United Online, Inc. (Nasdaq: UNTD), a leading provider of
consumer products and services over the Internet, today reported
financial results for its third quarter ended September 30, 2009.
The results include three months of operations from FTD Group, Inc.
(“FTD”), whereas in the prior-year comparable quarter FTD’s
operations were included in the company’s financial results from
August 26, 2008, the date of acquisition.
“United Online delivered strong results in the third quarter,
highlighted by more than 700,000 gross pay account additions in our
Classmates Media segment and a near tripling of our quarterly net
growth in Classmates Media segment pay accounts to 164,000 compared
to net growth of 58,000 pay accounts in the 2009 second quarter,”
commented Mark R. Goldston, Chairman, President and Chief Executive
Officer of United Online. “Our improved growth in net pay accounts
reflects increased use of promotional pricing campaigns, which were
successful in stimulating consumer interest in paid subscriptions
in the current economic environment, as well as a decrease in pay
account churn. The Classmates Media segment also continued to
deliver impressive bottom-line performance, including a 31 percent
year-over-year increase in segment adjusted OIBDA to $20.4
million.”
“On another positive note, we have continued to make progress on
key business initiatives at FTD,” Goldston added. “The marketing
and operating enhancements we have implemented at FTD and
Interflora following United Online’s acquisition of FTD last year
are helping to strengthen our competitive position within the
floral industry – underscored by our recent announcement that FTD
has become USAA’s exclusive floral offering for its customers.”
Summary Results for Third
Quarter Ended September 30, 2009:
The following table summarizes key financial results for the
third quarter ended September 30, 2009. The results include three
months of operations from FTD, whereas FTD’s operations were
included in the quarter ended September 30, 2008 only from August
26, 2008, the date of acquisition.
(in millions, except per share and
percentage figures)
Financial Highlights
Q3 2009 Q3 2008 % Change FTD
revenues $ 107.5 $ 48.3 123 % Classmates Media revenues 58.7 58.7 —
Communications revenues 50.7 62.1 (18 %) Intersegment eliminations
(0.7 ) — N/A
Consolidated revenues $
216.2 $ 169.2 28 %
GAAP operating income $ 32.7 $
28.8 13 % Adjusted
OIBDA(1) $ 57.5 $ 49.2
17 % GAAP net income applicable to common
stockholders $ 14.9 $ 15.2
(2 %) GAAP diluted net income per common share
$ 0.18 $ 0.20 (10 %)
Adjusted net income applicable to common
stockholders(2) $ 28.3 $
25.4 11 % Adjusted diluted net income per
common share(2) $ 0.33 $
0.34 (3 %)
- Consolidated revenues were
$216.2 million, an increase of 28% versus the year-ago quarter. The
increase was attributable to the company’s acquisition of FTD on
August 26, 2008.
- Adjusted OIBDA(1) was $57.5
million, an increase of 17% versus the year-ago quarter. The
increase was primarily attributable to the FTD acquisition.
- GAAP diluted net income per
common share was $0.18 and adjusted diluted net income per common
share(2) was $0.33. In the year-ago quarter, the company reported
GAAP diluted net income per common share of $0.20 and adjusted
diluted net income per common share of $0.34.
Scott H. Ray, Executive Vice President and Chief Financial
Officer, commented, “I am pleased that our cash position increased
and our debt balance continued to decrease during the third
quarter. In fact, we have reduced our net debt position by more
than $100 million since the FTD acquisition closed in August 2008.
Subsequent to the quarter’s end, in early October we further
de-levered the balance sheet by making a voluntary prepayment of
$10 million on our FTD debt, demonstrating our continued confidence
in FTD’s ability to generate cash flows.”
Cash Flows, Balance Sheet and
Dividend Highlights:
- Cash flows from operations and
free cash flow(4) were $28.2 million and $23.5 million, a decrease
of 20% and 25%, respectively, versus the year-ago quarter. The
decrease in cash flows was primarily attributable to changes in
working capital.
- Cash and cash equivalents at
September 30, 2009 increased by $4.0 million to $121.4 million from
$117.4 million at June 30, 2009.
- Total debt, net of discounts, at
September 30, 2009 was $374.0 million, a decrease of $8.5 million
versus $382.5 million at June 30, 2009. Subsequent to quarter end,
during October 2009 the company further reduced its debt balance by
making a voluntary prepayment of $10 million on its FTD credit
facilities.
- Net debt at September 30, 2009
was $252.6 million, a decrease of $12.5 million versus $265.1
million at June 30, 2009.
- The company paid $9.2 million in
cash dividends during the quarter.
- The company’s Board of Directors
recently declared a quarterly cash dividend of $0.10 per share that
is payable on November 30, 2009 to stockholders of record on
November 13, 2009.
