WESTLAKE VILLAGE, Calif., Oct. 31, 2001 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading Internet service provider (ISP) that commenced operations on September 25, 2001, with the merger of NetZero and Juno Online Services, today reported results for its first fiscal quarter ended September 30, 2001. In order to provide more relevant information for purposes of evaluating the company's past and future performance, the pro forma results discussed below and presented in the attached tables reflect the results of United Online as if the merger had taken place at the beginning of each period presented. For purposes of reporting in accordance with generally accepted accounting principles (GAAP), the results of United Online would include the standalone results of NetZero and would only include the results of Juno for the period subsequent to September 25, 2001, the effective date of the companies' merger. These results are presented in an attached table labeled "Unaudited Historical Results and Data."
United Online reported pro forma revenues of $42.0 million for its first fiscal quarter ended September 30, 2001, compared to $41.3 million in the June 2001 quarter. Billable services revenues comprised $32.6 million or 78 percent of total revenues in the September 2001 quarter, an increase of 12 percent versus the June 2001 quarter, in which billable services comprised $29.0 million or 70 percent of total revenues.
Total subscribers to the company's billable service plans were 1.25 million at September 30, 2001, up 14 percent from 1.10 million at the end of the preceding quarter. The company had in excess of 6.1 million total active users(1) during September 2001, including the pay subscribers.
Pro forma EBITDA(2) for the September 2001 quarter was a loss of $13.1 million, a 64 percent improvement from a loss of $36.0 million in the June 2001 quarter. Pro forma net loss before amortization, restructuring and merger-related charges, and other income (expense) in the September 2001 quarter was $16.4 million, or $0.42 per share, a 59 percent improvement from a loss of $39.7 million, or $1.03 per share, in the June 2001 quarter.
The pro forma net loss for the September 2001 quarter was $23.9 million, a 52 percent improvement from a net loss of $49.3 million for the June 2001 quarter. On a per-share basis, the pro forma net loss for the September 2001 quarter was $0.62 versus a net loss of $1.28 for the June 2001 quarter.
United Online ended the September 2001 quarter with $144.5 million of cash, cash equivalents, short-term investments and restricted cash.
"We believe that United Online, with two of the leading ISP value brands -- NetZero and Juno -- now under its umbrella, is particularly well-positioned to grow its billable subscriber base in these challenging economic times," said Mark R. Goldston, chairman, CEO and president of United Online. "A weaker economy, in combination with the recent price increases at several other major ISPs, may spur additional demand for the value-priced services offered by NetZero and Juno. We believe that the growth we have seen in our pay services is evidence that offering limited free Internet access provides a fertile, cost-effective platform to acquire paying subscribers. Our growth prospects should be enhanced by the fact that tens of millions of Americans paying over $20 per month for dial-up Internet access are beginning to realize that they can get comparable, high-quality service for less than half that price."
In October 2001, the company implemented new limitations on its NetZero free services in order to further streamline its cost structure and improve financial results. NetZero's free access is now limited to no less than 10 hours per month per household and has been eliminated completely in certain outlying areas where high telecommunications costs make the free offering cost prohibitive. NetZero continues to offer users in these areas a subscription service at its current monthly rate of $9.95.
The company's future operating results will also reflect cost savings from workforce reductions implemented by NetZero in August 2001 as well as additional reductions at the company's Juno subsidiary that were effected after the completion of the merger. These initiatives reduced United Online's workforce by approximately 20% to its current headcount of less than 500, of which 114 are located at the company's technical and customer service unit in Hyderabad, India.
Added Goldston, "We believe that the efficient infrastructure we have built at United Online, with significantly fewer employees than some of our competitors, will be key to helping us achieve our near-term financial goals and, ultimately, create a profitable value-priced ISP business."
"We have experienced early success in shifting our business model to focus on billable services, with 78 percent of our pro forma revenue in the September 2001 quarter coming from paying subscribers," said Charles S. Hilliard, executive vice president and CFO of United Online. "We currently expect billable services to comprise 80-90 percent of total revenues over the next few quarters as we continue to heavily market pay services to our free users. The company's free user base is proving to be an effective source of new billable subscribers, with current customer acquisition costs that are well below the industry average. Importantly, we believe there are opportunities to further reduce operating costs as we begin to realize the benefits of the merger."
Business Outlook
The following discussion contains forward-looking information intended to provide management's current expectations for the company's long-term outlook and for the December 2001 quarter based on information available to management as of October 30, 2001. 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 and the competitive environment, actual results may differ significantly from those estimated. All numbers are approximate.
Long-term Outlook:
-- Management currently expects the company to generate positive EBITDA(2) no later than the December 2002 quarter.
-- Management currently anticipates that the company's cash, cash equivalents, short-term investments and restricted cash balances of $144.5 million at September 30, 2001, will be more than adequate to fund its operations until it generates positive cash flow.
