-- Content & Media Revenues Grow to 29% of Consolidated Revenues -- Consolidated Operating Income Increases 7% Year-Over-Year -- 20th Consecutive Quarter of Record Consolidated Adjusted OIBDA
WOODLAND HILLS, Calif., Aug. 3, 2006 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet and media services, today reported financial results for its second quarter ended June 30, 2006.
"Our continued diversification into Content & Media services drove United Online's strong second-quarter results and helped us deliver our 20th consecutive quarter of record adjusted OIBDA," said Mark R. Goldston, chairman and chief executive officer of United Online. "This diversification strategy resulted in 29% revenue contribution from our Content & Media segment in the second quarter, up from 17% in the year-ago quarter. At the same time, we have been successful in managing our Communications segment primarily for adjusted OIBDA contribution."
Second-Quarter 2006 Consolidated Results:
-- Total revenues were a record $134.9 million, an increase of 3%
versus $131.5 million in the year-ago quarter.
-- Operating income was a record $22.3 million, or 16.5% of revenues,
an increase of 7% versus $20.9 million, or 15.9% of revenues, in
the year-ago quarter.
-- Adjusted operating income before depreciation and amortization
(OIBDA)(1) increased 14% to a record $38.0 million, or 28.2% of
revenues, versus $33.2 million, or 25.3% of revenues, in the year-
ago quarter.
-- Pay accounts(2) decreased by 97,000 during the quarter to 5.0
million, and active accounts(2) totaled 20.7 million at June 30,
2006.
-- Net income increased 9% to $11.6 million (including $4.7 million
of stock-based compensation, net of tax, recorded under FAS 123R).
Net income for the quarter includes a tax charge of $1.3 million
related to the re-measurement of certain deferred tax assets.
Excluding this charge, net income for the quarter was $12.9
million, or $0.20 per share. In the year-ago quarter, net income
was $10.7 million (including $2.4 million of stock-based
compensation, net of tax, recorded under the intrinsic value
method). On a per share basis, net income was $0.18, an increase
of 6% versus $0.17 in the year-ago quarter.
-- Adjusted net income(3) was a record $20.4 million, an increase of
15%, versus $17.7 million for the year-ago quarter. On a per
share basis, adjusted net income for the quarter was a record
$0.30 per share, an increase of 11%, versus $0.27 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.
"We are pleased with the progress we have made in building our Content & Media business and with the adjusted OIBDA generated by our Communications business," said Charles S. Hilliard, president and chief financial officer of United Online. "Based on our strong second-quarter results as well as our continued ability to manage costs, we are raising our 2006 consolidated adjusted OIBDA guidance."
Second Quarter 2006 Segment Results:
Communications: Internet access, email and VoIP
-- Communications revenues were $96.2 million, or 71.3% of
consolidated revenues, versus $109.5 million, or 83.3% of
consolidated revenues, in the year-ago quarter.
-- Communications adjusted OIBDA(1) was $35.6 million, or 37.0% of
Communications revenues, versus $37.3 million, or 34.1% of
Communications revenues, in the year-ago quarter.
-- Communications pay accounts decreased by 186,000 during the
quarter to 2.9 million, or 57.8% of consolidated pay accounts.
Content & Media: Social networking, online loyalty marketing, Web hosting and photo sharing
-- Content & Media revenues grew 76% to $38.7 million, or 28.7% of
consolidated revenues, versus $22.0 million, or 16.7% of
consolidated revenues, in the year-ago quarter.
-- Content & Media adjusted OIBDA(1) was $7.4 million, or 19.0% of
Content & Media revenues, versus $0.1 million, or 0.2% of Content
& Media revenues, in the year-ago quarter.
-- Content & Media pay accounts increased by 89,000 during the
quarter to 2.1 million, or 42.2% of consolidated pay accounts.
Other:
-- Other reconciling items (unallocated corporate expenses) to arrive
at consolidated adjusted OIBDA were ($4.9) million compared to
($4.1) million in the year-ago quarter.
