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  • Direct to Consumer is a Fundamental Platform Shift, Says Tim Armstrong

    Direct to Consumer is a Fundamental Platform Shift, Says Tim Armstrong

    Direct to Consumer, or DTC, is a fundamental platform shift, according to former AOL and Verizon digital properties CEO Tim Armstrong. “There have been a couple times in my career where there has been what is basically a fundamental platform shift,” noted Armstrong. “I felt like direct-to-consumer was something that was going to be a platform shift. Not for probably the obvious reasons, but some of the reasons that were less obvious, but things that I thought were important for the future.”

    Tim Armstrong, former AOL and Verizon Oath CEO and current founder and CEO of The DTX Company, discusses how direct to consumer (DTC) ecommerce businesses represent a “fundamental platform shift,” in an interview with Recode’s Kara Swisher and Jason Del Rey at An Evening with Code Commerce in Las Vegas:

    Direct to Consumer is a Fundamental Platform Shift

    About a year and a half ago I started spending a lot more time just on where the underlying infrastructure in the world was changing around the internet and mobile and all the things that we’ve talked about for years. One of the things that stood out to me was there’s been a couple times in my career where there has been what is basically a fundamental platform shift. I felt like direct-to-consumer was something that was going to be a platform shift. Not for probably the obvious reasons, but some of the reasons that were less obvious, but things that I thought were important for the future.

    One was data management, just in terms of things like GDPR and similar things that were happening. I think the power and data is going to shift back more towards the consumer side over the next 10 or 20 years. I thought that would fuel direct to consumer. The second is that the product development cycles that were happening at the direct the consumer companies were much faster and much deeper than what was happening in the normal channels of product development. I think that’s another thing that over a 5, 10, 15, 20 year period these companies are going to have a real advantage in terms of how they develop products and distribute them.

    Customer Communication: Two Way or No Way

    The third thing was just the two-way communication. At DTX we have a growing team, but one of the things we say is two way or no way. Two-way communication with the customer having a direct relationship with companies. The last thing is how the relationships between consumers and companies are going to change. This seems like a really important trend and probably there’s a really big opportunity here. There may not be but that that’s what got me interested in it.

    What we’re doing right now is really kind of two simple things. One is we’re putting investments directly into DTC companies and we’ve done a number of those and we’ll do a few more. The second thing we’re doing is spending a lot of time on an acronym that I hear all the time now which is CAC, customer acquisition cost. Really, on the operating side of the business what we’re doing is not CAC, it’s CRAC, which is an unfortunate acronym, but it’s customer revenue and acquisition cost. Having the balance on the equation of those two things we’re going to be testing things in 2019, some experiences and and other things that will hopefully put the R back in the CAC equation.

    DTC Might Re-Engineer the Entire Way Commerce is Done

    All of my experiences and basically all the stuff I did on the media side was all two-way relationships. The more time I started to think about really what happened was the reason I thought about DTC’s. I started to go back to those memories based on meeting a lot of the DTC founders and of coaching CEOs for DTC founders. I started to think about things like GDPR and some of the things that are happening underneath the surface that I think is going to change long term. I thought wow, this might actually re-engineer the entire way commerce is done and this is a really interesting opportunity.

    There are a bunch of spaces online now you can look at where people are piling money and where there’s probably over investment. But DTC overall, if you went product by product, category by category, industry by industry, in DTC, there are so many companies that you’ve never heard of and rightly so. The Casper’s, the Warby Parker’s, those are amazing companies and they get a ton of notoriety. There are also about 10,000 other categories. They don’t have ten people, they might have one or two, but they’re doing interesting things in them.

    People ask us all the time, is there a DTC ceiling, these companies can only get so big? That may be true but I don’t think it’s true. What will happen is the aggregate of all these things together. If you have ten thousand DTC brands and they’re $10 million or $50 million or $500 million they may not have to look like Google and Facebook right now, but when you add up all of them together over time and what’s likely to happen with a condensing of the market in the next 10 or 20 years (it is significant).

    DTC Could Be an Amazing Transformation

    There are two things that stand out to me. One is every major press article around traditional commerce tends to be negative. Not all the time, but there’s so much angst around what’s happening in retail overall. A lot of it is deserved, but there are a lot of interesting things happening in traditional retail. The second one is the DTC categories that are super hot, the four or five super hot categories, get 90 percent of the coverage and press. What we’re seeing and we have people coming in offices all day doing DTC and there’s just an amazing amount of ingenuity, invention, and innovation happening in different categories.

    I think again it’s one of these things you’re going to wake up 5, 7, 10, or 15 years from now and say, wow, this was like a really amazing transformation. It’s going to be for the reasons that these companies all talk to their consumers all the time. The amount of product innovation that’s happening is truly tremendous. If you take the Beauty category or any category and you dig into all of the DTC brands and micro categories within, if you went to a Procter & Gamble or Unilever and look at all of their products, each one of their products has multiple DTC companies trying to innovate that space.

    I think you’ll end up seeing the recreation of really large consolidated companies. It may not happen for years, but I think it will happen. The reason is not because they were cheaper than what happens in the Unilever Procter & Gamble it’s because the product innovation is hard. Having spent so much time now with DTC companies, the amount of product innovation that happens at that those companies with direct consumer interactions seems to me to be deeper and faster than it is at most other traditional companies.


  • AOL Earnings Released, Revenue Up 12%

    AOL just released its Q3 earnings report with total revenue growth of 12% year-over-year thanks to strong global advertising growth. This was the company’s seventh consecutive quarter of revenue growth.

    It grew its domestic multi-platform unique visitors by 14% from the same period last year, which is the fastest rate of grwoth among the top five internet properties, AOL claims.

    Programmatic revenue grew to 37% of non-search ad revenue from just 12% the same time last year. Global ad revenue grew 18% thanks to strong pricing growth in display and third-party platform driven. AOL credits premium formats including video.

    CEO Tim Armstrong said, “In Q3, AOL continued its strong growth in consumer traffic, revenue and profitability across its portfolio of assets. AOL is a leader in global content, video, mobile, and programmatic advertising and is positioned directly at the center of the most disruptive changes happening online and offline in culture and code.”

    The company also announced a stock repurchase of a million shares.

    Here’s the release in its entirety:

    NEW YORK–(BUSINESS WIRE)–Nov. 6, 2014–

    AOL Inc. (NYSE:AOL) released third quarter 2014 results today.

    “In Q3, AOL continued its strong growth in consumer traffic, revenue and profitability across its portfolio of assets,” said Tim Armstrong, AOL Chairman and CEO. “AOL is a leader in global content, video, mobile, and programmatic advertising and is positioned directly at the center of the most disruptive changes happening online and offline in culture and code.”

    Summary Results
    In millions (except per share amounts)
    Q3 2014 Q3 2013 Change
    Revenues
    Global advertising and other $ 473.4 $ 399.7 18%
    AOL Properties Display 141.5 141.9 0%
    AOL Properties Search 97.9 95.0 3%
    Third Party Platform 215.1 149.1 44%
    Other 18.9 13.7 38%
    Subscription 153.4 161.6 -5%
    Total revenues $ 626.8 $ 561.3 12%
    Adjusted operating income before depreciation and amortization (Adjusted OIBDA) (1) $ 121.8 $ 119.8 2%
    Operating income $ 48.0 $ 16.7 187%
    Net income attributable to AOL Inc. $ 28.5 $ 2.0 1325%
    Diluted EPS $ 0.35 $ 0.02 1650%
    Adjusted Diluted EPS (1) $ 0.52 $ 0.56 -7%
    Cash provided by operating activities $ 137.8 $ 98.9 39%
    Free Cash Flow (1) $ 101.2 $ 64.6 57%
    (1) See Page 8 for a reconciliation of Adjusted OIBDA, Adjusted Diluted EPS and Free Cash Flow to the GAAP financial measures we consider most comparable.

    Q3 Consolidated AOL Revenue Trends:

    • Total revenue grew 12% year-over-year on strong growth in global advertising and other revenue.
    • Global advertising and other revenue grew 18% year-over-year reflecting:
      • 44% growth in Third Party Platform revenue, driven by growth in the sale of premium formats and by the inclusion of revenue from Adap.tv for a full quarter in 2014 versus approximately one month in 2013. Third Party Platform revenue grew approximately 22% excluding Adap.tv.
      • Flat AOL Properties display revenue due to the absence in Q3’14 of approximately $10 million in revenue from disposed or shuttered brands, including Patch. Excluding these impacts, display revenue grew 7% driven by improved pricing on AOL Properties.
      • 3% growth in AOL Properties search revenue, driven by increased queries from search marketing-related efforts.
      • 38% growth in other revenue, related to increased platform access and licensing fees.
    • Subscription revenue declined 5% year-over-year as 6% growth in average monthly subscription revenue per AOLsubscriber (ARPU) partially offset a 9% decline in subscribers. Domestic AOL subscriber monthly average churn improved sequentially to 1.4% in Q3 2014 and was flat to Q3 2013.

    Q3 Consolidated AOL Profitability Trends:

    • Cost of revenues increased $61 million year-over-year, driven by a $65 million increase in TAC, partially offset by expense savings resulting from reduced headcount. TAC increases reflect the inclusion of Adap.tv, search marketing-related efforts and growth in Third Party Platform revenue.
    • General and administrative expenses grew $3 million year-over-year, due primarily to increased operating expenses associated with acquisitions made late 2013 and early 2014.
    • Adjusted OIBDA grew 2% year-over-year, driven primarily by total revenue growth. Year-over-year comparisons were negatively impacted by $5 million received in the prior year period related to the disposition of a legal claim. Excluding this impact, Adjusted OIBDA grew 6% year-over-year.
    • Diluted and Adjusted Diluted EPS were negatively impacted by increased amortization associated with acquisitions made late 2013 and early 2014 and increased interest expenses associated with our credit facility and convertible senior note offering during the quarter, which more than offset the benefit of a lower effective tax rate.

