Record Revenues of $130.5 Million
Record Operating Income of $21.0 Million
Record Adjusted OIBDA of $31.5 Million
Quarterly Cash Dividend of $0.20 per Share
WOODLAND HILLS, Calif., May 3, 2005 (PRIMEZONE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet subscription services, today reported results for its first quarter ended March 31, 2005. The company also announced that its Board of Directors has approved the initiation of a quarterly cash dividend of $0.20 per share of common stock.
The first quarterly cash dividend is payable on May 31, 2005 to shareholders of record as of the close of business on May 13, 2005. While the company intends to pay regular quarterly dividends for the foreseeable future, the declaration and payment of future dividends are discretionary and will be subject to determination by the Board of Directors each quarter following its review of the company's financial performance.
Summary of March 2005 Quarter Results:
--------------------------------------
-- Total revenues for the quarter were a record $130.5 million,
up 21% versus $107.7 million for the year-ago quarter.
-- Operating income for the quarter was a record $21.0 million,
or 16.1% of revenues, up 5% versus operating income of
$19.9 million, or 18.5% of revenues, in the year-ago quarter.
-- Adjusted operating income before depreciation and amortization
("OIBDA")(1) for the quarter was a record $31.5 million, or
24.1% of revenues, an increase of 21% versus adjusted OIBDA of
$26.0 million, or 24.1% of revenues, in the year-ago quarter.
-- Pay accounts(2) increased by 126,000 during the quarter to
4.95 million; subscriptions(3) increased by 214,000 to
6.2 million; active accounts(2) totaled 17.0 million at
March 31, 2005.
-- Net income for the quarter was $11.5 million, or $0.18 per
share, versus $12.4 million, or $0.18 per share, for the
year-ago quarter.
-- Adjusted net income(4) for the quarter was $16.2 million,
an increase of 7% versus adjusted net income of $15.2 million
for the year-ago quarter. On a per share basis, adjusted net
income for the quarter was $0.25 per share, an increase of
9% versus adjusted net income of $0.23 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 $31.7 million for the quarter,
versus $34.8 million for the year-ago quarter.
-- Free cash flow(5) for the quarter was $28.2 million, versus
$33.8 million for the year-ago quarter.
"With our 15th consecutive quarter of record revenues and adjusted OIBDA, 2005 is off to an excellent start for United Online," said Mark R. Goldston, chairman, CEO and president of United Online. "We are pleased with the progress of our diversification strategy, which contributed significantly to our growth in the first quarter. With United Online's quarterly advertising revenues up 43% year-over-year, we are also pleased to announce the launch of the United Online Advertising Network, which will consolidate advertising sales across all of our Internet properties giving advertisers additional reach, scale and efficiency. We have also formed United Online Web Services, which is dedicated to integrating our existing web hosting, domain registration, premium email, premium content and PhotoSite products into our access and Classmates businesses. We believe that these initiatives, along with our planned VoIP launch during the second half of 2005, offer new, innovative ways to leverage our large user base and portfolio of Internet properties."
"Our strong first quarter financial results reflect growing revenue contribution from non-access businesses, positive seasonality for access and planned increases in product development," said Charles S. Hilliard, executive vice president and CFO of United Online. "Pay access accounts grew by a net 30,000 during Q1, representing less than 24% of total pay account growth for the quarter. Our modest increase to 2005 adjusted OIBDA guidance reflects our solid first quarter performance and planned investment spending on diversification initiatives for the remainder of the year.
"The Board's decision to return capital to shareholders via a dividend complements our existing share repurchase program and reflects confidence in United Online's strong cash flows," added Charles S. Hilliard. "Importantly, we continue to allocate capital to new research and development at a record pace."
Additional Highlights:
----------------------
-- Billable services margin(6) was a record 79.0% for the
March 2005 quarter, up from 73.8% for the year-ago quarter.
-- Annualized revenue per average employee(7) was $691,000 for
the March 2005 quarter, versus $859,000 for the
March 2004 quarter.
-- Cash balances at March 31, 2005 were $203.0 million, including
cash, cash equivalents and short-term investments. During the
quarter, the company repaid $30.8 million of its senior term
loan facility, bringing the balance of the facility to
$69.2 million at March 31, 2005.
-- The company repurchased 1.3 million shares of its common stock
in the March 2005 quarter at an aggregate cost of $14.2 million.
