United Online Reports Third-Quarter Results


Print Page  |  Email Page

        Content & Media Revenues Increase 37 Percent and Expand to 41 Percent of Total Revenues
    Quarterly Net Growth of 255,000 Content & Media Pay Accounts
    Free Cash Flow Increases 16 Percent to $28.5 Million

WOODLAND HILLS, Calif., Oct. 25, 2007 (GLOBE NEWSWIRE) -- United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet and media services, today reported financial results for its third quarter ended September 30, 2007.

"United Online delivered another strong quarter, particularly in our Content & Media segment that now represents 41% of total revenues and 58% of total pay accounts," said Mark R. Goldston, chairman, president and chief executive officer. "Our exceptional growth in Content & Media pay accounts continued in the third quarter, which, along with our strong performance in advertising sales, generated organic revenue growth of 37% for the segment."

Summary Results for Third Quarter Ended September 30, 2007:

The following table summarizes key financial results for the third quarter ended September 30, 2007:


                                                 (in millions,
                                                except per share
                                               and account figures)
                                                                   %
 Financial Highlights                      Q3 2007     Q3 2006   Change
 --------------------                     --------    --------   -----
 Content & Media revenues                 $   51.4    $   37.5     37%
 Communications revenues                      75.4        92.2    (18%)
                                          --------    --------
 Consolidated revenues                    $  126.8    $  129.6     (2%)
                                          ========    ========
 GAAP operating income                    $   23.3    $   21.9      6%
 Adjusted OIBDA(1)                        $   37.2    $   36.8      1%
 Adjusted OIBDA  as a % of consolidated
   revenues                                  29.3%       28.4%
 GAAP net income                          $   14.0    $   13.4      4%
 GAAP diluted net income per share        $   0.20    $   0.20     --
 Adjusted net income(2)                   $   20.5    $   19.7      4%
 Adjusted diluted net income per share(2) $   0.29    $   0.29     --
 Change in total pay accounts(3)           121,000     (84,000)

 * Consolidated advertising revenues were $32.2 million, an increase of
   27% versus the year-ago quarter.
 * Q3 2007 operating income and adjusted OIBDA(1) were impacted by
   pretax expenses of $2.0 million in connection with the S-1
   registration statement filing by the company's Classmates Media
   Corporation (CMC) subsidiary relating to a proposed initial public
   offering for CMC.
 * Pay accounts(3) and active accounts(3) totaled 5.2 million and 16.3
   million, respectively, at September 30, 2007.

"United Online delivered strong profitability during the third quarter, as operating income and adjusted operating income before depreciation and amortization (adjusted OIBDA) exceeded our guidance and reflected an increase compared to the year-ago quarter," Goldston said. "Our financial results demonstrate the flexibility of our business model that allows us to profitably and efficiently manage a mature Communications business while continuing to achieve strong growth in our Content & Media segment."

Cash Flows, Balance Sheet and Dividend Highlights for Q3 2007:


 * Cash flows from operations increased 30% to $33.6 million, and free
   cash flow(4) increased 16% to $28.5 million during the third quarter
   of 2007 compared to the year-ago quarter.
 * Cash balances at September 30, 2007 increased to $205.4 million from
   $191.4 million at June 30, 2007, including cash, cash equivalents
   and short-term investments.
 * During the third quarter and nine months ended September 30, 2007,
   the company paid $14.4 million and $42.6 million in cash dividends,
   respectively.
 * The company's Board of Directors has declared a regular quarterly
   cash dividend of $0.20 for the eleventh consecutive quarter.  The
   dividend is payable on November 30, 2007 to shareholders of record
   on November 14, 2007.

