Web.com Group, Inc.
Jul 31, 2014

Web.com Reports Second Quarter 2014 Financial Results

JACKSONVILLE, Fla., July 31, 2014 (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, 2014.

"During the second quarter, Web.com generated double-digit revenue and cash flow growth, drove strong subscriber additions and expanded average revenue per user. Our strategy of providing small businesses with unique value-added services, including Do-It-For-Me solutions with extensive customer support, is driving growth across the business. We continue to make investments to accelerate future revenue growth. We launched a targeted initiative to increase our growth in the Canadian market, enhanced our product offering with a next-generation website builder platform and continued our local direct sales force expansion in the U.S.," said David L. Brown, chairman, chief executive officer and president of Web.com.

Brown added, "While we were disappointed not to achieve our expected second quarter revenue, we believe that we are in the early stages of market adoption of the Internet by small businesses and see a long runway of opportunities as we execute our strategy of expanding and cross-selling across our 3.2 million customer base. We continue to prioritize resources into the areas of our business that are driving strong growth and profitability while de-emphasizing those that are lower-margin and non-core. At the same time, we are controlling costs in areas that won't impact our core business and growth opportunities in order to maintain our best-in-class profitability margins while delivering solid top-line growth."

Summary of Second Quarter 2014 Financial Results:

Second Quarter and Recent Business Highlights:

Conference Call Information

Management will host a conference call today, July 31, 2014, at 5:00 p.m. ET, to discuss Web.com's second 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 877-407-3982 (domestic) or 201-493-6780 (international). A replay of this conference call will be available until August 7, 2014, at 877-870-5176 (domestic) or 858-384-5517 (international). The replay conference ID is 13585760.

About Web.com

Web.com Group, Inc. (Nasdaq:WWWW) provides 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 and eCommerce solutions. For more information, please visit web.com; follow Web.com on Twitter @webdotcom or on Facebook at 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, excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with GAAP. 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 certain "forward-looking statements" including, without limitation, statements regarding the unique competitiveness of our technology platforms and proven marketing strategies, the effectiveness of our strategy to cross-sell to help drive double-digit growth and our increasing scale enabling our continued investment for growth, 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," "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, 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, 2013, and Form 10-Q for the quarter ended March 31, 2014, 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 (Loss)
(in thousands, except for per share data)
(unaudited)
         
 Three months ended June 30,Six months ended June 30,
 2014201320142013
         
Revenue  $ 138,176  $ 120,448  $ 272,019  $ 235,994
Cost of Revenue 48,599 42,879 95,185 85,519
         
Gross profit 89,577 77,569 176,834 150,475
         
Operating expenses:        
Sales and marketing 36,710 35,095 74,243 68,459
Technology and development 7,691 8,408 14,889 16,620
General and administrative 15,031 11,884 28,772 25,664
Restructuring benefit (32) (32)
Depreciation and amortization 19,793 20,301 39,032 40,341
Total operating expenses 79,225 75,656 156,936 151,052
Income (loss) from operations 10,352 1,913 19,898 (577)
         
Interest expense, net (7,299) (8,267) (14,793) (18,218)
Gain on sale of equity method investment 385 385
Loss from debt extinguishment (19,526)
Net income (loss) before income taxes 3,053 (5,969) 5,105 (37,936)
Income tax expense (3,847) (3,775) (5,409) (18,311)
Net loss $ (794) $ (9,744) $ (304) $ (56,247)
         
Other comprehensive income (loss):        
Unrealized gain (loss) on investments, net of tax 4 (4) 2 5
Total comprehensive loss $ (790) $ (9,748)  $ (302) $ (56,242)
         
Basic earnings per share:        
Net loss per common share $ (0.02) $ (0.20) $ (0.01) $ (1.16)
Diluted earnings per share:        
Net loss per common share $ (0.02) $ (0.20) $ (0.01) $ (1.16)
 
Web.com Group, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
     
 June 30, 2014December 31, 2013
 (unaudited)  
Assets    
Current assets:    
Cash and cash equivalents  $ 14,609  $ 13,806
Accounts receivable, net of allowance of $1,696 and $1,545, respectively 19,629 17,062
Prepaid expenses 8,578 7,348
Deferred expenses 67,833 62,073
Deferred taxes 27,722 35,318
Other current assets 8,986 2,837
Total current assets 147,357 138,444
     
Property and equipment, net 44,102 42,090
Deferred expenses 54,721 57,235
Goodwill 630,493 627,845
Intangible assets, net 375,830 401,921
Other assets 5,030 10,224
Total assets  $ 1,257,533  $ 1,277,759
     
Liabilities and stockholders' equity    
Current liabilities:    
Accounts payable  $ 6,936  $ 10,351
Accrued expenses 15,401 14,449
Accrued compensation and benefits 8,991 13,423
Deferred revenue 218,606 208,856
Current portion of debt 8,037 6,586
Other liabilities 4,930 3,651
Total current liabilities 262,901 257,316
     
