Website Pros Inc. (WWWW, Financial) filed Quarterly Report for the period ended 2009-03-31.
WEB.COM GROUP INC. is a leading provider of online marketing for small businesses. Web.com offers a full range of online services including Internet marketing and advertising local search search engine marketing search engine optimization lead generation home contractor specific leads website design and publishing logo and brand development and eCommerce solutions meeting the needs of small businesses anywhere along their lifecycle. Website Pros Inc. has a market cap of $121.5 million; its shares were traded at around $4.54 with a P/E ratio of 7.7 and P/S ratio of 1.
Cost of Subscription Revenue. Cost of subscription revenue decreased 15% to $9.3 million in the three months ended March 31, 2009 from $10.9 million in the three months ended March 31, 2008. During the three months ended March 31, 2009, we reduced costs of approximately $795 thousand, which was driven by the decline of our subscription revenue. In addition, as a lesser percentage of our sales came from our strategic marketing relationships, fees related to these relationships decreased by $447 thousand during the three months ended March 31, 2009. Additionally, due to our migration and consolidation activities, we reduced employee compensation and benefits expense by $231 thousand during the three months ended March 31, 2009. As a result of these savings, our gross margin on subscription revenue increased from 63% during the three months ended March 31, 2008 to 64% during the three months ended March 31, 2009.
Sales and Marketing Expenses. Sales and marketing expenses decreased 23% to $5.8 million, or 21% of total revenue, during the three months ended March 31, 2009 from $7.5 million, or 24% of total revenue, during the three months ended March 31, 2008. The decrease of $1.7 million in sales and marketing expenses was primarily the result of a reduction in online marketing spend during the quarter, as well as, a reduction in sales resources. Specifically, we saw reductions in employee compensation and benefits expense by $563 thousand and marketing and advertising expense by $1.1 million.
Research and Development Expenses. Research and development expenses decreased 21% to $2.1 million, or 7% of total revenue, during the three months ended March 31, 2009 from $2.6 million, or 9% of total revenue, during the three months ended March 31, 2008. As a result of our migration and consolidation activities, there was a decrease in employee compensation and benefits expense totaling $184 thousand, in addition to the reduction of costs associated with the contract termination of our outsourced software developer for NetObjects Fusion totaling $389 thousand.
General and Administrative Expenses. General and administrative expenses increased 19% to $6.1 million, or 22% of total revenue, during the three months ended March 31, 2009 from $5.1 million, or 17% of total revenue, during the three months ended March 31, 2008. During the quarter ended March 31, 2009, we had additional legal expenses of $573 thousand, which were primarily associated with the sale of patents, in addition to, increases in employee compensation and stock compensation of $365 thousand and $331 thousand, respectively. These increases were offset in part by decreases of $147 thousand in contract labor.
Income tax expense. We recorded an income tax expense of $557 thousand during the three-months ended March 31, 2009 from $644 thousand during the three-months ended March 31, 2008. In accordance with SFAS 109 Accounting for Income Taxes, we reevaluated the need for a valuation allowance on our deferred tax assets as a result of cumulative profits generated in the most recent three-year period as well as other positive evidence. The Company reduced its deferred tax valuation allowance based upon an analysis of the amount of deferred taxes that is more likely than not to be realized, which included the consideration of cumulative pretax earnings over the past three years and a short-term forecast of pretax earnings. As a result of this evaluation, we reduced our deferred tax valuation allowance in the three months ended March 31, 2009, which resulted in an income tax benefit benefit of $539 thousand. Therefore, the Company recognized tax expense of $18 thousand for the three months ended March 31, 2009. The Company's estimated annual effective tax rate varied from the stat
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WEB.COM GROUP INC. is a leading provider of online marketing for small businesses. Web.com offers a full range of online services including Internet marketing and advertising local search search engine marketing search engine optimization lead generation home contractor specific leads website design and publishing logo and brand development and eCommerce solutions meeting the needs of small businesses anywhere along their lifecycle. Website Pros Inc. has a market cap of $121.5 million; its shares were traded at around $4.54 with a P/E ratio of 7.7 and P/S ratio of 1.
Highlight of Business Operations:
Professional Services Revenue. Professional services revenue decreased 19% to $553 thousand in the three months ended March 31, 2009 from $681 thousand in the three months ended March 31, 2008. There was a decrease of $49 thousand in custom website design and maintenance services, as well as, a decrease of $198 thousand in search engine optimization services. These decreases were partially offset by revenue associated with our Do-it-Yourself logo product, which was acquired in June 2008. Sales from this new product were approximately $164 thousand during the three months ended March 31, 2009.Cost of Subscription Revenue. Cost of subscription revenue decreased 15% to $9.3 million in the three months ended March 31, 2009 from $10.9 million in the three months ended March 31, 2008. During the three months ended March 31, 2009, we reduced costs of approximately $795 thousand, which was driven by the decline of our subscription revenue. In addition, as a lesser percentage of our sales came from our strategic marketing relationships, fees related to these relationships decreased by $447 thousand during the three months ended March 31, 2009. Additionally, due to our migration and consolidation activities, we reduced employee compensation and benefits expense by $231 thousand during the three months ended March 31, 2009. As a result of these savings, our gross margin on subscription revenue increased from 63% during the three months ended March 31, 2008 to 64% during the three months ended March 31, 2009.
Sales and Marketing Expenses. Sales and marketing expenses decreased 23% to $5.8 million, or 21% of total revenue, during the three months ended March 31, 2009 from $7.5 million, or 24% of total revenue, during the three months ended March 31, 2008. The decrease of $1.7 million in sales and marketing expenses was primarily the result of a reduction in online marketing spend during the quarter, as well as, a reduction in sales resources. Specifically, we saw reductions in employee compensation and benefits expense by $563 thousand and marketing and advertising expense by $1.1 million.
Research and Development Expenses. Research and development expenses decreased 21% to $2.1 million, or 7% of total revenue, during the three months ended March 31, 2009 from $2.6 million, or 9% of total revenue, during the three months ended March 31, 2008. As a result of our migration and consolidation activities, there was a decrease in employee compensation and benefits expense totaling $184 thousand, in addition to the reduction of costs associated with the contract termination of our outsourced software developer for NetObjects Fusion totaling $389 thousand.
General and Administrative Expenses. General and administrative expenses increased 19% to $6.1 million, or 22% of total revenue, during the three months ended March 31, 2009 from $5.1 million, or 17% of total revenue, during the three months ended March 31, 2008. During the quarter ended March 31, 2009, we had additional legal expenses of $573 thousand, which were primarily associated with the sale of patents, in addition to, increases in employee compensation and stock compensation of $365 thousand and $331 thousand, respectively. These increases were offset in part by decreases of $147 thousand in contract labor.
Income tax expense. We recorded an income tax expense of $557 thousand during the three-months ended March 31, 2009 from $644 thousand during the three-months ended March 31, 2008. In accordance with SFAS 109 Accounting for Income Taxes, we reevaluated the need for a valuation allowance on our deferred tax assets as a result of cumulative profits generated in the most recent three-year period as well as other positive evidence. The Company reduced its deferred tax valuation allowance based upon an analysis of the amount of deferred taxes that is more likely than not to be realized, which included the consideration of cumulative pretax earnings over the past three years and a short-term forecast of pretax earnings. As a result of this evaluation, we reduced our deferred tax valuation allowance in the three months ended March 31, 2009, which resulted in an income tax benefit benefit of $539 thousand. Therefore, the Company recognized tax expense of $18 thousand for the three months ended March 31, 2009. The Company's estimated annual effective tax rate varied from the stat
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