WSPI Website Pros (MM)

Website Pros, Inc. (Nasdaq: WSPI), a leading provider of Web services and online marketing for small and medium-sized businesses, today announced results of operations for the quarter ended September 30, 2006. Total revenue for the third quarter was $12 million, an increase of 19% on a year-over-year basis. The company generated a record non-GAAP operating margin of 12% and non-GAAP EPS of $0.11, an increase of 83% on a year-over-year basis. David Brown, President and CEO of Website Pros, stated, �Total revenue for the quarter came in below our expectations. However, as a result of our ongoing revenue enhancement strategies including the price increase that we instituted during the quarter, we continued to experience solid sequential and year-over-year growth in our subscription revenue. Further, we are encouraged that the scalability of our business model enabled us to meet our earnings objectives during the quarter. � Brown added, �During the third quarter, sales headcount and net new subscriber additions were lower than anticipated. We have since resumed sales headcount growth and expect to add a meaningful number of sales reps in the fourth quarter. Productivity levels have been improving and we are optimistic that we are back on track in this regard. The combination of sales headcount growth and improved productivity levels should position us to restore growth in subscriber additions.� �We continue to expect year-over-year revenue growth for the year ending December 31, 2006 of approximately 30% in our core business and over 35% including the revenue associated with the recently completed acquisitions. We also believe that our earnings per share for the year ending December 31, 2006 will at least meet our prior estimates, and we remain confident with our earnings momentum given our corrective actions as well as the recently completed asset acquisitions of Renovation Experts.com (�Renex�) and 1ShoppingCart.com,� Brown concluded. Financial Results for the Third Quarter of 2006 Total revenue for the third quarter of 2006 was $12 million, an increase of 19% on a year-over-year basis. For the third quarter of 2006, subscription revenue increased 27% to $11.3 million, license revenue decreased 46% to $442 thousand, and professional services revenue decreased 15% to $325 thousand, compared to the third quarter of 2005. For the third quarter of 2006, the Company reported net income available to common stockholders, determined in accordance with generally accepted accounting principles (GAAP), of $1.4 million, an increase from a loss of $322 thousand in the third quarter of 2005. Fully diluted GAAP earnings per share were $0.07 for the third quarter of 2006, an increase from a loss of $0.06 per share in the third quarter of 2005. Per share amounts are based on weighted average fully diluted shares of 19.3 million and 5.4 million for the third quarter of 2006 and 2005, respectively. Non-GAAP Financial Results for the Third Quarter of 2006 Website Pros reported non-GAAP net income of $2.1 million for the third quarter of 2006, an increase of over 150% as compared to $805 thousand in the third quarter of 2005. Non-GAAP diluted net income per share was $0.11 for the third quarter of 2006, an increase of 83% from $0.06 in the third quarter of 2005. All per share numbers for non-GAAP net income per share are expressed on a weighted average diluted per share basis. Non-GAAP net income excludes stock-based compensation expense and amortization expense related to acquisitions. Preferred dividends are excluded from non-GAAP net income per share in prior periods, as all outstanding shares of preferred stock were converted into shares of common stock and all related accrued dividends were eliminated in connection with the Company�s initial public offering, which was completed on November 7, 2005. A reconciliation of GAAP to non-GAAP results has been provided in the financial statement tables included in the press release. An explanation of these measures is also included below under the heading �Use of Non-GAAP Financial Measures.