Rightside results: Q1 2017 revenue down, registry domain renewal rate at 59%

Rightside Group, Ltd. (Nasdaq:NAME), announced financial results for the first quarter ended March 31, 2017.

Total revenue decreased to $14.4 million compared to $16.6 million.

The final registry renewal rate for the fourth quarter of 2016 was 59% compared to 53% for the same quarter in 2015. Please note that this is the Q4 2016 renewal rate.

“In the first quarter of 2017, we continued to execute on our strategy to deliver revenue growth in our higher margin businesses and drive operating efficiencies throughout our business model,” said Chief Executive Officer Taryn Naidu. “Registry revenue grew 20% and total company gross margin of 41% improved 470 basis points over the prior year period. During the quarter, we successfully completed the divesture of eNom as we continue to focus on growing and driving margin expansion in our new gTLD registry business and our retail registrar, Name.com. We remain committed to delivering shareholder value and during the quarter we initiated our share buyback program, repurchasing approximately $3.0 million in common stock year-to-date.”

Financial Summary
(in thousands)
		Three Months Ended
		March 31,
		2017				2016
Registrar services		$	7,259			$	7,038
Registry services			3,176				2,639
Aftermarket and other			4,348				7,275
Eliminations (1)			(357	)			(346	)
Total revenue		$	14,426			$	16,606
(Gain) loss on other assets, net		$	(120	)		$	1
Loss from continuing operations before income tax			(5,385	)			(8,197	)
Income tax expense (benefit)			247				(1,945	)
Loss from continuing operations			(5,632	)			(6,252	)
Income from discontinued operations, net of income tax			75,383				1,145
Net income (loss)		$	69,751			$	(5,107	)
Adjusted EBITDA from continuing operations (2)		$	(945	)		$	(2,235	)

(1) Amounts in the eliminations line reflect the elimination of intercompany charges between our Registrar and Registry services businesses.

(2) This Non-GAAP financial measure is described below and reconciled to GAAP loss from continuing operations in the accompanying table, which excludes the gain on the divestiture of eNom of $75.6 million.

First Quarter 2017 Financial Highlights
(Unless otherwise noted, all comparisons are relative to the fiscal first quarter 2016. All financials will be reported on a continuing operations basis to reflect the sale of eNom in January 2017.)

• Registrar services revenue increased to $7.3 million compared to $7.0 million.
• Registry services revenue increased 20% to $3.2 million compared to $2.6 million .
• Aftermarket and other revenue was $4.3 million compared to $7.3 million as a result of challenges in the lower margin third party syndication business.
• Total revenue decreased to $14.4 million compared to $16.6 million.
• Net income was $69.8 million inclusive of a $75.6 million gain from the sale of eNom.
• Adjusted EBITDA was ($0.9 million), compared to ($2.2 million).

Business Highlights

• Year-to-date, Rightside repurchased approximately 320,000 shares of its common stock for approximately $3.0 million. Rightside currently has approximately $47 million available and authorized under the current share repurchase program.
• The Company ended the first quarter with approximately 590,000 registered domains, up 26% year-over-year.
• The final registry renewal rate for the fourth quarter of 2016 was 59% compared to 53% for the same quarter in 2015.  Registry renewal rates are not fully measurable until 45 days after the end of the quarter.
• Reported gross margin of 41% in the first quarter of 2017, was up 470 basis points year-over-year, as we continued to grow our mix of higher margin registry services revenue and  realize the benefit of our profitability initiatives.

Liquidity and Capital Resources

• As of March 31, 2017, cash, cash equivalents and available for sale securities was $83 million, compared to $32 million as of December 31, 2016.