Web.com Reports Record Fourth Quarter And Full Year 2012 Financial Results

Relative to each of the non-GAAP measures Web.com presents above, management further sets forth its rationale as follows:

• Non-GAAP Revenue.  Web.com excludes from non-GAAP revenue the impact of the fair value adjustment to deferred revenue because we believe that excluding such measures helps management and investors better understand our revenue trends.  
• Non-GAAP Operating Income. Web.com excludes from non-GAAP operating income amortization of intangibles, fair value adjustment to deferred revenue and deferred expense, restructuring charges, corporate development expenses, stock-based compensation charges, and gains or losses from asset sales. Management believes that excluding these items assists investors in evaluating period-over-period changes in Web.com's operating income without the impact of items that are not a result of the Company's day-to-day business and operations.  
• Non-GAAP Net Income and Non-GAAP Net Income Per Diluted Share. Web.com excludes from non-GAAP net income and non-GAAP net income per diluted share amortization of intangibles, income tax expense, fair value adjustment to deferred revenue and deferred expense, restructuring charges, corporate development expenses, amortization of deferred financing fees, stock-based compensation, gains or losses from asset sales and includes cash income tax expense, because management believes that excluding such measures helps investors better understand the Company's operating activities.  
• Adjusted EBITDA. Web.com excludes from Adjusted EBITDA depreciation expense, amortization of intangibles, income tax, interest expense, interest income, stock-based compensation, gains or losses from asset sales, corporate development expenses, and restructuring charges, because management believes that excluding such items helps investors better understand the Company's operating activities.

• 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:  
• Stock-based compensation.   These expenses consist of expenses for employee stock options and employee awards under ASC 718-10. While stock-based compensation expense calculated in accordance with ASC 718-10 constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense that typically requires or will require cash settlement by Web.com and because such expense is not used by management to assess the core profitability of the Company's business operations. Web.com further believes these measures are useful to investors in that they allow for greater transparency to certain line items in our financial statements. In addition, excluding this item from various non-GAAP measures facilitates comparisons to the Company's competitors' operating results.  
• Amortization of intangibles. Web.com incurs amortization of acquired intangibles under ASC 805-10-65. Acquired intangibles primarily consist of customer relationships, non-compete agreements, trade names, and developed technology. Web.com expects to amortize for accounting purposes the fair value of the acquired intangibles based on the pattern in which the economic benefits of the intangible assets will be consumed as revenue is generated. Although the intangible assets generate revenue for Web.com, the item is excluded because this expense is non-cash in nature and because the Company believes the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding the Company's operational performance. In addition, excluding this item from various non-GAAP measures facilitates management's internal comparisons to Web.com's historical operating results and comparisons to the Company's competitors' operating results.  
• Depreciation expense. Web.com incurs depreciation expense associated with its fixed assets. Although the fixed assets generate revenue for Web.com, the item is excluded because the Company believes the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding the Company's operational performance, and its ability to invest in research and development and fund acquisitions and capital expenditures. In addition, excluding this item from certain non-GAAP measures facilitates management's internal comparisons to Web.com's historical operating results and comparisons to the Company's competitors' operating results.  
• Amortization of deferred financing fees. Web.com incurs amortization expense related to deferred financing fees. This item is excluded because Web.com believes the non-GAAP measures excluding this item provide meaningful supplemental information regarding the Company's operational performance. In addition, excluding this item from various non-GAAP measures facilitates management's internal comparisons to Web.com's historical operating results and comparisons to the Company's competitors' operating results.  
• Restructuring charges. Web.com has recorded restructuring charges. Web.com excludes the impact of these expenses from its non-GAAP measures, because such expense is not used by management to assess the core profitability of the Company's business operations.   
• Income tax expense. Due to the magnitude of Web.com's historical net operating losses and related deferred tax asset, the Company excludes income tax expense from its non-GAAP measures primarily because they are not indicative of the cash tax paid by the Company and therefore are not reflective of ongoing operating results. Further, excluding this item from non-GAAP measures facilitates management's internal comparisons to the Company's historical operating results. Web.com also excludes income tax expense altogether from certain non-GAAP financial measures because the Company believes that the non-GAAP measures excluding this item provide meaningful supplemental information regarding the Company's operational performance and facilitates management's internal comparisons to the Company's historical operating results and comparisons to the Company's competitors' operating results.  
• Fair value adjustment to deferred revenue and deferred expense. Web.com has recorded a fair value adjustment to acquired deferred revenue and deferred expense in accordance with ASC 805-10-65. Web.com excludes the impact of this adjustment from its non-GAAP measures, because doing so results in non-GAAP revenue and non-GAAP net income which are reflective of ongoing operating results and more comparable to historical operating results, since the majority of the Company's revenue is recurring subscription revenue. Excluding the fair value adjustment to deferred revenue and deferred expense therefore facilitates management's internal comparisons to Web.com's historical operating results.  
• Corporate development expenses. Web.com incurred expenses relating to the acquisition and successful integration of acquisitions. Web.com excludes the impact of these expenses from its non-GAAP measures, because such expense is not used by management to assess the core profitability of the Company's business operations.  
• Gains or losses from asset sales and certain other transactions. Web.com excludes the impact of asset sales and certain other transactions including debt extinguishments and the sale of equity method investments from its non-GAAP measures because the impact of this item is not considered part of our ongoing operations.

