Web.com Group, Inc.
Nov 5, 2014

Web.com Reports Third Quarter 2014 Financial Results

JACKSONVILLE, Fla., Nov. 5, 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 third quarter ended September 30, 2014.

"During the third quarter, we delivered the financial performance we were targeting, meeting our revenue growth expectations and exceeding our EPS goal. The recent refinancing of our debt credit facility drove reduced interest expense in the third quarter and will benefit future quarters. From an operational perspective, customer retention levels remained stable and we added 34,000 net organic subscribers," said David L. Brown, chairman, chief executive officer and president of Web.com.

Brown added, "We believe there is a substantial market opportunity in offering differentiated solutions to small businesses in the U.S. and globally. We continue to expand these solutions and extend the reach of our marketing channels. While we are addressing certain short-term challenges, our longer-term outlook remains intact for driving meaningful revenue, profitability and free cash flow growth. We are committed to continuous improvement and growth in order to create significant shareholder value."

Summary of Third Quarter 2014 Financial Results:

Third Quarter and Recent Business Highlights:

Conference Call Information

Management will host a conference call today, November 5, 2014, at 5:00 p.m. ET, to discuss Web.com's third 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 November 12, 2014, at 877-870-5176 (domestic) or 858-384-5517 (international). The replay conference ID is 13593242.

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 www.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 size of the market opportunity in offerings to small businesses, 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," "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 June 30, 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 September 30,Nine months ended September 30,
 2014201320142013
         
Revenue  $ 137,407  $ 125,197  $ 409,426  $ 361,191
Cost of Revenue 47,925 42,692 143,111 128,211
         
Gross profit 89,482 82,505 266,315 232,980
         
Operating expenses:        
Sales and marketing 37,454 36,386 111,697 104,846
Technology and development 7,161 8,184 22,050 24,804
General and administrative 15,257 13,139 44,029 38,803
Restructuring benefit (32)
Depreciation and amortization 20,349 20,339 59,381 60,680
Total operating expenses 80,221 78,048 237,157 229,101
Income from operations 9,261 4,457 29,158 3,879
         
Interest expense, net (6,592) (8,137) (21,384) (26,355)
Gain on sale of equity method investment 385
Loss from debt extinguishment (1,838) (1,138) (1,838) (20,663)
Net income (loss) before income taxes 831 (4,818) 5,936 (42,754)
Income tax expense (4,250) (1,170) (9,658) (19,481)
Net loss  $ (3,419)  $ (5,988)  $ (3,722)  $ (62,235)
         
Other comprehensive (loss) income:        
Foreign currency translation adjustments (755) (755)
Unrealized (loss) gain on investments, net of tax (10) 8 (8) 13
Total comprehensive loss  $ (4,184)  $ (5,980)  $ (4,485)  $ (62,222)
         
Basic earnings per share:        
Net loss per common share  $ (0.07)  $ (0.12)  $ (0.07)  $ (1.28)
Diluted earnings per share:        
Net loss per common share  $ (0.07)  $ (0.12)  $ (0.07)  $ (1.28)
 
 
Web.com Group, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
     
 September 30, 2014December 31, 2013
 (unaudited)  
Assets    
Current assets:    
Cash and cash equivalents  $ 15,900  $ 13,806
Accounts receivable, net of allowance of $2,220 and $1,545, respectively 20,597 17,062
Prepaid expenses 10,445 7,348
Deferred expenses 68,719 62,073
Deferred taxes 25,409 35,318
Other current assets 7,079 2,837
Total current assets 148,149 138,444
     
Property and equipment, net 44,826 42,090
Deferred expenses 52,468 57,235
Goodwill 640,337 627,845
Intangible assets, net 369,239 401,921
Other assets 4,902 10,224
Total assets  $ 1,259,921  $ 1,277,759
     
Liabilities and stockholders' equity    
Current liabilities:    
Accounts payable  $ 8,144  $ 10,351
Accrued expenses 12,854 14,449
Accrued compensation and benefits 8,824 13,423
Deferred revenue 219,075 208,856
Current portion of debt 4,955 6,586
Other liabilities 5,348 3,651
Total current liabilities 259,200 257,316
     
Deferred revenue 186,340 186,539
Long-term debt 515,878 556,506
Deferred tax liabilities 101,946 102,421
Other long-term liabilities 6,967 4,932
Total liabilities 1,070,331 1,107,714
Stockholders' equity:    
Common stock, $0.001 par value per share: 150,000,000 shares authorized, 52,512,183 and 51,193,230 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively 53 51
Additional paid-in capital 552,129 528,101
Accumulated other comprehensive (loss) income (743) 20
Accumulated deficit (361,849) (358,127)
Total stockholders' equity 189,590 170,045
Total liabilities and stockholders' equity  $ 1,259,921  $ 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 Nine months ended
   September 30,September 30,
 2014201320142013
Reconciliation of GAAP revenue to non-GAAP revenue        
GAAP revenue  $ 137,407  $ 125,197  $ 409,426  $ 361,191
Fair value adjustment to deferred revenue 6,425 9,590 20,308 33,079
Non-GAAP revenue  $ 143,832  $ 134,787  $ 429,734  $ 394,270
         