The company can repurchase up to an additional $60.8 million of
its common stock under a Board-approved program, which has
recently been extended through December 31, 2006.
-- In March 2005, United Online acquired certain assets related
to PhotoSite, the online digital photo-sharing business of
Homestead Technologies, Inc., for approximately $10 million in
cash and has entered into a related licensing and support
agreement with Homestead Technologies. Due to a transition
period associated with the asset purchase, the approximately
6,000 subscribers to the digital photo-sharing business will
not be included in the company's pay accounts until the June
2005 quarter.
Business Outlook:
-----------------
The following forward-looking information includes certain
projections made by management as of the date of this release. United
Online does not intend to revise or update this information and may
not provide this type of information in the future. Due to a variety
of factors, actual results may differ significantly from those
projected. Factors include, without limitation, the factors
referenced later in this announcement under the caption "Cautionary
Information Regarding Forward-Looking Statements." These and other
factors are discussed in more detail in the company's filings with
the Securities and Exchange Commission.
Following is the company's current guidance for the June 2005 quarter
and the year ending December 31, 2005:
------------- ------------- ----------------
(in millions) June'05 Q Est. CY'05 Est. Prior CY'05 Est.
------------- ------------- ----------------
Operating income $19.1 - $20.1 $80.2 - $85.2 $84.1 - $91.1
Depreciation 3.7 15.0 16.7
Amortization 5.8 22.2 19.9
Stock-based charges 2.9 9.6 3.3
------------- ------------- ----------------
Adjusted operating
income before
depreciation and
amortization(1) $31.5 - $32.5 $127.0 - $132.0 $124.0 - $131.0
------------- ------------- ----------------
Weighted average
diluted shares 64.5 - 65.0 65.0 - 66.0 65.0 - 66.0
-- Total revenues for the June 2005 quarter are estimated to be
between $130 million and $132 million.
-- The company estimates that total pay accounts will be between
4.95 million and 5.0 million by June 30, 2005.
(1) Adjusted operating income before depreciation and amortization
(adjusted OIBDA) is defined as operating income before
depreciation, amortization and stock-based compensation.
Management believes that because adjusted OIBDA excludes certain
items that do not impact the company's cash flows, 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) 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, community-based network 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. A table entitled "Analysis of Pay Accounts and
Subscriptions" is presented elsewhere in this release.
(3) A subscription represents a unique subscription to any
individual pay service offered by the company. Internet access
and accelerated dial-up are counted as two subscriptions,
although most subscribers to the accelerated service purchase it
bundled with our standard Internet access. A table entitled
"Analysis of Pay Accounts and Subscriptions" is presented
elsewhere in this release.
(4) Adjusted net income is defined as net income before the
after-tax effect of amortization of intangible assets and
stock-based compensation. 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 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, Juno and Classmates. The company's services include Internet access, accelerated dial-up services, premium email, personal web hosting, domain services, photo sharing services and community-based networking. The company's access services are available in more than 8,200 cities across the United States and in Canada. At March 31, 2005, United Online had 769 employees worldwide. United Online is headquartered in Woodland Hills, CA, with offices in New York City, NY; Renton, WA; San Francisco, CA; Orem, UT; Munich, Germany; Jarfalla, Sweden; and Hyderabad, India. For more information about United Online and its Internet subscription services, please visit http://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, 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 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 accounts; the company's inability to maintain its agreements with telecommunications providers on attractive terms; the company's ability to successfully integrate acquisitions, including Classmates Online and PhotoSite; 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)
March 31, December 31,
2005 2004
--------- ---------
(unaudited)
ASSETS
Cash, cash equivalents and
short-term investments $ 203,046 $ 232,793
Accounts receivable, net 17,237 17,534
Deferred tax assets, net 75,587 76,203
Property and equipment, net 26,888 27,006
Goodwill and intangible assets, net 156,805 147,016
Other assets 15,962 19,300
--------- ---------
Total assets $ 495,525 $ 519,852
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable $ 41,232 $ 45,379
Accrued liabilities 21,602 18,320
Deferred revenue 55,713 50,954
Capital leases 1,031 1,319
Term loan 69,167 100,000
Other liabilities 3,006 2,181
--------- ---------
Total liabilities 191,751 218,153
--------- ---------
Stockholders' equity 303,774 301,699
--------- ---------
Total liabilities and
stockholders' equity $ 495,525 $ 519,852
========= =========
