WESTLAKE VILLAGE, Calif., Feb. 6, 2002 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of value-priced Internet access formed with the September 2001 merger of NetZero and Juno, today reported results for its second fiscal quarter ended December 31, 2001. In order to provide a more relevant comparison for purposes of evaluating the company's historical performance, all following references to the quarter ended September 30, 2001 are to the unaudited pro forma combined results of United Online, which reflect the combined results of NetZero and Juno as if the merger had taken place on July 1, 2001. These results are presented in the following table labeled "Unaudited Pro Forma Combined Results and Selected Data." For purposes of reporting in accordance with generally accepted accounting principles (GAAP), the results of United Online prior to September 25, 2001 (the effective date of the companies' merger) would be the same as the standalone results of NetZero. These results are presented in a separate table labeled "Unaudited Historical Results."
United Online reported revenues of $48.0 million for its second fiscal quarter ended December 31, 2001, a 14 percent increase versus revenues of $42.0 million in the September 2001 quarter. Billable services revenues comprised $41.0 million or 85 percent of total revenues in the December 2001 quarter, an increase of 26 percent versus the September 2001 quarter, in which billable services comprised $32.6 million or 78 percent of total revenues.
During the December 2001 quarter, the company achieved an 80 percent reduction in its pro forma EBITDA(2) loss to $2.6 million, compared with a pro forma EBITDA loss of $13.1 million in the September 2001 quarter. This significant improvement is largely attributable to the reduction of usage limits on free services, an increase in the pay subscriber base, ongoing cost cutting efforts, and merger-related synergies that the company began to realize in the December quarter. Pro forma EBITDA represents the net loss before interest, taxes, depreciation, amortization, restructuring and merger-related charges, and other income, net.
The company's pro forma net loss(3) in the December 2001 quarter was $6.0 million, or $0.16 per share, a 63 percent improvement from a pro forma net loss of $16.4 million, or $0.42 per share, in the September 2001 quarter. Pro forma net loss represents the net loss before amortization, restructuring and merger-related charges, and other income, net.
The net loss for the December 2001 quarter was $15.7 million, a 34 percent improvement from a net loss of $23.9 million for the September 2001 quarter. On a per-share basis, the net loss for the December 2001 quarter was $0.41 versus a net loss of $0.62 for the September 2001 quarter.
The company had 1.46 million pay subscribers at December 31, 2001, an increase of 214,000 or 17 percent from 1.25 million at September 30, 2001. Active users(1) in December 2001 totaled 5.6 million, including pay subscribers, a decrease of 8 percent from 6.1 million in September 2001.
In October 2001, the company lowered the usage limit on its NetZero free service and discontinued the free service in areas where telecommunication prices made the offering cost prohibitive. NetZero now markets its free access with a limit of no less than 10 hours per month per household, previously limited to 40 hours. As a result of these initiatives, United Online cut its cost of free services by 46 percent and reduced its active free user base by 14 percent in the December 2001 quarter. United Online continues to offer its free service and views it as a key marketing tool in expanding its pay subscriber base. Importantly, while the NetZero and Juno services currently sign up over 20,000 new users per day, an increasing percentage of new users are signing up directly for the pay services.
United Online ended the December 2001 quarter with $132.4 million of cash, cash equivalents, short-term investments and restricted cash, compared with $144.5 million at the end of the preceding quarter. During the December 2001 quarter, the company used $6.4 million for restructuring and merger-related expenses, $1.2 million for the early retirement of notes payable, and $0.8 million to repurchase 313,000 shares of the company's common stock, bringing total repurchases through December 31, 2001 to more than 400,000 shares.
"We have taken another major step forward with the successful completion of the NetZero/Juno merger, and we are very proud of the results we have reported for our inaugural quarter as a combined company," said Mark R. Goldston, chairman, CEO and president of United Online. "Over the past few years, the Internet and capital markets have experienced significant volatility and change. While we have modified our business model during this time, our team has remained committed to building an enduring franchise that creates value for our users, shareholders, employees and business partners.
Goldston added: "We believe that the market for value-priced Internet access will be one of the fastest growing segments of the evolving ISP market, and our goal is to position United Online to capitalize on that growth. Today, there are an estimated 140 million Americans(4) who use the Internet, many of whom are paying $20 or more per month for their service. We consider those consumers prime candidates to drive the growth of the value-priced ISP market. Additionally, as personal computer prices fall and household Internet access penetration increases, we think the less affluent, 'late adopters' are more likely to seek a value-priced ISP service. Perhaps most importantly, we believe that United Online's efficient cost structure will enable it to profitably target and serve the value-priced market."
