United Online Q4 Earnings Call Transcript

123jump.com Staff
25 Feb, 2010
New York City

The Internet holding company reported quarterly revenue decreased 3% to $249.5 million. Net income generated in the quarter was $16.5 million. The company gained 19 cents a share compared to a loss of $1.68 a share the prior-year quarter.

United Online Inc. ((UNTD))
Q4 2009 Earnings Call Transcript
February 17, 2010 5:00 p.m. ET

Executives

Mark R. Goldston - Chairman, President, and Chief Executive Officer
Scott H. Ray – Executive Vice President and Chief Financial Officer
Erik Randerson - Vice President, Investor Relations

Analysts

Mike Crawford - B. Riley & Company
Yun Kim - Broadpoint AmTech
George Sutton - Craig-Hallum Capital Group LLC
Youssef Squali - Jefferies & Company
James Cakmak - Sidoti & Company

Presentation

Operator

Good day and welcome to the United Online fourth quarter and year end earnings 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, sir.

Erik Randerson

Thank you. Hello and welcome to the United Online''s conference call to discuss our financial results for the fourth quarter ended December 31, 2009. With me today is Mark Goldston, our Chairman, President and Chief Executive Officer; and Scott Ray, our Chief Financial Officer.

In addition, on today’s call and 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 common 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, but 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 certain 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, capital expenditures, interest expenses, taxes, pay accounts, services, foreign currency exchange rates and the industries 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 choose to provide this type of information in the future.

Any person replaying this broadcast after February 17, 2010 should be recognizing 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 I''ll now give the floor to our Chairman, President and Chief Executive Officer, Mark Goldston.

Mark R. Goldston

Thank you, Erik. Welcome to United Online’s earnings call for the fourth quarter ended December 31, 2009.

I’m going to give you a high-level view of our operating highlights for the quarter, then I’ll review the performance of our individual operating segments, and Scott Ray, our CFO will conclude our prepared remarks with a look at the numbers in the quarter and give guidance going forward.

Before I get started, I''d like to mention we’ve created a PowerPoint presentation that summarizes our fourth quarter and full year 2009 financial results and the operating metrics. In fact, it is quite excellent. You can download a copy of this presentation within the Investor Relation’s section of our website right next to the earnings press release and I would encourage you to do that at www.unitedonline.com or www.united.com or UNTD.

Let’s talk about the fourth quarter in terms of highlights. We delivered strong financial results in the quarter despite continuing challenges in this macro-economic environment that we have all been through.

There’s four key points I hope you will take away from our Q4 2009 results. First, we delivered another strong quarter as revenues exceeded our guidance range and Street’s consensus expectations and adjusted OIBDA came in at the high end of our guidance range and above Street’s consensus expectations.

Revenues of $249.5 million surpassed the high end of our guidance range by $6.5 million and the adjusted OIBDA at $60.4 million came in at the high end of the guidance range.

Our FTD segment had a particularly strong quarter highlighted by 9% year over year growth in consumer orders. Revenue in the FTD segment increased 6% and adjusted OIBDA grew 4% year over year. The substantial improvement versus the prior year over year quarterly comparisons and a meaningful better result than our public competition in the floral segment.

Our adjusted OIBDA margin remained strong at 15% of segment revenues while we continued to invest in a lot of new initiatives to further enhance the FTD brand and our operations both domestically and in the UK.

Thirdly, we continue to generate strong cash flows and we accelerated the deleveraging of the balance sheet in United Online which we said we would do.

We generated $52.8 million of free cash flow and we made $47.2 million in debt principal payments during the quarter which included $37 million in voluntary prepayments of our FTD debt.

We now reduced our net debt by $140 million in the past five quarters alone since the FTD acquisition closed. And we’ve lowered our net debt provisions to just $213.4 million at quarter end.

Fourth, we believe we made concerted progress in addressing the recent challenges in our Classmates Media segment on several fronts. Classmates Media segment active accounts increased substantially to a new all-time record level of 19.4 million people and we believe we benefited from a favorable reception to our website refresh that we talked about in the last call. And that’s upgraded the usability, the navigation and the presentation of user generated content and it has also improved the overall appearance of Classmates.com.

Our international social networking operations continued to grow at very attractive rate and I will discuss more about that in detail later in my remarks.

What I would like to do now is take a look at the individual operating segments and let’s start with a look at FTD.

FTD had a strong fourth quarter as was highlighted by an impressive 9% year over year increase in consumer orders. And that certainly is the catalyst for the segment’s year-over-year revenue growth in both our US and UK operations. FTD segment revenue increased 6% and adjusted OIBDA increased 4% year over year in the fourth quarter and this outperformed the only other public comparable in our market, which is equally important as we continue to enhance the FTD brand in business operations in many ways that we continue to better the segment going forward.

Let me give you a brief summary of FTD’s accounts receivables in recent months.

First, we increased average order value year over year what we call AOV. Average order values increased for the fourth consecutive quarter excluding currency fluctuations, so our ability to entice customers to purchase larger and higher priced bouquets is really impressive especially when the economy remains challenging for several reasons.

Average order values continued to benefit from our focus on upgrading the quality of the FTD offerings, the product inventory and the expansion of our innovative idea – good, better, best which is something we started from a merchandising standpoint, weighting the year above weight and we put it all through our FTD.com website.

We significantly increased the percentage of FTD’s US customer base through our all important FTD member forum which is the lifeblood of the company. Specifically, the FTD US consumer orders sent through the FTD floral network were up an impressive 25% year over year for the fourth quarter of 2009 versus the fourth quarter of 2008. That 25% year-over-year increase shows the benefits of our floral focused strategy which we implemented shortly after we bought FTD and which we brought in diligently for the past 18 months.

Our member florists should be very pleased with the focus and the results that this generated. We also launched an FTD.com mobile website that allows consumers to order flowers from FTD account at any time from any inlet neighborhood mobile phone.

We also were featured in the Apple iPhone 3G television campaign. Apple selected FTD.com from among 1000s of consumer websites that they could feature in their ad campaign which was a multi-million dollar television campaign for the iPhone. This really underscored the massive improvement that we made in the FTD brand image since we bought the company.

