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United Online, Inc. (NASDAQ:UNTD)

Q4 2006 Earnings Call

February 8, 2007 5:00 pm ET

Executives

Elizabeth Gengl - SVP of Corporate Communications

Mark Goldston - Chairman and CEO

Charles Hilliard - President and CFO

Analysts

Jim Friedland - Cowen and Company

Naved Khan - Jefferies & Company

Michael Trotsky - Par Capital

Presentation

Operator

Good afternoon. My name is Carrie and I will be your conference operator today. At this time, I would like to welcome everyone to the United Online Fourth Quarter and Full Year 2006 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to Elizabeth Gengl, Senior Vice President of Corporate Communications. Please go ahead, ma'am.

Elizabeth Gengl

Hello and welcome to United Online's conference call to discuss the results of our fourth quarter and fiscal year ended December 31, 2006. With me today is Mark Goldston, our Chairman and Chief Executive Officer and Charles Hilliard, President and Chief Financial Officer.

In today’s press release, the company refers to adjusted Operating Income Before Depreciation and Amortization or OIBDA, adjusted OIBDA for a segment, 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 accounting principals generally accepted in the United States or GAAP. It 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 of the Private Securities Litigation Reform Act of 1995, as described in the press release to any forward-looking statements that maybe made on this call. Statements regarding our current expectations about our future operations, our financial condition, our performance, our pay account, future services, and the industry in which we operate are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

More information about potential risk factors that could affect the company’s business and its financial results is included in today’s press release under the caption, Cautionary Information Regarding Forward-Looking Statements and in the 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 update these projections. Any person replaying this broadcast after February 8, 2007 should recognize that any non-historical information discussed in the call might not be current or valid after that date, because the circumstances and assumptions underlying such information may have changed.

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

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Mark Goldston

Thank you, Liz. Welcome everyone. In the December quarter for 2006, United Online showed quite strong performance. We posted sequential revenue growth in the company. And importantly, our Content & Media segment spearheaded by Classmates and MyPoints, helped to drive that accomplishment through their very impressive organic revenue growth.

The team at MyPoints performed exceptionally well this year as did the team in Classmates, and we are very proud of them. In fact, Content & Media revenues grew to 33% of revenue in the quarter, and Content & Media pay account now represents 46% of all United Online pay account.

Advertising revenues, another key element of our business, and an area where we’ve significantly upgraded our team, showed 101% increase versus the December quarter last year, and we are looking for continued improvement in that area for 2007. Charles Hilliard will go through a complete review of our financial performance for the December quarter and for the entire fiscal year 2006 in a little while.

First, let’s take a look at some of the key elements of the business. Let's start with our Communications segment. Communications now represents about two-thirds of our revenue and we continue to be in a harvest mode with our dial-up ISP businesses under the NetZero, Juno, and BlueLight brand names.

Let's look at the ISP business in particular. As Charles will share with you, the strategy we are employing is maximizing the cash flows on dial-up business and continued emphasis on our thorough value engineering program, that is -- and it's working quite well.

While we saw a decline of a net 143,000 in access pay accounts, we continue to be a major player in the category. And we see additional efficiencies we can take advantage of across a number of areas in that business. We continue to expand our distribution deals with major retailers and PC manufacturers, so the consumers can signup for our services through a broad range of distribution outlets.

And while we don't see the dial-up market as a growth arena, we, nevertheless, feel good about our positioning in the market. We are still represented by millions of people, many of whom either can't get broadband, can't afford it, or don't feel the need for it. And for those individuals, we provide an outstanding product and a great value that's available across 9,500 US cities.

In terms of broadband, as you know, we announced previously our intention of entering the broadband market with a NetZero DSL offering, principally targeted to our existing dial-up users of the migration tool.

We've signed deals with Verizon and just recently with Covad, and now we'll be able to serve a footprint, which covers approximately one-third of our paid dial-up user base with a multi-tiered DSL offering.

