Conference Call Transcript
Record Revenues of $108 Million
Record Operating Income of $20 Million
Record Adjusted OIBDA of $26 Million
WESTLAKE VILLAGE, Calif., May 3, 2004 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet subscription services, today reported results for its first quarter ended March 31, 2004.
Summary of March 2004 Quarter Results:
* Total revenues for the quarter were a record $107.7 million, up 46% versus $73.8 million for the year-ago quarter.
* Operating income for the quarter was a record $19.9 million, or 18.5% of revenues, up 201% versus operating income of $6.6 million, or 9.0% of revenues, in the year-ago quarter.
* Adjusted operating income before depreciation and amortization (or "OIBDA")(1) for the quarter was a record $26.0 million, or 24.1% of revenues, an increase of 90% versus adjusted OIBDA(1) of $13.7 million, or 18.5% of revenues, in the year-ago quarter.
* Pay subscribers(2) grew 203,000 during the quarter to 3.1 million; Revenue generating units(3) (RGUs) grew 472,000 to 4.0 million; Active users(2) totaled 5.4 million at March 31, 2004.
* Net income for the quarter was $12.4 million, or $0.18 per share, versus $7.0 million, or $0.10 per share, for the year-ago quarter. Net income for the March 2004 quarter reflects an effective tax rate of 41.5% versus 10% in the year-ago quarter.(4)
* Adjusted net income(5) for the quarter was a record $15.2 million, or $0.23 per share, an increase of 37% versus adjusted net income of $11.1 million, or $0.16 per share, for the year-ago quarter. The comparability of adjusted net income for these quarters is also impacted by a difference in effective tax rates.(4) 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 $34.8 million for the quarter, up 117% from $16.0 million for the year-ago quarter.
* Free cash flow(6) for the quarter was a record $33.8 million, more than double the $15.9 million for the year-ago quarter.
"United Online's results were very strong across the entire business as we delivered another outstanding quarter of growth and profitability," said Mark R. Goldston, chairman, CEO and president of United Online. "Just a year ago we introduced our NetZero HiSpeed and Juno SpeedBand accelerator services, the first leg of our strategy to expand beyond our growing access business with new sources of subscription revenues. Since then, we have added premium email services and, most recently, acquired a personal Web-site services business that further extends our cross-marketing opportunities and subscription reach. Diligent execution of this strategy, combined with an improving online advertising market, helped drive our exceptional growth this quarter while we continued to invest in new long-term opportunities."
"With 46% revenue growth and $34 million of free cash flow in the first quarter, 2004 is off to a solid beginning," said Charles S. Hilliard, executive vice president and CFO of United Online. "The company's decision to authorize an additional $100 million share repurchase program reflects our confidence in the continued strength of our free cash flow, which totaled $95 million over the last twelve months. Given United Online's impressive first-quarter performance, we are revising upward our 2004 financial outlook, which at its midpoint anticipates 48% growth in adjusted OIBDA."
Additional Highlights of the March 2004 Quarter:
* Billable services revenues were a record $97.7 million in the March 2004 quarter, or 91% of total revenues, an increase of 48% versus $66.0 million, or 89% of total revenues, for the March 2003 quarter.
* Billable services margin(7) was a record 73.8% for the March 2004 quarter, up from 64.3% for the year-ago quarter.
* Annualized revenue per average employee(8) was a record $859,000 for the March 2004 quarter, up 30% versus $663,000 for the March 2003 quarter.
* Cash balances at March 31, 2004 were $189.4 million, including cash, cash equivalents and short-term investments.
* The company repurchased 2.9 million shares of its common stock at an aggregate cost of $48.7 million during the March 2004 quarter, reaching the $100 million aggregate amount previously authorized by its Board of Directors. Since the inception of its common stock repurchase program in March 2001, the company has repurchased 7.0 million shares of its common stock at an aggregate cost of $100 million. The company's Board recently authorized additional stock repurchases of up to $100 million through May 31, 2005.