FTD also launched a delivery confirmation program. We did this in partnership with the FTD florists. We are now providing delivery confirmation for FTD orders which is very important. Consumers will increasingly expect to receive verifications after an online purchase has been made and then delivered and this is a great program for our company.

We also announced in December that our UK subsidiary Interflora started some new online partnership with Tesco, the huge retailer in the UK and so Tesco Direct, which is part of the largest grocery chain in the UK now has a strong relationship with Interflora and enabled customers to purchase the full range within the Interflora gift box from a newly created Tesco website that you can see actually if you go to Tesco/flowers.com.

This partnership also provides great exposure for the Interflora brand among a large consumer audience in the UK.

We also launched a new website that was designed specifically for consumers based in the Republic of Ireland. The new Irish website accepts payments in Euros, the standard currency in Ireland which really expands our adjustable market since Interflora had not previously accepted Euro denominated payments.

Now, let’s talk about FTD’s investment performance at Valentine’s Day and it is one of the reasons why our earnings call is happening today. We wanted to make sure that we waited through the Valentine Day’s period so we could give you an update.

As you know, Valentine’s Day fell on a Sunday this year for the first time in eleven years. The combination of a Sunday Valentine’s Day and (inaudible) and the success that we have had in the US made our expectations with the company and probably with an industry more tested than we would normally expect it. However, I am very pleased to announce that in spite of the Sunday Valentine’s Day and the crippling weather across the US FTD delivered outstanding results through Valentine’s Day 2010.

Specifically, for the first 14 days of February 2010, our FTD domestic order revenue was up an impressive 7.9% versus 2009. And what’s truly remarkable is under the face of a huge competitive pressure with PVS (ph) and some other companies announcing free shipment, no service fees and low price points.

FTD’s paid focus on our enhanced brand imagery and best of class arrangement, strategy in our television advertising and in our website and we delivered in inventories an average order value of 1.9% domestically and 1.7% globally versus 2009 during the first 14 days of February. That is really remarkable that we could increase the average order value year over year in this kind of a competitive market and in this economy at arguably the biggest holiday of the year.

In addition, as I said a few minutes ago that we are very proud of the fact that during the fourth quarter of 2009, the number of FTD US consumer orders that were sent through our member florists network was up 25% year over year. That’s impressive. What’s even more impressive is the fact that during Valentine’s Day order period from February 1st to February 14, 2010 the number of US consumer orders sent through our FTD floral network was up 30% versus Valentine’s Day 2009, a year ago.

This happened despite the fact that Valentine’s Day was on a Sunday this year and half the country was crippled by all that bad weather. So this remarkable year over year performance by the FTD brand in terms of increasing overall orders, increasing the average order value and sending dramatically more consumer orders from FTD.com in to our all-important floral network that is the ultimate testament to the new strategy we created at FTD since we acquired the company 18 months ago.

We are extremely pleased with the enormous progress we have made in the FTD assets and the fact that we have increased our average price for our orders and we believe market share in the face of competitors resorting to aggressive price cutting, free shipping, no service fees, it is just great validation of our position and strategy at FTD and I am really proud of that team.

I want to take another moment to talk about an important new publisher, who will be debuting later this month and will be available to our network of FTD florists. Announcing a new exquisite collection of branded products with one of the most respected brand names in the home and garden category, Better Homes and Better Gardens magazine. The new better home and gardens collection by FTD is being developed in partnership with this popular magazine that boasts a monthly readership of 39 million home and garden enthusiasts.

In fact, this magazine has a reach of one in every three women that have purchased flowers in the last 12 months.

The better homes and gardens collection by FTD is going to feature an exclusive line of elegant arrangements that further broadens the selection of what we believe are high-quality products available at FTD.

So, in summary there is a lot to feel good about as we celebrate FTD’s 100-year anniversary in 2010. With the business performing as well as it is we are currently evaluating a variety of opportunities to invest in brand-oriented campaigns for the remainder of 2010 as part of the centennial celebration and at the same time we are going to be supporting and promoting the quality of our large network of FTD member florists who represent the lifeblood of this company.

Now, I want to shift our focus onto the Classmates Media segment. I will primarily focus on the majority of the segment revenue that is generated by the social networking operations which is Classmates.com website here in the United States and in Canada and our European websites which operate most of them in StayFriends and strong brand names.

The Classmates Media segment revenue decreased 3% in the quarter versus a year ago. A slight increase in our social networking revenue was more than offset by a year-over-year decrease in revenues of our MyPoint online loyalty marketing service.

Our focus on operating efficiency where the Classmates Media segment achieved $21.5 million in adjusted OIBDA in Q409. Now this represents an impressive 14.5% year-over-year increase in adjusted OIBDA excluding a favorable tax settlement of $3.3 million in the year-ago quarter related to non-income tax disputes for prior periods.

Segment adjusted OIBDA in the fourth quarter extended to an all-time record, 35.3% of segment revenues. That’s an increase of 10 basis points over a year ago. Even despite the $3.3 million benefit from a year-ago period I just mentioned.

Now, let me provide you with some of the key metrics. Pay account – they increased by a net 101,000 during the quarter to 4.9 million, representing a 15% increase of segment pay accounts year over year. ARPU, our average monthly revenue for pay account declined by 15% year over year primarily due to our continuing increase of promotional discounted pricing plan for the US in recent quarters which led to a 3% decrease year over year in service rev.

Our monthly churn rate remained very strong at 3.8%. In fact, that equals our record performance that we established in the third quarter and we are very proud of that. And if churn continues to benefit from a shift from our new pay accounts for longer-term subscriptions then for our churn factors we should see that trend.

Classmates Media’s monthly active accounts, this primarily includes our social networking members, but also includes a much smaller number of MyPoint members increased 21% year over year and grew 15% sequentially versus the third quarter reaching an all-time record of monthly active account number of 19.4 million.

The healthy increase in active account demonstrates the early success of our website refresh, and I talked about that in the last quarter’s call and the refresh now includes the launch of our new huge home page for Classmates.com.

