Record Revenues of $132.8 Million
Record Operating Income of $22.6 Million
Record Adjusted OIBDA of $34.4 Million
Quarterly Cash Dividend of $0.20 per Share
WOODLAND HILLS, Calif., Nov. 2, 2005 (PRIMEZONE) -- United Online, Inc. (Nasdaq: UNTD), a leading provider of consumer Internet subscription services, today reported results for its third quarter ended September 30, 2005. The company also announced that its Board of Directors has declared a quarterly cash dividend of $0.20. The dividend is payable on November 30, 2005 to shareholders of record as of the close of business on November 11, 2005.
Summary of September 2005 Quarter Results:
-- Total revenues for the quarter were a record $132.8 million,
up 20% versus $110.7 million for the year-ago quarter.
-- Operating income for the quarter was a record $22.6 million,
or 17.0% of revenues, up 10% versus operating income of
$20.5 million, or 18.5% of revenues, in the year-ago quarter.
-- Adjusted operating income before depreciation and amortization
("OIBDA")(1) for the quarter was a record $34.4 million, or
25.9% of revenues, an increase of 18% versus adjusted OIBDA
of $29.2 million, or 26.4% of revenues, in the year-ago quarter.
-- Pay accounts(2) increased by 7,000 during the quarter to 5.0
million; subscriptions(3) increased by 33,000 to 6.4 million;
active accounts(2) totaled 16.9 million at September 30, 2005.
During the quarter, the company implemented an update to its
billing reporting software which resulted in a positive
adjustment of 12,000 pay access accounts and 15,000
subscriptions.
-- Net income for the quarter was $12.6 million, or $0.20 per
share, versus $12.6 million, or $0.19 per share, for the
year-ago quarter.
-- Adjusted net income(4) for the quarter was $18.6 million,
an increase of 10% versus adjusted net income of $16.9
million for the year-ago quarter. On a per share basis,
adjusted net income for the quarter was $0.28 per share,
an increase of 8% versus adjusted net income of $0.26 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 a record $41.9 million for
the quarter, an increase of 45% versus $29.0 million for
the year-ago quarter.
-- Free cash flow(5) for the quarter was $33.9 million, an
increase of 23% versus $27.5 million for the year-ago
quarter.
"United Online delivered its 17th consecutive quarter of record revenues, which was driven by non-access pay account growth, particularly our Classmates social networking service, and 76% year-over-year growth in advertising and commerce revenues," said Mark R. Goldston, chairman, CEO and president of United Online. "Similar to Q2, 100% of our quarterly revenue growth was generated by United Online's non-access businesses. We are delighted to announce that during Q4 our non-access businesses will be joined by our new VoIP service called NetZero Voice. This exciting new product will allow both dial-up and broadband users to download the software in minutes and experience Internet phone calling at significant discounts to conventional voice plans and will work over virtually any Internet connection from any service provider."
"Our strong third quarter results reflect the ongoing execution of United Online's diversification strategy into non-access services which continue to represent an even greater percentage of our pay accounts and revenues," said Charles S. Hilliard, executive vice president and CFO of United Online. "We intend to continue to manage our access business, which declined by a net 98,000 pay accounts in Q3, for profitability and cash flow contribution while investing in our portfolio of non-access businesses for future growth."
Additional Highlights:
-- Billable services margin(6) was 79.3% for the September
2005 quarter, up from 77.5% for the year-ago quarter.
-- Cash balances at September 30, 2005 were $241.0 million,
including cash, cash equivalents and short-term investments.
During the quarter, the company repaid $5.0 million of its
senior term loan facility, bringing the balance of the
facility to $58.3 million at September 30, 2005.
Business Outlook:
The following forward-looking information includes certain projections made by management 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 2005 quarter and the year ending December 31, 2005:
---------------- ---------------- ----------------
(in millions) Dec '05 Q Est. CY'05 Est. Prior CY'05 Est.
---------------- ---------------- ----------------
Operating income $21.1 -- $24.1 $85.6 -- $88.6 $83.6 -- $86.6
Depreciation 4.2 15.2 15.4
Amortization 4.9 21.8 21.9
Stock-based
charges 2.6 9.4 10.1
---------------- ---------------- ----------------
Adjusted
operating
income before
depreciation
and
amortization(1) $32.8 -- $35.8 $132.0 -- $135.0 $131.0 -- $134.0
---------------- ---------------- ----------------
Weighted average
diluted shares 65.5 -- 66.5 65.0 -- 66.0 65.0 -- 66.0
-- Total revenues for the December 2005 quarter are estimated
to be between approximately $131 million and approximately
$133 million.