Forward-Looking Statements

This press release includes certain "forward-looking statements" including, without limitation, statements regarding improving ARPU gains with new products and services, expected low teens revenue growth, the success of our strategy, our ability to continue to deliver consistent net subscriber growth and high profitability margins, and our ability to deliver faster growth in earnings through continued deleveraging, 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," "will," "expect," 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, Web.com's ability to integrate the Network Solutions business into Web.com, 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 business.  Other risk factors are set forth under the caption, "Risk Factors," in Web.com's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, 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 December 31,		Twelve Months Ended December 31,
	2012	2011	2012	2011
Revenue:
Subscription	$ 109,236	$ 72,003	$ 396,687	$ 195,645
Professional services and other	2,197	1,577	10,959	3,560
Total revenue	111,433	73,580	407,646	199,205
Cost of revenue (excluding depreciation and amortization shown separately below):
Subscription	40,221	31,764	153,417	83,406
Professional services and other	1,507	353	6,913	1,415
Total cost of revenue	41,728	32,117	160,330	84,821
Gross profit	69,705	41,463	247,316	114,384
Operating expenses:
Sales and marketing	31,035	19,553	117,811	51,743
Research and development	8,209	9,050	34,258	19,252
General and administrative	11,368	21,256	49,807	45,164
Restructuring	(55)	9,206	2,469	9,536
Depreciation and amortization	19,753	15,243	78,981	29,456
Total operating expenses	70,310	74,308	283,326	155,151
Loss from operations	(605)	(32,845)	(36,010)	(40,767)
Other (expense) income:
Interest expense, net	(14,003)	(17,227)	(66,124)	(21,826)
Loss on debt extinguishment	(41,977)	--	(41,977)	--
Gain on sale of equity method investment	--	--	5,156	--
Loss before income taxes from continuing operations	(56,585)	(50,072)	(138,955)	(62,593)
Income tax benefit	4,707	50,741	16,738	50,084
Net (loss) income from continuing operations	(51,878)	669	(122,217)	(12,509)
Discontinued operations:
(Loss) gain from discontinued operations, net of tax	--	(125)	--	200
(Loss) gain from discontinued operations, net of tax	--	(125)	--	200
Net (loss) income	$ (51,878)	$ 544	$ (122,217)	$ (12,309)
Basic earnings per share:
(Loss) income from continuing operations attributable per common share	$ (1.10)	$ 0.02	$ (2.61)	$ (0.41)
(Loss) Income from discontinued operations attributable per common share	$ --	$ (0.01)	$ --	$ 0.01
Net (loss) income per common share	$ (1.10)	$ 0.01	$ (2.61)	$ (0.40)
Diluted earnings per share:
(Loss) income from continuing operations attributable per common share	$ (1.10)	$ 0.02	$ (2.61)	$ (0.41)
(Loss) income from discontinued operations attributable per common share	$ --	$ (0.01)	$ --	$ 0.01
Net (loss) income per common share	$ (1.10)	$ 0.01	$ (2.61)	$ (0.40)
Weighted-average number of shares used in per share amounts:
Basic	47,068	40,667	46,892	30,675
Diluted	47,068	43,279	46,892	30,675

