Record Revenues of $111 Million
Record Operating Income of $20 Million
Record Adjusted OIBDA of $28 Million
WESTLAKE VILLAGE, Calif., Aug. 4, 2004 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet subscription services, today reported results for its second quarter ended June 30, 2004.
Summary of June 2004 Quarter Results:
-- Total revenues for the quarter were a record $110.6 million, up
39% versus $79.6 million for the year-ago quarter.
-- Operating income for the quarter was $20.0 million, or 18.1% of
revenues, nearly double the operating income of $10.2 million,
or 12.8% of revenues, in the year-ago quarter.
-- Adjusted operating income before depreciation and amortization
(or "OIBDA")(1) for the quarter was a record $28.4 million, or
25.7% of revenues, an increase of 76% versus adjusted OIBDA(1)
of $16.2 million, or 20.3% of revenues, in the year-ago quarter.
-- Pay subscribers(2) increased by 94,000 during the quarter to 3.2
million; Revenue generating units(3) (RGUs) increased by 220,000
to 4.2 million; Active accounts(2) totaled 6.8 million at June
30, 2004. In April 2004, the company acquired the consumer
Web-hosting business of About, Inc., which at closing had
approximately 51,000 pay subscribers, 60,000 RGUs and an estimated
1.4 million active accounts.(2)
-- Net income for the quarter was $12.3 million, or $0.19 per share,
versus $14.6 million, or $0.21 per share, for the year-ago
quarter, which included a tax benefit(4) related to the
recognition of a portion of the company's deferred tax assets of
$4.3 million, or $0.06 per share. Excluding the tax benefit, net
income for the June 2003 quarter was $10.3 million, or $0.15 per
share. Net income for the June 2004 quarter reflects an effective
tax rate of 41.5% versus approximately 10% in the year ago
quarter.(4)
-- Adjusted net income(5) for the quarter was a record $16.6
million, or $0.25 per share, an increase of 17% versus adjusted
net income of $14.2 million, or $0.21 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 $28.5 million for the quarter, up
46% from $19.6 million for the year-ago quarter.
-- Free cash flow(6) for the quarter was $25.9 million, up 42% from
$18.2 million for the year-ago quarter.
"United Online delivered record revenues, operating income and adjusted OIBDA during the June 2004 quarter," said Mark R. Goldston, chairman, CEO and president of United Online. "At the same time, we experienced slower growth in access subscribers of 19,000, which we believe was due to a number of factors, including seasonally lower Internet usage and increased competition. Beyond access, we made further progress in expanding our pay service offerings, as premium email subscription growth gained momentum and we took important steps to begin integrating our recent Web-hosting acquisition. In addition, we recently launched an exciting new pay service called emailMyName.us, which is a personalized vanity email product where users can get an email address using their first and last names. On the distribution front, we continued to expand our offline channels through a number of new partners, including RadioShack, which joins Best Buy and Kmart to form the core of our offline distribution effort."
"Key to United Online's strong financial results this quarter was a record billable services margin of over 77%, up 350 basis points sequentially," said Charles S. Hilliard, executive vice president and CFO of United Online. "Margins benefited from a continued decline in telecom costs and a seasonal decrease in Internet usage that was more pronounced than last year. Free cash flow -- which for the first time exceeded the $100 million milestone during the past twelve months -- also remained strong as we invested in new and diverse opportunities."
Additional Highlights of the June 2004 Quarter:
-- Billable services revenues were a record $102.5 million in the
June 2004 quarter, or 93% of total revenues, an increase of 42%
versus $72.4 million, or 91% of total revenues, for the June 2003
quarter.
-- Billable services margin(7) was a record 77.3% for the June 2004
quarter, up from 68.2% for the year-ago quarter.
-- Annualized revenue per average employee(8) was $815,000 for the
June 2004 quarter, up 16% versus $701,000 for the June 2003
quarter.
-- Cash balances at June 30, 2004 were $203.5 million, including
cash, cash equivalents and short-term investments.
-- In April 2004, 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 offers consumers a variety of affordable personal Web-
site services, including hosting, domain and email services.
