United Online Reports Second Quarter 2011 Results


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  • Total Revenues of $255.6 Million, Operating Income of $27.8 Million and Adjusted OIBDA of $46.7 Million
  • FTD Segment Revenues and Adjusted OIBDA Increased Year Over Year
  • Refinancing of Credit Facilities Expected to Reduce Future Debt Cost and Increase Financial Flexibility

WOODLAND HILLS, Calif.--(BUSINESS WIRE)-- United Online, Inc. (Nasdaq: UNTD), a leading provider of consumer products and services over the Internet, today reported financial results for its second quarter ended June 30, 2011.

"Consolidated adjusted OIBDA exceeded our guidance range for the quarter, and consolidated revenues were above the midpoint of our guidance range," said Mark R. Goldston, Chairman, President and Chief Executive Officer of United Online. "FTD continued to deliver strong year-over-year results despite the weak consumer spending environment, with increased revenues and adjusted OIBDA compared to the second quarter of 2010. Total consumer orders for the quarter increased 17% from the year-ago period, resulting from the shift of the U.K. Mother's Day into the second quarter of 2011 as well as an increase in domestic consumer orders. The latter was driven by a 7% increase in domestic consumer orders during the 14-day period leading up to and including the 2011 Mother's Day holiday as compared to the same period in 2010."

"Our Content and Media segment revenues decreased 3% when compared to the second quarter of 2010," Goldston continued. "We have been pleased with consumer response to our Memory Lane yearbook archive, which now contains over 100,000 books and accounts for a significant portion of Memory Lane's domestic traffic, and we intend to continue to test new ways to drive engagement and monetization of our unique Memory Lane content."

Added Neil P. Edwards, Acting Chief Financial Officer, "In June 2011, FTD refinanced its outstanding debt by entering into a new $315 million credit facility consisting of a $265 million seven-year term loan and a $50 million five-year revolving credit facility that was undrawn at closing. The refinancing is expected to significantly reduce FTD's overall cost of debt and increase its financial flexibility. The annualized reduction in cash interest expense resulting from the refinancing is estimated to be approximately $4.6 million, based on interest rates at closing."

Summary Results for Second Quarter Ended June 30, 2011:

The following table summarizes key financial results for the second quarter ended June 30, 2011:

  (in millions, except per share amounts and percentages)

Financial Highlights

Q2 2011   Q2 2010   % Change
FTD revenues $ 176.3 $ 152.7 15 %
Content & Media revenues 47.4 48.8 (3 %)
Communications revenues 32.3 42.0 (23 %)
Intersegment eliminations   (0.4 )   (0.8 )

45

%

Consolidated revenues $ 255.6   $ 242.7   5 %
 
GAAP operating income $ 27.8 $ 29.8 (7 %)
 
Adjusted OIBDA(1) $ 46.7 $ 52.7 (11 %)
 
GAAP net income attributable to common stockholders $ 14.2 $ 13.1 8 %
GAAP diluted net income per common share $ 0.16 $ 0.15 7 %
 
Adjusted net income attributable to common stockholders(2) $ 26.8 $ 23.9 12 %
Adjusted diluted net income per common share(2) $ 0.30 $ 0.27 11 %
  • Consolidated results for the second quarter of 2011 were impacted by the shift in timing of the U.K. Mother's Day, which fell in the second quarter of 2011 instead of the first quarter.
  • Consolidated revenues were $255.6 million, an increase of 5% versus the year-ago quarter. Adjusting for the favorable impact from foreign currency exchange rates of $4.8 million and the shift of approximately $14 million of revenues from the first quarter of 2011 related to the timing of the U.K. Mother's Day, consolidated revenues would have been approximately $236.8 million, a decrease of 2% versus the year-ago quarter.
  • GAAP operating income was $27.8 million, a decrease of 7% versus the year-ago quarter.
  • Adjusted OIBDA(1) was $46.7 million, a decrease of 11% versus the year-ago quarter. Adjusting for the shift of approximately $3 million of adjusted OIBDA from the first quarter of 2011 related to the timing of the U.K. Mother's Day, consolidated adjusted OIBDA would have been approximately $43.7 million, a decrease of 17% versus the year-ago quarter.
  • Interest expense for the second quarter of 2011 included a $6.1 million loss on extinguishment in connection with the refinancing of the credit facility.
  • During the quarter, the company settled an income tax audit and, in connection with the settlement, released a reserve of approximately $4.8 million. This release has no impact on cash taxes.
  • GAAP diluted net income per common share was $0.16, versus $0.15 in the year-ago quarter.
  • Adjusted diluted net income per common share(2) was $0.30, versus $0.27 in the year-ago quarter.

