United Online, Inc. Q1 2006 Earnings Conference Call Transcript (UNTD)

May. 3.06 | About: United Online, (UNTD)

United Online, Inc. (NASDAQ:UNTD)

Q1 2006 Earnings Conference Call

May 3, 2006, 5:00 p.m. EST

Executives

Elizabeth Gengl - SVP, Corporate Communications

Mark Goldston - CEO, President, Chairman

Charles Hilliard - CFO, VP Finance

Analysts

Jim Friedland - SG Cowen

Nat Schindler - Piper Jaffray

Ahmed Khan - Jefferies

Michael Chapman - Par Capital

John Lopez - Ota Asset Management

Operator

At this time, I would like to welcome everyone to the first quarter 2006 earnings call. (Operator Instructions) Thank you, Ms. Gengl, Senior Vice-President of Corporate Communications. You may begin your conference.

Elizabeth Gengl

Hello, and welcome to United Online's conference call to discuss the results of our first quarter ended March 31, 2006. With me today are Mark Goldston, our Chairman, CEO, and President; and Charles Hilliard, Executive Vice-President, Finance and CFO.

In today's press release, the Company refers to adjusted operating income before depreciation and amortization, or OIBDA, adjusted net income and free cash flow, all of which management believes are useful in evaluating the Company's operating performance.

These numbers are not determined in accordance with Generally Accepted Accounting Principles, or GAAP, and should not be considered as an alternative to or superior to historical financial results presented in accordance with GAAP. Definitions of these numbers are provided in the press release, along with reconciliations to the most comparable GAAP financial measures.

Before we get started, I need to point out that the Company does apply the Safe Harbor provisions as outlined in the press release to any forward-looking statement may be need on this call.

Statement regarding our current expectations about our future operations, our financial conditions, our performance, our pay account growth, future products, 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 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. Management expects that internal projections and expectations may change over time, however, the Company does not intend to update these projections.

Any person replaying this broadcast after May 3, 2006, should recognize that any non-historical information discussed in the call might not be current or valid after that date because of circumstances and assumptions underlying such information may have changed.

With that, we will start out with a few comments from Mark and Charles, and then, we're going to open it up for questions. So, I will now give the floor to our Chairman, CEO, and President, Mark Goldston.

Mark Goldston

Thank you, Liz. Welcome, everyone, to the United Online March 2006 quarterly earnings call. I will take you through a high-level overview of our business today and where we are heading for the balance of 2006, and Charles Hilliard will give you a detailed view of our financial performance.

This earnings release marks the first time in the history of United Online that we will begin segment reporting as a Company. We are now reporting two distinct business segments -- the communications segment, which contains the internet access, e-mail, and VoIP businesses; and the content and media segment, which contains social networking, web hosting, and photo sharing.

The recently acquired MyPoints.com online loyalty marketing business will be included in the content and media segment in the future. The move to segment reporting involved naturally from our diversification strategy and from the way we're managing the business going forward.

I'm going to leave the specific quarterly performance numbers for Charles to review with you, however, I would like to point out something that we're quite proud of in the Company, and that's the fact that the March 2006 quarter marks the nineteenth consecutive quarter of record consolidated adjusted OIBDA, coming in at a record $34.6 million, which was a 10% increase over the $31.5 million of adjusted OIBDA achieved in the year-ago March quarter.

We are very pleased with the revenue growth in our content and media segment, which reported record revenues in the March 2006 quarter, up 32% versus the year-ago March quarter. Remember that the revenue figure does not include but the MyPoints.com acquisition, which happened after quarter end, so MyPoints will be included in the content and media segment beginning next quarter.

Our long-term goal is to continue to grow the content and media revenue base to organic growth like we have been experiencing in social networking, and through acquisitions like the recently completed NamesDatabase and MyPoints.com deals.

Our Classmates social networking business remains the centerpiece of our content and media segment, and that business continues to perform extremely well. Since we acquired Classmates in November of 2004, we have undertaken a number of initiatives that have paid off tremendously thus far.

