United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer
Internet and media services, today reported financial results for
its first quarter ended March 31, 2008. �United Online delivered an
exceptional first quarter, highlighted by record net growth of
322,000 pay accounts in our Classmates Media segment that
underscores the favorable reception to Web site enhancements
introduced on our social networking properties in recent months,�
said Mark R. Goldston, chairman, president and chief executive
officer. �Most important, our significant growth in Classmates
Media pay accounts again helped drive impressive revenue growth and
bottom-line quarterly results for the segment.� Goldston continued,
�The Communications segment also continued to deliver solid results
against our primary objective of operating the Communications
business for profitability and cash flow as the segment reported an
all-time record adjusted OIBDA level of 38.4% of segment revenues.
The financial performance of the Communications segment and the
Classmates Media segment helped United Online achieve a 31%
increase in free cash flow during the first quarter versus the
year-ago period.� �Our strong financial performance in the first
quarter, particularly in the Classmates Media segment that includes
Classmates and MyPoints, demonstrates that our businesses are
performing well and provides a foundation for further expansion,�
Goldston added. �We believe our recently-announced merger
agreement, providing for the acquisition of FTD Group, Inc. (NYSE:
FTD) by United Online, offers a broad range of scale,
diversification and financial benefits for the combined company,
and we believe will enable us to cross-market FTD products to
United Online�s more than 50 million registered accounts.� Summary
Results for First Quarter Ended March 31, 2008: The following table
summarizes key financial results for the first quarter ended March
31, 2008: � (in millions, except per share and account figures) �
Financial Highlights Q1 2008 � Q1 2007 � % Change Classmates Media
revenues $ 51.9 $ 42.4 22 % Communications revenues � 69.9 � � 87.4
� (20 %) Consolidated revenues $ 121.8 � $ 129.9 � (6 %) � GAAP
operating income $ 20.4 $ 22.1 (8 %) Adjusted OIBDA(1) $ 38.7 $
34.4 12 % Adjusted OIBDA as a % of consolidated revenues 31.7 %
26.5 % � GAAP net income $ 13.0 $ 13.0 ? GAAP diluted net income
per share $ 0.19 $ 0.19 ? � Adjusted net income(2) $ 22.2 $ 18.5 20
% Adjusted diluted net income per share(2) $ 0.31 $ 0.27 15 % � Net
growth in total pay accounts(3) 215,000 130,000 65 % Classmates
Media segment revenues were a record $51.9 million, an increase of
22% versus the year-ago quarter. Communications segment revenues
were $69.9 million, a decline of 20% versus the year-ago quarter.
GAAP operating income was $20.4 million, a decrease of 8% versus
the year-ago quarter. Adjusted OIBDA(1) was $38.7 million, an
increase of 12% versus the year-ago quarter. Adjusted OIBDA
expanded to 31.7% of consolidated revenues from 26.5% of
consolidated revenues in the year-ago quarter. GAAP diluted net
income per share was $0.19, unchanged from the year-ago quarter.
Adjusted diluted net income per share(2) was $0.31, an increase of
15% from $0.27 in the year-ago quarter. Pay accounts(3) increased
by a net 215,000 during the 2008 first quarter, representing the
company�s highest quarterly increase (excluding acquisitions) in
five years. Total pay accounts were 5.6 million at March 31, 2008.