Third Quarter 2007 Segment Results:


 Content & Media:
 ----------------
                                                 (in millions,
                                               except percentages)
                                                                   %
 Financial Highlights                      Q3 2007     Q3 2006   Change
 --------------------                     --------    --------   -----
   Billable services revenues             $   29.4    $   22.1     33%
   Advertising revenues                       22.0        15.3     43%
                                          --------    --------
 Segment revenues                         $   51.4    $   37.5     37%
                                          ========    ========
   as a % of consolidated revenues            40.5%       28.9%
 Segment income from operations           $   11.3    $    5.0    126%
 Segment adjusted OIBDA(1)                $   11.3    $    5.0    126%
   Segment adjusted OIBDA
   as a % of segment revenues(1)              22.0%       13.3%

 * Segment adjusted OIBDA(1) as a percentage of segment revenues
   increased to 22.0%, its highest percentage in six quarters,
   reflecting operating leverage associated with higher revenues.
 * Pay accounts(3) increased by a net 255,000 during the third quarter
   to 3.1 million.  The quarterly increase reflects net growth of
   273,000 social networking pay accounts during the quarter, partially
   offset by a loss of 18,000 pay accounts resulting from the company's
   decision to exit the photo sharing business.
 * The segment represented 58.3% of total pay accounts(3) at
   September 30, 2007, compared to 54.7% at June 30, 2007 and 44.1% in
   the year-ago quarter.
 Communications:
 ---------------
                                               (in millions,
                                             except percentages)
                                                                   %
 Financial Highlights                      Q3 2007     Q3 2006   Change
 --------------------                     --------    --------   -----
   Billable services revenues             $   65.2    $   82.1    (21%)
   Advertising revenues                       10.3        10.1      2%
                                          --------    --------
 Segment revenues                         $   75.4    $   92.2    (18%)
                                          ========    ========
   as a % of consolidated revenues            59.5%       71.1%
 Segment income from operations           $   29.9    $   35.4    (16%)
 Segment adjusted OIBDA(1)                $   29.9    $   36.1    (17%)
   Segment adjusted OIBDA
   as a % of segment revenues(1)              39.6%       39.1%

 * Pay accounts(3) declined by 134,000 to 2.2 million.
 * The segment represented 41.7% of total pay accounts(3) at
   September 30, 2007, compared to 45.3% at June 30, 2007 and 55.9% in
   the year-ago quarter.
 * The increase in segment adjusted OIBDA(1) as a percentage of segment
   revenues reflects the company's continuing focus on managing the
   Communications segment for profitability and cash flow.
 * The company has reduced the number of employees within its
   Communications segment to better align the segment's cost structure
   within a mature business for dial-up Internet access services.  The
   company has eliminated 69 positions, which will result in
   restructuring and related charges during the fourth quarter of 2007
   of approximately $3.5 million.  In addition, 11 employees have
   been transferred from the company's Communications segment to the
   Content & Media segment.
 Other:
 ------
 * Other reconciling items (unallocated corporate expenses) to arrive
   at consolidated adjusted OIBDA(1) totaled $4.0 million, versus
   $4.3 million in the year-ago quarter.

Business Outlook:

"I am encouraged that our operating income as a percentage of revenues increased in both segments versus the year-ago quarter, despite our incurring significant audit and other expenses related to the Classmates Media IPO," commented Scott H. Ray, executive vice president and chief financial officer. "We remain confident in our ability to again deliver strong adjusted OIBDA in the fourth quarter, reflecting the company's disciplined financial management and continued focus on enhancing shareholder value."

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 fourth quarter and the year ending December 31, 2007. The guidance may be affected by the company's ongoing analysis of the accounting treatment related to its VoIP and photo sharing operations, which may result in reporting these operations as discontinued operations in the future. The company previously disclosed its intention to exit its VoIP and photo sharing businesses and recognized an impairment charge relating to its VoIP and photo sharing assets during the fourth quarter of 2006.