Last month, the company acquired the consumer Web-hosting business of About, Inc., a wholly owned subsidiary of PRIMEDIA Inc. (NYSE: PRM), for approximately $12 million in cash. The business maintains more than 3 million free, ad-supported Web sites and had approximately 53,000 pay subscribers at the date of the acquisition. It offers consumers a variety of affordable personal Web-site services, including hosting, domain and email services.
Business Outlook:
The forward-looking information in this release includes certain projections made by management based on the company's operations 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 June 2004 quarter and the year ending December 31, 2004:
-------------- ------------- ----------------
(in millions) June'04 Q Est. CY'04 Est. Prior CY'04 Est.
-------------- ------------- ----------------
Operating income $16.0-$17.0 $73.8-78.8 $69.3-$77.3
Depreciation &
amortization 6.1 24.4 22.9
Facility exit
costs 3.7 5.2 5.2
Stock-based
compensation 0.7 2.6 2.6
-------------- ------------- ----------------
Adjusted operating
income before
depreciation and
amortization(1) $26.5-$27.5 $106.0-$111.0 $100.0-$108.0
============== ============= ================
Weighted average
diluted shares 67.5-68.5 68.0-69.0 71.0-72.0
* Total revenues for the June 2004 quarter are estimated to be between $110 million and $112 million.
* The company estimates that total pay subscribers(2) will increase to between 3.35 million and 3.55 million by December 31, 2004.
* As noted above, the company anticipates incurring facility exit costs associated with the relocation of its Westlake Village headquarters, which will remain in Southern California.
(1) 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 compensation, restructuring and merger-related charges, and facility exit costs. 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 accompanying tables.
(2) Total pay subscribers includes Internet access and non-access premium email subscribers. The company's business outlook also includes Web-hosting pay 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 pay service. A detailed subscriber analysis is provided in the accompanying table entitled "Analysis of Revenue Generating Units."
(3) 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 accompanying table entitled "Analysis of Revenue Generating Units."
(4) The company increased its effective tax rate as a result of the recognition of a portion of its net deferred tax assets in the June 2003 and December 2003 quarters. This has affected the comparability of net income and adjusted net income to the prior period in which the effective rate was significantly lower. The increase in the effective tax rate does not 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, and restructuring and merger-related charges. 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 restructuring and merger-related charges, 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 and Juno. The company's pay services include Internet access, accelerated dial-up services, premium email, and personal Web-hosting and domain services. It also offers consumers free Internet access, email and Web hosting. The company's access services are available in more than 6,500 cities across the United States and in Canada. United Online is headquartered in Westlake Village, CA, with offices in New York City, San Francisco, CA, Orem, UT, and Hyderabad, India. At March 31, 2004, the company had 504 employees worldwide. For more information about United Online and its Internet subscription 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; 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; 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 subscribers, particularly subscribers to 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 the company's billable services margin; changes in the 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. From time to time, the company considers acquisitions that, if consummated, could be material. Forward-looking statements are based upon the assumption that no such acquisition is consummated during the relevant periods. If such 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
March 31, December 31,
2004 2003
----------- -----------
(unaudited)
ASSETS
Cash, cash equivalents and
short-term investments $189,448 $203,723
Accounts receivable, net 11,546 14,065
Deferred tax assets, net 20,614 26,373
Property and equipment, net 12,835 13,428
Goodwill and intangible
assets, net 36,315 40,268
Other assets 8,105 10,022
-------- --------
Total assets $278,863 $307,879
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $ 30,141 $ 31,388
Accrued liabilities 17,276 14,028
Deferred revenue 27,296 24,639
-------- --------
Total liabilities 74,713 70,055
-------- --------
Stockholders' equity 204,150 237,824
-------- --------
Total liabilities and
stockholders' equity $278,863 $307,879
======== ========
UNITED ONLINE, INC.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended
March 31,
----------------------
2004 2003
--------- ---------
Revenues:
Billable services $ 97,682 $ 66,035
Advertising and commerce 9,993 7,784