Cash Flows, Balance Sheet and Dividend Highlights:

  • Cash flows from operating activities and free cash flow(3) for the quarter ended June 30, 2011 were $22.5 million and $16.6 million, respectively, decreases of 9% and 5%, respectively, versus the year-ago quarter.
  • Cash and cash equivalents at June 30, 2011 increased by $5.1 million to $111.4 million from $106.4 million at March 31, 2011.
  • Total debt, net of discounts, at June 30, 2011 was $262.2 million, an increase from $258.6 million at March 31, 2011.
  • Net debt at June 30, 2011 was $150.8 million, a decrease of $1.4 million from March 31, 2011. The company defines net debt as total debt, net of discounts, less cash and cash equivalents.
  • The company paid $9.3 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 August 31, 2011 to stockholders of record on August 12, 2011.

Segment Financial Results for Q2 2010 and YTD 2010 Revised to Conform to Current Year Presentation:

Effective the first quarter of 2011, the company modified its segment reporting to separately report unallocated corporate expenses. Historically, such expenses were fully allocated to the company's reportable segments. The company has revised prior periods to conform to the current year presentation.

Segment Results for Second Quarter Ended June 30, 2011:

FTD:

  (in millions, except percentages and metrics)  

Financial Highlights

Q2 2011   Q2 2010   % Change

% Change
@ Constant
Currency

Products revenues $ 145.8 $ 122.0 20 %
Services revenues 30.5 30.5 --
Advertising revenues   -     0.2   N/A
Segment revenues $ 176.3   $ 152.7   15 % 13 %
 
Segment income from operations $ 24.7 $ 19.6 26 %
Segment adjusted OIBDA(1) $ 25.7 $ 21.1 22 %
as a % of segment revenues(1) 14.6 % 13.8 %
 

Metrics Highlights

Q2 2011 Q2 2010 % Change

% Change
@ Constant
Currency

Consumer orders(4) (in thousands) 2,167 1,851 17 %
Average order value(4) $ 60.45 $ 58.76 3 % 1 %
 
British Pound / U.S. Dollar exchange rate (average) 1.63 1.49 9 %
  • FTD results for the second quarter of 2011 were impacted by the shift in timing of the U.K. Mother's Day, which fell in the second quarter of 2011 instead of the first quarter.
  • Segment revenues were $176.3 million, an increase of 15% versus the year-ago quarter. Adjusting for the favorable impact from foreign currency exchange rates of $3.5 million and the shift of approximately $14 million of revenues from the first quarter of 2011 related to the timing of the U.K. Mother's Day, segment revenues would have been approximately $158.8 million, an increase of 4% versus the year-ago quarter.
  • Segment adjusted OIBDA(1) was $25.7 million, an increase of 22% compared to the year-ago quarter. Adjusting for the favorable impact from foreign currency exchange rates of $0.5 million and the shift of approximately $3 million of adjusted OIBDA from the first quarter of 2011 related to the timing of the U.K. Mother's Day, segment adjusted OIBDA would have been approximately $22.2 million, an increase of 5% versus the year-ago quarter.
  • Consumer orders(4) were 2.2 million, an increase of 17% versus the year-ago quarter due to the shift of the U.K. Mother's Day into Q2 2011 as well as 7% growth in order volume related to the U.S. Mother's Day holiday.
  • Average order value(4) ("AOV") was $60.45, an increase of 3% versus an AOV of $58.76 in the year-ago quarter. Excluding the favorable impact from foreign currency exchange rates as well as the unfavorable impact related to the timing of the U.K. Mother's Day, AOV grew by 2% versus the year-ago quarter. The shift in timing of the U.K. Mother's Day resulted in a greater percentage of international orders as compared to domestic orders in the second quarter of 2011, compared to the year-ago quarter, and international orders generally have lower AOVs than domestic orders.

Content & Media:

  (in millions, except percentages and metrics)

Financial Highlights

Q2 2011   Q2 2010   % Change
Services revenues $ 32.2 $ 33.2 (3 %)
Advertising revenues   15.2     15.6   (3 %)
Segment revenues $ 47.4   $ 48.8   (3 %)
 
Segment income from operations $ 9.2 $ 13.1 (30 %)
Segment adjusted OIBDA(1) $ 10.1 $ 15.5 (35 %)
as a % of segment revenues(1) 21.3 % 31.7 %
 

Metrics Highlights

Q2 2011 Q2 2010 % Change
Segment pay accounts(5) (in thousands) 4,007 4,982 (20 %)
Net quarterly decline in segment pay accounts(5) (in thousands) (253 ) (6 ) N/A
Segment active accounts (in millions) (5) 12.5 16.1 (22 %)
ARPU(6) $ 2.60 $ 2.22 17 %
  • Segment revenues were $47.4 million, a decrease of 3% versus the year-ago quarter. The decrease primarily reflects a decline in segment pay accounts(5), partially offset by an increase in average monthly revenue per pay account(6) ("ARPU") versus the year-ago quarter.
  • Segment adjusted OIBDA was $10.1 million, a decrease of 35% versus the year-ago quarter primarily due to a decrease in segment revenues and increased marketing expenses primarily related to the launch of Memory Lane.
  • Segment pay accounts at June 30, 2011 were 4.0 million, a decline of 20% versus June 30, 2010.

