-- Net Income Grows 7% Year-Over-Year -- Content & Media Pay Accounts Rise to 44% of All Pay Accounts
WOODLAND HILLS, Calif., Nov. 2, 2006 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet and media services, today reported financial results for its third quarter ended September 30, 2006.
"We are pleased to report stronger than anticipated adjusted OIBDA in the third quarter, due to ongoing improvements in the cost structure of our Communications segment, while revenues were in-line with our expectations," said Mark R. Goldston, chairman and chief executive officer of United Online. "Our diversification strategy resulted in Content & Media representing 44 percent of all pay accounts at quarter end, up from 35 percent a year ago."
Third-Quarter 2006 Consolidated Results:
-- Total revenues were $129.6 million, versus $132.8 million in the
year-ago quarter.
-- Operating income was $21.9 million, or 16.9% of revenues, versus
$22.6 million, or 17.0% of revenues, in the year-ago quarter.
-- Adjusted operating income before depreciation and amortization
(OIBDA)(1) increased 7% to $36.8 million, or 28.4% of revenues,
versus $34.4 million, or 25.9% of revenues, in the year-ago
quarter.
-- Pay accounts(2) decreased by 84,000 during the quarter to 4.9
million, and active accounts(2) totaled 20.8 million at September
30, 2006.
-- Net income increased 7% to $13.4 million (including $3.2 million of
stock-based compensation, net of tax, recorded under FAS 123R),
versus net income of $12.6 million (including $2.3 million of
stock-based compensation, net of tax, recorded under the intrinsic
value method). On a diluted per share basis, net income was $0.20
in the third quarter of 2006, versus $0.20 in the year-ago quarter.
-- Adjusted net income(3) was $19.7 million, an increase of 6% versus
$18.6 million for the year-ago quarter. On a diluted per share
basis, adjusted net income for the quarter was $0.29 per share, an
increase of 4%, versus $0.28 per share for the year-ago quarter.
Adjusted net income is calculated in a manner consistent with the
consensus estimate as reported by First Call.
"Our Communications segment delivered one of its best-ever adjusted OIBDA performances in the third quarter. The stable profitability of this segment has allowed United Online to diversify into Content & Media services while consistently delivering strong bottom line results," said Charles S. Hilliard, president and chief financial officer of United Online.
Third Quarter 2006 Segment Results:
Communications: Internet access, email and VoIP
-- Communications revenues were $92.2 million, or 71.1% of
consolidated revenues, versus $108.3 million, or 81.6% of
consolidated revenues, in the year-ago quarter.
-- Communications adjusted OIBDA(1) was $36.1 million, or 39.1% of
Communications revenues, versus $34.9 million, or 32.2% of
Communications revenues, in the year-ago quarter.
-- Communications pay accounts decreased by 138,000 during the quarter
to 2.7 million, or 55.9% of consolidated pay accounts.
Content & Media: Social networking, online loyalty marketing, Web hosting and photo sharing
-- Content & Media revenues grew 53% to $37.5 million, or 28.9% of
consolidated revenues, versus $24.4 million, or 18.4% of
consolidated revenues, in the year-ago quarter.
-- Content & Media adjusted OIBDA(1) was $5.0 million, or 13.3% of
Content & Media revenues, versus $4.3 million, or 17.7% of
Content & Media revenues, in the year-ago quarter.
-- Content & Media pay accounts increased by 54,000 during the quarter
to 2.2 million, or 44.1% of consolidated pay accounts.
Other:
-- Other reconciling items (unallocated corporate expenses) to arrive
at consolidated adjusted OIBDA were ($4.3) million, versus ($4.8)
million in the year-ago quarter.
Additional Highlights:
-- Cash balances at September 30, 2006 were $160.9 million, including
cash, cash equivalents, short-term investments and restricted cash.
-- Cash flows from operations were $25.7 million, versus $41.9 million
in the year-ago quarter. In connection with the adoption of FAS
123R, certain tax benefits from exercised stock options that were
previously reflected in the operating section of the company's
statement of cash flows are now presented in the financing section.
-- Free cash flow(4) was $24.6 million, versus $33.9 million in the
year-ago quarter.
Business Outlook:
The following forward-looking information includes certain projections made by management as of the date of this press 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.
Below is the company's guidance for the December 2006 quarter and the year ending December 31, 2006:
(in millions)
Q4 ending 12/31/06 New 2006 Est. Prior 2006 Est.