-- In June 2004, the company entered into a multi-year distribution
agreement with RadioShack Corporation, the leading consumer
electronics specialty retailer. Under the agreement, United
Online will offer its value-priced NetZero Platinum and NetZero
HiSpeed Internet services in more than 5,000 RadioShack stores
nationwide.
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 September 2004 quarter and the year ending December 31, 2004:
-------------- -------------- --------------
(in millions) Sept'04 Q Est. CY'04 Est. Prior CY'04 Est.
-------------- -------------- --------------
Operating income $18.1 -- $19.1 $78.4 -- $80.4 $73.8 -- $78.8
Depreciation &
amortization 6.2 24.4 24.4
Facility exit
costs 3.0 4.6 5.2
Stock-based
compensation 0.7 2.6 2.6
-------------- -------------- --------------
Adjusted operating
income before
depreciation and
amortization(1) $28.0 -- $29.0 $110.0 -- $112.0 $106.0 -- $111.0
-------------- -------------- --------------
Weighted average
diluted shares 66.5 -- 67.0 67.0 -- 68.0 68.0 -- 69.0
-- Total revenues for the September 2004 quarter are estimated to be
between $109 million and $112 million.
-- The company estimates that total pay subscribers(2) will increase
to between 3.3 million and 3.5 million by December 31, 2004, down
from its previous guidance of between 3.35 million and 3.55
million by December 31, 2004.
-- The company anticipates incurring facility exit costs, as noted
above, associated with the planned relocation of its Westlake
Village headquarters, which will remain in Southern California.
(1) Adjusted operating income before depreciation and amortization (adjusted OIBDA) is defined as operating income before depreciation, amortization, stock-based compensation and, in certain periods as reflected in the accompanying tables, facility exit costs. Management believes that because adjusted OIBDA excludes 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, 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, 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 adjusted OIBDA for these purposes, as well as to allocate resources in managing the company's business. 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. Reconciliations to the most directly comparable GAAP financial measure are provided in the accompanying tables.
(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). As of June 30, 2004, the company offered 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. The recognition of the deferred tax assets also resulted in the recording of a tax benefit in each of those quarters. The increase in effective tax rate and the recognition of tax benefits has affected the comparability of net income and adjusted net income between periods. The increases in the effective tax rate and the recording of the tax benefit have not impacted cash amounts paid for income taxes due to the utilization of net operating loss carryforwards to offset current period taxable income.
(5) Adjusted net income is defined as net income before the after-tax effect of amortization of intangible assets, stock-based compensation, facility exit costs and, in the June 2003 quarter, 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 accompanying tables.
(6) 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.
(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 8,000 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 June 30, 2004, the company had 582 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 2:00PM PT (5:00PM 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, 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, 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; 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
June 30, December 31,
2004 2003
----------- -----------
(unaudited)
ASSETS
Cash, cash equivalents
and short-term
investments $203,502 $203,723
Accounts receivable, net 13,404 14,065
Deferred tax assets, net 17,238 26,373
Property and equipment,
net 14,749 13,428
Goodwill and intangible
assets, net 46,018 40,268
Other assets 14,547 10,022
-------- --------
Total assets $309,458 $307,879
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $ 37,251 $ 31,388
Accrued liabilities 19,669 14,028
Deferred revenue 28,160 24,639
-------- --------