Communications:

  (in millions, except percentages and metrics)

Financial Highlights

Q2 2011   Q2 2010   % Change
Services revenues $ 26.1 $ 35.3 (26 %)
Advertising revenues   6.2     6.8   (9 %)
Segment revenues $ 32.3   $ 42.0   (23 %)
 
 
Segment income from operations $ 15.9 $ 19.1 (17 %)
Segment adjusted OIBDA(1) $ 16.7 $ 20.7 (20 %)
as a % of segment revenues(1) 51.6 % 49.3 %
 

Metrics Highlights

Q2 2011 Q2 2010 % Change
Segment pay accounts(5) (in thousands) 894 1,180 (24 %)
ARPU(6) $ 9.28 $ 9.57 (3 %)

  • Segment revenues were $32.3 million, a decrease of 23% versus the year-ago quarter primarily due to a continuing decline in segment pay accounts. Segment revenues were 13% of consolidated revenues, compared to 17% in the year-ago quarter.
  • Segment adjusted OIBDA was $16.7 million, a decrease of 20% versus the year-ago quarter.
  • Segment pay accounts at June 30, 2011 were 0.9 million, a decrease of 24% versus 1.2 million at June 30, 2010.

Unallocated Corporate Expenses:

For the second quarter of 2011, the impact of unallocated corporate expenses on consolidated adjusted OIBDA was $5.7 million, compared to $4.5 million in the year-ago quarter, primarily related to the structure of the 2011 Management Bonus Plan as a cash-based rather than stock-based plan.

Business Outlook:

The following forward-looking information includes certain of the 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.

Third Quarter 2011 Guidance:

Third Quarter 2011 (in millions)   Guidance
Revenues $180.0 - $186.0
Adjusted OIBDA(1) $34.0 - $38.0
Third Quarter 2011 Supplemental Information (in millions)   Guidance
Net interest expense $3.3
Shares used to calculated diluted net income per common share 89.1
Shares used to calculated adjusted diluted net income per common share(2) 89.3

The table below reconciles the company's guidance for operating income, a GAAP measure, to adjusted OIBDA.

Third Quarter 2011 (in millions)   Guidance
Operating Income $14.8 - $18.8
Depreciation $6.8
Amortization of intangible assets $7.9
Stock-based compensation $4.5
Adjusted OIBDA(1) $34.0 - $38.0

Investor Conference Call on August 3, 2011 at 5:00 p.m. ET (2:00 p.m. PT):

United Online will host a conference call on Wednesday, August 3, 2011 at 5:00 p.m. ET (2:00 p.m. PT) to discuss its financial results for the second quarter ended June 30, 2011. The conference call dial-in number is 888-504-7964 for domestic participants and 719-325-2136 for international participants. The passcode is 7590547. Alternatively, a live webcast of the conference call, along with a presentation containing financial highlights for the second quarter ended June 30, 2011, can be accessed within the Investor Relations section of the company's website at www.unitedonline.com.

The presentation and a replay of the broadcast will also be available for seven days following the call on the company's website, or by dialing 888-203-1112 (or 719-457-0820 outside of the United States) and the replay passcode, 7590547.

Non-GAAP Measures:

In evaluating the company's performance, management uses one or more of the following measures that are not determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"): adjusted OIBDA, adjusted net income, adjusted basic and diluted net income per common share, and free cash flow. These measures are adjusted to exclude certain non-cash expenses such as depreciation, amortization, stock-based compensation, and impairment of goodwill, intangible assets and long-lived assets. In addition, these measures are adjusted to exclude the items discussed below because such items are either operating expenses which would not otherwise have been incurred by the company in the normal course of the company's business operations or are not reflective of the company's core results over time. These items may include recurring as well as non-recurring items. These adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring. For example, certain restructuring charges may be considered recurring given the company's ongoing efforts to be more cost effective and efficient, certain litigation or dispute settlement charges or gains may be viewed as recurring given that the company is continually involved in, and resolving, litigation, arbitration, investigations, disputes and similar matters, and certain transaction-related costs may be deemed recurring given the company's regular evaluation of potential transactions. Notwithstanding that certain charges, costs or gains may be considered recurring, in order to provide meaningful comparisons, the company believes that it is appropriate to adjust for such charges, costs or gains because they are not reflective of the company's core results and tend to vary based on timing, frequency and magnitude.

Restructuring Charges — Restructuring charges consist primarily of severance expense, facility closure and relocation costs.

Litigation or Dispute Settlement Charges or Gains — These charges or gains include estimated losses for which we have established a reserve, as well as actual settlements, judgments, fines, penalties, assessments or other resolutions against, or in favor of, the company related to litigation, arbitration, investigations, disputes or similar matters. Insurance recoveries received by the company related to such matters are also included in these adjustments.

Transaction-Related Costs — The company excludes certain expense items resulting from actual or potential transactions such as business combinations, mergers, acquisitions, and financing transactions, including, without limitation, (i) compensation expenses and (ii) expenses for advisors and representatives such as investment bankers, consultants, attorneys, and accounting firms. The compensation expenses may include transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees.