"Despite facing challenges associated with merger transition and integration during the December quarter, we were able to achieve improvements in major drivers of our business," said Charles S. Hilliard, CFO of United Online. "As we grew our pay subscriber base by 17 percent sequentially, billable services revenues expanded to 85 percent of total revenues, up from 78 percent in the September 2001 quarter. The company's billable services margin improved to 43.5 percent in the quarter, up from 41.3 percent in the September quarter, and the cost of free services dropped nearly in half as a result of the free usage limits implemented in October. As merger-related synergies are more fully realized over the next few quarters, we intend to achieve further improvement in our operating expenses, particularly in the areas of customer service and billing."
Business Outlook
The following discussion contains forward-looking information intended to provide certain of management's current goals for the company's calendar year 2002 and for the March 2002 quarter based on information available to management as of the date of this release. United Online undertakes no obligation to revise or update this information and may not provide this type of information in the future. Due to a variety of factors, including risks associated with the merger, changing business conditions, the competitive environment and other factors discussed below, actual results may differ significantly from those estimated.
Calendar Year 2002 Outlook:
-- The company's goal is to generate positive pro forma EBITDA(2) no later than the June 2002 quarter, two quarters earlier than its previous guidance.
-- The company intends to increase its pay subscriber base by 15-18 percent from December 31, 2001 to December 31, 2002, although actual results will be dependent upon a variety of factors, including variations in the company's spending levels for consumer marketing.
-- The company currently anticipates that its cash, cash equivalents, short-term investments and restricted cash balances of $132.4 million at December 31, 2001, will be more than adequate to fund its operations until it generates positive cash flow.
-- As of December 31, 2001, the company had paid $13.4 million of restructuring and merger-related costs. Management expects to pay additional restructuring and merger-related costs of between $4.6 million and $6.6 million over the next 15 months.
March 2002 Quarter Outlook:
-- Growth in pay subscribers in the March 2002 quarter is expected to be lower than the 214,000 reported in the December 2001 quarter. Pay subscriber growth in the December quarter was positively impacted by the imposition of new usage limitations on the NetZero free service beginning in October 2001. The company intends to grow its pay subscriber base in the March 2002 quarter by 80,000 to 100,000 subscribers, resulting in 1.54 million to 1.56 million total pay subscribers at March 31, 2002.
-- Average monthly revenue per billable user (ARPU) is anticipated to be between $9.60 and $9.70 for the March 2002 quarter. ARPU is calculated by dividing billable services revenues for a period by the average number of billable subscribers for that period.
ARPU of $10.11 during the December 2001 quarter was skewed upward due to a surge in billable subscriber growth early in the quarter. Due to the ARPU calculation being based on the average number of billable subscribers for a period, fluctuations in subscriber growth early or late in a period can cause ARPU to be skewed higher or lower.
-- Total revenues for the March 2002 quarter are expected to grow 2-3 percent over the December 2001 quarter. This reflects anticipated growth in billable services revenues, which are expected to comprise 85-90 percent of total revenues, and a decline in advertising and commerce revenues.
-- Pro forma EBITDA(2) for the March 2002 quarter is expected to be a loss of between $1 million and $2 million.
-- The pro forma net loss(3) for the March 2002 quarter is expected to be between $4.8 million and $6.0 million, a potential improvement of up to 20 percent from the December 2001 quarter. On a per-share basis, this represents a pro forma net loss of between $0.12 and $0.15. Any potential improvement in the pro forma net loss is expected to be partially offset by reduced interest income due to lower average cash balances and interest rates.
-- Weighted average shares outstanding for the March 2002 quarter for purposes of calculating per-share results will be approximately 39 million.
Results for the March 2002 quarter are expected to be impacted favorably by cost savings associated with efficiencies gained in billing and customer relationship management costs occurring late in the quarter, resulting in a modest reduction in the company's cost of billable services as a percentage of billable services revenues.
About United Online
United Online is a leading provider of value-priced Internet access services. The company commenced operations in September 2001 as the result of the merger of NetZero and Juno Online Services -- two of the leading Internet access brands in the United States and Canada. Through its subsidiaries, United Online offers both free and value-priced Internet access services in more than 5,000 cities. The company is headquartered in Westlake Village, Calif., with offices in New York City and Hyderabad, India. United Online's common stock is traded on the Nasdaq National Market under the ticker symbol "UNTD." For more information about United Online and its Internet access services, please visit www.unitedonline.net.