Total liabilities 85,080 70,055
-------- --------
Stockholders' equity 224,378 237,824
-------- --------
Total liabilities and
stockholders' equity $309,458 $307,879
======== ========
UNITED ONLINE, INC.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
Quarter Ended
June 30,
-------------------
2004 2003
-------- --------
Revenues:
Billable services $102,496 $ 72,412
Advertising and commerce 8,122 7,196
-------- --------
Total revenues 110,618 79,608
Operating expenses:
Cost of billable services 23,294 23,010
Cost of free services 1,589 2,572
Sales and marketing 44,738 26,467
Product development 6,286 5,428
General and administrative 9,568 7,930
Stock-based compensation (1) 739 14
Amortization of intangible assets 4,393 3,964
-------- --------
Total operating expenses 90,607 69,385
-------- --------
Operating income 20,011 10,223
Interest and other income, net 1,025 1,124
-------- --------
Income before income taxes 21,036 11,347
Provision (benefit) for income
taxes 8,726 (3,247)
-------- --------
Net income $ 12,310 $ 14,594
======== ========
Basic net income per share $ 0.20 $ 0.23
======== ========
Diluted net income per share $ 0.19 $ 0.21
======== ========
Shares used to calculate basic net
income per share 61,669 62,916
======== ========
Shares used to calculate diluted
net income per share 66,238 68,327
======== ========
Shares outstanding at end of period 62,764 63,710
======== ========
(1) Stock-based compensation is
allocated as follows:
Cost of billable services $ -- $ 1
Sales and marketing 124 3
Product development -- 1
General and administrative 615 9
-------- --------
Total stock-based compensation $ 739 $ 14
======== ========
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statement of Cash Flows
(in thousands)
-------------------
June 30,
-------------------
2004 2003
-------- --------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income: $ 12,310 $ 14,594
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, amortization
and stock-based
compensation 7,259 5,932
Deferred taxes, tax benefits
and other 7,945 (3,020)
Change in operating assets
and liabilities (excluding
the effects of acquisitions):
Accounts receivable (1,566) (490)
Deferred tax assets 372 --
Other assets (6,373) 1,514
Accounts payable and accrued
liabilities 9,289 1,323
Deferred revenue (761) (286)
-------- --------
Net cash provided by
operating activities 28,475 19,567
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of short-term
investments (33,723) (5,079)
Proceeds from maturities and
sales of short-term
investments 26,554 8,400
Purchases of rights, patents
and trademarks (901) --
Proceeds from the sale of
cost-basis investment -- 750
Cash paid for aquisitions (11,917) --
Purchases of property and
equipment (3,849) (1,326)
-------- --------
Net cash provided by (used
for) investing activities (23,836) 2,745
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on capital leases -- (64)
Repayments of notes receivable
from stockholders -- 1,587
Proceeds from employee stock
purchase plan 1,636 1,019
Repurchases of common stock -- (3,797)
Proceeds from exercises of
stock options 2,986 3,018
-------- --------
Net cash provided by
financing activities 4,622 1,763
-------- --------
Change in cash and cash
equivalents 9,261 24,075
Cash and cash equivalents,
beginning of period 61,910 61,763
-------- --------
Cash and cash equivalents, end
of period $ 71,171 $ 85,838
======== ========
UNITED ONLINE, INC.
Reconciliation of Net Income to Adjusted Net Income(5)
(in thousands, except per-share data)
Quarter Ended Quarter Ended
June 30, 2004 June 30, 2003
---------------------------- --------------------------
Reported Adjust- Adjusted Reported Adjust- Adjusted
ments ments
---------------------------- --------------------------
Revenues:
Billable
services $102,496 -- $102,496 $72,412 -- $72,412
Advertising
and
commerce 8,122 -- 8,122 7,196 -- 7,196
-------- ------- -------- ------- ------- -------
Total
revenues 110,618 -- 110,618 79,608 -- 79,608
Operating
expenses:
Cost of
billable
services 23,294 -- 23,294 23,010 -- 23,010
Cost of
free
services 1,589 -- 1,589 2,572 -- 2,572
Sales and
marketing 44,738 -- 44,738 26,467 -- 26,467
Product
develop-
ment 6,286 -- 6,286 5,428 -- 5,428
General
and adminis-
trative 9,568 (1,601)(a) 7,967 7,930 7,930