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 charges; litigation or dispute settlement charges or gains; transaction-related costs; 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 charges, litigation or dispute settlement charges or gains, and transaction-related costs), 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 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 within the accompanying tables and in the footnotes accompanying its financial statements. A further limitation associated with the use of this measure is that it does not reflect the costs of restructuring charges, litigation or dispute settlement charges or gains, transaction-related costs, and the impairment of goodwill, intangible assets and long-lived assets. Management compensates for this limitation by providing supplemental information about such charges, gains and costs within its financial press releases and SEC filings, when applicable. An additional limitation associated with the use of this measure is that the term "adjusted OIBDA" does not have a standardized meaning. Therefore, other companies may use the same or a similarly named measure but exclude different items or use different computations, which may not provide investors a comparable view of the company's performance in relation to other companies. Management compensates for this limitation by presenting the most comparable GAAP measure, operating income, directly ahead of adjusted OIBDA within its financial press releases and by providing a reconciliation that shows and describes the adjustments made. A reconciliation to operating income is provided in the accompanying tables. In addition, many of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring in nature and will be reflected in our financial results for the foreseeable future.

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 charges, litigation or dispute settlement charges or gains, transaction-related costs 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 charges, litigation or dispute settlement charges or gains, and transaction-related costs), 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 within the accompanying tables and in the footnotes accompanying its financial statements. A further limitation associated with the use of these measures is that they do not reflect the costs of restructuring charges, litigation or dispute settlement charges or gains, transaction-related costs and impairment charges related to an operating segment. Management compensates for this limitation by providing supplemental information about such charges, gains and costs 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; impairment of goodwill, intangible assets and long-lived assets; restructuring charges; litigation or dispute settlement charges or gains; transaction-related costs; and the re-measurement of certain deferred tax assets. Adjusted diluted net income per common share includes the adjustment for shares resulting from the elimination of stock-based compensation. 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 of intangible assets, 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 charges, litigation or dispute settlement charges or gains, and transaction-related costs). 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, its most comparable GAAP measure, is provided in the accompanying tables.

(3) Free cash flow is defined by the company as net cash provided by operating activities, less capital expenditures and cash received for litigation or dispute settlement gains, and plus the excess tax benefits from equity awards, cash paid for restructuring charges, cash paid for litigation or dispute settlement charges, and cash paid for transaction-related costs. 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 charges, cash paid or received for litigation or dispute settlement charges or gains, and cash paid for transaction-related costs. 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.

(4) Consumer orders are orders delivered during the period that originated in the U.S. and Canada, primarily from the www.ftd.com website 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 and www.interflora.ie websites and various telephone numbers. The number of consumer orders is not adjusted for non-delivered orders that are refunded after the scheduled delivery. 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 local currency amounts received for orders delivered principally in the U.K. 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 discounts and refunds.

(5) A pay account is defined as a member who has paid for a subscription to a Content & Media or Communications service, and whose subscription has not terminated or expired. A subscription provides the member with access to our service for a specific term (for example, a month or a year) and may be renewed upon the expiration of each term. One-time purchases of our services, such as Memory Lane's one-day All-Access Pass, are not considered subscriptions and thus, are not included in the pay accounts metric. 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. Content & Media segment active accounts are defined as the sum of all pay accounts as of the date presented; the monthly average for the period of all free accounts who have visited the company's domestic or international online nostalgia websites (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.

(6) ARPU is calculated by dividing services revenues generated from the pay accounts of our Content & Media or Communications segment, as applicable, for a period (after translation into U.S. Dollars) by the average number of segment pay accounts for that period, divided by the number of months in that period.

(7) 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 that period, divided by the number of months in that period.

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 more than 40,000 retail floral shops worldwide. The company's Content & Media services include online nostalgia services in the U.S. and Canada (www.memorylane.com) and a number of European countries as well as online loyalty marketing services (www.mypoints.com). The company's Communications services include value-priced Internet access 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., the United Kingdom, Germany, and India. More information about United Online is available on the company's website 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; stock-based compensation; and planned business initiatives, products, services and features. Potential factors that could cause actual results to differ materially from those in the forward-looking statements include, among others: risks associated with the commercialization of new products, services or features or the success of new business models; the severity and duration of current economic conditions; the effect of competition; risks associated with litigation and governmental regulations or investigations, including reviews of business practices such as marketing, billing, renewal, and post-transaction sales practices; the company's inability to maintain or increase the number of free and pay accounts, visitors to its websites, and members of the floral network; risks associated with the procurement of goods and services, including flower supplies and shipping services; problems associated with the company's operations, systems or technologies; changes in marketing conditions and laws; the company's inability to maintain or increase its advertising revenues; changes in the online advertising market; the company's inability to enforce or defend its ownership and use of intellectual property; financial market risk resulting from fluctuations in foreign currency exchange rates, particularly the British Pound and Euro; 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 the floral industry; the company's inability to retain key customers, vendors and personnel; 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 restructuring and related charges; changes in tax laws, the company's business or other factors that would impact anticipated tax benefits; 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 June 30, Six months ended June 30,
2011 2010 2011 2010
Revenues:
Products $ 145,832 $ 121,971 $ 274,918 $ 246,458
Services   109,733     120,715     222,152     247,953  
Total revenues 255,565 242,686 497,070 494,411
Operating expenses:
Cost of revenues-services (a) 23,305 24,667 47,976 50,680
Cost of revenues-products (a) 108,637 90,228 204,792 185,413
Sales and marketing(a) 48,811 49,013 96,946 99,143
Technology and development(a) 13,243 13,646 26,018 27,995
General and administrative(a) 26,039 27,259 54,913 58,243
Amortization of intangible assets 7,598 8,115 15,343 16,278
Restructuring charges   143     (78 )   677     991  
Total operating expenses   227,776     212,850     446,665     438,743  
 
