WOODLAND HILLS, Calif., Oct. 25, 2004 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet subscription services, today reported results for its third quarter ended September 30, 2004.
Summary of September 2004 Quarter Results:
- Total revenues for the quarter were a record $110.7 million, up
25% versus $88.8 million for the year-ago quarter.
- Operating income for the quarter was a record $20.5 million, or
18.5% of revenues, up 49% versus operating income of $13.8
million, or 15.5% of revenues, in the year-ago quarter.
- Adjusted operating income before depreciation and amortization
(or "OIBDA")(1) for the quarter was a record $29.2 million, or
26.4% of revenues, an increase of 51% versus adjusted OIBDA(1) of
$19.3 million, or 21.7% of revenues, in the year-ago quarter.
- Pay subscribers(2) increased by 43,000 during the quarter to 3.2
million; Revenue generating units(3)(RGUs) increased by 123,000
to 4.4 million; Active accounts(2) totaled 6.6 million at
September 30, 2004.
- Net income for the quarter was $12.6 million, or $0.19 per share,
versus $8.9 million, or $0.13 per share, for the year-ago
quarter.
- Adjusted net income(4) for the quarter was $16.9 million, or
$0.26 per share, an increase of 50% versus adjusted net income of
$11.3 million, or $0.16 per share, for the year-ago quarter.
Adjusted net income is calculated in a manner consistent with the
analyst consensus estimate as reported by First Call.
- Cash flows from operations were $29.0 million for the quarter, up
53% from $18.9 million for the year-ago quarter.
- Free cash flow(5) for the quarter was $27.5 million, up 59% from
$17.3 million for the year-ago quarter.
"United Online's results this quarter demonstrate our fiscal discipline and the strength of the company's business model," said Mark R. Goldston, chairman, CEO and president of United Online. "Once again, the company delivered record adjusted OIBDA and strong free cash flow. We intend to continue expanding our product offerings and broadening our distribution channels as we seek to strengthen our position as a leading provider of consumer Internet subscription services."
"Our September quarter financial results were driven by continued telecom cost declines and further expansion of the company's billable services margin - up 620 basis points versus the year-ago quarter," said Charles S. Hilliard, executive vice president and CFO of United Online. "Sequential comparisons also benefited from declining telecom costs, as well as solid growth in advertising revenues - which more than offset a slight decline in billable services revenues. While we were pleased that our premium email subscriptions surpassed the 100,000 milestone in the quarter, our access business - which added 9,000 net new subscribers this quarter - continued to be impacted by competition and other factors. Our strong free cash flow - more than $112 million during the past twelve months - provides the company significant financial flexibility to create long term value."
Additional Highlights of the September 2004 Quarter:
- Billable services revenues were $102.1 million in the September
2004 quarter, or 92% of total revenues, an increase of 28% versus
$79.6 million, or 90% of total revenues, for the September 2003
quarter.
- Billable services margin(6) was a record 77.5% for the September
2004 quarter, up from 71.3% for the year-ago quarter.
- Annualized revenue per average employee(7) was $751,000 for the
September 2004 quarter.
- Cash balances at September 30, 2004 were $202.6 million,
including cash, cash equivalents and short-term investments.
- The company repurchased 2.7 million shares of its common stock at
an aggregate cost of $25 million during the September 2004
quarter. Since the inception of its common stock repurchase
program in March 2001, the company has repurchased 9.7 million
shares of its common stock at an aggregate cost of $125 million.
Under this program, the company can repurchase up to an
additional $75 million of its common stock through May 31, 2005.
Agreement to Acquire Classmates Online, Inc.
United Online also announced today that it has signed a definitive agreement to acquire Classmates Online, Inc., a leader in online community-based networking, for approximately $100 million in cash, net of cash acquired. Classmates Online, Inc. operates Classmates.com (www.classmates.com), connecting millions of members throughout the U.S. and Canada with friends and acquaintances from school, work and the military. Its Classmates International subsidiary also operates leading community-based networking sites in Sweden, through Klasstraffen Sweden AB (www.klasstraffen.com), and in Germany, through StayFriends GmbH (www.stayfriends.de).