Reconciliation of GAAP net loss to non-GAAP net income        
GAAP net loss  $ (3,419)  $ (5,988)  $ (3,722)  $ (62,235)
Amortization of intangibles 16,653 17,209 49,157 51,715
Loss on sale of assets 55 135
Stock based compensation 5,085 4,056 14,527 14,325
Income tax expense 4,250 1,170 9,658 19,480
Restructuring benefit (32)
Corporate development 459 499
Amortization of debt discounts and fees 2,678 1,623 8,186 2,646
Cash income tax (benefit) expense (345) 122 (744) (357)
Fair value adjustment to deferred revenue 6,425 9,590 20,308 33,079
Fair value adjustment to deferred expense 242 367 812 1,228
Loss on debt extinguishment 1,838 1,138 1,838 20,663
Gain on sale of equity method investment (385)
Non-GAAP net income  $ 33,866  $ 29,342  $ 100,519  $ 80,262
         
Reconciliation of GAAP basic net loss per share to non-GAAP basic net income per share        
Basic GAAP net loss  $ (0.07)  $ (0.12)  $ (0.07)  $ (1.28)
Amortization of intangibles 0.33 0.36 0.96 1.07
Loss on sale of assets
Stock based compensation 0.10 0.08 0.29 0.29
Income tax expense 0.08 0.02 0.19 0.40
Restructuring benefit
Corporate development 0.01 0.01
Amortization of debt discounts and fees 0.05 0.03 0.15 0.05
Cash income tax (benefit) expense (0.01) (0.01) (0.01)
Fair value adjustment to deferred revenue 0.13 0.20 0.40 0.68
Fair value adjustment to deferred expense 0.01 0.02 0.03
Loss on debt extinguishment 0.04 0.02 0.04 0.42
Gain on sale of equity method investment
Basic Non-GAAP net income per share  $ 0.66  $ 0.60  $ 1.98  $ 1.65
         
Reconciliation of GAAP diluted net loss per share
to non-GAAP diluted net income per share
  
Three months ended
September 30,
Nine months ended
September 30,
Diluted shares:2014201320142013
Basic weighted average common shares 51,234 49,243 50,794 48,670
Diluted stock options 2,166 3,502 3,049 2,843
Diluted restricted stock 381 810 583 763
Total diluted weighted average common shares 53,781 53,555 54,426 52,276
         
Diluted GAAP net loss per share  $ (0.07)  $ (0.12)  $ (0.07)  $ (1.28)
Diluted equity 0.01 0.01 0.09
Amortization of intangibles 0.31 0.32 0.91 1.01
Loss on sale of assets
Stock based compensation 0.10 0.08 0.27 0.27
Income tax expense 0.08 0.02 0.18 0.37
Restructuring benefit
Corporate development 0.01 0.01
Amortization of debt discounts and fees 0.05 0.03 0.15 0.05
Cash income tax (benefit) expense (0.01) (0.01) (0.01)
Fair value adjustment to deferred revenue 0.12 0.18 0.37 0.63
Fair value adjustment to deferred expense 0.01 0.01 0.02
Loss on debt extinguishment 0.03 0.02 0.03 0.40
Gain on sale of equity method investment (0.01)
Diluted Non-GAAP net income per share  $ 0.63  $ 0.55  $ 1.85  $ 1.54
         
Reconciliation of GAAP operating income to non-GAAP operating income        
GAAP operating income  $ 9,261  $ 4,457  $ 29,158  $ 3,879
Amortization of intangibles 16,653 17,209 49,157 51,715
Loss on sale of assets 55 135
Stock based compensation 5,085 4,056 14,527 14,325
Restructuring benefit (32)
Corporate development 459 499
Fair value adjustment to deferred revenue 6,425 9,590 20,308 33,079
Fair value adjustment to deferred expense 242 367 812 1,228
Non-GAAP operating income  $ 38,125  $ 35,734  $ 114,461  $ 104,329
         
Reconciliation of GAAP operating margin to non-GAAP operating margin        
GAAP operating margin 7% 4% 7% 1%
Amortization of intangibles 11 12 12 12
Loss on sale of assets
Stock based compensation 4 3 3 4
Restructuring benefit
Corporate development
Fair value adjustment to deferred revenue 5 8 5 9
Fair value adjustment to deferred expense
Non-GAAP operating margin 27% 27% 27% 26%
     