We brought in some very talented people from outside the Company and put them in top-management positions. We identified some truly outstanding performance from within the Company, and we promoted them, expanded their authority, and helped them to blend with the new senior management. We made major strides in the design, flow, functionality, and architecture of the site, and we made some fundamental changes in the operation of the business. We began positioning the Classmates brand in a different manner with a focus on giving members, both free and pay, more to do on the website.

We articulated a new strategy on an earnings call some nine months ago, which centered on the notion of find me, see me, and talk to me, and went about trying to make Classmates deliver on that promise. We launched numerous new products and features. We improved the site navigation. We made sweeping technological changes, and we employed a laundry list of best practices to everything from billing on down.

We launched our new easy to use those photo solution on Classmates just prior to November 1 2005, and as of today -- a mere six months later -- we've had approximately 1.8 million photos uploaded by Classmates users to their profile.

The results we've achieved through the hard work of a lot of terrific people have been phenomenal. The value that we've created on the Classmates asset, in 18 months since we've owned it, is tremendous and we believe we have only scratched the surface. The business is big, it's profitable, and with additional initiatives and features that we have got planned for 2006 and beyond, we believe our entire social networking business should have a very bright future indeed.

We think our 55 million-plus account base on content and media, with social networking and MyPoints at the core, has the potential to be an even more powerful force in the market.

Through Classmates, we purchased the NamesDatabase at the end of the March quarter, and in that asset, we acquired what we believe is a powerful and viral traffic-generation vehicle. With over 20 million members in countries all around the world, NamesDatabase is a social networking registry that signs up tens of thousands of new accounts every single day. That is truly an amazing amount of traffic, and our goal is to leverage that traffic and our understanding of social networking from Classmates to create significant value.

Staying within the content and media segment, let's take a moment and talk about the newest member of the United Online family, MyPoints.com. We purchased MyPoints.com from United Airlines a couple of weeks ago for $56 million in cash. The company grew its revenues by 44% in 2005, and is a leader in the online loyalty rewards industry.

MyPoints has over 4.5 million registered members, and their basic business model is to provide advertisers with an integrated suite of incentive-based media products, which enable members to earn reward points for a variety of activities, including buying items through the MyPoints' purchase portal, which features, by the way, over 300 retail partners.

We believe MyPoints is an ideal strategic fit for our content and media segment because, like our other properties, it leverages our focus on loyal and active consumers. It is branded. It expands our network of online advertising properties, communicates with members extensively through targeted e-mail, and, most importantly, MyPoints can be featured as a branded loyalty incentive across all of our North American internet services at United Online.

As internet consumers become more comfortable and sophisticated with web use and transactions, we believe that allowing them to share the value they are creating by browsing, subscribing, and shopping will be strategically imperative.

When the world moves into Web 2.0, we will see many internet companies looking at points programs as a means to differentiate their offerings from competitors, bolster their loyalty, increase their frequency of visits, and to create recurring relationships with their consumers.

As growth in new domestic internet users in the U.S. begins to slow industry-wide, success in the next phase of the Internet is going to be driven by more serving, satisfying, and retaining existing customers versus purely acquiring new ones.

Clearly, this has driven many companies in the hotel, airline and credit card industries to create fantastic consumer loyalty programs, and we believe that MyPoints.com business model for the internet is highly scalable and ideally positioned to leverage additional traffic. The additional traffic is where United Online and our 55 million-plus registered accounts come into play.

We not only find the MyPoints standalone business to be highly attractive, but our vision for that business extends to the entire United Online family of companies and users. We would like to provide our millions of domestic accounts and the tens of thousands of domestic users who sign up every single day for one of our various services, we would like to give them the opportunity to receive a MyPoints account and begin realizing the benefits and rewards of membership.

The massive scale United Online could bring to bear on the MyPoints business represents a significant opportunity. Ultimately, our goal is to try to integrate a point system into every one of our United Online businesses.

Now, let's switch gears and take a look at the communications segment of the business, which features internet access, e-mail, and VoIP businesses. While Charles will drill down on the performance of this segment during the March 2006 quarter, I want to reiterate what we said previously regarding our intention to maximize the cash flow of the access business.