Segment Results for Third
Quarter Ended September 30, 2009:
FTD:
(in millions, except percentages and exchange rates)
Combined % Change @
Financial Highlights
Q3 2009 Q3 2008 % Change Constant
Currency Products revenues(a) $ 77.9 $ 87.7 (11 %) Services
revenues(a) 28.5 32.2 (12 %) Advertising revenues(a) 1.1
1.4 (22 %)
Segment revenues(a) $
107.5 $ 121.4 (11 %)
(7 %) as a % of consolidated revenues
50 % - N/A Segment income from operations(b) $
15.3 $ - N/A
Segment adjusted OIBDA(1)(b) $
17.3 $ - N/A as a % of segment
revenues(1) 16.1 % - N/A
(in thousands, except percentages, exchange rates and AOV)
Combined % Change @
Metrics Highlights
Q3 2009 Q3 2008 % Change Constant
Currency Consumer orders(5)(a) 1,075 1,154 (7 %) Average order
value(5)(a) $ 61.29 $ 64.37 (5 %) 1 % British Pound / U.S. Dollar
exchange rate (average) 1.64 1.90 N/A
- Segment revenues, including a
$4.8 million year-over-year negative impact from foreign currency
exchange rates, were $107.5 million, a decrease of 11% versus the
year-ago quarter.
- Segment revenues decreased 7%
versus the year-ago quarter, excluding the negative impact from
foreign currency exchange rates resulting from a strengthened U.S.
Dollar versus the British Pound.
- Segment adjusted OIBDA(1) was
$17.3 million, representing 16.1% of segment revenues.
- Consumer orders(5) were 1.1
million, a decrease of 7% versus the year-ago quarter.
- Average order value(5) (“AOV”),
including a $3.74 year-over-year negative impact from foreign
currency exchange rates resulting from a strengthened U.S. Dollar
versus the British Pound, was $61.29, a 5% decrease versus an AOV
of $64.37 in the year-ago quarter. AOV increased 1% versus the
year-ago quarter, excluding the negative impact from foreign
currency exchange rates.
a) Quarterly revenues, consumer orders and
average order value for Q3 2008 reflect combined quarterly results
(the “Combined Results”) as supplemental disclosures for comparison
purposes. The Combined Results were calculated by combining FTD’s
historical results and metrics prior to the acquisition (July 1,
2008 through August 25, 2008) with FTD’s results post-acquisition
(August 26, 2008 through September 30, 2008).
b) The company has not provided FTD
segment income from operations or FTD segment adjusted OIBDA for Q3
2008 on a Combined Results basis as described in footnote a) above.
FTD segment results on these measures for the partial quarter
period in Q3 2008 from August 26, 2008, the date of acquisition,
are available in the financial tables accompanying this press
release.
Classmates
Media:
(in millions, except percentages)
Financial Highlights
Q3 2009 Q3 2008 % Change
Services revenues $ 38.3 $ 36.4 5 % Advertising revenues
20.4 22.4 (9 %)
Segment revenues
$ 58.7 $ 58.7 —
as a % of consolidated revenues 27 % 35
% Segment income from operations $ 17.0 $ 12.2 40 %
Segment adjusted OIBDA(1) $ 20.4
$ 15.6 31 % as a % of segment
revenues(1) 34.8 % 26.5 %
(in thousands, except percentages)
Metrics Highlights
Q3 2009 Q3 2008 % Change Segment pay
accounts(3) 4,785 4,087 17 % Net growth in segment pay accounts(3)
164 278 Segment active accounts(3) 16,900 15,500 9 %
- Segment revenues were $58.7
million, flat versus the year-ago quarter, as growth in segment
services revenues was offset by a decline in segment advertising
revenues.
- Segment adjusted OIBDA increased
to $20.4 million, up 31% versus $15.6 million in the year-ago
quarter. The increase in segment operating profitability reflects a
340 basis point expansion in segment gross margin to 84.0% from
80.6% in the year-ago quarter, as well as cost-efficient marketing
initiatives that helped to reduce sales and marketing spending in
the third quarter versus the year-ago quarter.
- Segment adjusted OIBDA as a
percentage of segment revenues increased to 34.8% from 26.5% in the
year-ago quarter.
- Segment pay accounts(3)
increased by a net 164,000, up from net growth of 58,000 segment
pay accounts in the 2009 second quarter. The significant
improvement on a sequential quarter basis primarily reflects the
company’s increased promotion of discounted pricing plans during
the third quarter. In the year-ago quarter, net growth in segment
pay accounts was 278,000.
- Segment pay accounts at
September 30, 2009 were 4.8 million, an increase of 17% versus 4.1
million at September 30, 2008.
