Web.com Group (NASDAQ:WWWW)

Second Quarter 2012 Results

• Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $98.9 million for the second quarter of 2012, compared to $42.2 million for the second quarter of 2011. Non-GAAP revenue, which adds back the impact of the fair value adjustment to acquired deferred revenue, was $121.7 million for the second quarter of 2012, above the company's guidance range of $119.0 million to $121.0 million.
• Non-GAAP net income from continuing operations was $19.1 million for the second quarter of 2012, or $0.38 per diluted share, above the company's guidance of $17.5 million to $18.5 million, or $0.35 to $0.37 per diluted share. The Company had non-GAAP net income of $8.1 million, or $0.26 per diluted share, for the second quarter of 2011.

"Web.com's growing business momentum led to revenue and profitability that exceeded the high end of our second quarter guidance," said David Brown, Chairman and CEO of Web.com. "We built upon last quarter's return to positive net customer growth by adding 14,000 net new subscribers in the second quarter, while improving average revenue per user (ARPU) to $13.34. We continue to see the positive effects of stabilizing and improving our domain registry business, combined with the continued solid growth of our broad suite of online marketing solutions designed for small business users."

Brown added, "During the second quarter, Web.com generated a record adjusted EBITDA margin of 29%, which was a primary contributor to our strong and growing cash flow. We are ahead of schedule with respect to using our cash flow to pay down our debt and remain focused on rapidly de-leveraging the company's balance sheet. Our better-than-expected profitability has also provided increased resources for Web.com to invest in initiatives designed to continue accelerating revenue growth. We believe it is clear that our strategy is working and we are in the early stages of benefitting from a combination of growing subscribers, increasing ARPU and customer retention levels that are at an all-time high."

On 03/28/2011 we added WWWW to the GeoSpecial list @ $13.89

Catalyst: Strong fiscal 2010 fourth quarter results.  Bullish 2010 year end conference call.

We are now removing WWWW from the GeoSpeicial List @ $14.95

Current road block: After further review of the WWWW story we have learned that analyst 2012 and 2013 EPS estimates are not taxed. As many or our members may know, we prefer to value a company on a fully taxed basis. We hold the opinion that WWWW is appropriately valued in the near term at 15 times the next four quarter taxed adjusted EPS estimates of $1.02. This would imply a price target of $15.36. We do think the stock is worth about $25 long-term and will keep close tabs on the story to possibly buying on sharp pull backs.

• Peak performance: Reached a high of  $16.43 on 05/02/2012 for a maiximum potential return of 18%
• Current Price: $15.15

First Quarter 2012 Results

• Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $91.5 million for the first quarter of 2012, compared to $39.5 million for the first quarter of 2011. Non-GAAP revenue, which adds back the impact of the fair value adjustment to acquired deferred revenue, was $119.3 million for the first quarter of 2012, above the company's guidance range of $116.0 million to $118.0 million.
• Non-GAAP operating income was $32.0 million for the first quarter of 2012, compared to $7.7 million for the first quarter of 2011 and representing a record non-GAAP operating margin of 27%.
• Non-GAAP net income from continuing operations was $17.2 million for the first quarter of 2012, or $0.35 per diluted share, above the company's guidance of $14.8 million to $15.7 million, or $0.30 to $0.32 per diluted share. The Company had non-GAAP net income of $6.4 million, or $0.21 per diluted share, for the first quarter of 2011.

"Web.com delivered a strong performance to start 2012, with first quarter revenue and profitability exceeding the high-end of our guidance," said David Brown, Chairman and CEO of Web.com. "Our return to positive net subscriber additions is both earlier than we previously anticipated and a significant accomplishment considering that Register.com and Network Solutions were losing approximately 20,000 and 15,000 subscribers per quarter, respectively, prior to their acquisitions by Web.com. We believe that Web.com is now well positioned to benefit from a powerful combination of growing subscribers, increasing ARPU off of a much larger subscriber base, and best-in-class churn levels for a company serving the small business market."

Brown added, "We are pleased with our progress of driving cost synergies as we integrate the Network Solutions acquisition. We continue to be on plan or ahead of our expectations in this important area, which provides us with the opportunity to increase investments in sales and marketing programs focused on accelerating our long-term revenue growth. Our strategy is working, and we believe we have the opportunity to build a company with a very attractive financial profile characterized by significant scale, attractive growth, a high level of revenue visibility and best-in-class profitability and cash flow."

Fourth Quarter 2011 Results

• Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $73.6 million for the fourth quarter of 2011, compared to $37.6 million for the fourth quarter of 2010. Non-GAAP revenue, which adds back the impact of the fair value adjustment to acquired deferred revenue, was $96.5 million for the fourth quarter of 2011, above the company's guidance range of $93.0 million to $95.0 million.
• Non-GAAP net income from continuing operations was $12.2 million for the fourth quarter of 2011, or $0.28 per diluted share, above the company's guidance of $0.22 to $0.24 per diluted share. The Company had non-GAAP net income of $6.6 million, or $0.24 per diluted share, for the fourth quarter of 2010.