    AOL Asset, Cash & Cash Flow Trends:

    • AOL had $458 million of cash and equivalents at September 30. During the quarter, AOL repaid $105 million of borrowings under its $250 million senior secured revolving credit facility. AOL had no outstanding borrowings at September 30 and has none to date. Additionally, on July 30, AOL completed the sale of its Dulles Technology Center (DTC) for approximately $33 million in cash.
    • On August 14, AOL issued $379.5 million aggregate principal amount of 0.75% convertible senior notes maturingSeptember 1, 2019. Net proceeds after expenses were approximately $369 million. AOL used a net $37 million of the net proceeds to pay the cost of the convertible note hedge and warrant transactions designed primarily to offset potential shareholder dilution.
    • Q3 cash provided by operating activities was $138 million and Free Cash Flow was $101 million, an increase of 39% and 57% year-over-year, respectively, reflecting the timing of working capital.
    • On July 28, AOL’s Board of Directors authorized a $150 million share repurchase program. On August 6, 2014 in connection with the convertible senior note offering, AOL repurchased approximately 1 million shares of common stock at an average price of $42.46, or approximately $40 million in aggregate, leaving $110 million available on AOL’s current authorization.
    DISCUSSION OF SEGMENT RESULTS
    Q3’14 Q3’13 Change
    (In millions)
    Revenues
    Brand Group $ 187.3 $ 192.5 -3%
    Membership Group 196.7 204.5 -4%
    AOL Platforms 271.9 188.7 44%
    Intersegment eliminations (29.1) (24.4) -19%
    Total Revenues $ 626.8 $ 561.3 12%
    Adjusted OIBDA
    Brand Group $ 17.0 $ 10.9 56%
    Membership Group 139.2 149.8 -7%
    AOL Platforms (0.6) (7.1) 92%
    Corporate & Other (33.8) (33.8) 0%
    Total Adjusted OIBDA $ 121.8 $ 119.8 2%

    Brand Group

    Brand Group revenue declined year-over-year, impacted by the absence of display revenue from disposed or shuttered brands, including Patch. Excluding this impact, Brand Group display revenue grew 1%, driven by continued growth in inventory pricing.Brand Group search revenue grew 8% year-over-year, driven by increased queries from search marketing-related efforts.

    Brand Group Adjusted OIBDA improved significantly year-over-year, due to general cost savings initiatives, including the savings associated with the disposal and shuttering of certain brands, including Patch, partially offset by increased TAC associated with search marketing-related efforts.

    Membership Group

    Membership Group revenue declines reflects a 5% year-over-year decline in subscription revenue and a decline in search revenue, offset in part by growth in display revenue on improved inventory pricing at AOL Mail. Subscription and search revenue declines reflect 9% fewer domestic AOL subscribers on 1.4% monthly average churn. Subscription revenue declines were partially offset by 6% growth in ARPU year-over-year, reflecting price increases associated with adding increased features, services and value to our subscribers’ packages.

    Membership Group Adjusted OIBDA declines primarily reflect subscription revenue declines discussed above, partially offset by a decrease in costs related to fewer domestic AOL subscribers. Year-over-year comparisons were negatively impacted by $5 millionreceived in Q3 2013 related to the disposition of a legal claim. Excluding this impact, Membership Adjusted OIBDA declined 4% year-over-year.

    AOL Platforms

    AOL Platforms revenue increased 44% year-over-year, driven by significant growth in Third Party Platform revenue, and revenue from Adap.tv for a full quarter in 2014 as compared to approximately one month in 2013. Excluding Adap.tv, Third Party Platform revenue grew approximately 23% year-over-year, driven by growth in the sale of premium formats.

    AOL Platforms Adjusted OIBDA improved significantly year-over-year, reflecting strong growth in revenue in the segment, partially offset by increased TAC and investments in our programmatic platforms and premium formats.

    Tax

    AOL had Q3 2014 pre-tax income of $42 million and income tax expense of $14 million, resulting in an effective tax rate of 34%. This compares to an effective tax rate of 90% for Q3 2013. The effective tax rate for Q3 2014 did not materially differ from the statutory U.S. federal income tax rate of 35% primarily due to additional deductions that produced a tax benefit in the quarter, which offset foreign losses that did not produce a tax benefit. The effective tax rate for Q3 2013 differed from the statutory U.S. federal income tax rate of 35% primarily due to the tax impact of the non-deductible goodwill impairment charge and the foreign losses that did not produce a tax benefit.

    Cash Flow

    Q3 cash provided by operating activities was $138 million and Free Cash Flow was $101 million, an increase of 39% and 57%, respectively, primarily reflecting the timing of working capital.

    OPERATING METRICS
     
    Q3 2014 Q3 2013 Y/Y Change Q2 2014 Q/Q Change
    Subscriber Information
    Domestic AOL subscribers (in thousands) (1) 2,274 2,508 -9% 2,338 -3%
    ARPU (1) $ 21.35 $ 20.15 6% $ 20.86 2%
    Domestic AOL subscriber monthly average churn (2) 1.4% 1.4% 0% 1.6% -13%
    Unique Visitors (in millions) (3)
    Domestic average monthly AOL multi-platform unique visitors 179 156 14% 171 5%
    Domestic average monthly desktop unique visitors to AOL Properties 108 115 -7% 108 0%
    (1) Domestic AOL subscribers include subscribers participating in introductory free-trial periods and subscribers that are paying no monthly fees or reduced monthly fees through member service and retention programs. Individuals who are only registered for our free offerings, including subscribers who have migrated from paid subscription plans, are not included in the AOL subscriber numbers presented above. Additionally, only those individuals whose subscription includes AOL-brand dial-up access service are included in the AOL subscriber numbers above. ARPU is calculated as domestic average monthly subscription revenue per AOL subscriber.
    (2) Churn represents the percentage of AOL subscribers that are either terminated or cancel our services, factoring in new and reactivated subscribers. Monthly average churn is calculated as the monthly average number of terminations plus cancellations divided by the initial AOL subscriber base plus any new registrations and reactivations for the applicable period.
    (3) See “Unique Visitor Metrics” on page 9 of this press release.
    FINANCIAL STATEMENTS
    AOL Inc.
    Condensed Consolidated Statements of Operations
    (In millions, except per share amounts)
    Three Months Ended September 30, Nine Months Ended September 30,
    2014 2013 2014 2013
    (unaudited) (unaudited)
    Revenues:
    Advertising and other $ 473.4 $ 399.7 $ 1,358.5 $ 1,147.5
    Subscription 153.4 161.6 458.4 493.4
    Total revenues 626.8 561.3 1,816.9 1,640.9
    Costs of revenues 479.4 418.6 1,394.3 1,211.6
    General and administrative 81.5 78.2 236.3 237.6
    Amortization of intangible assets 16.9 11.1 48.6 29.7
    Restructuring costs 1.2 19.0 15.7 28.1
    Goodwill impairment charge – 17.5 – 17.5
    (Gain) loss on disposal of assets, net (0.2) 0.2 (4.2) (2.1)
    Operating income 48.0 16.7 126.2 118.5
    Interest and other income (expense), net (5.7) (2.1) (7.0) (5.6)
    Income before income taxes 42.3 14.6 119.2 112.9
    Income tax provision 14.4 13.1 55.2 57.8
    Net income $ 27.9 $ 1.5 $ 64.0 $ 55.1
    Net (income) loss attributable to noncontrolling interests 0.6 0.5 2.0 1.3
    Net income attributable to AOL Inc. $ 28.5 $ 2.0 $ 66.0 $ 56.4
    Per share information attributable to AOL Inc. common stockholders:
    Basic net income per common share $ 0.36 $ 0.03 $ 0.83 $ 0.73
    Diluted net income per common share $ 0.35 $ 0.02 $ 0.79 $ 0.69
    Shares used in computing basic income per common share 78.3 77.3 79.2 77.1
    Shares used in computing diluted income per common share 82.2 81.2 83.3 81.4
    Depreciation expense by function:
    Costs of revenues $ 31.1 $ 29.8 $ 92.2 $ 90.1
    General and administrative 2.4 2.2 8.4 7.3
    Total depreciation expense $ 33.5 $ 32.0 $ 100.6 $ 97.4
    Equity-based compensation by function:
    Costs of revenues $ 15.1 $ 7.6 $ 34.8 $ 18.8
    General and administrative 6.2 4.2 16.6 12.6
    Total equity-based compensation $ 21.3 $ 11.8 $ 51.4 $ 31.4
    Traffic Acquisition Costs (included in costs of revenues) $ 178.9 $ 114.0 $ 488.2 $ 307.9
    Third Party Platform Traffic Acquisition Costs $ 143.5 $ 93.8 $ 386.7 $ 248.9
    AOL Inc.
    Condensed Consolidated Balance Sheets
    (In millions, except per share amounts)
    September 30, December 31,
    2014 2013
                                        Assets (unaudited)
    Current assets:
    Cash and equivalents $ 457.5 $ 207.3
    Accounts receivable, net of allowances of $9.2 and $8.3, respectively 457.3 491.0
    Prepaid expenses and other current assets 38.9 34.1
    Deferred income taxes, net 24.2 30.7
    Total current assets 977.9 763.1
    Property and equipment, net 454.3 467.9
    Goodwill 1,486.3 1,361.7
    Intangible assets, net 228.0 208.4
    Long-term deferred income taxes, net 76.6 110.6
    Other long-term assets 95.4 71.7
    Total assets $ 3,318.5 $ 2,983.4
    Liabilities, Redeemable Noncontrolling Interest and Equity
    Current liabilities:
    Accounts payable $ 77.0 $ 101.0
    Accrued compensation and benefits 96.5 127.0
    Accrued expenses and other current liabilities 201.8 197.3
    Deferred revenue 70.4 67.2
    Current portion of obligations under capital leases 53.6 55.5
    Total current liabilities 499.3 548.0
    Convertible senior notes 303.1 –
    Long-term portion of obligations under capital leases 82.3 56.2
    Long-term deferred income taxes 3.7 4.4
    Other long-term liabilities 104.5 97.6
    Total liabilities 992.9 706.2
    Redeemable noncontrolling interest 9.0 9.7
    Equity:
    Common stock, $0.01 par value, 115.2 million shares issued and 77.8 million
    shares outstanding as of September 30, 2014 and 114.1 million shares issued
    and 79.2 million shares outstanding as of December 31, 20130 1.2 1.1
    Additional paid-in capital 3,676.8 3,592.7
    Accumulated other comprehensive income (loss), net (293.8) (290.4)
    Accumulated deficit (27.4) (93.6)
    Treasury stock, at cost, 37.4 million shares as of September 30, 2014 and 34.9
    million shares as of December 31, 2013 (1,041.5) (942.9)
    Total stockholders’ equity 2,315.3 2,266.9
    Noncontrolling interest 1.3 0.6
    Total equity 2,316.6 2,267.5
    Total liabilities, redeemable noncontrolling interest and equity $ 3,318.5 $ 2,983.4
    AOL Inc.
    Condensed Consolidated Statements of Cash Flows
    (In millions)
    Nine Months Ended September 30,
    2014 2013
    (unaudited)
    Operating Activities
    Net income $ 64.0 $ 55.1
    Adjustments for non-cash and non-operating items:
    Depreciation and amortization 149.2 127.1
    Asset impairments and write-offs 12.3 30.4
    (Gain) loss on disposal of assets, net (4.2) (1.1)
    Accretion of convertible notes discount 1.6 –
    Amortization of debt issuance costs 0.7 0.2
    Equity-based compensation 51.4 31.4
    Deferred income taxes 4.7 31.5
    Other non-cash adjustments 2.8 4.5
    Changes in operating assets and liabilities, net of acquisitions 4.7 (50.2)
    Cash provided by operating activities 287.2 228.9
    Investing Activities
    Investments and acquisitions, net of cash acquired (192.6) (336.9)
    Proceeds from disposal of assets, net 38.2 1.1
    Capital expenditures and product development costs (55.7) (52.7)
    Cash used by investing activities (210.1) (388.5)
    Financing Activities
    Borrowings under the credit facility agreement 105.0 –
    Repayments under the credit facility agreement (105.0) –
    Repurchase of common stock (98.6) (102.2)
    Proceeds from issuance of convertible notes 379.5 –
    Payment of issuance costs (10.4) (3.1)
    Payments for note hedges (70.1) –
    Proceeds from issuance of warrants 33.5 –
    Principal payments on capital leases (53.3) (44.5)
    Tax withholdings related to net share settlements of restricted stock units (22.5) (13.3)
    Proceeds from exercise of stock options 10.2 22.7
    Other financing activities 5.9 3.9
    Cash provided (used) by financing activities 174.2 (136.5)
    Effect of exchange rate changes on cash and equivalents (1.1) (2.3)
    Increase (decrease) in cash and equivalents 250.2 (298.4)
    Cash and equivalents at beginning of period 207.3 466.6
    Cash and equivalents at end of period $ 457.5 $ 168.2
    SUPPLEMENTAL INFORMATION – UNAUDITED
    AOL Inc.
    Reconciliation of Adjusted Diluted EPS to Net Income Attributable to AOL Inc.
    (In millions, except per share amounts)
    Three Months Ended
    September 30,    		 Nine Months Ended
    September 30,
    2014 2013 2014 2013
    Net income attributable to AOL Inc. $ 28.5 $ 2.0 $ 66.0 $ 56.4
    Add (less) items impacting comparability of net income:
    Restructuring costs 1.2 19.0 15.7 28.1
    Equity-based compensation 21.3 11.8 51.4 31.4
    Asset impairments and write-offs 1.1 29.0 12.3 30.4
    (Gain) loss on disposal of assets, net (0.2) 0.2 (4.2) (2.1)
    Income tax impact of items above (1) (9.3) (16.7) (32.2) (26.9)
    Adjusted net income attributable to AOL Inc. $ 42.6 $ 45.3 $ 109.0 $ 117.3
    Shares used in computing diluted EPS 82.2 81.2 83.3 81.4
    Adjusted Diluted EPS $ 0.52 $ 0.56 $ 1.31 $ 1.44
    Marginal tax rate (2) 39.8% 39.5% 39.8% 39.5%
    (1) Income tax impact of restructuring charges, equity-based compensation and asset impairments and write-offs are calculated by applying the marginal tax rate to deductible items. The income tax impact of gain (loss) on disposal of assets is calculated by using the actual tax expense for the transactions. The goodwill impairment charge of $17.5 million recorded in the third quarter of 2013 is not deductible for income tax purposes.
    (2) For the three and nine months ended September 30, 2014, the marginal tax rate used was AOL’s 2014 projected marginal annual effective tax rate. For the three and nine months ended September 30, 2013, the marginal tax rate used was AOL’s 2013 projected marginal annual effective tax rate as of September 30, 2013.
    AOL Inc.
    Reconciliation of Adjusted OIBDA to Operating Income and Free Cash Flow to Cash Provided by Operating Activities
    (In millions)
    Three Months Ended September 30, Nine Months Ended September 30,
    2014 2013 2014 2013
    Operating income $ 48.0 $ 16.7 $ 126.2 $ 118.5
    Add: Depreciation 33.5 32.0 100.6 97.4
    Add: Amortization of intangible assets 16.9 11.1 48.6 29.7
    Add: Restructuring costs 1.2 19.0 15.7 28.1
    Add: Equity-based compensation 21.3 11.8 51.4 31.4
    Add: Asset impairments and write-offs 1.1 29.0 12.3 30.4
    Add: Losses/(gains) on disposal of assets, net (0.2) 0.2 (4.2) (2.1)
    Adjusted OIBDA $ 121.8 $ 119.8 $ 350.6 $ 333.4
    Cash provided by operating activities $ 137.8 $ 98.9 $ 287.2 $ 228.9
    Less: Capital expenditures and product development costs 19.4 19.7 55.7 52.7
    Less: Principal payments on capital leases 17.2 14.6 53.3 44.5
    Free Cash Flow $ 101.2 $ 64.6 $ 178.2 $ 131.7