Additional Highlights:
-- On April 10, 2006, the company acquired MyPoints.com, a leading
provider of online loyalty marketing solutions, for approximately
$56.0 million in cash.
-- Cash balances at June 30, 2006 were $150.2 million, including
cash, cash equivalents and short-term investments.
-- Cash flows from operations were $38.6 million, versus $40.7
million for 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 $32.9 million, versus $35.7 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 September 2006 quarter and the year ending December 31, 2006:
(in millions)
Q3 ending 9/30/06 2006 Est. Prior 2006 Est.
----------------- ------------- ---------------
Operating income $17.5 - $19.5 $80.7 - $84.7 $76.0 - $81.0
Depreciation 5.7 21.7 20.0
Amortization 4.2 17.0 19.0
Stock-based
compensation 5.1 21.1 19.0
Restructuring
charges 1.5 1.5 --
----------------- ------------- ---------------
Adjusted operating
income before
depreciation
and amortization (1) $34.0 - $36.0 $142.0 - $146.0 $134.0 - $139.0
----------------- ------------- ---------------
Weighted average
diluted shares 67.0 - 68.0 67.0 - 68.0 68.0 - 69.0
-- Total revenues for the September 2006 quarter are estimated to
be between approximately $128 million and approximately $131
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 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. 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 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 June 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 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 (such as
amortization and stock-based compensation). Management also uses
adjusted net income for this purpose. 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. 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. 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 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. 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. PDT (5:00 p.m. EDT) 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.untd.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) and Communications services include Internet access (NetZero, Juno), email and VoIP. United Online is headquartered in Woodland Hills, CA, with offices in New York City, NY; Renton, WA; San Francisco, CA; Schaumburg, IL; Orem, UT; Erlangen, Germany; and Hyderabad, India. For more information about United Online, please visit http://www.untd.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. 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 changes in marketing expenditures or shifts in marketing expenditures to support new products and services; 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, 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 its 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)
June 30, December 31,
2006 2005
-------- --------
ASSETS
Cash, cash equivalents and short-
term investments $150,219 $244,362
Accounts receivable, net 27,002 19,201
Deferred tax assets, net 67,042 68,355
Property and equipment, net 39,819 33,093
Goodwill and intangible assets, net 203,609 139,837
Other assets 15,685 16,340
-------- --------
Total assets $503,376 $521,188
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 42,660 $ 46,955
Accrued liabilities 39,841 36,249
Member retention liability 18,543 --
Deferred revenue 58,171 56,284
Capital leases 551 698
Term loan -- 54,208
Other liabilities 3,773 4,379
-------- --------
Total liabilities 163,539 198,773
-------- --------
Stockholders' equity 339,837 322,415
-------- --------
Total liabilities and stockholders'
equity $503,376 $521,188
======== ========
UNITED ONLINE, INC.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
---------------------------
Three Months Ended June 30,
---------------------------
2006 2005
-------- --------
Revenues $134,900 $131,520
Operating expenses:
Cost of revenues(a) 31,146 27,419
Sales and marketing(a) 46,137 53,803
Product development(a) 13,385 9,558
General and administrative(a) 17,422 14,227
Amortization of intangible assets 4,552 5,654
-------- --------
Total operating expenses 112,642 110,661
-------- --------
Operating income 22,258 20,859
Interest and other income, net 1,354 1,592
Interest expense (411) (1,355)
-------- --------
Income before income taxes 23,201 21,096
