United Online® Reports Third-Quarter Results
| • | Operating Income and Adjusted OIBDA Exceed High End of Guidance Range, Excluding Results of FTD® Acquisition Not Contemplated in Guidance | ||
| • | Revenues Near High End of Guidance Range, Excluding Results of FTD Acquisition Not Contemplated in Guidance | ||
| • | Quarterly Net Growth of 278,000 Classmates Media Segment Pay Accounts Leads to Important Milestone of More than 4 Million Classmates Media Segment Pay Accounts | ||
| • | New FTD Segment Delivers $8.2 Million in Adjusted OIBDA From Date of Acquisition |
WOODLAND HILLS, Calif., NOVEMBER 5, 2008 -- 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, 2008. The results include FTD Group, Inc. ("FTD") from August 26, 2008, the date of acquisition.
"United Online delivered another outstanding quarter, demonstrating the resiliency of our business within a challenging macroeconomic environment," commented Mark R. Goldston, Chairman, President and Chief Executive Officer of United Online. "Our marketing initiatives and Web site enhancements continue to drive impressive growth in traffic and user-generated content on our social networking Web sites, including our flagship Classmates site in the U.S. as well as our StayFriends and Trombi Web sites in Europe. Our increasing base of free and pay social networking members helped us to achieve strong year-over-year growth in Classmates Media segment revenues and adjusted OIBDA during the third quarter, registering record performance on both measures. In addition, our focus on operating efficiency again delivered solid results within our mature Communications business, where segment adjusted OIBDA as a percentage of segment revenues remained above 40% for the second consecutive quarter."
"The company's most significant milestone in the third quarter was completing the acquisition of FTD Group, Inc., which brings the world-class FTD and Interflora brands to United Online," Goldston continued. "The acquisition is expected to provide several strategic benefits to United Online, including a significant increase in scale, diversification of the company's revenue streams and profitability, as well as expanded marketing opportunities and efficiencies. Since closing the acquisition in late August, we have made considerable progress towards prioritizing and sequencing a broad set of marketing initiatives to enhance the FTD business."
"We recently appointed Robert Apatoff as President of FTD to guide the execution of our vision. Rob is a former colleague of mine who has more than 25 years of leadership experience at major consumer branded companies," Goldston said. "He is a proven leader with not only the experience and talents we were seeking, but also the unique perspective of an executive who served on FTD's board for four years and understands the company's opportunities and challenges."
Summary Results for Third Quarter Ended September 30, 2008:
As a result of the FTD acquisition on August 26, 2008, United Online has established FTD and its subsidiaries as a third operating segment. The operations constituting the Classmates Media and Communications segments remain unchanged. To facilitate comparisons with the company's guidance that was issued prior to the acquisition of FTD, and therefore excluded the results of the FTD segment, the following table summarizes key financial results for the quarter ended September 30, 2008 including certain measures that both include and exclude the impact of the FTD acquisition.
| • | Classmates Media segment revenues were a record $58.7 million, an increase of 18% versus the year-ago quarter. | ||
| • | Communications segment revenues were $62.1 million, a decline of 19% versus the year-ago quarter. | ||
| • | Revenues, excluding the FTD segment revenues, were $120.9 million, a decline of 5% versus the year-ago quarter. | ||
| • | Consolidated revenues were $169.2 million, an increase of 33% versus the year-ago quarter. | ||
| • | Operating income, excluding the FTD segment operating income, was $23.8 million, an increase of 2%(a) versus the year-ago quarter. | ||
| • | Consolidated operating income was $28.8 million, an increase of 24%(a) versus the year-ago quarter. | ||
| • | Adjusted OIBDA(1), excluding the FTD segment adjusted OIBDA(1), was $41.0 million, an increase of 10%(a) versus the year-ago quarter. | ||
| • | Consolidated adjusted OIBDA(1) was $49.2 million, an increase of 32%(a) versus the year-ago quarter. | ||
| • | GAAP diluted net income per share was $0.21, an increase of 5%(a) versus the year-ago quarter. | ||
| • | Adjusted diluted net income per share(2) was $0.34, an increase of 17%(a) compared to the year-ago quarter. | ||
| • | Total pay accounts increased by a net 183,000, versus a net increase of 121,000 pay accounts in the year-ago quarter (which included a loss of 18,000 pay accounts resulting from the company's decision to exit its photo sharing business). Total pay accounts were 5.9 million at September 30, 2008. |
(a) Q3 2007 GAAP operating income, adjusted OIBDA(1), adjusted OIBDA(1) as a % of consolidated revenues, GAAP net income, GAAP diluted net income per share, adjusted net income(2), and adjusted diluted net income per share(2) were impacted by pre-tax expenses of $2.0 million ($1.3 million, net of tax) relating to a proposed initial public offering ("IPO") of the company's Classmates Media Corporation ("CMC") subsidiary. CMC withdrew its Form S-1 registration statement relating to its proposed IPO in December 2007.