    Note Regarding Non-GAAP Financial Measures

    This press release and its attachments include the financial measures Adjusted OIBDA, Adjusted Diluted EPS and Free Cash Flow, all of which are defined as non-GAAP financial measures by the Securities and Exchange Commission (SEC). These measures may be different than similarly-titled non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). Explanations of our non-GAAP financial measures are as follows:

    Adjusted OIBDA. We define Adjusted OIBDA as operating income before depreciation and amortization excluding the impact of restructuring costs, non-cash equity-based compensation, gains and losses on all disposals of assets, non-cash asset impairments and write-offs and special items. We consider Adjusted OIBDA to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of non-cash items such as depreciation of tangible assets, amortization of intangible assets that were primarily recognized in business combinations, asset impairments and write-offs, as well as the effect of restructurings, gains and losses on asset sales and special items, which we do not believe are indicative of our core operating performance. We exclude the impacts of equity-based compensation to allow us to be more closely aligned with the industry and analyst community. A limitation of this measure, however, is that it does not reflect the periodic costs of capitalized tangible and intangible assets used in generating revenues in our business or the current or future expected cash expenditures for restructuring costs. The Adjusted OIBDA measure also does not include equity-based compensation, which is and will remain a key element of our overall long-term compensation package. Moreover, the Adjusted OIBDA measures do not reflect gains and losses on asset sales, impairment charges and write-offs related to goodwill, intangible assets and fixed assets or special items which impact our operating performance. We evaluate the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets, investment spending levels and return on capital.

    Adjusted Diluted EPS. We define Adjusted Diluted EPS as diluted net income per common share excluding the net-of-tax impact of restructuring costs, non-cash equity-based compensation, gains and losses on all disposals of assets, non-cash asset impairments and write-offs and special items. We consider Adjusted Diluted EPS to be useful to management and investors as a profitability measure to allow comparison of our results to historical periods and forecasting of our results for future periods. A limitation of Adjusted Diluted EPS is that it does not include all items that impact our net income and diluted net income per common share for the period. We compensate for this limitation by also relying on diluted net income per common share as a comparable GAAP financial measure.

    Free Cash Flow. We define Free Cash Flow as cash provided by operating activities, less capital expenditures, product development costs and principal payments on capital leases. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures, capitalized product development costs and principal payments on capital leases, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of Free Cash Flow also facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the total increase or decrease in cash for the period because it excludes certain non-operating cash flows.

    Unique Visitor Metrics

    We utilize unique visitor numbers to evaluate our performance, as unique visitor numbers provide an indication of our consumer reach. Although our consumer reach does not correlate directly to advertising revenue, we believe that our ability to broadly reach diverse demographic and geographic audiences is attractive to brand advertisers seeking to promote their brands to a variety of consumers without having to partner with multiple content providers. AOL multi-platform unique visitor metrics represent a measure of AOL’s unduplicated audience across multiple digital platforms (desktop computers, smartphones and tablets). AOL multi-platform unique visitors represent the estimated number of individuals who visited any content of a website or application owned by AOL or for which the traffic has been assigned to AOL by the owner during the applicable measurement period. Additionally, AOL multi-platform unique visitor metrics also include visitors to AOL’s syndicated video content distributed on third party sites. Desktop unique visitors to AOL Properties represent the estimated number of individuals who visited any content of a website or application owned by AOL or for which the traffic has been assigned to AOL by the owner during the applicable measurement period via a desktop computer. The source for our unique visitor information is a third party (comScore Media Metrix).

    Cautionary Statement Concerning Forward-Looking Statements

    This press release and our conference call at 8:00 a.m. Eastern Time today may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding business strategies, market potential, future financial and operational performance and other matters. Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “will,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Except as required by law, we are under no obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in the “Risk Factors” sections contained in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “Annual Report”) and our Quarterly Report on Form 10-Q for the three months ended September 30, 2014 (“Quarterly Report”), filed with theSecurities and Exchange Commission. In addition, we operate a web services company in a highly competitive, rapidly changing and consumer- and technology-driven industry. This industry is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights. Our actual results could differ materially from management’s expectations because of changes in such factors. Achieving our business and financial objectives, including improved financial results and maintenance of a strong balance sheet and liquidity position, could be adversely affected by the factors discussed or referenced under the “Risk Factors” sections contained in the Annual Report and Quarterly Report as well as, among other things: 1) changes in our plans, strategies and intentions; 2) stock price volatility; 3) future borrowing and restrictive covenants under the revolving credit facility; 4) the impact of the convertible senior notes and the related hedge and warrant transactions; 5) the impact of significant acquisitions, dispositions and other similar transactions; 6) our ability to attract and retain key employees; 7) any negative unintended consequences of cost reductions, restructuring actions or similar efforts, including with respect to any associated savings, charges or other amounts; 8) adoption of new products and services; 9) our ability to attract and retain unique visitors to our properties; 10) asset impairments; and 11) the impact of “cyber-attacks.”

