Record Quarterly Revenues of $119.6 Million
Quarterly Operating Income of $19.0 Million
Record Quarterly Adjusted OIBDA of $30.0 Million
WOODLAND HILLS, Calif., Feb. 9, 2005 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet subscription services, today reported results for its fourth quarter and fiscal year ended December 31, 2004. On November 17, 2004, the company acquired Classmates Online, Inc. ("Classmates"), a leader in online community-based networking. The results of the Classmates business are included in the company's financial results from the date of acquisition.
Summary of December 2004 Quarter Results:
-- Total revenues for the quarter were a record $119.6 million,
up 23% versus $96.9 million for the year-ago quarter.
-- Operating income for the quarter was $19.0 million, or 15.9%
of revenues, up 1% versus operating income of $18.9 million,
or 19.5% of revenues, in the year-ago quarter.
-- Adjusted operating income before depreciation and amortization
(or "OIBDA")(1) for the quarter was a record $30.0 million, or
25.1% of revenues, an increase of 23% versus adjusted OIBDA of
$24.4 million, or 25.2% of revenues, in the year-ago quarter.
-- Pay accounts(2) increased by 1.59 million during the quarter
to 4.8 million; subscriptions(3) increased by 1.64 million to
6.0 million; active accounts(2) totaled 15.2 million at
December 31, 2004. This data includes Classmates, which at
closing had 1.45 million pay accounts (and subscriptions),
and 8.7 million active accounts.
-- Net income for the quarter was $80.2 million, or $1.26 per
share, versus $24.4 million, or $0.35 per share, for the year-
ago quarter. These results included a tax benefit of $68.6
million, or $1.07 per share in the quarter and $12.3 million,
or $0.18 per share, in the prior-year quarter related to the
recognition of a portion of the company's deferred tax
assets(4). Excluding these benefits, net income for the
quarter was $11.6 million, or $0.18 per share, versus $12.1
million, or $0.18 per share, for the year-ago quarter.
-- Excluding the aforementioned tax benefits, adjusted net
income(5) for the quarter was $16.6 million, or $0.26 per
share, an increase of 15% versus adjusted net income of
$14.5 million, or $0.21 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 $31.7 million for the quarter,
up 9% from $29.0 million for the year-ago quarter.
-- Free cash flow(6) for the quarter was $30.6 million, versus
$25.5 million for the year-ago quarter.
Summary of Financial Results for the Year Ended December 31, 2004:
-- Total revenues for 2004 were a record $448.6 million, up 32%
versus $339.2 million for the prior year.
-- Operating income for 2004 was a record $79.5 million, up 61%
versus $49.5 million for the prior year.
-- Adjusted OIBDA(1) for 2004 was a record $113.6 million, or
25.3% of revenues, an increase of 55% versus adjusted OIBDA
of $73.5 million, or 21.7% of revenues, for 2003.
-- Net income for 2004 was $117.5 million, or $1.79 per share,
versus net income of $54.9 million, or $0.80 per share, for
the prior year. These results included tax benefits of
$68.6 million, or $1.05 per share, in 2004 and $16.6 million,
or $0.24 per share, in 2003.(4) Excluding these tax benefits,
net income for 2004 was $48.9 million, or $0.74 per share,
versus $38.3 million, or $0.56 per share, for the prior year.
-- Excluding the aforementioned tax benefits, adjusted net
income(5) for 2004, was a record $65.4 million, or $1.00 per
share, an increase of 28% versus adjusted net income of $51.1
million, or $0.74 per share, for 2003. Adjusted net income is
calculated in a manner consistent with the analyst consensus
estimate as reported by First Call.
-- The year-to-year comparability of net income and adjusted net
income, excluding the aforementioned tax benefits, was
impacted by an effective tax rate of approximately 40% in
2004 versus approximately 30% in 2003.(4)
-- Cash flows from operations were a record $124.0 million for
2004, a 49% increase versus $83.5 million for the prior year.
-- Free cash flow(6) for 2004 was a record $117.9 million, up 53%
versus $77.0 million for 2003.