We began offering NetZero DSL to existing NetZero users in early December 2006 on the Verizon footprint, and we anticipate augmenting that with our DSL product and the Covad footprint before the end of the third quarter. So, we are really just a little over a month into this, month and a half.

As we stated previously, more than two-thirds of the people, who decide to leave our dial-up ISPs, moved to broadband products, which we previously did not offer. With NetZero DSL, we are attempting to encourage those interested in moving the broadband to keep their email address and the same great service they have come to expect from NetZero in the areas in which we have a DSL footprint.

Now, let's look at the VoIP business. After being in the VoIP business, which includes our NetZero Voice and PrivatePhone services for a little over a year now, it's become clear to us that the US market for VoIP is not what we and many others expected.

The non-home replacement solutions, while attractive in Europe and other parts of the world, where telecom costs are quite high, does not gain significant traction in the US market, where telecom costs are very low, and consumers are much more resistant to changing their telephone form factor to save money. You can read that as they don’t really care to use computers, a lot of them using a form factor telephone.

At the other end of the US VoIP market, providers of home phone replacement solutions, spearheaded by companies like Vonage, had found that if you’re not a telco or cable company with significant existing user bases, the competition is fierce, the cost of entry is expensive, and quite frankly, the business model is very challenging.

Therefore, we’ve decided that without the prospects for VoIP to become a major revenue and profit center for United Online, we just cannot justify the allocation of additional capital and manpower and the future of VoIP and PrivatePhone.

We created a diverse and successful business at United Online and we got to continue to be vigilant in our ongoing review of our various businesses to determine if the ROI, based on capital and manpower, meets our internal hurdle rate. In the case of VoIP and PrivatePhone, we've determined that it does not meet those hurdle rates at this time, and therefore, it is best to curtail our efforts.

Now, let's turn to the growth area of our company, Content & Media. The Content & Media business of United Online performed exceptionally well for us during the December 2006 quarter and now accounts for nearly one-third of our total revenue. We embarked on a major diversification initiative back in late 2004, and our first major move was the acquisition of Classmates in November 2004, and we followed that up with our purchase of MyPoints in April 2006.

At this point, we believe the diversification initiative has been a huge success, and we continue to pursue additional growth opportunities within those businesses, and are actively looking at other acquisition opportunities as well. We grew pay accounts, which are virtually all social networking pay accounts by a net 91,000 in the December quarter versus 82,000 in the year-ago quarter. It’s an 11% increase.

Let's take a look at Classmates. The Classmates business had a great year in 2006. Several new initiatives were tried during the year, and while some of the early ones didn't pan out as we had hoped, early indications lead us to believe that the two major new products we launched in November and December of 2006 will be major successes.

The first of these two products is called guestbook, and the guestbook is effectively a digital guestbook, where any one of the 45 million Classmates members, who opt into that program, can visit your profile and leave their name. After that, the person whose profile was visited would receive an email stating that someone had visited their profile and the Classmate personal homepage would indicate that there were specific visitors to your profile.

This has proven to be a phenomenally successful way to encourage free users to convert to our Gold pay products. Because in order to find out who the visitor was or respond to the individual through an email, you got to be a paid subscriber. This is just one example of how we are introducing powerful social networking aspects to the huge Classmates database.

The second new product is called Classmates Maps, which allows users who opt in, they have their current zip codes identified with an icon on a map showing how many people from the particular school in general or by specific graduation year are living in their specific zip code. So, for example, like myself; I graduated from high school in Atlanta, Georgia; went to college in Columbus, Ohio; graduate school in Illinois; and I am now living in Los Angeles, California.

I could get an iconic plotting of everyone from my high school, grade school, or college, who is now living in a particular zip code. It’s a very compelling tool for those who have moved away from where they went school or for those who are traveling to another city, who want to know if they had any old classmates, who live in the city they are traveling to.