� Other Highlights The Company also had the following other financial and operating highlights during, or immediately following, the third quarter of 2006: The Company recently renewed its annual, strategic relationship with Discover through November 3, 2007. Total net subscribers at the end of the third quarter were over 57,000, an increase of 16% on a year-over-year basis and a reduction of 1,000 compared to the prior quarter. The Company�s monthly customer turnover increased to 6.2%, which was up from 5.7% at the end of the third quarter of 2005. However, on a trailing twelve month basis, monthly customer turnover improved to 5.8% as compared to 6.0% for the twelve months ended September 30, 2005. On September 30, 2006, Website Pros acquired substantially all of the assets and selected liabilities of Renex, an online lead generation marketplace for contractors and homeowners. With a nationwide network of more than 3,000 U.S. contractors, Renex serves as a competitive marketplace for consumers in need of remodeling services and as a targeted lead generation program for qualified contractors. Since Renex was founded in 1999, it has assisted over 700,000 homeowners with their renovation needs, and in 2005 the company generated over $4.1 million in revenue. On September 30, 2006, Website Pros acquired substantially all of the assets and selected liabilities of 1ShoppingCart.com, one of the leading providers of shopping cart, internet marketing and eCommerce / eBusiness software solutions and services. 1ShoppingCart.com provides a comprehensive web-based suite of modular software that includes an eCommerce transaction engine that is integrated with sophisticated internet sales and marketing solutions (affiliate management, email, auto responders, ebook delivery and ad tracking) and features a turnkey automated online sales solution complete with privacy and security measures built in. 1ShoppingCart.com ended 2005 with revenues of $4.6 million and currently serves over 11,000 customers. Use of Non-GAAP Financial Measures Some of the measures in this press release are non-GAAP financial measures within the meaning of the SEC Regulation G. Website Pros believes presenting non-GAAP net income attributable to common stockholders and non-GAAP net income (loss) per share attributable to common stockholders and non-GAAP operating margin is useful to investors, because it describes the operating performance of the Company and helps investors gauge the Company�s ability to generate cash flow, excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with GAAP. Company management uses these non-GAAP measures as important indicators of the Company�s past performance and to plan and forecast performance in future periods. The non-GAAP financial information Website Pros presents may not be comparable to similarly-titled financial measures used by other companies, and investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP. Conference Call Information Management will host a conference call to discuss the Company�s results and other matters related to the Company�s business today, November 7, 2006, at 5:00 pm EST. To access this call, dial 877-502-9274 (domestic) or 913-981-5584 (international). A replay of this conference call will be available for a limited time at 888-203-1112 (domestic) or 719-457-0820 (international). The replay passcode is 4270254. A live webcast of this conference call will also be available for a limited time on the "Investor Relations" page of the Company's Web site, www.websitepros.com. For more information, including this press release, and any other material financial and other statistical information contained in the conference call, please visit the Investor Relations section of Website Pros� Website at, www.websitepros.com. About Website Pros Website Pros, Inc. (Nasdaq: WSPI) is a leading provider of comprehensive Web services and products that enable small and medium-sized businesses to establish and maintain an effective Internet presence. We offer our customers a full range of Web services on an affordable subscription basis that include website design and publishing, Internet marketing and advertising, search engine optimization, search engine submission and lead generation. The breadth and flexibility of our products allow us to meet the Web services needs of a business anywhere along their lifecycle, ranging from businesses just establishing their websites to businesses requiring more sophisticated functionality or selling online. Through a unique combination of proprietary Web publishing and management software, automated workflow processes and specialized workforce development and management techniques, we achieve production efficiencies that enable us to offer sophisticated Web services affordably and effectively to our customers. Our technology automates many aspects of creating, maintaining, enhancing and marketing websites for our approximately 