TYPE: 425
SEQUENCE: 1
DESCRIPTION: FILING OF COMMUNICATION
Filed by Juno Online Services, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: United Online, Inc.
Commission File No. 000-26009
Contacts:
Becky Yeamans, Juno Investor Relations
(212) 597-9274 or ir@support.juno.com
Gary Baker, Juno Public Relations
(212) 597-9005 or pr@support.juno.com
Juno Reports Second Quarter Results
* Net Loss Shrinks By More Than 70% Compared With Prior Quarter, More Than 90%
Year-Over-Year
* Company Achieves First-Ever Positive Pro Forma EBITDA
* Billable Service Revenues Increase 34.4% Compared With Q2 2000
NEW YORK, NY (July 26, 2001) -- Juno Online Services, Inc. (Nasdaq: JWEB), one
of the nation's largest Internet access providers, today reported revenues of
$29.4 million for the second quarter of 2001, up from $28.7 million reported
for the previous quarter. Juno derives revenue primarily from subscription
fees it charges for its premium Web access services, and to a lesser extent
from the sale of advertising and from various forms of electronic commerce.
The company's net loss for the second quarter was $2.6 million ($0.06 per
share), an improvement of 73.2% compared with the net loss of $9.6 million
($0.23 per share) the company reported for the first quarter of 2001, and a
94% improvement compared with the net loss of $42.9 million ($1.11 per share)
reported for the year-ago quarter. Furthermore, the company reported positive
pro forma EBITDA for the first time in its history: excluding expenses
associated with Juno's planned merger with and pending patent litigation
involving NetZero, Juno reported positive pro forma EBITDA of $446,000 ($0.01
per share) for the second quarter.
Management believes the significant bottom-line improvement the company
achieved in the second quarter was in part the result of Juno's successful
reduction of operating expenses and improvement of billable
1
services margin through the adoption of measures designed to increase average
revenue per billable subscriber and to encourage heavier users of the
company's free service to modify their usage patterns or upgrade to a billable
service. As projected, these measures (together with an 88.7% year-over-year
reduction in expenditures for subscriber acquisition) contributed to both a
decline in Juno's subscriber count and an improvement in profitability per
subscriber during the second quarter. Active and billable subscriber count are
expected to decline further over the coming quarters, as the company continues
to manage its subscriber base in a manner consistent with its goal of
maximizing per-subscriber profitability and minimizing the burden imposed by
the costliest segments of the base. Juno had 3.3 million active subscribers in
the month of June 2001, including 884,000 billable service subscribers.
Billable subscribers represented 26.4% of Juno's active subscriber base in
June, up from 22.0% in March 2001.
At the end of the second quarter, the company had approximately $42.0 million
in cash and cash equivalents, an amount management continues to believe should
be more than adequate to fund Juno's operations until the business becomes
cash-flow positive. Based on current projections (without taking into account
the planned merger with NetZero), management would expect the company's net
loss for the final six months of 2001 to total less than $2 million.
"We are extremely pleased with Juno's operating results for the second quarter
and with the prospects for the business going forward," said Charles Ardai,
Juno's president and chief executive officer. "We anticipate achieving further
expense reductions in the current quarter, and expect to bring to our merger
with NetZero not only a large billable subscriber base and significant
expertise in converting free subscribers into paying customers, but also a
strong bottom line and the valuable operating experience we have gained in the
course of driving the company so aggressively toward profitability."
In the second quarter, billable services represented 84.4% of Juno's revenues,
while the remaining 15.6% came from various forms of advertising sales and
electronic commerce. The company expects this ratio to continue shifting
toward billable service revenues in the third quarter.
Revenue from billable services totaled $24.8 million in the second quarter, up
from $18.4 million in the year-ago quarter and $22.9 million in the first
quarter of 2001. Over the coming quarters, the company plans to continue its
use of measures designed to improve the "bottom-line" profitability of its
billable services, and management expects that gross revenues from billable
services will decline modestly, due in part to a certain amount of subscriber
attrition that is projected to result from these measures.
Revenue from advertising and transaction fees totaled $4.6 million in the
second quarter of 2001, down from $10.7 million in the year-ago quarter and
$5.8 million in the first quarter of 2001. This continuing decrease in
advertising revenues can be attributed in large part to the widely reported
decline in the market for Internet advertising, manifested in part through
reduced signings and the reduction or cancellation of certain existing
advertising contracts. Although advertising and transaction fee revenues are
currently expected to decline in the third quarter by an amount roughly
comparable to the decline in the second quarter, Juno's backlog of advertising
revenue remained relatively flat at about $7 million as of the end of the
just-completed quarter, which management believes may signal improved
stability in this revenue line for the fourth quarter. In response to current
market conditions, however, the company is continuing to draw on the
flexibility
2
associated with its multiple revenue streams and tiered service levels to
reduce its reliance on advertising revenue and to increase its focus on
billable service revenues, at least for the time being.
