United Online Reports Fourth Quarter and Full Year 2015 Financial Results


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  • Full year and Q4 2015 revenues within guidance
  • Full year and Q4 2015 operating income and adjusted OIBDA exceeds guidance

WOODLAND HILLS, Calif.--(BUSINESS WIRE)--Feb. 17, 2016-- United Online, Inc. (NASDAQ: UNTD), a leading provider of consumer services and products over the Internet, today reported financial results for its fourth quarter and full year ended December 31, 2015.

Fourth Quarter 2015 Consolidated Financial Highlights

  • Revenues were $40.1 million, a decrease of 4% from $41.8 million in the fourth quarter of 2014. Revenues were within the guidance range.
  • Operating income was $3.0 million, a decrease of 1% from $3.1 million in the fourth quarter of 2014. Operating income exceeded the guidance range.
  • Adjusted OIBDA was $7.2 million, a decrease of 13% from $8.3 million in the fourth quarter of 2014. Adjusted OIBDA exceeded the guidance range.
  • The Company remained debt free and had cash and cash equivalents of $104.8 million, or $7.07 per diluted share, at December 31, 2015, compared to $78.6 million, or $5.51 per diluted share, at December 31, 2014.

Full Year 2015 Consolidated Financial Highlights

  • Revenues were $151.1 million, a decrease of 9% from $165.7 million in 2014. Revenues were within the guidance range.
  • Operating income was $7.1 million, an increase of 102% from $3.5 million in 2014. Operating income exceeded the guidance range.
  • Adjusted OIBDA was $24.5 million, a decrease of 4% from $25.6 million in 2014. Adjusted OIBDA exceeded the guidance range.

Strategic Alternatives Process

United Online has engaged JMP Securities (JMP) as its exclusive financial advisor to provide investment banking and related services in connection with the possible merger, sale of assets or equity interests, or other transaction involving a majority of the business, assets or equity interests of the Company and its subsidiaries and affiliates in one or more transactions. There can be no assurance that the strategic alternatives process will result in the Company pursuing a particular transaction or completing any such transaction and no definitive timeline has been set for the completion of this process. The Company does not intend to disclose further developments until its Board of Directors approves a specific action or otherwise concludes the review of the strategic alternatives.

Management Commentary

“Over the course of 2015, United Online has undertaken a series of actions to streamline its segments and focus, as well as enhance the overall financial performance of the Company,” commented Jeff Goldstein, Interim Chief Executive Officer of United Online. “I’m pleased to have the opportunity to help support United Online in its next chapter as it continues its process of exploring a full range of strategic alternatives available to the Company. We’ve been making great progress since the onset of this evaluation and have been seeing a lot of interest in each of our businesses individually as well as for the entire business. We are into the process with potential interested parties. We firmly believe that this evaluation marks the next logical step in our ongoing efforts to unlock future shareholder value.”

Conference Call Information

Jeff Goldstein, Interim Chief Executive Officer, and Edward Zinser, Executive Vice President and Chief Financial Officer, will host a conference call to discuss the results at 1:30 p.m. PT (4:30 p.m. ET) on Wednesday, February 17, 2016. To access the call, participants should dial (877) 407-4018 or (201) 689-8471 for participants outside of the U.S. and Canada. The passcode is 13629195. Alternatively, a live webcast of the conference call will be accessible within the Investors section of the Company’s website at www.unitedonline.com.

A replay of the broadcast will be available for at least seven days following the call on the Company’s website, or by dialing (877) 870-5176 (or (858) 384-5517 outside of the U.S. and Canada) and using the replay passcode, 13629195.

 
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
                       
Quarter Ended December 31, Year Ended December 31,
2015 2014 2015 2014
Revenues $ 40,107 $ 41,813 $ 151,118 $ 165,719
 
Operating expenses:
Cost of revenues(a) 18,417 15,252 62,806 61,101
Sales and marketing(a) 6,298 8,025 27,396 32,030
Technology and development(a) 3,303 3,968 14,865 17,219
General and administrative(a) 8,421 11,088 37,088 48,388
Amortization of intangible assets 101 104 409 421
Restructuring and other exit costs   524     310     1,468     3,054  
Total operating expenses   37,064     38,747     144,032     162,213  
 