-- Management currently estimates total restructuring and merger costs related to the merger of NetZero and Juno with United Online of $18 million to $20 million, down from its previous estimate of $20 million to $25 million.
December 2001 Quarter Outlook:
-- The company expects to grow its pay subscriber base in the December 2001 quarter by 160,000 to 180,000 subscribers, resulting in 1.41 million to 1.43 million total pay subscribers at December 31, 2001.
-- Total revenues for the December 2001 quarter are expected to be between $43.5 million and $44.5 million, a potential increase of up to 6 percent over the September 2001 quarter.
-- Billable services revenues are expected to comprise 80-85 percent of total estimated revenues.
-- EBITDA(2) for the December 2001 quarter is expected to be a loss of between $9 million and $11 million, a potential improvement of up to 31 percent from the September 2001 quarter.
-- The net loss before amortization, restructuring and merger-related charges, and other income (expense) is expected to be between $12.5 million and $14.5 million, a potential improvement of up to 24 percent from the September 2001 quarter. On a per-share basis, this represents a loss of between $0.32 and $0.37.
-- Weighted average shares outstanding for the December 2001 quarter for purposes of calculating per-share results will be approximately 39 million.
Results for the December 2001 quarter are expected to be favorably impacted by cost savings associated with the workforce reductions and changes to NetZero's free service; however, the company does not expect to realize the majority of the potential quarterly cost savings resulting from the merger until late in the March 2002 quarter. An increase in telecommunications costs in the December 2001 quarter due to seasonally higher Internet usage is expected to partially offset any realized cost savings, resulting in an increase in the cost of billable services as a percentage of billable services revenues.
Consumer Product Line
United Online provides consumers with high-quality Internet access that fits both their needs and their budgets. The company features two major brands of Internet access service -- NetZero and Juno -- which currently offer free, ad-supported Internet access and value-priced billable Internet access services on a subscription basis.
Both the NetZero and Juno Internet access plans offer consumers easy-to-use services and some of the best product offerings on the Internet. The pay Internet access services feature faster page-loads, no banner ad windows and are generally priced at less than half the cost of the standard service offerings from companies such as AOL, Earthlink and MSN. A NetZero or Juno user has the ability to exchange email with any other Internet user, use popular and widely available Instant Messaging programs such as those offered by AOL, Yahoo!, MSN and others, and access search engines, news and sports content and some of the best online shopping and financial services available.
Advertising Opportunities
United Online gives advertisers and sponsors various ways to get their messages to the mass Web audiences of both Juno and NetZero. Products offered include a broad range of state-of-the-art targeting techniques for online advertising, email campaigns, start page placements, channel sponsorship opportunities and the ability to run full-motion video commercials online through NZTV.
In addition, United Online can provide advertisers with sophisticated market research capabilities through NetZero's CyberTarget Division. With access to millions of NetZero and Juno users, CyberTarget can produce real-time market research in an Internet environment that few others can replicate. More information about CyberTarget can be found at www.cybertarget.com.
NetZero/Juno Merger
Effective September 25, 2001, NetZero and Juno Online Services became wholly owned subsidiaries of United Online, Inc. All outstanding shares of both companies were exchanged for shares of United Online in an all-stock transaction, which was accounted for using the purchase method of accounting. NetZero stockholders received 0.2000 shares of United Online stock for each share of NetZero stock, and Juno stockholders received 0.3570 shares of United Online stock for each share of Juno stock. Immediately following the closing of the transaction, United Online had approximately 40 million shares of common stock outstanding.
About United Online
United Online is a leading nationwide Internet Service Provider (ISP). The company commenced operations in September 2001 as the result of its acquisition 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 11 a.m. PST (2 p.m. 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 month, 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) EBITDA represents net loss before interest, taxes, depreciation, amortization, restructuring and merger-related charges, and other income (expense).
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 registration statement on Form S-4 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 Results(a) (in thousands, except per share data)
Three Months Ended ---------------------- September 30, June 30, Income Statement Data: 2001 2001 -------- -------- Revenues: Billable services $ 32,578 $ 28,981 Advertising and commerce 9,438 12,342 -------- -------- Total revenues 42,016 41,323 Operating expenses: Cost of billable services 19,126 17,707 Cost of free services 16,069 20,467 Sales and marketing 8,287 23,604 Product development 7,175 9,058 General and administrative 9,481 11,573 -------- -------- 60,138 82,409 -------- --------
Loss from operations before other charges (18,122) (41,086)
Amortization of stock-based charges 1,065 3,574 Amortization of goodwill and other intangible assets 4,685 4,683 Restructuring and merger-related charges (b) 2,730 960 -------- -------- Loss from operations (26,602) (50,303)
Interest income, net 1,717 1,391 Other income (expense), net 1,007 (400) -------- -------- Net loss $(23,878) $(49,312) ======== ======== Net loss per share $ (0.62) $ (1.28) ======== ======== Weighted average shares outstanding during period 38,690 38,391 Shares outstanding at end of period 40,049 40,069
Before amortization, restructuring and merger-related charges and other income (expense): Net loss $(16,405) $(39,695) ======== ======== Net loss per share $ (0.42) $ (1.03) ======== ======== Loss from operations $(18,122) $(41,086) Add: depreciation 5,009 5,106 -------- -------- EBITDA (c) $(13,113) $(35,980) ======== ========
NOTE TO EDITORS: Net loss before amortization, restructuring and merger-related charges, and other income (expense) is a number that analysts use in their estimates of the company's future performance. United Online's net loss before amortization, restructuring and merger-related charges, and other income (expense) for the quarter ended September 30, 2001 was a loss of $0.42 per share versus a loss of $1.03 in the June 2001 quarter. Due to the recent formation of United Online (effective September 25, 2001), there are no current analyst estimates reported by First Call for the September 2001 quarter.