We rolled out a new Classmates home page with almost 100% of Classmates members. It’s achieved the desired success we were hoping for which was a measurable increase in the average number of member profiles and also an increase in the average number of paid users from a year ago.

We are still in the very early stages of our plans to introduce a lot of new features and new sources of content that we expect to make available to Classmates members during 2010. That is one of our key strategic objectives for 2010. It’s broadly nostalgic content on the Classmates’ website and that will increasingly include relevant content from third party web providers.

A second key strategic objective for 2010 is to broaden the revenue sources beyond just a current subscription and advertising offering by making new types of products from services to our large member base to leverage our core value prop. The three areas that have the most compelling strategic value are yearbooks, reunions and educational fund raising.

So when the process is getting ready for some reason I think it will be really an important move for Classmates and that’s once in a year book initiative and that will happen in the next 90 days and what we are going to do is we are going to take old yearbooks and to a very high tech piece of equipment we can digitize the old images and populate with respect to graduating classes and classmates with their high school yearbook photos.

We have an ambitious plan in the next 12 to 24 months that we are trying to secure yearbooks and then digitize them and populate the Classmates’ website with this content. We hope to partner with third parties to sell hard copies of the yearbooks, DVDs as well as generating additional subscription revenues which will relate to the viewing and customization of the yearbook content beyond the three views as a thumbnail for us.

Number two, Classmates is looking at a major reunions initiative that allows to be more involved in the planning, selling of tickets, travel-related revenue and the creation of reunion specific product and services that we can sell to users. So you should look to this reunion initiative to kick off in the second half of 2010.

Currently, we are beta testing a Classmates reunion notification application on Facebook and we hope that can extend our recent success in tracking new member registrations from a large base of Facebook members in our target demographic. And the way it works is that a Facebook member will be able to access a Classmates’ application on Facebook to register received notifications of class reunions inclusive of Classmates.com. So provided that the Facebook member registers with Classmates as part of the process to signing up to receive verification, we can actually see this within the Facebook environment.

We are also beta testing a more comprehensive Facebook application that will allow Facebook members to search for Classmates.com alumni within their school affiliation. And then the other type of Classmates.com content from within Facebook, all having a lead in the Facebook website.

Fourth, Classmates is looking at the area of educational fund raising and using a vast Classmates’ member base to generate school-specific contribution, there will be a potential powerful service that the company can provide to high schools across America and generate a lot of additional revenue for Classmates. We are in the early stage of evaluating this opportunity which could be major and if we do decide to proceed our goal will be to revolutionize US high schools access their alumni and raise money above and beyond the billions that they raise today.

And then lastly, the Classmates’ domestic unit which is refining the page view concept that we discussed in the last earnings call. We have been beta testing several ways to utilize what we call the “pay for a day” feature and we may have come upon a very compelling way to deploy it. In testing among a sample group of members who have not been into Classmates website in over a year, those are free members, that group numbers to a million in the total universe. We see a dramatic increase in the rate of return visits from the Classmates website and then the subsequent conversion to a paid product as a result of an e-mail campaign highlighting the availability of a “pay for a day” product or pay-per-view product.

So going forward, we intend to focus our discounting efforts and our pay-per-view efforts against this very wide group of free members who had not visited the site within the past 12 months.

And then shifting to Europe, our growth in social networking pay accounts overseas remained very strong in the fourth quarter. That team is doing a wonderful job in running the business and in fact for the full year 2009 revenues generated from our international social networking operations grew to $30 million and that is a 62% increase of international revenues from $18.5 million in 2008. Europe also contributed to the majority of the net pay accounts in Q4 2009.

As we mentioned, unlike the Classmates.com in the US, we have offered fewer price promotions overseas. So, the vast majority of our social networking subscriptions in Europe - they are paying full price. So that’s important to note.

So I am going to lock off my comments with a review of our Communications segment which is comprised of our NetZero and Juno ISP brands.

This is to point out that the Communications segment represented just 19% of total revenues for United Online in the fourth quarter. That’s quite a change from just two years ago when Communications was 58% of total revenues in that quarter. What has not changed is that leadership team’s ability to deliver significant adjusted OIBDA which was consistent with our objective of managing this matured business for profitability and cash flow contribution.

For the full-year 2009, segment adjusted OIBDA in the Communications business expanded to 41% of revenues, an increase of 140 basis points versus 2008.

Looking ahead, we remain confident of that continued focus on value engineering with segments cost structure and that can allow us to maintain the Communications segment adjusted OIBDA margin in the mid –to high 40% range for 2010 and that’s consistent with that fourth quarter 2009 results that we just reported.

So, if you look through the discussion of the Communications segment’s operating metrics, our net loss of 90,000 Communications pay accounts in the fourth quarter represents a slight improvement versus the third quarter and our churn rate improved 20 basis points to 4.4% which is down from 4.6% in the third quarter.

One factor benefiting our churn rate is the continued aging of our subscriber base meaning not that we are gaining over it. They have become more familiar with our services.

In fact, I have (inaudible) that customer who is now in NetZero or Juno for more than 48 months, which is up from the average tenure of 36 months three years ago and up from an average tenure of 24 months, four years ago. So offerings are equal. The continued ranging of our subbase benefits our churn rate because ten year subscribers have a much lower potential to churn than new subscribers.

The monthly ARPU was $9.42 in the fourth quarter which was unchanged from the third quarter. What is really interesting is the fact that our ARPU is virtually unchanged compared to where it was three years ago. So, I think our value proposition is the leader in the value face with 995 a month of our flagship service really gives us the unique value proposition and that is how it has maintained steady prices in what clearly is a mature business.

So, with that let me turn the mike over to Scott Ray and Scott will take you through a review of our financial results. Scott.

Scott H. Ray

Thank you, Mark and good afternoon, everybody. Let me first begin with a few brief highlights of our fourth quarter and then I will get into the specifics of our operating segments as well as provide guidance going forward.