Reconciliation of GAAP operating income to adjusted EBITDAThree months ended Nine months ended
   September 30,September 30,
 2014201320142013
GAAP operating income  $ 9,261  $ 4,457  $ 29,158  $ 3,879
Depreciation and amortization 20,349 20,339 59,381 60,680
Loss on sale of assets 55 135
Stock based compensation 5,085 4,056 14,527 14,325
Restructuring benefit (32)
Corporate development 459 499
Fair value adjustment to deferred revenue 6,425 9,590 20,308 33,079
Fair value adjustment to deferred expense 242 367 812 1,228
Adjusted EBITDA  $ 41,821  $ 38,864  $ 124,685  $ 113,294
         
Reconciliation of GAAP operating margin to adjusted EBITDA margin        
GAAP operating margin 7% 4% 7% 1%
Depreciation and amortization 14 14 14 15
Loss on sale of assets
Stock based compensation 4 3 3 4
Restructuring benefit
Corporate development
Fair value adjustment to deferred revenue 4 8 5 9
Fair value adjustment to deferred expense
Adjusted EBITDA margin 29% 29% 29% 29%
         
Revenue        
Subscription  $ 135,125  $ 122,507  $ 402,954  $ 353,474
Professional services and other 2,282 2,690 6,472 7,717
Total  $ 137,407  $ 125,197  $ 409,426  $ 361,191
         
Stock based compensation        
Cost of revenue  $ 523  $ 435  $ 1,545  $ 1,400
Sales and marketing 1,246 961 3,648 3,414
Technology and development 815 664 2,360 2,140
General and administrative 2,501 1,996 6,974 7,371
Total  $ 5,085  $ 4,056  $ 14,527  $ 14,325
 
 
Web.com Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
         
 Three months ended September 30,Nine months ended September 30,
 2014201320142013
Cash flows from operating activities        
Net loss  $ (3,419)  $ (5,988)  $ (3,722)  $ (62,235)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Gain on sale of equity method investment (385)
Loss from debt extinguishment 1,249 1,138 1,249 13,424
Depreciation and amortization 20,349 20,339 59,381 60,680
Stock based compensation 5,085 4,056 14,527 14,325
Deferred income taxes 3,886 1,277 8,860 19,062
Amortization of debt issuance costs and other 2,667 1,688 8,175 2,784
Changes in operating assets and liabilities:        
Accounts receivable, net (576) (179) (2,814) (2,136)
Prepaid expenses and other assets (1,655) (3,251) (2,529) (6,116)
Deferred expenses 1,367 25 (1,859) 1,782
Accounts payable 1,096 (2,089) (4,095) 2,145
Accrued expenses and other liabilities (2,888) 604 60 3,480
Accrued compensation and benefits (186) 1,213 (4,811) (6,155)
Accrued restructuring costs and other reserves (1,139) (1,233)
Deferred revenue (1,868) 3,623 9,573 27,475
Net cash provided by operating activities 25,107 22,456 80,856 66,897
         
Cash flows from investing activities        
Business acquisitions, net of cash acquired (11,851) (19,288)
Proceeds from sale of equity method investment 385
Capital expenditures (4,557) (3,366) (12,784) (11,586)
Other (50)
Net cash used in investing activities (16,408) (3,366) (32,072) (11,251)
         
Cash flows from financing activities        
Stock issuance costs (38) (16) (76) (30)
Common stock repurchased (224) (320) (5,191) (5,986)
Payments of long-term debt (301,078) (281,000) (351,078) (982,076)
Proceeds from exercise of stock options 2,387 4,023 9,110 9,858
Proceeds from borrowings on long-term debt 192,020 252,281 192,020 920,631
Proceeds from borrowings on revolving credit facility 103,208 112,208
Debt issuance costs (3,672) (497) (3,672) (2,864)
Net cash used in financing activities (7,397) (25,529) (46,679) (60,467)
         
Effect of exchange rate changes on cash (11) (11)
Net increase (decrease) in cash and cash equivalents 1,291 (6,439) 2,094 (4,821)
Cash and cash equivalents, beginning of period 14,609 16,799 13,806 15,181
Cash and cash equivalents, end of period  $ 15,900  $ 10,360  $ 15,900  $ 10,360
         
Supplemental cash flow information        
Interest paid  $ 5,742  $ 6,775  $ 15,286  $ 30,415
Income tax paid  $ 269  $ 184  $ 820  $ 374
CONTACT: Investors:

         Jenny Kobin

         904-680-6909

         jkobin@web.com

         

         Media:

         John Herbkersman

         904-251-6297

         jherbkersman@web.com