 Fourth Quarter 2007 (in millions)      Guidance
 --------------------------------------------------
 Revenues                           $124.9 - $128.9
 --------------------------------------------------
 Adjusted OIBDA(1)                   $37.1 - $39.1
 --------------------------------------------------

 Full Year 2007 (in millions)           Guidance       Prior Guidance
 ---------------------------------------------------------------------
 Revenues                         $513.0 - $517.0     $512.0 - $520.0
 ---------------------------------------------------------------------
 Adjusted OIBDA(1)                $145.0 - $147.0     $143.0 - $147.0
 ---------------------------------------------------------------------

The table below reconciles the company's guidance for adjusted operating income before depreciation and amortization (adjusted OIBDA(1)) to operating income, a GAAP measure.


                        ----------------------------------------------
 Fourth Quarter and Full    Q4 2007        FY 2007        Prior 2007
 Year 2007 (in millions)   Guidance        Guidance        Guidance
 ---------------------------------------------------------------------
 GAAP Operating Income  $18.7 - $20.7    $88.8 - $90.8   $90.1 - $94.1
 ---------------------------------------------------------------------
   Depreciation             5.2             20.2             20.7
 ---------------------------------------------------------------------
   Amortization             3.0             12.8             12.8
 ---------------------------------------------------------------------
   Stock-based
    compensation            6.7             19.3             19.0
 ---------------------------------------------------------------------
   Restructuring and
    related charges         3.5              3.9              0.4
 ---------------------------------------------------------------------
 Adjusted OIBDA(1)     $37.1 - $39.1  $145.0 - $147.0  $143.0 - $147.0
 ---------------------------------------------------------------------

(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. Management believes that because adjusted OIBDA excludes (1) certain non-cash expenses (such as depreciation, amortization, stock-based compensation, and impairment of goodwill, intangible assets and long-lived assets); and (2) expenses that are not reflective of the company's core operating results over time, this measure provides investors with additional useful information to measure the company's performance, particularly with respect to changes in performance from period to period. Management uses adjusted OIBDA to measure the company's performance. The company's board of directors uses this measure in determining certain compensation incentives for certain members of the company's management. Adjusted OIBDA is not determined in accordance with accounting principles generally accepted in the United States of America (GAAP) and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. A limitation associated with the use of adjusted OIBDA is that it does not reflect the periodic costs of certain 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. A reconciliation to operating income, its most comparable GAAP financial measure, 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 restructuring and related charges and impairment of goodwill, intangible assets and long-lived assets. Management believes that because segment adjusted OIBDA and segment adjusted OIBDA as a percentage of segment revenues exclude certain non-cash expenses and expenses that are not reflective of the segment's core operating results over time, these measures provide investors with additional useful information to evaluate the company's segment performance, particularly with respect to changes in performance from period to period. Segment adjusted OIBDA and segment adjusted OIBDA as a percentage of 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 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 amortization of intangible assets; stock-based compensation; 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 from period to period, because these measures are exclusive of (1) certain non-cash expenses (such as amortization, stock-based compensation and impairment of goodwill, intangible assets and long-lived assets) and (2) expenses that are not reflective of the company's core results over time. Management also uses adjusted net income and adjusted diluted net income per share for this purpose. Adjusted net income and adjusted diluted net income per share are not determined in accordance with accounting principles generally accepted in the United States of America (GAAP) and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. The limitations of adjusted net income and adjusted 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 in the same industry. 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 SEC filings 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. Active accounts are defined as: all pay accounts as of the date presented; the monthly average for the quarter ended, as of the date presented, of all free social networking accounts who have visited the company's domestic or international Web sites (excluding The Names Database) at least once during the reporting period; and the monthly average for the period of all loyalty marketing members who have earned or redeemed points during such period. Active accounts also include the number of free Communications accounts (access and email users) that logged on to the company's services at least once during the preceding 31 days. Prior to the quarter ended September 30, 2007, we measured active accounts using a different methodology for our free social networking and loyalty marketing members. Until the quarter ended September 30, 2007, active accounts for each quarterly period included all free social networking accounts that had logged on to our services at least once during the prior 31 days and loyalty marketing members who earned or redeemed points within the preceding 90 days. Prior to the quarter ended June 30, 2007, active accounts also included free accounts associated with VoIP and The Names Database that had logged on to the company's services within the preceding 31 days, Web hosting free accounts that received a Web site visit within the preceding 90 days, and photo sharing free accounts that logged on to the service within the preceding 90 days. These free accounts were removed from the active accounts definition in anticipation of the company's curtailment of photo sharing and VoIP services, and to better reflect the activity level of the company's member base.

