Web.com Group, Inc.
Aug 3, 2017

Web.com Reports Second Quarter 2017 Financial Results

JACKSONVILLE, Fla., Aug. 03, 2017 (GLOBE NEWSWIRE) -- Web.com Group, Inc. (NASDAQ:WEB), a leading global provider of a full range of Internet services and online marketing solutions for small businesses, today announced results for the second quarter ended June 30, 2017.   

"Web.com reported second quarter financial results that beat our revenue and profitability targets.  We achieved our goal of returning to sequential revenue growth driven by solid performance across all three areas of our business.  The Company also delivered strong adjusted EBITDA and increasing free cash flow that we continue to deploy to drive shareholder value," said David L. Brown, chairman, chief executive officer and president of Web.com.

Brown added, "During the quarter, Web.com made meaningful progress towards our strategic initiatives for the year that will position us for improving growth and profitability.  Web Brand Networks, our franchise and multi-location channel, and our vertical market solutions, including TORCHx and Lighthouse 360, are showing good results and we continue to improve our go-to-market efforts in Premium Services, our suite of high end marketing solutions.  We are confident that as we further execute on our strategy that we will achieve our long term growth and profitability targets."

Summary of Second Quarter 2017 Financial Results:

Second Quarter and Recent Business Highlights:

Conference Call Information
Management will host a conference call today, August 3, 2017, 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 888-280-4443 (domestic) or 719-457-2634 (international). A replay of this conference call will be available until August 17, 2017, at 844-512-2921 (domestic) or 412-317-6671 (international). The replay conference ID is 7772558.

About Web.com
Web.com Group, Inc. (Nasdaq:WEB) is a global provider of 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, eCommerce solutions and call center services. For more information, please visit www.web.com; follow the company on Twitter @webdotcom or on Facebook at www.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, the statement regarding Web.com's confidence in its strategy achieving long term growth and profitability targets, 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, 2016 and Form 10-Q for the quarter ended March 31, 2017, 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 June 30, Six months ended June 30,
 2017 2016 (1) 2017 2016 (1)
        
Revenue$186,731  $187,818  $371,850  $332,616 
        
Cost of Revenue and Operating Expenses:       
Cost of revenue (excluding depreciation and amortization)                      58,527  58,758  116,450  108,809 
Sales and marketing49,230  60,135  100,141  102,562 
Technology and development17,323    19,732  34,324  32,358 
General and administrative21,252  18,564    41,108    35,296 
Restructuring expense  778  312  914 
Asset Impairment    143   
Depreciation and amortization17,401  22,273  35,834  38,186 
Total cost of revenue and operating expenses163,733  180,240  328,312  318,125 
Income from operations22,998  7,578  43,538  14,491 
        
Interest expense, net(8,146) (8,662) (16,036) (14,259)
Net income (loss) before income taxes14,852  (1,084) 27,502  232 
Income tax expense(6,806) (522) (12,940) (1,500)
Net income (loss)$8,046  $(1,606) $14,562  $(1,268)
        
Other comprehensive income:       
Foreign currency translation adjustments(624) (891) (25) (1,207)
Unrealized gain on investments, net of tax    1  28 
Total comprehensive income (loss)$7,422  $(2,497) $14,538  $(2,447)
        
Basic earnings (loss) per share:       
Net income (loss) per basic common share$0.16  $(0.03) $0.30  $(0.03)
Diluted earnings (loss) per share:       
Net income (loss) per diluted common share$0.16  $(0.03) $0.29  $(0.03)
        
 
(1) Included in the three and six months ended June 30, 2016 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) 
      
  June 30, 2017 December 31, 2016 
Assets (unaudited)     
      
Current assets:     
Cash and cash equivalents $33,449  $20,447  
Accounts receivable, net of allowance of $1,631 and $1,695,
respectively
 20,285  20,567  
Prepaid expenses 13,538  12,311  
Deferred expenses 63,178  60,217  
Other current assets 1,868  1,872  
Total current assets 132,318  115,414  
      