United Online will be hosting a conference call today at 2PM PST (5PM EST) to discuss its quarterly results. A live Web cast of the call can be accessed on the company's Web site at http://www.irconnect.com/untd/. A recording of the call will be available on the site for seven days.
(1) Active users are defined as all registered user accounts that connected at least once during the preceding 31 days, together with all subscribers to a billable service, in each case regardless of the type of activity or activities engaged in by such subscribers.
(2) Pro forma EBITDA represents the net loss before interest, taxes, depreciation, amortization, restructuring and merger-related charges, and other income, net. The company believes that pro forma EBITDA is an additional meaningful measure of operating performance. Pro forma EBITDA is not indicative of cash provided or used by operations. Pro forma EBITDA is not determined in accordance with generally accepted accounting principles (GAAP) and should not be considered as an alternative to historical financial results presented in accordance with GAAP.
(3) Pro forma net loss represents the net loss before amortization, restructuring and merger-related charges, and other income, net. The company believes that pro forma net loss is an additional meaningful measure of operating performance. Pro forma net loss is not determined in accordance with generally accepted accounting principles (GAAP) and should not be considered as an alternative to historical financial results presented in accordance with GAAP.
(4) Jupiter Internet Population Model, 10/01 (U.S. only).
This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These include statements regarding United Online's expected future financial performance, expected growth in its billable subscriber base and quotes from management in this press release. These statements are based on management's current expectations or beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The potential risks and uncertainties include, among others: United Online's unproven business model and limited operating history; the company's inability to integrate Juno and NetZero and to realize anticipated cost savings and other benefits associated with the merger; that merger and restructuring costs will be greater than anticipated; that the company will not improve financial results, generate positive cash flow or report positive EBITDA as anticipated, or maintain any of the foregoing if achieved; that the company will need additional financing to operate its business; the company's inability to maintain or grow its pay and free user base; the company's inability to transition free users to pay services; the company's inability to compete effectively; the company's inability to continue to develop, market and sell new products and services; the company's inability to retain key customers and key personnel; potential delays, bugs or other problems associated with new products; technological problems or developments; and governmental regulation. More information about potential factors that could affect the company's business and financial results is included in the company's Form 10-Q and other filings with the Securities and Exchange Commission (http://www.sec.gov) including (without limitation) information under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors."
UNITED ONLINE, INC.
Unaudited Pro Forma Combined Results(a) and Selected Data
(in thousands, except per share and subscriber data)
Three Months Ended
--------------------
Dec. 31, Sept. 30,
2001 2001 (a)
-------- --------
Income Statement Data:
Revenues:
Billable services $ 41,035 $ 32,578
Advertising and commerce 7,012 9,438
-------- --------
Total revenues 48,047 42,016
Operating expenses:
Cost of billable services 23,190 19,126
Cost of free services 8,683 16,069
Sales and marketing 9,781 8,287
Product development 6,654 7,175
General and administrative 7,354 9,481
-------- --------
55,662 60,138
-------- --------
Operating loss before other charges (7,615) (18,122)
Amortization of stock-based charges 2,524 1,065
Amortization of intangible assets 4,685 4,685
Restructuring and merger-related charges (b) 2,504 2,730
-------- --------
9,713 8,480
-------- --------
Loss from operations (17,328) (26,602)
Interest income, net 1,585 1,717
Other income, net -- 1,007
-------- --------
Net loss $(15,743) $(23,878)
======== ========
Net loss per share $ (0.41) $ (0.62)
======== ========
Weighted average shares
outstanding during period 38,863 38,690
======== ========
Shares outstanding at end of period 39,694 40,049
======== ========
Calculation of Pro Forma EBITDA (c):
Net loss $(15,743) $(23,878)
Add (deduct):
Amortization of stock-based charges 2,524 1,065
Amortization of intangible assets 4,685 4,685
Restructuring and merger-related charges (b) 2,504 2,730
Interest income, net (1,585) (1,717)
Other income, net -- (1,007)
Depreciation 4,995 5,009
-------- --------
Pro forma EBITDA $ (2,620) $(13,113)
======== ========
Calculation of Pro Forma Net Loss (d):
Net loss $(15,743) $(23,878)
Add (deduct):
Amortization of stock-based charges 2,524 1,065
Amortization of intangible assets 4,685 4,685
