Record Revenues of $131.5 Million Operating Income of $20.9 Million Record Adjusted OIBDA of $33.2 Million Quarterly Cash Dividend of $0.20 per Share
WOODLAND HILLS, Calif., Aug. 2, 2005 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet subscription services, today reported results for its second quarter ended June 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 August 31, 2005 to shareholders of record as of the close of business on August 12, 2005.
Summary of June 2005 Quarter Results: -- Total revenues for the quarter were a record $131.5 million, up 19% versus $110.6 million for the year-ago quarter. -- Operating income for the quarter was $20.9 million, or 15.9% of revenues, up 4% versus operating income of $20.0 million, or 18.1% of revenues, in the year-ago quarter. -- Adjusted operating income before depreciation and amortization ("OIBDA")(1) for the quarter was a record $33.2 million, or 25.3% of revenues, an increase of 17% versus adjusted OIBDA of $28.4 million, or 25.7% of revenues, in the year-ago quarter. -- Pay accounts(2) increased by 81,000 during the quarter to 5.03 million; subscriptions(3) increased by 138,000 to 6.3 million; active accounts(2) totaled 16.9 million at June 30, 2005. In April 2005, the company completed the transition period associated with its March 2005 PhotoSite acquisition, which upon completion had approximately 6,000 pay accounts (and subscriptions), and active accounts of approximately 87,000. -- Net income for the quarter was $10.7 million, or $0.17 per share, versus $12.3 million, or $0.19 per share, for the year-ago quarter. Net income for the quarter includes a tax charge of $1.0 million related to the re-measurement of certain deferred tax assets due to a change in the tax law. Excluding this charge, net income for the quarter was $11.7 million, or $0.19 per share. -- Adjusted net income(4) for the quarter was $17.7 million, an increase of 7% versus adjusted net income of $16.6 million for the year-ago quarter. On a per share basis, adjusted net income for the quarter was $0.27 per share, an increase of 8% versus adjusted net income of $0.25 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 $40.7 million for the quarter, an increase of 43% versus $28.5 million for the year-ago quarter. -- Free cash flow(5) for the quarter was a record $35.7 million, an increase of 38% versus $25.9 million for the year-ago quarter.
"Our strong second quarter performance, which resulted in our 16th consecutive quarter of record revenues, was driven by United Online's growing interactive content business, particularly our Classmates social networking service," said Mark R. Goldston, chairman, CEO and president of United Online. "Q2 marked the first time that 100% of our quarterly revenue growth was generated by non-access businesses -- a testament to our diversification strategy and focused execution. As we continue to manage the growing diversity and evolution of our business, we look forward to a second half of 2005 with the anticipated launch of our VoIP service in the fourth quarter."
"Beyond growing revenues, pay accounts and the relative percentage of these metrics represented by non-access in the second quarter, United Online again delivered record adjusted OIBDA and free cash flow," said Charles S. Hilliard, executive vice president and CFO of United Online. "Our large consumer audience, combined with the increasing diversity of our subscription and advertising revenues, enabled United Online to deliver these solid results during a quarter where we invested a record amount in new product development. While pay access accounts declined by a net 52,000, the flagship NetZero brand continued to grow its pay account base to record levels."
Additional Highlights: -- Billable services margin(6) was a record 79.4% for the June 2005 quarter, up from 77.3% for the year-ago quarter. -- Cash balances at June 30, 2005 were $223.8 million, including cash, cash equivalents and short-term investments. During the quarter, the company repaid $5.8 million of its senior term loan facility, bringing the balance of the facility to $63.3 million at June 30, 2005. -- In June 2005, United Online released NetZero HiSpeed 3G, the fastest dial-up Internet access service available on the market.
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 September 2005 quarter and the year ending December 31, 2005:
--------------- --------------- --------------- (in millions) Sept'05 Q Est. CY'05 Est. Prior CY'05 Est. --------------- --------------- --------------- Operating income $20.8 - $21.8 $83.6 - $86.6 $80.2 - $85.2 Depreciation 4.0 15.4 15.0 Amortization 5.3 21.9 22.2 Stock-based charges 2.9 10.1 9.6 ------------- --------------- --------------- Adjusted operating income before depreciation and amortization(1) $33.0 - $34.0 $131.0 - $134.0 $127.0 - $132.0 ------------- --------------- --------------- Weighted average diluted shares 64.5 - 65.0 65.0 - 66.0 65.0 - 66.0 -- Total revenues for the September 2005 quarter are estimated to be between $131 million and $133 million. -- The company estimates that total pay accounts will be between 5.03 million and 5.08 million by September 30, 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 do not impact the company's cash flows, 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, social networking 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, facility-exit costs and the re-measurement of certain 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 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.