Operating income 27,789 29,836 50,405 55,668
 
Interest income 283 412 832 877
Interest expense (10,776 ) (6,314 ) (15,817 ) (13,463 )
Other income, net   166     53     1,705     135  
 
Income before income taxes 17,462 23,987 37,125 43,217
Provision for income taxes   2,694     10,030     10,176     18,039  
Net income $ 14,768   $ 13,957   $ 26,949   $ 25,178  
Income allocated to participating securities   (577 )   (859 )   (1,142 )   (1,590 )
Net income attributable to common stockholders $ 14,191   $ 13,098   $ 25,807   $ 23,588  
 
Basic net income per common share $ 0.16   $ 0.15   $ 0.29   $ 0.27  
Shares used to calculate basic net income per common share   88,507     87,021     87,965     86,393  
Diluted net income per common share $ 0.16   $ 0.15   $ 0.29   $ 0.27  
Shares used to calculate diluted net income per common share   88,625     87,782     88,225     87,167  
 
Shares outstanding at end of period   88,693     87,270     88,693     87,270  
 
(a) Stock-based compensation was allocated as follows:
Cost of revenues-products $ 13 $ 11 $ 21 $ 30
Cost of revenues-services 100 133 182 314
Sales and marketing 637 986 1,107 2,203
Technology and development 577 855 1,130 1,828
General and administrative   3,168     4,376     6,781     9,846  
Total stock-based compensation $ 4,495   $ 6,361   $ 9,221   $ 14,221  
 

       
UNITED ONLINE, INC.
Unaudited Reconciliations of Non-GAAP Financial Measures
(in thousands)
 
Unaudited Reconciliation of Operating Income to Adjusted OIBDA(1)
 
Quarter Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
 
 
Operating income $ 27,789 $ 29,836 $ 50,405 $ 55,668
Depreciation 6,409 6,897 12,554 13,564
Amortization of intangible assets   7,869     8,118     15,776     16,281  
Operating income before depreciation and amortization 42,067 44,851 78,735 85,513
Stock-based compensation 4,495 6,361 9,221 14,221
Restructuring charges 143 (78 ) 677 991
Litigation or dispute settlement charges - 1,600 2,263 1,967
Transaction-related costs   -     9     -     1,989  
Adjusted OIBDA $ 46,705   $ 52,743   $ 90,896   $ 104,681  
 
Unaudited Reconciliation of Segment Income from Operations to Segment Adjusted OIBDA(1)
 
Quarter Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
 
FTD:
Segment income from operations $ 24,682 $ 19,568 $ 43,255 $ 36,993
Stock-based compensation 1,019 848 1,827 1,702
Restructuring charges - 13 - 1,082
Litigation or dispute settlement charges   -     640     -     640  
Segment adjusted OIBDA $ 25,701   $ 21,069   $ 45,082   $ 40,417  
 
Content & Media:
Segment income from operations $ 9,208 $ 13,123 $ 19,331 $ 26,654
Stock-based compensation 874 1,461 1,788 2,136
Restructuring charges - (91 ) - (91 )
Litigation or dispute settlement charges   -     960     2,263     1,327  
Segment adjusted OIBDA $ 10,082   $ 15,453   $ 23,382   $ 30,026  
 
Communications:
Segment income from operations $ 15,865 $ 19,102 $ 32,490 $ 39,697
Stock-based compensation 647 1,629 1,221 3,844
Restructuring charges   143     -     677     -  
Segment adjusted OIBDA $ 16,655   $ 20,731   $ 34,388   $ 43,541  
 
Unallocated corporate expenses(a) $ (5,733 ) $ (4,510 ) $ (11,956 ) $ (9,303 )
 
Consolidated adjusted OIBDA $ 46,705   $ 52,743   $ 90,896   $ 104,681  
                 

(a) Effective the first quarter of 2011, the company modified its segment reporting to separately report unallocated corporate expenses. Historically, such expenses were fully allocated to the company's reportable segments.