Over the past 18 months, we have introduced four major new products: photos; the new high notes, where you can send and receive notes to people in Classmates, it's an email version in effect of a collect call; guestbook; and the fourth is Classmates Maps. Those four products combine currently for about two-thirds of our daily pay subscribers in Classmates. We had a great success in Classmates in the two years we have owned the business, and we believe that future looks extremely bright at that unit.

In December 2006, we hired one of the premier web design firms in the world, who work on a total redesign of the Classmates website for launch later in 2007. Our goal is to make the user experience more compelling for both the 43 million free users and almost 2 million pay subscribers while adding major functionality and user-generated content to the site.

Our goal is to morph Classmates into a powerful, functional networking site, which allows our users to meet new people from the 45 million user base, instead of confining them to the 1,000 and so people listed in the schools that they attended, which is kind of what we call their silo. Today, people pretty much stay within their silo. We haven't had a major mechanism to allow them to take advantage of how to meet the other 45 million people. And now, we will.

We're also developing a number of additional services within the Classmates platform that we think will enhance the value of the site to our users. One of those and something we think could be a major initiative is the Classmates dating service. Classmates’ members who are interested in dating will be able to indicate that on their profile and become part of the Classmates dating registry. We think this will generate additional profile visits and user-generated content and it will give our free members another compelling reason to upgrade to our pay service.

Our goal is to begin beta testing this service during this quarter and to rollout a full launch of this service later this year. It's something that we're very excited about. In essence, we are moving from a model that was originally designed at Classmates, to help someone find and reconnect with people to a model that more broadly encourages people to find and connect with each other. And not just looking to people from your past, but also looking for people who may have common interest, et cetera, where you want to meet brand new people.

So, if we can find a way from evolving from strictly reconnect with your past to this broader connect with old friends and make new ones, then Classmates can leverage the size of its user base and create a compelling social networking experience for everyone. So, giving each member the ability to act as everyone of the other 45 million members is really a very big objective of ours in 2007.

This should also make Classmates far more desirable to the advertiser community. We intend to introduce several new levels of targeting into the Classmates ad sales business during 2007, where we can slice and dice the user base according to age, gender, geography, et cetera, and realize higher CPMs on our ad sales as a result.

Now, let's take a look at our other bright light in the Content & Media segment, which is MyPoints, and the business we purchased early in 2006, and they have a phenomenal year. MyPoints is the premier online loyalty marketing company and it's driven by a model, which rewards purchasers of affiliated products and services with points that are redeemable against the broad range of products and services from some of the biggest brands in the US.

MyPoints members can utilize the MyPoints.com website to review the various participating partners in the points they would earn from making a purchase and also they can use the company's Bonus Mail product to hear about specific point offers on a product or service, click directly on a link in that mail and go to that vendor's product.

MyPoints has proven to be an extremely effective online marketing service. Companies in the retail business, insurance, financial services, travel, et cetera, have learned this as partners of MyPoints.

We have initiated a number of improvements at that division and features to the site and the management team, which is led by John Fullmer and Layton Han, has done a superb job of running that business for us, and we think their results have been phenomenal.

Going forward, our goal is to significantly enhance the MyPoints.com website, to make it a more compelling destination shopping site, while emphasizing the fact that there are very few categories of products that you would be purchasing from, which would not be represented by a MyPoints partner.

To aiding the achievement of this redesign, we've hired another world-class interactive design firm to help us redesign the entire site. Our goal is to be in beta over the next couple of months with a new design on MyPoints and to ultimately re-launch an exciting new MyPoints to the world later in 2007, just as we plan to do with the Classsmates unit.

So, with that as a strategic backdrop and what we did in 2006 and some of our key plans for 2007, I'd now like to turn the mic over to Charles, who will review our financial performance. Charles?

Charles Hilliard

Thank you, Mark. Let me start out with a few highlights. Number one, United Online's quarterly revenues grew organically for the first time in Q3 of 2005 due to 16% sequential growth in Content & Media revenues.

