Web.com Group, Inc. Q1 2010 Earnings Call Transcript

Web.com Group, Inc. Q1 2010 Earnings Call Transcript
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Web.com Group, Inc. (WWWW)

Q1 2010 Earnings Call Transcript

May 4, 2010 5:00 pm ET


Kori Doherty – IR

David Brown – Chairman, President & CEO

Kevin Carney – CFO


David Hilal – FBR Capital Markets & Co.

Randy Katz – JMP Securities

Jeff Martin – Roth Capital Partners

Stephen Ju – RBC Capital Markets



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Greetings and welcome to the Web.com first quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kori Doherty, IR for Web.com. Thank you. You may begin.

Kori Doherty

Thank you. Good afternoon and thank you for joining us today to review Web.com’s first quarter 2010 financial results. With me on the call today are David Brown, Chairman and CEO and Kevin Carney, Chief Financial Officer. After prepared remarks, we will open up the call to a question-and-answer session.

Please note that our remarks today contain forward-looking statements. The words expect, believe, will, going, begin, seek, plan, continue and similar expressions are intended to identify forward-looking statements. These statements are based solely on our current expectations, and are risks and uncertainties that can cause actual results and the timing of such results to differ materially from those projected in the forward-looking statements.

Please refer to our filings with the SEC and the risk factors contained therein including our annual report on Form 10-K for the year ended December 31, 2009 for more information on these risks and uncertainties and our limitations that apply to our forward-looking statements. Web.com expressly disclaims any obligations or undertaking to release publically any updates or revisions to any forward-looking statements made herein.

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation to the nearest GAAP financial measure is available at our Web site www.web.com under the Investor Relations tab. Also, please note that our webcast on today’s call will be available on our Web site in the Investor Relations section.

With that I’d like to turn the call over to our Chairman and CEO, David Brown. David?



Thank you, Kori, and thank you all for joining us on the call to review our first quarter 2010 results, which were consistent with the company’s guidance from a revenue and profitability perspective.

During the quarter, we again brought our customer churn metric down to a new record low level and began utilizing a number of customer acquisition strategies to continue expanding our customer base.

Our consistent performance over the past year in driving customer churn down and expanding our customer base is encouraging from a long-term perspective. As is the fact that we continue to make progress expanding our distribution channels and advancing Web.com's direct sales efforts.

Taking a look at the summary highlights of our financial performance, total revenue came in at $25.1 million, which was in the upper half of our guidance range. We believe that Web.com has a solid revenue base in the range of $100 million and we are optimistic that our expanding distribution network and investments in sales and marketing will enable Web.com to begin scaling from this level over the course of 2010.

From a profitability perspective, we delivered an adjusted EBITDA margin of 16% in the first quarter and non-GAAP diluted earnings per share of $0.12, which was at the high end of our guidance. Finally, our balance sheet remains strong at the end of the quarter with nearly $40 million in cash and no debt.

The market environment during the first quarter was largely consistent with our expectations, and our view exiting the quarter has not changed for the better or the worse. We have over a 0.25 million customers in the small business market and we talk to many hundreds of thousands more over the course of any given year. We continue to hear that the economic challenges and tightness of the credit markets are making life difficult for small businesses.

While there is growing optimism that the US economy is on a path to recovery, it is uncertain how long it will take for that increased prosperity to trickle down to small businesses. As a result, our strategy remains the same. We are focused on delivering solid profitability and generating meaningful cash flow at the same time we are selectively increasing sales and marketing investments to enhance the company's growth profile.

We believe these investments will help Web.com to begin scaling its revenue run rate and they will further strengthen the company's position for improved growth when the small business macro environment eventually improves.

During the first quarter, the company added approximately 3,600 net new subscribers, ending the quarter with over 278,000 subscribers. This is the fifth consecutive quarter in which our net subscriber additions grew on a sequential basis. This is important because we have proven our ability to expand customer relationships over time to cross sell and upsell of additional applications across our broad product suite.

In addition to adding customers through a multitude of organic means during the quarter, we also acquired a few thousand subscribers in a transaction similar to the Tucows acquisition that was completed over a year ago. In this situation, we capitalized on an opportunity to bring customers on to Web.com’s hosting platform. Although these customers pay a relatively low monthly fee, this business is very profitable for Web.com.

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