57,000 business customers. For more information, contact Website Pros. Voice: 904-680-6600. Fax: 904-880-0350. Address: 12735 Gran Bay Parkway West, Building #200, Jacksonville, FL 32258. Website: www.websitepros.com. Forward-Looking Statements This press release includes certain "forward-looking statements" 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 press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning. Our actual results could differ materially from those anticipated in these forward-looking statements upon completion of the review of our third quarter results by our independent registered public accounting firm. These statements are based on our 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, our ability to maintain our sales efficiency, our ability to maintain our existing, and develop new, strategic relationships, the number of our net subscriber additions, our monthly customer turnover and our ability to successfully integrate recently acquired businesses and operations and those risks set forth under the caption "Risk Factors" in Website Pros' Quarterly Report on Form 10-Q for the year quarter ended June 30, 2006, as filed with the Securities and Exchange Commission. These filings are available on a Website maintained by the Securities and Exchange Commission at www.sec.gov. Website Pros does not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise. Website Pros, Inc. Consolidated Statement of Operations (in thousands except per share data) (unaudited) � Three Months Ended September 30, Nine Months Ended September 30, 2006� 2005� 2006� 2005� � Revenue: Subscription $ 11,272� $ 8,907� $ 31,881� $ 23,057� License 442� 815� 2,531� 2,488� Professional services � 325� � 382� � 1,277� � 1,004� Total revenue 12,039� 10,104� 35,689� 26,549� � Cost of revenue (excluding depreciation and amortization shown separately below): � Subscription (a) 4,859� 4,121� 13,945� 10,829� License 190� 238� 672� 607� Professional services � 333� � 299� � 1,044� � 814� Total cost of revenue � 5,382� � 4,658� � 15,661� � 12,250� � Gross profit 6,657� 5,446� 20,028� 14,299� � Operating expenses: Sales and marketing (a) 2,972� 2,564� 8,651� 7,005� Research and development (a) 479� 488� 1,468� 1,279� General and administrative (a) 2,194� 1,831� 6,993� 4,796� Depreciation and amortization � 339� � 581� � 1,042� � 1,135� Total operating expenses � 5,984� � 5,464� � 18,154� � 14,215� Income (loss) from operations 673� (18) 1,874� 84� � Other income (expense): Interest, net 710� 36� 1,887� 98� Other � -� � -� � -� � -� Net income (loss) 1,383� 18� 3,761� 182� Preferred Stock dividends � -� � (340) � -� � (1,020) Net income (loss) attributable to common stockholders $ 1,383� $ (322) $ 3,761� $ (838) � Net income (loss) attributable per common share Basic $ 0.08� $ (0.06) $ 0.23� $ (0.20) Diluted $ 0.07� $ (0.06) $ 0.19� $ (0.20) Weighted-average number of shares used in per share amounts: Basic � 16,846� � 5,351� � 16,663� � 4,295� Diluted � 19,335� � 5,351� � 19,340� � 4,295� � (a) Stock based compensation included above: Subscription (cost of revenue) $ 33� $ 16� $ 90� $ 44� � Sales and marketing $ 88� $ 38� $ 234� $ 114� Research and development 54� 44� 141� 77� General and administration � 385� � 243� � 902� � 300� Total $ 527� $ 325� $ 1,277� $ 491� Website, Pros, Inc. Consolidated Balance Sheets (in thousands except per share data) � � September 30, 2006 December 31, 2005 (unaudited) Assets Current assets: Cash and cash equivalents $ 40,206� $ 55,746� Accounts receivable, net of allowance $367 and $383, respectively 3,710� 1,941� Inventories net of reserves of $29 and $51, respectively 87� 138� Prepaid expenses 280� 506� Prepaid marketing fees and other current assets � 996� � 770� Total current assets 45,279� 59,101� � Property and equipment net 2,356� 1,068� Goodwill and other intangible assets 38,984� 16,105� Other assets � 674� � 96� Total assets $ 87,293� $ 76,370� � Liabilities and stockholders' equity Current liabilities: Accounts payable $ 676� $ 1,280� Accrued expenses 3,218� 2,391� Deferred revenue 4,696� 3,193� Accrued marketing fees 173� 297� Notes payable, current 73� 65� Other liabilities � 284� � 340� Total current liabilities 9,120� 7,566� � Accrued rent space 174� 177� Notes payable, long term 185� 241� Other long term liabilities � 30� � 31� Total liabilities 9,509� 8,015� � � Stockholders' equity Common stock, $0.001 par value; 150,000,000 shares authorized at September 30, 2006 and December 31,2005; 16,943,802 shares and 16,509,602 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively. 