Property and equipment, net 55,248  53,132  
Deferred expenses 48,417  49,127  
Goodwill 881,590  871,751  
Intangible assets, net 392,359  413,127  
Other assets 21,011  11,282  
Total assets $1,530,943  $1,513,833  
      
Liabilities and stockholders' equity     
Current liabilities:     
Accounts payable $20,243  $19,619  
Accrued expenses 14,001  14,475  
Accrued compensation and benefits 15,074  18,307  
Deferred revenue 240,675  230,206  
Current portion of debt 4,765  16,847  
Deferred consideration 22,902  20,244  
Other liabilities 4,236  5,034  
Total current liabilities 321,896  324,732  
      
Deferred revenue 193,661  195,859  
Long-term debt 640,202  647,294  
Deferred tax liabilities 64,567  80,135  
Other long-term liabilities 17,625  30,361  
Total liabilities 1,237,951  1,278,381  
Stockholders' equity:     
Common stock, $0.001 par value per share: 150,000,000 shares
authorized, 51,435,214 and 50,278,137 shares issued and outstanding
at June 30, 2017 and December 31, 2016, respectively
 51  50  
Additional paid-in capital 579,083  578,486  
Treasury stock at cost, 1,723,706 shares as of June 30, 2017 and
3,146,012 shares as of December 31, 2016
 (48,035) (62,430) 
Accumulated other comprehensive loss (4,044) (4,020) 
Accumulated deficit (1) (234,063) (276,634) 
Total stockholders' equity 292,992  235,452  
Total liabilities and stockholders' equity $1,530,943  $1,513,833  
(1) The Company adopted Accounting Standards Update ("ASU") 2016-09 on January 1, 2017 using the modified retrospective
transition method and recorded a $28.0 million adjustment for previously unrecognized excess tax benefits in opening accumulated
deficit on January 1, 2017.
 


Web.com Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
    
 Three months ended June 30, Six months ended June 30,
 2017 2016 2017 2016
Cash flows from operating activities       
Net income (loss)8,046  $(1,606) $14,562  $(1,268)
Adjustments to reconcile net income to net cash provided
by operating activities:
       
Depreciation and amortization17,401  22,273  35,834  38,186 
Stock based compensation6,102  5,392  11,659  10,200 
Deferred income taxes5,502  (214) 11,176  599 
Amortization of debt issuance costs and other3,702  3,687  7,399  6,685 
Asset impairment    143   
Changes in operating assets and liabilities:       
Accounts receivable, net(1,999) (512) 986  (1,758)
Prepaid expenses and other assets1,652  80  (5,216) (10,935)
Deferred expenses159  362  (1,535) (2,586)
Accounts payable5,987  5,173  (169) (1,585)
Accrued expenses and other liabilities(2,236) (6,713) 347  (519)
Accrued compensation and benefits1,614  1,105  (3,672) (7,375)
Deferred revenue(2,152) 1,786  5,452  15,644 
Net cash provided by operating activities43,778  30,813  76,966  45,288 
        
Cash flows from investing activities       
Business acquisitions  (2,975) (8,587) (303,262)
Capital expenditures(5,394) (4,451) (10,573) (8,306)
Other  (1,300)   (1,300)
Net cash used in investing activities(5,394) (8,726) (19,160) (312,868)
        
Cash flows from financing activities       
Stock issuance costs(1) (1) (4) (6)
Common stock repurchased(199) (27) (3,559) (3,233)
Payments of long-term debt(25,516) (2,437) (27,954) (4,937)
Payments on revolving credit facility(56,313) (17,563) (56,313) (27,563)
Proceeds from exercise of stock options4,563  666  8,979  1,205 
Deferred consideration payment    (18,933)  
Proceeds from borrowings on long-term debt50,000    50,000  200,000 
Proceeds from borrowings on revolving credit facility    7,000  115,000 
Debt issuance costs(1,927)   (1,927) (5,700)
Common stock purchases under stock repurchase plan  (5,744) (2,081) (16,909)
Net cash (used in) provided by financing activities(29,393) (25,106) (44,792) 257,857 
        
