RENTON, WA U.S.A. and WOODLAND HILLS, CA U.S.A. - Oct 25, 2004 - (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet subscription services, today reported results for its third quarter ended September 30, 2004.
Summary of September 2004 Quarter Results:
- Total revenues for the quarter were a record $110.7 million, up 25% versus $88.8 million for the year-ago quarter.
- Operating income for the quarter was a record $20.5 million, or 18.5% of revenues, up 49% versus operating income of $13.8 million, or 15.5% of revenues, in the year-ago quarter.
- Adjusted operating income before depreciation and amortization (or "OIBDA")(1) for the quarter was a record $29.2 million, or 26.4% of revenues, an increase of 51% versus adjusted OIBDA(1) of $19.3 million, or 21.7% of revenues, in the year-ago quarter.
- Pay subscribers(2) increased by 43,000 during the quarter to 3.2 million; Revenue generating units(3)(RGUs) increased by 123,000 to 4.4 million; Active accounts(2) totaled 6.6 million at September 30, 2004.
- Net income for the quarter was $12.6 million, or $0.19 per share, versus $8.9 million, or $0.13 per share, for the year-ago quarter.
- Adjusted net income(4) for the quarter was $16.9 million, or $0.26 per share, an increase of 50% versus adjusted net income of $11.3 million, or $0.16 per share, for the year-ago quarter. Adjusted net income is calculated in a manner consistent with the analyst consensus estimate as reported by First Call.
- Cash flows from operations were $29.0 million for the quarter, up 53% from $18.9 million for the year-ago quarter.
- Free cash flow(5) for the quarter was $27.5 million, up 59% from $17.3 million for the year-ago quarter.
"Our September quarter financial results were driven by continued telecom cost declines and further expansion of the company's billable services margin - up 620 basis points versus the year-ago quarter," said Charles S. Hilliard, executive vice president and CFO of United Online. "Sequential comparisons also benefited from declining telecom costs, as well as solid growth in advertising revenues - which more than offset a slight decline in billable services revenues. While we were pleased that our premium email subscriptions surpassed the 100,000 milestone in the quarter, our access business - which added 9,000 net new subscribers this quarter - continued to be impacted by competition and other factors. Our strong free cash flow - more than $112 million during the past twelve months - provides the company significant financial flexibility to create long term value."
Additional Highlights of the September 2004 Quarter:
- Billable services revenues were $102.1 million in the September 2004 quarter, or 92% of total revenues, an increase of 28% versus $79.6 million, or 90% of total revenues, for the September 2003 quarter.
- Billable services margin(6) was a record 77.5% for the September 2004 quarter, up from 71.3% for the year-ago quarter.
- Annualized revenue per average employee(7) was $751,000 for the September 2004 quarter.
- Cash balances at September 30, 2004 were $202.6 million, including cash, cash equivalents and short-term investments.
- The company repurchased 2.7 million shares of its common stock at an aggregate cost of $25 million during the September 2004 quarter. Since the inception of its common stock repurchase program in March 2001, the company has repurchased 9.7 million shares of its common stock at an aggregate cost of $125 million. Under this program, the company can repurchase up to an additional $75 million of its common stock through May 31, 2005.
United Online also announced today that it has signed a definitive agreement to acquire Classmates Online, Inc., a leader in online community-based networking, for approximately $100 million in cash, net of cash acquired. Classmates Online, Inc. operates Classmates.com (www.classmates.com), connecting millions of members throughout the U.S. and Canada with friends and acquaintances from school, work and the military. Its Classmates International subsidiary also operates leading community-based networking sites in Sweden, through Klasstraffen Sweden AB (www.klasstraffen.com), and in Germany, through StayFriends GmbH (www.stayfriends.de).
At September 30, 2004, Classmates had 1.4 million paid subscribers, 10.3 million monthly active accounts, and more than 38 million registered members, giving it a significant database of self-registered personal information. During the nine months ended September 30, 2004, the company generated revenues of $54 million - 75% from subscription fees - and operating income of $3.7 million, after $4.9 million of depreciation and amortization expenses. The company has 175 employees, and United Online intends to maintain Classmates' operations in Renton, WA. The acquisition is expected to be completed in the fourth quarter of this year, subject to customary closing conditions, including regulatory approval. Classmates Online's Board of Directors and shareholders have approved the transaction.