Some of the things Mark covered as well and I’ll try to make sure that (inaudible) on some of those areas. Turning to consolidated results for the fourth quarter. Consolidated revenues were $249.5 million and that is more than $6 million above the high end of our guidance range of $235 million to $243 million. Consolidated revenues decreased 3% versus the prior-year quarter primarily due to a revenue decline in the Communications segment that was largely offset by increasing revenues in our FTD segment.

Consolidated adjusted OIBDA was $60.4 million which came in towards the high end of our guidance range of $56 million to $61 million. Adjusted OIBDA declined 7% year-over-year and it would have only declined 2% year-over-year excluding a favorable net settlement of $3.3 million which Mark spoke to which we received in the year-ago quarter related to a non-income tax dispute the prior period.

Consolidated other income/expense net which is not included in adjusted OIBDA totaled $3.5 million for the quarter and primarily related to a favorable legal settlement as well as a refund related to non-income tax for prior periods.

Our GAAP results included restructuring costs of $2.1 million related to our Classmates Media segment which I referenced on last quarter’s Investor Conference Call. Diluted net income per common share on a GAAP basis was $0.19 and adjusted diluted net income per common share was $0.37, higher than our record high.

In the year-ago quarter we reported a GAAP net loss per common share of a $1.68 and this was largely due to an impairment charge and we reported adjusted diluted net income per common share of $34.

Consolidated free cash flow was $52.8 million for the quarter, a decrease of 4% over a year-ago quarter and the variance was primarily due to changes in working capital balances during the period.

For the full-year 2009, we generated $139.9 million in free cash flow, down slightly from $145 million that we reported for 2008. With respect to our FTD segment, segment revenues were $141.1 million, an increase of 6% compared to the year-ago quarter. And excluding the favorable impact of foreign currency exchange rates, our year-over-year increase in segment revenues was 4%.

Our segment adjusted OIBDA for the FTD segment was $21.1 million, an increase of 4% versus the year-ago quarter. Segment adjusted OIBDA represented 15% of segment revenues and were essentially flat versus the 15.1% we reported in the year-ago quarter.

In terms of the Q2 metrics, our consumer orders totaled 1.6 million and this was a 9% increase compared to the year-ago quarter and it was also a significant improvement from the 7% year-over-year decline in consumer orders we experienced in the third quarter of 2009.

Our average order value was $60.14, an increase of 2% from $58.80 in the year-ago quarter. Excluding the favorable impact of foreign currency exchange rates, the average order value would have increased by 1% versus the year-ago quarter.

With respect to our Classmates Media segment, segment revenues were $60.7 million, a decline of 3% versus the year-ago quarter. Looking at the revenue component, segment advertising revenues declined 4% year over year which represented an improvement from the 9% year-over-year decline in the third quarter of 2009 and segment services revenues declined 3% year over year as growth in pay accounts was more than offset by lower ARPU from social networking subscriptions resulting from our increased (inaudible) promotional discounted pricing plans in recent quarters.

Segment adjusted OIBDA was $21.5 million, a decrease of 3% versus the year-ago quarter excluding the favorable net settlement of $3.3 million in the year-ago quarter, which Mark and I both mentioned earlier.

Segment adjusted OIBDA would have increased by certainly 15% year over year. In addition, 2009 fourth quarter was adversely impacted by a $2.2 million reserve for our pending legal matter.

Our segment adjusted OIBDA was a record 35.3% of segment revenues, up slightly from 35.2% of segment revenues in the year-ago quarter. And a much larger increase, and again we excluded the prior year $3.3 million favorable net settlement.

Segment pay accounts increased by a net 101,000 in the quarter compared to a net increase of 164,000 in the third quarter of 2009 and through a net increase of 232,000 in the year-ago quarter. Total segment pay accounts were 4.9 million at December 31, 2009, an increase of 13% versus 4.3 million at December 31, 2008.

Pay accounts revenue for the segment was 3.8%, equal in our record lowest average last quarter and representing a significant decline of 60 basis points versus 4.4% in the year-ago quarter.

Mark spoke about churn. I would also comment that churn continues to benefit from the favorable mix of subscription terms as new pay accounts in recent quarters have increasingly been represented by a commercial price of 12-month subscriptions in the US and by 12-month subscriptions overseas which is the only subscription length that we offer in Europe.

As Mark commented, our active accounts for the segment were a record 19.4 million. This is an increase of 21% versus 16 million in the year-ago quarter and a 15% increase sequentially versus 16.9 million in the third quarter of 2009.

Segment’s average monthly revenue for pay accounts or ARPU was $2.53, down 7% sequentially from $2.71 in the third quarter of 2009 and down 15% from $2.98 in the year-ago quarter. The decline in ARPU that we experienced was largely related to an increase due the use of promotional pricing in the US in recent quarters.

With respect to our Communications segment, segment revenues were $48.4 million, a year-over-year decrease of 19% and primarily due to a decline in our pay account. In addition, the Communications segment represented 19% of consolidated revenues and this reflects the first ever quarter in which the segment has contributed less than 20% of consolidated revenues.

Segment adjusted OIBDA was $17.9 million, a decrease of 22% from the year-ago quarter. Segment adjusted OIBDA as a percentage of segment revenues was 36.9%, down slightly from 37.9% of segment revenues in the year-ago quarter and in line with our expectations of achieving an adjusted OIBDA margin for the segment in the mid-to high 30% range for the 2009 fourth quarter and throughout 2010.

Segment pay accounts decreased by a net 90,000 representing a slight improvement versus our net decline of 92,000 pay accounts in the third quarter of 2009. In the year-ago quarter, segment pay accounts declined by a net 86,000.

At December 31, 2009, segment pay accounts totaled 1.4 million, a decline of 22% versus 1.7 million pay accounts at December 31, 2008. Pay accounts growth in the segment was 4.4%, a 20 basis point improvement from 4.6% in the third quarter of 2009, as Mark mentioned and up 10 basis points from 4.3% in the year-ago quarter.

Segment ARPU was $9.43, unchanged versus the third quarter of 2009 and a 1% increase from $9.31 in the year-ago quarter.