Operating income 3,043 3,066 7,086 3,506
 
Interest income 117 96 448 388
Other income, net   542     181     932     505  
 
Income before income taxes 3,702 3,343 8,466 4,399
Provision for (benefit from) income taxes   1,520     (4,505 )   3,959     841  
Income from continuing operations 2,182 7,848 4,507 3,558
Income (loss) from discontinued operations, net of tax   342     (846 )   25,466     (8,987 )
Net income (loss) $ 2,524   $ 7,002   $ 29,973   $ (5,429 )
Income allocated to participating securities   (78 )   (396 )   (1,162 )   340  
Net income (loss) attributable to common stockholders $ 2,446   $ 6,606   $ 28,811   $ (5,089 )
 
Basic net income (loss) per common share:
Continuing operations $ 0.14 $ 0.52 $ 0.23 $ 0.28
Discontinued operations   0.03     (0.06 )   1.73     (0.64 )
Basic net income (loss) per common share $ 0.17   $ 0.46   $ 1.96   $ (0.36 )
Shares used to calculate basic net income (loss) per common share   14,824     14,249     14,673     14,115  
Diluted net income (loss) per common share:
Continuing operations $ 0.14 $ 0.52 $ 0.23 $ 0.28
Discontinued operations   0.02     (0.06 )   1.73     (0.64 )
Diluted net income (loss) per common share $ 0.16   $ 0.46   $ 1.96   $ (0.36 )
Shares used to calculate diluted net income (loss) per common share   14,827     14,259     14,727     14,119  
 
Shares outstanding at end of period   14,850     14,289     14,850     14,289  
 
(a) Stock-based compensation was allocated as follows:
Cost of revenues $ (21 ) $ 21 $ 134 $ 174
Sales and marketing 9 94 374 481
Technology and development 87 166 679 804
General and administrative   716     1,182     4,199     6,052  
Total stock-based compensation $ 791   $ 1,463   $ 5,386   $ 7,511  
 
 

 

UNITED ONLINE, INC.

Unaudited Condensed Consolidated Balance Sheets
(in thousands)
                     
December 31,

2015

December 31,

2014

ASSETS
Cash and cash equivalents $ 104,832 $ 78,634
Accounts receivable, net of allowance 13,424 14,112
Inventories, net 6,878 5,413
Deferred tax assets, net 1,514 1,741
Property and equipment, net 13,256 15,040
Goodwill and intangible assets, net 46,995 47,596
Other assets 11,311 7,576
Assets of discontinued operations   -   38,483
Total assets $ 198,210 $ 208,595
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 8,460 $ 9,707
Accrued liabilities 10,252 18,545
Member redemption liability 18,103 18,647
Deferred revenue 13,448 16,185
Deferred tax liabilities, net 4,621 1,334
Other liabilities 5,706 5,766
Liabilities of discontinued operations   -   36,698
Total liabilities   60,590   106,882
 
Stockholders' equity 137,620 101,713
   
Total liabilities and stockholders' equity $ 198,210 $ 208,595
 
 

           
UNITED ONLINE, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
           
Quarter Ended December 31, Year Ended December 31,
2015 2014 2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,524 $ 7,002 $ 29,973 $ (5,429 )
Less: Income (loss) from discontinued operations, net of tax   342     (846 )   25,466     (8,987 )

Income from continuing operations

2,182 7,848 4,507 3,558

Adjustments to reconcile income from continuing operations to net cash provided by operating activities from continuing operations:

Depreciation and amortization 2,018 1,833 7,002 7,109
Stock-based compensation 791 1,463 5,386 7,511
Provision for doubtful accounts receivable 22 97 32 54
Deferred taxes, net 2,645 (2,109 ) 3,404 (1,321 )
Tax shortfalls from equity awards - (83 ) - (83 )
Excess tax benefits from equity awards - 18 - (33 )
Other, net 105 33 392 765
Change in operating assets and liabilities:
Accounts receivable, net (2,898 ) (2,141 ) 501 3,929
Inventories, net 998 (2,027 ) (1,927 ) 975
Other assets 535 1,087 (2,995 ) 1,667
Accounts payable and accrued liabilities (1,227 ) (2,408 ) (8,802 ) (788 )
Member redemption liability 39 (225 ) (544 ) (2,280 )
Deferred revenue (446 ) (471 ) (1,617 ) (1,798 )
Other liabilities   (311 )   (30 )   (60 )   (1,336 )
Net cash provided by operating activities from continuing operations   4,453     2,885     5,279     17,929  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,403 ) (2,787 ) (5,663 ) (8,093 )
Purchases of rights, content and intellectual property (16 ) - (16 ) -
Purchases of investments - - - (44 )
Proceeds from sales of investments 66 268 252 394
Proceeds from sales of assets, net   -     -     -     30  
Net cash used for investing activities from continuing operations   (1,353 )   (2,519 )   (5,427 )   (7,713 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of stock options 6 - 1,699 -
Proceeds from employee stock purchase plans 372 571 1,308 1,397
Repurchases of common stock (262 ) (416 ) (1,695 ) (2,796 )
Excess tax benefits from equity awards   -     (18 )   -     33  
Net cash provided by (used for) financing activities from continuing operations   116     137     1,312     (1,366 )
 