Provision for income taxes 11,616 10,424
-------- --------
Net income $ 11,585 $ 10,672
======== ========
Basic net income per share $ 0.18 $ 0.18
======== ========
Diluted net income per share $ 0.18 $ 0.17
======== ========
Shares used to calculate basic net
income per share 63,782 60,831
======== ========
Shares used to calculate diluted net
income per share 65,955 63,093
======== ========
Shares outstanding at end of period 64,835 61,760
======== ========
(a) Stock-based compensation was
allocated as follows:
Cost of revenues $ 256 $ 57
Sales and marketing 1,072 224
Product development 1,645 350
General and administrative 2,891 2,289
-------- --------
Total stock-based compensation $ 5,864 $ 2,920
======== ========
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
---------------------------
Three Months Ended June 30,
---------------------------
2006 2005
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,585 $ 10,672
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and
stock-based compensation 15,761 12,358
Deferred taxes and other 1,986 1,660
Tax benefits from stock-based
compensation 1,697 4,056
Excess tax benefits from stock-based
compensation (1,169) --
Change in operating assets and
liabilities (excluding the effects
of acquisitions):
Accounts receivable 523 (1,526)
Other assets 2,228 (1,031)
Accounts payable and accrued
liabilities 6,186 11,750
Member retention liability 870 --
Other liabilities (48) 907
Deferred revenue (970) 1,880
-------- --------
Net cash provided by operating
activities 38,649 40,726
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,892) (5,018)
Purchases of rights, patents and
trademarks -- (54)
Purchases of short-term investments (56,188) (94,120)
Proceeds from maturities and sales
of short-term investments 83,001 69,475
Cash paid for acquisitions, net of
cash acquired (49,538) (98)
-------- --------
Net cash used for investing
activities (29,617) (29,815)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan -- (5,833)
Payments on capital leases (96) (152)
Proceeds from exercises of stock
options 2,415 2,024
Proceeds from employee stock
purchase plan 2,965 1,678
Repurchases of common stock (314) --
Payments for dividends (13,374) (12,590)
Excess tax benefits from stock-based
compensation 1,169 --
-------- --------
Net cash used for financing
activities (7,235) (14,873)
-------- --------
Effect of exchange rate changes on
cash and cash equivalents (4) (75)
Change in cash and cash equivalents 1,793 (4,037)
Cash and cash equivalents, beginning
of period 22,569 44,722
-------- --------
Cash and cash equivalents, end of
period $ 24,362 $ 40,685
======== ========
UNITED ONLINE, INC.
Reconciliation of Net Income to Adjusted Net Income(3)
(in thousands, except per-share data)
Three Months Ended June 30,
---------------------------
2006 2005
-------- --------
Net income $ 11,585 $ 10,672
Add (deduct):
Stock-based compensation 5,864 2,920
Amortization of intangible assets 4,552 5,654
-------- --------
22,001 19,246
Income tax effect of adjusting entries (2,938) (2,546)
Re-measurement of certain deferred tax
assets 1,319 1,008
-------- --------
Adjusted net income $ 20,382 $ 17,708
======== ========
Adjusted basic net income per share $ 0.32 $ 0.29
======== ========
Adjusted diluted net income per share $ 0.30 $ 0.27
======== ========
Shares used to calculate adjusted
basic net income per share 63,782 60,831
======== ========
Shares used to calculate adjusted
diluted net income per share(a) 67,029 64,899
======== ========
--------------------------------------------------------------------
(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 June 30,
---------------------------
2006 2005
---------------------------
Adjusted Operating Income Before
Depreciation and Amortization(1)
Operating income $ 22,258 $ 20,859
Depreciation 5,345 3,784
Amortization 4,552 5,654
-------- --------
Operating income before
depreciation and amortization 32,155 30,297
Stock-based compensation 5,864 2,920
-------- --------
Adjusted operating income before
depreciation and amortization $ 38,019 $ 33,217
======== ========
Three Months Ended June 30,
---------------------------
2006 2005
---------------------------
Free Cash Flow(4)
Net cash provided by operating
activities $ 38,649 $ 40,726
Add (deduct):