Effect of exchange rate changes on cash(10) (22) (12) (33)
              
Net increase (decrease) in cash and cash equivalents8,981  (3,041) 13,002  (9,756)
Cash and cash equivalents, beginning of period24,468  11,991  20,447  18,706 
Cash and cash equivalents, end of period$33,449  $8,950  $33,449  $8,950 
        
Supplemental cash flow information       
Interest paid$3,851  $4,529  $8,812  $6,851 
Income taxes paid$1,212  $632  $1,573  $2,046 


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,
 2017 2016 2017 2016
Reconciliation of GAAP revenue to non-GAAP
revenue
       
GAAP revenue$186,731  $187,818  $371,850  $332,616 
Fair value adjustment to deferred revenue1,328  6,038  3,038  14,596 
Non-GAAP revenue$188,059  $193,856  $374,888  $347,212 
        
Reconciliation of GAAP operating income to
non-GAAP operating income
       
GAAP operating income$22,998  $7,578  $43,538  $14,491 
Amortization of intangibles12,085  16,844  24,964  28,148 
Asset impairment    143   
Stock based compensation6,102  5,392  11,659  10,200 
Restructuring expense  778  312  914 
Corporate development340  529  767  3,868 
Fair value adjustment to deferred revenue1,328  6,038  3,038  14,596 
Fair value adjustment to deferred expense46  94  104  152 
Non-GAAP operating income$42,899  $37,253  $84,525  $72,369 
        
Reconciliation of GAAP operating margin to
non-GAAP operating margin
       
GAAP operating margin12% 4% 12% 4%
Amortization of intangibles6  9  7  8 
Asset impairment       
Stock based compensation3  3  3  3 
Restructuring expense       
Corporate development1      2 
Fair value adjustment to deferred revenue1  3  1  4 
Fair value adjustment to deferred expense       
Non-GAAP operating margin23% 19% 23% 21%
        
    
Reconciliation of GAAP net income (loss) to
adjusted EBITDA
       
GAAP net income (loss)$8,046  $(1,606) $14,562  $(1,268)
Depreciation and amortization17,401  22,273  35,834  38,186 
Asset impairment    143   
Stock based compensation6,102  5,392  11,659  10,200 
Restructuring expense  778  312  914 
Corporate development340  529  767  3,868 
Fair value adjustment to deferred revenue1,328  6,038  3,038  14,596 
Fair value adjustment to deferred expense46  94  104  152 
Interest expense, net8,146  8,662  16,036  14,259 
Income tax expense6,806  522  12,940  1,500 
Adjusted EBITDA$48,215  $42,682  $95,395  $82,407 
        
Reconciliation of GAAP net income (loss)
margin to adjusted EBITDA margin
       
GAAP net income (loss) margin4% (1)% 4% %
Depreciation and amortization8  12  10  11 
Asset impairment       
Stock based compensation3  3  3  3 
Restructuring expense       
Corporate development1      2 
Fair value adjustment to deferred revenue1  3  1  4 
Fair value adjustment to deferred expense       
Interest expense, net5  5  4  4 
Income tax expense4    3   
Adjusted EBITDA margin26% 22% 25% 24%
        
        
Reconciliation of net cash provided by operating
activities to free cash flow
       
Net cash provided by operating activities$43,778  $30,813  $76,966  $45,288 
Capital expenditures(5,394) (4,451) (10,573) (8,306)
Free cash flow$38,384  $26,362  $66,393  $36,982 
        
Net cash used in investing activities$(5,394) $(8,726) $(19,160) $(312,868)
Net cash (used in) provided by financing activities                              $(29,393) $(25,106) $(44,792) $257,857 
        
Reconciliation of GAAP cost of revenue
(excluding depreciation and amortization) to
non-GAAP cost of revenue (excluding
depreciation and amortization)
       
