Conference Call Transcript
WESTLAKE VILLAGE, Calif., Feb. 4, 2004 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), the nation's leading provider of value-priced Internet access services, today reported results for its fourth quarter and fiscal year ended December 31, 2003. The company recently changed its fiscal year end from June 30 to December 31.
Summary of December 2003 Quarter Results:
-- Total revenues for the quarter were a record $96.9 million, up 47% versus $65.8 million for the year-ago quarter. -- Total pay subscribers(1) increased by a net 172,000 during the quarter, reaching a record 2.9 million at December 31, 2003. Total active users(1), including users of the company's free services, totaled 5.3 million at December 31, 2003. -- Approximately 22% of total pay subscribers at December 31, 2003 also subscribed to one or more of the company's add-on services, including accelerated dial-up and premium email services. Revenue Generating Units(2) (RGUs) grew by a net 403,000, including 226,000 accelerated dial-up subscriptions during the quarter, reaching 3.5 million at December 31, 2003. RGUs include total pay subscribers and add-on subscription services. -- Operating income for the quarter was a record $18.9 million, or 19.5% of revenues, more than a four-fold increase versus operating income of $4.2 million, or 6.3% of revenues, in the year-ago quarter. -- Operating income before depreciation and amortization (or "OIBDA")(3) for the quarter was a record $24.4 million, or 25.2% of revenues, an increase of 114% versus adjusted OIBDA(3) of $11.4 million, or 17.3% of revenues, in the year-ago quarter. -- Net income for the quarter was $24.4 million, or $0.35 per share, which included a tax benefit of $12.3 million, or $0.18 per share, related to the recognition of a portion of the company's deferred tax assets.(4) Excluding this benefit, net income for the December 2003 quarter increased 158% to a record $12.1 million, or $0.18 per share, versus $4.7 million, or $0.07 per share, for the year-ago quarter. -- Adjusted net income(5) for the quarter, excluding the aforementioned tax benefit, was a record $14.5 million, or $0.21 per share, an increase of 65% versus adjusted net income of $8.8 million, or $0.13 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. -- The year-to-year comparability of net income and adjusted net income, excluding the aforementioned tax benefit, was impacted by an effective tax rate of approximately 40% in the December 2003 quarter versus approximately 10% in the year-ago quarter.(4) -- Cash flows from operations were a record $29.0 million for the quarter, versus $21.3 million for the year-ago quarter. -- Free cash flow(6) for the quarter was a record $25.5 million, versus $19.2 million for the year-ago quarter. Summary of Results for the Year Ended December 31, 2003: -- Total revenues for 2003 were a record $339.2 million, up 48% versus $229.2 million for the prior year. -- Pay subscribers(1) grew by a record 716,000, or 33%, during 2003. -- RGUs(2) increased by 1.36 million, or 62%, during 2003. -- Operating income for 2003 was a record $49.5 million versus an operating loss of ($7.3) million for the prior year. -- Adjusted OIBDA(3) for 2003 was a record $73.5 million, or 21.7% of revenues, an increase of 131% versus adjusted OIBDA of $31.9 million, or 13.9% of revenues, for 2002. -- Net income for 2003 was $54.9 million, or $0.80 per share, which included a tax benefit of $16.6 million, or $0.24 per share, related to the recognition of a portion of the company's deferred tax assets.(4) Excluding this benefit, net income for 2003 was a record $38.3 million, or $0.56 per share, versus a net loss of ($3.7) million, or ($0.06) per share, for the prior year. -- Adjusted net income(5) for 2003, excluding the aforementioned tax benefit, was a record $51.1 million, or $0.74 per share, an increase of 156% versus adjusted net income of $19.9 million, or $0.30 per share, for 2002. 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 benefit, was impacted by an effective tax rate of approximately 30% in 2003 versus a negligible tax rate in the prior year.(4) -- Cash flows from operations were a record $83.5 million for 2003, an 83% increase versus $45.7 million for the prior year. -- Free cash flow(6) for 2003 was a record $77.0 million, up 79% versus $42.9 million for 2002.