Scott H. Ray, executive vice president and chief financial officer,
commented, �We continue to maintain a highly disciplined approach
to financial management, demonstrated by our strong year-over-year
growth in consolidated adjusted OIBDA as a percentage of
consolidated revenues in the first quarter. Our success at
effectively managing operating costs, combined with our marketing
and product initiatives, were key factors that enabled the company
to achieve this improved performance versus the year-ago period.�
Cash Flows, Balance Sheet and Dividend Highlights For First Quarter
Ended March 31, 2008: Cash flows from operations were $29.0
million, an increase of 15% versus the year-ago quarter. Free cash
flow(4) was $26.6 million, an increase of 31% versus the year-ago
quarter. Cash, cash equivalents and short-term investments at March
31, 2008 increased to a combined $224.0 million from $218.3 million
at December 31, 2007, representing a net increase of $5.7 million
during the first quarter ended March 31, 2008. The first quarter is
typically the company�s slowest period for growth in cash and
investment balances, due primarily to the payment of annual bonuses
and the payment of payroll taxes in connection with vesting of
restricted stock units. During the first quarter ended March 31,
2008, the company paid $14.6 million in cash dividends. The
company�s board of directors recently declared a regular quarterly
cash dividend of $0.20 per share for the thirteenth consecutive
quarter. The dividend is payable on May 30, 2008 to shareholders of
record on May 14, 2008. As previously announced, following the
closing of the proposed transaction with FTD Group, Inc., United
Online expects to decrease its regular quarterly cash dividend from
$0.20 per share to $0.10 per share. Segment Results for First
Quarter Ended March 31, 2008: Classmates Media: � � � � (in
millions, except percentages) Financial Highlights Q1 2008 � Q1
2007 � % Change Billable services revenues $ 31.2 $ 22.2 41 %
Advertising revenues � 20.6 � � 20.2 � 2 % Segment revenues $ 51.9
� $ 42.4 � 22 % as a % of consolidated revenues 42.6 % 32.7 % �
Segment income from operations $ 8.0 $ 4.3 84 % Segment adjusted
OIBDA(1) $ 11.8 $ 5.2 129 % as a % of segment revenues 22.8 % 12.2
% Segment revenues were a record $51.9 million, an increase of 22%
versus the year-ago quarter, primarily due to continuing strong
growth in segment pay accounts. The segment represented 42.6% of
consolidated revenues in the first quarter, versus 32.7% in the
year-ago quarter. Segment adjusted OIBDA(1) was $11.8 million, an
increase of 129% versus the year-ago quarter, representing record
segment performance for a first quarter. Segment adjusted OIBDA(1)
increased to 22.8% as a percentage of segment revenues versus 12.2%
of segment revenues in the year-ago quarter, reflecting operating
leverage associated with the higher revenues and disciplined
management of operating expenses. Pay accounts(3) increased by a
record 322,000 during the first quarter of 2008, representing the
first time quarterly net growth in segment pay accounts has
exceeded 300,000. Segment pay accounts(3) as of March 31, 2008 were
3.5 million, a 45% increase from March 31, 2007. The segment
represented 63.3% of total pay accounts(3) at March 31, 2008,
compared to 59.8% at December 31, 2007 and 48.8% at March 31, 2007.
Classmates Media segment active accounts were 13.9 million, an
increase of 22% versus the year-ago quarter. Communications: � � �
� (in millions, except percentages) Financial Highlights Q1 2008 �
Q1 2007 � % Change Billable services revenues $ 59.4 $ 74.1 (20 %)
Advertising revenues � 10.5 � � 13.3 � (21 %) Segment revenues $
69.9 � $ 87.4 � (20 %) as a % of consolidated revenues 57.4 % 67.3
% � Segment income from operations $ 20.5 $ 26.0 (21 %) Segment
adjusted OIBDA(1) $ 26.8 $ 29.3 (8 %) as a % of segment revenues
38.4 % 33.5 % Segment revenues were $69.9 million, a decrease of
20% versus the year-ago quarter, primarily driven by a decrease in
segment pay accounts. The segment represented 57.4% of consolidated
revenues in the first quarter, versus 67.3% in the year-ago
quarter. Segment adjusted OIBDA(1) remained strong at $26.8
million, a decrease of 8% versus the year-ago quarter, and a
percentage that was less than half the rate of the year-over-year
revenue decline. In addition, segment adjusted OIBDA(1) of $26.8
million was unchanged compared to the fourth quarter of 2007,
despite a reduced revenue base in the first quarter of 2008.