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, domain services, photo sharing services and social networking. At June 30, 2005, United Online had 828 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, Jarfalla, Sweden, and Hyderabad, India. For more information about United Online and its Internet 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; 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; 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, or develop, implement or commercialize new or enhanced services, including our proposed VoIP service; 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) June 30, 2005 Dec. 31, 2004 ------------- ------------- (unaudited) ASSETS Cash, cash equivalents and short-term investments $223,828 $232,793 Accounts receivable, net 18,763 17,534 Deferred tax assets, net 72,257 76,203 Property and equipment, net 28,115 27,006 Goodwill and intangible assets, net 151,277 147,016 Other assets 16,580 19,300 -------- -------- Total assets $510,820 $519,852 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 47,109 $ 45,379 Accrued liabilities 27,457 18,320 Deferred revenue 57,564 50,954 Capital leases 879 1,319 Term loan 63,334 100,000 Other liabilities 3,913 2,181 -------- -------- Total liabilities 200,256 218,153 -------- -------- Stockholders' equity 310,564 301,699 -------- -------- Total liabilities and stockholders' equity $510,820 $519,852 ======== ======== UNITED ONLINE, INC. Unaudited Consolidated Statements of Operations (in thousands, except per share amounts) --------------------------- Three Months Ended June 30, --------------------------- 2005 2004 --------- --------- Revenues: Billable services $ 117,490 $ 102,496 Advertising and commerce 14,030 8,122 --------- --------- Total revenues 131,520 110,618 Operating expenses: Cost of billable services 24,190 23,294 Cost of free services 3,172 1,589 Sales and marketing 53,579 44,738 Product development 9,208 6,286 General and administrative 11,938 9,568 Stock-based compensation (1) 2,920 739 Amortization of intangible assets 5,654 4,393 --------- --------- Total operating expenses 110,661 90,607 --------- --------- Operating income 20,859 20,011 Interest and other income, net 1,592 1,367 Interest expense (1,355) (342) --------- --------- Income before income taxes 21,096 21,036 Provision for income taxes 10,424 8,726 --------- --------- Net income $ 10,672 $ 12,310 ========= ========= Basic net income per share $ 0.18 $ 0.20 ========= ========= Diluted net income per share $ 0.17 $ 0.19 ========= ========= Shares used to calculate basic net income per share 60,831 61,669 ========= ========= Shares used to calculate diluted net income per share 63,093 66,238 ========= ========= Shares outstanding at end of period 61,760 62,764 ========= ========= (1) Stock-based compensation is allocated as follows: Cost of billable services $ 57 $ -- Sales and marketing 224 124 Product development 350 -- General and administrative 2,289 615 --------- --------- Total stock-based compensation $ 2,920 $ 739 ========= ========= UNITED ONLINE, INC. Unaudited Condensed Consolidated Statement of Cash Flows (in thousands) --------------------- Three Months Ended June 30, --------------------- 2005 2004 -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income: $ 10,672 $ 12,310 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and stock-based compensation 12,358 7,259 Deferred taxes, tax benefits and other 5,716 8,317 Change in operating assets and liabilities (excluding the effects of acquisitions): Accounts receivable (1,526) (1,566) Other assets (1,031) (6,373) Accounts payable and accrued liabilities 11,750 9,289 Other liabilities 907 -- Deferred revenue 1,880 (761) -------- --------- Net cash provided by operating activities 40,726 28,475 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (94,120) (101,021) Proceeds from maturities and sales of short-term investments 69,475 76,764 Purchases of rights, patents and trademarks (54) (901) Cash paid for acquisitions (98) (11,917) Purchases of property and equipment (5,018) (3,849) -------- --------- Net cash used for investing activities (29,815) (40,924) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on capital leases (152) -- Payments on term loan (5,833) -- Payment for dividends (12,590) -- Proceeds from employee stock purchase plan 1,678 1,636 Proceeds from exercises of stock options 2,024 2,986 -------- --------- Net cash provided by(used for) financing activities (14,873) 4,622 -------- --------- Effect of exchange rate changes on cash and cash equivalents (75) -- Change in cash and cash equivalents (4,037) (7,827) Cash and cash equivalents, beginning of period 44,722 12,823 -------- --------- Cash and cash equivalents, end of period $ 40,685 $ 4,996 ======== ========= UNITED ONLINE, INC. Reconciliation of Net Income to