Effect of foreign currency exchange rate changes on cash and cash equivalents (452 ) (750 ) (1,421 ) (1,923 )
 
Net cash provided by (used for) discontinued operations:
Operating activities 2,718 3,333 520 8,579
Investing activities (300 ) (637 ) 25,775 (5,029 )
Financing activities - (1 ) - 4
Effect of a change in cash and cash equivalents of discontinued operations   -     187     160     106  
Net cash provided by discontinued operations   2,418     2,882     26,455     3,660  
 
Change in cash and cash equivalents 5,182 2,635 26,198 10,587
Cash and cash equivalents, beginning of period   99,650     75,999     78,634     68,047  
Cash and cash equivalents, end of period $ 104,832   $ 78,634   $ 104,832   $ 78,634  
 
 

 
UNITED ONLINE, INC.

Unaudited Reconciliation of Operating Income to Adjusted OIBDA(1)

(in thousands)
                       
Quarter Ended December 31, Year Ended December 31,
2015 2014 2015 2014
 
Operating income $ 3,043 $ 3,066 $ 7,086 $ 3,506
Depreciation 1,917 1,729 6,593 6,688
Amortization of intangible assets   101     104   409   421
Operating income before depreciation and amortization 5,061 4,899 14,088 10,615
Stock-based compensation 791 1,463 5,386 7,511
Restructuring and other exit costs 524 310 1,468 3,054
Litigation or dispute settlement charges (5 ) 859 181 1,269
Transaction-related costs   828     771   3,379   3,111
Adjusted OIBDA(1) $ 7,199   $ 8,302 $ 24,502 $ 25,560
 
 
 
UNITED ONLINE, INC.

Unaudited Reconciliation of Net Cash Provided By Operating Activities From Continuing Operations to Free Cash Flow(2)

(in thousands)
                       
Quarter Ended December 31, Year Ended December 31,
2015 2014 2015 2014
 
Net cash provided by operating activities from continuing operations $ 4,453 $ 2,885 $ 5,279 $ 17,929
Adjustments:
Capital expenditures (1,403 ) (2,787 ) (5,663 ) (8,093 )
Excess tax benefits from equity awards - (18 ) - 33
Cash paid for restructuring and other exit costs 401 508 1,545 3,090

Cash paid for litigation or dispute settlement charges(a)

- - 7,372 380

Cash paid for transaction-related costs(b)

  824     762     3,390     3,671  
Free cash flow(2) $ 4,275   $ 1,350   $ 11,923   $ 17,010  
 

(a)

   

Cash paid for litigation or dispute settlement charges for the year ended December 31, 2015 included a $6.4 million payment to the Internal Revenue Service for prior years related to the MyPoints member redemption liability tax treatment.

(b)

Cash paid for transaction-related costs includes indirect costs associated with our former Classmates business, which were previously allocated to Classmates. Costs included are based on the period in which such costs were expensed, which approximates timing of cash payments.

 
 

     
UNITED ONLINE, INC.
Unaudited Segment Information(a)
(in thousands)
                 
Quarter Ended December 31, Year Ended December 31,
2015 2014 2015 2014

Communications

Revenues:
Services $ 13,604 $ 16,853 $ 62,196 $ 68,727
Products 1,098 1,416 4,832 6,254
Advertising   6,587     7,732     23,199     28,184  
Total revenues 21,289 26,001 90,227 103,165
 
Operating expenses:
Cost of revenues 8,274 9,823 36,401 41,286
Sales and marketing 2,307 3,531 12,241 14,431
Technology and development 1,769 2,325 8,426 9,935
General and administrative 1,778 3,040 8,385 10,946
Restructuring and other exit costs   193     108     1,105     379  
Total operating expenses   14,321     18,827     66,558     76,977  
 
Operating income 6,968 7,174 23,669 26,188
 
Depreciation   885     758     2,982     3,006  
Segment income from operations 7,853 7,932 26,651 29,194
Stock-based compensation 57 394 1,264 1,877
Restructuring and other exit costs 193 108 1,105 379
Litigation or dispute settlement charges   -     859     96     859  
Segment adjusted OIBDA $ 8,103   $ 9,293   $ 29,116   $ 32,309  
 