With respect to our balance sheet and dividends, total cash and cash equivalents at December 31, 2009 were $115.5 million, a decrease of $5.9 million versus September 30, 2009 and an increase of $11 million from $104.5 million at December 31, 2008. The slight quarterly decrease on a sequential basis in cash is appropriate considering that during the quarter we repaid $47.2 million of our debt obligations and paid $9.1 million in cash dividends.

Our debt payments included $37 million in voluntary pre-payments on our FTD credit facilities. Our total debt net of discounts decreased by $45.1 million during the quarter declining to $329 million at December 31, 2009. And by comparison total debt net of discounts was $413.5 million at December 31, 2008.

Net debt which is our debt balance as well as our cash balance declined by $39.2 million during the quarter to $213 4 million as Mark mentioned at December 31, 2009. Net debt has decreased by $140 million, a number we are very proud of since the closure of our acquisition of FTD in late August 2008 driven by both a decrease in debt as well as an increase in our cash position since the acquisition.

Moving onto our business outlook, our first quarter guidance for consolidated revenues is estimated in the range of $246 million to $254 million. Our first quarter guidance for consolidated adjusted OIBDA is estimated in the range of $46 million to $52 million.

Our first quarter net interest expense is estimated at $6.8 million. Our first quarter amortization of intangible assets is estimated at $8.4 million. We estimate that weighted average diluted common shares in the first quarter would be 86.4 million per GAAP diluted net income per common share and 86.6 million for adjusted diluted net income per common share.

Moving on to the full year and continuing our usual practice, I would like to provide a few comments relative to 2010. We estimate our annual effective income tax rate for 2010 to be approximately 43% on a GAAP basis. We do expect some variation in our income tax rate from quarter to quarter due to the function of the three items and other factors.

Our guidance for 2010 capital expenditures is estimated to range from $26 million to $31 million. And that concludes my prepared remarks. Thank you and back to you, Mark.

Mark R. Goldston

Thanks, Scott. I would like to provide some additional color on our guidance for Q1 as well as provide you with some directional items relating to our business for the rest of the year. First of all, I would like to discuss what we call our post-transaction advertising revenues. Last November, we disclosed in an 8-K filing that we were considering terminating and modifying our arrangements relating to post-transaction marketing in order of the US Senate Committee review of business practices of certain industry participants.

In late January 2010, we terminated all of our domestic post-transaction marketing contract. During 2009, these contracts generated approximately $26.5 million of which $20.8 million was in Classmates Media and segment revenues and an additional $5.7 million in FTD segments revenues domestically. These revenues were almost all profits and as a result our revenues and profitability in 2010 would be negatively impacted by the termination of these contracts a few weeks ago.

While we continue to believe that our practice is legally appropriate, we terminated these contracts for a number of reasons including disclosure of industry practices that came to light as a result of the Senate review and changes in practices by industry participants. So while we do not intend to offer the same products or services as we did in 2009, we do intend to offer consumers complementary services and products at the end of our registration or sale processes.

We are still determining which products or services we think would be the best to offer for our consumers. We may offer our own products as services or those from a third party. While we anticipate it is going to require some trial and error before we find the right partners and the right offerings. Whichever offerings we choose we intend to make sure that both the offer and the offering process do not involve the negative issues or practices highlighted by the Senate Committee in its report.

We want the offerings to be positive for both our consumers and our financial results. We are currently budgeting that revenue from post-transaction offerings in 2010 while we are really investing a third of what we achieved in 2009. Needless to say there is some risk in these numbers that we don’t yet have the new relationships in place and then are operational.

On the other hand, we believe there is a profitability that in the long term revenues and new post-transactional offerings could result in an increase in revenues and profitability beyond what we achieved in 2009 though it will take some time to determine whether that goal can be realized.

Second, we believe that FTD will continue the trend of growing its top line in the first quarter and throughout 2010. However, in addition to the post-transaction revenue loss discussed above that will hurt FTD as well, Q1 FTD adjusted OIBDA results were also adversely impacted by the initial television spend that we did for Valentine’s Day which was absolutely the right thing to do.

One-time costs associated with certain internal cost savings initiatives and a number of other items, all these items collectively are likely to cause adjusted OIBDA for the FTD segment in Q1 2010 to be below what we achieved in Q1 of ’09 resulting in adjusted OIBDA margin to be 11% to 12% range for Q1 2010.

We currently believe additional marketing spend and other taxes will continue to impact our adjusted OIBDA margin during the remainder of 2010 although we do expect that our OIBDA margin to increase throughout the rest of 2010.

We expect that our additional marketing spend and cost saving initiatives will continue to enhance the FTD brand and increase our market share further from what we have been able to do thus far. While our cost saving initiatives will increase our efficiency and all other things are going to better position us through success going forward.

Third, as I noted earlier in this discussion the loss in post-transaction revenue has the biggest impact on our Classmates Media segment. Again, if you think of the total amount of post-transactions, revenue and profit that we have done in previous years, the Classmates Media segment has $20.8 million in that.

So, our strategy is to expand and diversify the segment services revenue. There are three areas in addition to post-transactions that will pose challenges to revenue and adjusted OIBDA performance particularly during the first half of 2010.

As we previously disclosed, Classmates and domestic business engaged in significant discounting in the last two quarters of 2009 which adversely impacted ARPU as you know and it was a standard discounted planning 995 for the first year and then renewed at $39.

We expect modest subscriber growth in 2010 and while we anticipate continuing to discount in 2010 particularly targeting discounting the free users who don’t frequent the website we really don’t expect discounting to be at the levels of Q3 and Q4 of 2009. As a result, we expect services revenue to decline in Q1 2010 from Q4 of ’09 and then remain flat through Q2 and then begin to increase again in Q3 and in Q4 of 2010.

MyPoint, the other part of the Classmates Media segment had a very challenging 2009 dropping over 20% revenues from 2008. However, MyPoint is showing signs of improvement during Q4 of ’09. As a result, we made a decision to increase investment spend in the business, marketing spend in Q1 2010 with additional -- both technology infrastructure spending and marketing spending hitting the P&L.

We believe these investments are going to pay off steadily and that we will increase revenues and profitability starting in Q2 and we think certain of these investments will also adversely impact adjusted OIBDA in Q1 of 2010.