Number two, full year 2006 Content & Media revenues were nearly $147 million. That’s up 58% from 2005 and it's more than a ten-fold increase from our beginnings in this segment in 2004.

Number three, full year 2006 advertising revenues were over $99 million, which was up 68% from calendar 2005.

And number four, full year 2006 adjusted OIBDA grew 9% to a record $146 million, marking United Online's fifth consecutive year of record adjusted OIBDA. Since 2002, United Online has grown adjusted OIBDA by a compound annual growth rate of 46%.

I also want to point out that our fourth quarter results include $13.3 million of free cash, non-cash impairment charges. These charges relate to $4.5 million write-down of long-lived assets associated with our VoIP business reported in our Communications segment. It also includes an $8.8 million charge in our Content & Media segment associated with the write-down of intangible assets and goodwill from our PhotoSite acquisition in March 2005.

After tax, these impairment charges reduced our fourth quarter GAAP net income and earnings per share by $8 million or $0.12 per share. As Mark already mentioned, we plan to curtail our VoIP offering, which at year-end had less than 20,000 Communications pay accounts.

And with that, let's move onto our fourth quarter results in more detail. Let's start with consolidated. Consolidated revenues were $130.8 million, which is up from $130.2 million in the year-ago quarter. Total revenues were near the high-end of guidance this quarter due to top-line growth in our Content & Media segment, which as Mark mentioned, comprised over 33% of revenue. I will discuss segment performance in more detail later in the call.

Consolidated gross margin, which we calculate as one minus cost of revenues divided by revenue, was 71%, down 120 basis points versus 78.3% in the year-ago quarter, and down 50 basis points sequentially. Gross margin declined due to the April '06 edition and subsequent growth in lower gross margin in MyPoints and our Content & Media segment.

Consolidated adjusted OIBDA was 36.6 million, up 6% year-over-year, and that was at the high point of guidance. Free cash flow was $16 million versus 17.6 million in the year-ago quarter. Our year-over-year free cash flow comparison was negatively impacted by $1.4 million in connection with the final settlement of Juno’s litigation, which dated back to 2001.

It was also impacted by $2.2 million of higher CapEx this quarter and growth in accounts receivable associated with advertising revenues more than doubling versus a year-ago quarter. Free cash flow was positively impacted by year-over-year increase in accounts payable and accrued liability.

Consolidated pay accounts increased by a net 58,000 during the quarter. Communications pay accounts were down 149,000, and this decline was partially offset by Content pay account growth of 91,000 net. Consolidated churn during Q4 declined to 4.7%, which was down from 4.9% in Q3.

Now, let's discuss segment results. First with Communications, revenues were 87.2 million, which were 67% of consolidated revenues, down 16% from 104.1 million or 18% of consolidated revenues in the year-ago quarter. 88% of Communications segment revenues were from billable services and 12% from advertising. Segment advertising revenues actually grew 13% year-over-year than Communications.

Communications average monthly revenue per pay account or ARPU was $9.61, down 2% from $9.83 in the year-ago quarter and 1% from 9.71 sequentially. Communications adjusted OIBDA was 32.9 million, up 8% year-over-year.

Our OIBDA margin or adjusted OIBDA as a percentage of segment revenue increased 860 basis points year-over-year to 37.7% due to reduced marketing expenses and lower cost of revenues.

Average hourly telecom costs increased to just under $0.05, while average hourly usage per active access account was down 7% year-over-year and down 4% sequentially.

As I mentioned, Communications pay accounts were down 149,000 net in Q4, which was driven by a net decline of 143,000 pay access accounts. Just for reference, pay access accounts were down 125,000 in a year-ago quarter, and they were down 131,000 in Q3. It brings us to subscriber acquisition costs.

Our Communications gross customer acquisition cost in Q4 was $113, which is up 5% from $108 in year-ago quarter. The increase in our computed [stat], and I would emphasis computed, reflects higher allocated selling expenses associated with the build-up of our advertising sales force and sales commissions resulting from growth in segment advertising revenue. Our [stat] computation is total segment, sales and marketing, divided by growth pay account addition.