Web.com Group, Inc.
Consolidated Balance Sheets
(in thousands except per share data)
	December 31, 2012	December 31, 2011
	(unaudited)	(audited)
Assets
Current assets:
Cash and cash equivalents	$ 15,181	$ 13,364
Restricted investments	601	296
Accounts receivable, net of allowance $2,337 and $1,560, respectively	15,007	13,094
Prepaid expenses	6,697	5,184
Deferred expenses	59,255	57,302
Deferred taxes	18,092	18,563
Deferred financing fees and other	4,515	4,716
Total current assets	119,348	112,519
Restricted investments	710	714
Property and equipment, net	40,079	25,696
Deferred expenses	63,147	68,136
Goodwill	628,176	631,362
Intangible assets, net	469,703	539,979
Other assets	6,107	21,074
Total assets	$ 1,327,270	$ 1,399,480
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$ 6,385	$ 4,931
Accrued expenses	11,562	15,953
Accrued compensation and benefits	15,413	15,956
Accrued restructuring	1,477	5,687
Deferred revenue	191,149	142,157
Current portion of debt	4,681	4,182
Other liabilities	2,556	2,496
Total current liabilities	233,223	191,362
Deferred revenue	175,816	132,814
Long-term debt	688,140	714,703
Deferred tax liabilites	64,126	84,832
Other long-term liabilities	4,352	4,013
Total liabilities	1,165,657	1,127,724
Stockholders' equity
Common stock, $0.001 par value per share; 150,000,000 shares authorized; 49,175,642 and 47,359,304 shares issued and outstanding at December 31, 2012 and 2011, respectively	49	47
Additional paid-in capital	454,022	441,955
Accumulated other comprehensive income	5	--
Accumulated deficit	(292,463)	(170,246)
Total stockholders' equity	161,613	271,756
Total liabilities and stockholders' equity	$ 1,327,270	$ 1,399,480