"Our fourth-quarter 2004 financial results were very strong, helping us deliver a third consecutive year of record profitability for United Online," said Mark R. Goldston, chairman, CEO and president of United Online. "We are extremely proud of these results and the efforts of the 742 United Online employees who worked so hard to help deliver them. Our acquisition of Classmates and new product introductions helped further our strategy of diversifying beyond Internet access and nearly tripled our reach to more than 15 million active accounts. We intend to continue to make long-term investments in new products and services while maintaining our focus and discipline on financial results."
"The strength of United Online's business model is demonstrated by our impressive growth in free cash flow, which increased over 50% in 2004 to $118 million," said Charles S. Hilliard, executive vice president and CFO of United Online. "This performance enabled us to make strategic investments in 2004 that helped drive our diversification strategy and strong fourth-quarter results. While our NetZero branded access experienced growth in the fourth quarter, declines in our other access brands led to a net decrease of 11,000 pay access accounts. Throughout 2004, the vast majority of our marketing spend was devoted to our growing NetZero brand."
Additional Highlights:
-- Billable services margin(7) was a record 78.7% for the
December 2004 quarter, up from 73.5% for the year-ago
quarter.
-- Annualized revenue per average employee(8) was $714,000 for
the December 2004 quarter, versus $787,000 for the December
2003 quarter.
-- Cash balances at December 31, 2004 were $232.8 million,
including cash, cash equivalents and short-term investments.
On December 14, 2004, the company borrowed $100 million
under a senior secured term loan facility priced at LIBOR
plus 300 basis points, excluding fees and expenses.
-- The company repurchased 5.6 million shares of its common stock
in 2004 at an aggregate cost of $74.5 million. This included
37,754 shares repurchased in a modified Dutch auction tender
offer completed on December 13, 2004. Under a Board-approved
program, the company can repurchase up to an additional $75
million of its common stock through May 31, 2005.
-- In November 2004, the company acquired Classmates, a leader in
online community-based networking (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).
-- In April 2004, the company acquired the consumer Web-hosting
business of About, Inc., a wholly owned subsidiary of PRIMEDIA
Inc. (NYSE:PRM). It offers consumers a variety of affordable
personal Web-site services, including hosting, domain and email
services.
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 March 2005 quarter and the year ending December 31, 2005. The stock-based charges and weighted average diluted shares outlook for both periods presented exclude the impact of issuing additional employee equity awards and the adoption of Financial Accounting Standards Board ("FASB") Statement 123R Share Based Payments which will be effective July 1, 2005:
-------------- --------------
(in millions) Mar'05 Q Est. CY 2005 Est.
-------------- --------------
Operating income $19.7 -- $20.7 $84.1 -- $91.1
Depreciation 3.7 16.7
Amortization 5.6 19.9
Stock-based charges 1.0 3.3
-------------- --------------
Adjusted operating
income before
depreciation and
amortization(1) $30.0 -- $31.0 $124.0 -- $131.0
============== ==============
Weighted average
diluted shares 64.5 -- 65.0 65.0 -- 66.0
-- Total revenues for the March 2005 quarter are estimated to be
between $126 million and $129 million.
-- The company estimates that total pay accounts will increase to
between 4.85 million and 4.95 million by March 31, 2005.
(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, and restructuring and merger-related charges. 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) 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, community-based 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. 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) The company has future tax benefits, or deferred tax assets, associated with historical net operating losses that, because they were reserved by a valuation allowance, were not previously reported in full on its balance sheet. In the June 2003, December 2003 and December 2004 quarters, the company released portions of the valuation allowance, which resulted in (i) the recognition of net deferred tax assets on its balance sheet, (ii) the recording of a tax benefit on its income statement in each of these quarters (and for fiscal years 2003 and 2004), (iii) an increase in its effective tax rate beginning in the September 2003 quarter, and (iv) an adjustment to goodwill and intangible assets reflecting the recognition of deferred tax assets associated with Juno Online Services prior to the merger with NetZero, Inc. As of December 31, 2004, the company has released substantially all of the valuation allowance. Neither the tax benefit from the release nor the increase in the effective tax rate have impacted, or will impact, the amount of cash paid for income taxes.