"Web.com delivered revenue and profitability that were above our expectations for the fourth quarter, representing a strong finish to a record year and a great start to Web.com's future following the Network Solutions acquisition," said David Brown, Chairman and CEO of Web.com. "During 2011, we completed the integration of Register.com and delivered on each of our key objectives, including accelerated revenue growth, ARPU expansion, reduced customer churn and strong profitability and cash flow generation."

"We are excited about Web.com's outlook as we begin 2012. By replicating integration and growth strategies that have been successful in the past, we are making excellent progress incorporating the Network Solutions organization, and are quite pleased with the contribution our joint teams are already making in just this short period of time. In addition to building on our track record of driving ARPU growth, we believe that we are well positioned to stabilize and grow our much larger subscriber base as we proceed through 2012. With far greater resources, we believe we have the opportunity to drive shareholder value as we use the combined company's strong cash flow to invest in growth initiatives as well as rapidly de-lever our balance sheet." 

Third Quarter 2011 Results

• Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $43.9 million for the third quarter of 2011, compared to $32.7 million for the third quarter of 2010. Non-GAAP revenue, which adds back the impact of the fair value adjustment to acquired deferred revenue, was a record $46.7 million for the third quarter of 2011, in the upper-half of the company's guidance range of $46.0 million to $47.0 million.
• Non-GAAP net income from continuing operations was a record $8.6 million for the third quarter of 2011, or $0.29 per diluted share, an increase of 45% on a year-over-year basis and compared to the company's guidance of $0.26 to $0.28. Non-GAAP net income from continuing operations was $5.3 million, or $0.20 per diluted share, for the third quarter of 2010.

"We are pleased with the company's third quarter financial results, which are highlighted by a record revenue performance and continued non-GAAP operating margin expansion to the best-in-class level of 20+%," said David Brown, Chairman and CEO of Web.com. "Web.com has executed at a high level since acquiring Register.com, resulting in restored revenue growth, ARPU expansion and significant cost synergies. The company's increasingly strong financial performance is evidence that Web.com's acquisition strategy is paying off, and it is a significant achievement considering the challenging economic environment."

"As we look ahead, we are extremely excited about Web.com's future following our transformative acquisition of Network Solutions. Our combined company has nearly 3 million customers, an annualized pro-forma non-GAAP revenue run rate of more than $450 million, and the opportunity to realize up to $40 million in annualized cost savings by the end of 2013," added Brown. "We believe the bottom line accretion resulting from the acquisition will drive meaningful shareholder value over the next 12 to 24 months. In addition, we believe there is the opportunity for further value creation as Web.com leverages the dramatic increase in sales and marketing resources to invest in initiatives focused on taking Web.com's improving revenue growth to the next level."

Summary of Second Quarter 2011 Financial Results:

• Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $42.2 million for the second quarter of 2011, compared to $24.8 million for the second quarter of 2010. Non-GAAP revenue, which adds back the impact of the fair value adjustment to acquired deferred revenue, was $46.2 million for the second quarter of 2011, ahead of the company's guidance range of $45.0 million to $46.0 million.

• Operating loss, calculated in accordance with GAAP, was $0.6 million for the second quarter of 2011 and included a $4.0 million negative impact related to the fair value adjustment to acquired deferred revenue and prepaid registry fees. For the second quarter of 2010, the company reported GAAP operating loss of $1.6 million.

• GAAP net loss from continuing operations was $2.0 million, or ($0.07) per diluted share, for the second quarter of 2011, and included the above mentioned impact related to the fair value adjustment to acquired deferred revenue and prepaid registry fees. GAAP net loss from continuing operations was $1.8 million, or ($0.07) per diluted share, in the second quarter of 2010.

• Non-GAAP operating income was $9.1 million for the second quarter of 2011, representing a non-GAAP operating margin of 20% and an increase of 193% compared to $3.1 million for the second quarter of 2010.

• Non-GAAP net income from continuing operations was $8.1 million for the second quarter of 2011, or $0.26 per diluted share, an increase of 148% on a year-over-year basis. This exceeded the high-end of the company's guidance by two cents. Non-GAAP net income from continuing operations was $3.3 million, or $0.13 per diluted share, for the second quarter of 2010.

• Adjusted EBITDA was $10.0 million for the second quarter of 2011, representing an adjusted EBITDA margin of 22% and an increase of 165% compared to $3.8 million for the second quarter of 2010.

• Cash flow from operations was $5.3 million for the second quarter of 2011 and $6.0 million excluding the pay down of accrued restructuring expenses, assumed compensation liability and expenses associated with the Register.com acquisition. This compared to $3.7 million and $4.0 million, respectively, for the second quarter of 2010.