Web.com Group, Inc.
Reconciliation of GAAP to Non-GAAP Results
(in thousands except per share data)
(unaudited)
	Three Months Ended December 31,		Twelve Months Ended December 31,
	2012	2011	2012	2011
Reconciliation of GAAP revenue to non-GAAP revenue
GAAP revenue	$ 111,433	$ 73,580	$ 407,646	$ 199,205
Fair value adjustment to deferred revenue	14,719	22,911	83,732	35,238
Non-GAAP revenue	$ 126,152	$ 96,491	$ 491,378	$ 234,443
Reconciliation of GAAP net (loss) income to non-GAAP net income
GAAP net (loss) income	$ (51,878)	$ 544	$ (122,217)	$ (12,309)
Amortization of intangibles	17,397	13,703	70,350	25,389
Loss on sale of assets	1	--	403	10
Stock based compensation	3,077	1,948	11,927	6,933
Income tax benefit	(4,707)	(50,616)	(16,738)	(49,958)
Restructuring (credits) charges	(55)	9,206	2,469	9,536
Corporate development	--	7,789	660	13,083
Amortization of deferred financing fees	1,648	5,918	11,017	6,856
Cash income tax (expense) benefit	(11)	259	(1,044)	(214)
Fair value adjustment to deferred revenue	14,719	22,911	83,732	35,238
Fair value adjustment to deferred expense	495	538	2,376	739
Loss on debt extinguishment	41,977	--	41,977	--
Gain on sale of equity method investment	--	--	(5,156)	--
Non-GAAP net income	$ 22,663	$ 12,200	$ 79,756	$ 35,303
Reconciliation of GAAP basic net (loss) income per share to non-GAAP basic net income per share
Basic GAAP net (loss) income	$ (1.10)	$ 0.01	$ (2.61)	$ (0.40)
Amortization of intangibles	0.36	0.33	1.50	0.83
Loss on sale of assets	--	--	0.01	--
Stock based compensation	0.07	0.05	0.25	0.23
Income tax benefit	(0.10)	(1.24)	(0.36)	(1.63)
Restructuring charges	--	0.23	0.05	0.31
Corporate development	--	0.19	0.01	0.43
Amortization of deferred financing fees	0.04	0.15	0.23	0.22
Cash income tax expense	--	0.01	(0.02)	(0.01)
Fair value adjustment to deferred revenue	0.31	0.56	1.79	1.15
Fair value adjustment to deferred expense	0.01	0.01	0.05	0.02
Loss on debt extinguishment	0.89	--	0.90	--
Gain on sale of equity method investment	--	--	(0.10)	--
Basic Non-GAAP net income per share	$ 0.48	$ 0.30	$ 1.70	$ 1.15
Reconciliation of GAAP diluted net (loss) income per share to non-GAAP diluted net income per share
Fully diluted shares:
Common stock	47,068	40,667	46,892	30,675
Diluted stock options	1,968	1,630	2,186	2,058
Diluted restricted stock	964	982	1,117	1,006
Total	50,000	43,279	50,195	33,739
Diluted GAAP net (loss) income per share	$ (1.10)	$ 0.01	$ (2.61)	$ (0.40)
Diluted equity	0.06	--	0.17	0.04
Amortization of intangibles	0.34	0.32	1.40	0.76
Loss on sale of assets	--	--	0.01	--
Stock based compensation	0.06	0.05	0.24	0.21
Income tax benefit	(0.09)	(1.17)	(0.33)	(1.48)
Restructuring charges	--	0.21	0.05	0.28
Corporate development	--	0.18	0.01	0.39
Amortization of deferred financing fees	0.03	0.13	0.22	0.20
Cash income tax expense (benefit)	--	0.01	(0.02)	(0.01)
Fair value adjustment to deferred revenue	0.29	0.53	1.67	1.04
Fair value adjustment to deferred expense	0.01	0.01	0.05	0.02
Loss on debt extinguishment	0.85	--	0.84	--
Gain on sale of equity method investment	--	--	(0.11)	--
Diluted Non-GAAP net income per share	$ 0.45	$ 0.28	$ 1.59	$ 1.05
Reconciliation of GAAP operating loss to non-GAAP operating income
GAAP operating loss	$ (605)	$ (32,845)	$ (36,010)	$ (40,767)
Amortization of intangibles	17,397	13,703	70,350	25,389
Loss on sale of assets	1	--	403	10
Stock based compensation	3,077	1,948	11,927	6,933
Restructuring (credits) charges	(55)	9,206	2,469	9,536
Corporate development	--	7,789	660	13,083
Fair value adjustment to deferred revenue	14,719	22,911	83,732	35,238
Fair value adjustment to deferred expense	495	538	2,376	739
Non-GAAP operating income	$ 35,029	$ 23,250	$ 135,907	$ 50,161
Reconciliation of GAAP operating margin to non-GAAP operating margin
GAAP operating margin	-1%	-45%	-9%	-20%
Amortization of intangibles	14%	15%	14%	11%
Restructuring charges	0%	10%	1%	4%
Corporate development	0%	8%	0%	6%
Fair value adjustment to deferred revenue	13%	33%	21%	17%
Fair value adjustment to deferred expense	0%	1%	0%	0%
Stock based compensation	2%	2%	1%	3%
Non-GAAP operating margin	28%	24%	28%	21%
Reconciliation of GAAP operating loss to adjusted EBITDA
GAAP operating loss	$ (605)	$ (32,845)	$ (36,010)	$ (40,767)
Depreciation and amortization	19,753	15,243	78,981	29,456
Loss on sale of assets	1	--	403	10
Stock based compensation	3,077	1,948	11,927	6,933
Restructuring (credits) charges	(55)	9,206	2,469	9,536
Corporate development	--	7,789	660	13,083
Fair value adjustment to deferred revenue	14,719	22,911	83,732	35,238
Fair value adjustment to deferred expense	495	538	2,376	739
Adjusted EBITDA	$ 37,385	$ 24,790	$ 144,538	$ 54,228
Reconciliation of GAAP operating margin to adjusted EBITDA margin
GAAP operating margin	-1%	-45%	-9%	-20%
Depreciation and amortization	16%	17%	15%	13%
Stock based compensation	2%	2%	2%	3%
Restructuring charges	0%	11%	1%	4%
Corporate development	0%	8%	0%	6%
Fair value adjustment to deferred revenue	13%	32%	20%	17%
Fair value adjustment to deferred expense	0%	1%	0%	0%
Adjusted EBITDA margin	30%	26%	29%	23%
	Three Months Ended December 31,		Twelve Months Ended December 31,
	2012	2011	2012	2011
Stock based compensation
Subscription (cost of revenue)	$ 346	$ 228	$ 1,312	$ 856
Sales and marketing	805	356	2,872	1,240
Research and development	476	302	1,963	969
General and administration	1,450	1,062	5,780	3,868
Total	$ 3,077	$ 1,948	$ 11,927	$ 6,933