"The past year has been one of exceptional growth and success for United Online, ending 2003 with another quarter of strong pay subscriber gains, record new accelerated dial-up subscriptions and record profitability," said Mark R. Goldston, chairman, CEO and president of United Online. "We achieved many impressive milestones in 2003, including growing our accelerated dial-up services to 638,000 pay subscriptions in just over nine months, expanding our billable services margin to over 73% in the fourth quarter, and generating $77 million of free cash flow for the year. As we enter 2004, we are very excited about the long-term prospects for United Online and the value-priced Internet access segment that we dominate."
"United Online's financial results this quarter reflect outstanding performance across our entire business," said Charles S. Hilliard, executive vice president and CFO of United Online. "The powerful combination of pay subscriber and add-on subscription growth drove strong billable services revenues, while advertising revenues benefited from an improving online market and the implementation of our new search agreement. We are pleased to introduce our 2004 business outlook which, at its midpoint, anticipates more than 40% growth in adjusted OIBDA, reflecting our confidence in the continued growth opportunities for United Online."
Additional Highlights of the December 2003 Quarter:
-- Billable services revenues were a record $88.0 million in the December 2003 quarter, or 91% of total revenues, an increase of 51% versus $58.1 million, or 88% of total revenues, for the December 2002 quarter. -- Billable services margin(7) was a record 73.5% for the December 2003 quarter, up from 62.2% for the year-ago quarter. -- Annualized revenue per average employee(8) was a record $787,000 for the December 2003 quarter, up 29% versus $609,000 for the December 2002 quarter. -- Cash balances at December 31, 2003 were $203.7 million, including cash, cash equivalents and short-term investments. The company recently added to its financial flexibility by obtaining a one-year, $25 million unsecured revolving credit facility. No amounts were outstanding under the facility and the company had no long-term debt at December 31, 2003. -- The company repurchased 2.02 million shares of its common stock at an aggregate cost of $40.0 million during the December 2003 quarter. Since the inception of its common stock repurchase program in March 2001, the company has repurchased 4.1 million shares of its common stock at an aggregate cost of $51.3 million. Under the company's existing stock repurchase plan, which expires on July 31, 2004, it can repurchase up to an additional $48.7 million of its common stock. -- In November 2003, the company announced a three-year extension of its agreement with Overture Services to provide sponsored search results to the United Online properties under the heading "Powered by Yahoo! Search." In addition to providing its branding, Yahoo! Inc., the parent company of Overture, will provide its own algorithmic Web search results, further enhancing the user experience.
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 2004 quarter and the year ending December 31, 2004:
-------------- -------------- (in millions) Mar'04 Q Est. CY 2004 Est. -------------- -------------- Operating income $14.2 -- $15.2 $69.3 -- $77.3 Depreciation & amortization 5.6 22.9 Facility exit costs 3.7 5.2 Stock-based charges 0.5 2.6 -------------- -------------- Adjusted operating income before depreciation and amortization(3) $24.0 -- $25.0 $100.0 -- $108.0 ============== ================ Weighted average diluted shares 70.0 -- 70.5 71.0 -- 72.0 -- Total revenues for the March 2004 quarter are estimated to be between $101 million and $103 million. -- Billable services margin(7) in the March 2004 quarter is projected to be approximately equal to the 73.5% achieved in the December 2003 quarter. -- The company estimates that total pay subscribers will increase to between 3.3 million and 3.5 million by December 31, 2004. -- As noted above, while the timing and amounts remain uncertain, the company anticipates incurring facility exit costs associated with the relocation of its Westlake Village headquarters, which will remain in Southern California.
(1) Total pay subscribers now include, in addition to Internet access subscribers, non-access premium email subscribers. Active users are defined as all free users that logged on to our services at least once during the preceding 31 days, together with all subscribers to a billable service.
(2) A revenue generating unit (RGU) represents a unique subscription to any individual pay service offered by the company. Internet access, accelerated dial-up and premium email subscriptions represent separate RGUs. For example, a subscriber to the company's accelerated dial-up access service who also subscribes to a premium email service is counted as three subscriptions (one for Internet access, one for accelerated dial-up and one for premium email). The company currently offers its accelerated dial-up service bundled with standard Internet access only. A detailed calculation of RGUs is provided in the tables accompanying this release.