A number of new content revenue initiatives I talked about a little bit earlier won’t be launched in operational scale until about Q2 or later 2010. So we won’t take any revenue impact until Q3 at the earliest.

As a result of all these factors I just talked about we expect the adjusted OIBDA revenue target in Q1 to be within the range that Scott set forth in his speech. Now, while we do not give annual revenue and adjusted OIBDA guidance, at this time I want to let you know that we are budgeting internally that all of the factors that I just got you describing will result in our adjusted OIBDA for 2010 to be approximately $220 million. That’s an internal budget number of $220 million of adjusted OIBDA.

Now we could see variance from the $220 million of adjusted OIBDA, 5% plus or minus in either direction depending on a number of factors including how much we ultimately decide to invest in new initiatives but the impact of these investments is certainly going to be there in 2010 and it also depends on the success of the new initiatives we spend the money on. So while we hope to do better than our budget and we believe that many of the investments that we are making in the business will pay off in the long term we thought this information will be helpful to you in putting our Q1 guidance in perspective.

So, with that Eric, I think we should turn it back to the operator and open it for any questions that might be.

Question-and-Answer Session

Operator

And at this time, if you would like to ask a question, please press star one on your touchtone phone. Keep in mind you can withdraw yourself from your question at any time by pressing the pound key. Once again to ask a question, please press star one on your touchtone phone.

It looks like we will take our first question from Mike Crawford with B. Riley & Company. Please go ahead.

Mike Crawford - B. Riley & Company

Thanks very much. So let''s start with the post-transaction channel. So I''m sorry, you -- the contracts you terminated at the end of January, and did you say you already are testing different partners and services and whatnot for what to do with that channel or you''re going to start doing that?

Mark R. Goldston

We started testing that channel. We terminated at the end of January and if you go online you can see that we have got (inaudible), Match.com. We tested a bunch of different varieties to see where the take rates are and we may end up finding a partner that we believe -- that offers the exclusive offer we may use or we may determine that running a rotation is a better way to do it. And so, it is a working process.

Mike Crawford - B. Riley & Company

Okay. And then did you say that you had a $2.3 million reserve for a pending legal matter, is that related to post-transaction advertising as well, or is that something separate?

Mark R. Goldston

I am sorry. Can you tell it again?

Mike Crawford - B. Riley & Company

For the advertising.

Mark R. Goldston

I think it was $2.2 million, not $2.3 million.

Erik Randerson

Yeah. That’s correct.

Mark R. Goldston

And we are not ready to discuss what that matter is.

Mike Crawford - B. Riley & Company

Okay, great. And then with Classmates, it sounds like you''re really taking that platform in some new directions, including, did you say travel and other related services related to reunions?

Mark R. Goldston

Yes. Mike, what we are doing and remember this is something I talked about, I touched on briefly in Q3 -- in the Q2 call and then I took that more in the last call and in this call I found I have some more concrete information, we are going to milk that Classmates business, that is what we said we are going to do and the first salvo was the website refresh which is working extremely well. We had an all-time record monthly active level and we have got some really compelling programs. Unfortunately, most of the time what happens in the second half of 2010 that this yearbook initiative that we have, you know, if we scale imagine with 60 million members on Classmates, if you start digitizing all the year-over yearbooks which we have the equipment and sites to do could be a game changer too.

We have between 30% and 40% of our members the last time I checked with at least some type of reunion. Each year we have over 200,000 schools representing Classmates with 60 million people. So the reunion business is a big fragmented business and involves organizing, selling tickets, selling reunion photos, you name it and we barely scratched the surface and we said well, you think of a business called Classmates.com, it ought to deviate dominant players in the digitization of your books and in the running of reunions. It just seems like that they are natural so we made that as our major objective in 2010 and we are going after it.

And the third area we are going to go after and we still got some work on it but it is a tremendous opportunity and could be very lucrative is this fund raising area. There’s really a couple of public companies which we specifically own and we do think that fund raising per school, but public high schools on an annual basis raise billions of dollars in the most haphazard way you could imagine. So given that we’ve got virtually every major public high school in America representing Classmates on our site we are looking, can we be the guys to coordinate a fund raising effort where we got business ideas that could be very lucrative.

So, we got a lot of great ideas and Classmates guys are really working hard at it. This post-transaction is unfortunate, it happened and it is where it is and we are on.

Mike Crawford - B. Riley & Company

I applaud the efforts to find a solution that, offers something of value to your subscribers, as well as the cash it generates for your business. Then the final question for me relates to something you didn''t really touch upon, but it''s been a while since you made acquisition. FTD, obviously very successful. I figure it''s pretty well integrated with the rest of your business. You do have a lot on your plate with the changes to Classmates, but are you out now looking for something else or is that something that''s still back burner?

Mark R. Goldston

No, not only it’s not back burner, if you remember about five months ago we took our long time General Counsel Randall and made him the Chief Strategy Officer of the company and promoted Chuck Ammann to GC. He heads the entire department, his entire role is focused on M&A and we are actively looking for acquisitions. We’d like to make a major acquisition.

Mike, if you look at our history, I was joking – this is my 42nd earnings call at United. We typically do is we buy a company. We take the first year, kind of figure it out and make sure we got it and then we make sure we are putting that result and when we know we’ve got it running like a top with good management in place and it’s integrated then we could say it is time for us to do another acquisition so it is that time for us.

I would say our goal in 2010 is to do another major acquisition, strategic acquisition for this company. Because this one, FTD even in the worst economy since the Great Depression has been a tremendous acquisition for this company where we couldn’t be happier with it.

Mike Crawford - B. Riley & Company

All right. Thank you.

Mark R. Goldston

Thank you. My pleasure.

Operator

Thank you. We will take our next question from Yun Kim with Broadpoint. Please go ahead.

Yun Kim - Broadpoint AmTech

Thank you. So on those acquisitions comment, would that be more complementary to what you already have, or is it going to be completely independent of the FTD and Classmates?