"Our proposed purchase of Classmates is consistent with our stated mission to expand our network of affordable, high-quality consumer Internet subscription services," Goldston said. "Classmates has built a highly recognized, market-leading brand that offers a range of community-based networking services that make it a top destination for consumers seeking to find, connect and keep-in-touch with friends and acquaintances from their school, work or military affiliations. Together with United Online's 6.6 million active accounts, the addition of Classmates will give us a powerful audience of more than 16 million active accounts, providing additional marketing opportunities and extending our advertising reach. We look forward to welcoming Classmates' team of skilled employees to the United Online family."
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 December 2004 quarter and the year ending December 31, 2004, excluding any potential impact from the proposed acquisition of Classmates Online, Inc.:
| (in millions) | Dec'04 Q Est. | CY'04 Est. | Prior CY'04 Est. |
| Operating income | $19.6 - $21.6 | $80.1 - $82.1 | $78.4 - $80.4 |
| Depreciation & amortization | 6.7 | 24.7 | 24.4 |
| Facility exit costs | --- | 3.2 | 4.6 |
| Stock-based compensation | 0.7 | 2.6 | 2.6 |
| Adjusted operating income before depreciation and amortization (1) | $27.0 - $29.0 | $110.6 - $112.6 | $110.0 - $112.0 |
| Weighted average diluted shares | 64.5 - 65.5 | 65.5 - 66.5 | 67.0 - 68.0 |
- Total revenues for the December 2004 quarter are estimated to be between $109 million and $112 million.
- The company estimates that total pay subscribers(2) will increase to between 3.25 million and 3.35 million by December 31, 2004, down from its previous guidance of between 3.3 million and 3.5 million.
(2) Total pay subscribers includes Internet access subscribers, Web-hosting subscribers, non-access premium email subscribers, domain name registration subscribers and, going forward, other pay subscription services that the company may introduce or acquire. Active accounts are defined as all free access and email users that logged on to our services at least once during the preceding 31 days, together with all subscribers to a pay service. Additionally, active accounts include the number of free Web sites that received at least one unique visitor within the preceding 90 days. 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, premium email, Web-hosting and domain name registration 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 its standard Internet access only. A detailed calculation of RGUs is provided in the accompanying table entitled "Analysis of Revenue Generating Units."
(4) Adjusted net income is defined as net income before the after-tax effect of amortization of intangible assets, stock-based compensation and facility exit costs. 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.
(5) Free cash flow is defined as net cash provided by operating activities before cash paid for relocation costs, less capital expenditures. Management believes that free cash flow provides investors with additional useful information to measure operating liquidity because it reflects the company's operating cash flows after investing in capital assets, and excludes the cash impact of items which management believes are not reflective of the company's core operating results over time. This measure is used by management, and may also be useful for investors, to assess the company's ability to generate cash flow for a variety of strategic opportunities, including reinvestment in the business, effecting potential acquisitions, strengthening the balance sheet, and effecting share repurchases. Free cash flow is not determined in accordance with generally accepted accounting principles (GAAP) and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Reconciliations to the most directly comparable GAAP financial measure are provided in the accompanying tables.
(6) Billable services margin represents billable services revenues less cost of billable services divided by billable services revenues.
(7) 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 8,000 cities across the United States and in Canada. United Online is headquartered in Woodland Hills, CA, with offices in New York City, San Francisco, CA, Orem, UT, and Hyderabad, India. At September 30, 2004, the company had 598 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 PT (11:00AM ET) to discuss its quarterly results. A live Web cast of the call can be accessed on the Investors section of the company's Web site at www.untd.com. A recording of the call will be available on the site for seven days.