(3) Adjusted operating income before depreciation and amortization is defined as operating income before depreciation, amortization and, in certain periods as reflected in the accompanying tables, stock-based charges, restructuring and merger-related costs, facility exit costs, and other income. Management believes that because operating income before depreciation and amortization and adjusted operating income before depreciation and amortization exclude 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, these measures provide 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 operating income before depreciation and amortization and adjusted operating income before depreciation and amortization for these purposes, as well as to allocate resources in managing the company's business. Operating income before depreciation and amortization and adjusted operating income before depreciation and amortization are 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 tables that follow this text.
(4) The company has potential future tax benefits, or deferred tax assets, associated with historical net operating losses that, because they were fully reserved by a valuation allowance, were not previously reported on its balance sheet. In the June 2003 and December 2003 quarters, the company released portions of the valuation allowance, which has resulted in (i) the recognition of a portion of its net deferred tax assets on its balance sheet, (ii) the recording of a tax benefit on its income statement in the June 2003 and December 2003 quarters, (iii) an increase in its effective tax rate beginning in the September 2003 quarter, and (iv) an adjustment to goodwill in the December 2003 quarter reflecting the recognition of deferred tax assets associated with Juno Online Services prior to the merger. It is reasonably possible that the company will release all, or a portion, of the remaining valuation allowance in the near term. Any such release would result in recording a tax benefit that would increase net income in the period the allowance was released. 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 (loss) before the after-tax effect of amortization of intangible assets, stock-based charges, restructuring and merger-related costs, other income, and in the June 2003 and December 2003 quarters the tax benefit related to the recognition of a portion 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 tables that follow this text.
(6) Free cash flow is defined as net cash provided by operating activities before cash paid for 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 tables that follow this text.
(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 the nation's leading provider of value-priced Internet access services through its NetZero, Juno and BlueLight consumer brands. The company's standard services are offered at less than half the standard monthly premium dial-up access prices of its major competitors and are available in more than 6,500 cities across the United States and in Canada. At December 31, 2003, United Online had 499 employees worldwide. The company is headquartered in Westlake Village, CA, with offices in New York City, San Francisco and Hyderabad, India. For more information about United Online and its Internet access services, please visit www.untd.com.
United Online will be hosting a conference call today at 8:00AM PDT (11:00AM EDT) 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, guidance for future financial performance; growth in pay subscribers; weighted average diluted shares; depreciation and amortization; facility exit costs; 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 pricing by us or our competitors; 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 our subscribers, particularly subscribers to our accelerated dial-up services; 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; unanticipated usage by subscribers, additional telecommunications costs or other factors negatively impacting our billable services margin; changes in our free user base; the company's inability to realize the benefits of its deferred tax assets; the company's inability to maintain its agreements with telecommunications providers on attractive terms; 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. 