(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 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 accounting principles generally accepted in the United States of America (GAAP) and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. The limitation of free cash flow is that it does not represent the total increase or decrease in cash during the period. A reconciliation to net cash provided by operating activities, its most comparable GAAP financial measure, is provided in the accompanying tables.

Investor Conference Call Today at 4:30 p.m. ET

United Online will host a conference call today at 4:30 p.m. ET (1:30 p.m. PT) to discuss its quarterly results. A live Webcast of the call can be accessed through the Investors section of the company's Web site at http://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, 20875010.

About United Online

United Online, Inc. (Nasdaq:UNTD) is a leading provider of consumer Internet and media services. The company's Content & Media services include 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; Orem, UT; Erlangen, Germany; and Hyderabad, India. For more information about United Online, please visit http://www.unitedonline.com/.

Cautionary Information Regarding Forward-Looking Statements

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended. Statements containing words such as "guidance," "may," "believe," "expect," "project," "projections," "business outlook" and "estimate" or similar expressions constitute forward-looking statements. These statements include, without limitation, expectations regarding future: financial performance; weighted-average diluted shares; depreciation and amortization; stock-based compensation; and restructuring charges. Any such forward-looking statements are not guarantees of future performance or results, and involve risks and uncertainties that may cause actual performance and results to differ materially from those predicted and reported results should not be considered an indication of future performance. Potential risks and uncertainties include, among others: the effect of competition, including adoption of broadband services and changes in the company's pricing or competitors' pricing, and the use of promotional offers to acquire or retain subscribers; the company's inability to retain its existing subscribers and the rate at which new subscribers sign up for the company's services; changes in pay accounts and the mix of pay accounts; the effects of changes in marketing expenditures or shifts in marketing expenditures to support existing and new products and services; the effects of seasonality; changes in Internet usage; changes in the projected number of weighted-average diluted shares due to the issuance of stock, restricted stock units and stock options, stock repurchases, fluctuations in the company's stock price or other factors; changes in stock-based compensation; changes in projected amortization and depreciation due to capital spending or other factors; potential impairment of goodwill and intangibles; that the company will incur additional restructuring charges or currently anticipated restructuring charges will be greater than anticipated; risks associated with the commercialization of new services; changes in tax laws, the company's business or other factors that would impact anticipated tax benefits; changes in usage by subscribers, additional telecommunications costs or other factors negatively impacting the company's cost of revenue; changes in active accounts; the company's inability to maintain, renew, or enter into new agreements with telecommunications providers on attractive terms; the company's ability to successfully integrate acquisitions; problems associated with the company's billing systems; the company's inability to retain key customers and key personnel; technological problems or developments; risks associated with litigation; governmental regulation; and the effects of discontinuing certain business operations. In addition, the payment of future dividends is discretionary and will be subject to determination by the Board of Directors each quarter 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 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."


                         UNITED ONLINE, INC.
      Unaudited Condensed Consolidated Statements of Operations
               (in thousands, except per share amounts)

                                                     Quarter Ended
                                                      September 30,
                                                  --------------------
                                                    2007        2006
                                                  --------    --------
 Revenues                                         $126,825    $129,636
 Operating expenses:
   Cost of revenues(a)                              27,865      28,987
   Sales and marketing(a)                           38,410      43,448
   Product development(a)                           12,276      13,170
   General and administrative(a)                    21,887      17,306
   Amortization of intangible assets                 3,090       4,213
   Restructuring charges                                34         627
                                                  --------    --------
     Total operating expenses                      103,562     107,751
                                                  --------    --------

