corporate development  --   909  13  909
Fair value adjustment to deferred revenue  3,953  5  9,572  16
Fair value adjustment to prepaid registry fees  65  --   157  -- 
Adjusted EBITDA  $ 10,002  $ 3,772  $ 18,598  $ 7,813
         
Reconciliation of GAAP operating margin to adjusted EBITDA margin        
GAAP operating margin -1% -7% -5% -4%
Depreciation and amortization 10% 13% 10% 13%
Stock based compensation 4% 5% 4% 5%
Restructuring charges 0% 0% 0% 0%
Corporate development 0% 4% 0% 2%
Fair value adjustment to deferred revenue 9% 0% 11% 0%
Fair value adjustment to prepaid registry fees 0% 0% 0% 0%
Adjusted EBITDA margin 22% 15% 20% 16%
         
  Three Months Ended June 30,  Six Months Ended June 30, 
  2011  2010  2011  2010 
Stock based compensation        
 Subscription (cost of revenue)  $ 209  $ 152  $ 397  $ 284
 Sales and marketing  280  157  563  309
 Research and development  226  162  436  306
 General and administration  978  729  1,830  1,306
Total  $ 1,693  $ 1,200  $ 3,226  $ 2,205
Web.com Group, Inc.
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
     
  Six Months Ended June 30, 
  2011  2010 
   
Cash flows from operating activities    
     
Net loss  $ (7,457)  $ (2,437)
     
Adjustments to reconcile net loss to net cash provided by operating activities:    
Gain on sale of discontinued operations, net of tax  (250)  (125)
Depreciation and amortization  9,517  6,593
Stock-based compensation expense  3,226  2,205
Deferred income tax benefit  314  521
Other non cash expenses  624  -- 
Changes in operating assets and liabilities:    
 Accounts receivable, net  801  1,121
 Prepaid expenses and other assets  (1,077)  425
 Prepaid registry fees  422  -- 
 Accounts payable  (783)  (124)
 Accrued expenses and other liabilities  (1,439)  361
 Accrued compensation and benefits  (3,206)  (1,717)
 Accrued restructuring  (1,743)  (793)
 Deferred revenue  7,845  (511)
Net cash provided by operating activities  6,794  5,519
     
Cash flows from investing activities    
     
Proceeds from sale of discontinued operations  250  125
Investment in intangible assets  --   (1,396)
Purchase of property and equipment  (2,683)  (777)
Other  212  -- 
Net cash used in investing activities  (2,221)  (2,048)
     
Cash flows from financing activities    
     
Stock issuance costs  (7)  (7)
Common Stock repurchased  (448)  (53)
Payment of debt obligations  (12,770)  (128)
Proceeds from exercise of stock options and other  8,317  99
Net cash used in financing activities  (4,908)  (89)
     
Net (decrease) increase in cash and cash equivalents  (335)  3,382
Cash and cash equivalents, beginning of period  16,307  39,427
Cash and cash equivalents, end of period  $ 15,972  $ 42,809
     
Supplemental cash flow information:    
 Interest paid  $ 2,530  $ 18
 Income tax paid  $ 775  $ 98
CONTACT: Web.com

         Susan Datz Edelman

         Director, Investor Relations and Corporate Communications

         904-680-6909

         sedelman@web.com

         

         ICR for Web.com

         Kori Doherty

         617-956-6730

         Kori.doherty@icrinc.com