(5) Adjusted net income is defined as net income before the after-tax effect of amortization of intangible assets, stock-based compensation, facility exit costs, merger-related charges and the tax benefit related to the recognition of the company's deferred tax assets. 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.
(6) Free cash flow is defined as net cash provided by operating activities before cash paid for relocation costs and restructuring and merger-related 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.
(7) Billable services margin represents billable services revenues less cost of billable services divided by billable services revenues.
(8) 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, Juno and Classmates. The company's pay services include Internet access, accelerated dial-up services, premium email, personal Web-hosting and domain services and community-based networking. It also offers consumers free Internet access, email and Web hosting. The company's access services are available in more than 8,200 cities across the United States and in Canada. At December 31, 2004, United Online had 742 employees worldwide. United Online is headquartered in Woodland Hills, CA, with offices in New York, NY, Renton, WA, San Francisco, CA, Orem, UT, 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.
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; growth in pay accounts; weighted average diluted shares; depreciation and amortization; 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: 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; 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 maintain its agreements with telecommunications providers on attractive terms; the company's ability to successfully 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.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
December 31, 2004 December 31, 2003
----------------- -----------------
ASSETS
Cash, cash equivalents
and short-term
investments $232,793 $203,723
Accounts receivable,
net 17,534 14,065
Deferred tax assets,
net 76,203 26,373
Property and
equipment, net 27,006 13,428
Goodwill and
intangible assets,
net 147,016 40,268
Other assets 19,300 10,022
-------- --------
Total assets $519,852 $307,879
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 45,379 $ 31,388
Accrued liabilities 18,320 14,028
Deferred revenue 50,954 24,639
Capital leases 1,319 --
Term loan 100,000 --
Other liabilities 2,181 --
------- -------
Total liabilities 218,153 70,055
------- -------
Stockholders' equity 301,699 237,824
-------- --------
Total liabilities and
stockholders' equity $519,852 $307,879
======== ========
UNITED ONLINE, INC.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
---------------------- ----------------------
Three Months Ended Years Ended
December 31, December 31,
---------------------- ----------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Revenues:
Billable
services $ 108,530 $ 87,993 $ 410,821 $ 306,086
Advertising and
commerce 11,090 8,955 37,796 33,079
--------- --------- --------- ---------
Total revenues 119,620 96,948 448,617 339,165
Operating
expenses:
Cost of
billable
services 23,096 23,285 94,983 92,781
Cost of free
services 2,474 1,869 7,393 9,659
Sales and
marketing 47,962 36,587 178,905 120,611
Product
development 7,966 5,368 27,422 21,879
General and
administrative 10,918 7,014 37,569 29,059
Stock-based
compensation (1) 517 -- 2,449 42
Amortization of
intangible
assets 7,651 3,964 20,403 15,856
Restructuring
charges -- -- -- (215)
--------- --------- --------- ---------
Total operating
expenses 100,584 78,087 369,124 289,672
--------- --------- --------- ---------
Operating income 19,036 18,861 79,493 49,493
Interest and
other income,
net 646 1,224 3,936 4,636
--------- --------- --------- ---------