------------------ ------------- ---------------
Operating income $20.3 - $22.3 $85.0 - $87.0 $80.7 - $84.7
Depreciation 5.9 21.7 21.7
Amortization 3.8 17.0 17.0
Stock-based
compensation 4.6 19.7 21.1
Restructuring charges -- 0.6 1.5
------------------ --------------- ---------------
Adjusted operating
income before
depreciation and
amortization (1) $34.6 - $36.6 $144.0 - $146.0 $142.0 - $146.0
------------------ --------------- ---------------
Weighted average
diluted shares 67.5 - 68.5 67.0 - 68.0 67.0 - 68.0
-- Total revenues for the December 2006 quarter are estimated to be
between $128.0 million and $131.0 million.
(1) Adjusted operating income before depreciation and amortization
(adjusted OIBDA) is defined by the company as operating income
before depreciation, amortization, stock-based compensation and
restructuring charges. Management believes that because adjusted
OIBDA excludes (1) certain non-cash expenses (such as depreciation,
amortization and stock-based compensation); and (2) expenses that
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.
Management uses adjusted OIBDA to measure the company's performance
and previously monitored adjusted OIBDA to ensure compliance with
specific financial performance covenants under its term loan, which
was repaid in January 2006. 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 accounting principles generally
accepted in the United States of America (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-based 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.
In the company's financial statements and notes thereto to be
included in its Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006, "Communications adjusted OIBDA" and "Content &
Media adjusted OIBDA" are referred to as "segment income from
operations."
(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, VoIP, 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; the number
of free photo-sharing users that logged on to the service at least
once within the preceding 90 days; and the number of MyPoints
members who earned points or spent points within the preceding
90 days. A table entitled "Analysis of Pay Accounts" is presented
elsewhere in this release.
(3) Adjusted net income is defined by the company as net income before
the after-tax effect of amortization of intangible assets,
stock-based compensation and restructuring charges 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 (1) certain
non-cash expenses (such as amortization and stock-based
compensation) and (2) expenses that are not reflective of the
company's core operating results over time. Management also uses
adjusted net income for this purpose. Adjusted net income is not
determined in accordance with accounting principles generally
accepted in the United States of America (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.
(4) Free cash flow is defined by the company as net cash provided by
operating activities, less capital expenditures and including the
excess tax benefits from stock-based compensation and cash paid
for restructuring charges. Management believes that this measure of
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. 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 accounting principles generally
accepted in the United States of America (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 does not represent the
total increase or decrease in cash during the period. 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.
Conference Call
United Online will host a conference call today at 2:00 p.m. PST (5:00 p.m. EST) to discuss its quarterly results. A live Web cast of the call can be accessed through the Investors section of the company's Web site at www.unitedonline.com. A recording of the call will be available on the site for seven days.
About United Online
United Online, Inc. (Nasdaq:UNTD) is a leading provider of consumer Internet and media services. The company's Content & Media services include social networking (Classmates) and online loyalty marketing (MyPoints). Its Communications services include Internet access (NetZero, Juno), email and VoIP. United Online is headquartered in Woodland Hills, CA, with offices in New York, NY; Fort Lee, NJ; Renton, WA; San Francisco, CA; Schaumburg, IL; Orem, UT; Erlangen, Germany; and Hyderabad, India. For more information about United Online, please visit www.unitedonline.com.
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, as amended. 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. Any such forward-looking statements are not guarantees of future performance or results, and involve risks and uncertainties that may cause actual performance and results to 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 changes in marketing expenditures or shifts in marketing expenditures to support existing and new products and services; the effects of seasonality; changes in Internet usage; changes in the projected number of weighted average diluted shares due to the issuance of stock, restricted stock units 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; potential impairment of goodwill and intangibles; changes in usage by subscribers, additional telecommunications costs or other factors negatively impacting the company's cost of revenue; changes in active accounts; the company's inability to maintain, renew, or enter into new, agreements with telecommunications providers on attractive terms; the company's ability to successfully integrate acquisitions; problems associated with the company's billing systems; the company's inability to retain key customers and key personnel; technological problems or developments; risks associated with litigation; and 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)
September 30, December 31,
2006 2005
------------ ------------
ASSETS
Cash, cash equivalents and short-term
investments $154,697 $244,362
Restricted cash 6,250 --
Accounts receivable, net 26,264 19,201
Deferred tax assets, net 64,779 68,355
Property and equipment, net 36,860 33,093