UNITED ONLINE, INC.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended March 31,
-----------------------------
2005 2004
--------- ---------
Revenues:
Billable services $ 116,229 $ 97,682
Advertising and commerce 14,302 9,993
--------- ---------
Total revenues 130,531 107,675
Operating expenses:
Cost of billable services 24,401 25,580
Cost of free services 3,353 1,725
Sales and marketing 53,983 43,035
Product development 9,043 6,101
General and administrative 11,713 6,863
Stock-based compensation(1) 1,075 477
Amortization of intangible
assets 5,978 3,964
--------- ---------
Total operating expenses 109,546 87,745
--------- ---------
Operating income 20,985 19,930
Interest and other income, net 1,417 1,489
Interest expense (2,002) (283)
--------- ---------
Income before income taxes 20,400 21,136
Provision for income taxes 8,913 8,775
--------- ---------
Net income $ 11,487 $ 12,361
========= =========
Basic net income per share $ 0.19 $ 0.20
========= =========
Diluted net income per share $ 0.18 $ 0.18
========= =========
Shares used to calculate basic
net income per share 60,393 62,470
========= =========
Shares used to calculate diluted
net income per share 63,038 67,352
========= =========
Shares outstanding at end of
period 60,669 61,850
========= =========
(1) Stock-based compensation
is allocated as follows:
Cost of billable services $ 25 $ --
Sales and marketing 100 83
Product development 63 --
General and administrative 887 394
--------- ---------
Total stock-based
compensation $ 1,075 $ 477
========= =========
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statement of Cash Flows
(in thousands)
Three Months Ended
March 31,
--------------------
2005 2004
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $ 11,487 $ 12,361
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and
stock-based compensation 10,527 6,039
Deferred taxes, tax benefits and other 3,840 7,291
Change in operating assets and liabilities
(excluding the effects of acquisitions):
Accounts receivable 295 2,519
Other assets 2,986 1,917
Accounts payable and accrued liabilities (2,856) 2,001
Other liabilities 825 --
Deferred revenue 4,581 2,657
-------- --------
Net cash provided by operating activities 31,685 34,785
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (98,317) (76,113)
Proceeds from maturities and sales of
short-term investments 115,858 94,051
Purchases of rights, patents and trademarks (5,500) (11)
Cash paid for acquisitions (8,540) --
Purchases of property and equipment (3,455) (1,005)
-------- --------
Net cash provided by investing activities 46 16,922
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases (288) --
Payments on term loan (30,833) --
Repurchases of common stock (14,207) (48,706)
Proceeds from exercises of stock options 1,821 914
-------- --------
Net cash used for financing activities (43,507) (47,792)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (14) --
Change in cash and cash equivalents (11,790) 3,915
Cash and cash equivalents, beginning of period 56,512 8,908
-------- --------
Cash and cash equivalents, end of period $ 44,722 $ 12,823
======== ========
UNITED ONLINE, INC.
Reconciliation of Net Income to Adjusted Net Income(4)
(in thousands, except per-share data)
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
---------------------------- ---------------------------
Adjust- Adjust-
Reported ments Adjusted Reported ments Adjusted
-------- -------- -------- -------- -------- --------
Revenues:
Billable
services $116,229 $ -- $116,229 $ 97,682 $ -- $ 97,682
Advertising
and
commerce 14,302 -- 14,302 9,993 -- 9,993
-------- -------- -------- -------- -------- --------
Total
revenues 130,531 -- 130,531 107,675 -- 107,675
Operating
expenses:
Cost of
billable
services 24,401 -- 24,401 25,580 -- 25,580
Cost of
free
services 3,353 -- 3,353 1,725 -- 1,725
Sales and
marketing 53,983 -- 53,983 43,035 -- 43,035
Product
development 9,043 -- 9,043 6,101 -- 6,101
General and
adminis-
trative 11,713 -- 11,713 6,863 -- 6,863
Stock-based
compensa-
tion 1,075 (1,075)(a) -- 477 (477)(a) --
Amortiza-
tion of
intangible
assets 5,978 (5,978)(b) -- 3,964 (3,964)(b) --
-------- -------- -------- -------- -------- --------
Total
operating
expenses 109,546 (7,053) 102,493 87,745 (4,441) 83,304
-------- -------- -------- -------- -------- --------
Operating
income 20,985 7,053 28,038 19,930 4,441 24,371
Interest and
other
income, net 1,417 -- 1,417 1,489 -- 1,489
Interest
expense (2,002) -- (2,002) (283) -- (283)
-------- -------- -------- -------- -------- --------
Income
before
income
taxes 20,400 7,053 27,453 21,136 4,441 25,577
Provision
for income
taxes 8,913 2,315(c) 11,228 8,775 1,609(c) 10,384
-------- -------- -------- -------- -------- --------
Net income $ 11,487 $ 4,738 $ 16,225 $ 12,361 $ 2,832 $ 15,193
======== ======== ======== ======== ======== ========
Basic net
income per
share $ 0.19 $ 0.27 $ 0.20 $ 0.24
======== ======== ======== ========
Diluted net
income per
share $ 0.18 $ 0.25 $ 0.18 $ 0.23
======== ======== ======== ========
Shares used
to
calculate
basic net
income per
share 60,393 60,393 62,470 62,470
======== ======== ======== ========
Shares used
to
calculate
diluted net
income per
share 63,038 63,713(d) 67,352 67,352(d)
======== ======== ======== ========
Shares
outstanding
at end of
period 60,669 60,669 61,850 61,850
======== ======== ======== ========
(a) Elimination of stock-based compensation.