17� 17� Additional paid-in capital 141,766� 136,097� Accumulated deficit � (63,999) � (67,759) Total stockholders' equity � 77,784� � 68,355� � Total liabilities and stockholders' equity $ 87,293� $ 76,370� Website, Pros, Inc. Reconciliation of GAAP to Pro Forma Results (in thousands except per share data) (unaudited) � � Three Months Ended September 30, Nine Months Ended September 30, 2006� 2005� 2006� 2005� Reconciliation of GAAP net income (loss) attributable to common stockholders to non-GAAP pro forma net income GAAP Net income $ 1,383� $ 18� $ 3,761� $ 182� Amortization of intangibles 176� 446� 593� 784� Stock based compensation � 560� � � 341� � 1,367� � � 535� Non-GAAP pro-forma net income $ 2,119� $ 805� $ 5,721� $ 1,501� � Reconciliation of GAAP basic net income (loss) per share to non-GAAP pro forma net income per share GAAP net income (loss) per share attributable to common stockholders Basic $ 0.08� $ (0.06) $ 0.23� $ (0.20) � Amortization of intangibles per share 0.01� 0.08� 0.04� 0.18� Stock based compensation per share 0.04� 0.06� 0.07� 0.12� Preferred stock dividends per share -� 0.06� -� 0.24� Preferred stock conversion � -� � (0.07) � -� � (0.20) Non-GAAP pro-forma net income per share attributable to common stockholders Basic $ 0.13� $ 0.07� $ 0.34� $ 0.14� � Reconciliation of GAAP diluted net income (loss) per share to non-GAAP pro forma net income per share Fully diluted shares Common stock 16,846� 5,351� 16,663� 4,295� Preferred stock -� 6,325� -� 6,256� Diluted stock options 2,287� 2,309� 2,432� 2,219� Warrants 199� 262� 244� 246� Escrow shares � 3� � -� � 1� � -� Total � 19,335� � 14,247� � 19,340� � 13,016� � GAAP net income (loss) per share attributable to common stockholders Diluted $ 0.07� $ (0.06) $ 0.19� $ (0.20) Amortization of intangibles per share 0.01� 0.03� 0.03� 0.06� Stock based compensation per share 0.03� 0.02� 0.08� 0.04� Preferred stock dividends per share -� 0.02� -� 0.08� Preferred stock conversion � -� � 0.05� � -� � 0.14� Non-GAAP pro-forma net income per share attributable to common stockholders Diluted $ 0.11� $ 0.06� $ 0.30� $ 0.12� � Reconciliation of GAAP operating income (loss) to non-GAAP pro forma operating income (loss) GAAP operating income $ 673� $ (18) $ 1,874� $ 84� Amortization of intangibles 176� 446� 593� 784� Stock based compensation � 560� � � 341� � 1,367� � � 535� Non-GAAP proforma operating income $ 1,409� $ 769� $ 3,834� $ 1,403� � Reconciliation of GAAP operating margin to non-GAAP pro forma operating margin GAAP operating margin 6% 0% 5% 0% Amortization of intangibles 1% 5% 2% 3% Stock based compensation � 5% � � 3% � 4% � � 2% Non-GAAP proforma operating margin � 12% � � 8% � 11% � � 5% Website, Pros, Inc. Consolidated Statement of Cash Flows (in thousands) (unaudited) � Nine Months Ended September 30, 2006� 2005� Cash flows from operating activities Net income $ 3,761� $ 182� Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,042� 1,135� Stock-based compensation expense 1,367� 535� Changes in operating assets and liabilities: Accounts Receivable (1,335) (439) Inventories 51� 49� Prepaid expenses and other assets 128� 12� Accounts Payable, accrued expenses and other liabilities (942) (159) Deferred revenue � 74� � 403� Net cash provided by operating activities 4,146� 1,718� � Cash flows from investing activities Purchase of property and equipment (1,022) (288) Business acquisition, net of cash received � (20,008) � 382� Net cash used in investing activities (21,030) 94� � Cash flows from financing activities Proceeds from issuance of common stock, net 1,122� -� Deferred initial public offering costs -� (1,623) Payment of debt obligations (49) -� Proceeds from issuance of perferred stock, net -� 2,990� Proceeds from exercise of stock options � 271� � 33� Net cash (used in) provided by financing activities � 1,344� � 1,400� � Net increase in cash and cash equivalents (15,540) 3,212� Cash and cash equivalents, beginning of period � 55,746� � 6,621� Cash and cash equivalents, end of period $ 40,206� $ 9,833� Website Pros, Inc. (Nasdaq: WSPI), a leading provider of Web services and online marketing for small and medium-sized businesses, today announced results of operations for the quarter ended September 30, 2006. Total revenue for the third quarter was $12 million, an increase of 19% on a year-over-year basis. The company generated a record non-GAAP operating margin of 12% and non-GAAP EPS of $0.11, an increase of 