NetZero Dial Up and High Speed Internet United Online Reports Fourth-Quarter and Fiscal 2006 Results

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February 8, 2007 — Woodland Hills, California — United Online, Inc. (Nasdaq:UNTD), a leading provider of consumer Internet and media services, today reported financial results for its fourth quarter and fiscal year ended December 31, 2006.

“Organic revenue growth in our Content & Media segment drove United Online's sequential revenue growth this quarter,” said Mark R. Goldston, chairman and chief executive officer of United Online. “This achievement highlights the significant progress we made diversifying our business in 2006, with Content & Media comprising 33% of fourth-quarter revenues and 46% of total pay accounts”

Fourth-Quarter 2006 Consolidated Results:

• Total revenues were $130.8 million, versus $130.2 million in the year-ago quarter.
• Including the impact of $13.3 million of non-cash asset impairment charges (see below), operating income was $9.3 million, or 7.1% of revenues, versus $22.1 million, or 17.0% of revenues, in the year-ago quarter.
• Excluding the impact of impairment charges, adjusted operating income before depreciation and amortization (OIBDA)(1) increased 6% to $36.6 million, or 28.0% of revenues, versus $34.6 million, or 26.6% of revenues, in the year-ago quarter.
• Pay accounts(2) decreased by 58,000 during the quarter to 4.9 million, and active accounts(2) totaled 20.1 million at December 31, 2006.
• Net income was $4.6 million, after the impact of $8.0 million, net of tax, of impairment charges, versus net income of $12.4 million in the year-ago quarter. On a diluted per share basis, net income was $0.07, after the impact of $0.12 of asset impairment charges in the fourth quarter of 2006, versus $0.19 in the year-ago quarter.
• Excluding the impact of impairment charges, adjusted net income(3) was $19.5 million, an increase of 5%, versus $18.6 million for the year-ago quarter. On a diluted per share basis, adjusted net income for the quarter was $0.29 per share, an increase of 4% versus $0.28 per share for the year-ago quarter.
• The $13.3 million pre-tax, non-cash asset impairment charges are comprised of (i) Communications segment charges of $4.5 million related to the write-down of certain assets associated with the company's voice over Internet protocol (VoIP) business; and (ii) Content & Media segment charges of $8.8 million related to the write-down of goodwill and intangible assets associated with the March 2005 acquisition of PhotoSite. Certain non-GAAP metrics contained herein, including adjusted OIBDA, adjusted OIBDA for a segment, and adjusted net income have been adjusted to exclude impairment charges. See footnotes below.

Full-Year 2006 Consolidated Results

• Total revenues were $522.7 million, versus $525.1 million in 2005.
• Operating income was $74.0 million, after the impact of $13.3 million of impairment charges, or 14.2% of revenues, versus $86.6 million, or 16.5% of revenues, in 2005.
• Adjusted operating income before depreciation and amortization (OIBDA)(1) increased 9% to $146.0 million, or 27.9% of revenues, versus $133.8 million, or 25.5% of revenues, in 2005.
• Net income was $42.3 million, after the impact of $8.0 million, net of tax, of impairment charges, versus net income of $47.1 million in 2005. On a diluted per share basis, net income was $0.64 in 2006, after the impact of $0.12 of asset impairment charges in 2006, versus $0.74 in 2005.
• Adjusted net income(3) was $77.7 million, an increase of 9%, versus $71.1 million in 2005. On a diluted per share basis, adjusted net income for 2006 was $1.16 per share, an increase of 6%, versus $1.09 per share in 2005.

“2006 marked the fifth year in a row that United Online has reported record consolidated adjusted OIBDA,” said Charles S. Hilliard, president and chief financial officer of United Online. “2006 was also the third year in a row that we have reported record Content & Media revenues. We believe our profitability, strong balance sheet and free cash flow give us the flexibility needed to continue to execute our diversification strategy”

Fourth-Quarter 2006 Segment Results:

Communications:

• Communications revenues were $87.2 million, or 66.7% of consolidated revenues, versus $104.1 million, or 79.9% of consolidated revenues, in the year-ago quarter.
• Communications operating income was $24.9 million, after the impact of $4.5 million of impairment charges, or 28.5% of Communications revenues, versus $26.8 million, or 25.7% of Communications revenues, in the year-ago quarter.
• Communications adjusted OIBDA(1) was $32.9 million, or 37.7% of Communications revenues, an increase of 8%, versus $30.3 million, or 29.1% of Communications revenues, in the year-ago quarter.
• Communications pay accounts decreased by 149,000 during the quarter to 2.6 million, or 53.5% of consolidated pay accounts.