(a) In order to present comparable current and historical financial results for United Online for purposes of this announcement, this table includes combined results for NetZero and Juno as if the merger had been completed on April 1, 2001. Certain reclassifications have been made to the Juno results to conform to the financial presentation of United Online. In addition, goodwill and other identifiable intangible assets have been amortized over their estimated useful lives of one to six years as if the acquisition had occurred at the beginning of each period presented. 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 would include the standalone results of NetZero and would only include the results of Juno for the period subsequent to September 25, 2001, the effective date of the companies' merger. These results are presented in an attached table labeled "Unaudited Historical Results and Data."
(b) Represents merger and restructuring-related costs incurred in connection with the merger of Juno and NetZero. These costs are attributable to fees associated with investment banking, legal and accounting services, employee stay bonuses, early contract termination fees, employee severance payments and integration consulting.
(c) EBITDA represents the net loss before interest, taxes, depreciation, amortization, restructuring and merger-related charges, and other income (expense). EBITDA is not determined in accordance with generally accepted accounting principles and is not indicative of cash used by operating activities and should not be considered as an alternative to historical financial results.
UNITED ONLINE, INC. Selected Unaudited Data
September 30, June 30, 2001 2001 -------- -------- Balance Sheet Data (in thousands): (pro forma)(d) Cash, cash equivalents, short-term investments and restricted cash $ 144,522 $ 176,954 Working capital 93,032 109,217 Total assets 268,696 330,671 Capital leases and notes payable, less current portion 2,161 3,612 Total stockholders' equity 201,145 233,614
Other Data: Active users in the last month of the quarter (in millions) 6.1 6.7 Billable subscribers 1,246,000 1,094,000
(d) In order to present comparable current and historical financial results for United Online for purposes of this announcement, this data includes combined results for NetZero and Juno as if the merger had been completed on April 1, 2001. Certain reclassifications have been made to the Juno results to conform to the financial presentation of United Online. In addition, goodwill and other identifiable intangible assets have been amortized over their estimated useful lives of one to six years as if the acquisition had occurred at the beginning of each period presented. 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 would include the standalone results of NetZero and would only include the results of Juno for the period subsequent to September 25, 2001, the effective date of the companies' merger. These results are presented in an attached table labeled "Unaudited Historical Results and Data."
UNITED ONLINE, INC. Unaudited Historical Results and Data(e) (in thousands, except per share data)
Three Months Ended ----------------------- September 30, June 30, 2001 2001 -------- -------- Income Statement Data: Revenues: Billable services $ 7,663 $ 4,219 Advertising and commerce 6,445 7,753 -------- -------- Total revenues 14,108 11,972 -------- -------- Operating expenses: Cost of billable services 8,262 5,632 Cost of free services 13,223 16,700 Sales and marketing 4,331 17,117 Product development 4,339 5,944 General and administrative 6,952 6,020 Amortization of stock-based charges 1,041 3,544 Restructuring charges 360 -- Amortization of goodwill and other intangible assets 101 100 -------- -------- Total operating expenses 38,609 55,057 -------- -------- Loss from operations (24,501) (43,085) Interest income, net 1,358 937 Other income, net 1,007 -- -------- -------- Net loss $(22,136) $(42,148) ======== ========
Basic and diluted net loss per share $ (0.85) $ (1.80) ======== ========
Weighted average shares outstanding during period (f) 25,948 23,468 Shares outstanding at end of period (f) 40,049 25,146
Balance Sheet Data: September 30, June 30, 2001 2001 -------- -------- Cash, cash equivalents, short-term investments and restricted cash $144,522 $134,993 Working capital 93,032 105,998 Total assets 268,696 183,863 Capital leases and notes payable, less current portion 2,161 3,314 Total stockholders' equity 201,145 138,957
(e) 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. For purposes of this announcement, in order to present comparable current and historical financial results for United Online, 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 Results" and "Selected Unaudited Data."
(f) Adjusted to reflect the 0.2000-for-1.0000 exchange ratio in connection with the merger of NetZero, Inc. and Juno Online Services, Inc. on September 25, 2001.