Cautionary Information Regarding Forward-Looking Statements
This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Statements containing words such as "guidance," "may," "believe," "will," "expect," "project," "projections," "business outlook" and "estimate" or similar expressions constitute forward-looking statements. These statements include, without limitation, expectations regarding the consummation of the acquisition of Classmates Online; 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: that the Classmates Online acquisition does not close when anticipated, if at all, on the terms discussed; 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 subscribers, particularly subscribers to accelerated dial-up, premium email and Web-hosting 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 and stock options, stock repurchases, fluctuations in the company's stock price or other factors; changes in the projected amortization and depreciation figures due to capital spending or other factors; changes in usage by subscribers, additional telecommunications costs or other factors negatively impacting the company's billable services margin; changes in active free accounts; 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; the company's ability to integrate acquisitions, including Classmates Online; problems associated with the company's billing systems; the company's inability to retain key customers and key personnel; unanticipated technological problems or developments; risks associated with litigation; and unanticipated governmental regulation. From time to time, the company considers acquisitions that, if consummated, could be material. Forward-looking statements regarding financial metrics are based upon the assumption that no such acquisition is consummated during the relevant periods. If an acquisition were consummated, actual results could differ materially from any forward-looking statements. More information about potential factors that could affect the company's business and financial results is included in the company's annual and quarterly reports filed with the Securities and Exchange Commission (http://www.sec.gov), including without limitation information under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors."
| UNITED ONLINE, INC. | ||
| Condensed Consolidated Balance Sheets | ||
| (in thousands) | ||
| September 30, 2004 |
December 31, 2003 |
|
| ASSETS (unaudited) | ||
| Cash, cash equivalents and short-term investments | $202,645 | $203,723 |
| Accounts receivable, net | 13,414 | 14,065 |
| Deferred tax assets, net | 11,192 | 26,373 |
| Property and equipment, net | 18,763 | 13,428 |
| Goodwill and intangible assets, net | 41,729 | 40,268 |
| Other assets | 13,539 | 10,022 |
| Total assets | $301,282 | $307,879 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Accounts payable | $ 39,037 | $ 31,388 |
| Accrued liabilities | 16,858 | 14,028 |
| Deferred revenue | 28,231 | 24,639 |
| Other liabilities | 1,189 | -- |
| Total liabilities | 85,315 | 70,055 |
| Stockholders' equity | 215,967 | 237,824 |
| Total liabilities and stockholders' equity | $301,282 | $307,879 |
| UNITED ONLINE, INC. | ||
| Unaudited Consolidated Statements of Operations | ||
| (in thousands, except per share amounts) | ||
| Quarter Ended September 30, | ||
| 2004 | 2003 | |
| Revenues: | ||
| Billable services | $102,113 | $ 79,646 |
| Advertising and commerce | 8,591 | 9,144 |
| Total revenues | 110,704 | 88,790 |
| Operating expenses: | ||
| Cost of billable services | 23,013 | 22,897 |
| Cost of free services | 1,605 | 2,084 |
| Sales and marketing | 43,445 | 33,939 |
| Product development | 7,069 | 5,120 |
| General and administrative | 10,220 | 7,008 |
| Stock-based compensation (1) | 716 | -- |
| Amortization of intangible assets | 4,395 | 3,964 |
| Total operating expenses | 90,463 | 75,012 |
| Operating income | 20,241 | 13,778 |
| Interest and other income, net | 1,059 | 1,183 |
| Income before income taxes | 21,300 | 14,961 |
| Provision for income taxes | 8,841 | 6,059 |
| Net income | $ 12,459 | $ 8,902 |
| Basic net income per share | $ 0.20 | $ 0.14 |
| Diluted net income per share | $ 0.19 | $ 0.13 |