Segment adjusted OIBDA(1) increased to a record 38.4% of segment
revenues during the first quarter of 2008, reflecting the company�s
continuing efforts in expense management and focus on driving
profitability and cash flow. Pay accounts(3) declined by a net
107,000, an improvement from a net decline of 134,000 pay accounts
in the year-ago quarter, representing the first time in more than
two years the segment has experienced net pay account losses of
less than 110,000 for two consecutive quarters. Segment pay
accounts at March 31, 2008 were 2.0 million. The segment
represented 36.7% of total pay accounts(3) at March 31, 2008,
compared to 40.2% at December 31, 2007 and 51.2% at March 31, 2007.
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. Below is the company�s guidance for the
quarter ending June 30, 2008 and year ending December 31, 2008,
which excludes the impact of the proposed merger with FTD Group,
Inc. which is anticipated to close during the third quarter of
2008. Second Quarter 2008 Guidance: � Second Quarter 2008 (in
millions) Guidance Revenues $117.0 - $121.0 Adjusted OIBDA(1) $34.0
- $38.0 Full Year 2008 Guidance: The company has increased its 2008
guidance for operating income and adjusted OIBDA(1) to reflect its
strong first quarter performance and forward outlook. The company
continues to anticipate a decline in total revenues in 2008 when
compared to 2007, as continued decreases in Communications segment
revenues are expected to be partially offset by continued increases
in Classmates Media segment revenues. The table below reconciles
the company�s guidance for operating income, a GAAP measure, to
adjusted OIBDA(1). Second Quarter and Full-Year 2008 (in millions)
� � � Q2 2008 Guidance � FY 2008 Guidance � Prior 2008 Guidance
GAAP Operating Income $18.1 - $22.1 $81.2 - $86.2 $74.7 - $80.7
Depreciation 4.8 19.6 20.5 Amortization of intangible assets 2.5
10.2 9.3 Stock-based compensation (a) 8.2 35.3 38.0 Restructuring
charges 0.4 0.7 0.5 Adjusted OIBDA(1) $34.0 - $38.0 $147.0 - $152.0
$143.0 - $149.0 (a) Historically, bonuses for members of senior
management were paid primarily in cash. It is anticipated that the
bonuses for certain members of senior management for fiscal 2008
will be paid primarily in shares of the company's common stock. The
anticipated change in bonus structure is expected to positively
impact adjusted OIBDA(1) in 2008 when compared to prior-year
periods. (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 and related charges; and impairment of
goodwill, intangible assets and long-lived assets. The company's
definition of adjusted OIBDA has been modified from time to time.
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 (such
as restructuring and related charges), this measure provides
investors with additional useful information to measure the
company's financial 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 has used 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 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 activities
such as evaluations of 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 a summary of stock-based compensation
expenses 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 and related
charges and impairment of goodwill, intangible assets and
long-lived assets. Management compensates for this limitation by
providing supplemental information about restructuring and related
charges and impairment charges within its financial press releases
and SEC filings, when applicable. An additional limitation
associated with the use of this measure is that the term adjusted
OIBDA does not have a standardized meaning. Therefore, other
companies may use the same or a similarly named measure 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. Management compensates for this
limitation by presenting the most comparable GAAP measure,
operating income, directly ahead of adjusted OIBDA within its
financial press releases and by providing a reconciliation that
shows and describes the adjustments made. 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
Forms 10-K and Forms 10-Q, before stock-based compensation,
restructuring and related charges and impairment of goodwill,
intangible assets and long-lived assets. The company's definition
of adjusted OIBDA for each of the company's segments has been
modified from time to time. Management believes that because
segment adjusted OIBDA and segment adjusted OIBDA as a percentage
of segment revenues exclude (1) certain non-cash expenses (such as
stock-based compensation, and impairment of goodwill, intangible
assets and long-lived assets); and (2) expenses that are not
reflective of the segment's core operating results over time (such
as restructuring and related charges), these measures provide
investors with additional useful information to evaluate the
company's segment financial performance, particularly with respect
to changes in performance from period to period. Segment adjusted
OIBDA and segment adjusted OIBDA as a percentage of segment
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 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
a summary of stock-based compensation expenses on the face of the
consolidated statements of operations. A further limitation
associated with the use of these measures is that they do not
reflect the costs of restructuring and related charges and
impairment charges related to an operating segment. Management
compensates for this limitation by providing supplemental
information about restructuring and related charges and impairment
charges by segment within its financial press releases and SEC
filings, when applicable. A reconciliation to segment income from
operations, its most comparable GAAP financial measure, is provided
in the accompanying tables. � (2) Adjusted net income is defined by
the company as net income before the after-tax effect of:
stock-based compensation; amortization of intangible assets;
restructuring and related 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
SFAS 123R, and the re-measurement of certain deferred tax assets.