-- The company estimates that total pay accounts will be
between approximately 5.0 million and approximately 5.1
million by December 31, 2005.
(1) Adjusted operating income before depreciation and amortization (adjusted OIBDA) is defined as operating income before depreciation, amortization, stock-based compensation and facility-exit costs. Management believes that because adjusted OIBDA excludes certain items that (1) do not impact the company's cash flows (such as depreciation, amortization and stock-based compensation); or (2) management believes are not reflective of the company's core operating results over time (non-recurring facility-exit costs in the September 2004 quarter related to the relocation of the company's corporate offices), 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. Management uses adjusted OIBDA to measure the company's performance and monitors adjusted OIBDA to ensure compliance with specific financial covenants in our term loan agreement. 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. A limitation associated with the use of adjusted OIBDA is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company's business. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures and purchase accounting. An additional limitation associated with this measure is that it does not include stock compensation expenses related to the company's workforce. Management compensates for this limitation by providing supplemental information about stock compensation expense on the face of the consolidated statements of operations. Management does not believe either of these limitations is material, particularly when such measure is disclosed with its most comparable GAAP financial measure, operating income. A reconciliation to operating income is provided in the accompanying tables.
(2) A pay account represents a unique billing relationship with a customer who subscribes to one or more of the company's services. A pay account does not equate to a unique subscriber since one subscriber could have several pay accounts. Active accounts are defined as all free access, social network and email users that logged on to our services at least once during the preceding 31 days, together with all pay accounts. Additionally, active accounts include the number of free Web sites that received at least one unique visitor within the preceding 90 days and the number of free photo-sharing users that logged on to the service at least once within the preceding 90 days. A table entitled "Analysis of Pay Accounts and Subscriptions" is presented elsewhere in this release.
(3) A subscription represents a unique subscription to any individual pay service offered by the company. Internet access and accelerated dial-up are counted as two subscriptions, although most subscribers to the accelerated service purchase it bundled with our standard Internet access. A table entitled "Analysis of Pay Accounts and Subscriptions" is presented elsewhere in this release.
(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 (1) certain non-cash expenses (such as amortization and stock-based compensation); and (2) other items which management believes are not reflective of the company's core operating results over time (non-recurring facility-exit costs in the September 2004 quarter related to the relocation of the company's corporate offices). Management also uses adjusted net income for this purpose. 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. The limitations of adjusted net income are that, similar to adjusted OIBDA, it does not include certain costs, and the term adjusted net income does not have a standardized meaning. Therefore, other companies may use the same, or a similarly named measure but exclude different items, which may not provide investors a comparable view of the company's performance in relation to other companies in the same industry. Management compensates for this limitation by presenting the most comparable GAAP measure, net income, directly ahead of adjusted net income in this earnings release and by providing a reconciliation that shows and describes the adjustments made. Management does not believe these limitations are material, particularly when such measure is disclosed with its most comparable GAAP financial measure, net income. A reconciliation to net income is 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 (non-recurring facility-exit costs in the September 2004 quarter related to the relocation of the company's corporate offices). This measure is used by management, and may also be useful for investors, to assess the company's ability to pay its quarterly dividend, repay debt obligations and generate cash flow for a variety of strategic opportunities, including reinvestment in the business, and effecting potential acquisitions and 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. The limitation of free cash flow is that it excludes cash paid for non-recurring relocation costs during certain periods. Management does not believe that this is a material limitation, particularly when such measure is disclosed with its most comparable GAAP financial measure, net cash provided by operating activities. A reconciliation to net cash provided by operating activities is provided in the accompanying tables.
(6) Billable services margin represents billable services revenues less cost of billable services divided by billable services revenues.
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: guidance for future financial performance; changes in pay accounts; weighted average diluted shares; depreciation and amortization; and stock-based compensation. 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: 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 pay accounts; 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; the impact of new product releases, including VoIP; 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 accounts; the company's inability to maintain its agreements with telecommunications providers on attractive terms; the company's ability to successfully integrate acquisitions, including Classmates Online and PhotoSite; 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."