Cost of revenues improved sequentially as a percentage of total revenues, to
48.9% in the second quarter, as compared with 58.8% in the first quarter. Cost
of revenues for billable services decreased in relation to corresponding
revenues primarily as a result of a 6.5% increase in average monthly
subscription fees realized per billable subscriber as well as cost
efficiencies achieved in customer service operations. The cost of advertising
and transaction fees as a percentage of related revenues increased principally
as a consequence of a reduced advertising revenue base over which to allocate
related overhead costs.
Overall operating expenses dropped to $17.6 million in the second quarter,
down from $58.8 million in the year-ago quarter and from $22.1 million in the
first quarter of 2001. Savings were driven by reductions in telecommunications
hours associated with the free service and in expenditures for subscriber
acquisition, as well as by the positive impact of previously reported
reductions in staff-related expenses. Subscriber acquisition expenses dropped
to $4.3 million in the second quarter of 2001, down from $38.1 million in the
year-ago quarter and $6.3 million in the first quarter of 2001. Operations,
free service expenses dropped to $4.0 million in the second quarter, down from
$9.5 million in the year-ago quarter and $6.3 million in the first quarter.
On a combined basis, Operations, free service expenses and the portion of cost
of revenues that is associated with the free service averaged approximately
$0.62 per active free subscriber per month in the second quarter, down 23%
from approximately $0.81 per month in the first quarter. This per-subscriber
cost is substantially lower than Juno's management has seen reported by other
Internet access providers. In addition to the effects of the measures
described above, Juno believes its cost advantage to be due in part to the use
of its patented offline technology to minimize connection time per subscriber
while preserving the revenue opportunity associated with offline usage hours.
"Juno's powerful technology and improved operating efficiencies have put us in
a strong position for upcoming quarters," said Harshan Bhangdia, Juno's chief
financial officer. "The improvement in our results is attributable both to
these factors and to the outstanding job our staff has done in executing on
our plans. Our team is looking forward to applying the same level of
dedication and talent to establishing United Online as a leader in the
consumer Internet space."
The terms of the strategic merger agreement announced on June 7, 2001 call for
Juno and NetZero to become wholly owned subsidiaries of United Online, Inc., a
newly formed company. United Online filed its initial Form S-4 with the
Securities and Exchange Commission on June 22, 2001 and, following the closing
of the merger, is expected to trade on Nasdaq under the symbol UNTD.
About Juno
Juno Online Services, Inc. is one of the nation's leading Internet access
providers, with 3.3 million active subscribers during June 2001. Founded in
1995, Juno provides multiple levels of service, including free basic Internet
access, billable premium dial-up service, and (on a limited scale in selected
markets) high-
3
speed broadband access. The company's revenues are derived primarily from the
subscription fees charged for the use of its premium Web access services, and
to a lesser extent from the sale of advertising and from various forms of
electronic commerce.
For more information about Juno, visit www.juno.com/corp/. To get a copy of
the Juno software, go to www.juno.com or call 1-800-TRY-JUNO.
# # #
Juno Online Services, Inc. recommends that you read the registration statement
on Form S-4 filed with the Securities and Exchange Commission (the "SEC") by
United Online, Inc. regarding the merger between Juno and NetZero because it
contains important information. You may obtain a free copy of the registration
statement and other documents filed by United Online, Juno or NetZero at the
SEC's Web site at www.sec.gov. The registration statement, as well as
documents filed by Juno, may also be obtained directly from Juno upon request
made to Juno Online Services, Inc., 120 West 45th Street, 32nd Floor, New
York, NY 10036, Attention: Secretary.
Statements in this press release regarding Juno Online Services, Inc. that are
not historical facts are forward-looking statements and are subject to risks
and uncertainties that could cause such statements to differ materially from
actual future events or results. Any such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The following factors, among others, could cause Juno's
actual results to differ materially from those described in a forward-looking
statement: limited history of offering Juno's billable premium services and
free basic service in its current form; history of losses; possible
unavailability of financing as and if needed; risks that Juno may be unable to
derive significant revenues from the sale of advertising, due to market
conditions or other factors; inability to successfully migrate free
subscribers to, or to retain subscribers in, Juno's billable premium services;
increasing competition from existing or new competitors; rapid technological
change; dependence on a limited number of telecommunications carriers and
other third party vendors; risks and uncertainties related to Juno's proposed
business combination with NetZero; possible industry consolidation; and
potential fluctuations in quarterly and annual results. This list is intended
to identify only certain of the principal factors that could cause actual
results to differ. Readers are referred to the reports and documents filed
from time to time by Juno with the SEC, including the Quarterly Report on Form
10-Q filed May 11, 2001, for a discussion of these and other important risk
factors.