(b) Elimination of amortization of intangible assets.
(c) Income tax effect of adjusting entries.
(d) 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 March 31,
----------------------------
2005 2004
-------- --------
Adjusted Operating
Income Before
Depreciation and
Amortization (1)
Operating income $ 20,985 $ 19,930
Depreciation 3,474 1,598
Amortization 5,978 3,964
-------- --------
Operating income
before depreciation
and amortization 30,437 25,492
Stock-based
compensation 1,075 477
-------- --------
Adjusted operating
income before
depreciation and
amortization $ 31,512 $ 25,969
======== ========
Twelve Months
Three Months Ended March 31, Ended Mar 31,
---------------------------- -------------
2005 2004 2005
-------- -------- --------
Free Cash Flow (5)
Net cash provided by
operating activities $ 31,685 $ 34,785 $120,860
Add (deduct):
Capital expenditures (3,455) (1,005) (14,960)
Cash paid for relocation
costs (a) -- -- 6,410
-------- -------- --------
Free cash flow $ 28,230 $ 33,780 $112,310
======== ======== ========
---------------------------------------------------------------------
(a) 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)
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2005 2004 2004 2004 2004
-------- -------- -------- -------- --------
Total revenues $130,531 $119,620 $110,704 $110,618 $107,675
Net income $ 11,487 $ 80,189(b) $ 12,620 $ 12,310 $ 12,361
Net income per
diluted share $ 0.18 $ 1.27 $ 0.19 $ 0.19 $ 0.18
Pay
accounts (2) 4,952 4,826 3,232 3,189 3,095
Active
accounts (2)
(in millions) 17.0 15.2 6.6 6.8 5.4
Number of
employees at
end of period 769 742 598 582 504
Annualized
revenue per
average
employee (7) $ 691 $ 714 $ 751 $ 815 $ 859
---------------------------------------------------------------------
(a) More information on the financial results for these quarters can
be found in the company's filings with the Securities and
Exchange Commission.
(b) Includes $68.6 million tax benefit related to the recognition of
a portion of the company's deferred tax assets.
UNITED ONLINE, INC.
Analysis of Pay Accounts(a) and Subscriptions
(in thousands)
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2005 2004 2004 2004 2004
------- ------- ------- ------- -------
Internet access 3,130 3,100 3,111 3,102 3,083
Other Web
services 3,070 2,886 1,239 1,125 924
------- ------- ------- ------- -------
Total
subscriptions(b) 6,200 5,986 4,350 4,227 4,007
======= ======= ======= ======= =======
Total pay
accounts(c) 4,952 4,826 3,232 3,189 3,095
Accelerator
penetration(d) 37% 36% 35% 32% 29%
---------------------------------------------------------------------
(a) 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 accounts.
(b) A subscription represents a unique subscription to any
individual pay service offered by the company. Internet access
and accelerated dial-up are counted as two subscriptions,
although most subscribers to the accelerated service purchase it
bundled with our standard Internet access. Individual pay
services include Internet access, community-based networking,
accelerator services, premium email, web hosting and domain name
registration, and premium content subscriptions.
(c) Total pay accounts include Internet access, community-based
networking, premium email, web hosting and domain name
registration, and premium content accounts.
(d) Defined as accelerator subscriptions divided by Internet
access subscriptions.