 Operating income                                   23,263      21,885
 Interest and other income, net                      1,874       1,457
 Interest expense                                     (228)       (199)
                                                  --------    --------
 Income before income taxes                         24,909      23,143
 Provision for income taxes                         10,940       9,707
                                                  --------    --------
 Net income                                       $ 13,969    $ 13,436
                                                  ========    ========
 Basic net income per share                       $   0.21    $   0.21
                                                  ========    ========
 Diluted net income per share                     $   0.20    $   0.20
                                                  ========    ========
 Shares used to calculate basic net income
  per share                                         67,207      64,573
                                                  ========    ========
 Shares used to calculate diluted net income
  per share                                         69,525      66,583
                                                  ========    ========
 Shares outstanding at end of period                67,639      65,214
                                                  ========    ========
 (a)  Stock-based compensation was allocated as follows:
 Cost of revenues                                 $    247    $    176
 Sales and marketing                                 1,128         727
 Product development                                 1,358       1,137
 General and administrative                          3,050       2,264
                                                  --------    --------
     Total stock-based compensation               $  5,783    $  4,304
                                                  ========    ========

                         UNITED ONLINE, INC.
              Reconciliation of Non-GAAP Financial Data
                            (in thousands)
 Reconciliation of Operating Income to Adjusted Operating Income
 Before Depreciation and Amortization (OIBDA)(1)

                                                     Quarter Ended
                                                      September 30,
                                                  --------------------
                                                    2007        2006
                                                  --------    --------
 Operating income                                 $ 23,263    $ 21,885
   Depreciation                                      5,021       5,737
   Amortization of intangible assets                 3,090       4,213
                                                  --------    --------
 Operating income before depreciation and
  amortization                                      31,374      31,835
   Stock-based compensation                          5,783       4,304
   Restructuring charges                                34         627
                                                  --------    --------
 Adjusted operating income before depreciation
  and amortization                                $ 37,191    $ 36,766
                                                  ========    ========

 Reconciliation of Segment Income from Operations to Segment Adjusted
 OIBDA(1)

                                                     Quarter Ended
                                                      September 30,
                                                  --------------------
                                                    2007        2006
                                                  --------    --------
 Content & Media:
 Segment income from operations                   $ 11,266    $  4,987
   Restructuring charges                                34           8
                                                  --------    --------
 Segment adjusted operating income before
  depreciation and amortization                   $ 11,300    $  4,995
                                                  ========    ========
 Communications:
 Segment income from operations                   $ 29,863    $ 35,437
   Restructuring charges                                --         619
                                                  --------    --------
 Segment adjusted operating income before
  depreciation and amortization                   $ 29,863    $ 36,056
                                                  ========    ========

                         UNITED ONLINE, INC.
        Reconciliation of Net Income to Adjusted Net Income(2)
               (in thousands, except per share amounts)

                                                      Quarter Ended
                                                      September 30,
                                                  --------------------
                                                    2007        2006
                                                  --------    --------
 Net income                                       $ 13,969    $ 13,436
 Add:
   Stock-based compensation                          5,783       4,304
   Amortization of intangible assets                 3,090       4,213
   Restructuring charges                                34         627
                                                  --------    --------
                                                    22,876      22,580
 Income tax effect of adjusting entries             (2,349)     (2,873)
                                                  --------    --------
 Adjusted net income                              $ 20,527    $ 19,707
                                                  ========    ========
 Basic net income per share                       $   0.21    $   0.21
                                                  ========    ========
 Diluted net income per share                     $   0.20    $   0.20
                                                  ========    ========
 Adjusted basic net income per share              $   0.31    $   0.31
                                                  ========    ========
 Adjusted diluted net income per share            $   0.29    $   0.29
                                                  ========    ========
 Shares used to calculate basic net income
  per share                                         67,207      64,573
                                                  ========    ========
 Shares used to calculate diluted net income
  per share                                         69,525      66,583
                                                  ========    ========
 Shares used to calculate adjusted basic net
  income per share                                  67,207      64,573
                                                  ========    ========
 Shares used to calculate adjusted diluted net
  income per share(a)                               71,171      67,482
                                                  ========    ========
 ---------------------------------------------------------------------
 (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)