83% on a year-over-year basis. David Brown, President and CEO of Website Pros, stated, "Total revenue for the quarter came in below our expectations. However, as a result of our ongoing revenue enhancement strategies including the price increase that we instituted during the quarter, we continued to experience solid sequential and year-over-year growth in our subscription revenue. Further, we are encouraged that the scalability of our business model enabled us to meet our earnings objectives during the quarter. " Brown added, "During the third quarter, sales headcount and net new subscriber additions were lower than anticipated. We have since resumed sales headcount growth and expect to add a meaningful number of sales reps in the fourth quarter. Productivity levels have been improving and we are optimistic that we are back on track in this regard. The combination of sales headcount growth and improved productivity levels should position us to restore growth in subscriber additions." "We continue to expect year-over-year revenue growth for the year ending December 31, 2006 of approximately 30% in our core business and over 35% including the revenue associated with the recently completed acquisitions. We also believe that our earnings per share for the year ending December 31, 2006 will at least meet our prior estimates, and we remain confident with our earnings momentum given our corrective actions as well as the recently completed asset acquisitions of Renovation Experts.com ("Renex") and 1ShoppingCart.com," Brown concluded. Financial Results for the Third Quarter of 2006 Total revenue for the third quarter of 2006 was $12 million, an increase of 19% on a year-over-year basis. For the third quarter of 2006, subscription revenue increased 27% to $11.3 million, license revenue decreased 46% to $442 thousand, and professional services revenue decreased 15% to $325 thousand, compared to the third quarter of 2005. For the third quarter of 2006, the Company reported net income available to common stockholders, determined in accordance with generally accepted accounting principles (GAAP), of $1.4 million, an increase from a loss of $322 thousand in the third quarter of 2005. Fully diluted GAAP earnings per share were $0.07 for the third quarter of 2006, an increase from a loss of $0.06 per share in the third quarter of 2005. Per share amounts are based on weighted average fully diluted shares of 19.3 million and 5.4 million for the third quarter of 2006 and 2005, respectively. Non-GAAP Financial Results for the Third Quarter of 2006 Website Pros reported non-GAAP net income of $2.1 million for the third quarter of 2006, an increase of over 150% as compared to $805 thousand in the third quarter of 2005. Non-GAAP diluted net income per share was $0.11 for the third quarter of 2006, an increase of 83% from $0.06 in the third quarter of 2005. All per share numbers for non-GAAP net income per share are expressed on a weighted average diluted per share basis. Non-GAAP net income excludes stock-based compensation expense and amortization expense related to acquisitions. Preferred dividends are excluded from non-GAAP net income per share in prior periods, as all outstanding shares of preferred stock were converted into shares of common stock and all related accrued dividends were eliminated in connection with the Company's initial public offering, which was completed on November 7, 2005. A reconciliation of GAAP to non-GAAP results has been provided in the financial statement tables included in the press release. An explanation of these measures is also included below under the heading "Use of Non-GAAP Financial Measures." Other Highlights The Company also had the following other financial and operating highlights during, or immediately following, the third quarter of 2006: -- The Company recently renewed its annual, strategic relationship with Discover through November 3, 2007. -- Total net subscribers at the end of the third quarter were over 57,000, an increase of 16% on a year-over-year basis and a reduction of 1,000 compared to the prior quarter. -- The Company's monthly customer turnover increased to 6.2%, which was up from 5.7% at the end of the third quarter of 2005. However, on a trailing twelve month basis, monthly customer turnover improved to 5.8% as compared to 6.0% for the twelve months ended September 30, 2005. -- On September 30, 2006, Website Pros acquired substantially all of the assets and selected liabilities of Renex, an online lead generation marketplace for contractors and homeowners. With a nationwide network of more than 3,000 U.S. contractors, Renex serves as a competitive marketplace for consumers in need of remodeling services and as a targeted lead generation program for qualified contractors. Since Renex was founded in 1999, it has assisted over 700,000 homeowners with their renovation needs, and in 2005 the company generated over $4.1 million in revenue. -- On September 30, 2006, Website Pros acquired substantially all of the assets and selected liabilities of 1ShoppingCart.com, one of the leading providers of shopping cart, internet marketing and eCommerce / eBusiness software solutions and services. 