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 December 31, 2003 2002 -------- -------- ASSETS Cash, cash equivalents and short-term investments $203,723 $159,780 Restricted cash -- 811 Accounts receivable, net 14,065 11,312 Deferred tax assets, net 26,373 -- Property and equipment, net 13,428 13,303 Goodwill and intangible assets, net 40,268 57,521 Other assets 10,022 7,064 -------- -------- Total assets $307,879 $249,791 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 31,388 $ 25,906 Accrued liabilities 14,028 13,120 Deferred revenue 24,639 20,157 Capital leases -- 748 -------- -------- Total liabilities 70,055 59,931 -------- -------- Stockholders' equity 237,824 189,860 -------- -------- Total liabilities and stockholders' equity $307,879 $249,791 ======== ======== UNITED ONLINE, INC. Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share amounts) --------------------- --------------------- Three Months Ended Year Ended December 31, December 31, --------------------- --------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Revenues: Billable services $ 87,993 $ 58,149 $ 306,086 $ 201,650 Advertising and commerce 8,955 7,651 33,079 27,578 --------- --------- --------- --------- Total revenues 96,948 65,800 339,165 229,228 Operating expenses: Cost of billable services 23,285 21,990 92,785 85,375 Cost of free services 1,869 3,161 9,659 18,048 Sales and marketing 36,587 19,863 120,619 62,752 Product development 5,368 5,740 21,881 24,359 General and administrative 7,014 7,087 29,087 26,298 Restructuring charges -- -- (215) 1,793 Amortization of intangible assets 3,964 3,798 15,856 17,853 --------- --------- --------- --------- Total operating expenses 78,087 61,639 289,672 236,478 --------- --------- --------- --------- Operating income (loss) 18,861 4,161 49,493 (7,250) Interest income, net 1,224 1,073 4,636 4,187 Other income, net -- -- -- 58 --------- --------- --------- --------- Income (loss) before income taxes 20,085 5,234 54,129 (3,005) Provision (benefit) for income taxes (4,340) 523 (754) 692 --------- --------- --------- --------- Net income (loss) $ 24,425 $ 4,711 $ 54,883 $ (3,697) ========= ========= ========= ========= Basic net income (loss) per share $ 0.38 $ 0.08 $ 0.87 $ (0.06) ========= ========= ========= ========= Diluted net income (loss) per share $ 0.35 $ 0.07 $ 0.80 $ (0.06) ========= ========= ========= ========= Shares used to calculate basic income (loss) per share 64,166 61,406 63,369 59,936 ========= ========= ========= ========= Shares used to calculate diluted income (loss) per share 68,878 66,845 68,752 59,936 ========= ========= ========= ========= Shares outstanding at end of period 63,944 62,646 63,944 62,646 ========= ========= ========= ========= UNITED ONLINE, INC. Unaudited Condensed Consolidated Cash Flow Statements (in thousands) Three Months Ended Year Ended December 31, December 31, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss): $ 24,425 $ 4,711 $ 54,883 $ (3,697) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, amortization and stock-based charges 5,545 6,881 23,809 36,136 Deferred taxes, tax benefits and other (4,396) 318 (446) 1,402 Change in operating assets and liabilities (excluding the effects of acquisitions): Restricted cash 700 531 811 5,816 Accounts receivable (1,310) (1,203) (2,753) (904) Other assets (302) 641 (3,708) 3,151 Accounts payable and accrued liabilities 3,945 8,680 6,386 2,856 Deferred revenue 382 763 4,482 963 -------- -------- -------- -------- Net cash provided by operating activities 28,989 21,322 83,464 45,723 -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments (44,308) (7,575) (93,687) (89,239) Proceeds from maturities of short-term investments 46,947 10,000 55,602 60,491 Cash paid for acquisitions, net of cash acquired -- (7,327) -- (8,327) Proceeds from sale of cost-basis investment -- -- 750 -- Purchases of property and equipment (3,482) (2,156) (8,425) (3,662) Proceeds from sales of assets, net -- -- -- (179) -------- -------- -------- -------- Net cash used for investing activities (843) (7,058) (45,760) (40,916) -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on notes payable and capital leases (12) (1,118) (696) (5,113) Repayments of notes receivable from shareholders -- 28 1,597 62 Proceeds from employee stock purchase plan 1,679 843 2,698 1,248 Common stock repurchases (40,002) -- (45,614) (4,669) Proceeds from exercises of stock options 951 2,636 12,244 6,619 -------- -------- -------- -------- Net cash provided by (used for)financing activities (37,384) 2,389 (29,771) (1,853) -------- -------- -------- -------- Change in cash and cash equivalents (9,238) 16,653 7,933 2,954 Cash and cash equivalents, beginning of period 80,472 46,648 63,301 60,347 -------- -------- -------- -------- Cash and cash equivalents, end of period $ 71,234 $ 63,301 $ 71,234 $ 63,301 ======== ======== ======== ======== UNITED ONLINE, INC. Reconciliation of Net Income to Adjusted Net Income (5) (in