- Segment active accounts(3) were
16.9 million in the third quarter, an increase of 9% versus 15.5
million in the year-ago quarter.
Communications:
(in millions, except percentages)
Financial Highlights
Q3 2009 Q3 2008 % Change
Services revenues $ 42.1 $ 53.2 (21 %) Advertising revenues
8.6 8.9 (3 %)
Segment revenues $
50.7 $ 62.1 (18 %)
as a % of consolidated revenues 23 % 37
% Segment income from operations $ 15.6 $ 18.8 (17 %)
Segment adjusted OIBDA(1) $ 19.7
$ 25.4 (22 %) as a % of segment
revenues(1) 39.0 % 40.9 %
(in thousands, except percentages)
Metrics Highlights
Q3 2009 Q3 2008 % Change Segment pay
accounts(3) 1,440 1,821 (21 %)
- Segment revenues were $50.7
million, a decrease of 18% versus the year-ago quarter, primarily
due to a continuing decline in segment pay accounts.
- Segment adjusted OIBDA was $19.7
million, a decrease of 22% versus the year-ago quarter.
- Segment adjusted OIBDA was 39.0%
of segment revenues, versus 40.9% of segment revenues in the
year-ago quarter.
- Segment pay accounts decreased
by a net 92,000, versus a net decline of 121,000 pay accounts in
the second quarter of 2009 and a net decline of 95,000 pay accounts
in the year-ago quarter.
- Segment pay accounts at
September 30, 2009 were 1.4 million, a decrease of 21% versus 1.8
million at September 30, 2008.
Business
Outlook:
The following forward-looking information includes certain
projections made by management as of the date of this press
release. The company does not intend to revise or update this
information, except as required by law, 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.
Fourth-Quarter 2009
Guidance:
Fourth-Quarter 2009 (in millions) Guidance
Revenues
$235.0 ─ $243.0
Adjusted OIBDA(1)
$56.0 ─ $61.0
Full-Year 2009
Guidance:
Full-Year 2009 (in millions) Guidance
Revenues $975.6 ─ $983.6
Adjusted OIBDA(1)
$243.5 ─ $248.5
The table below reconciles the company’s guidance for operating
income, a GAAP measure, to adjusted OIBDA.
Fourth-Quarter and Full-Year 2009 Q4 2009
Full-Year 2009 (in millions) Guidance
Guidance GAAP Operating Income $29.1 ─ $34.1 $142.3 ─
$147.3 Depreciation 6.0 24.8 Amortization of intangible assets 8.6
34.9 Stock-based compensation 10.2 39.4 Restructuring charges 2.1
2.1
Adjusted OIBDA(1) $56.0 ─ $61.0 $243.5 ─ $248.5
Investor Conference Call Today
at 5:30 p.m. ET (2:30 p.m. PT):
United Online will host a conference call today at 5:30 p.m. ET
(2:30 p.m. PT) to discuss its quarterly results. To participate,
please dial 877-718-5098 (or 719-325-4797 outside of the
U.S.), and provide the confirmation code, 5211343. A live webcast
of the call, along with a presentation containing financial
highlights for the quarter ended September 30, 2009, can also be
accessed through the “investors” section of the company’s Web site
located at www.unitedonline.com. The presentation and a replay of
the broadcast will be available on the Web site for seven days, or
by dialing 888-203-1112 (or 719-457-0820 outside of the U.S.) and
the confirmation code, 5211343. The telephone replay will be
available through 5 p.m. ET on November 11, 2009.
Definitions of Non-GAAP
Measures:
(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 (i)
certain non-cash expenses (such as depreciation, amortization,
stock-based compensation, and impairment of goodwill, intangible
assets and long-lived assets) and (ii) 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 as a basis 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 the 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 Securities and
Exchange Commission (“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 the 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 the 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 these measures is that they do 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 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; the cumulative effect of a change in accounting principle
as a result of the adoption of Accounting Standards Codification
718, Compensation – Stock Compensation; and the re-measurement of
certain deferred tax assets. Management believes that adjusted net
income and adjusted diluted net income per common 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 (i) certain non-cash expenses (such as
stock-based compensation, amortization, the cumulative effect of a
change in accounting principle, and the impairment of goodwill,
intangible assets and long-lived assets) and (ii) 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 common share for
this purpose. Adjusted net income and adjusted diluted net income
per common 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 common 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 common 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 common share, directly ahead of adjusted net income and
adjusted diluted net income per common share within its financial
press releases and by providing a reconciliation of adjusted net
income that shows and describes the adjustments made. A
reconciliation of adjusted net income to net income, the most
comparable GAAP measure, is provided in the accompanying
tables.