1ShoppingCart.com provides a comprehensive web-based suite of modular software that includes an eCommerce transaction engine that is integrated with sophisticated internet sales and marketing solutions (affiliate management, email, auto responders, ebook delivery and ad tracking) and features a turnkey automated online sales solution complete with privacy and security measures built in. 1ShoppingCart.com ended 2005 with revenues of $4.6 million and currently serves over 11,000 customers. Use of Non-GAAP Financial Measures Some of the measures in this press release are non-GAAP financial measures within the meaning of the SEC Regulation G. Website Pros believes presenting non-GAAP net income attributable to common stockholders and non-GAAP net income (loss) per share attributable to common stockholders and non-GAAP operating margin is useful to investors, because it describes the operating performance of the Company and helps investors gauge the Company's ability to generate cash flow, excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with GAAP. Company management uses these non-GAAP measures as important indicators of the Company's past performance and to plan and forecast performance in future periods. The non-GAAP financial information Website Pros presents may not be comparable to similarly-titled financial measures used by other companies, and investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP. Conference Call Information Management will host a conference call to discuss the Company's results and other matters related to the Company's business today, November 7, 2006, at 5:00 pm EST. To access this call, dial 877-502-9274 (domestic) or 913-981-5584 (international). A replay of this conference call will be available for a limited time at 888-203-1112 (domestic) or 719-457-0820 (international). The replay passcode is 4270254. A live webcast of this conference call will also be available for a limited time on the "Investor Relations" page of the Company's Web site, www.websitepros.com. For more information, including this press release, and any other material financial and other statistical information contained in the conference call, please visit the Investor Relations section of Website Pros' Website at, www.websitepros.com. About Website Pros Website Pros, Inc. (Nasdaq: WSPI) is a leading provider of comprehensive Web services and products that enable small and medium-sized businesses to establish and maintain an effective Internet presence. We offer our customers a full range of Web services on an affordable subscription basis that include website design and publishing, Internet marketing and advertising, search engine optimization, search engine submission and lead generation. The breadth and flexibility of our products allow us to meet the Web services needs of a business anywhere along their lifecycle, ranging from businesses just establishing their websites to businesses requiring more sophisticated functionality or selling online. Through a unique combination of proprietary Web publishing and management software, automated workflow processes and specialized workforce development and management techniques, we achieve production efficiencies that enable us to offer sophisticated Web services affordably and effectively to our customers. Our technology automates many aspects of creating, maintaining, enhancing and marketing websites for our approximately 57,000 business customers. For more information, contact Website Pros. Voice: 904-680-6600. Fax: 904-880-0350. Address: 12735 Gran Bay Parkway West, Building #200, Jacksonville, FL 32258. Website: www.websitepros.com. Forward-Looking Statements This press release includes certain "forward-looking statements" 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 press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning. Our