United Online, Inc. (UNTD)

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United Online, Inc. (UNTD)

Q3 2008 Earnings Call

November 5, 2008 5:00 pm ET


Mark Goldston – Chairman, President, and CEO

Scott Ray – Executive Vice President and CFO

Erik Randerson – Vice President, Investor Relations


James Cakmak - Sidoti

Kevin Copeland (in for Jim Friedland) - Cowen & Co.

Yun Kim – Pacific Growth Equities

Youssef Squali – Jefferies & Co.



Good day everyone and welcome to the United Online's third quarter earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Erik Randerson. Please go ahead.

Erik Randerson

Thank you. Hello and welcome to United Online's conference call to discuss our financial results for the third quarter ended September 30, 2008. With me today is Mark Goldston, our Chairman, President and Chief Executive Officer; and Scott Ray, our Executive Vice President and Chief Financial Officer.

Also joining on the call today is Becky Sheehan, Executive Vice President and CFO of our new FTD subsidiary. In addition, on today’s call on the accompanying slides that are available within the Investor Relations section of our website, we will refer to adjusted operating income before depreciation and amortization or OIBDA, segment adjusted OIBDA, adjusted net income, adjusted net income per share, and free cash flow. Management believes that each of these measures is useful in evaluating the company's operating performance.

These measures are not determined in accordance with accounting principles generally accepted in the US or GAAP and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Definitions of these non-GAAP financial measures are provided in today's press release and in the accompanying slides on our website, along with reconciliations to the most comparable GAAP financial measures.

Before we get started, I also need to point out that the company does apply the safe harbor provisions as outlined in the press release to any forward-looking statements that may be made on this call. Statements regarding our current expectations about our future operations, financial conditions, performance, pay accounts, services, and the industry in which we operate are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

More information about potential risk factors that could affect the company's business and its financial results is included in today's press release under the caption Cautionary Information Regarding Forward-Looking Statements and in United Online's most recent filings with the Securities and Exchange Commission. Projections provided by management in the press release and in today's call are based on information available to us at this time and management expects that internal projections and expectations may change over time; however, the company does not intend to revise or update this information and may not provide this type of information in the future. Any persons replaying this broadcast after November 5 of 2008 should recognize that any non-historical information discussed in today's call might not be current or valid after this date, because the circumstances and assumptions underlying such information may have changed.

And with that, we're going to start out with a few comments from Mark and Scott, and then we're going to open it up for questions. So now I'll give the floor to our Chairman, President and Chief Executive Officer, Mark Goldston.

Mark Goldston

Thank you, Erik, and welcome everyone to the United Online September 2008 quarter earnings call. This is my 37th consecutive public earnings call for this company and I’m really excited to share our results with you again today.

I’ll begin with a high level view of our operating highlights for the third quarter, then I'll review the performance of our individual operating segment. I’ll also discuss our plans for the recent acquisition of the FTD group. Scott Ray, our CFO, he’ll conclude with some prepared remarks and a look at the numbers for the quarter and the guidance going forward.

Before I get started, I'd like to mention we created a PowerPoint presentation that summarizes our third quarter financial results and the operating metrics and I might add this is really a spectacular presentation that anybody who is following the company really ought to take a look at. You can download a copy of this presentation on our Internet homepage at www.unitedonline.com within the Investor Relation’s section right next to the earnings press release and I would encourage you to do so.

Let me begin by saying that as we look at the Q3 quarterly highlights, I’m extremely pleased with our performance, particularly in light of the challenging macro environment that negatively impacted results for so many technology companies again this quarter.

There’s really four key highlights I hope you’ll take away from our Q3 2008 results and updated outlook for the balance of the year. One, revenues came in near the high end of guidance and adjusted OIBDA came in well ahead of guidance, excluding contributions from the FTD acquisition that weren’t factored into our guidance. Our results also came in ahead of street expectations, excluding the FTD acquisition that wasn’t factored into analysts’ estimates. In fact, United Online achieved a new record during Q3 for consolidated adjusted OIBDA. That means the highest quarter we have ever had in the history of the company and a new record for adjusted OIBDA as a percentage of consolidated revenues, again excluding contributions from the FTD acquisition for comparability to prior periods.

We were very pleased with the strong performance of our Classmates Media and communication segments in Q3. The strong performance of those segments is reflected in the increase in 2008 adjusted OIBDA guidance that we’re announcing today. Scott Ray will fill you in on the details of the increase in our guidance in a few minutes.

Number two, our Classmates Media business continues to deliver really impressive growth, including the addition of 278,000 net new pay accounts during the quarter alone. Further extending our streak of achieving increased net additions versus prior year periods.

Segment pay accounts grew by 7% sequentially and increased 37% year-over-year. This increase of pay subscriptions continues to be a key driver behind our strong revenue growth and our significant operating leverage in the P&L and we achieved this within a very difficult advertising environment.

What’s really important is that year-to-date through nine months of 2008, the Classmates Media segment has delivered year-over-year growth rates of 20% in revenues and a stunning 75% increase in adjusted OIBDA.

Thirdly, we had another very solid quarter in the communications segment I’m happy to announce against our objective of operating this business for profitability and cash flow. Communications segment adjusted OIBDA was 40.9% of segment revenues, almost 41%, which was a 500 basis point from the year ago quarter.

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