Management believes that adjusted net income and adjusted diluted
net income per share provide investors with additional useful
information to measure the company's financial performance,
particularly with respect to changes in performance from period to
period, because these measures are exclusive of (1) certain
non-cash expenses (such as stock-based compensation, amortization,
the cumulative effect of change in accounting principle, 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 (such as restructuring and related charges).
Management also uses adjusted net income and adjusted diluted net
income per share for this purpose. Adjusted net income and adjusted
diluted net income per share 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. The limitations of adjusted net income and adjusted
diluted net income per share are that, similar to adjusted OIBDA,
they do not include certain costs, and the terms adjusted net
income and adjusted diluted net income per 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. Management compensates for this limitation by presenting
the most comparable GAAP measures, net income and diluted net
income per share, directly ahead of adjusted net income and
adjusted diluted net income per share within its financial press
releases and by providing a reconciliation that shows and describes
the adjustments made. Reconciliations to net income and diluted net
income per 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. Classmates Media
segment active accounts are defined as: all social networking pay
accounts as of the date presented; the monthly average for the
period of all free social networking accounts who have visited the
company's domestic or international social networking Web sites,
excluding The Names Database, at least once during the period; and
the monthly average for the period of all loyalty marketing members
who have earned or redeemed points during such period.
Communications segment active accounts are defined as all
Communications pay accounts as of the date presented combined with
the number of free Communications accounts (access and email
users), excluding free Web hosting accounts, that logged on to the
company's services at least once during the preceding 31 days. �
(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 and related charges. 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 prior to cash paid for restructuring and related charges. It
also fully reflects the tax benefits realized by the company from
stock-based compensation. 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 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 of free cash flow is that it
does not represent the total increase or decrease in cash during
the period. An additional limitation associated with the use of
this measure is that the term free cash flow does not have a
standardized meaning. Therefore, other companies may use the same
or a similarly named measure 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. Management compensates for this limitation by presenting
the most comparable GAAP measure, net cash provided by operating
activities, directly ahead of free cash flow within its financial
press releases and by providing a reconciliation that shows and
describes the adjustments made. A reconciliation to net cash
provided by operating activities is provided in the accompanying
tables. Investor Conference Call Today at 5:00 p.m. ET (2:00 p.m.
PT): United Online will host a conference call today at 5:00 p.m.