At present, the price discounting that has been prevalent in the broadband industry for the past six to nine months has not abated whatsoever. Regardless of the economic impact of their businesses and their bottom line, many of the major DSL companies continue to offer $12.99 to $17.95 price points, and frankly, they are in a land-grab mode for customers. Our value-priced dial-up competitors have also continued to advertise extensively, and now they offer major discounted plans.

Our current strategy is not to try to out-spend or, frankly, out-discount our competitors. At United Online we are focused on cash flow and allocating resources to maximize our returns. While we have dialed back on the marketing spend on the access business, we are adding features to the product line to enhance the value proposition of the service.

We now include our first-ever bundle with a $14.95, high-speed 3G product, which gives our NetZero Voice 100 product, and a Norton Antivirus security product absolutely free with a subscription to our NetZero high-speed 3G product. We believe that adding value to our service can sustain our pricing and our cash flows, while we redeploy some of the cash flow into our high-growth content and media businesses.

In VoIP, we continue to offer our NetZero Voice product at a very attractive price point, and we have received numerous reviews in publications of late attesting to the high quality of the experience over both broadband and dial-up. We do not feel it is cost-effective to extensively market the service on television and in other places at this time, and we are looking at repositioning the service, so we get some viral marketing traction.

As of March 31, 2006, we had approximately 20,000 pay NetZero Voice accounts and around 43,000 active accounts. Currently the U.S. VoIP market in total only has about 4 million total pay members, which is a fraction of the more than 100 million U.S. internet subscribers.

While the growth in the international arena in VoIP, has been quite strong, given the fact that telecom costs in Europe and other parts of the world are very high, in the low cost U.S. telecom market, consumers have been slow to migrate towards an internet-based telephone solution. All that means is that we all have to be patient as it relates to domestic VoIP market, as almost everyone agrees unilaterally that the market should grow significantly in the future.

We are also looking at developing an international strategy and an international payment mechanism that will avoid the pitfalls of credit card fraud that plagues so many international subscription services, prompting them to utilize alternative payment mechanisms. We're working diligently on that front, and we hope to implement an international payments solution at some point during 2006, so that we can benefit from the growth in the VoIP market outside of the U.S. as well.

With that, I'd like to turn the mic over to Charles to give you a detailed look at our financials.

Charles Hilliard

Hi, Mark, and good afternoon, everybody. As Mark mentioned, and as outlined in today's release, we are introducing a new format for our operating results and our user metric disclosure. Let me briefly describe some of the most important changes.

First, we are separating our business in to two distinct reporting segments, which are communications and content media. For each operating segment, we will continue to report billable services revenues and advertising revenues. Unallocated expenses include costs associated with our corporate activities and stock-based compensation.

Second, cost of billable services and cost of free services, which had been our historical disclosure, have now been combined into one line, which is cost of revenue. We believe the streamlining simplifies our reporting and is appropriate given where our business is today and where we see it going in the future.

For example, last quarter, cost of free services represented 11% total cost of revenue, and that's in Q4 of '05. In the June 2001 quarter, it was 75%. You can see how much our business has changed over time.

In addition, cost of revenues associated with pure media businesses such as MyPoints, does not lend itself to pay account customer acquisition in the manner similar to our historical cost of free services.

Third, we are detailing our pay accounts by segment. Further, within communications, we will continue to disclose the largest subset of net-user segment, which is internet access. Within content and media, we will introduce disclosure of the largest upset of that user segment, which is social networking.

Lastly, we are discontinuing our disclosure of subscription. As we continue to bundle a number of our pay offerings into a single pay-product offering, some of which Mark mentioned, and sometimes we will do this at an incremental fee and sometimes we'll do it for free, we believe this metric is becoming more challenging to define, to quantify, and to value. With that introduction, let me get into our first quarter results.

Consolidated revenues were $127.3 million, which is down 2% year-over-year. Total revenues were near the high-end of guidance this quarter due to the strong growth of content and media revenues, offsetting somewhat the decline of communications revenue. I'm going to discuss segment performance in more detail later in the call.