Deferred revenue 188,230 186,539
Long-term debt 519,118 556,506
Deferred tax liabilities 99,798 102,421
Other long-term liabilities 6,583 4,932
Total liabilities 1,076,630 1,107,714
Stockholders' equity:    
Common stock, $0.001 par value per share: 150,000,000 shares authorized, 52,061,351 and 51,193,230 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively 52 51
Additional paid-in capital 539,260 528,101
Accumulated other comprehensive income 22 20
Accumulated deficit (358,431) (358,127)
Total stockholders' equity 180,903 170,045
Total liabilities and stockholders' equity  $ 1,257,533  $ 1,277,759
 
Web.com Group, Inc.
Reconciliations of GAAP to Non-GAAP Results
(in thousands, except for per share data)
(unaudited)
         
 Three months ended June 30,Six months ended June 30,
 2014201320142013
Reconciliation of GAAP revenue to non-GAAP revenue        
GAAP revenue  $ 138,176  $ 120,448  $ 272,019  $ 235,994
Fair value adjustment to deferred revenue 6,492 10,942 13,883 23,489
Non-GAAP revenue  $ 144,668  $ 131,390  $ 285,902  $ 259,483
         
Reconciliation of GAAP net loss to non-GAAP net income        
GAAP net loss $ (794) $ (9,744) $ (304) $ (56,247)
Amortization of intangibles 16,320 17,220 32,504 34,506
Loss on sale of assets 87 80
Stock based compensation 4,939 3,906 9,442 10,270
Income tax expense 3,847 3,775 5,409 18,311
Restructuring benefit (32) (32)
Corporate development 40
Amortization of debt discounts and fees 2,790 441 5,508 1,023
Cash income tax expense (267) (193) (399) (479)
Fair value adjustment to deferred revenue 6,492 10,942 13,883 23,489
Fair value adjustment to deferred expense 269 408 570 862
Loss on debt extinguishment 19,526
Gain on sale of equity method investment (385) (385)
Non-GAAP net income  $ 33,596  $ 26,425  $ 66,653  $ 50,924
         
Reconciliation of GAAP basic net loss per share to non-GAAP basic net income per share        
Basic GAAP net loss $ (0.02) $ (0.20) $ (0.01) $ (1.16)
Amortization of intangibles 0.32 0.34 0.65 0.70
Loss on sale of assets
Stock based compensation 0.10 0.08 0.19 0.21
Income tax expense 0.08 0.08 0.11 0.38
Restructuring benefit
Corporate development
Amortization of debt discounts and fees 0.05 0.01 0.11 0.02
Cash income tax expense (0.01) (0.01) (0.01)
Fair value adjustment to deferred revenue 0.13 0.22 0.27 0.49
Fair value adjustment to deferred expense 0.01 0.01 0.01 0.02
Loss on debt extinguishment 0.40
Gain on sale of equity method investment
Basic Non-GAAP net income per share  $ 0.66  $ 0.54  $ 1.32  $ 1.05
     
Reconciliation of GAAP diluted net loss per share to non-GAAP diluted net income per shareThree months ended June 30,Six months ended June 30,
Diluted shares:2014201320142013
Basic weighted average common shares 50,809 48,670 50,571 48,379
Diluted stock options 3,250 2,539 3,406 2,331
Diluted restricted stock 507 558 645 669
Total diluted weighted average common shares 54,566 51,767 54,622 51,379
         
Diluted GAAP net loss per share $ (0.02) $ (0.20) $ (0.01) $ (1.16)
Diluted equity 0.01 0.01 0.07
Amortization of intangibles 0.30 0.33 0.61 0.66
Loss on sale of assets
Stock based compensation 0.09 0.08 0.17 0.20
Income tax expense 0.07 0.07 0.1 0.36
Restructuring benefit
Corporate development
Amortization of debt discounts and fees 0.05 0.01 0.10 0.02
Cash income tax expense (0.01) (0.01)
Fair value adjustment to deferred revenue 0.12 0.21 0.25 0.46
Fair value adjustment to deferred expense 0.01 0.01 0.02
Loss on debt extinguishment 0.38
Gain on sale of equity method investment (0.01) (0.01
Diluted Non-GAAP net income per share $ 0.62 $ 0.51 $ 1.22 $ 0.99
         
Reconciliation of GAAP operating income (loss) to non-GAAP operating income        
GAAP operating income (loss) $ 10,352 $ 1,913 $ 19,898 $ (577)
Amortization of intangibles 16,320 17,220 32,504 34,506
Loss on sale of assets 87 80
Stock based compensation 4,939 3,906 9,442 10,270
Restructuring benefit (32) (32)
Corporate development 40
Fair value adjustment to deferred revenue 6,492 10,942 13,883 23,489
Fair value adjustment to deferred expense 269 408 570 862
Non-GAAP operating income $ 38,372 $ 34,444 $ 76,337 $ 68,598
         