ET (2:00 p.m. PT) to discuss its quarterly results. To participate,
please dial 877-290-8528 (or�706-643-0852 outside the U.S.), and
provide the confirmation code, 44032757. A live Webcast of the call
can also be accessed through the �investors� section of the
company's Web site located at www.unitedonline.com. A recording of
the call will be available on the site for seven days, or by
dialing (800) 642-1687 (or 706-645-9291 outside of the United
States) and the reservation number, 44032757. About United Online:
United Online, Inc. (Nasdaq: UNTD) is a leading provider of
consumer Internet and media services. The company�s Classmates
Media services include online 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;
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, based on current expectations, estimates and
projections about the company�s operations, industry, financial
condition, performance and results of operations. Statements
containing words such as "guidance," "may," "believe,"
"anticipate," "expect," "intend," "plan," "project," "projections,"
"business outlook," and "estimate" or similar expressions
constitute forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations
of future events or circumstances, including any underlying
assumptions, are forward-looking statements. These statements
include, without limitation, expectations regarding future:
financial performance; depreciation and amortization; stock-based
compensation; and restructuring and related charges; business
strategies and product plans of the company; and statements
regarding the anticipated impact or benefits of pending
acquisitions, including the acquisition of FTD Group, Inc., and
other transactions described or referenced herein. 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. Reported results should not be considered an indication
of future performance. Potential risks and uncertainties include,
among others: the effect of competition; the company's inability to
retain its free and pay accounts and the rate at which free and pay
accounts sign up for or use the company's services; changes in pay
accounts and the mix of pay accounts; the company�s inability to
increase or maintain its advertising revenues; the effects of
changes in marketing expenditures or shifts in marketing
expenditures; the effects of seasonality; changes in stock-based
compensation; changes in amortization or depreciation due to a
variety of factors; potential write down, reserve against or
impairment of assets including receivables, goodwill, intangibles
or other assets including capitalized transaction-related costs
associated with the Classmates Media Corporation IPO and the
proposed merger with FTD Group; that the company will incur
additional restructuring and related charges or currently
anticipated restructuring and related 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; the company's
ability to successfully identify, consummate and integrate
acquisitions, including: the failure to satisfy any of the
conditions to complete the proposed merger with FTD Group; the
failure to obtain financing to complete the transaction; the
failure of the transaction to be accretive to earnings per share
when anticipated, if ever; the inability to successfully integrate
the businesses and operations of the company and FTD Group; the
failure to achieve cost savings and other benefits; the impact of,
and restrictions associated with, the debt incurred in connection
with the transaction; the transaction costs being greater than
anticipated; unanticipated delays as a result of regulatory issues
or other factors; and risks associated with the combined business
as well as the risk factors relating to each business as disclosed
in the company�s and FTD Group�s respective filings with the
Securities and Exchange Commission; the company�s ability to obtain
additional financing; problems associated with the company's
operations, systems or technologies; the company's inability to
retain key customers and key personnel; risks associated with
litigation; governmental regulation; and the effects of
discontinuing or discontinued business operations. In addition, the
payment of future dividends and any possible share repurchases are
discretionary and will be subject to determination by the Board of
Directors each quarter and from time to time following its review
of the company�s financial performance and other factors. 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, including the proposed FTD Group 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." The�company intends to file with the Securities and
Exchange Commission (�SEC�) a Registration Statement on Form S-4,
which will include a proxy statement/prospectus of FTD Group and
the company and other relevant materials in connection with the
proposed transaction. Investors and stockholders are urged to read
the proxy statement/prospectus and Registration Statement, and any
and all amendments or supplements thereto, when they become
available because they will contain important information about the
proposed transaction, including risk factors relating to the
transaction, the FTD Group business, and the company's proposed
financing of the transaction. Investors and stockholders may obtain
a free copy of the proxy statement/prospectus and Registration
Statement (when available), as well as other documents filed by the
company with the SEC, at the SEC's Web site at www.sec.gov.
