Web.com Group, Inc.
Nov 3, 2016

Web.com Reports Third Quarter 2016 Financial Results

JACKSONVILLE, Fla., Nov. 03, 2016 (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 third quarter ended September 30, 2016.   

"Web.com reported solid third quarter results highlighted by strong profitability and year over year growth in our value added services products.  We have made good progress in our integration of Yodle and identified several product integration and go to market adjustments designed to better position the Company for improved performance over time.  We believe the changes we are making will have a near term financial impact, but these steps are absolutely the right strategic moves for Web.com," said David L. Brown, chairman, chief executive officer and president of Web.com.

Brown added, "We will be more measured in our investments during the integration and maintain our focus on strong profitability and cash flow.  Today's announcement of a $100 million expansion and extension of our share repurchase program will provide us additional flexibility to deploy our significant free cash flow in ways that enhance shareholder value."

Summary of Third Quarter 2016 Financial Results:

Third Quarter and Recent Business Highlights:

Conference Call Information
Management will host a conference call today, November 3, 2016, 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 800-239-9838 (domestic) or 913-312-0702 (international). A replay of this conference call will be available until November 17, 2016, at 877-870-5176 (domestic) or 858-384-5517 (international). The replay conference ID is 2618752.

About Web.com
Web.com Group, Inc. (Nasdaq:WEB) 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, 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 that it expects from several product integration and go to market adjustments it has made, and its expectations as the investments it intends to make and the effects this will have, 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.  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, 2015 and Form 10-Q for the quarter ended June 30, 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
September 30,
 Nine months ended
September 30,
 2016 2015 (1) 2016 2015 (1)
        
Revenue$190,686  $136,821  $523,303  $405,141 
Cost of revenue58,380  45,412  167,189  139,319 
        
Gross profit132,306  91,409  356,114  265,822 
        
Operating expenses:       
Sales and marketing55,304  35,033  157,867  106,392 
Technology and development15,538  9,062  47,896  26,019 
General and administrative19,094  16,735  54,391  48,819 
Restructuring expense1,133    2,047  335 
Asset Impairment1,979    1,979   
Depreciation and amortization21,165  13,846  59,351  41,439 
Total operating expenses114,213  74,676  323,531  223,004 
Income from operations18,093  16,733  32,583  42,818 
        
Interest expense, net(8,270) (4,966) (22,530) (15,398)
Net income before income taxes9,823  11,767  10,053  27,420 
Income tax expense(6,477) (5,673) (7,976) (14,437)
Net income$3,346  $6,094  $2,077  $12,983 
        
Other comprehensive income:       
Foreign currency translation adjustments(198) (524) (1,405) (434)
Unrealized (loss) gain on investments, net of tax  (30) 29  (29)
Total comprehensive income$3,148  $5,540  $701  $12,520 
        
Basic earnings per share:       
Net income per basic common share$0.07  $0.12  $0.04  $0.26 
Diluted earnings per share:       
Net income per diluted common share$0.07  $0.12  $0.04  $0.25 
 

(1) Included in the three and nine months ended September 30, 2015 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)
 
  September 30, 2016 December 31, 2015
  (unaudited)  
Assets    
Current assets:    
Cash and cash equivalents $21,818  $18,706 
Accounts receivable, net of allowance of $1,647 and $1,815, respectively 20,110  12,892 
Prepaid expenses 15,008  8,151 
Deferred expenses 60,941  59,400 
Other current assets 1,777  4,380 
Total current assets 119,654  103,529 
     
Property and equipment, net 61,764  41,963 
Deferred expenses 49,556  50,113 
Goodwill 869,401  639,145 
Intangible assets, net 433,104  318,107 
Other assets 11,718  4,482 
Total assets $1,545,197  $1,157,339 
     
Liabilities and stockholders' equity    
Current liabilities:    
Accounts payable $21,468  $9,974 
Accrued expenses 15,060  13,303 
Accrued compensation and benefits 16,522  13,765 
Deferred revenue 236,500  219,187 
Current portion of debt 14,429  11,169 
Deferred consideration 18,616   
Other liabilities 4,045  3,802 
Total current liabilities 326,640  271,200 
     
Deferred revenue 195,628  191,426 
Long-term debt 671,410  411,409 
Deferred tax liabilities 81,700  37,840 
Other long-term liabilities 31,302  7,287 
Total liabilities 1,306,680  919,162 
Stockholders' equity:    
Common stock, $0.001 par value per share: 150,000,000 shares authorized, 50,835,511 and 50,683,717 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively 51  51 
Additional paid-in capital 573,698  565,648 
Treasury stock at cost, 2,547,427 shares as of September 30, 2016 and 2,120,944 shares as of December 31, 2015 (53,161) (44,750)
Accumulated other comprehensive loss (3,524) (2,148)
Accumulated deficit (278,547) (280,624)
Total stockholders' equity 238,517  238,177 
Total liabilities and stockholders' equity $1,545,197  $1,157,339 
 