(3) A pay account is defined as a member who has subscribed to,
and paid for, our Classmates Media or Communications services, and
whose subscription has not expired. A pay account does not equate
to a unique subscriber since one subscriber could have several pay
accounts. At any point in time, our pay account base includes a
number of accounts receiving a free period of service as either a
promotion or retention tool and a number of accounts that have
notified us that they are terminating their service but whose
service remains in effect.
Classmates Media segment active accounts are defined as the sum
of 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 online loyalty marketing members who have earned or redeemed
points during such period. Communications segment active accounts
include all Communications segment pay accounts as of the date
presented combined with the number of free Internet access and
email 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, 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.
(5) Consumer orders are orders delivered during the period that
originated in the U.S. and Canada, primarily from the www.ftd.com Web site and the
1-800-SEND-FTD telephone number, and in the U.K. and the Republic
of Ireland, primarily from the www.interflora.co.uk Web site and a
toll-free telephone number. Orders originating with a florist or
other retail location for delivery to consumers are not
included.
Average order value represents the average U.S. Dollar amount
received for consumer orders delivered during a period. This
average U.S. Dollar amount is determined after translating the
British Pound amounts received for orders delivered in the United
Kingdom and the Republic of Ireland into U.S. Dollars. Average
order value includes merchandise revenue and shipping and service
fees paid by the consumer, less certain discounts and certain
refunds.
About United
Online®:
United Online, Inc. (Nasdaq: UNTD) is a leading provider of
consumer products and services over the Internet, where the
company’s brands have attracted a large online audience that
includes more than 60 million registered consumer accounts. The
company’s floral and related offerings include products and
services for consumers and retail florists, as well as for other
retail locations offering floral products and services, in the
U.S., Canada, the United Kingdom, and the Republic of Ireland. The
floral business utilizes the highly recognized FTD (www.ftd.com)
and Interflora (www.interflora.co.uk) brands, both supported by the
Mercury Man logo that is displayed in approximately 45,000 retail
floral shops worldwide. The company’s Classmates Media services
include online social networking (www.classmates.com) and online
loyalty marketing (www.mypoints.com) in North America. Classmates
Media also operates online social networking Web sites in a number
of European countries. The company’s Communications services
include value-priced Internet access and email provided by NetZero
(www.netzero.com) and Juno (www.juno.com).
Headquartered in Woodland Hills, CA, United Online operates
through a global network of locations in the U.S., Canada, the
United Kingdom, Germany, and India. More information about United
Online is available on the company’s Web site located at:
(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 our current
expectations, estimates and projections about our operations,
industry, financial condition, performance, results of operations,
and liquidity. Statements containing words such as “may,”
“believe,” “anticipate,” “expect,” “intend,” “plan,” “project,”
“projections,” “business outlook,” “estimate,” or similar
expressions constitute forward-looking statements. These
forward-looking statements include, but are not limited to,
statements about future financial performance; revenues; operating
expenses; operating income; capital expenditures; depreciation and
amortization; and stock-based compensation. Potential factors that
could cause actual results to differ materially from those in the
forward-looking statements include, among others: the severity and
duration of current economic conditions; the effect of competition;
financial market risk resulting from fluctuations in foreign
currency exchange rates, particularly the British Pound and Euro;
the company’s inability to retain or grow its free and pay
accounts; the company’s inability to acquire and retain florist
members; the company’s inability to increase or maintain its
advertising revenues; failure to achieve expanded marketing
opportunities and efficiencies and other benefits associated with
the acquisition of FTD Group, Inc. and its subsidiaries (“FTD”), or
to implement any or all planned marketing initiatives; the effects
of seasonality; changes in stock-based compensation due to future
equity issuances or other reasons; changes in amortization or
depreciation due to a variety of factors; potential write down,
reserve against or impairment of assets including receivables,
goodwill, intangible assets or other assets; changes in tax laws,
the company’s business or other factors that would impact
anticipated tax benefits; the company’s inability to achieve the
expected benefits of its reductions-in-force or any other