Capital expenditures (6,892) (5,018)
Excess tax benefits from stock-based
compensation(a) 1,169 --
-------- --------
Free cash flow $ 32,926 $ 35,708
======== ========
---------------------------------------------------------------------
(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 June 30, 2006
-----------------------------------------------
Unallocated
Content & Corporate
Communications Media Expenses Total
-------------- --------- --------- --------
Billable services $ 87,161 $ 21,697 $ -- $108,858
Advertising 9,087 16,955 -- 26,042
-------- -------- -------- --------
Total revenues 96,248 38,652 -- 134,900
-------- -------- -------- --------
Operating expenses:
Cost of revenue 22,368 8,522 256 31,146
Sales and marketing 28,225 16,840 1,072 46,137
Product development 8,151 3,589 1,645 13,385
General and
administrative 4,884 4,735 7,803 17,422
Amortization of
intangible assets 684 3,868 -- 4,552
-------- -------- -------- --------
Total operating
expenses 64,312 37,554 10,776 112,642
-------- -------- -------- --------
Operating income 31,936 1,098 (10,776) 22,258
-------- -------- -------- --------
Depreciation 2,954 2,391 -- 5,345
Amortization 684 3,868 -- 4,552
-------- -------- -------- --------
Operating income
before depreciation
and amortization 35,574 7,357 (10,776) 32,155
Stock-based
compensation -- -- 5,864 5,864
-------- -------- -------- --------
Adjusted operating
income before
depreciation and
amortization $ 35,574 $ 7,357 $ (4,912) $ 38,019
======== ======== ======== ========
Three Months Ended June 30, 2005
-----------------------------------------------
Unallocated
Content & Corporate
Communications Media Expenses Total
-------------- --------- --------- --------
Billable services $100,847 $ 16,643 $ -- $117,490
Advertising 8,673 5,357 -- 14,030
-------- -------- -------- --------
Total revenues 109,520 22,000 -- 131,520
-------- -------- -------- --------
Operating expenses:
Cost of revenue 23,268 4,094 57 27,419
Sales and marketing 39,618 13,961 224 53,803
Product development 6,841 2,367 350 9,558
General and
administrative 4,753 3,048 6,426 14,227
Amortization of
intangible assets 746 4,908 -- 5,654
-------- -------- -------- --------
Total operating
expenses 75,226 28,378 7,057 110,661
-------- -------- -------- --------
Operating income 34,294 (6,378) (7,057) 20,859
-------- -------- -------- --------
Depreciation 2,261 1,523 -- 3,784
Amortization 746 4,908 -- 5,654
-------- -------- -------- --------
Operating income
before depreciation
and amortization 37,301 53 (7,057) 30,297
Stock-based
compensation -- -- 2,920 2,920
-------- -------- -------- --------
Adjusted operating
income before
depreciation and
amortization $ 37,301 $ 53 $ (4,137) $ 33,217
======== ======== ======== ========
UNITED ONLINE, INC.
Selected Quarterly Historical Financial Data and Key Metrics(a)
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
2006 2006 2005 2005 2005
-------- -------- -------- -------- --------
Revenue (in
thousands) $134,900 $127,332 $130,232 $132,778 $131,520
Net income (in
thousands) $ 11,585 $ 12,692 $ 12,374 $ 12,594 $ 10,672
Net income per
diluted share $ 0.18 $ 0.20 $ 0.19 $ 0.20 $ 0.17
Pay accounts(2)
(in thousands) 4,996 5,093 5,009 5,040 5,033
Active
accounts(2)
(in millions) 20.7 18.7 17.6 16.9 16.9
Number of
employees at
end of period 1,016 912 900 868 828
---------------------------------------------------------------------
(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)
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
2006 2006 2005 2005 2005
-------- -------- -------- -------- --------
Communications(a)
Access 2,556 2,751 2,855 2,980 3,078
Other 330 321 313 301 286
----- ----- ----- ----- -----
Total 2,886 3,072 3,168 3,281 3,364
----- ----- ----- ----- -----
Content & Media(b)
Social
networking 2,029 1,945 1,766 1,686 1,599
Other 81 76 75 73 70
----- ----- ----- ----- -----
Total 2,110 2,021 1,841 1,759 1,669
----- ----- ----- ----- -----
Total pay
accounts(2) 4,996 5,093 5,009 5,040 5,033
======== ======== ======== ======== ========
---------------------------------------------------------------------
(a) Communications includes Internet access, VoIP, premium content,
premium email and security suite.
(b) Content & Media includes social networking, Web hosting and
photo sharing.