Scott H. Ray, Executive Vice President and Chief Financial Officer, commented, "Our Classmates Media and Communications segments again delivered another quarter of strong results, and coupled with our acquisition of FTD, contributed to the increase in our adjusted OIBDA guidance for full-year 2008. Our third quarter results, when viewed in light of both the company's and FTD's historical results, underscore the confidence we have in our ability to service our debt and pay dividends while continuing to invest in growth initiatives."
Cash Flows, Balance Sheet and Dividend Highlights for Third Quarter Ended September 30, 2008:
| • | Cash flows from operations were $35.5 million, an increase of 6% versus the year-ago quarter. | ||
| • | Free cash flow(4) was $31.5 million, an increase of 10% versus the year-ago quarter. | ||
| • | Cash, cash equivalents and short-term investments at September 30, 2008 were a combined $69.7 million, a net decrease of $170.3 million from $240.0 million at June 30, 2008. The company utilized approximately $202.5 million in existing cash balances during the quarter to partially fund the FTD acquisition and related expenses. | ||
| • | Total debt at September 30, 2008 was $423.1 million, including $58.5 million at the United Online parent company and $364.6 million at the FTD Group, Inc. subsidiary that is non-recourse to the United Online parent company. | ||
| • | The company paid $14.9 million in cash dividends during the quarter. | ||
| • | The company's board of directors recently declared a quarterly cash dividend for the 15th consecutive quarter. The dividend of $0.10 per share is consistent with the company's previously-disclosed intention to reduce the dividend following the closing of the FTD acquisition from $0.20 per share to $0.10 per share. The dividend is payable on November 28, 2008 to shareholders of record on November 14, 2008. |
Segment Results for Third Quarter Ended September 30, 2008:
FTD:
| • | Segment revenues, segment income from operations, and segment adjusted OIBDA(1) reflect FTD's operations from August 26, 2008, the date of acquisition, through September 30, 2008. | ||
| • | Segment revenues of $48.3 million represented 28.5% of consolidated revenues in the third quarter. Assuming FTD had been included in United Online's operating results for the entire third quarter of 2008, the FTD segment would have represented approximately 50% of consolidated revenues. | ||
| • | Segment adjusted OIBDA(1) was $8.2 million, representing 17.0% of segment revenues. |
Classmates Media:
| • | Segment revenues were a record $58.7 million, an increase of 18% versus the year-ago quarter, primarily due to strong growth in segment pay accounts. | ||
| • | The segment represented 34.7% of consolidated revenues in the third quarter. Assuming FTD had been included in United Online's operating results for the entire third quarter of 2008, the Classmates Media segment would have represented approximately 24% of consolidated revenues. | ||
| • | Segment adjusted OIBDA(1) was $15.6 million, an increase of 63%(b) versus the year-ago quarter. | ||
| • | Segment adjusted OIBDA(1) as a percentage of segment revenues increased to 26.5% versus 19.2%(b) of segment revenues in the year-ago quarter. | ||
| • | Pay accounts(3) increased by a net 278,000, up from net growth of 273,000 pay accounts in the year-ago quarter. Pay accounts as of September 30, 2008 were 4.1 million, a 37% increase from September 30, 2007 and a 7% increase from June 30, 2008. | ||
| • | Segment active accounts(3) were 15.5 million, an increase of 21% versus 12.8 million in the year-ago quarter. |
(b) Q3 2007 segment income from operations, segment adjusted OIBDA(1) and segment adjusted
OIBDA(1) as a % of segment revenues were impacted by pre-tax expenses of $2.0 million
relating to a proposed IPO of CMC. CMC withdrew its Form S-1 registration statement
relating to its proposed IPO in December 2007.
