Exhibit 99.1
United Online Reports Second-Quarter Results
· Content & Media Revenues Increase 29% and Expand to 38% of Total Revenues
· Record Quarterly Growth of 278,000 Content & Media Pay Accounts
· Consolidated Advertising Revenues Increase 32%
WOODLAND HILLS, Calif., AUGUST 7, 2007 — 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, 2007.
“United Online delivered another strong quarter, particularly in our growing Content & Media segment that now represents 38% of total revenues and nearly 55% of total pay accounts,” said Mark R. Goldston, chairman, president and chief executive officer. “Content & Media revenues increased an impressive 13% sequentially, reflecting our second consecutive quarter of record growth in Content & Media pay accounts and continuing strong performance in advertising sales.”
“Our Communications segment continued to generate significant adjusted operating income before depreciation and amortization (OIBDA), highlighting the efficiency of our business model,” said Neil P. Edwards, Interim Chief Financial Officer. “Our strong cash flow and operating profitability from both segments have enabled us to invest significantly in new growth initiatives while continuing to return cash to shareholders.”
Summary Results:
The following table summarizes key financial results for the second quarter ended June 30, 2007:
| | (in millions, except per share and account figures) | |
Financial Highlights | | Q2 2007 | | Q2 2006 | | % Change | |
Content & Media revenues | | $ | 49.7 | | $ | 38.7 | | 29 | % |
Communications revenues | | 81.7 | | 96.2 | | -15 | % |
Consolidated revenues | | $ | 131.4 | | $ | 134.9 | | -3 | % |
| | | | | | | |
GAAP operating income | | $ | 24.7 | | $ | 22.3 | | 11 | % |
Adjusted OIBDA(1) | | $ | 36.3 | | $ | 38.0 | | -4 | % |
| | | | | | | |
GAAP net income | | $ | 16.2 | | $ | 11.6 | | 40 | % |
GAAP net income per diluted share | | $ | 0.23 | | $ | 0.18 | | 28 | % |
| | | | | | | |
Adjusted net income(2) | | $ | 19.4 | | $ | 20.4 | | -5 | % |
Adjusted net income per diluted share(2) | | $ | 0.27 | | $ | 0.30 | | -10 | % |
| | | | | | | |
Change in total pay accounts(3) | | +134,000 | | (97,000 | ) | | |
· Consolidated advertising revenues were $34.3 million, an increase of 32% versus the year-ago quarter.
· The year-over-year increase in Content & Media revenues reflects growth in advertising revenues and billable services revenues. Adjusting for the MyPoints acquisition in April 2006, organic revenue growth in Content & Media was approximately 24 percent.
· GAAP net income in the 2007 second quarter reflects a 38% effective tax rate compared to a 50% effective tax rate for GAAP net income in the second quarter of 2006 due to the re-measurement of certain deferred tax assets in both periods which led to significant variability in the company’s effective tax rates.
· Pay accounts(3) and active accounts(3) totaled 5.1 million and 15.9 million, respectively, at June 30, 2007.
“Our investments in Content & Media continued to deliver solid results, as demonstrated by our growth of 278,000 Content & Media pay accounts during the second quarter,” Goldston said. “Importantly, we continue to develop new features for our social networking members, including our recent launch of Classmates Dating and an enhanced Events and Reunions Center.”
Cash Flow, Balance Sheet and Dividend Highlights:
· United Online generated $35.8 million in cash flows from operations and $31.1 million in free cash flow(4) during the second quarter of 2007.
· Cash balances at June 30, 2007 increased to $191.4 million from $168.0 million at March 31, 2007, including cash, cash equivalents and short-term investments.
· During the second quarter of 2007, the company paid $14.4 million in dividends and repurchased $1.1 million in common stock (to satisfy tax withholding on vested restricted stock units).
· As previously announced, the company’s Board of Directors has declared a regular quarterly cash dividend of $0.20 for the tenth consecutive quarter. The record date of the dividend is August 14, 2007, and the dividend is payable on August 31, 2007.