Consolidated gross margin was 76.7%, down 200 basis points, versus 78.7% in the year-ago quarter. VoIP decreased gross margin by 130 basis points this quarter. Consolidated adjusted-OIBDA was $34.6 million in Q1, up 10% year-over-year. On a consolidated basis, we continued to deliver solid OIBDA, as we manage our communications segment primarily for its OIBDA contribution and our content and media segment for growth.

Free cash flow was $8.6 million in Q1 versus $28.2 million in the year-ago quarter. Relative to last year, this quarter's free cash flow was negatively impacted by an $8.5 million increase in cash taxes, and an incremental $7.1 million in cash payments of full-year employee bonuses. In the year ago quarter, we paid only six-month bonuses due to our change in fiscal year end. Also, capital expenditures increased $3.6 million year-over-year. The combined impact of these items reduced our year-over-year quarterly free cash flow by approximately $19.2 million.

Each year, we anticipate the Q1 free cash flow will be negatively impacted by annual cash bonus payments, which totaled $13.5 million this quarter. As such, we project quarterly free cash flow to be substantially higher for each of the remaining quarters of 2006. I am going to provide an update on CapEx and cash taxes towards the end of the call.

Pay accounts, on a consolidated basis, increased by a net 84,000 during the quarter. We closed the NamesDatabase acquisition during Q1, which, at closing, included 58,000 pay accounts, thus our organic pay account growth, on a consolidated basis, was 26,000.

Let me get into our segment results. Communications revenues were $100.3 million, or 78.8% of consolidated revenue, and that was down 9% from $110 million in the year-ago quarter. 90.3% of segment revenues were from billable services, and 9.7% from advertising.

Communications average monthly revenue per pay account, or ARPU, was $9.69, down from $10.08 in the year-ago quarter, and from $9.83 sequentially. The decline in ARPU was due to declining access ARPU associated with promotional pricing and our Use It Free month. These declines more than offset the ARPU benefit of our other communications services.

Communications adjusted-OIBDA was $33.5 million, up 2% year-over-year. While gross margin in this segment declined 390 basis points year-over-year to 74.5%, due primarily to the negative impact of VoIP of 160 basis points within the communications segment, and the decline in the ARPA that I discussed, the OIBDA margin increased 360 basis points to 33.4% due to a $13.6 million, or 31% reduction in sales and marketing expenses within the communications segment year-over-year.

Average hourly telecom costs remain in the low $0.06 range, while average hourly usage per pay access account was up 1% year-over-year due to increased activity online, including our pay-access accounts using our VoIP over dial-up.

Communications pay accounts declined by a net 96,000 in Q1, driven by a net 104,000 decline in pay-access accounts. Pay-access accounts were up 30,000 in the year-ago quarter, and down 125,000 in Q4 of 2005. The relative sequential improvement is attributable to better seasonality offsetting the continued intense competition and ongoing reductions in marketing expenses associated with our access business.

That brings us to customer acquisition costs. Given our revised disclosure, particularly with the consolidation of cost of free services and the cost of revenue, we are simplifying our customer acquisition costs computation to total segment sales and marketing divided by gross account addition.

As such, communications gross customer acquisition costs in Q1 was $88, up 2% from $86 in the year-ago quarter, and down 19% from $108 in Q4. This decrease sequentially reflects focusing our access marketing dollars on what we believe are the most cost-efficient channels, as well as a pullback in our VoIP customer acquisition spending that we saw in Q4 of '05.

During Q1, our active VoIP accounts were essentially flat as we worked to solve a number of issues, including fraud associated with international calls. We continue to budget further decreases in consolidated and communications, sales and marketing in terms of total dollars, as well as percentage of revenues during 2006 versus 2005.

Let's get into content and media. Content and media revenues were $27 million, up 32% from $20.5 million in the year-ago quarter. Excluding the modest impact of the photo site and the NamesDatabase acquisitions, organic growth in this segment was 31% on the top line. 75.9% of content segment revenues were from billable services, and 24.1% from advertising.

Content media average revenue on a monthly basis per pay account, or ARPU, was $3.54, up from $3.26 in the year-ago quarter, and down from $3.62 in Q4. The year-over-year increase in ARPU was due to a shift towards higher priced, three month social networking plan. The sequential decline was due to a decline in web-hosting ARPU and the timing of our NamesDatabase acquisition, which closed towards the end of Q1.