Web.com Group, Inc.
Reconciliations of GAAP to Non-GAAP Results
(in thousands, except for per share data)
(unaudited)
 
 Three months ended September 30, Nine months ended September 30,
 2016 2015 2016 2015
Reconciliation of GAAP revenue to non-GAAP revenue       
GAAP revenue$190,686  $136,821  $523,303  $405,141 
Fair value adjustment to deferred revenue2,108  3,547  16,704  12,892 
Non-GAAP revenue$192,794  $140,368  $540,007  $418,033 
        
Reconciliation of GAAP net income to non-GAAP net income       
GAAP net income$3,346  $6,094  $2,077  $12,983 
Amortization of intangibles15,461  9,827  43,608  29,466 
Asset impairment1,979    1,979   
Stock based compensation5,008  5,067  15,208  15,251 
Income tax expense6,477  5,673  7,976  14,437 
Restructuring expense1,133    2,047  335 
Corporate development57    3,925  597 
Amortization of debt discounts and fees3,631  2,872  10,315  8,492 
Cash income tax expense(850) (725) (1,905) (1,512)
Fair value adjustment to deferred revenue2,108  3,547  16,704  12,892 
Fair value adjustment to deferred expense80  147  232  504 
Non-GAAP net income$38,430  $32,502  $102,166  $93,445 
        
Diluted weighted average shares       
Diluted shares:       
Basic weighted average common shares49,221  50,035  49,296  50,420 
Diluted stock options1,281  1,907  1,347  1,704 
Diluted restricted stock269  370  327  353 
Total diluted weighted average common shares50,771  52,312  50,970  52,477 
        
Reconciliation of GAAP net income per diluted share to non-GAAP net income per diluted share       
GAAP net income per diluted share$0.07  $0.12  $0.04  $0.25 
Diluted equity       
Amortization of intangibles0.31  0.18  0.85  0.55 
Asset impairment0.04    0.04   
Stock based compensation0.10  0.10  0.30  0.29 
Income tax expense0.13  0.11  0.16  0.28 
Restructuring expense0.02    0.04  0.01 
Corporate development    0.08  0.01 
Amortization of debt discounts and fees0.07  0.05  0.20  0.16 
Cash income tax expense(0.02) (0.01) (0.04) (0.03)
Fair value adjustment to deferred revenue0.04  0.07  0.33  0.25 
Fair value adjustment to deferred expense      0.01 
Non-GAAP net income per diluted share$0.76  $0.62  $2.00  $1.78 
        
Reconciliation of GAAP operating income to non-GAAP operating income       
GAAP operating income$18,093  $16,733  $32,583  $42,818 
Amortization of intangibles15,461  9,827  43,608  29,466 
Asset impairment1,979    1,979   
Stock based compensation5,008  5,067  15,208  15,251 
Restructuring expense1,133    2,047  335 
Corporate development57    3,925  597 
Fair value adjustment to deferred revenue2,108  3,547  16,704  12,892 
Fair value adjustment to deferred expense80  147  232  504 
Non-GAAP operating income$43,919  $35,321  $116,286  $101,863 
        
Reconciliation of GAAP operating margin to non-GAAP operating margin       
GAAP operating margin9% 12% 6% 11%
Amortization of intangibles8  6  9  6 
Asset impairment1       
Stock based compensation3  4  3  4 
Restructuring expense1       
Corporate development    1   
Fair value adjustment to deferred revenue1  3  3  3 
Fair value adjustment to deferred expense       
Non-GAAP operating margin23% 25% 22% 24%
        
Reconciliation of GAAP net income to adjusted EBITDA       
GAAP net income$3,346  $6,094  $2,077  $12,983 
Depreciation and amortization21,165  13,846  59,351  41,439 
Asset impairment1,979    1,979   
Stock based compensation5,008  5,067  15,208  15,251 
Restructuring expense1,133    2,047  335 
Corporate development57    3,925  597 
Fair value adjustment to deferred revenue2,108  3,547  16,704  12,892 
Fair value adjustment to deferred expense80  147  232  504 
Interest expense, net8,270  4,966  22,530  15,398 
Income tax expense6,477  5,673  7,976  14,437 
Adjusted EBITDA$49,623  $39,340  $132,029  $113,836 
        
Reconciliation of GAAP net income margin to adjusted EBITDA margin       
GAAP net income margin2% 4% % 3%
Depreciation and amortization10  9  12  9 
Asset impairment1       
Stock based compensation3  4  3  4 
Restructuring expense1       
Corporate development    1   
Fair value adjustment to deferred revenue1  3  3  3 
Fair value adjustment to deferred expense       
Interest expense, net5  4  4  5 
Income tax expense3  4  1  3 
Adjusted EBITDA margin26% 28% 24% 27%
        