Reconciliation of GAAP operating margin to non-GAAP operating margin        
GAAP operating margin 7% 2% 7% —%
Amortization of intangibles 12 12 12 12
Loss on sale of assets
Stock based compensation 3 3 3 4
Restructuring benefit
Corporate development
Fair value adjustment to deferred revenue 5 8 5 9
Fair value adjustment to deferred expense 1 1
Non-GAAP operating margin 27% 26% 27% 26%
     
Reconciliation of GAAP operating income (loss) to adjusted EBITDAThree months ended June 30,Six months ended June 30,
 2014201320142013
GAAP operating income (loss)  $ 10,352  $ 1,913  $ 19,898  (577)
Depreciation and amortization 19,793 20,301 39,032 40,341
Loss on sale of assets 87 80
Stock based compensation 4,939 3,906 9,442 10,270
Restructuring benefit (32) (32)
Corporate development 40
Fair value adjustment to deferred revenue 6,492 10,942 13,883 23,489
Fair value adjustment to deferred expense 269 408 570 862
Adjusted EBITDA  $ 41,845  $ 37,525  $ 82,865  $ 74,433
         
Reconciliation of GAAP operating margin to adjusted EBITDA margin        
GAAP operating margin 7% 2% 7% —%
Depreciation and amortization 14 16 14 16
Loss on sale of assets
Stock based compensation 3 3 3 4
Restructuring benefit
Corporate development
Fair value adjustment to deferred revenue 5 8 5 9
Fair value adjustment to deferred expense
Adjusted EBITDA margin 29% 29% 29% 29%
         
Revenue        
Subscription  $ 136,044  $ 117,687  $ 267,828  $ 230,967
Professional services and other 2,132 2,761 4,191 5,027
Total  $ 138,176  $ 120,448  $ 272,019  $ 235,994
         
Stock based compensation        
Cost of revenue  $ 535  $ 438  $ 1,023  $ 965
Sales and marketing 1,254 955 2,402 2,453
Technology and development 807 644 1,545 1,477
General and administrative 2,343 1,869 4,472 5,375
Total  $ 4,939  $ 3,906  $ 9,442  $ 10,270
 
Web.com Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Three months ended June 30,Six months ended June 30,
 2014201320142013
Cash flows from operating activities        
Net loss $ (794) $ (9,744) $ (304) $ (56,247)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Gain on sale of equity method investment (385) (385)
Loss from debt extinguishment 12,286
Depreciation and amortization 19,793 20,301 39,032 40,341
Stock based compensation 4,939 3,906 9,442 10,270
Deferred income taxes 3,562 3,568 4,973 17,785
Amortization of debt issuance costs and other 2,789 519 5,508 1,096
Changes in operating assets and liabilities:        
Accounts receivable, net 935 (210) (2,238) (1,957)
Prepaid expenses and other assets 3,211 2,233 (874) (2,865)
Deferred expenses (2,285) 1,297 (3,226) 1,757
Accounts payable (1,485) 2,189 (5,191) 4,234
Accrued expenses and other liabilities 3,743 406 2,948 2,875
Accrued compensation and benefits 3,618 3,765 (4,625) (7,368)
Accrued restructuring costs and other reserves (502) (1,139) (1,233)
Deferred revenue (884) 6,065 11,442 23,852
Net cash provided by operating activities 37,142 33,408 55,748 44,441
         
Cash flows from investing activities        
Business acquisitions, net of cash acquired (7,437)
Proceeds from sale of equity method investment 385 385
Capital expenditures (5,306) (3,724) (8,227) (8,220)
Other (50) (50)
Net cash used in investing activities (5,306) (3,389) (15,664) (7,885)
         
Cash flows from financing activities        
Stock issuance costs (14) (12) (38) (14)
Common stock repurchased (11) (4,967) (5,666)
Payments of long-term debt (35,000) (31,500) (50,000) (701,076)
Proceeds from exercise of stock options 2,570 4,750 6,724 5,835
Proceeds from borrowings on long-term debt 658,350
Proceeds from borrowings on revolving credit facility 9,000 10,000
Debt issuance costs (45) (2,367)
Net cash used in financing activities (32,455) (26,807) (39,281) (34,938)
         
Net (decrease) increase in cash and cash equivalents (619) 3,212 803 1,618
Cash and cash equivalents, beginning of period 15,228 13,587 13,806 15,181
Cash and cash equivalents, end of period  $ 14,609  $ 16,799  $ 14,609  $ 16,799
         
Supplemental cash flow information        
Interest paid  $ 4,018  $ 8,005  $ 9,544  $ 23,640
Income tax paid  $ 360  $ 218  $ 551  $ 187
CONTACT: Investors:

         Jenny Kobin

         904-680-6909

         jkobin@web.com

         

         Media:

         John Herbkersman

         904-251-6297

         jherbkersman@web.com