Content and media adjusted-OIBDA was $6.3 million, up 97% year-over-year. Gross margin in this segment increased by 416 basis points to 84.9% due to the expansion in ARPU I've discussed and the growth in higher margin social networking billable services revenue.

Notwithstanding increases in sales and marketing, product development, and G&A as we re-invest in the business, the OIBDA margin increased in this segment by 775 basis points to 23.3%.

Content pay accounts grew by a net 180,000 in Q1. Excluding the 58,000 NamesDatabase pay accounts acquired, Q1 organic growth in content pay accounts was a record 122,000 versus 42,000 in the year-ago quarter. Virtually all the organic growth in both the current and the year-ago quarters was driven by social networking.

Let's talk a little bit about content and customer acquisition costs. In quite a bit of contrast to our communications business, the vast majority of our content and media customer acquisition activities are focused on new free accounts, not pay accounts. In our existing content media businesses, we do attempt to up sell free accounts to pay versions of our services, but the ultimate timing of gross pay account additions has little correlation to the marketing dollars and free members acquired in any given quarter.

Also, with the acquisition of MyPoints, which is currently 100% advertising supported, acquiring and maintaining free customers is the sole focus of their member marketing activity.

In addition, advertising sales force expenses, which helped drive advertising revenues, but do not help acquire customers, comprises a much larger portion of our content sales and marketing expenses versus our communication segment. As such, we do not intend to disclose the computed gross pay account acquisition costs for our content segment. We'll simply track sales and marketing as a percentage of revenues.

We do plan to increase content sales and marketing in terms of total dollars, as well as percentage of revenues, throughout the remainder of 2006, which is consistent with what we did in the first quarter of '06.

Going to the balance sheet. Total cash balances were approximately $175 million at quarter end. During the quarter, we repaid the remaining $54.2 million balance on our term loan, and we acquired NamesDatabase for $10 million in cash. We also used $12.9 million for dividends. Also, subsequent to quarter end, we closed our acquisition of MyPoints for approximately $56 million in cash.

Let's talk about our update in business outlook. We're providing guidance for Q2 revenues of approximately $130 million to $132 million, and consolidated adjusted-OIBDA for Q2 of between $33 million and $35 million. For all of 2006, we are increasing adjusted-OIBDA guidance between $134 million to $139 million, up from previous guidance of between $131 million and $137 million.

Our guidance reflects our expectations of a continued trend to decline in communications revenues and grow in content and media revenue. We currently anticipate the access pay accounts will decline in Q2 at a faster rate than what we experienced in Q1.

Our current estimate for 2006 capital expenditures is between $25 million and $28 million, which is up at the bottom of the range from previous guidance of $23 million to $28 million.

We're also going to update our 2006 cash tax estimate downward to between $35 million and $40 million, and that is versus our previous guidance of between $40 million and $45 million. At the end of Q1 of 2006, total net operating loss carryovers for tax purposes remaining were approximately $175 million. That is it for my prepared comments. I'll hand it back to Mark.

Mark Goldston

Thanks, Charles. Just in summary, as Charles alluded to, with 32% growth in the content and media revenues, and our 19 consecutive quarter of record consolidated adjusted-OIBDA, we are off to a terrific start here in 2006. We have got great organic growth in the content and media revenues, and we are very excited about acquisitions of MyPoints and NamesDatabase.com, and we further diversifying this business, as we've alluded to on numerous previous phone calls with you guys.

We now have over 60 million registered accounts across all of the United Online businesses, which represents, frankly, a large portion of the American adult population that is on the internet.

We are going to create long-term value here, and we're going to grow those content and media revenues, and we've managed our communication business, and we will continue to do that primarily for adjusted-OIBDA contribution.

I am also proud to say that we have now just come upon our one year anniversary since declaring the dividend, and our Board of Directors, this quarter, again, has declared the $0.20 per share dividend.

So, a lot of great things going on at United Online, and I think with the clarity that we are now providing to you in terms of the disclosure and some of the really terrific things that are going on in these businesses, we have a lot to talk about. So, with that, operator, I would like to open it up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Jim Friedland - SG Cowen.