Mark R. Goldston

Well Yun, I can’t exactly describe it to you but I can tell you that our strategy is to try, since we have established an e-commerce path and we have established a social media path, our first and foremost objective would be to find something meaningful that we can acquire to both or to one of those two paths.

We actually would not be against finding another legged stool. I can tell you with almost certainty that it will not be a dialog business. Now that that business is down, only 19% of the company we are not looking to bulk up with additional communications-based revenue.

So, we are looking at e-commerce strongly. We are looking at social media and there are a couple of other things out there which are very interesting which fell into those categories that would strategically would mesh very nicely with the collective 65 million members that we’ve got in this company. So, we are all over it and there is no grass thrown in (inaudible).

Yun Kim - Broadpoint AmTech

Okay. And then I apologize if my questions have already been asked. I got on pretty late here. But has there been any changes to your affiliate program regarding your Classmates.com business that may have drove the active accounts quite a bit in the quarter?

Mark R. Goldston

Well, we haven’t changed that. We started the update to Classmates as a whole plan in place for 2010 which is pretty aggressive and the first part of it, I talked to you in the last call was a beta rollout of the new website and that is no longer in beta, it is now basically 100% of Classmates’ members and its goal was to bring people back more frequently and have them experience more page views and that’s what is going on.

So that really did help to drive the all-time record active member number and there is a bunch of new programs that I described in our churn of assets. When we sit here 12 months of the day you are going to see a very different, much more engaged Classmates member base which has had a lot more revenue streams than just advertising and paid subscription.

Yun Kim - Broadpoint AmTech

So your growth in the active account was more driven by organic means, through organic traffic or through your own media by advertising versus use of third party affiliates and whatnot?

Mark R. Goldston

No, I think it is organic. Organic growth has a lot to do with -- it’s an apples-to-apples organic growth in the business.

Yun Kim - Broadpoint AmTech

Okay. Switching gears to FTD, you had that business for now over a year. How much more incremental things you can do to try to drive additional revenue and earnings growth for that business? Obviously you had a very, very successful -- a lot of new marketing plan and product focus around profitability -- being profitable rather than market share. Is there anything new for the year, or is that just continued execution of more or less the same strategy?

Mark R. Goldston

Well Yun, if you remember we talked about the idea box --

Yun Kim - Broadpoint AmTech

Yes.

Mark R. Goldston

-- when we bought FTD which is something that I sit together with my team prior to finding a company. It is 165 pages long and it is basically about 80 ideas, half are in the florists area and half are in the consumer area for that company and we are at this point about 20% through the idea box.

So there are four times as many ideas that we have not yet gotten to as we have already executed. So, there is a lot of news and excitement over the next 12 to 24 months to come at FTD and if the economy improves from a consumer standpoint I can only imagine how that business will perform because it’s done an admirable job in the middle of this terrible economy that we have been living through. So you can imagine in a good economy how this thing is going to perform.

Yun Kim - Broadpoint AmTech

Should we be concerned about with all these potential new ideas that you have for FTD and obviously some new initiatives that you have for Classmates.com this year, that you could potentially raise your expense going forward and potentially limit the margin expansion for the year?

Mark R. Goldston

Well, I think I pretty much tried to -- I am giving guidance, I want to be clear but I am sharing with you what our internal budget is for the year 2010 in terms of adjusted OIBDA which is about $20 million to $22 million. And so, if you think about the post-transaction category that we talked about which is about $26.5 million of revenue and profit, if you think about that coming out of the equation and our ability to try and get something like that. And the other programs that we have talked about in terms of investment spend at FTD and the like, that is all based into that number.

Yun Kim - Broadpoint AmTech

Okay. That sounds good.

Mark R. Goldston

Thank you.

Yun Kim - Broadpoint AmTech

Thank you very much.

Operator

Thank you. We’ll take our next question from George Sutton with Craig-Hallum Capital. Please go ahead.

George Sutton - Craig-Hallum Capital Group LLC

Hi, guys. I wanted to focus my questions on the Classmates segment broadly. And first, with respect to the refresh, I will say I think the site looks a lot better. And I think you''re getting the active account numbers that you were hoping for. I''m a little surprised with as much social media and social networking discussion in the press, you''re very rarely mentioned in the context of that. And I''m curious if -- will there be a PR effort to really explain to the world how Classmates has changed and how it can be integrated into your look back in terms of a consumer perspective?

Mark R. Goldston

Yes, it’s a great question, George. The primary reason is we are not in the club because we make money. We may be the only but we are certainly one of the few social networking companies in the world that makes a lot of profit. And so the news that tends to get written about in social networking is all about act, and traffic and sharing, all of which is wonderful but they don’t tend to focus very much on the lack of a business model within that category.

So, I think perhaps the angle that makes us stand out is the fact that we have truly developed many new avenues for the Classmates member base. It is perhaps the first social network in America founded back in ’95 and it is enormously profitable and that in and of itself is a story line because if you read whether it is about what has happened in My Face and around the world Friends Reunited, I mean you can go everywhere in the world and look at social networks and they usually start with the financially troubled and for us to have a social network that got this kind of a profitability and scale and that it is now expanding its revenue stream, I think that is the big story and I think you are right. We probably got to spend a little more time trying to get those investors out there. We will do a better job and maybe tooting our horn a little bit.

George Sutton - Craig-Hallum Capital Group LLC

With respect to MyPoints decision to accelerate some investments in MyPoints, can you just give us a sense of what you saw in that business to suggest that makes for a good investment?

Mark R. Goldston

MyPoints is a victim of as I said a perfect storm. A lot of their business in early 2009, late 2008 was lead generation that is driven by a lot of customers who frankly no longer exist, people like country (inaudible) on the list, no longer exist. The people who did stay in the category decided that they were going to pay much lower prices than they previously paid for that type of activity. And so, we said, look, we are going to have to try to watch this business, its fundamental core business proposition is still valid but with lesser people out there who will pay that kind of money to keep your revenue where it needs to be. So what have they done? They have established a search business. They’ve got a game business. They’ve a market research business that can customize surveys for any number of clients so that now is a good job now for 2010 and saying look, guess now what’s happening. Maybe the level now forever is going to be lower in lead generation advertising so we need to develop other avenues here where we can go up and get business including experiencing offline alternatives from my point so that when you go and purchase things in a retail store there may ultimately be a chance for you to earn MyPoints credits by doing that which is a big idea.