cost-reduction initiatives; that the company will incur additional
restructuring and related charges; risks associated with the
commercialization of new services; the company’s inability to
enforce or defend its ownership and use of intellectual property;
problems associated with the company’s operations, systems or
technologies; the company’s inability to retain key customers,
vendors and personnel; risks associated with litigation and
governmental regulation; changes in marketing conditions and laws;
changes in the floral industry; the inability to successfully
integrate the financial, accounting and administrative functions of
United Online, Inc. and FTD; the impact of, and restrictions
associated with, the company’s indebtedness; as well as the risk
factors disclosed in the company’s filings 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.” Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management’s
analysis only as the date hereof. 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. Except as required by law, the company undertakes no
obligation to publicly release the results of any revision to these
forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
UNITED ONLINE, INC. Unaudited Condensed Consolidated
Statements of Operations (in thousands, except per share
amounts) Quarter Ended September
30, Nine Months Ended September 30, 2009
2008 2009 2008 Revenues Services $
138,337 $ 133,999 $ 434,919 $ 378,083 Products 77,869
35,158 305,723 35,158
Total revenues 216,206 169,157 740,642 413,241 Operating expenses:
Cost of revenues - services(a)
26,274 28,539 83,879 83,208
Cost of revenues - products(a)
58,288 26,305 223,466 26,305 Sales and marketing(a) 46,146 42,376
155,584 114,966 Technology and development(a) 15,700 14,983 49,637
40,406 General and administrative(a) 28,111 23,096 88,632 66,754
Amortization of intangible assets 9,013 4,966 26,252 9,824
Restructuring charges - 93 -
656 Total operating expenses 183,532
140,358 627,450 342,119
Operating income 32,674 28,799 113,192 71,122
Interest income 498 1,053 1,184 4,037 Interest expense (7,542 )
(3,751 ) (24,547 ) (3,751 ) Other income, net 567
492 698 718 Income
before income taxes 26,197 26,593 90,527 72,126 Provision for
income taxes 10,042 10,427
38,052 29,220 Net income (b) $ 16,155 $
16,166 $ 52,475 $ 42,906 Income allocated to
participating securities (b) (1,222 ) (982 )
(3,491 ) (2,710 ) Net income applicable to common
stockholders (b) $ 14,933 $ 15,184 $ 48,984 $
40,196 Basic net income per common share (b) $ 0.18
$ 0.20 $ 0.59 $ 0.57 Shares used to
calculate basic net income per common share(b) 84,028
74,108 83,372 70,382
Diluted net income per common share (b) $ 0.18 $ 0.20
$ 0.58 $ 0.56 Shares used to calculate diluted net
income per common share(b) 84,688 74,865
83,807 71,156 Shares
outstanding at end of period 84,236 81,785
84,236 81,785 (a)
Stock-based compensation was allocated as follows: Cost of revenues
- services $ 201 $ 381 $ 728 $ 775 Cost of revenues - products 20 -
20 - Sales and marketing 1,421 2,135 4,120 5,528 Technology and
development 1,202 2,664 3,713 5,263 General and administrative
6,748 4,775 20,623
16,540 Total stock-based compensation $ 9,592 $ 9,955
$ 29,204 $ 28,106 (b) The Company
computes earnings per share in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
260, which requires the allocation of net income between common
stockholders and participating securities when computing earnings
per share. ASC 260 has been retroactively applied to the company’s
unaudited condensed consolidated statement of operations for the
quarter and nine months ended September 30, 2008 and did not have a
material impact on the calculation of basic or diluted net income
per share applicable to common stockholders.
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 September 30, Nine Months
Ended September 30, 2009 2008 2009
2008 Operating income $ 32,674 $ 28,799 $ 113,192 $ 71,122
Depreciation 6,177 5,348 18,809 15,673 Amortization of intangible
assets 9,013 4,966 26,252 9,824
Operating income before depreciation and amortization 47,864 39,113
158,253 96,619 Stock-based compensation 9,592 9,955 29,204 28,106
Restructuring charges - 93 - 656
Adjusted operating income before depreciation and amortization $
57,456 $ 49,161 $ 187,457 $ 125,381
Unaudited
Reconciliation of Segment Income from Operations to Segment
Adjusted OIBDA(1) Quarter Ended September
30, Nine Months Ended September 30, 2009
2008 2009 2008 FTD: Segment income from
operations $ 15,253 $ 8,184 $ 58,392 $ 8,184 Stock-based
compensation 2,005 - 6,058 - Segment
adjusted operating income before depreciation and amortization $
17,258 $ 8,184 $ 64,450 $ 8,184
Classmates Media:
Segment income from operations $ 16,998 $ 12,158 $ 43,276 $ 28,048
Stock-based compensation 3,451 3,435 10,881
10,006 Segment adjusted operating income before depreciation
and amortization $ 20,449 $ 15,593 $ 54,157 $ 38,054
Communications: Segment income from operations $ 15,613 $
18,771 $ 56,585 $ 60,387 Stock-based compensation 4,136 6,520
12,265 18,100 Restructuring charges - 93 -
656 Segment adjusted operating income before depreciation
and amortization $ 19,749 $ 25,384 $ 68,850 $ 79,143
UNITED ONLINE, INC.