Jim Friedland - SG Cowen

Relating to the new presentation, when you guys report the future quarters, will you just break out the communications content and media corporate expenses the way you have in the current release or will we see it through the revenue line? Just so we know what to expect going forward. Will we see this presentation or will it be just a break down in the revenue side?

Charles Hilliard

We plan on providing consistent presentation with a consistent level of detail going forward.

Jim Friedland - SG Cowen

Thanks. The second question is on the EBITDA or OIBDA increase in the guidance. What amount of that increase comes from the acquisition and what percentage of it is just the core business, excluding MyPoints?

Charles Hilliard

A portion of it was Q1 doing a little bit better. A portion of it was MyPoints contribution with a portion coming back for reinvestment in the business, future growth, particularly for content media.

Jim Friedland - SG Cowen

The last question on the dividends, since you are investing aggressively, you just bought MyPoints, what is your view on the long-term dividend? Is it something you would like to pay in perpetuity or is it something you revisit every quarter? What is your current view on free cash flow and paying the dividend?

Mark Goldston

Jim, all I can say is the standard answer, there has been no change in policy and that is a decision that is made at the Board level.

Jim Friedland - SG Cowen

Great, thanks.

Operator

Next question is from the line of Aaron Kessler with Piper Jaffray.

Nat Schindler - Piper Jaffray

Can you give us a little bit more color on the size and scale of the MyPoints acquisition?

Mark Goldston

The MyPoints business has about 4.5 million members, as we mentioned, when we bought the company. It is a profitable business. For the year end December 2005 they grew their revenue by 44%. They finished the year 2005 at $38.4 million in revenue and reported operating income of $2.4 million, after it $2.4 million a depreciation and amortization. So $4.8 million of OIBDA.

Nat Schindler - Piper Jaffray

Great, thank you.

Operator

Next question is from Youssef Squali - Jefferies.

Ahmed Khan - Jefferies

I had a quick question on the guidance. For '06 you are not guiding for revenue?

Mark Goldston

Can you speak slower? We can't understand. Can you speak slower, please?

Ahmed Khan - Jefferies

Sure. For 2006 are you guiding to revenues? How should we be modeling for the MyPoints acquisition in terms of organic growth?

Mark Goldston

We provided guidance on the revenue line for Q2 on a consolidated basis and we are not breaking out individual businesses. We can point out the existing public disclosure that on the top line, MyPoints did $38.4 million in revenue in 2005; it grew 44% year-over-year in 2005 and it is currently a growing business. That is about as much detail as we are providing.

Ahmed Khan - Jefferies

A quick follow-up question on the international initiative. Is it just for the VoIP or is it for all the lines?

Mark Goldston

It is for VoIP and also the NamesDatabase which we purchased has a huge percentage, well more than 50% of its 20 million or so members are international. In fact, NamesDatabase has some representation in 240 countries around the world.

As we develop that as a social network, that will be developed on a global basis, as to, we hope, will the VOIP business. Once we develop an international payment mechanism that we feel confident in and that is reasonably secure, then we can aggressively attempt to pursue the international portion of the VoIP business.

Ahmed Khan - Jefferies

Thank you.

Operator

Our next question comes from Michael Chapman - Par Capital.

Michael Chapman - Par Capital

Thank you. On the MyPoints acquisition, just trying to get the organic guidance going forward. Is it fair to assume that you are doing $10 million in revenue per quarter from MyPoints? The organic revenue, the comparison would be around $115 million to $118 million on the guidance?

Charles Hilliard

Michael, for Q2 revenue guidance, it does reflect contributions from MyPoints. We will not own it for the entire quarter so we will not get a full quarter benefit from it. Going into any more detail other than what is publicly disclosed is not something we are prepared to do right now. It is growing, we are excited about it, we have a number of integration activities; and if you can appreciate having closed that deal about three weeks ago it is still early stages for it. Like we have done with other acquisitions we are getting to know it very, very intimately.

Michael Chapman - Par Capital

What I am trying to ask in a nutshell is, without that acquisition, would guidance have been down?