thousands, except per-share data) Three Months Ended December 31, 2003 ----------------------------------- Reported Adjustments Adjusted -------- ----------- -------- Revenues: Billable services $ 87,993 $ -- $ 87,993 Advertising and commerce 8,955 -- 8,955 -------- -------- -------- Total revenues 96,948 -- 96,948 Operating expenses: Cost of billable services 23,285 -- 23,285 Cost of free services 1,869 -- 1,869 Sales and marketing 36,587 -- 36,587 Product development 5,368 -- 5,368 General and administrative 7,014 -- 7,014 Restructuring charges -- -- -- Amortization of intangible assets 3,964 (3,964)(b) -- -------- -------- -------- Total operating expenses 78,087 (3,964) 74,123 -------- -------- -------- Operating income 18,861 3,964 22,825 Interest income, net 1,224 -- 1,224 -------- -------- -------- Income before income taxes 20,085 3,964 24,049 Provision (benefit) for income taxes (4,340) 13,883(c) 9,543 -------- -------- -------- Net income $ 24,425 $(9,919) $ 14,506 ======== ======== ======== Basic net income per share $ 0.38 $ 0.23 ======== ======== Diluted net income per share $ 0.35 $ 0.21 ======== ======== Shares used to calculate basic income per share 64,166 64,166 ======== ======== Shares used to calculate diluted income per share 68,878 68,878 ======== ======== Shares outstanding at end of period 63,944 63,944 ======== ======== Three Months Ended December 31, 2002 ----------------------------------- Reported Adjustments Adjusted -------- ----------- -------- Revenues: Billable services $ 58,149 $ -- $ 58,149 Advertising and commerce 7,651 -- 7,651 -------- -------- -------- Total revenues 65,800 -- 65,800 Operating expenses: Cost of billable services 21,990 (38)(a) 21,952 Cost of free services 3,161 -- 3,161 Sales and marketing 19,863 (38)(a) 19,825 Product development 5,740 (209)(a) 5,531 General and administrative 7,087 (90)(a) 6,997 Restructuring charges -- -- -- Amortization of intangible assets 3,798 (3,798)(b) -- -------- -------- -------- Total operating expenses 61,639 (4,173) 57,466 -------- -------- -------- Operating income 4,161 4,173 8,334 Interest income, net 1,073 -- 1,073 -------- -------- -------- Other income, net -- -- -- -------- -------- -------- Income before income taxes 5,234 4,173 9,407 Provision (benefit) for income taxes 523 68(c) 591 -------- -------- ------- Net income $ 4,711 $ 4,105 $ 8,816 ======== ======== ======= Basic net income per share $ 0.08 $ 0.14 ======== ======= Diluted net income per share $ 0.07 $ 0.13 ======== ======= Shares used to calculate basic income per share 61,406 61,406 ======== ======= Shares used to calculate diluted income per share 66,845 66,845 ======== ======= Shares outstanding at end of period 62,646 62,646 ======== ======= ----------------------------------------------------------------- (a) Elimination of amortization of stock-based charges of $29 and merger-related charges of $346. (b) Elimination of amortization of intangible assets. (c) Elimination of benefit recognized for deferred tax assets and income tax effect of adjusting entries. UNITED ONLINE, INC. Reconciliation of Net Income (Loss) to Adjusted Net Income (5) (in thousands, except per-share data) ----------------------------------- Year Ended December 31, 2003 ----------------------------------- Reported Adjustments Adjusted -------- ----------- -------- Revenues: Billable services $306,086 $ -- $306,086 Advertising and commerce 33,079 -- 33,079 -------- -------- -------- Total revenues 339,165 -- 339,165 Operating expenses: Cost of billable services 92,785 (41)(a) 92,744 Cost of free services 9,659 -- 9,659 Sales and marketing 120,619 (34)(a) 120,585 Product development 21,881 (267)(a) 21,614 General and administrative 29,087 (134)(a) 28,953 Restructuring charges (215) 215(b) -- Amortization of intangible assets 15,856 (15,856)(c) -- -------- -------- -------- Total operating expenses 289,672 (16,117) 273,555 -------- -------- -------- Operating income (loss) 49,493 16,117 65,610 Interest income, net 4,636 -- 4,636 Other income, net -- -- -------- -------- -------- Income (loss) before income taxes 54,129 16,117 70,246 Provision (benefit) for income taxes (754) 19,944(e) 19,190 -------- -------- -------- Net income (loss) $ 54,883 $ (3,827) $ 51,056 ======== ======== ======== Basic net income (loss) per share $ 0.87 $ 0.81 ======== ======== Diluted net income (loss) per share $ 0.80 $ 0.74 ======== ======== Shares used to calculate basic income (loss) per share 63,369 63,369 ======== ======== Shares used to calculate diluted income (loss) per share 68,752 68,752 ======== ======== Shares outstanding at end of period 63,944 63,944 ======== ======== ----------------------------------- Year Ended December 31, 2002 ----------------------------------- Reported Adjustments Adjusted --------- ------------- -------- Revenues: Billable services $201,650 $ -- $201,650 Advertising and commerce 27,578 -- 27,578 -------- ------- -------- Total revenues 229,228 -- 229,228 Operating expenses: Cost of billable services 85,375 (180)(a) 85,195 Cost of free services 18,048 -- 18,048 Sales and marketing 62,752 (852)(a) 61,900 Product development 24,359 (1,628)(a) 22,731 General and administrative 26,298 (1,437)(a) 24,861 Restructuring charges 1,793 (1,793)(b) -- Amortization of intangible assets 17,853 (17,853)(c) -- -------- ------- -------- Total operating expenses 236,478 (23,743) 212,735 -------- ------- -------- Operating income (loss) (7,250) 23,743 16,493 Interest income, net 4,187 -- 4,187 Other income, net 58 (58)(d) -- -------- ------- -------- Income (loss) before income taxes (3,005) 23,685 20,680 Provision (benefit) for income taxes 692 68(e) 760 -------- ------- -------- Net income (loss) $ (3,697) $23,617 $ 19,920 ======== ======= ======== Basic net income (loss) per share $ (0.06) $ 0.33 ======== ======== Diluted net income (loss) per share $ (0.06) $ 0.30 ======== ======== Shares used to calculate basic income (loss) per share 59,936 59,936 ======== ======== Shares used to calculate diluted income (loss) per share 59,936 66,217 ======== ======== Shares outstanding at end of period 62,646 62,646 ======== ======== --------------------------------------------------------------------- (a) Elimination of amortization of stock-based charges of $42 and $2,919 and merger-related charges of $434 and $1,178 in 2003 and 2002, respectively. (b) Elimination of restructuring charges. (c) Elimination of amortization of intangible assets. (d) Elimination of other income, net. (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, ---------------- ---------------- 2003 2002 2003 2002 ------- ------- ------- ------- Adjusted Operating Income Before Depreciation and Amortization (3) Operating income (loss) $18,861 $ 4,161 $49,493 $(7,250) Depreciation 1,581 3,054 7,911 15,364 Amortization 3,964 3,798 15,856 17,853 ------- ------- ------- ------- Operating income before depreciation and amortization 24,406 11,013 73,260 25,967 ------- ------- ------- ------- Stock-based charges -- 29 42 2,919 Restructuring and merger- related charges(a) -- 346 219 2,971 ------- ------- ------- ------- Adjusted operating income (loss) before depreciation and amortization $24,406 $11,388 $73,521 $31,857 ======= ======= ======= ======= Three Months Ended Year Ended December 31, December 31, ---------------- ---------------- 2003 2002 2003 2002 ------- ------- ------- ------- Free Cash Flow (6): Net cash provided by operating activities $28,989 $21,322 $83,464 $45,723 Add (deduct): Cash paid for restructuring and merger-related charges(a) -- -- 1,915 843 Capital expenditures (3,482) (2,156) (8,425) (3,662) ------- ------- ------- ------- Free cash flow $25,507 $19,166 $76,954 $42,904 ======= ======= ======= ======= -------------------------------------------------------------------- (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. UNITED ONLINE, INC. Selected 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, 2003 2003 2003 2003 2002 ------- ------- ------- ------- ------- Total revenues $96,948 $88,790 $79,608 $73,819 $65,800 Net income $24,425 $ 8,902 $14,594 $ 6,962 $ 4,711 Net income per diluted share $ 0.35 $ 0.13 $ 0.21 $ 0.10 $ 0.07 Pay subscribers 2,892 2,720 2,547 2,405 2,176 Active users (in millions)(1) 5.3 5.2 5.2 5.2 5.0 Number of employees at end of period 499 487 461 447 444 Annualized revenue per average employee (8) $ 787 $ 749 $ 701 $ 663 $ 609 --------------------------------------------------------------------- (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 Revenue Generating Units (2) (in thousands) Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, 2003 2003 2003 2003 2002 ----- ----- ----- ----- ----- Internet Access Subscriptions 2,890 2,720 2,547 2,405 2,176 Add-on subscriptions: Accelerated Dial-up Subscriptions 638 412 210 22 -- Other Pay Subscriptions 7 -- -- -- -- ----- ----- ----- ----- ----- Total Revenue Generating Units 3,535 3,132 2,757 2,427 2,176 ===== ===== ===== ===== ===== Total Pay Subscribers (a) 2,892 2,720 2,547 2,405 2,176 Add-on Subscription Penetration (b) 22% 15% 8% 1% ------------------------------------------------------------------- (a) Includes Internet access subscribers and other non-access pay subscribers. (b) Percentage of add-on subscription relationships to total pay subscribers.