Reconciliation of GAAP gross profit to non-GAAP gross profit     
Gross Profit$132,306  $91,409  $356,114  $265,822 
Fair value adjustment to deferred revenue2,108  3,547  16,704  12,892 
Fair value adjustment to deferred expense80  147  232  504 
Stock based compensation270  467  1,033  1,487 
Non-GAAP gross profit$134,764  $95,570  $374,083  $280,705 
Non-GAAP gross margin70% 68% 69% 67%
        
Reconciliation of net cash provided by operating activities to free cash flow       
Net cash provided by operating activities$44,459  $35,159  $89,747  $112,570 
Capital expenditures(9,368) (3,246) (17,674) (11,157)
Free cash flow$35,091  $31,913  $72,073  $101,413 
        
Net cash used in investing activities$(9,615) $(4,101) $(322,483) $(12,487)
Net cash (used in) provided by financing activities$(21,973) $(28,566) $235,884  $(104,172)
        
Revenue       
Subscription$188,771  $135,020  $518,084  $399,166 
Professional services and other1,915  1,801  5,219  5,975 
Total$190,686  $136,821  $523,303  $405,141 
        
Stock based compensation       
Cost of revenue$270  $467  $1,033  $1,487 
Sales and marketing1,206  1,160  3,769  3,609 
Technology and development1,111  771  2,725  2,281 
General and administrative2,421  2,669  7,681  7,874 
Total$5,008  $5,067  $15,208  $15,251 
        
 Three months
ended
September 30,
 Three months
ended
June 30,
 Three months
ended
September 30,
  
 2016 2016 2015  
Reconciliation of GAAP revenue to non-GAAP subscription revenue used in ARPU       
GAAP revenue$190,686  $187,818  $136,821   
Fair value adjustment to deferred revenue2,108  6,038  3,547   
Non-GAAP revenue$192,794  $193,856  $140,368   
Professional services and other revenue(1,915) (1,697) (1,801)  
Non-GAAP subscription revenue used in ARPU$190,879  $192,159  $138,567   
Average subscribers (in thousands)3,445  3,433  3,324   
ARPU (Non-GAAP subscription revenue per subscriber over 3 month period)$18.47  $18.66  $13.90   
 


Web.com Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
    
 Three months ended September 30, Nine months ended September 30,
 2016 2015 2016 2015
Cash flows from operating activities       
Net income$3,346  $6,094  $2,077  $12,983 
Adjustments to reconcile net income to net cash provided by operating activities:       
Depreciation and amortization21,165  13,846  59,351  41,439 
Stock based compensation5,008  5,067  15,208  15,251 
Deferred income taxes5,609  5,411  6,208  13,458 
Amortization of debt discounts and issuance costs3,630  2,872  10,315  8,492 
Asset impairment1,979    1,979   
Changes in operating assets and liabilities:           
Accounts receivable, net(774) 1,118  (2,532) 3,761 
Prepaid expenses and other assets368  (1,206) (10,567) (1,425)
Deferred expenses1,603  1,779  (983) 2,781 
Accounts payable1,673  (2,494) 88  (2,867)
Accrued expenses and other liabilities(1,586) 399  (2,105) 2,028 
Accrued compensation and benefits5,069  4,712  (2,306) 7,402 
Deferred revenue(2,631) (2,439) 13,014  9,267 
Net cash provided by operating activities44,459  35,159  89,747  112,570 
        
Cash flows from investing activities       
Business acquisitions  (855) (303,262) (1,330)
Capital expenditures(9,368) (3,246) (17,674) (11,157)
Other(247)   (1,547)  
Net cash used in investing activities(9,615) (4,101) (322,483) (12,487)
        
Cash flows from financing activities       
Stock issuance costs(16) (32) (22) (82)
Common stock repurchased(1,013)   (4,246) (2,302)
Payments of long-term debt(23,000) (20,000) (55,500) (67,500)
Proceeds from exercise of stock options2,611  2,421  3,816  6,642 
Proceeds from borrowings on long-term debt    200,000   
Proceeds from borrowings on revolving credit facility    115,000   
Debt issuance costs    (5,700)  
Common stock purchases under stock repurchase plan(555) (10,955) (17,464) (40,930)
Net cash (used in) provided by financing activities(21,973) (28,566) 235,884  (104,172)
        
Effect of exchange rate changes on cash(3) (5) (36) (3)
        
Net increase (decrease) in cash and cash equivalents12,868  2,487  3,112  (4,092)
Cash and cash equivalents, beginning of period8,950  15,906  18,706  22,485 
Cash and cash equivalents, end of period$21,818  $18,393  $21,818  $18,393 
        
Supplemental cash flow information       
Interest paid$5,370  $2,767  $12,221  $7,649 
Income tax paid$741  $618  $2,787  $1,520 

 

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

Media:
Amy Ebenstein
646-209-3312
amy.ebenstein@bm.com