   
UNITED ONLINE, INC.
Unaudited Reconciliation of Net Income to Adjusted Net Income(2)
(in thousands, except per share amounts)
   
Quarter Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
 
Net income $ 14,768 $ 13,957 $ 26,949 $ 25,178
Income allocated to participating securities   (577 )   (859 )   (1,142 )   (1,590 )
Net income attributable to common stockholders 14,191 13,098 25,807 23,588
 
Adjustments:
Stock-based compensation 4,495 6,361 9,221 14,221
Amortization of intangible assets 7,869 8,118 15,776 16,281
Restructuring charges 143 (78 ) 677 991
Litigation or dispute settlement charges - 1,350 2,263 1,717
Transaction-related costs(a)   6,078     9     6,078     1,989  
32,776 28,858 59,822 58,787
 
Income tax effect of adjusting entries   (6,003 )   (4,949 )   (10,970 )   (10,731 )
Adjusted net income attributable to common stockholders $ 26,773   $ 23,909   $ 48,852   $ 48,056  
 
GAAP net income per common share:
Basic net income per common share $ 0.16   $ 0.15   $ 0.29   $ 0.27  
Shares used to calculate basic net income per common share   88,507     87,021     87,965     86,393  
Diluted net income per common share $ 0.16   $ 0.15   $ 0.29   $ 0.27  
Shares used to calculate diluted net income per common share   88,625     87,782     88,225     87,167  
 
Adjusted net income per common share:
Adjusted basic net income per common share $ 0.30   $ 0.27   $ 0.56   $ 0.56  
Shares used to calculate adjusted basic net income per common share   88,507     87,021     87,965     86,393  
Adjusted diluted net income per common share $ 0.30   $ 0.27   $ 0.55   $ 0.55  
Shares used to calculate adjusted diluted net income per common share   88,846     87,849     88,347     87,302  
                 

(a) Includes a $6.1 million loss on extinguishment recorded in the quarter ended June 30, 2011 in connection with the refinancing of FTD's credit facilities and a $2.0 million charge recorded in the quarter ended March 31, 2010 related to a potential transaction that failed to consummate.

 
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
         

June 30,
2011

December 31,
2010

 
ASSETS
Cash and cash equivalents $ 111,444 $ 100,264
Accounts receivable, net 38,818 49,797
Deferred tax assets, net 15,114 14,200
Property and equipment, net 65,299 63,893
Goodwill and intangible assets, net 714,030 722,184
Other assets   36,237   41,820
Total assets $ 980,942 $ 992,158
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 53,518 $ 71,659
Accrued liabilities 41,739 48,881
Member redemption liability 24,168 24,866
Deferred revenue 70,790 74,694
Debt, net of discounts 262,227 258,084
Deferred tax liabilities, net 43,604 42,677
Other liabilities   11,052   16,816
Total liabilities   507,098   537,677
 
Stockholders' equity 473,844 454,481
   

Total liabilities and stockholders' equity

$ 980,942 $ 992,158
 

 
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
     
Quarter Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,768 $ 13,957 $ 26,949 $ 25,178
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and stock-based compensation 18,773 21,376 37,551 44,066
Provision for doubtful accounts receivable 661 1,310 1,366 2,545
Accretion of discounts and amortization of debt issue costs 480 1,293 1,052 2,720
Loss on extinguishment of debt 6,078 - 6,078 -
Deferred taxes and other (2,784 ) (2,405 ) (377 ) (2,729 )
Tax shortfalls from equity awards (28 ) 11 13 (98 )
Excess tax benefits from equity awards - (23 ) (251 ) (349 )
Change in operating assets and liabilities:
Accounts receivable 6,864 4,758 9,943 10,667
Other assets 803 805 6,832 6,850
Accounts payable and accrued liabilities (2,170 ) (13,171 ) (26,889 ) (10,240 )
Member redemption liability (207 ) (733 ) (697 ) (1,759 )
Deferred revenue (15,372 ) (2,348 ) (5,476 ) (984 )
Other liabilities   (5,328 )   (28 )   (5,817 )   422  

Net cash provided by operating activities

  22,538     24,802     50,277     76,289  
 

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment (6,583 ) (8,984 ) (13,662 ) (14,146 )
Purchases of rights, content and intellectual property (892 ) (1,170 ) (2,114 ) (1,170 )
Proceeds from sales of assets, net   -     49     -     49  
Net cash used for investing activities   (7,475 )   (10,105 )   (15,776 )   (15,267 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term loan 261,325 - 261,325 -
Payments on term loans (264,625 ) (29,737 ) (264,625 ) (54,819 )
Payments for debt issue costs (30 ) - (30 ) -
Proceeds from exercises of stock options 7 7 24 11
Proceeds from employee stock purchase plans 2,349 2,612 2,349 2,612
Repurchases of common stock (167 ) (648 ) (6,330 ) (6,695 )
Dividends and dividend equivalents paid on outstanding shares and restricted stock units (9,263 ) (9,354 ) (18,684 ) (18,462 )
Excess tax benefits from equity awards   -     23     251     349  
Net cash used for financing activities   (10,404 )   (37,097 )   (25,720 )   (77,004 )
 