Cost of revenue (excluding depreciation and
amortization)
$58,527  $58,758  $116,450  $108,809 
Less:  Fair value adjustment to deferred expenses(46) (94) (104) (152)
Less:  Stock based compensation(281) (268) (550) (763)
Non-GAAP cost of revenue (excluding
depreciation and amortization)      
$58,200  $58,396  $115,796  $107,894 
        
Reconciliation of GAAP diluted weighted
average common shares to non-GAAP diluted
weighted average common shares
       
Diluted shares:       
Basic weighted average common shares49,488  49,293  49,283  49,334 
Diluted stock options1,352    1,322   
Diluted performance shares    6   
Diluted restricted stock346    456   
GAAP diluted weighted-average shares used to
compute net income/(loss) per share attributable to
common stockholders
51,186  49,293  51,067  49,334 
Diluted stock options  1,383    1,384 
Diluted restricted stock  210    318 
Non-GAAP diluted weighted average common
shares
51,186  50,886  51,067  51,036 
        
Reconciliation of GAAP revenue to non-GAAP
subscription revenue used in ARPU
       
GAAP revenue$186,731  $187,818     
Fair value adjustment to deferred revenue1,328  6,038     
Non-GAAP revenue$188,059  $193,856     
Professional services and other revenue(2,220) (1,697)    
Non-GAAP subscription revenue used in ARPU$185,839  $192,159     
Average subscribers (in thousands)3,497  3,433     
ARPU (Non-GAAP subscription revenue per
subscriber over 3 month period)    
$17.72  $18.66     


Web.com Group, Inc.
Reconciliations of GAAP to Non-GAAP Results
(in thousands, except for per share data)
(unaudited)
        
Reconciliation of GAAP revenue to non-GAAP subscription revenue used in ARPU    Three months
ended March
31, 2017
      
GAAP revenue$185,118       
Fair value adjustment to deferred revenue1,710       
    Non-GAAP revenue$186,828       
    Professional services and other revenue(1,771)      
Non-GAAP subscription revenue used in ARPU$185,057       
    Average subscribers (in thousands)3,490       
ARPU (Non-GAAP subscription revenue per subscriber over 3 month period)$17.67       
        
Reconciliation of GAAP revenue to non-GAAP revenueGuidance for three months ended
June 30, 2017 as of May 4, 2017
    
GAAP revenue$183,700 $186,700     
Fair value adjustment to deferred revenue1,300  1,300     
Non-GAAP revenue$185,000 -$188,000     
            

Note that the Company has not reconciled Adjusted EBITDA guidance to GAAP net income (loss) because it does not provide guidance on GAAP net income (loss) or the reconciling items between Adjusted EBITDA and net income (loss) as a result of the substantial uncertainty regarding, and the potential substantial variability of, these items.  The actual amount of net income (loss) and such responding reconciling items will have a significant effect on Adjusted EBITDA.  Accordingly a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.

 
Web.com Group, Inc.
Supplemental Information
(in thousands, except for per share data)
(unaudited)
      
 Three months ended June 30, Six months ended June 30,
 2017 2016 2017 2016
Stock based compensation       
  Cost of revenue$281  $268  $550  $763 
  Sales and marketing1,261  1,426  2,631  2,563 
  Technology and development1,032  921  2,032  1,614 
  General and administrative3,528  2,777  6,446  5,260 
Total$6,102  $5,392  $11,659  $10,200 
        
Revenue       
  Subscription$184,511  $186,121  $367,859  $329,312 
  Professional services and other2,220  1,697  3,991  3,304 
Total$186,731  $187,818  $371,850  $332,616 
        
Other Information       
Non-GAAP operating income$42,899  $37,253  $84,525  $72,369 
GAAP interest expense$8,146  $8,662  $16,036  $14,259 
Amortization of debt issuance costs and other                    $3,702  $3,687  $7,399  $6,685 
Income taxes paid$1,212  $632  $1,573  $2,046 
Non-GAAP diluted weighted average common
shares
51,186  50,886  51,067  51,036 
        
Contacts
Investors:
Ira Berger
904-680-6909
Ira.Berger@web.com         

Media:
Brian Wright
904-371-6856
Brian.Wright@web.com