At September 30, 2004, Classmates had 1.4 million pay subscribers, 10.3 million monthly active accounts, and more than 38 million registered members, giving it a significant database of self-registered personal information. During the nine months ended September 30, 2004, the company generated revenues of $54 million - 75% from subscription fees - and operating income of $3.7 million, after $4.9 million of depreciation and amortization expenses. The company has 175 employees, and United Online intends to maintain Classmates' operations in Renton, WA. The acquisition is expected to be completed in the fourth quarter of this year, subject to customary closing conditions, including regulatory approval. Classmates Online's Board of Directors and shareholders have approved the transaction.
"Our proposed purchase of Classmates is consistent with our stated mission to expand our network of affordable, high-quality consumer Internet subscription services," Goldston said. "Classmates has built a highly recognized, market-leading brand that offers a range of community-based networking services that make it a top destination for consumers seeking to find, connect and keep-in-touch with friends and acquaintances from their school, work or military affiliations. Together with United Online's 6.6 million active accounts, the addition of Classmates will give us a powerful audience of more than 16 million active accounts, providing additional marketing opportunities and extending our advertising reach. We look forward to welcoming Classmates' team of skilled employees to the United Online family."
Business Outlook:
The forward-looking information in this release includes certain projections made by management based on the company's operations as of the date of this release. United Online does not intend to revise or update this information and may not provide this type of information in the future. Due to a variety of factors, actual results may differ significantly from those projected. Factors include, without limitation, the factors referenced later in this announcement under the caption "Cautionary Information Regarding Forward-Looking Statements." These and other factors are discussed in more detail in the company's filings with the Securities and Exchange Commission.
Following is the company's current guidance for the December 2004 quarter and the year ending December 31, 2004, excluding any potential impact from the proposed acquisition of Classmates Online, Inc.:
------------- --------------- ---------------
(in millions) Dec'04 Q Est. CY'04 Est. Prior CY'04 Est.
------------- --------------- ---------------
Operating income $19.6 - $21.6 $80.1 - $82.1 $78.4 - $80.4
Depreciation &
amortization 6.7 24.7 24.4
Facility exit costs --- 3.2 4.6
Stock-based
compensation 0.7 2.6 2.6
------------- --------------- ---------------
Adjusted operating
income before
depreciation and
amortization (1) $27.0 - $29.0 $110.6 - $112.6 $110.0 - $112.0
------------- --------------- ---------------
Weighted average
diluted shares 64.5 - 65.5 65.5 - 66.5 67.0 - 68.0
- Total revenues for the December 2004 quarter are estimated to be
between $109 million and $112 million.
- The company estimates that total pay subscribers(2) will increase
to between 3.25 million and 3.35 million by December 31, 2004,
down from its previous guidance of between 3.3 million and 3.5
million.
(1) Adjusted operating income before depreciation and amortization (adjusted OIBDA) is defined as operating income before depreciation, amortization, stock-based compensation and, in certain periods as reflected in the accompanying tables, facility exit costs. Management believes that because adjusted OIBDA excludes certain items that either do not impact the company's cash flows or which management believes are not reflective of the company's core operating results over time, this measure provides investors with additional useful information to measure the company's performance, particularly with respect to changes in performance from period to period, and to assess the company's ability to make capital expenditures, fund working capital requirements, incur and repay indebtedness, and fund strategic initiatives. Management also uses adjusted OIBDA for these purposes, as well as to allocate resources in managing the company's business. The company's Board of Directors uses this measure in determining certain compensation incentives for certain members of the company's management. Adjusted OIBDA is not determined in accordance with generally accepted accounting principles (GAAP) and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Reconciliations to the most directly comparable GAAP financial measure are provided in the accompanying tables.