actual results could differ materially from those anticipated in these forward-looking statements upon completion of the review of our third quarter results by our independent registered public accounting firm. These statements are based on our 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, our ability to maintain our sales efficiency, our ability to maintain our existing, and develop new, strategic relationships, the number of our net subscriber additions, our monthly customer turnover and our ability to successfully integrate recently acquired businesses and operations and those risks set forth under the caption "Risk Factors" in Website Pros' Quarterly Report on Form 10-Q for the year quarter ended June 30, 2006, as filed with the Securities and Exchange Commission. These filings are available on a Website maintained by the Securities and Exchange Commission at www.sec.gov. Website Pros does not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise. -0- *T Website Pros, Inc. Consolidated Statement of Operations (in thousands except per share data) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Revenue: Subscription $11,272 $ 8,907 $31,881 $23,057 License 442 815 2,531 2,488 Professional services 325 382 1,277 1,004 -------- -------- -------- -------- Total revenue 12,039 10,104 35,689 26,549 Cost of revenue (excluding depreciation and amortization shown separately below): Subscription (a) 4,859 4,121 13,945 10,829 License 190 238 672 607 Professional services 333 299 1,044 814 -------- -------- -------- -------- Total cost of revenue 5,382 4,658 15,661 12,250 -------- -------- -------- -------- Gross profit 6,657 5,446 20,028 14,299 Operating expenses: Sales and marketing (a) 2,972 2,564 8,651 7,005 Research and development (a) 479 488 1,468 1,279 General and administrative (a) 2,194 1,831 6,993 4,796 Depreciation and amortization 339 581 1,042 1,135 -------- -------- -------- -------- Total operating expenses 5,984 5,464 18,154 14,215 -------- -------- -------- -------- Income (loss) from operations 673 (18) 1,874 84 Other income (expense): Interest, net 710 36 1,887 98 Other - - - - -------- -------- -------- -------- Net income (loss) 1,383 18 3,761 182 Preferred Stock dividends - (340) - (1,020) -------- -------- -------- -------- Net income (loss) attributable to common stockholders $ 1,383 $ (322) $ 3,761 $ (838) ======== ======== ======== ======== Net income (loss) attributable per common share Basic $ 0.08 $ (0.06) $ 0.23 $ (0.20) ======== ======== ======== ======== Diluted $ 0.07 $ (0.06) $ 0.19 $ (0.20) ======== ======== ======== ======== Weighted-average number of shares used in per share amounts: Basic 16,846 5,351 16,663 4,295 ======== ======== ======== ======== Diluted 19,335 5,351 19,340 4,295 ======== ======== ======== ======== (a) Stock based compensation included above: Subscription (cost of revenue) $ 33 $ 16 $ 90 $ 44 ======== ======== ======== ======== Sales and marketing $ 88 $ 38 $ 234 $ 114 Research and development 54 44 141 77 General and administration 385 243 902 300 -------- -------- -------- -------- Total $ 527 $ 325 $ 1,277 $ 491 ======== ======== ======== ======== *T -0- *T Website, Pros, Inc. Consolidated Balance Sheets (in thousands except per share data) September December 30, 2006 31, 2005 (unaudited) Assets Current assets: Cash and cash equivalents $ 40,206 $ 55,746 Accounts receivable, net of allowance $367 and $383, respectively 3,710 1,941 Inventories net of reserves of $29 and $51, respectively 87 138 Prepaid expenses 280 506 Prepaid marketing fees and other current assets 996 770 -------------- --------- Total current assets 45,279 59,101 Property and equipment net 2,356 1,068 Goodwill and other intangible assets 38,984 16,105 Other assets 674 96 -------------- --------- Total assets $ 87,293 $ 76,370 ============== ========= Liabilities and stockholders' equity Current liabilities: Accounts payable $ 676 $ 1,280 Accrued expenses 3,218 2,391 Deferred revenue 4,696 3,193 Accrued marketing fees 173 297 Notes payable, current 73 65 Other liabilities 284 340 -------------- --------- Total current liabilities 9,120 7,566 Accrued rent space 174 177 Notes payable, long term 185 241 Other long term liabilities 30 31 -------------- --------- Total liabilities 9,509 8,015 Stockholders' equity Common stock, $0.001 par value; 150,000,000 shares authorized at September 30, 2006 and December 31,2005; 16,943,802 shares and 16,509,602 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively. 