Income before
income taxes 19,682 20,085 83,429 54,129
Benefit for
income taxes (60,507) (4,340) (34,051) (754)
--------- --------- --------- ---------
Net income $ 80,189 $ 24,425 $ 117,480 $ 54,883
========= ========= ========= =========
Basic net income
per share $ 1.33 $ 0.38 $ 1.91 $ 0.87
========= ========= ========= =========
Diluted net income
per share $ 1.26 $ 0.35 $ 1.79 $ 0.80
========= ========= ========= =========
Shares used to
calculate basic
net income per
share 60,307 64,166 61,404 63,369
========= ========= ========= =========
Shares used to
calculate diluted
net income per
share 63,870 68,878 65,598 68,752
========= ========= ========= =========
Shares outstanding
at end of period 61,074 63,944 61,074 63,944
========= ========= ========= =========
(1) Stock-based
compensation is
allocated as
follows:
Cost of billable
services $ 16 $ -- $ 16 $ 4
Sales and
marketing (255) -- 76 8
Product
development 32 -- 32 2
General and
administrative 724 -- 2,325 28
--------- --------- --------- ---------
Total stock-based
compensation $ 517 $ -- $ 2,449 $ 42
========= ========= ========= =========
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statement of Cash Flows
(in thousands)
-------------------- --------------------
Three Months Ended Years Ended
December 31, December 31,
-------------------- --------------------
2004 2003 2004 2003
--------- --------- --------- ---------
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income: $ 80,189 $ 24,425 $ 117,480 $ 54,883
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation,
amortization and
stock-based
compensation 10,936 5,545 31,600 23,809
Deferred taxes,
tax benefits and
other (58,931) (4,396) (35,317) (446)
Change in
operating assets
and liabilities
(excluding the
effects of
acquisitions):
Accounts
receivable (723) (1,310) 220 (2,753)
Other assets (674) 398 (4,122) (2,897)
Accounts payable
and accrued
liabilities 1,272 3,945 11,356 6,386
Other
liabilities 706 -- 1,895 --
Deferred revenue (1,034) 382 848 4,482
--------- --------- --------- ---------
Net cash
provided by
operating
activities 31,741 28,989 123,960 83,464
--------- --------- --------- ---------
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Purchases of
short-term
investments (37,441) (44,308) (122,152) (93,687)
Proceeds from
maturities and
sales of
short-term
investments 74,059 46,947 149,737 55,602
Purchases of
rights, patents
and trademarks (10) -- (926) --
Proceeds from the
sale of
cost-basis
investment -- -- -- 750
Cash paid for
acquistions, net
of cash acquired (98,168) -- (110,102) --
Purchases of
property and
equipment (1,312) (3,482) (12,510) (8,425)
Proceeds from
sales of assets,
net -- -- 92 --
--------- --------- --------- ---------
Net cash used for
investing
activities (62,872) (843) (95,861) (45,760)
--------- --------- --------- ---------
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Payments on
capital leases (166) (12) (166) (696)
Repayments of
notes receivable
from stockholders -- -- -- 1,597
Proceeds from
term loan and
line of credit, net 107,569 -- 107,569 --
Payments on line
of credit (10,300) -- (10,300) --
Proceeds from
employee stock
purchase plan 1,409 1,679 3,045 2,698
Repurchases of
common stock (792) (40,002) (74,509) (45,614)
Proceeds from
exercises of stock
options 992 951 6,015 12,244
--------- --------- --------- ---------
Net cash provided
by (used for)
financing
activities 98,712 (37,384) 31,654 (29,771)
--------- --------- --------- ---------
Change in cash and
cash equivalents 67,581 (9,238) 59,753 7,933
Cash and cash
equivalents,
beginning of period 63,406 80,472 71,234 63,301
--------- --------- --------- ---------
Cash and cash
equivalents, end of
period $ 130,987 $ 71,234 $ 130,987 $ 71,234
========= ========= ========= =========
UNITED ONLINE, INC.