Investors and stockholders may also obtain a free copy of the proxy
statement/prospectus and Registration Statement and the respective
filings with the SEC directly from the company by directing a
request to Erik Randerson at (818) 287-3350. UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statements of Operations (in
thousands, except per share amounts) � � Quarter Ended March 31,
2008 2007 � Revenues $ 121,811 $ 129,851 Operating expenses: Cost
of revenues(a) 27,839 29,247 Sales and marketing(a) 36,781 46,025
Product development(a) 12,902 13,471 General and administrative(a)
20,884 15,489 Amortization of intangible assets 2,836 3,495
Restructuring charges � 206 � � - � Total operating expenses �
101,448 � � 107,727 � � Operating income 20,363 22,124 � Interest
and other income, net 1,808 1,700 Interest expense � (166 ) � (360
) � Income before income taxes 22,005 23,464 Provision for income
taxes � 9,003 � � 10,436 � Net income $ 13,002 � $ 13,028 � � Basic
net income per share $ 0.19 � $ 0.20 � � Diluted net income per
share $ 0.19 � $ 0.19 � � Shares used to calculate basic net income
per share � 68,145 � � 65,627 � Shares used to calculate diluted
net income per share � 69,727 � � 68,080 � Shares outstanding at
end of period � 68,563 � � 66,420 � � (a) Stock-based compensation
was allocated as follows: Cost of revenues $ 220 $ 194 Sales and
marketing 1,588 892 Product development 1,288 1,245 General and
administrative � 6,914 � � 1,716 � Total stock-based compensation $
10,010 � $ 4,047 � UNITED ONLINE, INC. Unaudited Reconciliations of
Non-GAAP Financial Data (in thousands) � � Unaudited Reconciliation
of Operating Income to Adjusted Operating Income Before
Depreciation and Amortization (OIBDA)(1) � Quarter Ended March 31,
2008 2007 Operating income $ 20,363 $ 22,124 Depreciation 5,239
4,745 Amortization of intangible assets � 2,836 � 3,495 Operating
income before depreciation and amortization 28,438 30,364
Stock-based compensation 10,010 4,047 Restructuring charges � 206 �
- Adjusted operating income before depreciation and amortization $
38,654 $ 34,411 � � Unaudited Reconciliation of Segment Income from
Operations to Segment Adjusted OIBDA(1) � Quarter Ended March 31,
2008 2007 Classmates Media: Segment income from operations $ 7,953
$ 4,321 Stock-based compensation � 3,863 � 837 Segment adjusted
operating income before depreciation and amortization $ 11,816 $
5,158 � Communications: Segment income from operations $ 20,485 $
26,043 Stock-based compensation 6,147 3,210 Restructuring charges �
206 � - Segment adjusted operating income before depreciation and
amortization $ 26,838 $ 29,253 UNITED ONLINE, INC. Unaudited
Reconciliation of Net Income to Adjusted Net Income(2) (in
thousands, except per share amounts) � � Quarter Ended March 31,
2008 2007 � Net income $ 13,002 $ 13,028 Add (deduct): Stock-based
compensation 10,010 4,047 Amortization of intangible assets 2,836
3,495 Restructuring charges � 206 � � - � 26,054 20,570 � Income
tax effect of adjusting entries � (3,840 ) � (2,049 ) Adjusted net
income $ 22,214 � $ 18,521 � � Basic net income per share $ 0.19 �
$ 0.20 � Diluted net income per share $ 0.19 � $ 0.19 � � Adjusted
basic net income per share $ 0.33 � $ 0.28 � Adjusted diluted net
income per share $ 0.31 � $ 0.27 � � Shares used to calculate basic
net income per share � 68,145 � � 65,627 � Shares used to calculate
diluted net income per share � 69,727 � � 68,080 � � Shares used to
calculate adjusted basic net income per share � 68,145 � � 65,627 �
Shares used to calculate adjusted diluted net income per share(a) �
72,154 � � 69,089 � � � � � � � (a) Includes the adjustment of
shares used to calculate diluted net income per share resulting
from the elimination of stock-based compensation. UNITED ONLINE,
INC. Unaudited Condensed Consolidated Balance Sheets (in thousands)
� � March 31, 2008 December 31, 2007 � ASSETS Cash, cash