All right, let's move to Content & Media. Content & Media revenues were $43.6 million, up 67% from 26.2 million in a year-ago quarter. Pro forma for the impact of acquisition, Q4 segment organic revenue growth was 12% year-over-year. I just want to point out our year-over-year revenue comparison in growth rate is negatively affected by our decision to reduce the number of ad placements per page on our social networking property on June 1 of 2006.

However, we were very pleased to see sequential improvement in the effective CPM in Q4, which helped drive or return the sequential growth in ad revenues from social networking for the first time and to reduce ad placements in June. 51% of segment revenues were from billable services this quarter, 49% from advertising. In fact, with a record $21.3 million of segment advertising revenues, Q4 exceeded our previous high watermark for Content & Media ad revenues by nearly 26%.

Our adjusted OIBDA in this segment was $8.1 million, down from 9 million a year-ago, segment adjusted OIBDA margin decreased significantly from 34.3% in the year-ago quarter to 18.5% this quarter. However, sequentially it increased by 520 basis points.

Year-over-year comparisons are impacted by the MyPoints acquisition. As we've discussed in the past, we anticipate quarterly margins in the Content & Media segment to vary significantly depending on seasonality in the advertising market and the attractiveness of opportunities for us to reinvest in growth.

As Mark mentioned, our content pay accounts grew by a net 91,000 versus 82,000 in a year-ago quarter and they accelerated nicely versus 54,000 of net growth in Q3 with virtually all of that growth in each quarter coming from social networking.

Now, I'll talk about balance sheet quickly. Our total cash balances were approximately 162 million at quarter-end. During the quarter, we used $13.7 million for dividends. We also used $6.25 million of restricted cash out of the Juno pre-merger litigation that I referenced earlier.

That brings us to business outlook. We are providing guidance for Q1 2007 revenues of approximately 124 million to approximately 126 million and adjusted OIBDA for Q1 between 30 and $32 million.

Our revenue guidance for Q1 reflects our expectations for continued decline in communications revenue and a sequential decline in advertising revenues for Content & Media due to seasonality. Also point out that Q1 has 2.2% less days than Q4, and we start thinking about daily advertising revenue.

Our adjusted OIBDA guidance for Q1 reflects our intention to seasonally invest more heavily in customer acquisitions. As a greater portion of our revenues in customer acquisition shift towards online advertising, we anticipate wider variations in our quarterly adjusted OIBDA margin.

Seasonally strong ad market may expand margins due to improved revenues and reduced customer acquisition spending, due primarily due to higher cost and lower ROI associated with the tighter online ad market. For Q1, we anticipate the opposite, the seasonally slower ad market versus Q4, which will negatively impact our top-line, but it makes customer acquisitions more attractive.

For all of 2007, we anticipate a slight to modest decline in total revenues versus 2006. We are setting adjusted OIBDA guidance between 141 and $146 million. Our estimate for 2007 capital expenditures is between 22 and $27 million. 2006 CapEx was approximately 24 million.

I will wrap that up with our cash tax estimates for 2007. It’s currently between 35 and 40 million.

Thank you, and back to you, Mark.

Mark Goldston

Thank you, Charles. In fact, we are right on schedule. So, operator what I would like to do now is open the call to Q&A. People can -- if you can give them the information, as to how to get into the queue and then Charles and I can answer their questions. Operator?

Question-and-Answer Session

Operator

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

Jim Friedland - Cowen and Company

Thanks, couple of questions. First, on cutting out or shutting down the Voice-over-IP. In terms of looking at product development and G&A, it looks like those expense lines did stabilize even -- they are trending down sequentially, is that some of -- could we expect to see flat growth in '02 line items in '07 given that you don't have to dedicate any resources to those areas? And then the second question is on the dial-up access. With AOL, you are walking away from the market, have you guys seen -- have they sort of run through all their marketing plans? What kind of impact are they having on you at this point?