Second Quarter 2007 Segment Results:
Content & Media
| | (in millions, except percentages) | |
Financial Highlights | | Q2 2007 | | Q2 2006 | | % Change | |
Billable services revenues | | $ | 26.9 | | $ | 21.7 | | 24 | % |
Advertising revenues | | 22.8 | | 17.0 | | 35 | % |
Segment revenues | | $ | 49.7 | | $ | 38.7 | | 29 | % |
% of consolidated revenues | | 37.8 | % | 28.7 | % | | |
| | | | | | | |
Segment income from operations | | $ | 7.8 | | $ | 7.4 | | 7 | % |
Segment adjusted OIBDA(1) | | $ | 8.2 | | $ | 7.4 | | 12 | % |
as % of segment revenues(1) | | 16.6 | % | 19.0 | % | | |
· Content & Media pay accounts(3) increased by 278,000 during the second quarter to 2.8 million, almost entirely due to growth in social networking pay accounts.
· The segment represented 54.7% of total pay accounts(3) at June 30, 2007.
Communications:
| | (in millions, except percentages) | |
Financial Highlights | | Q2 2007 | | Q2 2006 | | % Change | |
Billable services revenues | | $ | 70.2 | | $ | 87.2 | | -19 | % |
Advertising revenues | | 11.5 | | 9.1 | | 26 | % |
Segment revenues | | $ | 81.7 | | $ | 96.2 | | -15 | % |
% of consolidated revenues | | 62.2 | % | 71.3 | % | | |
| | | | | | | |
Segment income from operations | | $ | 32.8 | | $ | 35.6 | | -8 | % |
Segment adjusted OIBDA(1) | | $ | 32.8 | | $ | 35.6 | | -8 | % |
as % of segment revenues(1) | | 40.1 | % | 37.0 | % | | |
· Communications pay accounts(3) declined by 144,000 to 2.3 million.
· The segment represented 45.3% of total pay accounts(3) at June 30, 2007.
· The increase in segment adjusted OIBDA as a percentage of segment revenues reflects the company’s focus on managing the Communications segment for profitability and cash flow.
Other:
· Other reconciling items (unallocated corporate expenses) to arrive at consolidated adjusted OIBDA(1) totaled ($4.7) million, versus ($4.9) 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. In addition, the stock-based compensation and weighted average diluted shares projections are based on estimated equity grants for 2007, and actual grants could vary significantly from those currently estimated.
Below is the company’s guidance for the September 2007 quarter and the year ending December 31, 2007 (in millions):
| | Q3 2007 | | 2007 | | Prior 2007
Estimate | |
Revenues | | $124.0 — $128.0 | | $512.0 — $520.0 | | $510.0 — $520.0 | |
| | | | | | | |
Operating income | | $20.1 — $22.1 | | $90.1 — $94.1 | | $86.2 — $90.2 | |
Depreciation | | 5.3 | | 20.7 | | 18.5 | |
Amortization | | 3.1 | | 12.8 | | 12.8 | |
Stock-based compensation | | 6.0 | | 19.0 | | 24.5 | |
Restructuring charges | | — | | 0.4 | | 1.0 | |
| | | | | | | |
Adjusted OIBDA(1) | | $34.5 — $36.5 | | $143.0 — $147.0 | | $143.0 — $147.0 | |
| | | | | | | |
Weighted average diluted shares | | 71.0 — 72.0 | | 70.5 — 71.5 | | 70.5 — 71.5 | |
(1) Adjusted operating income before depreciation and amortization (adjusted OIBDA) is defined by the company as operating income before depreciation; amortization; stock-based compensation; restructuring charges; and impairment of goodwill, intangible assets and long-lived assets. Management believes that because adjusted OIBDA excludes (1) certain non-cash expenses (such as depreciation, amortization, stock-based compensation and impairment of goodwill, intangible assets and long-lived assets); 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. 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 accounting principles generally accepted in the United States of America (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-based 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. A further limitation associated with the use of this measure is that it does not reflect the costs of restructuring charges and impairment charges. Management compensates for this limitation by providing information about restructuring charges and impairment charges. Management does not believe any of these limitations are 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.
