Website Pros Inc. (WWWW, Financial) filed Quarterly Report for the period ended 2009-06-30.
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 $167.6 million; its shares were traded at around $6.35 with a P/E ratio of 10.6 and P/S ratio of 1.4.
Cost of Subscription Revenue. Cost of subscription revenue decreased 15% to $9.4 million in the three months ended June 30, 2009 from $11.0 million in the three months ended June 30, 2008. During the three months ended June 30, 2009, we reduced costs of approximately $1.2 million, which was driven by the decline of our subscription revenue and slightly offset by additional expense due to the revenue associated with our recent acquisition. In addition, as a lesser percentage of our sales came from our strategic marketing relationships, fees related to these relationships decreased by $607 thousand during the three months ended June 30, 2009. Our gross margin on subscription revenue decreased slightly from 64% during the three months ended June 30, 2008 to 63% during the three months ended June 30, 2009.
Sales and Marketing Expenses. Sales and marketing expenses decreased 22% to $5.9 million, or 22% of total revenue, during the three months ended June 30, 2009 from $7.5 million, or 24% of total revenue, during the three months ended June 30, 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 had reductions in employee compensation and benefits expense of $619 thousand and marketing and advertising expense of $1.1 million.
Research and Development Expenses. Research and development expenses decreased 13% to $2.1 million, or 8% of total revenue, during the three months ended June 30, 2009 from $2.4 million, or 8% of total revenue, during the three months ended June 30, 2008. During the three months ended June 30, 2009, there was a decrease in employee compensation and benefits expense totaling $251 thousand, in addition to the reduction of costs associated with subcontracted labor totaling $55 thousand.
Income tax expense. We recorded income tax expense of $978 thousand and $728 thousand in the three months ended June 30, 2009 and 2008, respectively, based upon our estimated annual effective tax rate. 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. As a result of this evaluation, we reduced our deferred tax valuation allowance in the three months ended June 30, 2009 and 2008 and recognized tax benefits of $952 thousand and $1.3 million, respectively, which increased dilutive earnings per share by $0.04 and $0.04, respectively. Therefore, we recognized tax expense of $26 thousand for the three months ended June 30, 2009, which includes $11 thousand in interest expense for unrecognized tax benefits. Our estimated annual effective tax rate varied from the statutory tax rate because we were able to fully offset U.S. tax expense with net operating loss carryforwards though a release of the valuation allowance.
Discontinued operations. On May 26, 2009, we sold our NetObjects Fusion software business for approximately $4.0 million. During the three months ended June 30, 2009, we received a partial payment of $750 thousand and recorded a $250 thousand receivable in connection with the sale of NetObjects Fusion. We recorded the net gain of $822 thousand in “Gain on sale of discontinued operations, net of tax”. The remaining $3.0 million in proceeds will be recorded as a gain in discontinued operations as cash payments are received. Operating results relating to NetObjects Fusion revenue and expenses for all periods presented are reported in discontinued operations. For the three months ended June 30, 2009 and 2008, the revenue generated by the NetObjects Fusion software business was $162 thousand and $1.0 million and net income was $95 thousand and $360 thousand, respectively.
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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 $167.6 million; its shares were traded at around $6.35 with a P/E ratio of 10.6 and P/S ratio of 1.4.
Highlight of Business Operations:
Professional Services Revenue. Professional services revenue increased 76% to $1.0 million in the three months ended June 30, 2009 from $589 thousand in the three months ended June 30, 2008. Professional services revenue increased approximately $723 thousand due to the additional service offerings of eCommerce store design and logo design that were acquired as part of our recent acquisitions, which was partially offset by a decrease of $192 thousand in search engine optimization services.Cost of Subscription Revenue. Cost of subscription revenue decreased 15% to $9.4 million in the three months ended June 30, 2009 from $11.0 million in the three months ended June 30, 2008. During the three months ended June 30, 2009, we reduced costs of approximately $1.2 million, which was driven by the decline of our subscription revenue and slightly offset by additional expense due to the revenue associated with our recent acquisition. In addition, as a lesser percentage of our sales came from our strategic marketing relationships, fees related to these relationships decreased by $607 thousand during the three months ended June 30, 2009. Our gross margin on subscription revenue decreased slightly from 64% during the three months ended June 30, 2008 to 63% during the three months ended June 30, 2009.
Sales and Marketing Expenses. Sales and marketing expenses decreased 22% to $5.9 million, or 22% of total revenue, during the three months ended June 30, 2009 from $7.5 million, or 24% of total revenue, during the three months ended June 30, 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 had reductions in employee compensation and benefits expense of $619 thousand and marketing and advertising expense of $1.1 million.
Research and Development Expenses. Research and development expenses decreased 13% to $2.1 million, or 8% of total revenue, during the three months ended June 30, 2009 from $2.4 million, or 8% of total revenue, during the three months ended June 30, 2008. During the three months ended June 30, 2009, there was a decrease in employee compensation and benefits expense totaling $251 thousand, in addition to the reduction of costs associated with subcontracted labor totaling $55 thousand.
Income tax expense. We recorded income tax expense of $978 thousand and $728 thousand in the three months ended June 30, 2009 and 2008, respectively, based upon our estimated annual effective tax rate. 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. As a result of this evaluation, we reduced our deferred tax valuation allowance in the three months ended June 30, 2009 and 2008 and recognized tax benefits of $952 thousand and $1.3 million, respectively, which increased dilutive earnings per share by $0.04 and $0.04, respectively. Therefore, we recognized tax expense of $26 thousand for the three months ended June 30, 2009, which includes $11 thousand in interest expense for unrecognized tax benefits. Our estimated annual effective tax rate varied from the statutory tax rate because we were able to fully offset U.S. tax expense with net operating loss carryforwards though a release of the valuation allowance.
Discontinued operations. On May 26, 2009, we sold our NetObjects Fusion software business for approximately $4.0 million. During the three months ended June 30, 2009, we received a partial payment of $750 thousand and recorded a $250 thousand receivable in connection with the sale of NetObjects Fusion. We recorded the net gain of $822 thousand in “Gain on sale of discontinued operations, net of tax”. The remaining $3.0 million in proceeds will be recorded as a gain in discontinued operations as cash payments are received. Operating results relating to NetObjects Fusion revenue and expenses for all periods presented are reported in discontinued operations. For the three months ended June 30, 2009 and 2008, the revenue generated by the NetObjects Fusion software business was $162 thousand and $1.0 million and net income was $95 thousand and $360 thousand, respectively.
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