17 17 Additional paid-in capital 141,766 136,097 Accumulated deficit (63,999) (67,759) -------------- --------- Total stockholders' equity 77,784 68,355 -------------- --------- Total liabilities and stockholders' equity $ 87,293 $ 76,370 ============== ========= *T -0- *T Website, Pros, Inc. Reconciliation of GAAP to Pro Forma Results (in thousands except per share data) (unaudited) Three Months Nine Months Ended Ended September 30, September 30, 2006 2005 2006 2005 Reconciliation of GAAP net income (loss) attributable to common stockholders to non-GAAP pro forma net income GAAP Net income $ 1,383 $ 18 $ 3,761 $ 182 Amortization of intangibles 176 446 593 784 Stock based compensation 560 341 1,367 535 ----------------- ----------------- Non-GAAP pro-forma net income $ 2,119 $ 805 $ 5,721 $ 1,501 ======== ======== ======== ======== Reconciliation of GAAP basic net income (loss) per share to non- GAAP pro forma net income per share GAAP net income (loss) per share attributable to common stockholders Basic $ 0.08 $ (0.06) $ 0.23 $ (0.20) Amortization of intangibles per share 0.01 0.08 0.04 0.18 Stock based compensation per share 0.04 0.06 0.07 0.12 Preferred stock dividends per share - 0.06 - 0.24 Preferred stock conversion - (0.07) - (0.20) -------- -------- -------- -------- Non-GAAP pro-forma net income per share attributable to common stockholders Basic $ 0.13 $ 0.07 $ 0.34 $ 0.14 ======== ======== ======== ======== Reconciliation of GAAP diluted net income (loss) per share to non- GAAP pro forma net income per share Fully diluted shares Common stock 16,846 5,351 16,663 4,295 Preferred stock - 6,325 - 6,256 Diluted stock options 2,287 2,309 2,432 2,219 Warrants 199 262 244 246 Escrow shares 3 - 1 - -------- -------- -------- -------- Total 19,335 14,247 19,340 13,016 ======== ======== ======== ======== GAAP net income (loss) per share attributable to common stockholders Diluted $ 0.07 $ (0.06) $ 0.19 $ (0.20) Amortization of intangibles per share 0.01 0.03 0.03 0.06 Stock based compensation per share 0.03 0.02 0.08 0.04 Preferred stock dividends per share - 0.02 - 0.08 Preferred stock conversion - 0.05 - 0.14 -------- -------- -------- -------- Non-GAAP pro-forma net income per share attributable to common stockholders Diluted $ 0.11 $ 0.06 $ 0.30 $ 0.12 ======== ======== ======== ======== Reconciliation of GAAP operating income (loss) to non-GAAP pro forma operating income (loss) GAAP operating income $ 673 $ (18) $ 1,874 $ 84 Amortization of intangibles 176 446 593 784 Stock based compensation 560 341 1,367 535 ----------------- ----------------- Non-GAAP proforma operating income $ 1,409 $ 769 $ 3,834 $ 1,403 ======== ======== ======== ======== Reconciliation of GAAP operating margin to non-GAAP pro forma operating margin GAAP operating margin 6% 0% 5% 0% Amortization of intangibles 1% 5% 2% 3% Stock based compensation 5% 3% 4% 2% ----------------- ----------------- Non-GAAP proforma operating margin 12% 8% 11% 5% ================= ================= *T -0- *T Website, Pros, Inc. Consolidated Statement of Cash Flows (in thousands) (unaudited) Nine Months Ended September 30, 2006 2005 ------------------ ------------- Cash flows from operating activities Net income $ 3,761 $ 182 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,042 1,135 Stock-based compensation expense 1,367 535 Changes in operating assets and liabilities: Accounts Receivable (1,335) (439) Inventories 51 49 Prepaid expenses and other assets 128 12 Accounts Payable, accrued expenses and other liabilities (942) (159) Deferred revenue 74 403 ------------------ ------------- Net cash provided by operating activities 4,146 1,718 Cash flows from investing activities Purchase of property and equipment (1,022) (288) Business acquisition, net of cash received (20,008) 382 ------------------ ------------- Net cash used in investing activities (21,030) 94 Cash flows from financing activities Proceeds from issuance of common stock, net 1,122 - Deferred initial public offering costs - (1,623) Payment of debt obligations (49) - Proceeds from issuance of perferred stock, net - 2,990 Proceeds from exercise of stock options 271 33 ------------------ ------------- Net cash (used in) provided by financing activities 1,344 1,400 ------------------ ------------- Net increase in cash and cash equivalents (15,540) 3,212 Cash and cash equivalents, beginning of period 55,746 6,621 ------------------ ------------- Cash and cash equivalents, end of period $ 40,206 $ 9,833 ================== ============= *T