Web.com Group, Inc.
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
	Three Months Ended December 31,		Twelve Months Ended December 31,
	2012	2011	2012	2011
Cash flows from operating activities
Net (loss) income	$ (51,878)	$ 544	$ (122,217)	$ (12,309)
Adjustments to reconcile to net cash provided by operating activities:
Gain (loss) on sale of discontinued operations	--	125	--	(200)
Gain on sale of equity method investment	--	--	(5,156)	--
Loss from debt extinguishment	39,331	--	39,331	--
Depreciation and amortization	19,753	15,243	78,981	29,456
Stock-based compensation	3,077	1,948	11,927	6,933
Deferred income tax benefit	(4,095)	(50,296)	(17,179)	(50,112)
Amortization of debt issuance costs and other	1,650	5,623	11,420	6,572
Changes in operating assets and liabilities:
Accounts receivable, net	2,801	(778)	(1,906)	(407)
Prepaid expenses and other assets	3,136	2,508	(3,020)	1,711
Deferred expense	492	1,208	3,004	2,025
Accounts payable	(4,821)	(1,349)	295	(1,509)
Accrued expenses and other liabilities	(1,137)	1,197	(4,755)	1,694
Accrued compensation and benefits	2,755	1,047	(577)	(2,897)
Accrued restructuring	(1,163)	7,209	(4,176)	5,199
Deferred revenue	16,718	20,225	91,993	28,768
Net cash provided by operating activities	26,619	4,454	77,965	14,924
Cash flows from investing activities
Business acquisitions, net of cash received	--	(405,120)	--	(405,120)
Proceeds from sale of discontinued operations	--	--	--	325
Proceeds from sale of equity method investment	--	--	7,197	--
Purchase of property and equipment	(3,308)	(671)	(22,298)	(4,270)
Other	(76)	--	(76)	83
Net cash used in investing activities	(3,385)	(405,791)	(15,177)	(408,982)
Cash flows from financing activities
Stock issuance costs	(10)	(7)	(21)	(16)
Common stock repurchased	(1,186)	(4)	(4,683)	(452)
Debt issuance costs	(3,720)	(21,242)	(3,720)	(21,242)
Issuance of debt	643,205	745,500	643,205	745,500
Payment of debt	(659,074)	(325,738)	(701,574)	(341,748)
Proceeds from exercise of stock options and other	1,244	440	5,822	9,073
Net cash (used in) provided by financing activities	$ (19,541)	$ 398,949	$ (60,971)	$ 391,115
Net increase (decrease) in cash and cash equivalents	3,693	(2,388)	1,817	(2,943)
Cash and cash equivalents, beginning of period	11,487	15,752	13,364	16,307
Cash and cash equivalents, end of period	$ 15,180	$ 13,364	$ 15,181	$ 13,364
Supplemental cash flow information:
Interest paid	$ 14,302	$ 4,060	$ 57,293	$ 7,786
Income tax paid	$ 55	$ 162	$ 252	$ 1,089

CONTACT: Web.com
         Susan Datz Edelman
         Director, Investor Relations and Corporate Communications
         904-680-6909
         [e-mail]
         
         ICR for Web.com
         Brian Denyeau
         646-277-1251
         [e-mail]

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