Reconciliation of Net Income to Adjusted Net Income (5)
(in thousands, except per-share data)
---------------------------- ----------------------------
Three Months Ended Three Months Ended
December 31, 2004 December 31, 2003
---------------------------- ----------------------------
Adjust- Adjust-
Reported ments Adjusted Reported ments Adjusted
-------- -------- -------- -------- -------- --------
Revenues:
Billable
services $108,530 $ -- $108,530 $ 87,993 $ -- $ 87,993
Advertising
and
commerce 11,090 -- 11,090 8,955 -- 8,955
-------- -------- -------- -------- -------- --------
Total
revenues 119,620 -- 119,620 96,948 -- 96,948
Operating
expenses:
Cost of
billable
services 23,096 -- 23,096 23,285 -- 23,285
Cost of
free
services 2,474 -- 2,474 1,869 -- 1,869
Sales and
marketing 47,962 -- 47,962 36,587 -- 36,587
Product
develop-
ment 7,966 -- 7,966 5,368 -- 5,368
General
and
admin-
istrative 10,918 (10)(a) 10,908 7,014 -- 7,014
Stock-
based
compen-
sation 517 (517)(b) -- -- -- --
Amortiza-
tion
of
intangible
assets 7,651 (7,651)(c) -- 3,964 (3,964)(c) --
-------- -------- -------- -------- -------- --------
Total
operating
expenses 100,584 (8,178) 92,406 78,087 (3,964) 74,123
-------- -------- -------- -------- -------- --------
Operating
income 19,036 8,178 27,214 18,861 3,964 22,825
Interest
and
other
income,
net 646 -- 646 1,224 -- 1,224
-------- -------- -------- -------- -------- --------
Income
before
income
taxes 19,682 8,178 27,860 20,085 3,964 24,049
Provision
for
income
taxes (60,507) 71,722(d) 11,215 (4,340) 13,883(d) 9,543
-------- -------- -------- -------- -------- --------
Net income $ 80,189 $(63,544) $ 16,645 $ 24,425 $ (9,919) $14,506
======== ======== ======== ======== ======== ========
Basic net
income
per share $ 1.33 $ 0.28 $ 0.38 $ 0.23
======== ======== ======== ========
Diluted net
income per
share $ 1.26 $ 0.26 $ 0.35 $ 0.21
======== ======== ======== ========
Shares used
to
calculate
basic net
income per
share 60,307 60,307 64,166 64,166
======== ======== ======== ========
Shares used
to
calculate
diluted net
income per
share 63,870 63,870 68,878 68,878
======== ======== ======== ========
Shares
outstanding
at end of
period 61,074 61,074 63,944 63,944
======== ======== ======== ========
--------------------------------------------------------------------
(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) Elimination of benefit recognized for deferred tax assets and
income tax effect of adjusting entries.
UNITED ONLINE, INC.
Reconciliation of Net Income to Adjusted Net Income (5)
(in thousands, except per-share data)
--------------------------- ----------------------------
Year Ended Year Ended
December 31, 2004 December 31, 2003
--------------------------- ----------------------------
Adjust- Adjust-
Reported ments Adjusted Reported ments Adjusted
-------- -------- -------- -------- -------- --------
Revenues:
Billable
services $410,821 $ -- $410,821 $306,086 $ -- $306,086
Advertising
and
commerce 37,796 -- 37,796 33,079 -- 33,079
-------- -------- -------- -------- -------- --------
Total
revenues 448,617 -- 448,617 339,165 -- 339,165
Operating
expenses:
Cost of
billable
services 94,983 -- 94,983 92,781 (37)(d) 92,744
Cost of
free
services 7,393 -- 7,393 9,659 -- 9,659
Sales and
marketing 178,905 -- 178,905 120,611 (26)(d)120,585
Product
development 27,422 -- 27,422 21,879 (265)(d) 21,614
General and
admin-
istrative 37,569 (3,257)(a)34,312 29,059 (106)(d) 28,953
Stock-based
compen-
sation 2,449 (2,449)(b) -- 42 (42)(b) --
Amortization
of
intangible
assets 20,403 (20,403)(c) -- 15,856 (15,856)(c) --
Restructuring
charges -- -- -- (215) 215 --
-------- -------- -------- -------- -------- --------
Total
operating
expenses 369,124 (26,109) 343,015 289,672 (16,117) 273,555
-------- -------- -------- -------- -------- --------
Operating
income 79,493 26,109 105,602 49,493 16,117 65,610
Interest
and other
income,
net 3,936 -- 3,936 4,636 -- 4,636
-------- -------- -------- -------- -------- --------
Income
before
income
taxes 83,429 26,109 109,538 54,129 16,117 70,246
Provision
for income
taxes (34,051) 78,230(e) 44,179 (754) 19,944(e) 19,190
-------- -------- -------- -------- -------- --------
Net income $117,480 $(52,121) $ 65,359 $ 54,883 $ (3,827) $ 51,056
======== ======== ======== ======== ======== ========
Basic net
income per
share $ 1.91 $ 1.06 $ 0.87 $ 0.81
======== ======== ======== ========
Diluted net
income per
share $ 1.79 $ 1.00 $ 0.80 $ 0.74
======== ======== ======== ========
Shares used
to calculate
basic net
income per
share 61,404 61,404 63,369 63,369
======== ======== ======== ========
Shares used
to
calculate
diluted
net income
per share 65,598 65,598 68,752 68,752
======== ======== ======== ========
Shares
outstanding
at end of
period 61,074 61,074 63,944 63,944
======== ======== ======== ========
---------------------------------------------------------------------
(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) Elimination of merger-related charges.