Commerce & Loyalty

Revenues:
Advertising and other $ 13,442   $ 9,098   $ 38,022   $ 32,218  
Total revenues 13,442 9,098 38,022 32,218
 
Operating expenses:
Cost of revenues 9,299 4,345 23,034 15,331
Sales and marketing 2,665 2,992 9,287 9,933
Technology and development 865 796 3,441 3,833
General and administrative 1,007 1,260 3,974 4,497
Amortization of intangible assets 71 71 285 284
Restructuring and other exit costs   -     6     (2 )   1,457  
Total operating expenses   13,907     9,470     40,019     35,335  
 
Operating loss (465 ) (372 ) (1,997 ) (3,117 )
 
Depreciation 409 401 1,511 1,661
Amortization of intangible assets   71     71     285     284  
Segment income (loss) from operations 15 100 (201 ) (1,172 )
Stock-based compensation 76 95 527 460
Restructuring and other exit costs - 6 (2 ) 1,457
Litigation or dispute settlement charges   (5 )   -     15     -  
Segment adjusted OIBDA $ 86   $ 201   $ 339   $ 745  
 

Social Media

Revenues:
Services $ 5,147 $ 6,350 $ 21,304 $ 27,926
Products 28 56 689 814
Advertising and other   211     308     886     1,496  
Total revenues 5,386 6,714 22,879 30,236
 
Operating expenses:
Cost of revenues 823 1,027 3,294 4,254
Sales and marketing 1,336 1,502 5,878 7,666
Technology and development 522 638 2,109 2,557
General and administrative 826 1,033 3,500 4,052
Amortization of intangible assets   30     33     124     137  
Total operating expenses   3,537     4,233     14,905     18,666  
 
Operating income 1,849 2,481 7,974 11,570
 
Depreciation 460 404 1,438 1,553
Amortization of intangible assets   30     33     124     137  
Segment income from operations 2,339 2,918 9,536 13,260
Stock-based compensation   60     62     232     231  
Segment adjusted OIBDA $ 2,399   $ 2,980   $ 9,768   $ 13,491  
 
Total segment adjusted OIBDA $ 10,588   $ 12,474   $ 39,223   $ 46,545  
 
Reconciliation of segment revenues to consolidated revenues:
Communications $ 21,289 $ 26,001 $ 90,227 $ 103,165
Commerce & Loyalty 13,442 9,098 38,022 32,218
Social Media 5,386 6,714 22,879 30,236
Corporate - - - 100
Intersegment eliminations   (10 )   -     (10 )   -  
Consolidated revenues $ 40,107   $ 41,813   $ 151,118   $ 165,719  
 
Reconciliation of segment operating expenses to consolidated operating expenses:
Communications $ 14,321 $ 18,827 $ 66,558 $ 76,977
Commerce & Loyalty 13,907 9,470 40,019 35,335
Social Media 3,537 4,233 14,905 18,666
Unallocated corporate expenses 5,309 6,217 22,560 31,235
Intersegment eliminations   (10 )   -     (10 )   -  
Consolidated operating expenses $ 37,064   $ 38,747   $ 144,032   $ 162,213  
 
Reconciliation of segment income (loss) from operations to consolidated income before income taxes:
Communications $ 7,853 $ 7,932 $ 26,651 $ 29,194
Commerce & Loyalty 15 100 (201 ) (1,172 )
Social Media   2,339     2,918     9,536     13,260  
Total segment income from operations 10,207 10,950 35,986 41,282
Corporate revenues - - - 100
Depreciation (1,917 ) (1,729 ) (6,593 ) (6,688 )
Amortization of intangible assets (101 ) (104 ) (409 ) (421 )
Unallocated corporate expenses, excluding depreciation (5,146 ) (6,051 ) (21,898 ) (30,767 )
Interest income 117 96 448 388
Other income, net   542     181     932     505  
Consolidated income before income taxes $ 3,702   $ 3,343   $ 8,466   $ 4,399  
 
Reconciliation of segment adjusted OIBDA to consolidated adjusted OIBDA:
Communications $ 8,103 $ 9,293 $ 29,116 $ 32,309
Commerce & Loyalty 86 201 339 745
Social Media   2,399     2,980     9,768     13,491  
Total segment adjusted OIBDA 10,588 12,474 39,223 46,545
Unallocated corporate expenses   (3,389 )   (4,172 )   (14,721 )   (20,985 )
Consolidated adjusted OIBDA $ 7,199   $ 8,302   $ 24,502   $ 25,560  
 