    About AOL

    AOL Inc. (NYSE:AOL) is a brand company, committed to continuously innovating, growing, and investing in brands and experiences that inform, entertain, and connect the world. The home of a world-class collection of premium brands, AOL creates original content that engages audiences on a local and global scale. We help marketers connect with these audiences through effective and engaging digital advertising solutions.

    From time to time, we post information about AOL on our investor relations website (http://ir.aol.com) and our official corporate blog (http://blog.aol.com). Follow us on Twitter @AOL_Inc.

    Webcast and Conference Call Information

    AOL Inc. will host a conference call to discuss third quarter 2014 financial results on Thursday, November 6, 2014, at 8:00 am ET. To access the call, parties in the United States and Canada should call toll-free (877) 415.3181 and other international parties should call (857) 244.7324. Participants should reference ‘AOL Call’ when dialing into the live call. Additionally, a live webcast of the conference call, together with supplemental financial information, can be accessed through the Company’s Investor Relations website at http://ir.aol.com. In addition, an archive of the webcast can be accessed through the link above for one year following the conference call, and an audio replay of the call will be available for two weeks following the conference call by calling (888) 286.8010 and other international parties should call (617) 801.6888. The access code for the replay is 53719765.

     

    Source: AOL Inc.

    Image via Wikimedia Commons

  • AOL Sees 6th Consecutive Quarter Of Revenue Growth

    AOL just released its Q2 earnings report with its sixth consecutive quarter of revenue and adjusted OIBDA growth. Total revenue grew 12% year-over-year. The company attributes this to accelerated global advertising revenue, which grew 20% year-over-year.

    The company saw 60% growth in third party platform revenue driven by growth in the sale of premium formats across its programmatic platform as well as the inclusion of revenue from Adap.tv, which AOL acquired in September.

    CEO Tim Armstrong said, “AOL’s future as a scaled media technology company continues to get stronger. AOL grew consumer usage, video, programmatic advertising, branded content, and ad pricing throughout the first half of 2014, and we will continue to make AOL one of the best operating companies in our industry.”

    Here’s an infographic they released based on the highlights of the earnings report:

    The company announced that its board has approved a $150 million share repurchase authorization.

    Here’s the release in its entirety:

    NEW YORK–()–AOL Inc. (NYSE:AOL) released second quarter 2014 results today.

    “AOL grew consumer usage, video, programmatic advertising, branded content, and ad pricing throughout the first half of 2014, and we will continue to make AOL one of the best operating companies in our industry.”

    “AOL’s future as a scaled media technology company continues to get stronger,” said Tim Armstrong, AOL Chairman and CEO. “AOL grew consumer usage, video, programmatic advertising, branded content, and ad pricing throughout the first half of 2014, and we will continue to make AOL one of the best operating companies in our industry.”

    Summary Results
    In millions (except per share amounts)
    Q2 2014 Q2 2013 Change
    Revenues
    Global advertising and other $ 451.7 $ 375.3 20 %
    AOL Properties Display 144.1 146.2 -1 %
    AOL Properties Search 98.9 93.7 6 %
    Third Party Platform 194.3 121.3 60 %
    Other 14.4 14.1 2 %
    Subscription 155.1 166.0 -7 %
    Total revenues $ 606.8 $ 541.3 12 %
    Adjusted operating income before depreciation and amortization (Adjusted OIBDA) (1) $ 121.5 $ 108.3 12 %
    Operating income $ 54.0 $ 51.9 4 %
    Net income attributable to AOL Inc. $ 28.2 $ 28.5 -1 %
    Diluted EPS $ 0.34 $ 0.35 -3 %
    Cash provided by operating activities $ 125.9 $ 89.4 41 %
    Free Cash Flow (1) $ 87.5 $ 57.3 53 %
    (1) See Page 9 for a reconciliation of Adjusted OIBDA and Free Cash Flow to the GAAP financial measures we consider most comparable.

    Q2 Consolidated AOL Revenue Trends:

    • Q2 total revenue grew 12% year-over-year, driven by accelerated global advertising revenue growth.
    • Global advertising revenue grew 20% year-over-year reflecting:
      • 60% growth in Third Party Platform revenue driven by growth in the sale of premium formats across AOL’s programmatic platform and by the inclusion of revenue from Adap.tv. Third Party Platform Revenue grew approximately 20% excluding Adap.tv.
      • 1% decline in AOL Properties display revenue, due to the absence in Q2’14 of approximately $15 million in revenue from shuttered or de-emphasized brands, including the disposition of Patch. Excluding these impacts, display grew 9% driven by improved overall inventory pricing.
      • 6% growth in AOL Properties search revenue driven by increased queries from search marketing related efforts (which came with approximately $18 million of increased Traffic Acquisition Costs (TAC)).
    • Subscription revenue declined 7% year-over-year as 4% growth in average monthly subscription revenue per AOL subscriber (ARPU) partially offset a 9% decline in subscribers. Domestic AOL subscriber monthly average churn was 1.6% in Q2 2014 compared to 1.4% monthly average churn in Q2 2013, primarily reflecting a price increase during the quarter.

    Q2 Consolidated AOL Profitability Trends:

    • Cost of revenues increased $58 million year-over-year, due to a $63 million increase in TAC, reflecting the inclusion of Adap.tv, search marketing related efforts and growth in Third Party Platform revenue. Excluding TAC, cost of revenues declined $5 million primarily due to lower headcount, including the declines related to the disposition of Patch.
    • General and administrative expenses grew $3 million in Q2 2014 from Q2 2013, which included a $6 million benefit from a favorable settlement. Excluding this benefit in the prior year period, general and administrative expenses declined in Q2 2014, reflecting lower marketing and personnel expenses.
    • Adjusted OIBDA grew 12% year-over-year, driven by total revenue growth net of TAC and reduced non-TAC operating expenses.
    • Operating Income, Net Income and Diluted EPS were negatively impacted by a $7.4 million year-over-year increase in amortization of intangible assets and by a $7.2 million year-over-year increase in stock-based compensation expense, resulting from acquisitions made late in 2013 and in the first half of 2014.

    AOL Asset, Cash & Cash Flow Trends:

    • AOL had $136 million of cash and equivalents and $105 million of outstanding borrowings under our $250 million senior secured revolving credit facility agreement at June 30, 2014.
    • On July 30, AOL completed the sale of its Dulles Technology Center (DTC) for approximately $33 million. The DTC is classified as held for sale on the balance sheet at June 30, 2014. On August 4, AOL repaid $30 million of borrowings under the Credit Facility Agreement, leaving a balance of $75 million on outstanding borrowings.
    • Q2 cash provided by operating activities was $126 million and Free Cash Flow was $88 million, both up approximately $30 million year-over-year, primarily reflecting the receipt of a significant payment from a large partner during the quarter, whereas the prior year payment was received in Q1.
    • AOL repurchased 1.6 million shares of common stock at an average price of $36.84 in Q2, or approximately $59 million in aggregate. On July 28, AOL’s Board of Directors authorized a $150 million share repurchase. Repurchases may be made under the authorization until July 28, 2015.
    DISCUSSION OF SEGMENT RESULTS
    Q2’14 Q2’13 Change
    (In millions)
    Revenues
    Brand Group 185.7 190.3 -2 %
    Membership Group 203.8 213.8 -5 %
    AOL Platforms 247.1 160.4 54 %
    Corporate & Other 0.0 0.3 -100 %
    Intersegment eliminations (29.8 ) (23.5 ) -27 %
    Total Revenues $ 606.8 $ 541.3 12 %
    Adjusted OIBDA
    Brand Group 13.1 (1.4 ) N/A
    Membership Group 143.4 151.6 -5 %
    AOL Platforms (5.0 ) (11.3 ) 56 %
    Corporate & Other (30.0 ) (30.6 ) 2 %
    Total Adjusted OIBDA $ 121.5 $ 108.3 12 %

    Brand Group

    Brand Group revenue declined year-over-year, negatively impacted by the absence of display revenue from shuttered and de-emphasized brands, including Patch. Excluding this impact, Brand Group display revenue grew 4%, driven by continued growth in inventory pricing. Brand Group search revenue grew 10% year-over-year, driven by increased queries from search marketing related efforts.

    Brand Group Adjusted OIBDA improved significantly year-over-year, due to cost savings initiatives, including savings associated with the de-emphasis and shuttering of certain brands, including Patch, partially offset by increased TAC associated with our search marketing related efforts.

    Membership Group

    Membership Group revenue reflects a 7% decline in subscription revenue, partially offset by growth in display revenue, driven by improved inventory pricing on AOL Mail. Subscription revenue declines reflect 9% fewer domestic AOL subscribers on 1.6% monthly average churn. Membership Group revenue declines were partially offset by 4% growth in ARPU year-over-year, reflecting price increases in connection with AOL’s efforts to add increased value to subscriber packages through additional features and services.

    Membership Group Adjusted OIBDA declines primarily reflect the decline in subscription revenue discussed above, partially offset by a decline in costs associated with the decline in subscribers.

    AOL Platforms

    AOL Platforms revenue increased 54% year-over-year, driven by significant growth in Third Party Platform revenue, which includes revenue from our programmatic offerings including Adap.tv. Excluding Adap.tv, Third Party Platform revenue grew approximately 20% year-over-year, driven by growth in the sale of premium formats across AOL’s programmatic platform.

    AOL Platforms Adjusted OIBDA improved significantly year-over-year, reflecting strong revenue net of TAC growth in the segment, partially offset by increased investments in our programmatic platforms and premium formats.

    Corporate & Other

    Corporate & Other Adjusted OIBDA improved slightly year-over-year, primarily driven by lower personnel costs as a result of AOL’s broader efficiency efforts, partially offset by a prior year benefit to legal costs resulting from a favorable settlement.

    Tax

    AOL had Q2 2014 pre-tax income of $52 million and income tax expense of $25 million, resulting in an effective tax rate of 48%. This compares to an effective tax rate of 45% for Q2 2013. The effective tax rates for Q2 2014 and Q2 2013 differed from the statutory U.S. federal income tax rate of 35% primarily due to the tax impact of foreign losses that did not produce a tax benefit.

    Cash Flow

    Q2 cash provided by operating activities was $126 million and Free Cash Flow was $88 million, both up approximately $30 million year-over-year, primarily reflecting the receipt of a significant payment from a large partner during the quarter, whereas the prior year payment was received in Q1.