Unaudited Reconciliation of Net Income to Adjusted Net
Income(2) (in thousands, except per share
amounts) Quarter Ended September
30, Nine Months Ended September 30, 2009
2008 2009 2008
Net income
$ 16,155 $ 16,166 $ 52,475 $ 42,906
Income allocated to participating
securities
(1,222 ) (982 ) (3,815 ) (2,710 )
Net income applicable to common
stockholders
14,933 15,184 48,660 40,196 Add: Stock-based compensation
9,592 9,955 29,204 28,106 Amortization of intangible assets 9,013
4,966 26,252 9,824 Restructuring charges - 93
- 656 33,538 30,198 104,116
78,782 Income tax effect of adjusting entries (5,259
) (4,779 ) (15,706 ) (11,620 )
Adjusted net income applicable to
common stockholders
$ 28,279 $ 25,419 $ 88,410 $ 67,162
GAAP Earnings Per Share:
Basic net income per common
share
$ 0.18 $ 0.20 $ 0.59 $ 0.57
Shares used to calculate basic net
income per common share
84,028 74,108 83,372
70,382
Diluted net income per common
share
$ 0.18 $ 0.20 $ 0.58 $ 0.56
Shares used to calculate diluted
net income per common share
84,688 74,865 83,807
71,156 Adjusted Earnings Per Share:
Adjusted basic net income per
common share
$ 0.34 $ 0.34 $ 1.06 $ 0.95
Shares used to calculate adjusted
basic net income per common share
84,028 74,108 83,372
70,382
Adjusted diluted net income per
common share(a)
$ 0.33 $ 0.34 $ 1.05 $ 0.94
Shares used to calculate adjusted
diluted net income per common share (a)
84,878 74,985 84,075
71,161
(a) Includes the adjustment of
shares used to calculate diluted net income per common share
resulting from the elimination of stock-based compensation.
UNITED ONLINE, INC. Unaudited Condensed
Consolidated Balance Sheets (in thousands)
September 30,
2009
December 31,
2008
ASSETS Cash and cash equivalents $ 121,424 $ 104,514
Accounts receivable, net 52,288 58,901 Deferred tax assets, net
14,867 16,170 Property and equipment, net 60,501 61,822 Goodwill
and intangible assets, net 762,906 779,584 Other assets
41,740 52,536 Total assets $ 1,053,726 $ 1,073,527
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 55,230 $
83,372 Accrued liabilities 39,011 43,148 Member redemption
liability 24,890 25,976 Deferred revenue 80,862 83,261 Debt, net of
discounts 374,011 413,477 Deferred tax liabilities, net 48,139
60,834 Other liabilities 19,541 19,342 Total
liabilities 641,684 729,410 Stockholders'
equity 412,042 344,117 Total liabilities and
stockholders' equity $ 1,053,726 $ 1,073,527
UNITED
ONLINE, INC. Unaudited Condensed Consolidated Statements of
Cash Flows (in thousands)
Quarter Ended September 30, Nine Months Ended September
30, 2009 2008 2009 2008 CASH FLOWS
FROM OPERATING ACTIVITIES: Net income $ 16,155 $ 16,166 $ 52,475 $
42,906 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation, amortization and
stock-based compensation 24,782 20,269 74,265 53,603 Accretion of
discounts and amortization of debt issue costs 1,061 447 3,883 447
Provision for doubtful accounts receivable 1,811 402 4,687 988
Deferred taxes and other 1,130 3,802 (4,089 ) 3,907 Tax benefits
(shortfalls) from equity awards (1,078 ) 161 (2,704 ) 386 Excess
tax benefits from equity awards (81 ) (75 ) (94 ) (339 ) Change in
operating assets and liabilities (excluding the effects of
acquisitions): Accounts receivable (4,638 ) 2,779 2,211 4,066 Other
assets 2,466 (1,700 ) 10,312 5,073 Accounts payable and accrued
liabilities (9,905 ) (6,201 ) (33,933 ) (20,411 ) Member redemption
liability 74 (340 ) (1,086 ) 1,787 Deferred revenue (3,049 ) 1,629
(1,254 ) 9,916 Other liabilities (507 ) (1,848 )
(398 ) (1,748 ) Net cash provided by operating
activities 28,221 35,491 104,275
100,581 CASH FLOWS FROM INVESTING
ACTIVITIES: Purchases of property and equipment (4,758 ) (4,227 )
(17,190 ) (11,483 ) Purchases of short-term investments - - -
(120,378 ) Proceeds from maturities of short-term investments -
34,465 - 82,765 Proceeds from sales of short-term investments -