"EBITDA" is not a measurement of financial performance under generally
accepted accounting principles and should not be considered an alternative to
net loss. EBITDA excludes interest, taxes, and non-cash expenses such as
depreciation, amortization, and charges for stock-based subscriber
acquisition.
4
JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Billable services ......................... $24,762 $ 18,429 $ 47,675 $ 35,165
Advertising and transaction fees .......... 4,589 10,685 10,379 17,094
Direct product sales ...................... -- 439 -- 1,341
------- -------- -------- --------
Total revenues .......................... 29,351 29,553 58,054 53,600
------- -------- -------- --------
Cost of revenues:
Billable services ......................... 12,742 12,557 28,100 24,597
Advertising and transaction fees .......... 1,608 2,262 3,139 4,012
Direct product sales ...................... -- 414 -- 1,270
-------- -------- -------- --------
Total cost of revenues .................. 14,350 15,233 31,239 29,879
-------- -------- -------- --------
Operating expenses:
Operations, free service .................. 3,951 9,506 10,247 15,650
Subscriber acquisition ................... 4,310 38,119 10,609 82,870
Sales and marketing ....................... 3,300 5,610 7,028 9,225
Product development ....................... 2,129 3,100 4,519 5,563
General and administrative ................ 2,986 2,486 6,367 4,262
Merger costs ............................. 960 -- 960 --
------- -------- -------- --------
Total operating expenses ................ 17,636 58,821 39,730 117,570
------- -------- -------- --------
Loss from operations .................... (2,635) (44,501) (12,915) (93,849)
Other income (expense):
Interest income, net ..................... 454 1,650 1,100 3,372
Other expense ............................ (400) -- (400) --
------- -------- -------- --------
Net loss ................................ $(2,581) $(42,851) $(12,215) $(90,477)
======= ======== ======== ========
Basic and diluted net loss per share ........ $ (0.06) $ (1.11) $ (0.29) $ (2.39)
======= ======== ======== ========
Weighted average shares outstanding used
in basic and diluted per share
calculations ........................... 41,711 38,715 41,538 37,901
======== ======== ======== ========
5
JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
2001 2000
---- ----
(unaudited)
Assets
Current assets:
Cash and cash equivalents.................................. $ 41,961 $ 55,729
Accounts receivable, net of allowance for
doubtful accounts of $2,562 and $2,688 at June 30,
2001 and December 31, 2000, respectively................. 7,767 9,420
Prepaid expenses and other current assets.................. 1,251 3,141
----- -----
Total current assets..................................... 50,979 68,290
Fixed assets, net............................................ 7,578 9,164
Other assets................................................. 217 917
--- ---
Total assets............................................. $ 58,774 $ 78,371
========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses...................... $ 23,246 $ 29,287
Current portion of capital lease obligations............... 597 1,209
Deferred revenue........................................... 13,454 14,578
------ ------
Total current liabilities................................ 37,297 45,074
Capital lease obligations.................................... 298 402
Deferred rent................................................ 93 150
Deferred revenue............................................. --- ---
Liabilities expected to be settled with common
stock...................................................... 4,000 4,000
Stockholders' equity:
Preferred stock--$.01 par value; 5,000,000 shares --- ---
authorized, none issued and outstanding..................