Charles Hilliard

Mark, why don’t I hand over the first question, which is regarding product development and G&A stability, as we look into 2007, and how that relates to Voice-over-IP. Jim, I would give you a relatively steady outlook on those line items. In fact, they may grow a little bit in 2007 in absolute dollars, primarily because of investments in Content & Media. But we continue to reinvest there and we are excited about those growth prospects. So, the exit or potential exit of VoIP should not have a meaningful impact on those metrics. And Mark, can you take number two?

Mark Goldston

Yeah, Jim, in terms of your second question, we are just talking about this actually on a [SAS] meeting where we give our -- the consumers -- a lot of consumers really don't realize yet, today AOL is either exiting or deemphasizing the dial-up business. I mean, yes, they pulled a bunch of their television advertising, but there if you go in the stores, they still have existing distribution relationships that have not run out yet. So there is disks all over the stores, they are still preloaded on computers, they didn't exactly go out and broadcast to people, hey guys, well we are leaving the dial-up business, in a month we’re going out. So what's happened is, when the natural attrition is taking place and/or people are hopping on the message board, they find out what's going on, but there hasn't been any cold campaign to tell all the AOL users that keep your email and go somewhere else, other than when we do our own marketing. So I've told people that my expectation is the real impact if any that you're going to feel, positive impact would be when their existing deals that they've got, either with the box manufacturers or with the retailers expire, and if they potentially - since they've taken $1 billion out of funding, if they don't renew those deals, when and if they actually exit the store, and exit the boxes, then I do believe that you will see if there is a positive impact and that's going to occur. But as of this point, none of that happened. The only thing that has happened in my knowledge is that they pulled back significantly on their media broadcast revenue.

Jim Friedland - Cowen and Company

Okay. And then, so on that is that something you think could happen in say second half of this year? Do you have an idea when these contracts roll off?

Mark Goldston

I mean just anecdotally, I would -- we've told people we thought most of that would be towards the second half of the year. Lot of those contracts are in the industry are from a negotiation, as you’re moving towards the back-to-school season, which typically happens in late July and August. So, I would anticipate if their deals are like a lot of the other guys out that that's when they might expire.

Jim Friedland - Cowen and Company

Okay, great. Thank you.

Mark Goldston

Thank you.

Operator

Your next question comes from the line of Youssef Squali.

Naved Khan - Jefferies & Company

Yes, hi. This is Naved Khan for Youssef. You guys spoke about the new design for Classmates and MyPoints, can you give a little more color and the timing on this as to exactly when we should expect this to happen? And then on the DSL, can you give some color on how the traction was with the customers who wanted to leave and how successful it was?

Mark Goldston

Sure. In terms of Classmates, we went out and hired world-class designs. Our goal all along has been to sort of modernized Classmates. And frankly, just to give people more to do. Classmates is a great site for going and trying to find people from your past. But the majority of what you can do there up until the most recent launch of these exciting new products has been, communicate with somebody from your past or you just see that they are there.

We now have all of these new tools that we put in place to stimulate more interest. But what we really think we need to do is to open up the silos and let all 45 million people to be able to interact with each other. This is why people go to dating sites. This is why people go to MySpace. This is why people go to Facebook. Basically, the vast majority of people that they interact and engage with on those sites are people that they’ve never met before. They have no idea. They are searching for people with common interests and goals. We have approximately one-third of all the American adults on the Internet in the Classmates user base. We could have a formidable group or interest groups, hobby groups, you name it, dating.

So our new redesign is very focused on putting more eye candy, as we call it, which is user-generated content in the site and making it very easy for people to search for each other, based on common interests, desires, and alike, without obviously moving away from our hallmark, which is reconnecting with your past.

So, it's very compelling. We've seen some initial designs and we are all really very excited about it. And when we nail it down, we are going to put it in a beta test and our hope is in the second half of the year to be able to bring the winner to the marketplace. But it's probably one of the most exciting projects I've worked on since the eight years I've been at the company.