(a)

   

Effective in the first quarter of 2015, the Company modified how it reports segment information to the Company’s Chief Operating Decision Maker (“CODM”) as the information regularly reviewed by the CODM had changed. As a result of the changes, the Company now reports three operating segments to the CODM, including the Communications segment, as well as separately reporting the operating results of the Commerce & Loyalty and Social Media segments (which in prior periods were reported to the CODM together as the Content & Media segment). This change has been reflected through a retroactive revision of prior-period segment information to conform to the newly-defined segment information.

 
 

     
UNITED ONLINE, INC.

Unaudited Selected Quarterly Historical Key Metrics(a)

                       
December 31,

2015

September 30,

2015

June 30,

2015

March 31,

2015

December 31,

2014

Consolidated:
Revenues (in thousands) $ 40,107 $ 36,289 $ 37,562 $ 37,160 $ 41,813
 
Communications:
Segment revenues (in thousands) $ 21,289 $ 21,466 $ 23,208 $ 24,264 $ 26,001
% of consolidated revenues 53 % 59 % 62 % 65 % 62 %
 
Pay accounts(3) (in thousands):
Internet access 229 256 274 294 301
Other   174     177     179     184     189  
Total Communications pay accounts   403     433     453     478     490  
 
Segment churn(5) 3.4 % 2.8 % 3.0 % 3.1 % 2.8 %
ARPU(4) $ 10.72 $ 11.30 $ 11.54 $ 11.56 $ 11.14
Segment active accounts(3) (in millions) 0.9 1.0 1.0 1.0 1.0
 
Commerce & Loyalty:
Segment revenues (in thousands) $ 13,442 $ 9,175 $ 8,260 $ 7,145 $ 9,098
% of consolidated revenues 34 % 25 % 22 % 19 % 22 %
 
Gross merchandise sales(6) (in thousands) $ 75,825 $ 52,771 $ 54,436 $ 50,669 $ 68,284
 
Social Media:
Segment revenues (in thousands) $ 5,386 $ 5,648 $ 6,094 $ 5,751 $ 6,714
% of consolidated revenues 13 % 16 % 16 % 15 % 16 %
 
Pay accounts (in thousands) 1,028 1,063 1,095 1,127 1,162
Segment churn 2.1 % 1.9 % 2.0 % 2.3 % 2.1 %
ARPU $ 1.64 $ 1.65 $ 1.60 $ 1.60 $ 1.79
Segment active accounts (in millions) 2.7 2.9 3.2 3.3 3.2
Average currency exchange rate: EUR to USD 1.10 1.11 1.11 1.13 1.25
 

(a)

   

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

 

Non-GAAP Measures and Key Metrics

In evaluating the company’s performance, management uses adjusted OIBDA, calculated both on a consolidated and segment basis, and free cash flow measures that are not determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 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 that 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 and other exit costs 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 and Other Exit Costs—Restructuring and other exit costs consist primarily of employee termination costs, facility closure and relocation costs, and contract termination 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, dispositions, spin offs, financing transactions and other strategic transactions, including, without limitation, (i) compensation expenses and (ii) expenses for advisors and representatives such as investment bankers, consultants, attorneys and accounting firms. Transaction-related costs may also include, without limitation, transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees.

Definitions of Non-GAAP Measures and Key Metrics

(1) Adjusted operating income (loss) before depreciation and amortization (“adjusted OIBDA”) is defined by the company as operating income (loss) before depreciation; amortization; stock-based compensation; restructuring and other exit costs; 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 and may continue to be modified from time to time to take into account non-cash or unusual, infrequent or non-recurring charges. Management believes that because adjusted OIBDA excludes (i) certain non-cash expenses (such as depreciation, amortization, stock-based compensation, and impairment of goodwill, intangible assets and long-lived assets) and (ii) expenses that are not reflective of the company’s core operating results over time (such as restructuring and other exit costs, 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 and other exit costs, 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 (loss), 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 (loss) is provided in the accompanying tables. In addition, many of the adjustments to the company’s GAAP financial measures reflect the exclusion of items that are recurring in nature and will be reflected in the company’s financial results for the foreseeable future.