Adjusted OIBDA for each of the company’s segments is defined by the company as segment income from operations as set forth in the company’s Form 10-Ks and Form 10-Qs before restructuring charges and impairment of goodwill, intangible assets and long-lived assets. Management believes that because segment adjusted OIBDA and segment adjusted OIBDA as a percentage of such segment’s revenues exclude certain non-cash expenses and expenses that are
not reflective of the segment’s core operating results over time, these measures provide investors with additional useful information to measure the company’s segment performance, particularly with respect to changes in performance from period to period. Segment adjusted OIBDA and segment adjusted OIBDA as a percentage of such segment’s revenues are not determined in accordance with 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 these measures is that they do not reflect the costs of restructuring charges and impairment charges related to an operating segment. Management compensates for this limitation by providing information about restructuring charges and impairment charges by segment. Management does not believe this limitation is material, particularly when such measure is disclosed with its most comparable GAAP financial measure, segment income from operations. A reconciliation to segment income from operations is provided in the accompanying tables.
(2) Adjusted net income is defined by the company as net income before the after-tax effect of amortization of intangible assets; stock-based compensation; restructuring charges; impairment of goodwill, intangible assets and long-lived assets; and the cumulative effect of a change in accounting principle as a result of the adoption of FAS 123R, and the re-measurement of certain deferred tax assets. Management believes that adjusted net income and adjusted net income per diluted share provide investors with additional useful information to measure the company’s financial performance, particularly from period to period, because these measures are exclusive of (1) certain non-cash expenses (such as amortization, stock-based compensation and impairment of goodwill, intangible assets and long-lived assets) and (2) expenses that are not reflective of the company’s core results over time. Management also uses adjusted net income and adjusted net income per diluted share for this purpose. Adjusted net income and adjusted net income per diluted share are not determined in accordance with accounting principles generally accepted in the United States of America (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 and adjusted net income per diluted share are that, similar to adjusted OIBDA, they do not include certain costs, and the terms adjusted net income and adjusted net income per diluted share do not have standardized meanings. Therefore, other companies may use the same or similarly named measures but exclude different items or use different computations, 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 and net income per diluted share, directly ahead of adjusted net income and adjusted net income per diluted share 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 measures are disclosed with the most comparable GAAP financial measure, net income and net income per diluted share. Reconciliations to net income and net income per diluted share are provided in the accompanying tables.
(3) 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, social networking (including Classmates International free accounts but excluding The
Names Database free accounts) 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 MyPoints members who earned points or spent points within the preceding 90 days. In anticipation of the previously announced curtailment of our photo sharing and VoIP services, the company has excluded the free accounts associated with these services from our active accounts reporting at June 30, 2007. In addition, to better reflect the activity level of our membership base, we have updated our active accounts definition to include Classmates International free accounts and exclude The Names Database and Web hosting free accounts.
(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 and cash paid for restructuring charges. 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, generate cash flow for a variety of strategic opportunities, including reinvestment in the business, and effect potential acquisitions and share repurchases. Free cash flow is not determined in accordance with accounting principles generally accepted in the United States of America (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.unitedonline.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). Its Communications services include Internet access (NetZero, Juno) and email. United Online is headquartered in Woodland Hills, CA, with offices in New York, NY; Fort Lee, NJ; Renton, WA; San Francisco, CA; Schaumburg, IL; Orem, UT; Erlangen, Germany; and Hyderabad, India. For more information about United Online, please visit www.unitedonline.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, as amended. 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 future financial performance; weighted average diluted shares; depreciation and amortization; stock-based compensation and restructuring charges. Any such forward-looking statements are not guarantees of future performance or results, and involve risks and uncertainties that may cause actual performance and results to 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 pay accounts and the mix of pay accounts; the effects of changes in marketing expenditures or shifts in marketing expenditures to support existing and new products and services; the effects of seasonality; 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 stock-based compensation; changes in the projected amortization and depreciation figures due to capital spending or other factors; potential impairment of goodwill and intangibles; that the company will incur additional restructuring charges or currently anticipated restructuring charges will be greater than anticipated; risks associated with the commercialization of new services; changes in tax laws, the company’s business or other factors that would impact anticipated tax benefits; 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, renew, or enter into new 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 or divestitures that, if consummated, could be material. Forward-looking statements regarding financial metrics are based upon the assumption that no such acquisition or divestiture is consummated during the relevant periods. If an acquisition or divestiture 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.”
CONTACT: United Online, Inc.
Press:
Scott Matulis
818-287-3388
pr@untd.com
Investors:
Erik Randerson, CFA
818-287-3350
investor@untd.com