| Shares used to calculate basic net income per share | 61,183 | 64,161 |
| Shares used to calculate diluted net income per share | 21,300 | 14,961 |
| Shares outstanding at end of period | 60,545 | 65,168 |
| (1) Stock-based compensation is allocated as follows: | ||
| Cost of billable services | $ -- | $ -- |
| Sales and marketing | 124 | -- |
| Product development | -- | -- |
| General and administrative | 592 | -- |
| Total stock-based compensation | $ 716 | $ -- |
| UNITED ONLINE, INC. | ||
| Unaudited Condensed Consolidated Statement of Cash Flows | ||
| (in thousands) | ||
| Quarter Ended September 30, | ||
| 2004 | 2003 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||
| Net income: | $ 12,459 | $ 8,902 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation, amortization and stock-based compensation | 7,366 | 5,531 |
| Deferred taxes, tax benefits and other | 7,986 | 6,384 |
| Change in operating assets and liabilities (excluding the effects of acquisitions): | ||
| Restricted cash | -- | 111 |
| Accounts receivable | (10) | (335) |
| Other assets | 1,008 | (3,689) |
| Accounts payable and accrued liabilities | (1,025) | 1,358 |
| Other liabilities | 1,189 | -- |
| Deferred revenue | (14) | 641 |
| Net cash provided by operating activities | 28,959 | 18,903 |
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||
| Purchases of short-term investments | (12,583) | (30,674) |
| Proceeds from maturities and sales of short-term investments | 6,020 | -- |
| Purchases of rights, patents and trademarks | (4) | -- |
| Proceeds from the sale of cost-basis investment | -- | -- |
| Cash paid for acquisitions | (17) | -- |
| Purchases of property and equipment | (6,344) | (1,593) |
| Proceeds from sales of assets, net | 92 | -- |
| Net cash used for investing activities | (12,836) | (32,267) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||
| Payments on capital leases | -- | (22) |
| Repayments of notes receivable from stockholders | -- | -- |
| Proceeds from employee stock purchase plan | -- | -- |
| Repurchases of common stock | (25,011) | -- |
| Proceeds from exercises of stock options | 1,123 | 8,020 |
| Net cash provided by (used for) financing activities | (23,888) | 7,998 |
| Change in cash and cash equivalents | (7,765) | (5,366) |
| Cash and cash equivalents, beginning of period | 71,171 | 85,838 |
| Cash and cash equivalents, end of period | $ 63,406 | $ 80,472 |
| UNITED ONLINE, INC. | ||||||
| Reconciliation of Net Income to Adjusted Net Income (4) |
||||||
| (in thousands, except per-share data) | ||||||
| Quarter Ended September 30, 2004 |
Quarter Ended September 30, 2003 |
|||||
| Reported | Adjust- ments |
Adjusted | Reported | Adjust- ments |
Adjusted | |
| Revenues: | ||||||
| Billable services | $102,113 | $ -- | $102,113 | $79,646 | $ -- | $ 79,646 |
| Advertising and commerce | 8,591 | -- | 8,591 | 9,144 | -- | 9,144 |
| Total revenues | 110,704 | -- | 110,704 | 88,790 | -- | 88,790 |
| Operating expenses: | ||||||
| Cost of billable services | 23,013 | -- | 23,013 | 22,897 | -- | 22,897 |
| Cost of free services | 1,605 | -- | 1,605 | 2,084 | -- | 2,084 |
| Sales and marketing | 43,445 | -- | 43,445 | 33,939 | -- | 33,939 |
| Product develop- ment |
7,069 | -- | 7,069 | 5,120 | -- | 5,120 |
| General and administra- tive |
10,220 | (1,646)(a) | 8,574 | 7,008 | -- | 7,008 |
| Stock-based compen- sation |
716 | (716)(b) | -- | -- | -- | -- |
| Amortization of intangible assets | 4,395 | (4,395)(c) | -- | 3,964 | (3,964)(c) | -- |
| Total operating expenses | 90,463 | (6,757) | 83,706 | 75,012 | (3,964) | 71,048 |
| Operating income | 20,241 | 6,757 | 26,998 | 13,778 | 3,964 | 17,742 |
| Interest and other income, net | 1,059 | -- | 1,059 | 1,183 | -- | 1,183 |
| Income before income taxes | 21,300 | 6,757 | 28,057 | 14,961 | 3,964 | 18,925 |
| Provision for income taxes | 8,841 | 2,459(d) | 11,300 | 6,059 | 1,605(d) | 7,664 |
| Net income | $ 12,459 | $ 4,298 | $ 16,757 | $ 8,902 | $ 2,359 | $ 11,261 |
| Basic net income per share | $ 0.20 | $ 0.27 | $ 0.14 | $ 0.18 | ||
| Diluted net income per share | $ 0.19 | $ 0.26 | $ 0.13 | $ 0.16 | ||
| Shares used to calculate basic net income per share | 61,183 | 61,183 | 64,161 | 64,161 | ||