    CONSOLIDATED OPERATING METRICS
    Q2 2014 Q2 2013 Y/Y Change Q1 2014 Q/Q Change
    Subscriber Information
    Domestic AOL subscribers (in thousands) (1) 2,338 2,583 -9 % 2,422 -3 %
    ARPU (1) $ 20.86 $ 20.03 4 % $ 19.41 7 %
    Domestic AOL subscriber monthly average churn (2) 1.6 % 1.4 % 14 % 1.5 % 7 %
    Unique Visitors (in millions) (3)
    Domestic average monthly multi-platform unique visitors to AOL Properties 171 144 18 % 170 1 %
    Domestic average monthly desktop unique visitors to AOL Properties 108 116 -7 % 114 -5 %
    (1) Domestic AOL subscribers include subscribers participating in introductory free-trial periods and subscribers that are paying no monthly fees or reduced monthly fees through member service and retention programs. Individuals who are only registered for our free offerings, including subscribers who have migrated from paid subscription plans, are not included in the AOL subscriber numbers presented above. Additionally, only those individuals whose subscription includes AOL-brand dial-up access service are included in the AOL subscriber numbers above. ARPU is calculated as domestic average monthly subscription revenue per AOL subscriber.

    (2) Churn represents the percentage of AOL subscribers that are either terminated or cancel our services, factoring in new and reactivated subscribers. Monthly average churn is calculated as the monthly average number of terminations plus cancellations divided by the initial AOL subscriber base plus any new registrations and reactivations for the applicable period.

    (3) See “Unique Visitor Metrics” on page 10 of this press release.

    Webcast and Conference Call Information

    AOL Inc. will host a conference call to discuss second quarter 2014 financial results on Wednesday, August 6 2014, at 8:00 am ET. To access the call, parties in the United States and Canada should call toll-free (800) 510.0146 and other international parties should call (617) 614.3449. Participants should reference ‘AOL Call’ when dialing into the live call. Additionally, a live webcast of the conference call, together with supplemental financial information, can be accessed through the Company’s Investor Relations website at http://ir.aol.com. In addition, an archive of the webcast can be accessed through the link above for one year following the conference call, and an audio replay of the call will be available for two weeks following the conference call by calling (888) 286.8010 and other international parties should call (617) 801.6888. The access code for the replay is 35849940.

    FINANCIAL STATEMENTS

    AOL Inc.
    Condensed Consolidated Statements of Operations
    (In millions, except per share amounts)
    Three Months Ended June 30, Six Months Ended June 30,
    2014 2013 2014 2013
    (unaudited) (unaudited)
    Revenues:
    Advertising and other $ 451.7 $ 375.3 $ 885.1 $ 747.8
    Subscription 155.1 166.0 305.0 331.8
    Total revenues 606.8 541.3 1,190.1 1,079.6
    Costs of revenues 457.4 399.9 914.9 793.0
    General and administrative 79.5 76.6 154.8 159.4
    Amortization of intangible assets 16.5 9.1 31.7 18.6
    Restructuring costs 2.9 4.3 14.5 9.1
    (Gain) loss on disposal of assets, net (3.5 ) (0.5 ) (4.0 ) (2.3 )
    Operating income 54.0 51.9 78.2 101.8
    Other income (loss), net (1.8 ) (0.7 ) (1.3 ) (3.5 )
    Income before income taxes 52.2 51.2 76.9 98.3
    Income tax provision 24.8 23.2 40.8 44.7
    Net income $ 27.4 $ 28.0 $ 36.1 $ 53.6
    Net (income) loss attributable to noncontrolling interests 0.8 0.5 1.4 0.8
    Net income attributable to AOL Inc. $ 28.2 $ 28.5 $ 37.5 $ 54.4
    Per share information attributable to AOL Inc. common stockholders:
    Basic net income per common share $ 0.35 $ 0.37 $ 0.47 $ 0.71
    Diluted net income per common share $ 0.34 $ 0.35 $ 0.45 $ 0.67
    Shares used in computing basic income per common share 79.6 77.2 79.6 77.1
    Shares used in computing diluted income per common share 83.3 81.5 83.8 81.4
    Depreciation expense by function:
    Costs of revenues $ 31.3 $ 29.8 $ 61.1 $ 60.3
    General and administrative 2.4 2.5 6.0 5.1
    Total depreciation expense $ 33.7 $ 32.3 $ 67.1 $ 65.4
    Equity-based compensation by function:
    Costs of revenues $ 11.7 $ 5.7 $ 19.7 $ 11.2
    General and administrative 5.4 4.2 10.4 8.4
    Total equity-based compensation $ 17.1 $ 9.9 $ 30.1 $ 19.6
    Traffic Acquisition Costs (included in costs of revenues) $ 158.8 $ 96.3 $ 309.3 $ 193.9
    Third Party Platform Traffic Acquisition Costs $ 123.0 $ 78.1 $ 243.2 $ 155.1
    AOL Inc.
    Condensed Consolidated Balance Sheets
    (In millions, except per share amounts)
    June 30, December 31,
    2014 2013
    Assets (unaudited)
    Current assets:
    Cash and equivalents $ 136.2 $ 207.3
    Accounts receivable, net of allowances of $9.9 and $8.3, respectively 445.4 491.0
    Prepaid expenses and other current assets 41.8 34.1
    Deferred income taxes, net 25.6 30.7
    Assets held for sale 35.1 –
    Total current assets 684.1 763.1
    Property and equipment, net 447.4 467.9
    Goodwill 1,489.8 1,361.7
    Intangible assets, net 246.7 208.4
    Long-term deferred income taxes, net 77.2 110.6
    Other long-term assets 86.5 71.7
    Total assets $ 3,031.7 $ 2,983.4
    Liabilities, Redeemable Noncontrolling Interest and Equity
    Current liabilities:
    Accounts payable $ 77.3 $ 101.0
    Accrued compensation and benefits 80.1 127.0
    Accrued expenses and other current liabilities 181.8 197.3
    Deferred revenue 67.1 67.2
    Current portion of obligations under capital leases and credit facility 160.3 55.5
    Total current liabilities 566.6 548.0
    Long-term portion of obligations under capital leases 77.5 56.2
    Long-term deferred income taxes 4.0 4.4
    Other long-term liabilities 97.1 97.6
    Total liabilities 745.2 706.2
    Redeemable noncontrolling interest 9.2 9.7
    Equity:
    Common stock, $0.01 par value, 115.1 million shares issued and 78.6 million
    shares outstanding as of June 30, 2014 and 114.1 million shares issued and 79.2
    million shares outstanding as of December 31, 2013    		 1.2 1.1
    Additional paid-in capital 3,619.7 3,592.7
    Accumulated other comprehensive income (loss), net (287.3 ) (290.4 )
    Accumulated deficit (56.0 ) (93.6 )
    Treasury stock, at cost, 36.5 million shares as of June 30, 2014 and 34.9 million
    shares as of December 31, 2013    		 (1,001.5 ) (942.9 )
    Total stockholders’ equity 2,276.1 2,266.9
    Noncontrolling interest 1.2 0.6
    Total equity 2,277.3 2,267.5
    Total liabilities, redeemable noncontrolling interest and equity $ 3,031.7 $ 2,983.4
    AOL Inc.
    Condensed Consolidated Statements of Cash Flows
    (In millions)
    Six Months Ended June 30,
    2014 2013
    (unaudited)
    Operating Activities
    Net income $ 36.1 $ 53.6
    Adjustments for non-cash and non-operating items:
    Depreciation and amortization 98.8 84.0
    Asset impairments and write-offs 11.2 1.4
    (Gain) loss on disposal of assets, net (4.1 ) (1.6 )
    Equity-based compensation 30.1 19.6
    Deferred income taxes 4.8 23.9
    Other non-cash adjustments 1.5 4.8
    Changes in operating assets and liabilities, net of acquisitions (29.0 ) (55.7 )
    Cash provided by operating activities 149.4 130.0
    Investing Activities
    Investments and acquisitions, net of cash acquired (191.5 ) (6.6 )
    Proceeds from disposal of assets, net 4.5 1.0
    Capital expenditures and product development costs (36.3 ) (33.0 )
    Cash used by investing activities (223.3 ) (38.6 )
    Financing Activities
    Borrowings under the credit facility agreement 105.0 –
    Repurchase of common stock (58.6 ) (49.9 )
    Principal payments on capital leases (36.1 ) (29.9 )
    Tax withholdings related to net share settlements of restricted stock units (17.8 ) (12.0 )
    Proceeds from exercise of stock options 6.4 17.5
    Other financing activities 3.4 1.9
    Cash provided (used) by financing activities 2.3 (72.4 )
    Effect of exchange rate changes on cash and equivalents 0.5 (2.2 )
    (Decrease) increase in cash and equivalents (71.1 ) 16.8
    Cash and equivalents at beginning of period 207.3 466.6
    Cash and equivalents at end of period $ 136.2 $ 483.4
    SUPPLEMENTAL INFORMATION – UNAUDITED
    Items impacting comparability: The following table represents certain items that impacted the comparability of net income attributable to AOL Inc. for the three and six months ended June 30, 2014 and 2013 (In millions, except per share amounts):
    Three Months Ended June 30, Six Months Ended June 30,
    2014 2013 2014 2013
    Restructuring costs $ (2.9 ) $ (4.3 ) $ (14.5 ) $ (9.1 )
    Equity-based compensation expense (17.1 ) (9.9 ) (30.1 ) (19.6 )
    Asset impairments and write-offs (0.8 ) (1.3 ) (11.2 ) (1.4 )
    ` Gain (loss) on disposal of assets, net 3.5 0.5 4.0 2.3
    Pre-tax impact (17.3 ) (15.0 ) (51.8 ) (27.8 )
    Income tax impact (1) 8.2 6.0 22.9 10.1
    After-tax impact of items impacting comparability of net income $ (9.1 ) $ (9.0 ) $ (28.9 ) $ (17.7 )
    Impact per basic common share $ (0.11 ) $ (0.12 ) $ (0.36 ) $ (0.23 )
    Impact per diluted common share $ (0.11 ) $ (0.11 ) $ (0.34 ) $ (0.22 )
    Effective tax rate (2) 39.7 % 39.4 % 39.7 % 39.4 %
    (1) Income tax impact is calculated by applying the marginal annual effective tax rate to deductible items. The income tax impacts for certain items such as gain (loss) on disposal of assets are calculated by using the actual tax expense for the transactions.
    (2) For the three and six months ended June 30, 2014, the effective tax rate was calculated based on AOL’s 2014 projected marginal annual effective tax rate. The effective tax rate for the three and six months ended June 30, 2013 was calculated based upon AOL’s 2013 marginal annual effective tax rate.
    AOL Inc.
    Reconciliation of Adjusted OIBDA to Operating Income and Free Cash Flow to Cash Provided by Operating Activities
    (In millions)
    Three Months Ended June 30, Six Months Ended June 30,
    2014 2013 2014 2013
    Operating income $ 54.0 $ 51.9 $ 78.2 $ 101.8
    Add: Depreciation 33.7 32.3 67.1 65.4
    Add: Amortization of intangible assets 16.5 9.1 31.7 18.6
    Add: Restructuring costs 2.9 4.3 14.5 9.1
    Add: Equity-based compensation 17.1 9.9 30.1 19.6
    Add: Asset impairments and write-offs 0.8 1.3 11.2 1.4
    Add: Losses/(gains) on disposal of assets, net (3.5 ) (0.5 ) (4.0 ) (2.3 )
    Adjusted OIBDA $ 121.5 $ 108.3 $ 228.8 $ 213.6
    Cash provided by operating activities $ 125.9 $ 89.4 $ 149.4 $ 130.0
    Less: Capital expenditures and product development costs 19.4 16.4 36.3 33.0
    Less: Principal payments on capital leases 19.0 15.7 36.1 29.9
    Free Cash Flow $ 87.5 $ 57.3 $ 77.0 $ 67.1