91,841 - 106,364 Cash paid for acquisitions, net of cash acquired -
(303,995 ) - (307,160 ) Proceeds from sales of assets, net -
16 14 45 Net cash
used for investing activities (4,758 ) (181,900 )
(17,176 ) (249,847 ) CASH FLOWS FROM FINANCING
ACTIVITIES: Proceeds from term loans and revolver - 421,041 -
421,041 Payments on term loans and revolver (9,452 ) (302,280 )
(42,930 ) (302,280 ) Payments on capital leases - (5 ) - (13 )
Payments for debt issue costs - (249 ) - (249 ) Proceeds from
exercises of stock options 410 618 535 1,661 Proceeds from employee
stock purchase plan - - 2,490 2,576 Repurchases of common stock
(1,843 ) (1,257 ) (5,217 ) (8,381 ) Payments for dividends (9,203 )
(14,857 ) (27,118 ) (44,326 ) Excess tax benefits from equity
awards 81 75 94
339 Net cash provided by (used for) financing activities
(20,007 ) 103,086 (72,146 )
70,368 Effect of foreign currency exchange rate
changes on cash and cash equivalents 546 (674 ) 1,957 (939 )
Change in cash and cash equivalents 4,002 (43,997 ) 16,910 (79,837
) Cash and cash equivalents, beginning of period 117,422
113,667 104,514 149,507
Cash and cash equivalents, end of period $ 121,424 $
69,670 $ 121,424 $ 69,670
UNITED
ONLINE, INC. Unaudited Reconciliation of Net Cash Provided
by Operating Activities to Free Cash Flow(4) (in
thousands) Quarter Ended
September 30, Nine Months Ended September 30,
2009 2008 2009 2008 Net cash provided
by operating activities $ 28,221 $ 35,491 $ 104,275 $ 100,581 Add
(deduct): Capital expenditures (4,758 ) (4,227 ) (17,190 ) (11,483
) Excess tax benefits from equity awards 81 75 94 339 Cash paid for
restructuring charges - 119 -
546 Free cash flow $ 23,544 $ 31,458
$ 87,179 $ 89,983
UNITED ONLINE,
INC. Unaudited Segment Information (in thousands)
Quarter Ended September 30,
Nine Months Ended September 30, 2009 2008
2009 2008
FTD
Revenues: Services $ 28,535 $ 13,122 $ 93,690 $ 13,122 Products
77,869 35,158 305,723 35,158 Advertising 1,122
- 5,316 - Total revenues 107,526
48,280 404,729 48,280 Operating expenses: Cost of revenues
62,995 28,272 238,701 28,272 Sales and marketing 16,757 7,247
67,684 7,247 Technology and development 3,462 914 10,319 914
General and administrative 10,236 4,081 33,100 4,081 Amortization
of intangible assets 6,698 2,719
19,891 2,719 Total operating expenses
100,148 43,233 369,695
43,233 Operating income 7,378
5,047 35,034 5,047
Depreciation 1,177 418 3,467 418 Amortization 6,698
2,719 19,891 2,719
Segment income from operations 15,253 8,184 58,392 8,184
Stock-based compensation
2,005 - 6,058 -
Segment adjusted operating income before depreciation and
amortization $ 17,258 $ 8,184 $ 64,450 $ 8,184
Classmates Media
Revenues: Services $ 38,283 $ 36,386 $ 115,222 $ 101,761
Advertising 20,399 22,360 60,088
65,882 Total revenues 58,682 58,746 175,310
167,643 Operating expenses: Cost of revenues 9,416 11,407
30,206 33,158 Sales and marketing 19,229 21,576 58,318 62,207
Technology and development 6,299 6,102 21,148 17,028 General and
administrative 9,288 9,679 30,074 33,529 Amortization of intangible
assets 2,053 1,984 5,572
6,119 Total operating expenses 46,285
50,748 145,318 152,041
Operating income 12,397 7,998
29,992 15,602 Depreciation 2,548
2,176 7,712 6,327 Amortization 2,053 1,984
5,572 6,119 Segment income from
operations 16,998 12,158 43,276 28,048 Stock-based compensation
3,451 3,435 10,881
10,006 Segment adjusted operating income before depreciation
and amortization $ 20,449 $ 15,593 $ 54,157 $
38,054
Communications
Revenues:
Services $ 42,050 $ 53,208 $ 135,757 $ 168,763 Advertising
8,629 8,923 27,047 28,555
Total revenues 50,679 62,131 162,804 197,318
Operating expenses: Cost of revenues 12,187 15,165 38,608 48,083
Sales and marketing 10,805 13,553 31,612 45,512 Technology and
development 5,939 7,967 18,170 22,464 General and administrative
8,587 9,336 25,460 29,144 Amortization of intangible assets 262 263
788 986 Restructuring charges - 93
- 656 Total operating expenses