(e) Elimination of benefit recognized for deferred tax assets and
income tax effect of adjusting entries.
UNITED ONLINE, INC.
Reconciliation of Non-GAAP Financial Data
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Adjusted Operating
Income Before
Depreciation and
Amortization (1)
Operating income $ 19,036 $ 18,861 $ 79,493 $ 49,493
Depreciation 2,768 1,581 8,003 7,911
Amortization 7,651 3,964 20,403 15,856
-------- -------- -------- --------
Operating income
before
depreciation and
amortization 29,455 24,406 107,899 73,260
-------- -------- -------- --------
Stock-based
compensation 517 -- 2,449 42
Restructuring
and merger-
related
charges (a) -- -- -- 219
Facility-exit
costs (b) 10 -- 3,257 --
-------- -------- -------- --------
Adjusted operating
income before
depreciation and
amortization $ 29,982 $ 24,406 $113,605 $ 73,521
======== ======== ======== ========
Three Months Ended Year Ended
December 31, December 31,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Free Cash Flow (6)
Net cash provided
by operating
activities $ 31,741 $ 28,989 $123,960 $ 83,464
Add (deduct):
Capital
expenditures (1,312) (3,482) (12,510) (8,425)
Cash paid for
restructuring
and merger-
related
charges (a) -- -- -- 1,915
Cash paid for
relocation
costs (c) 200 -- 6,410 --
-------- -------- -------- --------
Free cash flow $ 30,629 $ 25,507 $117,860 $ 76,954
======== ======== ======== ========
---------------------------------------------------------------------
(a) Represents restructuring and merger-related costs incurred in
connection with the merger of Juno and NetZero and the acquisition
of certain assets of BlueLight.com. These costs are primarily
attributable to stay bonuses, contract termination fees, write-off
of leasehold improvements and employee severance payments.
(b) 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.
(c) 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)
Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31,
2004 2004 2004 2004 2003
--------- --------- --------- --------- ---------
Total revenues $119,620 $110,704 $110,618 $107,675 $ 96,948
Net income $ 80,189 $ 12,620 $ 12,310 $ 12,361 $ 24,425
Net income per
diluted share $ 1.26 $ 0.19 $ 0.19 $ 0.18 $ 0.35
Pay accounts (2) 4,826 3,232 3,189 3,095 2,892
Active accounts
(2) (in millions) 15.2 6.6 6.8 5.4 5.3
Number of
employees at end
of period 742 598 582 504 499
Annualized revenue
per average
employee (8) $ 714 $ 751 $ 815 $ 859 $ 787
(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 Pay Accounts (a) and Subscriptions
(in thousands)
Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31,
2004 2004 2004 2004 2003
--------- --------- --------- --------- ---------
Internet access 3,100 3,111 3,102 3,083 2,890
Other Web services 2,886 1,239 1,125 924 645
--------- --------- --------- --------- ---------
Total
subscriptions (b) 5,986 4,350 4,227 4,007 3,535
========= ========= ========= ========= =========
Total pay
accounts (c) 4,826 3,232 3,189 3,095 2,892
Accelerator
penetration (d) 36% 35% 32% 29% 22%
-------------------------------------------------------------------
(a) 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 accounts.
(b) 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. Individual pay services include Internet
access, community-based networking, accelerator services, premium
email, Web-hosting and domain name registration, and premium content
subscriptions.
(c) Total pay accounts include Internet access, community-based
networking, premium email, Web-hosting and domain name registration,
and premium content accounts.
(d) Defined as accelerator subscriptions divided by Internet access
subscriptions.