Effect of foreign currency exchange rate changes on cash and cash equivalents 415 (3,594 ) 2,399 (4,598 )
 
Change in cash and cash equivalents 5,074 (25,994 ) 11,180 (20,580 )
Cash and cash equivalents, beginning of period   106,370     120,923     100,264     115,509  
Cash and cash equivalents, end of period $ 111,444   $ 94,929   $ 111,444   $ 94,929  
 

         
UNITED ONLINE, INC.
Unaudited Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow(3)
(in thousands)
 
Quarter Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
 
Net cash provided by operating activities $ 22,538 $ 24,802 $ 50,277 $ 76,289
Adjustments:
Capital expenditures (6,583 ) (8,984 ) (13,662 ) (14,146 )
Excess tax benefits from equity awards - 23 251 349
Cash paid for restructuring charges 691 807 1,832 859
Cash paid (received) for litigation or dispute settlement charges 2 (83 ) (77 ) (83 )
Cash paid for transaction-related costs   -     884     -     1,994  
Free cash flow $ 16,648   $ 17,449   $ 38,621   $ 65,262  
 

       
UNITED ONLINE, INC.
Unaudited Segment Information
(in thousands)
 
Quarter Ended June 30, Six Months Ended June 30,
2011

2010(a)

2011

2010(a)

 

FTD

Revenues:
Products $ 145,832 $ 121,971 $ 274,918 $ 246,458
Services 30,467 30,545 60,258 62,276
Advertising   -     153     22     622  
Total revenues 176,299 152,669 335,198 309,356
 
Operating expenses:
Cost of revenues 113,836 95,175 215,200 195,514
Sales and marketing 27,907 28,126 57,285 55,017
Technology and development 3,643 3,360 7,232 7,251
General and administrative 8,297 8,368 16,270 17,417
Amortization of intangible assets 6,316 6,594 12,612 13,237
Restructuring charges   -     13     -     1,082  
Total operating expenses   159,999     141,636     308,599     289,518  
 
Operating income 16,300 11,033 26,599 19,838
 
Depreciation 2,066 1,941 4,044 3,918
Amortization of intangible assets   6,316     6,594     12,612     13,237  
Segment income from operations 24,682 19,568 43,255 36,993
Stock-based compensation 1,019 848 1,827 1,702
Restructuring charges - 13 - 1,082
Litigation or dispute settlement charges   -     640     -     640  
Segment adjusted OIBDA $ 25,701   $ 21,069   $ 45,082   $ 40,417  
 

Content & Media

Revenues:
Services $ 32,249 $ 33,213 $ 64,778 $ 67,165
Advertising   15,178     15,571     30,962     32,121  
Total revenues 47,427 48,784 95,740 99,286
 
Operating expenses:
Cost of revenues 9,465 9,528 19,639 19,189
Sales and marketing 18,525 15,711 34,133 33,137
Technology and development 6,643 6,017 13,045 11,858
General and administrative 6,477 7,453 15,148 13,946
Amortization of intangible assets 1,067 1,259 2,251 2,517
Restructuring charges   -     (91 )   -     (91 )
Total operating expenses   42,177     39,877     84,216     80,556  
 
Operating income 5,250 8,907 11,524 18,730
 
Depreciation 2,620 2,954 5,123 5,404
Amortization of intangible assets   1,338     1,262     2,684     2,520  
Segment income from operations 9,208 13,123 19,331 26,654
Stock-based compensation 874 1,461 1,788 2,136
Restructuring charges - (91 ) - (91 )
Litigation or dispute settlement charges   -     960     2,263     1,327  
Segment adjusted OIBDA $ 10,082   $ 15,453   $ 23,382   $ 30,026  
 

Communications

Revenues:
Services $ 26,112 $ 35,265 $ 53,991 $ 72,283
Advertising   6,167     6,774     12,986     14,997  
Total revenues 32,279 42,039 66,977 87,280
 
Operating expenses:
Cost of revenues 8,854 10,359 18,307 21,615
Sales and marketing 2,606 5,815 5,995 12,275
Technology and development 2,957 4,269 5,741 8,886
General and administrative 3,571 4,381 7,141 8,794
Amortization of intangible assets 215 262 480 524
Restructuring charges   143     -     677     -  
Total operating expenses   18,346     25,086     38,341     52,094  
 
Operating income 13,933 16,953 28,636 35,186
 
Depreciation 1,717 1,887 3,374 3,987
Amortization of intangible assets   215     262     480     524  
Segment income from operations 15,865 19,102 32,490 39,697
Stock-based compensation 647 1,629 1,221 3,844
Restructuring charges   143     -     677     -  
Segment adjusted OIBDA $ 16,655   $ 20,731   $ 34,388   $ 43,541  
 