equivalents and short-term investments $ 224,015 $ 218,307 Accounts
receivable, net 25,228 28,765 Deferred tax assets, net 64,964
64,609 Property and equipment, net 37,129 39,570 Goodwill and
intangible assets, net 170,369 173,267 Other assets � 24,153 �
27,875 Total assets $ 545,858 $ 552,393 � LIABILITIES AND
STOCKHOLDERS' EQUITY Accounts payable $ 36,642 $ 38,095 Accrued
liabilities 17,992 30,586 Member redemption liability 23,755 24,560
Deferred revenue 72,813 67,777 Capital leases 9 13 Other
liabilities � 10,845 � 10,734 Total liabilities � 162,056 � 171,765
� Stockholders' equity 383,802 380,628 � � Total liabilities and
stockholders' equity $ 545,858 $ 552,393 UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statements of Cash Flows (in
thousands) � � Quarter Ended March 31, 2008 2007 CASH FLOWS FROM
OPERATING ACTIVITIES: Net income $ 13,002 $ 13,028 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation, amortization and stock-based compensation 18,085
12,287 Provision for doubtful accounts receivable 318 (206 )
Deferred taxes and other (191 ) (192 ) Tax benefits from
stock-based compensation 77 1,169 Excess tax benefits from
stock-based compensation (226 ) (868 ) Change in operating assets
and liabilities: Accounts receivable 3,220 1,692 Other assets 5,908
(1,060 ) Accounts payable and accrued liabilities (15,536 ) (7,028
) Member redemption liability (805 ) 1,193 Deferred revenue 5,037
5,246 Other liabilities � 110 � � (55 ) Net cash provided by
operating activities � 28,999 � � 25,206 � � CASH FLOWS FROM
INVESTING ACTIVITIES: Purchases of property and equipment (2,799 )
(5,797 ) Purchases of short-term investments (69,268 ) (79,491 )
Proceeds from maturities of short-term investments 22,985 4,245
Proceeds from sales of short-term investments 9,273 66,795 Cash
paid for pending acquisition (682 ) - Proceeds from sales of
assets, net � 9 � � 14 � Net cash used for investing activities �
(40,482 ) � (14,234 ) � CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases (4 ) (4 ) Proceeds from exercises of
stock options 694 1,883 Repurchases of common stock (6,162 ) (2,657
) Payments for dividends (14,569 ) (13,727 ) Excess tax benefits
from stock-based compensation � 226 � � 868 � Net cash used for
financing activities � (19,815 ) � (13,637 ) � Effect of exchange
rate changes on cash and cash equivalents (112 ) (2 ) � Change in
cash and cash equivalents (31,410 ) (2,667 ) Cash and cash
equivalents, beginning of period � 149,507 � � 19,252 � Cash and
cash equivalents, end of period $ 118,097 � $ 16,585 � UNITED
ONLINE, INC. Unaudited Reconciliation of Net Cash Provided by
Operating Activities to Free Cash Flow(4) (in thousands) � � �
Quarter Ended March 31, 2008 2007 Net cash provided by operating
activities $ 28,999 $ 25,206 Add (deduct): Capital expenditures
(2,799 ) (5,797 ) Excess tax benefits from stock-based compensation
226 868 Cash paid for restructuring charges � 151 � � - � Free cash
flow $ 26,577 � $ 20,277 � UNITED ONLINE, INC. Unaudited Segment
Information(a) (in thousands) � � � Quarter Ended March 31, 2008
Classmates Media Communications Total � Billable services $ 31,241
$ 59,421 $ 90,662 Advertising � 20,643 � � 10,506 � 31,149 Total
revenues � 51,884 � � 69,927 � 121,811 � Operating expenses: Cost
of revenue 10,212 17,627 27,839 Sales and marketing 19,646 17,135
36,781 Product development 5,430 7,472 12,902 General and
administrative 10,706 10,178 20,884 Amortization of intangible
assets 2,375 461 2,836 Restructuring charges � - � � 206 � 206
Total operating expenses � 48,369 � � 53,079 � 101,448 � Operating
income � 3,515 � � 16,848 � 20,363 � Depreciation 2,063 3,176 5,239
Amortization of intangible assets � 2,375 � � 461 � 2,836 Operating
income before depreciation and amortization 7,953 20,485 28,438
Stock-based compensation 3,863 6,147 10,010 Restructuring charges �
- � � 206 � 206 Adjusted operating income before depreciation and
amortization $ 11,816 � $ 26,838 $ 38,654 � � Quarter Ended March
31, 2007 Classmates Media Communications Total � Billable services
$ 22,227 $ 74,093 $ 96,320 Advertising � 20,207 � � 13,324 � 33,531
Total revenues � 42,434 � � 87,417 � 129,851 � Operating expenses:
Cost of revenue 9,394 19,853 29,247 Sales and marketing 20,465
25,560 46,025 Product development 3,703 9,768 13,471 General and
administrative 6,466 9,023 15,489 Amortization of intangible assets
� 2,848 � � 647 � 3,495 Total operating expenses � 42,876 � �
64,851 � 107,727 � Operating income (loss) � (442 ) � 22,566 �
22,124 � Depreciation 1,915 2,830 4,745 Amortization of intangible
assets � 2,848 � � 647 � 3,495 Operating income before depreciation
and amortization 4,321 26,043 30,364 Stock-based compensation � 837
� � 3,210 � 4,047 Adjusted operating income before depreciation and
amortization $ 5,158 � $ 29,253 $ 34,411 � � � � � � � (a) Segment
results for the quarter ended March 31, 2007 have been adjusted to
conform with the current segment reporting structure, which was
modified in Q4 2007. � UNITED ONLINE, INC. Unaudited Selected
Quarterly Historical Key Metrics (a) � � � � � � March 31, 2008 �
December 31, 2007 � September 30, 2007 � June 30, 2007 March 31,
2007 � Consolidated: Total pay accounts(b) (in thousands) 5,564
5,349 5,239 5,118 4,984 Number of employees at end of period 908
928 999 985 1,008 � Classmates Media: Segment revenues(e) (in
thousands) $ 51,884 $ 53,273 $ 49,972 $ 47,740 $ 42,434 % of Total
revenues 42.6 % 42.5 % 39.4 % 36.3 % 32.7 % � Pay accounts (in
thousands) 3,521 3,199 2,983 2,710 2,433 % of Total pay accounts
63.3 % 59.8 % 56.9 % 53.0 % 48.8 % � Segment active accounts(c)(d)
(in millions) 13.9 12.6 12.8 11.7 11.4 � Communications: Segment
revenues(e) (in thousands) $ 69,927 $ 72,137 $ 76,853 $ 83,677 $
87,417 % of Total revenues 57.4 % 57.5 % 60.6 % 63.7 % 67.3 % � Pay
accounts(b) (in thousands): Access 1,682 1,786 1,886 2,016 2,158
Other � 361 � � 364 � � 370 � � 392 � � 393 � Total Communications
pay accounts(b) � 2,043 � � 2,150 � � 2,256 � � 2,408 � � 2,551 � %
of Total pay accounts 36.7 % 40.2 % 43.1 % 47.0 % 51.2 % � Segment
active accounts(f) (in millions) 3.1 3.3 3.5 3.7 3.9 � � � � � � �
� � � � (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) Growth in pay accounts during the
quarter ended September 30, 2007 includes a loss of 18,000 pay
accounts resulting from the company's decision to exit the photo
sharing business. Growth in pay accounts during the quarter ended
December 31, 2007 includes a loss of 6,000 pay accounts resulting
from the company's decision to exit the VoIP business. � (c)
Classmates Media active accounts represent: all social networking
pay accounts as of the date presented; the monthly average for the
period of all free social networking accounts who have visited the
company's domestic or international social networking Web sites,
excluding The Names Database, at least once during the period; and
the monthly average for the period of all loyalty marketing members
who have earned or redeemed points during such period. � (d) The
numbers of active international accounts prior to the quarter ended
June 30, 2007 were derived by dividing the actual total numbers of
visits by an estimate of the number of times a user returned to the
site during the period. � (e) Segment results for all prior periods
have been adjusted to conform with the current segment reporting
structure, which was modified in Q4 2007. � (f) Communications
segment active accounts are defined as all Communications pay
accounts as of the date presented combined with the number of free
Communications accounts (access and email users), excluding free
Web hosting accounts, that logged on to the company�s services at
least once during the preceding 31 days.
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