                                                  Sept. 30,   Dec. 31,
                                                    2007        2006
                                                  --------    --------
 ASSETS
   Cash, cash equivalents and short-term
    investments                                   $205,407    $162,362
   Accounts receivable, net                         27,660      32,226
   Deferred tax assets, net                         65,976      71,360
   Property and equipment, net                      37,053      34,296
   Goodwill and intangible assets, net             176,631     186,671
   Other assets                                     20,575      16,104
                                                  --------    --------
     Total assets                                 $533,302    $503,019
                                                  ========    ========
 LIABILITIES AND STOCKHOLDERS' EQUITY
   Accounts payable                               $ 37,347    $ 36,550
   Accrued liabilities                              28,383      39,547
   Member redemption liability                      23,523      19,989
   Deferred revenue                                 68,327      56,348
   Capital leases                                       18          30
   Other liabilities                                 4,648       3,589
                                                  --------    --------
     Total liabilities                             162,246     156,053
                                                  --------    --------
   Stockholders' equity                            371,056     346,966
                                                  --------    --------
     Total liabilities and stockholders' equity   $533,302    $503,019
                                                  ========    ========

                          UNITED ONLINE, INC.
       Unaudited Condensed Consolidated Statements of Cash Flows
                            (in thousands)

                                                      Quarter Ended
                                                      September 30,
                                                  --------------------
                                                    2007        2006
                                                  --------    --------
 CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                       $ 13,969    $ 13,436
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Depreciation, amortization and stock-based
    compensation                                    13,894      14,254
   Provision for doubtful accounts                   1,267         (12)
   Deferred taxes and other                          5,246       2,339
   Tax benefits from stock-based compensation          521       1,118
   Excess tax benefits from stock-based
    compensation                                      (199)       (839)
   Change in operating assets and liabilities
    (excluding the effects of acquisitions):
     Accounts receivable                             1,332         761
     Other assets                                     (234)        899
     Accounts payable and accrued liabilities       (5,504)     (5,751)
     Member redemption liability                       706         247
     Deferred revenue                                2,688        (695)
     Other liabilities                                (117)        (35)
                                                  --------    --------
     Net cash provided by operating activities      33,569      25,722
                                                  --------    --------
 CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment              (5,272)     (2,939)
   Purchases of short-term investments             (40,846)    (76,286)
   Proceeds from maturities and sales of
    short-term investments                          97,663      69,245
   Cash paid for acquisitions, net of cash
    acquired                                            --        (586)
   Increase in restricted cash                          --      (1,450)
   Payment related to settlement of
    pre-acquisition liability                           --      (4,800)
   Proceeds from sales of assets, net                   43          87
                                                  --------    --------
     Net cash provided by (used for) investing
      activities                                    51,588     (16,729)
                                                  --------    --------
 CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on capital leases                           (4)        (98)
   Proceeds from exercises of stock options            552       1,532
   Repurchases of common stock                        (890)       (417)
   Payments for dividends                          (14,392)    (13,546)
   Excess tax benefits from stock-based
    compensation                                       199         839
                                                  --------    --------
     Net cash used for financing activities        (14,535)    (11,690)
                                                  --------    --------
   Effect of exchange rate changes on cash and
    cash equivalents                                   192          (6)
 Change in cash and cash equivalents                70,814      (2,703)
 Cash and cash equivalents, beginning of period     19,698      24,362
                                                  --------    --------
 Cash and cash equivalents, end of period         $ 90,512    $ 21,659
                                                  ========    ========

                          UNITED ONLINE, INC.
    Reconciliation of Net Cash Provided by Operating Activities to
                          Free Cash Flow(4)
                            (in thousands)