37,780 46,377 114,638
146,845 Operating income 12,899
15,754 48,166 50,473
Depreciation 2,452 2,754 7,630 8,928 Amortization 262
263 789 986 Segment
income from operations 15,613 18,771 56,585 60,387 Stock-based
compensation 4,136 6,520 12,265 18,100 Restructuring charges
- 93 - 656 Segment
adjusted operating income before depreciation and amortization $
19,749 $ 25,384 $ 68,850 $ 79,143
Consolidated adjusted operating income before depreciation
and amortization $ 57,456 $ 49,161 $ 187,457 $
125,381 Reconciliation of segment revenues to
consolidated revenues: FTD $ 107,526 $ 48,280 $ 404,729 $ 48,280
Classmates Media 58,682 58,746 175,310 167,643 Communications
50,679 62,131 162,804 197,318 Intersegment eliminations (681
) - (2,201 ) - Consolidated
revenues $ 216,206 $ 169,157 $ 740,642 $
413,241 Reconciliation of segment operating expenses
to consolidated operating expenses: FTD $ 100,148 $ 43,233 $
369,695 $ 43,233 Classmates Media 46,285 50,748 145,318 152,041
Communications 37,780 46,377 114,638 146,845 Intersegment
eliminations (681 ) - (2,201 ) -
Consolidated operating expenses $ 183,532 $ 140,358
$ 627,450 $ 342,119 Reconciliation of
segment income from operations to consolidated operating income:
FTD $ 15,253 $ 8,184 $ 58,392 $ 8,184 Classmates Media 16,998
12,158 43,276 28,048 Communications 15,613
18,771 56,585 60,387 Total
segment income from operations 47,864 39,113 158,253 96,619
Depreciation (6,177 ) (5,348 ) (18,809 ) (15,673 ) Amortization of
intangible assets (9,013 ) (4,966 ) (26,252 )
(9,824 ) Consolidated operating income $ 32,674 $
28,799 $ 113,192 $ 71,122
UNITED
ONLINE, INC. Unaudited Selected Quarterly Historical Key
Metrics (a)
September 30,
2009
June 30,
2009
March 31,
2009
December 31,
2008
September 30,
2008
Consolidated: Revenues (in thousands) $ 216,206 $
260,789 $ 263,647 $ 256,162 $ 169,157
FTD: Basis of
Presentation(b) Combined Revenues (in thousands) $ 107,526 $
149,216 $ 147,987 $ 133,685 $ 121,427 % of consolidated revenues 50
% 57 % 56 % 52 % N/A Consumer orders(5) (in thousands) 1,075
1,711 1,691 1,467 1,154 Average order value(5) $ 61.29 $ 59.78 $
57.70 $ 58.80 $ 64.37 Average foreign currency exchange rate: GBP
to USD 1.64 1.55 1.43 1.56 1.90
Classmates Media:
Segment revenues (in thousands) $ 58,682 $ 58,155 $ 58,473 $ 62,592
$ 58,746 % of consolidated revenues 27 % 22 % 22 % 24 % 35 %
Pay accounts (in thousands) 4,785 4,621 4,563 4,319 4,087 Segment
churn(c) 3.8 % 4.3 % 4.1 % 4.4 % 4.1 % ARPU(d) $ 2.71 $ 2.81 $ 2.87
$ 2.98 $ 3.07 Segment active accounts (in millions) 16.9 16.4 16.8
16.0 15.5
Communications: Segment revenues (in
thousands) $ 50,679 $ 54,147 $ 57,978 $ 60,120 $ 62,131 % of
consolidated revenues 23 % 21 % 22 % 23 % 37 % Pay accounts
(in thousands): Access 1,118 1,203 1,316 1,388 1,468 Other
322 329 337 347
353 Total Communications pay accounts 1,440
1,532 1,653 1,735
1,821 Segment churn(c) 4.6 % 4.9 % 4.8 % 4.3 %
4.4 % ARPU(d) $ 9.43 $ 9.55 $ 9.45 $ 9.31 $ 9.49 Segment active
accounts (in millions) 2.3 2.4 2.6 2.7 2.8
(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) Combined quarterly results were calculated
by adding historical results prior to the FTD acquisition (July 1,
2008 through August 25, 2008) to FTD's results following the
acquisition (August 26, 2008 through September 30, 2008). The
company has not verified the accuracy of the pre-acquisition
historical results of FTD and makes no representations with respect
to such information. (c) Churn is calculated as the total
number of pay accounts that terminated or expired in a period
divided by the average number of pay accounts for the same period,
divided by the number of months in that period. (d) ARPU is
calculated by dividing billable services revenues for a period by
the average number of pay accounts for that period, divided by the
number of months in that period.
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