About United Online
United Online, Inc. (Nasdaq:UNTD) is a leading provider of consumer Internet subscription services through a number of brands, including NetZero, Juno and Classmates. The company's services include Internet access, accelerated dial-up services, premium email, personal Web hosting and domain services, photo-sharing services, social networking and VoIP telephony. At September 30, 2005, United Online had 868 employees worldwide. United Online is headquartered in Woodland Hills, CA, with offices in New York City, NY; Renton, WA; San Francisco, CA; Orem, UT; Munich, Germany; Järfälla, Sweden; and Hyderabad, India. For more information about United Online and its Internet subscription services, please visit http://www.untd.com.
United Online will be hosting a conference call today at 2:00PM PT (5:00PM 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.
UNITED ONLINE, INC.
Condensed Consolidated Balance Sheets
(in thousands)
Sep. 30, 2005 Dec. 31, 2004
------------- -------------
ASSETS (unaudited)
Cash, cash equivalents and
short-term investments $240,993 $232,793
Accounts receivable, net 20,879 17,534
Deferred tax assets, net 70,709 76,203
Property and equipment, net 32,383 27,006
Goodwill and intangible assets, net 144,744 147,016
Other assets 14,820 19,300
-------- --------
Total assets $524,528 $519,852
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 51,333 $ 45,379
Accrued liabilities 37,102 18,320
Deferred revenue 57,318 50,954
Capital leases 789 1,319
Term loan 58,333 100,000
Other liabilities 4,334 2,181
-------- --------
Total liabilities 209,209 218,153
-------- --------
Stockholders' equity 315,319 301,699
-------- --------
Total liabilities and
stockholders' equity $524,528 $519,852
======== ========
UNITED ONLINE, INC.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
-----------------------
Three Months Ended
September 30,
-----------------------
2005 2004
--------- ---------
Revenues:
Billable services $ 117,670 $ 102,113
Advertising and commerce 15,108 8,591
--------- ---------
Total revenues 132,778 110,704
Operating expenses:
Cost of billable services 24,326 23,013
Cost of free services 2,858 1,605
Sales and marketing 52,470 43,170
Product development 9,787 7,069
General and administrative 12,614 10,220
Stock-based compensation(a) 2,837 716
Amortization of intangible assets 5,252 4,395
--------- ---------
Total operating expenses 110,144 90,188
--------- ---------
Operating income 22,634 20,516
Interest and other income, net 1,675 1,380
Interest expense (1,388) (321)
--------- ---------
Income before income taxes 22,921 21,575
Provision for income taxes 10,327 8,955
--------- ---------
Net income $ 12,594 $ 12,620
========= =========
Basic net income per share $ 0.21 $ 0.21
========= =========
Diluted net income per share $ 0.20 $ 0.19
========= =========
Shares used to calculate basic
net income per share 61,399 61,183
========= =========
Shares used to calculate diluted
net income per share 64,107 64,955
========= =========
Shares outstanding at end of period 62,073 60,545
========= =========
(a) Stock-based compensation is allocated
as follows:
Cost of billable services $ 49 $ --
Sales and marketing 297 124
Product development 329 --
General and administrative 2,162 592
--------- ---------
Total stock-based compensation $ 2,837 $ 716
========= =========
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
----------------------
Three Months Ended
September 30,
----------------------
2005 2004
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,594 $ 12,620
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and
stock-based compensation 11,809 7,366
Deferred taxes, tax benefits
and other 3,774 8,006
Change in operating assets and liabilities
(excluding the effects of acquisitions):
Accounts receivable (2,116) (10)
Other assets 1,615 1,008
Accounts payable and accrued liabilities 14,014 (1,206)
Other liabilities 421 1,189
Deferred revenue (246) (14)
-------- --------
Net cash provided by operating activities 41,865 28,959
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (90,281) (52,483)
Proceeds from maturities and sales
of short-term investments 66,245 54,470
Purchases of rights, patents and trademarks -- (4)
Cash paid for acquisitions -- (17)
Purchases of property and equipment (7,981) (6,344)
Proceeds from sales of assets, net -- 92
-------- --------
Net cash used for investing activities (32,017) (4,286)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases (90) --
Payments on term loan (5,001) --
Payment for dividends (12,669) --
Repurchases of common stock 1 (25,011)
Proceeds from exercises of stock options 887 1,123
-------- --------
Net cash used for financing activities (16,872) (23,888)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (2) --
Change in cash and cash equivalents (7,026) 785
Cash and cash equivalents,
beginning of period 40,685 4,996
-------- --------
Cash and cash equivalents,
end of period $ 33,659 $ 5,781
======== ========
UNITED ONLINE, INC.