    Note Regarding Non-GAAP Financial Measures

    This press release and its attachments include the financial measures Adjusted OIBDA and Free Cash Flow, both of which are defined as non-GAAP financial measures by the Securities and Exchange Commission (SEC). These measures may be different than similarly-titled non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). Explanations of our non-GAAP financial measures are as follows:

    Adjusted OIBDA. We define Adjusted OIBDA as operating income before depreciation and amortization excluding the impact of restructuring costs, non-cash equity-based compensation, gains and losses on all disposals of assets, noncash asset impairments and write-offs and special items. We consider Adjusted OIBDA to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of noncash items such as depreciation of tangible assets, amortization of intangible assets that were primarily recognized in business combinations, asset impairments and write-offs, as well as the effect of restructurings, gains and losses on asset sales and special items, which we do not believe are indicative of our core operating performance. We exclude the impacts of equity-based compensation to allow us to be more closely aligned with the industry and analyst community. A limitation of this measure, however, is that it does not reflect the periodic costs of capitalized tangible and intangible assets used in generating revenues in our business or the current or future expected cash expenditures for restructuring costs. The Adjusted OIBDA measure also does not include equity-based compensation, which is and will remain a key element of our overall long-term compensation package. Moreover, the Adjusted OIBDA measures do not reflect gains and losses on asset sales, impairment charges and write-offs related to goodwill, intangible assets and fixed assets or special items which impact our operating performance. We evaluate the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets, investment spending levels and return on capital.

    Free Cash Flow. We define Free Cash Flow as cash provided by operating activities, less capital expenditures, product development costs and principal payments on capital leases. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures, capitalized product development costs and principal payments on capital leases, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of Free Cash Flow also facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the total increase or decrease in cash for the period because it excludes certain non-operating cash flows.

    Unique Visitor Metrics

    We utilize unique visitor numbers to evaluate our performance, as unique visitor numbers provide an indication of our consumer reach. Although our consumer reach does not correlate directly to advertising revenue, we believe that our ability to broadly reach diverse demographic and geographic audiences is attractive to brand advertisers seeking to promote their brands to a variety of consumers without having to partner with multiple content providers. Multi-platform unique visitor metrics represent a measure of AOL Properties’ unduplicated audience across all digital platforms. Desktop unique visitors to AOL Properties represent the estimated number of individuals who visited any content of a website or application owned by AOL or for which the traffic has been assigned to AOL by the owner during the applicable measurement period. The source for our unique visitor information is a third party (comScore Media Metrix).

    Cautionary Statement Concerning Forward-Looking Statements

    This press release and our conference call at 8:00 a.m. Eastern Time today may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding business strategies, market potential, future financial and operational performance and other matters. Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “will,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Except as required by law, we are under no obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in the “Risk Factors” sections contained in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “Annual Report”) and our Quarterly Report on Form 10-Q for the three months ended June 30, 2014 (“Quarterly Report”), filed with the Securities and Exchange Commission. In addition, we operate a web services company in a highly competitive, rapidly changing and consumer- and technology-driven industry. This industry is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights. Our actual results could differ materially from management’s expectations because of changes in such factors. Achieving our business and financial objectives, including improved financial results and maintenance of a strong balance sheet and liquidity position, could be adversely affected by the factors discussed or referenced under the “Risk Factors” sections contained in the Annual Report and Quarterly Report as well as, among other things: 1) changes in our plans, strategies and intentions; 2) stock price volatility; 3) future borrowing and restrictive covenants under the revolving credit facility; 4) the impact of significant acquisitions, dispositions and other similar transactions; 5) our ability to attract and retain key employees; 6) any negative unintended consequences of cost reductions, restructuring actions or similar efforts, including with respect to any associated savings, charges or other amounts; 7) adoption of new products and services; 8) our ability to attract and retain unique visitors to our properties; 9) asset impairments; and 10) the impact of “cyber-attacks.”

    About AOL

    AOL Inc. (NYSE:AOL) is a brand company, committed to continuously innovating, growing, and investing in brands and experiences that inform, entertain, and connect the world. The home of a world-class collection of premium brands, AOL creates original content that engages audiences on a local and global scale. We help marketers connect with these audiences through effective and engaging digital advertising solutions.

    From time to time, we post information about AOL on our investor relations website (http://ir.aol.com) and our official corporate blog (http://blog.aol.com).

    Image via AOL

  • AOL Launches Programmatic Ad Platform ‘One’

    AOL Launches Programmatic Ad Platform ‘One’

    AOL has rebranded AOL Networks to AOL Platforms, and announced the launch of One, a cross-screen programmatic ad platform, which combines the teams and technologies behind Adap.tv, AdLearn Open Platform (AOP) and MarketPlace, and lives under the AOL Platforms brand.

    Here’s the official description for One:

    ONE will be the first platform that empowers brands with a holistic view of the consumer’s journey through the marketing funnel, and makes that insight actionable, in real-time on the platform. Development on ONE is underway and customers will be able to start using portions of the platform later this year. The single, unified platform takes media planning and management to a new level, with predictive analytics that provide immediate insights on metrics like reach, frequency, and performance, and post-campaign insights that look across all screens and formats to deliver immediate impact on brand metrics. It is completely format, screen and inventory agnostic – from video, display and TV, to tablet, desktop and mobile devices, to reserved and non-reserved inventory across AOL or any other publisher or media source.

    IPG Mediabrands plans to be the charter agency network partner for One. The news was announced at ad:tech in San Francisco.

    AOL CEO Tim Armstrong said, “AOL has spent the last four years building platforms to facilitate the efficient and effective flow of advertising dollars to digital. We build brands – our own, and those of more than 22,000 publishers in our global network and the thousands of marketers we work with daily to help them accomplish their business goals in today’s fast moving, dynamic market. On the platforms side of our business, as machines automate more media decisions across TV to digital, we are well-positioned to help advertisers, agencies and publishers realize the true value of data-driven advertising.”

    Bob Lord, CEO of AOL Platforms added, “Our industry has developed too many niche offerings and specialized services over the last 25 years, and chaos in ad tech is at an all-time high. The inefficiencies, ineffectiveness and expense of managing multiple teams, tools and metrics for display, mobile and video, across all devices, are stifling.”

    “The holy grail of marketing is helping marketers understand how direct response and brand budgets can interact together,” he said. “With the goal of driving economic efficiencies and media effectiveness, ONE ensures that data drives media selection and allocation, pricing and creative. It is the integrator of media across every screen and the automator of decisions that have long not needed human attention. I believe a platform like ONE – that is open and that doesn’t discriminate – will win.”

    “Our mission is to foster an open, global ecosystem that simplifies digital adverting, enabling customers to efficiently leverage the entire technology and data ecosystem,” Lord said. “Customers who have a commitment to an external partner for a piece of the ad tech stack will be able to integrate and plug that solution into our platform giving advertisers and publishers alike incredible flexibility with elements like data and attribution to join and manage all of their investments on a single platform in real time.”

    ONE will be sold as an enterprise solution, and will be used by AOL itself as its dedicated programmatic platform.

    Image via AOL

  • AOL Earnings Released, Company Posts Strongest Quarter In 10 Years

    AOL Earnings Released, Company Posts Strongest Quarter In 10 Years

    AOL just released its Q4 earnings report, delivering its strongest revenue growth in a decade.

    Total revenue grew 13% year-over-year, mostly due to global ad revenue growth, which grew 23% itself. This includes 63% growth in third party network revenue and 7% growth in global display. Global search revenue decreased by 2%.

    CEO Tim Armstrong said, “2013 was AOL’s most successful year in the last decade, and we accomplished our goal of industry level growth at scale for AOL. AOL’s exceptionally talented team continues to execute against our strategy and our results show meaningful progress in the most important areas of media and technology. AOL plans to invest in our market leading strategies in 2014, while we continue to grow the company.”

    Earnings per share didn’t quite meet Wall Street expectations. It will be interesting to see how the coming quarters look without Patch. AOL announced it would get rid of (while keeping a minority stake in) Patch last month with the deal to close early in the quarter.

    Shares are up in pre-market trading.

    Here’s the release in its entirety:

    NEW YORK–()–AOL Inc. (NYSE:AOL) released fourth quarter 2013 results today.

    “AOL’s exceptionally talented team continues to execute against our strategy and our results show meaningful progress in the most important areas of media and technology. AOL plans to invest in our market leading strategies in 2014, while we continue to grow the company.”

    “2013 was AOL’s most successful year in the last decade, and we accomplished our goal of industry level growth at scale for AOL,” said Tim Armstrong, AOL Chairman and CEO. “AOL’s exceptionally talented team continues to execute against our strategy and our results show meaningful progress in the most important areas of media and technology. AOL plans to invest in our market leading strategies in 2014, while we continue to grow the company.”