(2) Total pay subscribers includes Internet access subscribers, Web-hosting subscribers, non-access premium email subscribers, domain name registration subscribers and, going forward, other pay subscription services that the company may introduce or acquire. Active accounts are defined as all free access and email users that logged on to our services at least once during the preceding 31 days, together with all subscribers to a pay service. Additionally, active accounts include the number of free Web sites that received at least one unique visitor within the preceding 90 days. A detailed subscriber analysis is provided in the accompanying table entitled "Analysis of Revenue Generating Units."
(3) A revenue generating unit (RGU) represents a unique subscription to any individual pay service offered by the company. Internet access, accelerated dial-up, premium email, Web-hosting and domain name registration subscriptions represent separate RGUs. For example, a subscriber to the company's accelerated dial-up access service who also subscribes to a premium email service is counted as three subscriptions (one for Internet access, one for accelerated dial-up and one for premium email). The company currently offers its accelerated dial-up service bundled with its standard Internet access only. A detailed calculation of RGUs is provided in the accompanying table entitled "Analysis of Revenue Generating Units."
(4) Adjusted net income is defined as net income before the after-tax effect of amortization of intangible assets, stock-based compensation and facility exit costs. Management believes that adjusted net income provides investors with additional useful information to measure the company's financial performance, particularly from period to period, exclusive of certain non-cash expenses and other items which management believes are not reflective of the company's core operating results over time. Management also uses adjusted net income for these purposes. Adjusted net income is not determined in accordance with generally accepted accounting principles (GAAP) and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Reconciliations to the most directly comparable GAAP financial measure are provided in the accompanying tables.
(5) Free cash flow is defined as net cash provided by operating activities before cash paid for relocation costs, less capital expenditures. Management believes that free cash flow provides investors with additional useful information to measure operating liquidity because it reflects the company's operating cash flows after investing in capital assets, and excludes the cash impact of items which management believes are not reflective of the company's core operating results over time. This measure is used by management, and may also be useful for investors, to assess the company's ability to generate cash flow for a variety of strategic opportunities, including reinvestment in the business, effecting potential acquisitions, strengthening the balance sheet, and effecting share repurchases. Free cash flow is not determined in accordance with generally accepted accounting principles (GAAP) and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Reconciliations to the most directly comparable GAAP financial measure are provided in the accompanying tables.
(6) Billable services margin represents billable services revenues less cost of billable services divided by billable services revenues.
(7) Annualized revenue per average employee represents annualized total revenues for the period divided by the average number of employees during that period.
About United Online
United Online, Inc. (Nasdaq: UNTD) is a leading provider of consumer Internet subscription services through a number of brands, including NetZero and Juno. The company's pay services include Internet access, accelerated dial-up services, premium email, and personal Web-hosting and domain services. It also offers consumers free Internet access, email and Web hosting. The company's access services are available in more than 8,000 cities across the United States and in Canada. United Online is headquartered in Woodland Hills, CA, with offices in New York City, San Francisco, CA, Orem, UT, and Hyderabad, India. At September 30, 2004, the company had 598 employees worldwide. For more information about United Online and its Internet subscription services, please visit www.untd.com.
United Online will be hosting a conference call today at 8:00AM PT (11:00AM ET) to discuss its quarterly results. A live Web cast of the call can be accessed on the Investors section of the company's Web site at www.untd.com. A recording of the call will be available on the site for seven days.