Common stock--$.01 par value; 133,333,334 shares authorized,
41,746,854 and 41,134,350 shares issued and outstanding at
June 30, 2001 and December 31, 2000
respectively............................................ 417 411
Additional paid-in capital................................ 211,963 211,550
Unearned compensation..................................... (192) (333)
Cumulative translation adjustment......................... (5) (1)
Accumulated deficit....................................... (195,097) (182,882)
-------- --------
Total stockholders' equity............................... 17,086 28,745
------ ------
Total liabilities and stockholders' equity............. $ 58,774 $ 78,371
========== ===========
6
JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
-----------------------------
2001 2000
---------- ------------
Cash flows from operating activities:
Net loss.................................................. $ (12,215) $ (90,477)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization........................... 1,919 1,689
Impairment loss on investment........................... 400 ---
Stock-based subscriber acquisition...................... --- 181
Amortization of unearned compensation................... 64 117
Changes in operating assets and liabilities:
Accounts receivable................................... 1,653 (8,354)
Prepaid expenses and other current assets............. 1,698 5,728
Accounts payable and accrued expenses................. (6,050) 7,233
Deferred revenue...................................... (1,124) 2,605
------ -----
Net cash used in operating activities............... (13,655) (81,278)
------- -------
Cash flows from investing activities:
Purchases of fixed assets................................. (189) (5,780)
Other assets.............................................. 300 (404)
--- ----
Net cash provided by (used in) investing activities. 111 (6,184)
--- ------
Cash flows from financing activities:
Payments on capital lease obligations..................... (716) (1,135)
Net proceeds from issuance of common stock................ --- 81,080
Proceeds from issuance of common stock
in connection with employee stock purchase plan......... 126 715
Proceeds from issuance of common stock in
connection with equity line facility,
net of offering costs................................... 225 ---
Proceeds from issuance of common stock
upon exercise of stock options.......................... 145 778
--- ---
Net cash (used in) provided by financing activities. (220) 81,438
---- ------
Effect of exchange rate changes on cash and
cash equivalents................................. (4) ---
Net decrease in cash and cash equivalents........... (13,768) (6,024)
Cash and cash equivalents, beginning of period.............. 55,729 91,497
------ ------
Cash and cash equivalents, end of period.................... $ 41,961 $ 85,473
========= ============
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 15 $ 96
7
JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SEQUENTIAL QUARTERLY COMPARISON
(in thousands)
(unaudited)
Three Months Ended
------------------
June 30 2001 March 31, 2001
------------ --------------
Revenues:
Billable services ........................ $ 24,762 $ 22,913
Advertising and transaction fees ......... 4,589 5,790
Total revenues ......................... 29,351 28,703
------ ------
Cost of revenues:
Billable services ........................ 12,742 15,358
Advertising and transaction fees ......... 1,608 1,531
Total cost of revenues ................. 14,350 16,889
------ ------
Operating expenses:
Operations, free service ................. 3,951 6,296
Subscriber acquisition ................... 4,310 6,299
Sales and marketing ...................... 3,300 3,728
Product development ...................... 2,129 2,390
General and administrative ............... 2,986 3,381
Merger costs ............................. 960 ---
---
Total operating expenses ............... 17,636 22,094
------ ------
Loss from operations ................... (2,635) (10,280)
Other income (expense):
Interest income, net .................... 454 ---
Other expense............................ (400) ---
Net loss ............................... $ (2,581) $ (9,634)
--------- ------------
Basic and diluted net loss per share........ $ (0.06) $ (0.23)
========= ============
Weighted average shares outstanding used
in basic and diluted per share
calculations.......................... 41,711 41,362
------ ------
8
JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
(in thousands, except for selected subscriber data)
(unaudited)
EBITDA: Three Months Ended
June 30, March 31,
2001 2001
---- ----
Net loss.................................. $ (2,581) $ (9,634)
Depreciation and amortization........... 921 1,062
Non-cash subscriber acquisition......... --- 884
Interest income, net.................... (454) (646)
Impairment loss on investment........... 400 ---
EBITDA ............................ $ (1,714) $ (8,334)
Selected Subscriber Data: Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30,
- ------------------------- -------- -------- -------- --------- --------
2001 2001 2000 2000 2000
---- ---- ---- ---- ----
Total registered subscriber accounts
as of (1)......................... 16,856,000 15,890,000 14,153,000 12,771,000 11,048,000
Active subscriber accounts in month
ended (2)....................... 3,345,000 4,133,000 4,001,000 3,700,000 3,379,000
Active Web-enabled
Subscribers in month ended (3) 3,005,000 3,736,000 3,587,000 3,251,000 2,876,000
Billable subscription service
accounts as of (4).............. 884,000 910,000 842,000 750,000 730,000
(1) Includes all subscriber accounts created since Juno's inception, computed
after deduction of any accounts that have since been cancelled, but
regardless of current activity, if any.
(2) Encompasses all registered subscriber accounts that connected at least
once during the month, together with all subscribers to a billable
service, in each case regardless of the type of activity or activities
engaged in by such subscribers.
(3) Refers to the subset of active subscriber accounts that have been
centrally provisioned for, and provided with the client-side software
necessary to access, not only e-mail, but also the World Wide Web,
regardless of the extent, if any, to which such subscribers have actually
used the Web.
(4) Represents the subset of active subscriber accounts that carry a charge
for premium functionality.
9