Restructuring and merger-related charges (b) 2,504 2,730
Other income, net -- (1,007)
-------- --------
Pro forma net loss $ (6,030) $(16,405)
======== ========
Pro forma net loss per share $ (0.16) $ (0.42)
======== ========
Dec. 31, Sept. 30, June 30,
2001 2001 2001
---------- ---------- ----------
Balance Sheet Data (in thousands):
Cash, cash equivalents,
short-term investments and
restricted cash $ 132,408 $ 144,522 $ 134,993
Working capital 87,825 93,032 105,998
Total assets 242,633 268,696 183,863
Capital leases and notes
payable, less current portion 748 2,161 3,314
Total stockholders' equity 184,440 201,145 138,957
Subscriber Data: (e)
Active users in the last month
of the quarter (in millions) 5.6 6.1 6.7
Billable subscribers 1,460,000 1,246,000 1,094,000
(a) United Online commenced operations with the merger of NetZero and Juno on September 25, 2001. In order to provide a more relevant comparison for purposes of evaluating the company's historical performance, the income statement data presented in this table includes combined results for NetZero and Juno for the quarter ended September 30, 2001 as if the merger had been completed on July 1, 2001. Certain reclassifications have been made to conform to the financial presentation of United Online and identifiable intangible assets have been amortized over their estimated useful lives of one to seven years as if the acquisition had occurred on July 1, 2001. These combined results are discussed in the text of this announcement. For purposes of reporting in accordance with generally accepted accounting principles (GAAP), the results of United Online for the quarter ended September 30, 2001 would be the same as the standalone results of NetZero. These results are presented in an attached table labeled "Unaudited Historical Results."
(b) Represents restructuring and merger-related costs incurred in connection with the merger of Juno and NetZero. These costs are primarily attributable to employee stay bonuses, lease termination fees and write-off of leasehold improvements, employee severance payments, and integration consulting.
(c) Pro forma EBITDA represents the net loss before interest, taxes, depreciation, amortization, restructuring and merger-related charges, and other income, net. The company believes that pro forma EBITDA is an additional meaningful measure of operating performance. Pro forma EBITDA is not indicative of cash provided or used by operations. Pro forma EBITDA is not determined in accordance with generally accepted accounting principles (GAAP) and should not be considered as an alternative to historical financial results presented in accordance with GAAP.
(d) Pro forma net loss represents the net loss before amortization, restructuring and merger-related charges, and other income, net. The company believes that pro forma net loss is an additional meaningful measure of operating performance. Pro forma net loss is not determined in accordance with generally accepted accounting principles (GAAP) and should not be considered as an alternative to historical financial results presented in accordance with GAAP.
(e) United Online commenced operations with the merger of NetZero and Juno on September 25, 2001. In order to present comparable current and historical subscriber information, the subscriber data presented in this table assumes that the merger occurred on June 1, 2001.
UNITED ONLINE, INC.
Unaudited Historical Results(f)
(in thousands, except per share data)
Three Months Ended
-------------------
Income Statement Data: Dec. 31, Sept. 30,
2001 2001
-------- --------
Revenues:
Billable services $ 41,035 $ 7,663
Advertising and commerce 7,012 6,445
-------- --------
Total revenues 48,047 14,108
-------- --------
Operating expenses:
Cost of billable services 23,265 8,277
Cost of free services 8,722 13,256
Sales and marketing 10,059 3,939
Product development 7,418 4,663
General and administrative 9,151 8,013
Restructuring charges 2,075 360
Amortization of intangible assets 4,685 101
-------- --------
Total operating expenses 65,375 38,609
-------- --------
Loss from operations (17,328) (24,501)
Interest income, net 1,585 1,358
Other income, net -- 1,007
-------- --------
Net loss $(15,743) $(22,136)
======== ========
Basic and diluted net loss per share $ (0.41) $ (0.89)
======== ========
Weighted average shares
outstanding during period 38,863 24,740
Shares outstanding at end of period 39,694 40,049
(f) The results presented in this table are presented in accordance with generally accepted accounting principles (GAAP), which require that the results of NetZero and Juno are combined only subsequent to September 25, 2001, the effective date of the companies' merger. Prior thereto, the historical results for United Online are the same as those for NetZero on a standalone basis. In order to present comparable current and historical financial results for United Online for purposes of this announcement, the results for NetZero and Juno have been combined. The combined results are discussed in the text of this announcement and are presented in separate tables labeled "Unaudited Pro Forma Combined Results and Selected Data."