Charles Hilliard

The answer is yes, similar to sequential trends between Q4 and Q1, we would anticipate a decline in communications revenue would exceed the growth we anticipate in content revenue.

Michael Chapman - Par Capital

Without that acquisition your guidance would also be down?

Charles Hilliard

On an annual basis?

Michael Chapman - Par Capital

Yes.

Charles Hilliard

No, we would not anticipate having taken that down. No. I will talk about organic trends in terms of top line growth on the next call, which will reflect once again, a partial quarter on MyPoints.

Mark Goldston

Michael, this is Mark. Who are you with?

Michael Chapman - Par Capital

Par Capital.

Mark Goldston

Par Capital?

Michael Chapman - Par Capital

Yes.

Mark Goldston

Thank you.

Operator

Our next question comes from John Lopez - Ota Asset Management.

John Lopez - Ota Asset Management

Thank you very much for taking the questions. If I could make a suggestion before I ask the questions, it may be helpful for you to publish on the web site a quarterly reconciliation and breakdown of the new presentation, because you are throwing a lot of numbers at us and you sound excited, but it is very difficult for everybody to keep up with you, because we are looking at numbers the old way and you just drop all the new stuff on us. That would be a suggestion, one man's opinion.

Charles Hilliard

John, they are already published. For the last five quarters.

John Lopez - Ota Asset Management

Terrific. On the Web site?

Charles Hilliard

Yes.

John Lopez - Ota Asset Management

Great.

Mark Goldston

We move quick now John. You ask it and we have got it up.

John Lopez - Ota Asset Management

That is service. A couple questions. Not trying to beat you up, but I am trying to better understand, MyPoints indicated that the acquisition closed April 10, or did I misread? So you effectively have a full quarter of MyPoints. You have a full quarter less 10 days in the quarter. I a little confused why you don't just, given that it is the first quarter of consolidation, don't just give us the revenue contribution which tends to be practice, when acquisitions are consummated.

Charles Hilliard

John, once again, this will be our first quarter of owning it. It will be in the quarter for 80 days and we are getting to know the business. There is some seasonality associated with the business and we will, similar to what I did in reporting this quarter in terms of organic growth and content media revenues, I will discuss once the results are in, we have gone through our internal processes and controls to report those revenues, I will disclose the organic growth associated with content and media. And on a consolidated basis, and essentially give people the MyPoints contribution for the quarter. But it is early and we have only owned this asset for a few weeks. Beyond that, the guidance is the guidance.

John Lopez - Ota Asset Management

Let me ask it slightly differently -- and again, I am certainly and not trying to beat you up -- but if you look at the quarterly progression of the $38 million they reported last year, was there a significant seasonal bend to that annual revenue?

Charles Hilliard

MyPoints tends to have a very seasonally strong Q4, similar to other advertising base models. So it is proportionally larger. On a seasonal basis, at least historically, Q3 has been their softest quarter. I can't tell you those trends will hold true going forward until we have owned the business for a while.

John Lopez - Ota Asset Management

My second question is on a cash flow statement. It looks like your cable and accruals were up about $16 million. It looks to me like that pretty much was all the cash flow from operations. I am trying to understand what drove those up. Am I misreading that trend short-term?

Charles Hilliard

Well actually, payables were down, and so was accrued liabilities. The biggest component as I mentioned in my prepared comments was $13.5 million of annual cash bonuses which were paid in Q1 for '05 results.

We also had a little bit of a shift in the amount of payables we are carrying associated with advertising expenses, particularly for television, as we've taken down our spending for the access business.

Q1 tends to be a stronger quarter for access, particularly in the month of January. Our expenses for spending there were focused towards the front end of the quarter which means that because we carry those payables usually for about 30 days, substantially all of them were paid by quarter end.

Mark Goldston

John, thank you very much for your questions. Operator, at this point we are pushing up against the time limit we committed to. I want to thank everybody for attending. If you have additional questions, as usual, please direct them in to the Company. Charles will be happy to entertain them. Should you decide you would like to call me I would like to help you as well. I would like to thank everybody for taking the time to come on to United Online's quarterly earnings call today. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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