Adjusted OIBDA for each of the company’s segments is defined by the company as segment income (loss) from operations before stock-based compensation, restructuring and other exit costs, 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 and may continue to be modified from time to time to take into account non-cash or unusual, infrequent or non-recurring charges. Management believes that because segment adjusted OIBDA and segment adjusted OIBDA as a percentage of segment revenues exclude (i) certain non-cash expenses (such as stock-based compensation, and the impairment of goodwill, intangible assets and long-lived assets); and (ii) expenses that are not reflective of the segment’s core operating results over time (such as restructuring and other exit costs, 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 and other exit costs, 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 (loss) from operations, its most comparable GAAP measure, is provided in the accompanying tables.

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

(3) A pay account is defined as a member who has paid for a subscription to a Communications or Social Media 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, with the exception of our free and prepaid mobile broadband service, are not considered subscriptions and thus, are not included in the pay accounts metric. A pay account does not equate to a unique subscriber because one subscriber could have several pay accounts. In addition, at any point in time, our pay account base includes customers who previously purchased prepaid mobile broadband service and have been inactive for 90 days or less, as well as a number of accounts receiving a free period of service as either a promotion or retention tool, such as the subscribers receiving our free mobile broadband service, and a number of accounts that have notified us that they are terminating their service but whose service remains in effect.

Communications segment active accounts include all Communications segment pay accounts as of the date presented combined with the number of free dial-up Internet access and email accounts that logged on to our services at least once during the preceding 31 days. Social Media segment active accounts are defined as the sum of all pay accounts as of the date presented; and the monthly average for the period of all free accounts who have visited our social networking websites at least once during the period.

(4) ARPU is calculated by dividing services revenues generated from the pay accounts of our Communications or Social Media 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.

(5) Our average monthly churn rate for a period 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. Our average monthly churn percentage may fluctuate from period to period due to our mix of subscription terms, which affects the timing of subscription expirations, and other factors. We make certain normalizing adjustments to the calculation of our churn percentage for periods in which we add a significant number of pay accounts due to acquisitions. For our Communications segment pay accounts, we do not include in our churn calculation accounts canceled during the first 30 days of service, other than dial-up accounts that have upgraded from free accounts, and we do not include customers who previously purchased prepaid mobile broadband service and have been inactive for 90 days or more. A number of such accounts nevertheless will be included in our account totals at any given measurement date. Subscribers who cancel one pay service but subscribe to another pay service are not necessarily considered to have canceled a pay account depending on the services and, as such, our segment churn rates are not necessarily indicative of the percentage of subscribers canceling any particular service.

(6) Gross merchandise sales is the total dollar value of Commerce & Loyalty member purchases during the reporting period, excluding applicable taxes and net of refunds, directly on the MyPoints site, on third-party sites accessed through the MyPoints portal, or on other Commerce & Loyalty properties. We include the purchases and refunds that are reported by our partners on or before the 15th calendar day following the end of the reporting period, to allow our partners to report purchases completed within the reporting period.

About United Online®

United Online, Inc. (NASDAQ: UNTD), through its operating subsidiaries, 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 40 million registered accounts. The Company’s primary Communications service is Internet access. The Company’s Commerce & Loyalty segment provides a complete web, browser and mobile shopper experience through a portfolio of apps, browser extensions and online portals and promotes commerce and other engagement from its loyalty marketing service. The Company’s Social Media segment provides social networking services and products. United Online is headquartered in Woodland Hills, CA, and operates through a global network of locations in the U.S., Germany and India.

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 regarding: future financial performance and results; revenues; operating expenses; operating income (loss); capital expenditures; depreciation and amortization; stock-based compensation; restructuring and dispute settlement costs; and strategic initiatives. Potential factors that could cause actual results to differ materially from those in the forward-looking statements include, among others: the effect of competition; our inability to maintain or increase our advertising revenues; risks associated with litigation and governmental regulations or investigations, including reviews of business practices such as marketing, billing, renewal, and post-transaction sales practices; risks associated with the integration or commercialization of new businesses, products, services, applications or features, or the success of new business models; our inability to maintain or increase the number of free and pay accounts, visitors to our websites, and members; problems associated with our operations, systems or technologies, including security breaches or inappropriate access to our network systems; our inability to retain key customers, vendors and personnel; changes in tax laws, our business or other factors that would impact anticipated tax benefits; as well as the risk factors disclosed in our filings with the Securities and Exchange Commission (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 of 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. We undertake no obligation to update these forward-looking statements to reflect the impact of events or circumstances arising after the date hereof, unless required by law.

Source: United Online, Inc.

Investors:
Addo Communications
Kimberly Orlando, (310) 829-5400
investors@untd.com