Total segment adjusted OIBDA $ 52,438   $ 57,253   $ 102,852   $ 113,984  
 
Reconciliation of segment revenues to consolidated revenues:
FTD $ 176,299 $ 152,669 $ 335,198 $ 309,356
Content & Media 47,427 48,784 95,740 99,286
Communications 32,279 42,039 66,977 87,280
Intersegment eliminations   (440 )   (806 )   (845 )   (1,511 )
Consolidated revenues $ 255,565   $ 242,686   $ 497,070   $ 494,411  
 
Reconciliation of segment operating expenses to consolidated operating expenses:
FTD $ 159,999 $ 141,636 $ 308,599 $ 289,518
Content & Media 42,177 39,877 84,216 80,556
Communications 18,346 25,086 38,341 52,094
Unallocated corporate expenses(a) 7,694 7,057 16,354 18,086
Intersegment eliminations   (440 )   (806 )   (845 )   (1,511 )
Consolidated operating expenses $ 227,776   $ 212,850   $ 446,665   $ 438,743  
 
Reconciliation of segment income from operations to consolidated operating income:
FTD $ 24,682 $ 19,568 $ 43,255 $ 36,993
Content & Media 9,208 13,123 19,331 26,654
Communications   15,865     19,102     32,490     39,697  
Total segment income from operations 49,755 51,793 95,076 103,344
Depreciation (6,409 ) (6,897 ) (12,554 ) (13,564 )
Amortization of intangible assets (7,869 ) (8,118 ) (15,776 ) (16,281 )
Unallocated corporate expenses, excluding depreciation(a)   (7,688 )   (6,942 )   (16,341 )   (17,831 )
Consolidated operating income $ 27,789   $ 29,836   $ 50,405   $ 55,668  
 
Reconciliation of segment adjusted OIBDA to consolidated adjusted OIBDA:
FTD adjusted OIBDA $ 25,701 $ 21,069 $ 45,082 $ 40,417
Content & Media adjusted OIBDA 10,082 15,453 23,382 30,026
Communications adjusted OIBDA   16,655     20,731     34,388     43,541  
Total segment adjusted OIBDA 52,438 57,253 102,852 113,984
Unallocated corporate expenses(a)   (5,733 )   (4,510 )   (11,956 )   (9,303 )
Consolidated adjusted OIBDA $ 46,705   $ 52,743   $ 90,896   $ 104,681  
                 

(a) Effective the first quarter of 2011, the company modified its segment reporting to separately report unallocated corporate expenses. Historically, such expenses were fully allocated to the company's reportable segments.

               
UNITED ONLINE, INC.
Unaudited Selected Quarterly Historical Key Metrics (a)
   
 

June 30,
2011

March 31,
2011

December 31,
2010

September 30,
2010

June 30,
2010

 
Consolidated:
Revenues (in thousands) $ 255,565 $ 241,505 $ 232,601 $ 193,541 $ 242,686
 
FTD:
Segment revenues (in thousands) $ 176,299 $ 158,899 $ 140,174 $ 105,046 $ 152,669
% of consolidated revenues 69 % 66 % 60 % 54 % 63 %
 
Consumer orders(4) (in thousands) 2,167 1,742 1,612 1,085 1,851
Average order value(4) $ 60.45 $ 63.28 $ 60.43 $ 60.77 $ 58.76
Average foreign currency exchange rate: GBP to USD 1.63 1.61 1.58 1.55 1.49
 
Content & Media:
Segment revenues (in thousands) $ 47,427 $ 48,313 $ 53,253 $ 49,105 $ 48,784
% of consolidated revenues 19 % 20 % 23 % 25 % 20 %
 
Pay accounts(5) (in thousands) 4,007 4,260 4,499 4,795 4,982
Segment churn(7) 3.8 % 3.9 % 4.1 % 3.5 % 3.1 %
ARPU(6) $ 2.60 $ 2.47 $ 2.42 $ 2.26 $ 2.22
Segment active accounts(5) (in millions) 12.5 13.6 13.7 15.0 16.1
 
Communications:
Segment revenues (in thousands) $ 32,279 $ 34,698 $ 39,708 $ 40,165 $ 42,039
% of consolidated revenues 13 % 14 % 17 % 21 % 17 %
 
Pay accounts(5) (in thousands):
Access 622 675 732 801 880
Other   272     279     288     295     300  
Total Communications pay accounts   894     954     1,020     1,096     1,180  
 
Segment churn(7) 3.5 % 3.8 % 3.8 % 4.0 % 4.2 %
ARPU(6) $ 9.28 $ 9.33 $ 9.46 $ 9.58 $ 9.57
Segment active accounts(5) (in millions) 1.7 1.7 1.8 1.9 2.0
                                                   

(a) More information on the financial results for these quarters can be found in the company's filings with the Securities and Exchange Commission.

United Online, Inc.
Investors:
David Bigelow
818-287-3560
dbigelow@corp.untd.com
or
Press:
Scott Matulis
818-287-3388
pr@untd.com

Source: United Online, Inc.

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