Communications:
| • | Segment revenues were $62.1 million, a decrease of 19% versus the year-ago quarter, primarily driven by a decrease in segment pay accounts.(3) | ||
| • | The segment represented 36.7% of consolidated revenues in the third quarter. Assuming FTD had been included in United Online's operating results for the entire third quarter of 2008, the Communications segment would have represented approximately 26% of consolidated revenues. | ||
| • | Segment adjusted OIBDA(1) was $25.4 million, a decrease of 8% versus the year-ago quarter. | ||
| • | Segment adjusted OIBDA(1) as a percentage of segment revenues increased to 40.9% versus 35.9% of segment revenues in the year-ago quarter, reflecting the company's continuing efforts in expense management and driving profitability and cash flows. | ||
| • | Pay accounts(3) declined by a net 95,000 versus a net decline of 152,000 pay accounts in the year-ago quarter (which included a loss of 18,000 pay accounts resulting from the company's decision to exit its photo sharing business). Q3 2008 was the first quarter in more than two years in which the net decline in Communications segment pay accounts was less than 100,000. Segment pay accounts at September 30, 2008 were 1.8 million. |
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 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 initial guidance for the quarter ending December 31, 2008, as well as the company's prior and updated guidance for the year ending December 31, 2008. While the prior guidance for the year ending December 31, 2008 did not include FTD, the company's updated guidance for the year ending December 31, 2008 includes FTD from August 26, 2008, the date of acquisition.
Fourth-Quarter 2008 Guidance:
The company has increased its full-year 2008 guidance for adjusted OIBDA(1) to reflect the strong performance of the Communications and Classmates Media segments year-to-date, as well as the inclusion of FTD from August 26, 2008, the date of acquisition.
The table below reconciles the company's guidance for operating income, a GAAP measure, to adjusted OIBDA(1).
(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 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 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 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 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 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 Classmates Media or Communications 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 877-795-3638 (or 719-325-4776 outside the U.S.), and provide the confirmation code, 4307975. A live webcast of the call, along with a presentation containing financial highlights for the quarter ended September 30, 2008, 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, 4307975.
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; operating expenses; operating and marketing efficiencies; revenues; dividends; capital expenditures; depreciation and amortization; tax payments; stock-based compensation; restructuring charges; the company's ability to repay indebtedness, pay dividends and invest in growth initiatives; and statements regarding the anticipated impact or benefits of associated with the acquisition of FTD Group, Inc. ("FTD"). Potential factors that could affect the matters about which the forward looking statements are made include, among others: the effect of competition; the company's inability to retain or grow its free and pay accounts; the company's inability to acquire and retain florist members of FTD and Interflora Holdings Limited; the company's inability to increase or maintain its advertising revenues; failure to achieve expanded marketing opportunities and efficiencies and other benefits associated with FTD, or to implement any or all planned marketing initiatives; the effects of seasonality; changes in stock-based compensation due to future equity issuances; 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; changes in tax laws, the company's business or other factors that would impact anticipated tax benefits; that restructuring and related charges will be greater than anticipated; risks associated with the commercialization of new services; the company's ability to enforce or defend its ownership and use of intellectual property; problems associated with the company's operations, systems or technologies; the company's ability to retain key customers and key personnel; risks associated with litigation and governmental regulation; changes in general economic and marketing conditions and laws; changes in the floral industry; inability to successfully integrate the financial, accounting and administrative functions of United Online and FTD; the impact of, and restrictions associated with, the company's indebtedness; as well as the risk factors disclosed in United Online'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.
CONTACT: United Online, Inc.
Investors:
Erik Randerson, CFA
818-287-3350
investor@untd.com
Press:
Scott Matulis
818-287-3388
pr@untd.com