Goodwill and intangible assets, net 200,019 139,837
Other assets 14,787 16,340
-------- --------
Total assets $503,656 $521,188
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 37,897 $ 46,955
Accrued liabilities 38,997 36,249
Member retention liability 18,789 --
Deferred revenue 57,528 56,284
Capital leases 454 698
Term loan -- 54,208
Other liabilities 3,595 4,379
-------- --------
Total liabilities 157,260 198,773
-------- --------
Stockholders' equity 346,396 322,415
-------- --------
Total liabilities and stockholders'
equity $503,656 $521,188
======== ========
UNITED ONLINE, INC.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
--------------------------------
Three Months Ended September 30,
--------------------------------
2006 2005
-------- --------
Revenues $129,636 $132,778
Operating expenses:
Cost of revenues(a) 29,046 27,233
Sales and marketing(a) 43,487 52,767
Product development(a) 13,501 10,116
General and administrative(a) 17,504 14,776
Amortization of intangible assets 4,213 5,252
-------- --------
Total operating expenses 107,751 110,144
-------- --------
Operating income 21,885 22,634
Interest and other income, net 1,457 1,675
Interest expense (199) (1,388)
-------- --------
Income before income taxes 23,143 22,921
Provision for income taxes 9,707 10,327
-------- --------
Net income $ 13,436 $ 12,594
======== ========
Basic net income per share $ 0.21 $ 0.21
======== ========
Diluted net income per share $ 0.20 $ 0.20
======== ========
Shares used to calculate basic net
income per share 64,573 61,399
======== ========
Shares used to calculate diluted net
income per share 66,583 64,107
======== ========
Shares outstanding at end of period 65,214 62,073
======== ========
(a) Stock-based compensation was
allocated as follows:
Cost of revenues $ 176 $ 49
Sales and marketing 727 297
Product development 1,137 329
General and administrative 2,264 2,162
-------- --------
Total stock-based compensation $ 4,304 $ 2,837
======== ========
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
--------------------------------
Three Months Ended September 30,
--------------------------------
2006 2005
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,436 $ 12,594
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and
stock-based compensation 14,254 11,809
Deferred taxes and other 2,339 602
Tax benefits from stock-based
compensation 1,118 3,172
Excess tax benefits from stock-based
compensation (839) --
Change in operating assets and
liabilities (excluding the effects of
acquisitions):
Accounts receivable 749 (2,116)
Other assets 899 1,615
Accounts payable and accrued
liabilities (5,751) 14,014
Member retention liability 247 --
Other liabilities (35) 421
Deferred revenue (695) (246)
-------- --------
Net cash provided by operating
activities 25,722 41,865
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,939) (7,981)
Purchases of short-term investments (76,286) (90,281)
Proceeds from maturities and sales of
short-term investments 69,245 66,245
Proceeds from sales of assets, net 87 --
Cash paid for acquisitions, net of cash
acquired (586) --
Increase in restricted cash (1,450) --
Escrow deposit related to
pre-acquisition liability (4,800) --
-------- --------
Net cash used for investing
activities (16,729) (32,017)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan -- (5,001)
Payments on capital leases (98) (90)
Proceeds from exercises of stock
options 1,532 887
Repurchases of common stock (417) 1
Payments for dividends (13,546) (12,669)
Excess tax benefits from stock-based
compensation 839 --
-------- --------
Net cash used for financing
activities (11,690) (16,872)
-------- --------
Effect of exchange rate changes on
cash and cash equivalents (6) (2)
Change in cash and cash equivalents (2,703) (7,026)
Cash and cash equivalents, beginning
of period 24,362 40,685
-------- --------
Cash and cash equivalents, end of
period $ 21,659 $ 33,659
======== ========
UNITED ONLINE, INC.
Reconciliation of Net Income to Adjusted Net Income(3)
(in thousands, except per-share data)
Three Months Ended September 30,
--------------------------------
2006 2005
-------- --------
Net income $ 13,436 $ 12,594
Add (deduct):
Stock-based compensation 4,304 2,837
Amortization of intangible assets 4,213 5,252
Restructuring charges 627 --
-------- --------
22,580 20,683
Income tax effect of adjusting entries (2,873) (2,097)
-------- --------
Adjusted net income $ 19,707 $ 18,586
======== ========
Adjusted basic net income per share $ 0.31 $ 0.30
======== ========
Adjusted diluted net income per share $ 0.29 $ 0.28
======== ========
Shares used to calculate adjusted
basic net income per share 64,573 61,399
======== ========
Shares used to calculate adjusted
diluted net income per share(a) 67,482 65,627
======== ========
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(a) 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,
--------------------------------
2006 2005
-------- --------
Adjusted Operating Income Before
Depreciation and Amortization(1)
Operating income $ 21,885 $ 22,634
Depreciation 5,737 3,720
Amortization 4,213 5,252
-------- --------
Operating income before depreciation
and amortization 31,835 31,606
Stock-based compensation 4,304 2,837
Restructuring charges 627 --
-------- --------
Adjusted operating income before
depreciation and amortization $ 36,766 $ 34,443
======== ========
Three Months Ended September 30,
--------------------------------
2006 2005
-------- --------
Free Cash Flow(4)
Net cash provided by operating
activities $ 25,722 $ 41,865
Add (deduct):
Capital expenditures (2,939) (7,981)
Excess tax benefits from stock-based
compensation(a) 839 --
Cash paid for restructuring charges 995 --
-------- --------
Free cash flow $ 24,617 $ 33,884
======== ========
--------------------------------------------------------------------
(a) In accordance with FAS 123R, certain tax benefits from exercised
stock options that were previously reflected in the operating
section of the statement of cash flows are now presented in the
financing section.