"We are very pleased with the company's second quarter financial results, which were above the high-end of our expectations. The growing momentum of our business is reflected by our subscription revenue increasing at its highest organic sequential rate in more than three years," said David Brown, Chairman and CEO of Web.com. "Our improved revenue growth, in the midst of a still challenging economy, is further validation of our business model and acquisition strategy. In the year since we acquired Register.com, we have delivered on our goal to use our increased scale, much larger customer base and greater resources to drive increased adoption of our web services, online marketing, social media and mobile solutions with small businesses."

"Today we announced entering into an agreement to acquire privately-held Network Solutions, a leading provider of website services, online marketing and global domain name registration focused on the needs of SMB's (see separate press release issued on August 3, 2011). The acquisition would accelerate our growth strategy and improve our ability to capitalize on the $19 billion market opportunity associated with delivering online marketing solutions to small businesses. We anticipate that a combination with Network Solutions will more than double our revenue, triple the size of our customer base, quadruple our expected annual free cash flow and take our ability to invest in growth initiatives, cross-sell and upsell programs, and brand development to a different level," added Brown. "We believe that Web.com is creating an increasingly attractive financial profile, characterized by a recurring revenue model, significant scale and best in class profitability and free cash flow margins. We believe we are solidifying Web.com as an even stronger leader in delivering online marketing solutions across the full range of our customers."

First Quarter Results:

• Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $39.5 million for the first quarter of 2011, compared to $25.1 million for the first quarter of 2010. Non-GAAP revenue, which adds back the impact of the fair value adjustment to acquired deferred revenue, was $45.1 million for the first quarter of 2011, slightly ahead of the company's guidance range of $44.0 million to $45.0 million. 
• Operating loss, calculated in accordance with GAAP, was $3.6 million for the first quarter of 2011 and included a $5.7 million negative impact related to the fair value adjustment to acquired deferred revenue and prepaid registry fees. For the first quarter of 2010, the company reported GAAP operating loss of $315 thousand.
• GAAP net loss from continuing operations was $5.7 million, or ($0.21) per diluted share, for the first quarter of 2011, and included the above mentioned impact related to the fair value adjustment to acquired deferred revenue and prepaid registry fees. GAAP net loss from continuing operations was $745 thousand, or ($0.03) per diluted share, in the first quarter of 2010. 
• Non-GAAP operating income was $7.7 million for the first quarter of 2011, representing a non-GAAP operating margin of 17% and an increase of 128% compared to $3.4 million for the first quarter of 2010.
• Non-GAAP net income from continuing operations was $6.4 million for the first quarter of 2011, or $0.21 per diluted share, an increase of 91% on a year-over-year basis. This represented the mid-point of the company's guidance of $0.20 to $0.22 and included a $0.01 per share negative impact due to higher than expected weighted average shares outstanding following the appreciation of Web.com's stock price during the quarter. Non-GAAP net income from continuing operations was $3.3 million, or $0.12 per diluted share, for the first quarter of 2010. 

"The first quarter was an encouraging start to 2011 and our financial results were consistent with or above our expectations," said David Brown, Chairman and CEO of Web.com. "While the economic environment remains challenging, small businesses are increasingly looking to leverage the growing adoption of online local search, social media and mobile devices. We believe Web.com is well positioned to benefit from this trend due to the combination of our new Facebook and Mobile offerings along with our core web services and online marketing solutions."

2010 Fourth quarter CC notes:

• More confident than ever that recent acquisition of competitor, register.com, will be a trans-formative event for the company. Acquisition led to:
  
  
  • Revenue run rate 70% higher than 2009 
  • Non-GAAP net income 100% higher than 2009 
  • 250% increase in customer base compared to 2009

• Face book applications will enable the company to provide customers with a social Internet product offering
• Revenue growth will accelerate with expanding margins
• Is taking a conservative view of economy. (Under promise/over deliver)
• Will aggressively pay down debt
• Projecting 2011 non-GAAP EPS of over $1.00 and revenues to reach $180 million

Coding WWWW as a GeoSpecial

• 2010 Fourth quarter EPS came in at $0.26, easily eclipsing analyst estimates of $0.17
• GPR of 3
• EPS for 5 of the next six quarters are expected to grow at least 20%
• Adjusted 2011 EPS is expected to grow 48.6% to $1.04
• beautiful steady up-trending chart
• Should benefit from the increased use of the web by small business to market products and services as economy improves
• Very positive 2010 year end conference call.

We could not code WWWW as a GeoBargain

• Debt to equity ratio is over 1
• Current ratio is under 2 to 1 (current assets divided by current liabilities)

Potential short-term price target scenario: $15.60 to $17.50 (outside chance of $21.00)