| Shares used to calculate diluted net income per share | 64,955 | 64,955 | 70,133 | 70,133 | ||
| Shares out-standing at end of period | 60,545 | 60,545 | 65,168 | 65,168 | ||
| (a) Elimination of facility-exit costs incurred as a result of the relocation of the Company's corporate offices. | ||||||
| (b) Elimination of stock-based compensation. | ||||||
| (c) Elimination of amortization of intangible assets. | ||||||
| (d) Income tax effect of adjusting entries. | ||||||
| UNITED ONLINE, INC. | ||
| Reconciliation of Non-GAAP Financial Data | ||
| (in thousands) | ||
| Quarter Ended September 30, | ||
| 2004 | 2003 | |
| Adjusted Operating Income Before Depreciation and Amortization (1) |
||
| Operating income | $20,241 | $13,778 |
| Depreciation | 1,957 | 1,567 |
| Amortization | 4,395 | 3,964 |
| Operating income before depreciation and amortization | 26,593 | 19,309 |
| Stock-based compensation | 716 | -- |
| Facility-exit costs (a) | 1,646 | -- |
| Adjusted operating income before depreciation and amortization | $28,955 | $19,309 |
| Quarter Ended September 30, |
Twelve Months Ended September 30, |
|||
| 2004 | 2003 | 2004 | ||
| Free Cash Flow (5) | ||||
| Net cash provided by operating activities | $ 28,959 | $ 18,903 | $ 121,208 | |
| Add (deduct): | ||||
| Capital expenditures | (6,344) | (1,593) | (14,680) | |
| Cash paid for relocation costs (b) | 4,895 | -- | 6,210 | |
| Free cash flow | $ 27,510 | $ 17,310 | $ 112,738 | |
| (a) Represents costs incurred in connection with the relocation of the Company's corporate offices. These costs are primarily attributable to lease termination fees and accelerated depreciation incurred in connection with terminated leases. | ||||
| (b) Represents cash payments made in connection with the relocation of the Company's corporate offices. These payments relate primarily to lease termination fees and capital expenditures for the new corporate offices. | ||||
| UNITED ONLINE, INC. | |||||
| Selected Quarterly Historical Financial Data and Key Metrics (a) | |||||
| (in thousands, except per share amounts, number of employees and where noted) | |||||
| Sept. 30, 2004 |
Jun. 30, 2004 |
Mar. 31 2004 |
Dec 31, 2003 |
Sep 30, 2003 |
|
| Total revenue-generating units | $110,704 | $110,618 | $107,675 | $96,948 | $88,790 |
| Net income | $ 12,459 | $ 12,310 | $ 12,361 | $24,425 | $ 8,902 |
| Net income per diluted share | $ 0.19 | $ 0.19 | $ 0.18 | $ 0.35 | $ 0.13 |
| Pay subscribers | 3,232 | 3,189 | 3,095 | 2,892 | 2,720 |
| Active accounts (2) (in millions) | 6.6 | 6.8 | 5.4 | 5.3 | 5.2 |
| Number of employees at end of period | 598 | 582 | 504 | 499 | 487 |
| Annualized revenue per average employee (7) | $ 751 | $ 815 | $ 859 | $ 787 | $ 749 |
| (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 (RGUs) (a) | |||||
| (in thousands) | |||||
| Sept. 30, 2004 |
Jun. 30, 2004 |
Mar. 31 2004 |
Dec 31, 2003 |
Sep 30, 2003 |
|
| Internet access | 3,111 | 3,102 | 3,083 | 2,890 | 2,720 |
| Accelerated dial-up | 1,074 | 1,001 | 896 | 638 | 412 |
| Premium email | 103 | 66 | 28 | 7 | -- |
| Web hosting and domain name registration | 62 | 58 | -- | -- | -- |
| Total revenue-generating units | 4,350 | 4,227 | 4,007 | 3,535 | 3,132 |
| Total pay subscribers(b) | 3,232 | 3,189 | 3,095 | 2,892 | 2,720 |
| RGU penetration (c) | 35% | 33% | 29% | 22% | 15% |
| (a) A revenue generating unit (RGU) represents a unique subscription to any individual pay service offered by the company. Internet access, accelerated dial-up, premium email, Web-hosting and domain name registration and other pay 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). At September 30, 2004, the company offered its accelerated dial-up service bundled with standard Internet access only. | |||||
| (b) Total pay subscribers includes Internet access subscribers, premium email subscribers, Web-hosting subscribers and domain name registration subscribers. | |||||
| (c) Defined as total RGUs minus total pay subscribers divided by total pay subscribers. | |||||
CONTACT:
United Online, Inc.
Investor Contact:
Brent Zimmerman
(818) 287-3350
investor@untd.com
Press Contacts:
Liz Gengl
(818) 287-3076
pr@untd.com
Peter Delgrosso
(818) 287-3388
pr@untd.com