                                                      Quarter Ended
                                                      September 30,
                                                  --------------------
                                                    2007        2006
                                                  --------    --------
 Free Cash Flow
 Net cash provided by operating activities        $ 33,569    $ 25,722
 Add (deduct):
   Capital expenditures                             (5,272)     (2,939)
   Excess tax benefits from stock-based
    compensation(a)                                    199         839
   Cash paid for restructuring charges                  34         995
                                                  --------    --------
 Free cash flow                                   $ 28,530    $ 24,617
                                                  ========    ========
 ---------------------------------------------------------------------
 (a) In accordance with SFAS 123R, certain tax benefits from exercised
 stock options that were previously reflected in the operating section
 of the statements of cash flows are now presented in the financing
 section.

                          UNITED ONLINE, INC.
                Unaudited Quarterly Segment Information
                            (in thousands)

                                Quarter Ended September 30, 2007
                          --------------------------------------------
                                                 Unallocated
                         Content &    Communi-    Corporate
                           Media      cations     Expenses     Total
                          --------    --------    --------    --------
 Billable services        $ 29,416    $ 65,170    $     --    $ 94,586
 Advertising                21,959      10,280          --      32,239
                          --------    --------    --------    --------
   Total revenues           51,375      75,450          --     126,825
                          --------    --------    --------    --------
 Operating expenses:
   Cost of revenue          10,742      16,876         247      27,865
   Sales and marketing      19,586      17,697       1,127      38,410
   Product development       4,170       6,748       1,358      12,276
   General and
    administrative           7,723       7,066       7,098      21,887
   Amortization of
    intangible assets        2,875         215          --       3,090
   Restructuring charges        34          --          --          34
                          --------    --------    --------    --------
     Total operating
      expenses              45,130      48,602       9,830     103,562
                          --------    --------    --------    --------
 Operating income (loss)     6,245      26,848      (9,830)     23,263
                          --------    --------    --------    --------
   Depreciation              2,146       2,800          75       5,021
   Amortization of
    intangible assets        2,875         215          --       3,090
                          --------    --------    --------    --------
 Operating income before
  depreciation and
  amortization              11,266      29,863      (9,755)     31,374
   Stock-based
    compensation                --          --       5,783       5,783
   Restructuring charges        34          --          --          34
                          --------    --------    --------    --------
 Adjusted operating income
  before depreciation and
  amortization            $ 11,300    $ 29,863    $ (3,972)   $ 37,191
                          ========    ========    ========    ========

                                Quarter Ended September 30, 2006
                          --------------------------------------------
                                                 Unallocated
                         Content &    Communi-    Corporate
                           Media      cations     Expenses     Total
                          --------    --------    --------    --------
 Billable services        $ 22,142    $ 82,057    $     --    $104,199
 Advertising                15,341      10,096          --      25,437
                          --------    --------    --------    --------
   Total revenues           37,483      92,153          --     129,636
                          --------    --------    --------    --------
 Operating expenses:
   Cost of revenue           8,532      20,279         176      28,987
   Sales and marketing      17,197      25,524         727      43,448
   Product development       4,279       7,754       1,137      13,170
   General and
    administrative           5,057       5,673       6,576      17,306
   Amortization of
    intangible assets        3,529         684          --       4,213
   Restructuring charges         8         619          --         627
                          --------    --------    --------    --------
     Total operating
      expenses              38,602      60,533       8,616     107,751
                          --------    --------    --------    --------
 Operating income (loss)    (1,119)     31,620      (8,616)     21,885
                          --------    --------    --------    --------
   Depreciation              2,577       3,133          27       5,737
   Amortization of
    intangible assets        3,529         684         --        4,213
                          --------    --------    --------    --------
 Operating income before
  depreciation and
  amortization               4,987      35,437      (8,589)     31,835
   Stock-based
    compensation                --          --       4,304       4,304
   Restructuring charges         8         619          --         627
                          --------    --------    --------    --------
 Adjusted operating income
  before depreciation and
  amortization            $  4,995    $ 36,056    $ (4,285)   $ 36,766
                          ========    ========    ========    ========