Cautionary Information Regarding Forward-Looking Statements
This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Statements containing words such as "guidance," "may," "believe," "will," "expect," "project," "projections," "business outlook" and "estimate" or similar expressions constitute forward-looking statements. These statements include, without limitation, expectations regarding the consummation of the acquisition of Classmates Online; guidance for future financial performance; growth in pay subscribers; weighted average diluted shares; depreciation and amortization; facility exit costs; stock-based compensation; and future tax rates and benefits. Actual results may differ materially from those predicted and reported results should not be considered an indication of future performance. Potential risks and uncertainties include, among others: that the Classmates Online acquisition does not close when anticipated, if at all, on the terms discussed; the effect of competition, including adoption of broadband services and changes in the company's pricing or competitors' pricing, and the use of promotional offers to acquire or retain subscribers; the company's inability to retain its existing subscribers and the rate at which new subscribers sign up for the company's services; changes in the mix of subscribers, particularly subscribers to accelerated dial-up, premium email and Web-hosting services; the effects of seasonality and changes in Internet usage; changes in the projected number of weighted average diluted shares due to the issuance of stock and stock options, stock repurchases, fluctuations in the company's stock price or other factors; changes in the projected amortization and depreciation figures due to capital spending or other factors; changes in usage by subscribers, additional telecommunications costs or other factors negatively impacting the company's billable services margin; changes in active free accounts; the company's inability to realize the benefits of its deferred tax assets; the company's inability to maintain its agreements with telecommunications providers on attractive terms; the company's ability to integrate acquisitions, including Classmates Online; problems associated with the company's billing systems; the company's inability to retain key customers and key personnel; unanticipated technological problems or developments; risks associated with litigation; and unanticipated governmental regulation. From time to time, the company considers acquisitions that, if consummated, could be material. Forward-looking statements regarding financial metrics are based upon the assumption that no such acquisition is consummated during the relevant periods. If an acquisition were consummated, actual results could differ materially from any forward-looking statements. More information about potential factors that could affect the company's business and financial results is included in the company's annual and quarterly reports filed 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.
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
2004 2003
-------- --------
(unaudited)
ASSETS
Cash, cash equivalents and short-term
investments $202,645 $203,723
Accounts receivable, net 13,414 14,065
Deferred tax assets, net 11,172 26,373
Property and equipment, net 18,763 13,428
Goodwill and intangible assets, net 41,729 40,268
Other assets 13,539 10,022
-------- --------
Total assets $301,262 $307,879
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 38,762 $ 31,388
Accrued liabilities 16,952 14,028
Deferred revenue 28,231 24,639
Other liabilities 1,189 --
-------- --------
Total liabilities 85,134 70,055
-------- --------
Stockholders' equity 216,128 237,824
-------- --------
Total liabilities and stockholders'
equity $301,262 $307,879
======== ========
UNITED ONLINE, INC.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
---------------------------
Quarter Ended September 30,
---------------------------
2004 2003
-------- --------
Revenues:
Billable services $102,113 $ 79,646
Advertising and commerce 8,591 9,144
-------- --------
Total revenues 110,704 88,790
Operating expenses:
Cost of billable services 23,013 22,897
Cost of free services 1,605 2,084
Sales and marketing 43,170 33,939
Product development 7,069 5,120
General and administrative 10,220 7,008
Stock-based compensation (1) 716 --
Amortization of intangible assets 4,395 3,964
-------- --------
Total operating expenses 90,188 75,012
-------- --------
Operating income 20,516 13,778
Interest and other income, net 1,059 1,183
-------- --------
Income before income taxes 21,575 14,961
Provision for income taxes 8,955 6,059
-------- --------
Net income $ 12,620 $ 8,902
======== ========
Basic net income per share $ 0.21 $ 0.14
======== ========
Diluted net income per share $ 0.19 $ 0.13
======== ========
Shares used to calculate basic
net income per share 61,183 64,161
======== ========
Shares used to calculate diluted
net income per share 64,955 70,133
======== ========
Shares outstanding at end of period 60,545 65,168
======== ========
(1) Stock-based compensation is
allocated as follows:
Cost of billable services $ -- $ --
Sales and marketing 124 --
Product development -- --
General and administrative 592 --
-------- --------
Total stock-based compensation $ 716 $ --
======== ========
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statement of Cash Flows
(in thousands)
--------------------------
Quarter Ended September 30,
--------------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $ 12,620 $ 8,902
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and stock-
based compensation 7,366 5,531
Deferred taxes, tax benefits and other 8,006 6,384
Change in operating assets and
liabilities (excluding the effects of
acquisitions):
Restricted cash -- 111
Accounts receivable (10) (335)
Other assets 1,008 (3,689)
Accounts payable and accrued
liabilities (1,206) 1,358
Other liabilities 1,189 --
Deferred revenue (14) 641
-------- --------
Net cash provided by operating
activities 28,959 18,903
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (12,583) (30,674)
Proceeds from maturities and sales of
short-term investments 6,020 --
Purchases of rights, patents and
trademarks (4) --
Proceeds from the sale of cost-basis
investment -- --
Cash paid for acquisitions (17) --
Purchases of property and equipment (6,344) (1,593)
Proceeds from sales of assets, net 92 --
-------- --------
Net cash used for investing activities (12,836) (32,267)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases -- (22)
Repayments of notes receivable from
stockholders -- --
Proceeds from employee stock purchase
plan -- --
Repurchases of common stock (25,011) --
Proceeds from exercises of stock options 1,123 8,020
-------- --------
Net cash provided by (used for)
financing activities (23,888) 7,998
-------- --------
Change in cash and cash equivalents (7,765) (5,366)
Cash and cash equivalents,
beginning of period 71,171 85,838
-------- --------
Cash and cash equivalents,
end of period $ 63,406 $ 80,472
======== ========
UNITED ONLINE, INC.