    Summary Results
    In millions (except per share amounts)
    Q4 2013 Q4 2012 Change FY 2013 FY 2012 Change
    Revenue
    Advertising $ 507.0 $ 410.6 23 % $ 1,613.4 $ 1,418.5 14 %
    Global Display 181.7 169.8 7 % 610.2 575.4 6 %
    Global Search 101.7 103.6 -2 % 388.5 371.5 5 %
    AOL Properties 283.4 273.4 4 % 998.7 946.9 5 %
    Third Party Network 223.6 137.2 63 % 614.7 471.6 30 %
    Subscription 156.7 174.2 -10 % 650.1 705.3 -8 %
    Other 15.3 14.7 4 % 56.4 67.9 -17 %
    Total revenues $ 679.0 $ 599.5 13 % $ 2,319.9 $ 2,191.7 6 %
    Adjusted operating income before depreciation and amortization (Adjusted OIBDA) (1) $ 147.3 $ 123.3 19 % $ 480.7 $ 412.6 17 %
    Operating income $ 71.8 $ 68.2 5 % $ 190.3 $ 1,201.9 -84 %
    Net income attributable to AOL Inc. $ 36.0 $ 35.7 1 % $ 92.4 $ 1,048.4 -91 %
    Diluted EPS $ 0.43 $ 0.41 5 % $ 1.13 $ 11.21 -90 %
    Cash provided by operating activities $ 90.0 $ 76.7 17 % $ 318.9 $ 365.6 -13 %
    Free Cash Flow (1) $ 60.4 $ 46.3 30 % $ 192.1 $ 245.1 -22 %
    (1) See Page 9 for a reconciliation of Adjusted OIBDA and Free Cash Flow to the GAAP financial measures we consider most comparable.

    Q4 Consolidated AOL Revenue Trends:

    • Q4 total revenue grew 13% year-over-year, driven by global advertising revenue growth.
    • Global advertising revenue grew 23% year-over-year reflecting:
      • 63% growth in Third Party Network revenue driven by growth in the sale of premium formats across AOL’s programmatic platform and by the inclusion of revenue from Adap.tv. Third Party Network Revenue grew 20% excluding Adap.tv.
      • 7% growth in global display revenue driven by improved pricing related to growth in the sale of premium formats across AOL’s properties.
      • 2% decline in global search revenue driven primarily by fewer search queries resulting from a decline in domestic AOL subscribers.
    • Subscription revenue declined 10% year-over-year and domestic AOL subscriber monthly average churn was 1.3% in Q4 2013 compared to a 10% decline year-over-year in subscription revenue and 1.8% monthly average churn in Q4 2012.

    Q4 Consolidated AOL Profitability Trends:

    • Operating income, net income and diluted EPS were negatively impacted by a pre-tax restructuring charge of $13.2 million, largely related to a reduction in personnel, including Patch.
    • Adjusted OIBDA grew 19% year-over-year, driven by total revenue growth and a 25% decline in general and administrative expenses, partially offset by a 17% growth in costs of revenue expenses.
    • Cost of revenues increased $70.5 million year-over-year, reflecting a $67.4 million increase in total Traffic Acquisition Costs (TAC). TAC increases were driven by the inclusion of Adap.tv, growth in Third Party Network revenue and growth in our search marketing related efforts. Increased expenses associated with Adap.tv offset approximately $11 million of special (expense) items from Q4 2012 that did not reoccur in Q4 2013.
    • General and administrative expenses declined $27.6 million in Q4 2013 year-over-year, due to a decline in marketing costs primarily related to AOL’s continued cost reduction efforts, and a decline in legal and consulting fees.

    AOL Asset, Cash & Cash Flow Trends:

    • AOL had $207.3 million of cash and equivalents at December 31, 2013. Q4 cash provided by operating activities and Free Cash Flow were $90.0 million and $60.4 million, up 17% and 30% year-over-year, respectively.
    • AOL repurchased 0.9 million shares of common stock at an average price of $34.60 in Q4 2013, or approximately $32.6 million in aggregate. In 2013, AOL repurchased 3.9 million shares at an average price of $34.75, or approximately $135 million in aggregate. AOL has approximately $115 million left in its current share repurchase authorization.
    • On December 31, 2013, AOL entered into an agreement to contribute Patch into a new joint venture which will be operated and majority owned by Hale Global. In connection with the transaction, AOL incurred $5.8 million in restructuring charges in Q4 2013. The transaction closed on January 29, 2014.
    • On January 23, 2014, AOL acquired Gravity, a premier personalization technology and publisher solutions business, for approximately $82 million in cash. An additional approximately $8 million of consideration will be deferred and paid over a two-year service period for certain Gravity employees. As part of the transaction, AOL will acquire approximately $12 million of net operating losses, which is expected to result in a future cash tax benefit to AOL of approximately $5 million.
    DISCUSSION OF SEGMENT RESULTS
    Q4’13 Q4’12 Change
    (In millions)
    Revenue
    Brand Group 222.0 213.2 4 %
    Membership Group 209.3 230.8 -9 %
    AOL Networks 275.0 183.5 50 %
    Corporate & Other 0.0 0.3 -100 %
    Intersegment eliminations (27.3 ) (28.3 ) 4 %
    Total Revenue $ 679.0 $ 599.5 13 %
    Adjusted OIBDA
    Brand Group 35.6 8.8 305 %
    Membership Group 145.9 158.7 -8 %
    AOL Networks 5.9 6.4 -8 %
    Corporate & Other (40.1 ) (50.6 ) 21 %
    Total Adjusted OIBDA $ 147.3 $ 123.3 19 %

    Brand Group

    Brand Group revenue growth reflects continued growth in global display. Brand Group display revenue grew 6% globally driven by improved pricing as a result of growth in premium format impressions. Brand Group search revenue was flat year-over-year.

    Brand Group Adjusted OIBDA improved significantly versus the prior year period, primarily due to the growth in display revenue discussed above as well as a reduction in personnel, primarily at Patch, and lower marketing costs. Lower year-over-year Brand Group operating expenses were partially offset by growth in TAC associated with AOL’s search marketing-related efforts.

    Membership Group

    Membership Group revenue declines reflect a 10% decline in subscription revenue driven by 10% fewer domestic AOL subscribers year-over-year. Membership Group revenue declines were partially offset by a 28% year-over-year reduction in churn rate to 1.3% and by 4% year-over-year growth in domestic average monthly subscription revenue per AOL subscriber (ARPU). Reduced churn and ARPU growth continues to reflect the benefits of AOL’s retention program and the impact of a price rationalization program. The decrease in Membership Group revenue year-over-year was also impacted by a decrease in search revenue of 7% due to fewer search queries resulting from a decline in domestic AOL subscribers.

    Membership Group Adjusted OIBDA declines primarily reflect the decline in subscription revenue discussed above, partially offset by a decline in costs associated with the decline in subscribers.

    AOL Networks

    AOL Networks revenue increased 50% year-over-year, driven by significant growth in Third Party Network revenue which includes Adap.tv. Excluding Adap.tv, Third Party Network revenue grew approximately 20% year-over-year, driven by growth in the sale of premium formats across AOL’s programmatic platform. AOL Networks’ year-over-year revenue comparison was negatively impacted by the divestiture of StudioNow in Q1 2013. StudioNow contributed $1.4 million in revenue to AOL Networks in Q4 2012.

    AOL Networks Adjusted OIBDA declined $0.5 million year-over-year driven by increased investments in our programmatic platforms and premium formats.

    Corporate & Other

    Corporate & Other Adjusted OIBDA improved significantly year-over-year, primarily driven by declines in marketing costs as a result of AOL’s broader cost reduction efforts, and a decline in legal costs.

    Tax

    AOL had Q4 2013 pre-tax income of $70.8 million and income tax expense of $35.3 million, resulting in an effective tax rate of 49.9%. This compares to an effective tax rate of 47.2% for Q4 2012. The effective tax rate for Q4 2013 differed from the statutory U.S. federal income tax rate of 35.0% primarily due to the impact of foreign losses that did not produce a tax benefit. The effective tax rate for Q4 2012 differed from the statutory U.S. federal income tax rate due to the impact of foreign losses that did not produce a tax benefit and the impact of changes in state tax rates and apportionment on AOL’s deferred tax assets.

    Cash Flow

    Q4 2013 cash provided by operating activities was $90.0 million, while Free Cash Flow was $60.4 million, both up year-over-year primarily due to growth in Adjusted OIBDA, partially offset by timing of working capital.

    CONSOLIDATED OPERATING METRICS
    Q4 2013 Q4 2012 Y/Y Change Q3 2013 Q/Q Change
    Subscriber Information
    Domestic AOL subscribers (in thousands) (1) 2,501 2,794 -10 % 2,508 0 %
    ARPU (1) $ 20.01 $ 19.27 4 % $ 20.15 -1 %
    Domestic AOL subscriber monthly average churn (2) 1.3 % 1.8 % -28 % 1.4 % -7 %
    Unique Visitors (in millions) (3)
    Domestic average monthly unique visitors to AOL Properties 120 113 6 % 115 4 %
    Domestic average monthly unique visitors to AOL Advertising Network 207 187 11 % 196 5 %
    (1) Domestic AOL subscribers include subscribers participating in introductory free-trial periods and subscribers that are paying no monthly fees or reduced monthly fees through member service and retention programs. Individuals who are only registered for our free offerings, including subscribers who have migrated from paid subscription plans, are not included in the AOL subscriber numbers presented above. Additionally, only those individuals whose subscription includes AOL-brand dial-up access service are included in the AOL subscriber numbers above. ARPU is calculated as domestic average monthly subscription revenue per AOL subscriber.
    (2) Churn represents the percentage of AOL subscribers that are either terminated or cancel our services, factoring in new and reactivated subscribers. Monthly average churn is calculated as the monthly average number of terminations plus cancellations divided by the initial AOL subscriber base plus any new registrations and reactivations for the applicable period.
    (3) See “Unique Visitor Metrics” on page 10 of this press release.