Adjusted Net Income (4) (in thousands, except per-share data) Three Months Ended Three Months Ended June 30, 2005 June 30, 2004 --------------------------- -------------------------- Reported Adjust- Adjusted Reported Adjust- Adjusted ments ments -------- --------- -------- -------- -------- -------- Revenues: Billable services $117,490 $ -- $117,490 $102,496 $ -- $102,496 Advertising and commerce 14,030 -- 14,030 8,122 -- 8,122 -------- --------- -------- -------- -------- -------- Total revenues 131,520 -- 131,520 110,618 -- 110,618 Operating expenses: Cost of billable services 24,190 -- 24,190 23,294 -- 23,294 Cost of free services 3,172 -- 3,172 1,589 -- 1,589 Sales and marketing 53,579 -- 53,579 44,738 -- 44,738 Product development 9,208 -- 9,208 6,286 -- 6,286 General and admini- strative 11,938 -- 11,938 9,568 (1,601)(a) 7,967 Stock- based compensation 2,920 (2,920)(b) -- 739 (739)(b) -- Amortization of intangible assets 5,654 (5,654)(c) -- 4,393 (4,393)(c) -- -------- --------- -------- -------- -------- -------- Total operating expenses 110,661 (8,574) 102,087 90,607 (6,733) 83,874 -------- --------- -------- -------- -------- -------- Operating income 20,859 8,574 29,433 20,011 6,733 26,744 Interest and other income, net 1,592 -- 1,592 1,367 -- 1,367 Interest expense (1,355) -- (1,355) (342) -- (342) -------- --------- -------- -------- -------- -------- Income before income taxes 21,096 8,574 29,670 21,036 6,733 27,769 Provision for income taxes 10,424 1,538(d) 11,962 8,726 2,440(d) 11,166 -------- --------- -------- -------- -------- -------- Net income $ 10,672 $ 7,036 $ 17,708 $ 12,310 $ 4,293 $ 16,603 ======== ========= ======== ======== ======== ======== Basic net income per share $ 0.18 $ 0.29 $ 0.20 $ 0.27 ======== ======== ======== ======== Diluted net income per share $ 0.17 $ 0.27 $ 0.19 $ 0.25 ======== ======== ======== ======== Shares used to calculate basic net income per share 60,831 60,831 61,669 61,669 ======== ======== ======== ======== Shares used to calculate diluted net income per share 63,093 64,899(e) 66,238 66,238(e) ======== ======== ======== ======== Shares outstanding at end of period 61,760 61,760 62,764 62,764 ======== ======== ======== ======== (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 and re-measurement of certain deferred tax assets. (e) 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 June 30, -------------------- 2005 2004 ------- ------- Adjusted Operating Income Before Depreciation and Amortization (1) Operating income $20,859 $20,011 Depreciation 3,784 1,680 Amortization 5,654 4,393 ------- ------- Operating income before depreciation and amortization 30,297 26,084 Stock-based compensation 2,920 739 Facility-exit costs (a) -- 1,601 ------- ------- Adjusted operating income before depreciation and amortization $33,217 $28,424 ======= ======= Twelve Months Three Months Ended Ended June 30, June 30, -------------------- -------- 2005 2004 2005 -------- -------- -------- Free Cash Flow (5) Net cash provided by operating activities $ 40,726 $ 28,475 $133,111 Add (deduct): Capital expenditures (5,018) (3,849) (16,129) Cash paid for relocation costs (b) -- 1,315 5,095 -------- -------- -------- Free cash flow $ 35,708 $ 25,941 $122,077 ======== ======== ======== --------------------------------------------------------------------- (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) Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 2005 2005 2004 2004 2004 -------- -------- -------- -------- -------- Total revenues $131,520 $130,531 $119,620 $110,704 $110,618 Net income $ 10,672 $ 11,487 $ 80,189(b) $ 12,620 $ 12,310 Net income per diluted share $ 0.17 $ 0.18 $ 1.27 $ 0.19 $ 0.19 Pay accounts(2) 5,033 4,952 4,826 3,232 3,189 Active accounts(2) (in millions) 16.9 17.0 15.2 6.6 6.8 Number of employees at end of period 828 769 742 598 582 --------------------------------------------------------------------- (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) Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 2005 2005 2004 2004 2004 --------- --------- --------- ---------- --------- Internet access 3,078 3,130 3,100 3,111 3,102 Non-access services(a) 1,955 1,822 1,726 121 87 --------- --------- --------- ---------- --------- Total pay accounts(2) 5,033 4,952 4,826 3,232 3,189 ========= ========= ========= ========== ========= Internet access 3,078 3,130 3,100 3,111 3,102 Accelerator 1,196 1,170 1,105 1,074 1,001 Non-access services(a) 2,064 1,900 1,781 165 124 --------- --------- --------- ---------- --------- Total subscrip- tions(3) 6,338 6,200 5,986 4,350 4,227 ========= ========= ========= ========== ========= --------------------------------------------------------------------- (a) Non-access services include social networking, premium email, Web-hosting and domain name registration, premium content and photo sharing.