Reconciliation of Net Income to Adjusted Net Income (4)
(in thousands, except per-share data)
--------------------------------------------------------
Quarter Ended Quarter Ended
September 30, 2004 September 30, 2003
--------------------------- ----------------------------
Reported Adjust- Adjusted Reported Adjust- Adjusted
ments ments
-------- ------- --------- ------- ------- --------
Revenues:
Billable
services $102,113 $ -- $102,113 $79,646 $ -- $ 79,646
Advertising
and
commerce 8,591 -- 8,591 9,144 -- 9,144
-------- ------- -------- ------- ------- --------
Total
revenues 110,704 -- 110,704 88,790 -- 88,790
Operating
expenses:
Cost of
billable
services 23,013 -- 23,013 22,897 -- 22,897
Cost of
free
services 1,605 -- 1,605 2,084 -- 2,084
Sales and
marketing 43,170 -- 43,170 33,939 -- 33,939
Product
develop-
ment 7,069 -- 7,069 5,120 -- 5,120
General
and admin-
istrative 10,220 (1,646)(a) 8,574 7,008 -- 7,008
Stock-
based com-
pensation 716 (716)(b) -- -- -- --
Amortiza-
tion of
intangible
assets 4,395 (4,395)(c) -- 3,964 (3,964)(c) --
-------- ------- -------- ------- ------- --------
Total
operating
expenses 90,188 (6,757) 83,431 75,012 (3,964) 71,048
-------- ------- -------- ------- ------- --------
Operating
income 20,516 6,757 27,273 13,778 3,964 17,742
Interest
and other
income,
net 1,059 -- 1,059 1,183 -- 1,183
-------- ------- -------- ------- ------- --------
Income
before
income
taxes 21,575 6,757 28,332 14,961 3,964 18,925
Provision
for income
taxes 8,955 2,459(d) 11,414 6,059 1,605(d) 7,664
-------- ------- -------- ------- ------- --------
Net income $ 12,620 $ 4,298 $ 16,918 $ 8,902 $ 2,359 $ 11,261
======== ======= ======== ======= ======= ========
Basic net
income per
share $ 0.21 $ 0.28 $ 0.14 $ 0.18
======== ======== ======= ========
Diluted
net income
per share $ 0.19 $ 0.26 $ 0.13 $ 0.16
======== ======== ======= ========
Shares used
to calculate
basic net
income per
share 61,183 61,183 64,161 64,161
======== ======== ======= ========
Shares used
to calculate
diluted net
income per
share 64,955 64,955 70,133 70,133
======== ======== ======= ========
Shares out-
standing
at end of
period 60,545 60,545 65,168 65,168
======== ======== ======= ========
---------------------------------------------------------------------
(a) Elimination of facility-exit costs incurred as a result of the
relocation of the Company's corporate offices.
(b) Elimination of stock-based compensation.