--------- ---------
Total revenues 107,675 73,819
--------- ---------
Operating expenses:
Cost of billable services 25,580 23,589
Cost of free services 1,725 3,134
Sales and marketing 43,035 23,618
Product development 6,101 5,963
General and administrative 6,863 7,107
Stock-based compensation (1) 477 28
Amortization of intangible assets 3,964 3,964
Restructuring charges -- (215)
--------- ---------
Total operating expenses 87,745 67,188
--------- ---------
Operating income 19,930 6,631
Interest and other income, net 1,206 1,105
--------- ---------
Income before income taxes 21,136 7,736
Provision for income taxes 8,775 774
--------- ---------
Net income $ 12,361 $ 6,962
========= =========
Basic net income per share $ 0.20 $ 0.11
========= =========
Diluted net income per share $ 0.18 $ 0.10
========= =========
Shares used to calculate
basic income per share 62,470 62,202
========= =========
Shares used to calculate
diluted income per share 67,352 67,638
========= =========
Shares outstanding at end of period 61,850 62,556
========= =========
(1) Stock-based compensation is
allocated as follows:
Cost of billable services $ -- $ 3
Sales and marketing 83 5
Product development -- 1
General and administrative 394 19
--------- ---------
Total stock - based compensation $ 477 $ 28
========= =========
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statement of Cash Flows
(in thousands)
Three Months Ended
March 31,
--------------------
2004 2003
-------- --------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income: $ 12,361 $ 6,962
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and
stock-based compensation 6,039 6,801
Deferred taxes, tax benefits and
other 7,291 586
Change in operating assets and
liabilities (excluding the effects
of acquisitions):
Accounts receivable 2,519 (618)
Other assets 1,917 (1,231)
Accounts payable and accrued
liabilities 2,001 (240)
Deferred revenue 2,657 3,745
-------- --------
Net cash provided by
operating activities 34,785 16,005
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of short-term
investments (38,405) (13,626)
Proceeds from maturities and
sales of short-term investments 43,104 255
Purchases of rights, patents
and trademarks (11) --
Purchases of property
and equipment (1,005) (2,024)
-------- --------
Net cash provided by (used
for) investing activities 3,683 (15,395)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on capital leases -- (598)
Repayments of notes receivable
from stockholders -- 10
Repurchases of common stock (48,706) (1,815)
Proceeds from exercises of
stock options 914 255
-------- --------
Net cash used for financing
activities (47,792) (2,148)
-------- --------
Change in cash and cash
equivalents (9,324) (1,538)
Cash and cash equivalents,
beginning of period 71,234 63,301
-------- --------
Cash and cash equivalents,
end of period $ 61,910 $ 61,763
======== ========
UNITED ONLINE, INC.
Reconciliation of Net Income to Adjusted Net Income(5)
(in thousands, except per-share data)
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
----------------------------- ---------------------------
Adjust- Adjust-
Reported ments Adjusted Reported ments Adjusted
-------- -------- -------- ------- ------- -------
Revenues:
Billable
services $ 97,682 $ -- $ 97,682 $66,035 $ -- $66,035
Advertising
and
commerce 9,993 -- 9,993 7,784 -- 7,784
-------- -------- -------- ------- ------- -------
Total
revenues 107,675 -- 107,675 73,819 -- 73,819
-------- -------- -------- ------- ------- -------
Operating
expenses:
Cost of
billable
services 25,580 -- 25,580 23,589 (37)(a) 23,552
Cost of free
services 1,725 -- 1,725 3,134 -- 3,134
Sales and
marketing 43,035 -- 43,035 23,618 (26)(a) 23,592
Product
development 6,101 -- 6,101 5,963 (265)(a) 5,698
General and
adminis-
trative 6,863 -- 6,863 7,107 (106)(a) 7,001
Stock-based
compensation 477 (477)(b) -- 28 (28)(b) --
Amortization
of intangible
assets 3,964 (3,964)(c) -- 3,964 (3,964)(c) --
Restructuring
charges -- -- -- (215) 215(d) --
-------- -------- -------- ------- ------- -------
Total
operating
expenses 87,745 (4,441) 83,304 67,188 (4,211) 62,977
-------- -------- -------- ------- ------- -------
Operating
income 19,930 4,441 24,371 6,631 4,211 10,842
Interest and
other
income, net 1,206 -- 1,206 1,105 -- 1,105
-------- -------- -------- ------- ------- -------
Income
before income
taxes 21,136 4,441 25,577 7,736 4,211 11,947
Provision for
income taxes 8,775 1,609(e) 10,384 774 72(e) 846
-------- -------- -------- ------- ------- -------
Net income $ 12,361 $ 2,832 $ 15,193 $ 6,962 $ 4,139 $11,101
======== ======== ======== ======= ======= =======
Basic net
income per
share $ 0.20 $ 0.24 $ 0.11 $ 0.18
======== ======== ======= =======
Diluted net
income per
share $ 0.18 $ 0.23 $ 0.10 $ 0.16
======== ======== ======= =======
Shares used
to calculate
basic income
per share 62,470 62,470 62,202 62,202
======== ======== ======= =======
Shares used to
calculate
diluted
income
per share 67,352 67,352 67,638 67,638
======== ======== ======= =======
Shares out-
standing
at end of
period 61,850 61,850 62,556 62,556
======== ======== ======= =======
(a) Elimination of merger-related charges of $434.