UNITED ONLINE, INC.
Supplemental Schedule of Segment Information
(in thousands)
Three Months Ended September 30, 2006
-----------------------------------------------
Unallocated
Communications Content & Corporate Total
Media Expenses
-------------- --------- ---------- --------
Billable services $ 82,057 $ 22,142 $ -- $104,199
Advertising 10,096 15,341 -- 25,437
-------- -------- -------- --------
Total revenues 92,153 37,483 -- 129,636
-------- -------- -------- --------
Operating expenses:
Cost of revenue 20,338 8,532 176 29,046
Sales and marketing 25,555 17,205 727 43,487
Product development 8,085 4,279 1,137 13,501
General and
administrative 5,871 5,057 6,576 17,504
Amortization of
intangible assets 684 3,529 -- 4,213
-------- -------- -------- --------
Total operating expenses 60,533 38,602 8,616 107,751
-------- -------- -------- --------
Operating income 31,620 (1,119) (8,616) 21,885
-------- -------- -------- --------
Depreciation 3,133 2,577 27 5,737
Amortization 684 3,529 -- 4,213
-------- -------- -------- --------
Operating income before
depreciation and
amortization 35,437 4,987 (8,589) 31,835
Stock-based compensation -- -- 4,304 4,304
Restructuring charges 619 8 -- 627
-------- -------- -------- --------
Adjusted operating income
before depreciation and
amortization $ 36,056 $ 4,995 $ (4,285) $ 36,766
======== ======== ======== ========
Three Months Ended September 30, 2005
-----------------------------------------------
Unallocated
Communications Content & Corporate Total
Media Expenses
-------------- --------- ---------- --------
Billable services $ 99,269 $ 18,401 $ -- $117,670
Advertising 9,064 6,044 -- 15,108
-------- -------- -------- --------
Total revenues 108,333 24,445 -- 132,778
-------- -------- -------- --------
Operating expenses:
Cost of revenue 23,626 3,558 49 27,233
Sales and marketing 40,050 12,420 297 52,767
Product development 7,299 2,488 329 10,116
General and
administrative 4,847 3,014 6,915 14,776
Amortization of
intangible assets 736 4,516 -- 5,252
-------- -------- -------- --------
Total operating expenses 76,558 25,996 7,590 110,144
-------- -------- -------- --------
Operating income 31,775 (1,551) (7,590) 22,634
-------- -------- -------- --------
Depreciation 2,361 1,359 -- 3,720
Amortization 736 4,516 -- 5,252
-------- -------- -------- --------
Operating income before
depreciation and
amortization 34,872 4,324 (7,590) 31,606
Stock-based compensation -- -- 2,837 2,837
-------- -------- -------- --------
Adjusted operating income
before depreciation and
amortization $ 34,872 $ 4,324 $ (4,753) $ 34,443
======== ======== ======== ========
UNITED ONLINE, INC.
Selected Quarterly Historical Financial Data and Key Metrics(a)
Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2006 2006 2006 2005 2005
-------- --------- -------- -------- --------
Revenue (in
thousands) $129,636 $134,900 $127,332 $130,232 $132,778
Net income (in
thousands) $ 13,436 $ 11,585 $ 12,692 $ 12,374 $ 12,594
Net income per
diluted share $ 0.20 $ 0.18 $ 0.20 $ 0.19 $ 0.20
Pay accounts(2)
(in thousands) 4,912 4,996 5,093 5,009 5,040
Active
accounts(2)
(in millions) 20.8 20.7 18.7 17.6 16.9
Number of
employees at
end of period 1,023 1,016 912 900 868
--------------------------------------------------------------------
(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 (2)
(in thousands)
Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2006 2006 2006 2005 2005
-------- --------- -------- -------- --------
Communications(a)
Access 2,425 2,556 2,751 2,855 2,980
Other 323 330 321 313 301
------ ------ ------ ------ ------
Total 2,748 2,886 3,072 3,168 3,281
------ ------ ------ ------ ------
Content & Media(b)
Social
networking 2,079 2,029 1,945 1,766 1,686
Other 85 81 76 75 73
------ ------ ------ ------ ------
Total 2,164 2,110 2,021 1,841 1,759
------ ------ ------ ------ ------
Total pay
accounts(2) 4,912 4,996 5,093 5,009 5,040
====== ====== ====== ====== ======
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(a) Communications includes Internet access, VoIP, premium content,
premium email and security suite.
(b) Content & Media includes social networking, Web hosting and
photo sharing.