There are companies like in Canada, companies like (inaudible) you are aware of who are a huge company that is mightily profitable operating business models like that and so we think there’s a lot of opportunities in MyPoints but there is some rebuilding to do and everybody is having sort of got to do it and that’s what is happening.

George Sutton - Craig-Hallum Capital Group LLC

Okay. Lastly with respect to -- I understand you''re on the war path for acquisitions. I think I speak for a lot of shareholders in that we would actually rather see some monetization of assets, and I look specifically at the StayFriends business. How separable is that asset, and if you were approached with what you deemed to be a fair price, would that be something that could be sold?

Mark R. Goldston

When you said you would be more interested in monetization of assets, specifically what does that mean?

George Sutton - Craig-Hallum Capital Group LLC

The selling of assets.

Mark R. Goldston

Look at the end of the day, we run a public company and our whole goal is to maximize value for our shareholders. So, if on any day, any one ever wanted to show up and make up a bonafide attractive offer for anything that we own then of course that opportunity is always there except that we don’t go work everyday waiting for that to show up.

Our goal is to try to organically build these businesses and make them more valuable if somebody were to approach it on any business that we owned we compare the price that (inaudible) in virtually every one of our businesses, not virtually, I would say everyone of our businesses is a standalone separable business. In fact, most of them used to be public companies.

Classmates was going to be public, MyPoints has been a public company, NetZero was public, Juno was public and FTD was public. So, in effect we were a collection of formerly public companies.

George Sutton - Craig-Hallum Capital Group LLC

Thanks, guys.

Mark R. Goldston

Thank you.

Operator

Okay. Our next question is from Youssef Squali with Jefferies. Please go ahead.

Youssef Squali - Jefferies & Company

Thank you very much. Just a couple of questions. Mark, I''m trying to reconcile a couple of things you said. So I know this is not guidance, the $220 million you''re talking about is internal budget number, but if I look at the number you did this year, about $248 million, and I just subtract from that the referral business of $27 million, I basically get there. Now, I know you''re hoping to make up some of it by selling other products. If I look at the -- so the components of that, Classmates, communication and the FTD business, it looks like the Classmates and communications businesses may both show year-on-year declines in cash flow. If that''s the case, is whether you make the $220 based on FTD mostly? Is that how the internal thinking goes, or do you think you can actually show improvements in the Classmates business on the margin side?

Mark R. Goldston

Let me try to answer that without giving you guidance because I am not giving guidance. Let me just show you how we go through the math, Youssef. If you took out EBITDA for 2009 which calls over to 250, those are round numbers. At $250 million if you took post-transaction out of the equation you are taking roughly $26.5 million out of that number, right. So, at that point you are at call 223, 224, you have an ISP business that for each year for the past six years has organically declined. We have already done a great job of running it. At the size of that business and the amount of this decline I am not giving you this as a projection but for illustrative purposes one could see where that business would go down between $14.5 and $18 million of EBITDA if you look at normal rates of organic decline less its ability to do some cost savings.

So, if you took the decline in the ISP business of caller 14 to 18, right and when you took the post-transaction business at 26.5 million you are talking about roughly $41 million to $47 million that we as an operating group have to then go try to find. So, what do we do? We do value engineering which we have done every year since we started the company. We do other growth initiatives that we have done since we got the company and we try to use everything that we can do in our power to drive that EBITDA.

But our starting point, apples to apples, our starting point is $26.5 million of post-trans overlay and $14 to $18 million of ISP or EBITDA go away. So you say from a $250 million starting point, you are starting down in the low 2s and our goal is to say our internal budget is $220 and our goal is to try to do better than that means that we have found growth initiatives, value engineering and the like to build that up. And that is what we have done every single year since we got this company.

Youssef Squali - Jefferies & Company

Right. So my question is really if you take out communications, you''re basically left with Classmates and FTD. The Classmates business is a little bit like the communications business, although obviously not melting ice cubes. But it looks like the biggest variable is really the FTD business?

Mark R. Goldston

The Classmates business isn’t anything like the ISP business. The Classmates business, when you think about it has had a 41% increase in EBITDA in 2007, it had 70% EBITDA in 2008 and it was another all-time record in 2009. So, it’s really not anything like the ISP business.

Youssef Squali - Jefferies & Company

Well, Q4 was the first year-on-year decline.

Mark R. Goldston

Say again.

Youssef Squali - Jefferies & Company

Q4 revenues showed the first year-on-year decline.

Mark R. Goldston

No, I thought you were talking about EBITDA.

Youssef Squali - Jefferies & Company

Well, EBITDA is a function of revenues.

Mark R. Goldston

Well, not necessarily but we got periods where we got -- revenue again is representative of EBITDA. So, the hallmark of United Online is even when our revenues have been challenged, our EBITDA has gone up so you have to separate the two but they are not the same.

So, the Classmates business has proven historically we are a profit machine. We put up another record profit in Q4. Profits for the year 2009 and profits for the quarter, Q4 were all-time record in the outcome for the quarter and on a margin basis. So, we are very positive about that Classmates business especially with our ongoing initiatives. It’s a crime that this post-transaction stuff occurred and we’ve got a risk, in effect $21 million is EBITDA of that business but we are not sitting here trying to assume. We are going to do a lot of aggressive tinkering with new ideas and new revenue to build it back but the fundamental business here has been nothing like the (inaudible), that’s just like a growth machine in terms of members and users.

The ISP business is a declining business so we are going to try to grow FTD. We have shown through the first month-and-a-half and year, as I pointed out we had a great Valentine’s Day. FTD did a great job but we are going to have an investment spend in that business to grow because we are in a category where a lot of people do ridiculous, irrational things in terms of how they spend their money and what they offer consumers and we are not going to succumb to that but we got to show up a fight and to do that we got to spend money.

A lot of people said in this economy, we didn’t think anybody could grow and it certainly looks my