In terms of DSL, as you know, we've really just started offering it very late November, early December. And Charles, do you want to give a little color on that?

Charles Hilliard

Well, I am pleased to say that, given the late rollout on one brand, on one wholesale relationship has been hitting its target for the end of the year, which is 2,000 accounts. And so we ended up with 2,000 accounts. We were relatively pleased with that and we keep moving forward.

Mark Goldston

And at this point, I would say we are heavy in search of additional partners. Our goal is to maximize the footprint to degree that we can, so that any of our users who are in relevant broadband areas, who would like a DSL product, again, not from the NetZero brand, and that has been our stated objective. It continues to be and that group is doing a great job.

Naved Khan - Jefferies & Company

Okay. And then, just one more question on Classmates, regarding the monetization improvement in the ad inventory, should we expect more, or do you expect that to stabilize at these levels?

Mark Goldston

We expect -- I am sorry, say again.

Naved Khan - Jefferies & Company

The monetization effort for the ad inventory on Classmates?

Mark Goldston

Yes.

Naved Khan - Jefferies & Company

Do we expect this to stabilize on these levels or should we expect more improvement going forward?

Mark Goldston

Now that the comparability for the first five months of the year is going to be challenged by the fact that [3D] ad placement reduction that we did on June 1 will be comparing year-over-year and Q4 is seasonally a good ad quarter. We are looking for a growth year-over-year in Content & Media ad revenue and a part of that is improving the effect of CPM and the traffic at Classmates. I think that’s as far as I can go right now.

Charles Hilliard

Yeah.

Naved Khan - Jefferies & Company

Thank you.

Mark Goldston

Thank you.

Operator

Your next question comes from the line of Michael Trotsky.

Michael Trotsky - Par Capital

Hi, thank you.

Mark Goldston

I am sorry, who is this?

Michael Trotsky - Par Capital

Michael Trotsky, Par Capital.

Mark Goldston

How are you?

Michael Trotsky - Par Capital

Good.

Mark Goldston

Good.

Michael Trotsky - Par Capital

In the quarter, your dividend was roughly 85% of free cash flow. Where do you think free cash flow is in Q1 and for the year in '07? And at what point, do you think the dividend -- what kind of ratio do you look for?

Mark Goldston

Charles, do you want to take that?

Charles Hilliard

With respect to free cash flow estimated for 2007, we've certainly introduced guidance for calendar year and I provided some details today, where if someone who could make some calculations, but we're not introducing formal free cash flow guidance, but we've given guidance for adjusted OIBDA of 141 to 146.

I discussed the CapEx range, as well as cash factoring, with the swing being what happens with working capital. With respect to Q4, there’s seasonal factors associated with free cash flow, so for example, with a very big increase in ad revenue this quarter yet a little bit of a build up in accounts receivables that we didn't have before, but we should see some of that come through in Q1, which will help on the working capital front. And, as the Board has not discussed any change in dividend policy.

Michael Trotsky - Par Capital

Okay. Thank you.

Charles Hilliard

Sure.

Operator

(Operator Instructions).

Mark Goldston

Okay, operator. Well it sounds as if we have concluded the questions. As always, Charles and myself are always available to answer your questions, some investors if you'd like to call in for the company. And I want to thank everybody for taking the time to tune into the United Online Q4 2006 earnings call today. Thank you.

Operator

This concludes today's conference.

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Six types of companies are sponsoring earnings transcripts on Seeking Alpha:

1. Company sponsors its own earnings call transcript (example).

2. Company sponsors partner's transcript (example).

3. Company sponsors competitor's transcript (example).

4. Issuer-sponsored research firm sponsors client's transcript (example).

5. Investment newsletter sponsors transcripts of successful stock picks (example).

6. IR firm sponsors transcript of micro-cap company (example).

7. Consulting company sponsors company's transcript in sector of interest (example).

Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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Source: United Online Q4 2006 Earnings Call Transcript
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