(b) Elimination of stock-based compensation.
(c) Elimination of amortization of intangible assets.
(d) Elimination of restructuring charges.
(e) Income tax effect of adjusting entries.
UNITED ONLINE, INC.
Reconciliation of Non-GAAP Financial Data
(in thousands)
Three Months Ended March 31,
--------------------
2004 2003
------- -------
Adjusted Operating Income
Before Depreciation and
Amortization(1)
Operating income $19,930 $ 6,631
Depreciation 1,598 2,809
Amortization 3,964 3,964
------- -------
Operating income before
depreciation and amortization 25,492 13,404
Stock-based compensation 477 28
Restructuring and merger-
related charges(a) -- 219
------- -------
Adjusted operating income before
depreciation and amortization $25,969 $13,651
======= =======
Three Months Ended Twelve Months Ended
March 31, March, 31
---------------------- ---------
2004 2003 2004
--------- --------- ---------
Free Cash Flow(6)
Net cash provided by
operating activities $ 34,785 $ 16,005 $ 102,244
Add (deduct):
Cash paid for
restructuring and
merger-related
charges(a) -- 1,915 --
Capital expenditures (1,005) (2,024) (7,406)
--------- --------- ---------
Free cash flow $ 33,780 $ 15,896 $ 94,838
========= ========= =========
(a) Represents restructuring and merger-related charges incurred
in connection with the merger of Juno and NetZero and the
acquisition of certain assets of BlueLight. These costs are
primarily attributable to stay bonuses, contract termination
fees, write-offs 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)
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2004 2003 2003 2003 2003
-------- ------- ------- ------- -------
Total revenues $107,675 $96,948 $88,790 $79,608 $73,819
Net income $ 12,361 $24,425 $ 8,902 $14,594 $ 6,962
Net income per
diluted share $ 0.18 $ 0.35 $ 0.13 $ 0.21 $ 0.10
Pay subscribers 3,095 2,892 2,720 2,547 2,405
Active users(2)
(in millions) 5.4 5.3 5.2 5.2 5.2
Number of employees
at end of period 504 499 487 461 447
Annualized revenue
per average
employee(8) $ 859 $ 787 $ 749 $ 701 $ 663
(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 (a)
(in thousands)
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2004 2003 2003 2003 2003
----- ----- ----- ----- -----
Internet access 3,083 2,890 2,720 2,547 2,405
Accelerated dial-up 896 638 412 210 22
Other 28 7 -- -- --
----- ----- ----- ----- -----
Total revenue
generating units 4,007 3,535 3,132 2,757 2,427
===== ===== ===== ===== =====
Total pay subscribers(b) 3,095 2,892 2,720 2,547 2,405
Add-on subscription
penetration(c) 29% 22% 15% 8% 1%
(a) 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.
(b) Includes Internet access subscribers and other non-access
pay subscribers.
(c) Percentage of multiple pay relationships to total pay
subscribers.