                         UNITED ONLINE, INC.
   Selected Quarterly Historical Financial Data and Key Metrics(a)

                     Sept. 30,  June 30,  March 31, Dec. 31, Sept. 30,
                        2007      2007      2007      2006      2006
                      --------  --------  --------  --------  --------
 Revenues
  (in thousands):
 Content & Media      $ 51,375  $ 49,712  $ 44,175  $ 43,592  $ 37,483
 Communications         75,450    81,705    85,676    87,194    92,153
                      --------  --------  --------  --------  --------
   Total              $126,825  $131,417  $129,851  $130,786  $129,636
                      ========  ========  ========  ========  ========
 Net income
  (in thousands)      $ 13,969  $ 16,208  $ 13,028  $  4,559  $ 13,436
 Diluted net income
  per share           $   0.20  $   0.23  $   0.19  $   0.07  $   0.20
 Pay accounts(3)(b)
  (in thousands)         5,239     5,118     4,984     4,854     4,912
 Active accounts(3)(c)
  (in millions)           16.3      15.9      20.1      20.1      20.8
 Number of employees
  at end of period         999       985     1,008     1,006     1,023
 ---------------------------------------------------------------------
 (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.
 (c) Prior to the quarter ended June 30, 2007, active accounts
 also included free accounts associated with VoIP and The Names
 Database services that had logged on to the company's services
 within the preceding 31 days, Web hosting free accounts that
 received a web site visit within the preceding 90 days, and photo
 sharing free accounts that logged on to the service within the
 preceding 90 days. These free accounts were removed from the
 active accounts definition in anticipation of the company's
 curtailment of photo sharing and VoIP services, and to better
 reflect the activity level of the company's member base.
 Beginning with the quarter ended September 30, 2007, we measured
 active accounts using a different methodology for the company's
 free social networking and MyPoints members. Until the quarter
 ended September 30, 2007, active accounts for each quarterly
 period included all free social networking accounts that had
 logged on to the company's services at least once during the
 prior 31 days and MyPoint members who earned points or spent
 points within the preceding 90 days. Beginning with the quarter
 ended September 30, 2007, active accounts for free social
 networking members and MyPoints members reflect the following
 definitions: the monthly average for the quarter ended, as of the
 date presented, of all free social networking accounts who have
 visited the company's domestic or international Web sites
 (excluding The Names Database) at least once during the reporting
 period, and the monthly average for the period of all loyalty
 marketing members who have earned or redeemed points during such
 period.
 
                         UNITED ONLINE, INC.
                     Analysis of Pay Accounts (3)
                            (in thousands)

                     Sept. 30,  June 30,  March 31, Dec. 31, Sept. 30,
                        2007      2007      2007      2006      2006
                      --------  --------  --------  --------  --------
 Content & Media(a)
 Social networking       2,983     2,710     2,433     2,169     2,079
 Other(c)                   70        88        87        86        85
                      --------  --------  --------  --------  --------
 Total(c)                3,053     2,798     2,520     2,255     2,164
                      --------  --------  --------  --------  --------
 Communications(b)
 Access                  1,886     2,016     2,158     2,282     2,425
 Other                     300       304       306       317       323
                      --------  --------  --------  --------  --------
 Total                   2,186     2,320     2,464     2,599     2,748
                      --------  --------  --------  --------  --------
   Total pay
    accounts(3)(c)       5,239     5,118     4,984     4,854     4,912
                      ========  ========  ========  ========  ========
 ---------------------------------------------------------------------
 (a) Content & Media includes social networking and Web hosting.
 Periods prior to September 30, 2007 also include photo sharing.
 (b) Communications includes Internet access, VoIP, premium content,
 premium email and security suite.
 (c) 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.


CONTACT:  United Online, Inc.
          Investors:
          Erik Randerson, CFA
          818-287-3350
          investor@untd.com

          Press:
          Scott Matulis
          818-287-3388
          pr@untd.com


Back to top