(c) Elimination of amortization of intangible assets.
(d) Income tax effect of adjusting entries.
UNITED ONLINE, INC.
Reconciliation of Non-GAAP Financial Data
(in thousands)
Quarter Ended September 30,
---------------------------
2004 2003
------- -------
Adjusted Operating Income Before
Depreciation and Amortization (1)
Operating income $20,516 $13,778
Depreciation 1,957 1,567
Amortization 4,395 3,964
------- -------
Operating income before depreciation
and amortization 26,868 19,309
Stock-based compensation 716 --
Facility-exit costs (a) 1,646 --
------- -------
Adjusted operating income before
depreciation and amortization $29,230 $19,309
======= =======
Quarter Ended Twelve Months Ended
September 30, September 30,
---------------------- ---------
2004 2003 2004
--------- --------- ---------
Free Cash Flow (5)
Net cash provided by
operating activities $ 28,959 $ 18,903 $ 121,208
Add (deduct):
Capital expenditures (6,344) (1,593) (14,680)
Cash paid for relocation
costs (b) 4,895 -- 6,210
--------- --------- ---------
Free cash flow $ 27,510 $ 17,310 $ 112,738
========= ========= =========
------------------------------------------------------------------
(a) Represents costs incurred in connection with the relocation of
the Company's corporate offices. These costs are primarily
attributable to lease termination fees and accelerated
depreciation incurred in connection with terminated leases.
(b) Represents cash payments made in connection with the relocation
of the Company's corporate offices. These payments relate
primarily to lease termination fees and capital expenditures for
the new corporate offices.
UNITED ONLINE, INC.
Selected Quarterly Historical Financial Data and Key Metrics (a)
(in thousands, except per share amounts,
number of employees and where noted)
Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2004 2004 2004 2003 2003
-------- -------- -------- ------- -------
Total revenues $110,704 $110,618 $107,675 $96,948 $88,790
Net income $ 12,620 $ 12,310 $ 12,361 $24,425 $ 8,902
Net income per
diluted share $ 0.19 $ 0.19 $ 0.18 $ 0.35 $ 0.13
Pay subscribers 3,232 3,189 3,095 2,892 2,720
Active accounts (2)
(in millions) 6.6 6.8 5.4 5.3 5.2
Number of employees
at end of period 598 582 504 499 487
Annualized revenue
per average
employee (7) $ 751 $ 815 $ 859 $ 787 $ 749
---------------------------------------------------------------------
(a) More information on the financial results for these quarters can
be found in the company's filings with the Securities and
Exchange Commission.
UNITED ONLINE, INC.
Analysis of Revenue Generating Units (RGUs) (a)
(in thousands)
Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2004 2004 2004 2003 2003
-------- -------- -------- ------- -------
Internet access 3,111 3,102 3,083 2,890 2,720
Accelerated dial-up 1,074 1,001 896 638 412
Premium email 103 66 28 7 --
Web hosting and
domain name
registration 62 58 -- -- --
-------- -------- ------- ------- -------
Total revenue-
generating
units 4,350 4,227 4,007 3,535 3,132
======== ======== ======= ======= =======
Total pay
subscribers (b) 3,232 3,189 3,095 2,892 2,720
RGU penetration (c) 35% 33% 29% 22% 15%
---------------------------------------------------------------------
(a) A revenue generating unit (RGU) represents a unique subscription
to any individual pay service offered by the company. Internet
access, accelerated dial-up, premium email, Web-hosting and
domain name registration and other pay subscriptions represent
separate RGUs. For example, a subscriber to the company's
accelerated dial-up access service who also subscribes to a
premium email service is counted as three subscriptions (one for
Internet access, one for accelerated dial-up and one for premium
email). At September 30, 2004, the company offered its
accelerated dial-up service bundled with standard Internet access
only.
(b) Total pay subscribers includes Internet access subscribers,
premium email subscribers, Web-hosting subscribers and domain
name registration subscribers.
(c) Defined as total RGUs minus total pay subscribers divided by
total pay subscribers.