Rightside’s 2016 results: total domains are up while the renewal rate drops

Rightside Group, Ltd. (Nasdaq:NAME), announced financial results for the fourth quarter and full year ended December 31, 2016.

“In the fourth quarter, we executed on our strategy to deliver revenue growth in our higher margin businesses – focusing on our new gTLD registry business and our retail registrar, Name.com, while optimizing for margin expansion,” said Chief Executive Officer Taryn Naidu.

“For the full year 2016, registry services revenue increased 40% year-over-year while Adjusted EBITDA increased 92% year-over-year.  The divestiture of eNom has strengthened our financial profile and, as announced today, enabled us to initiate a significant stock repurchase program. The Company narrowed its focus on our most strategic business, our new gTLD registry business and our retail registrar, Name.com. We believe this faster growing, stronger margin and more profitable business, better reflects the true nature of Rightside’s mission, strategic focus, and investment thesis and is consistent with our commitment to delivering shareholder value.”

As you can see below the renewal rate in Rightside’s 40 New gTLDs dropped from 58,6% in 2015 to 56,3% in 2016 but the total registered domains increased from 401k to 565k.

Key Operating Metrics
		Three Months Ended									Year Ended
		December 31,									December 31,
		2016			2015			Change			2016			2015			Change
Registry Services
End of period domains (in thousands) (1)			565			401		40.9	%			565			401		40.9	%
Average revenue per domain (2)		$	23.06		$	26.85		-14.1	%		$	24.40		$	30.69		-20.5	%
Renewal rate (3)			59.4	%		52.6	%					56.3	%		58.6	%
Registrar Services
End of period domains (in millions) (1)			1.9			1.8		5.6	%			1.9			1.8		5.6	%
Average revenue per domain (4)		$	16.83		$	15.58		8.0	%		$	15.84		$	14.46		9.5	%
Renewal rate (3)			65.1	%		69.0	%					68.4	%		70.5	%

Full Year 2016 Financial Highlights
(Unless otherwise noted, all comparisons are relative to the fiscal full year 2015. All financials will be reported on a continuing operations basis to reflect the recent sale of eNom.)

• Registrar services revenue increased 17% to $29.1 million compared to $24.9 million.
• Registry services revenue increased 40% to $11.8 million compared to $8.4 million.
• Aftermarket and other revenue was $22.6 million compared to $25.4 million as a result of challenges in the lower margin third party syndication business.
• Total revenue increased to $62.1 million compared to $57.4 million.
• Net loss was $33.3 million, compared to $11.3 million.  The increase in net loss was related to $14.4 million of non-cash tax expense, a $4 million write-off of deferred financing and issuance cost associated with the debt repayment as well as divestiture related expenses.
• Adjusted EBITDA was $9.2 million, up 92% as compared to $4.8 million.

Business Highlights

• The Company also announced today that the Board of Directors have approved a program to repurchase up to $50 million worth of common stock, effective immediately, executed over the next 24 months.
• Rightside has 40 gTLDs in general availability with 10 gTLD applications outstanding
• The Company ended the year with approximately 565,000 registered domains, up 41% year-over-year.
• Reported gross margin of 48% in the fourth quarter of 2016, up 500 basis points year-over-year, as we continued to grow our mix of higher margin registry services revenue and started to realize the benefit of our profitability initiatives.
• Cash revenue from premium and platinum names in 2016 was $3.4 million.

Liquidity and Capital Resources

• As of December 31, 2016, cash and cash equivalents was $31.9 million, compared to $47.3 million as of September 30, 2016, given our repayment of debt in November. Subsequent to year-end, our cash balance increased after the divestiture of eNom and was $87 million at the end of January.
• At the end of the fourth quarter, the Company had letters of credit totaling $11 million outstanding and had drawn $12.8 million on our revolving credit facility.  Subsequent to year-end we fully repaid the $12.8 million outstanding and reduced our letters of credit outstanding to $2.8 million.

Business Outlook

For the full year ending December 31, 2017, Rightside expects the following:

• Total revenue of $58 to $62 million inclusive of 10 to 15% growth in our core registry and registrar business.
• Cash bookings in our registry business of around $16 to $18 million.
• Adjusted EBITDA of around break-even for the full year with a return to positive adjusted EBITDA in the fourth quarter after implementing cost savings initiatives and restructuring our network infrastructure to support the remaining business lines.