Content & Media:

• Content & Media revenues grew 67% to $43.6 million, or 33.3% of consolidated revenues, versus $26.2 million, or 20.1% of consolidated revenues, in the year-ago quarter.
• Content & Media operating loss was ($7.2) million, after the impact of $8.8 million of impairment charges, versus an operating profit of $3.1 million, or 11.8% of Content & Media revenues, in the year-ago quarter.
• Content & Media adjusted OIBDA(1) was $8.1 million, or 18.5% of Content & Media revenues, versus $9.0 million, or 34.3% of Content & Media revenues, in the year-ago quarter.
• Content & Media pay accounts increased by 91,000 during the quarter to 2.3 million, or 46.5% of consolidated pay accounts.

Other:

• Other reconciling items (unallocated corporate expenses) to arrive at consolidated adjusted OIBDA(1) were ($4.3) million, versus ($4.6) million in the year-ago quarter.

Additional Highlights:

• Cash balances at December 31, 2006 were $162.4 million, including cash, cash equivalents and short-term investments.
• Cash flows from operations were $22.9 million in the fourth quarter of 2006, versus $22.8 million in the year-ago quarter. Cash flows from operations were $101.5 million in 2006, versus $137.0 million in 2005. In connection with the adoption of FAS 123R, certain tax benefits from exercised stock options that were previously reflected in the operating section of the company's statement of cash flows are now presented in the financing section.
• Free cash flow(4) was $16.0 million in the fourth quarter of 2006, versus $17.6 million in the year-ago quarter. Free cash flow(4) was $82.1 million in 2006, versus $115.4 million in 2005.
• The company's previously-authorized stock repurchase program has been extended through December 31, 2007. At December 31, 2006, the company had repurchased $139.2 million of its common stock under the program, leaving $60.8 million remaining under the program.

Full-Year 2006 Segment Results:

Communications:

• Communications revenues were $375.9 million, or 71.9% of consolidated revenues, versus $431.9 million, or 82.3% of consolidated revenues, in 2005.
• Communications operating income was $118.4 million, after the impact of $4.5 million of impairment charges, or 31.5% of Communications revenues, versus $122.9 million, or 28.4% of Communications revenues, in 2005.
• Communications adjusted OIBDA(1) was $138.0 million, or 36.7% of Communications revenues, an increase of 2%, versus $135.3 million, or 31.3% of Communications revenues, in 2005.

Content & Media:

• Content & Media revenues grew 58% to $146.7 million, or 28.1% of consolidated revenues, versus $93.1 million, or 17.7% of consolidated revenues, in 2005.
• Content & Media operating loss was ($6.5) million, after the impact of $8.8 million of impairment charges, versus an operating loss of ($8.3) million in 2005.
• Content & Media adjusted OIBDA(1) was $26.7 million, or 18.2% of Content & Media revenues, an increase of 61%, versus $16.5 million, or 17.8% of Content & Media revenues, in 2005.

Other:

• Other reconciling items (unallocated corporate expenses) to arrive at consolidated adjusted OIBDA(1) were ($18.6) million, versus ($18.0) million in 2005.

Business Outlook:

The following forward-looking information includes certain projections made by management as of the date of this press release. United Online does not intend to revise or update this information and may not provide this type of information in the future. Due to a variety of factors, actual results may differ significantly from those projected. Factors include, without limitation, the factors referenced later in this announcement under the caption “Cautionary Information Regarding Forward-Looking Statements” These and other factors are discussed in more detail in the company's filings with the Securities and Exchange Commission. In addition, the stock-based compensation and weighted average diluted shares projections are based on estimated equity grants for 2007, including a company-wide grant which has not yet been determined, and actual grants could vary significantly from those currently estimated.

United Online will host a conference call today at 2:00 p.m. PST (5:00 p.m. EST) to discuss its quarterly results. A live Web cast of the call can be accessed through the Investors section of the company's Web site at www.untd.com. A recording of the call will be available on the site for seven days.

About United Online

United Online, Inc. (Nasdaq:UNTD) is a leading provider of consumer Internet and media services. The company's Content & Media services include social networking (Classmates) and online loyalty marketing (MyPoints). Its Communications services include Internet access (NetZero, Juno) and email. United Online is headquartered in Woodland Hills, CA, with offices in New York, NY; Fort Lee, NJ; Renton, WA; San Francisco, CA; Schaumburg, IL; Orem, UT; Erlangen, Germany; and Hyderabad, India. For more information about United Online, please visit www.untd.com.

SOURCE: United Online

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