Reconciliation of Net Income to Adjusted Net Income (4)
(in thousands, except per-share data)
Three Months Ended
September 30,
---------------------------
2005 2004
--------- ---------
Net income $ 12,594 $ 12,620
Add:
Facility-exit costs (a) -- 1,646
Stock-based compensation 2,837 716
Amortization of intangible assets 5,252 4,395
--------- ---------
20,683 19,377
Income tax effect of
adjusting entries and
re-measurement of certain
deferred tax assets (2,097) (2,459)
--------- ---------
Adjusted net income $ 18,586 $ 16,918
========= =========
Adjusted basic net income per
share $ 0.30 $ 0.28
========= =========
Adjusted diluted net income
per share $ 0.28 $ 0.26
========= =========
Shares used to calculate adjusted
basic net income per share 61,399 61,183
========= =========
Shares used to calculate adjusted
diluted net income per share (b) 65,627 64,955
========= =========
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(a) Facility-exit costs incurred as a result of the relocation of
the company's corporate offices. These costs are attributable
to lease termination fees and accelerated depreciation incurred
in connection with terminated leases.
(b) Includes the adjustment of shares used to calculate diluted net
income per share resulting from the elimination of stock-based
compensation.
UNITED ONLINE, INC.
Reconciliation of Non-GAAP Financial Data
(in thousands)
Three Months Ended
September 30,
-----------------
2005 2004
------- -------
Adjusted Operating Income Before
Depreciation and Amortization(1)
Operating income $22,634 $20,516
Depreciation 3,720 1,957
Amortization 5,252 4,395
------- -------
Operating income before depreciation
and amortization 31,606 26,868
Stock-based compensation 2,837 716
Facility-exit costs(a) -- 1,646
------- -------
Adjusted operating income before depreciation
and amortization $34,443 $29,230
======= =======
Three Months Twelve Months
Ended Ended
September 30, September 30,
-------------------- ------------
2005 2004 2005
-------- -------- ---------
Free Cash Flow(5)
Net cash provided by operating
activities $ 41,865 $ 28,959 $ 146,017
Add (deduct):
Capital expenditures (7,981) (6,344) (17,766)
Cash paid for relocation
costs(b) -- 4,895 200
-------- -------- ---------
Free cash flow $ 33,884 $ 27,510 $ 128,451
======== ======== =========
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(a) Represents costs incurred in connection with the relocation of
the company's corporate offices. These costs are 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,
2005 2005 2005 2004 2004
-------- -------- -------- ---------- --------
Total revenues $132,778 $131,520 $130,531 $119,620 $110,704
Net income $ 12,594 $ 10,672 $ 11,487 $ 80,189(b) $ 12,620
Net income per
diluted share $ 0.20 $ 0.17 $ 0.18 $ 1.27 $ 0.19
Pay accounts(2) 5,040 5,033 4,952 4,826 3,232
Active accounts(2)
(in millions) 16.9 16.9 17.0 15.2 6.6
Number of employees
at end of period 868 828 769 742 598
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(a) More information on the financial results for these quarters
can be found in the company's filings with the Securities and
Exchange Commission.
(b) Includes $68.6 million tax benefit related to the recognition
of a portion of the company's deferred tax assets.
UNITED ONLINE, INC.
Analysis of Pay Accounts (2) and Subscriptions(3)
(in thousands)
Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2005 2005 2005 2004 2004
-------- -------- -------- ------- --------
Internet access 2,980 3,078 3,130 3,100 3,111
Non-access
services(a) 2,060 1,955 1,822 1,726 121
-------- -------- -------- ------- --------
Total pay
accounts(2) 5,040 5,033 4,952 4,826 3,232
======== ======== ======== ======= ========
Internet access 2,980 3,078 3,130 3,100 3,111
Accelerator 1,205 1,196 1,170 1,105 1,074
Non-access
services(a) 2,186 2,064 1,900 1,781 165
-------- -------- -------- ------- --------
Total
subscriptions(3) 6,371 6,338 6,200 5,986 4,350
======== ======== ======== ======= ========
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(a) Non-access services include social networking, premium email,
Web-hosting and domain name registration, premium content and
photo sharing.