Stock-based
compensa-
tion 739 (739)(b) -- 14 (14)(b) --
Amortization
of
intangible
assets 4,393 (4,393)(c) -- 3,964 (3,964)(c) --
-------- ------- -------- ------- ------- -------
Total
operating
expenses 90,607 (6,733) 83,874 69,385 (3,978) 65,407
-------- ------- -------- ------- ------- -------
Operating
income 20,011 6,733 26,744 10,223 3,978 14,201
Interest
and other
income,
net 1,025 -- 1,025 1,124 -- 1,124
-------- ------- -------- ------- ------- -------
Income
before
income
taxes 21,036 6,733 27,769 11,347 3,978 15,325
Provision
(benefit)
for income
taxes 8,726 2,440(d) 11,166 (3,247) 4,384(e) 1,137
-------- ------- -------- ------- ------- -------
Net income $ 12,310 $ 4,293 $ 16,603 $14,594 $ (406) $14,188
======== ======= ======== ======= ======= =======
Basic net
income per
share $ 0.20 $ 0.27 $ 0.23 $ 0.23
======== ======== ======= =======
Diluted net
income per
share $ 0.19 $ 0.25 $ 0.21 $ 0.21
======== ======== ======= =======
Shares used
to calculate
basic net
income per
share 61,669 61,669 62,916 62,916
======== ======== ======= =======
Shares used
to calculate
diluted net
income per
share 66,238 66,238 68,327 68,327
======== ======== ======= =======
Shares out-
standing at
end of
period 62,764 62,764 63,710 63,710
======== ======== ======= =======
------------------------
(a) Elimination of facility exit costs incurred as a result of the
planned 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.
(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)
Quarter Ended
June 30,
-------------------
2004 2003
-------- --------
Adjusted Operating
Income Before
Depreciation and
Amortization(1)
Operating income $ 20,011 $ 10,223
Depreciation 1,680 1,954
Amortization 4,393 3,964
-------- --------
Operating income before
depreciation and
amortization 26,084 16,141
Stock-based compensation 739 14
Facility exit costs(a) 1,601 --
-------- --------
Adjusted operating income
before depreciation and
amortization $ 28,424 $ 16,155
======== ========
Quarter Ended Twelve Months
June 30, Ended June 30,
--------------------- -------------
2004 2003 2004
--------- --------- ---------
Free Cash Flow(6)
Net cash provided by
operating activities $ 28,475 $ 19,567 $ 111,152
Add (deduct):
Capital expenditures (3,849) (1,326) (9,929)
Cash paid for
relocation costs(b) 1,315 -- 1,315
--------- --------- ---------
Free cash flow $ 25,941 $ 18,241 $ 102,538
========= ========= =========
---------------------------------
(a) Represents costs incurred in connection with the planned
relocation of the Company's corporate offices. These costs are
attributable to lease termination fees and accelerated depreciation
incurred in connection with terminated leases.
(b) Represents cash payments made in connection with the planned
relocation of the Company's corporate offices. These payments relate
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)
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun.30,
2004 2004 2003 2003 2003
-------- -------- -------- -------- --------
Total revenues $110,618 $107,675 $ 96,948 $ 88,790 $ 79,608
Net income $ 12,310 $ 12,361 $ 24,425 $ 8,902 $ 14,594
Net income per diluted
share $ 0.19 $ 0.18 $ 0.35 $ 0.13 $ 0.21
Pay subscribers 3,189 3,095 2,892 2,720 2,547
Active accounts(2)
(in millions) 6.8 5.4 5.3 5.2 5.2
Number of employees at
end of period 582 504 499 487 461
Annualized revenue per
average employee(8) $ 815 $ 859 $ 787 $ 749 $ 701
---------------------------------------------------------------------
(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)
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
2004 2004 2003 2003 2003
----- ----- ----- ----- -----
Internet access 3,102 3,083 2,890 2,720 2,547
Accelerated dial-up 1,001 896 638 412 210
Premium email 66 28 7 -- --
Web hosting and domain
name registration 58 -- -- -- --
----- ----- ----- ----- -----
Total revenue generating
units 4,227 4,007 3,535 3,132 2,757
===== ===== ===== ===== =====
Total pay subscribers(b) 3,189 3,095 2,892 2,720 2,547
RGU penetration(c) 33% 29% 22% 15% 8%
--------------------------------------------------------------------
(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 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 June 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.