    Webcast and Conference Call Information

    AOL Inc. will host a conference call to discuss fourth quarter 2013 financial results on Thursday, February 6, 2014, at 8:00 am ET. To access the call, parties in the United States and Canada should call toll-free (800) 237.9752 and other international parties should call (617) 847.8706. Additionally, a live webcast of the conference call, together with supplemental financial information, can be accessed through the Company’s Investor Relations website at http://ir.aol.com. In addition, an archive of the webcast can be accessed through the link above for one year following the conference call, and an audio replay of the call will be available for two weeks following the conference call by calling (888) 286.8010 and other international parties should call (617) 801.6888. The access code for the replay is 64912086.

    FINANCIAL STATEMENTS

    AOL Inc.
    Consolidated Statements of Operations
    (In millions, except per share amounts)
    Three Months Ended December 31, Years Ended December 31,
    2013 2012 2013 2012
    (unaudited) (unaudited) (unaudited)
    Revenues:
    Advertising $ 507.0 $ 410.6 $ 1,613.4 $ 1,418.5
    Subscription 156.7 174.2 650.1 705.3
    Other 15.3 14.7 56.4 67.9
    Total revenues 679.0 599.5 2,319.9 2,191.7
    Costs of revenues 494.6 424.1 1,706.2 1,587.2
    General and administrative 84.4 112.0 322.0 413.2
    Amortization of intangible assets 15.4 9.6 45.1 38.2
    Restructuring costs 13.2 2.4 41.3 10.1
    Goodwill impairment charge – – 17.5 –
    Income from licensing of intellectual property – – – (96.0 )
    (Gain) loss on disposal of assets, net (0.4 ) (16.8 ) (2.5 ) (962.9 )
    Operating income 71.8 68.2 190.3 1,201.9
    Other income (loss), net (1.0 ) (1.1 ) (6.6 ) 8.2
    Income from operations before income taxes 70.8 67.1 183.7 1,210.1
    Income tax provision 35.3 31.7 93.1 162.4
    Net income $ 35.5 $ 35.4 $ 90.6 $ 1,047.7
    Net (income) loss attributable to noncontrolling interests 0.5 0.3 1.8 0.7
    Net income attributable to AOL Inc. $ 36.0 $ 35.7 $ 92.4 $ 1,048.4
    Per share information attributable to AOL Inc. common stockholders:
    Basic net income per common share $ 0.46 $ 0.43 $ 1.19 $ 11.51
    Diluted net income per common share $ 0.43 $ 0.41 $ 1.13 $ 11.21
    Shares used in computing basic income per common share 78.9 83.7 77.6 91.1
    Shares used in computing diluted income per common share 83.5 88.1 82.0 93.5
    Cash dividends paid per common share $ – $ 5.15 $ – $ 5.15
    Depreciation expense by function:
    Costs of revenues $ 28.9 $ 30.3 $ 119.0 $ 126.5
    General and administrative 2.6 2.8 9.9 12.2
    Total depreciation expense $ 31.5 $ 33.1 $ 128.9 $ 138.7
    Equity-based compensation by function:
    Costs of revenues $ 10.4 $ 5.3 $ 29.2 $ 18.9
    General and administrative 5.2 5.9 17.8 20.6
    Total equity-based compensation $ 15.6 $ 11.2 $ 47.0 $ 39.5
    Traffic Acquisition Costs (included in costs of revenues) $ 171.5 $ 104.1 $ 479.4 $ 356.9
    Third Party Network Traffic Acquisition Costs $ 144.9 $ 85.6 $ 393.8 $ 306.7
    AOL Inc.
    Consolidated Balance Sheets
    (In millions, except per share amounts)
    December 31, December 31,
    2013 2012
    Assets (unaudited)
    Current assets:
    Cash and equivalents $ 207.3 $ 466.6
    Accounts receivable, net of allowances of $8.3 and $6.6, respectively 491.0 351.9
    Prepaid expenses and other current assets 34.1 28.5
    Deferred income taxes, net 30.7 40.6
    Total current assets 763.1 887.6
    Property and equipment, net 467.9 478.3
    Goodwill 1,361.7 1,084.1
    Intangible assets, net 208.4 133.2
    Long-term deferred income taxes, net 110.6 148.8
    Other long-term assets 71.7 65.3
    Total assets $ 2,983.4 $ 2,797.3
    Liabilities, Redeemable Noncontrolling Interest and Equity
    Current liabilities:
    Accounts payable $ 101.0 $ 76.1
    Accrued compensation and benefits 127.0 151.4
    Accrued expenses and other current liabilities 197.3 175.3
    Deferred revenue 67.2 57.8
    Current portion of obligations under capital leases 55.5 49.6
    Total current liabilities 548.0 510.2
    Long-term portion of obligations under capital leases 56.2 56.3
    Long-term deferred income taxes 4.4 5.8
    Other long-term liabilities 97.6 73.8
    Total liabilities 706.2 646.1
    Redeemable noncontrolling interest 9.7 13.4
    Equity:
    Common stock, $0.01 par value, 114.1 million shares issued and 79.2 million shares
    outstanding as of December 31, 2013 and 110.1 million shares issued and 76.6
    million shares outstanding as of December 31, 2012    		 1.1 1.1
    Additional paid-in capital 3,592.7 3,457.5
    Accumulated other comprehensive income (loss), net (290.4 ) (294.1 )
    Accumulated deficit (93.6 ) (188.0 )
    Treasury stock, at cost, 34.9 million shares as of December 31, 2013 and
    33.5 million shares as of December 31, 2012    		 (942.9 ) (838.4 )
    Total stockholders’ equity 2,266.9 2,138.1
    Noncontrolling interest 0.6 (0.3 )
    Total equity 2,267.5 2,137.8
    Total liabilities, redeemable noncontrolling interest and equity $ 2,983.4 $ 2,797.3
    AOL Inc.
    Consolidated Statements of Cash Flows
    (In millions)
    Years Ended December 31,
    2013 2012
    (unaudited)
    Operating Activities
    Net income $ 90.6 $ 1,047.7
    Adjustments for non-cash and non-operating items:
    Depreciation and amortization 174.0 176.9
    Asset impairments and write-offs 30.6 6.1
    (Gain) loss on step acquisitions and disposal of assets, net (1.5 ) (975.5 )
    Equity-based compensation 47.0 39.5
    Deferred income taxes 51.5 124.1
    Other non-cash adjustments 4.4 (2.6 )
    Changes in operating assets and liabilities, net of acquisitions
    Receivables (104.5 ) (33.4 )
    Accrued expenses 21.7 4.6
    Deferred revenue 7.9 (12.7 )
    Other balance sheet changes (2.8 ) (9.1 )
    Cash provided by operating activities 318.9 365.6
    Investing Activities
    Investments and acquisitions, net of cash acquired (337.9 ) (32.0 )
    Proceeds from disposal of assets, net 1.5 952.3
    Capital expenditures and product development costs (65.7 ) (64.9 )
    Cash (used) provided by investing activities (402.1 ) 855.4
    Financing Activities
    Repurchase of common stock (134.8 ) (698.7 )
    Principal payments on capital leases (61.1 ) (55.6 )
    Tax withholdings related to net share settlements of restricted stock units (16.5 ) (7.6 )
    Proceeds from exercise of stock options 35.3 35.2
    Cash dividends paid – (434.4 )
    Cash dividend equivalent payments on restricted stock units (4.4 ) –
    Other financing activities 6.1 0.3
    Cash used by financing activities (175.4 ) (1,160.8 )
    Effect of exchange rate changes on cash and equivalents (0.7 ) (1.1 )
    (Decrease) increase in cash and equivalents (259.3 ) 59.1
    Cash and equivalents at beginning of period 466.6 407.5
    Cash and equivalents at end of period $ 207.3 $ 466.6

    SUPPLEMENTAL INFORMATION – UNAUDITED

    Items impacting comparability: The following table represents certain items that impacted the comparability of net income attributable to AOL Inc. for the three months and years ended December 31, 2013 and 2012 (In millions, except per share amounts):

    Three Months Ended
    December 31,    		 Year Ended
    December 31,
    2013 2012 2013 2012
    Restructuring costs $ (13.2 ) $ (2.4 ) $ (41.3 ) $ (10.1 )
    Equity-based compensation expense (15.6 ) (11.2 ) (47.0 ) (39.5 )
    Asset impairments and write-offs (0.2 ) (3.1 ) (30.6 ) (6.1 )
    Gain (loss) on disposal of assets, net (1) 0.4 17.6 2.5 964.2
    Costs related to proxy contest – (0.1 ) – (8.9 )
    Costs related to patent sale and return of proceeds to shareholders – (7.1 ) – (15.7 )
    Income from licensing of intellectual property – – – 96.0
    Tax, legal and other settlements – (1.0 ) – (8.6 )
    Acquisition-related costs (2) – (5.1 ) – (5.1 )
    Gain on consolidation of Ad.com Japan (3) – – – 10.8
    Pre-tax impact (28.6 ) (12.4 ) (116.4 ) 977.0
    Income tax impact (4) 11.3 2.1 38.1 (48.2 )
    After-tax impact of items impacting comparability of net income $ (17.3 ) $ (10.3 ) $ (78.3 ) $ 928.8
    Impact per basic common share $ (0.22 ) $ (0.12 ) $ (1.01 ) $ 10.20
    Impact per diluted common share $ (0.21 ) $ (0.12 ) $ (0.95 ) $ 9.93
    Effective tax rate (5) 39.4 % 39.2 % 39.4 % 39.2 %
    (1) Gain on disposal of assets for the three months ended December 31, 2012 relates primarily to the release of a VAT indemnification liability reserve associated with the sales of our German and UK access businesses in 2006 and 2007. The statute of limitations on this indemnification expired on December 31, 2012. For the year ended December 31, 2012, gain on disposal of assets also includes the gain on the sale of the patents of $946.1 million in the second quarter of 2012.
    (2) Acquisition-related costs for the three months and year ended December 31, 2012 includes approximately $4.7 million related to a bonus paid to employees of an acquired company and accounted for as compensation expense.
    (3) During the three months ended March 31, 2012, AOL purchased an additional interest in a joint venture, Ad.com Japan, and gained control of the board and day-to-day operations of the joint venture. As a result, beginning in February 2012, AOL consolidated the results of Ad.com Japan and upon closing of the transaction, AOL recorded a noncash gain of approximately $10.8 million related to our pre-existing investment in Ad.com Japan.
    (4) Income tax impact is calculated by applying the normalized effective tax rate to deductible items. The income tax impacts for certain items such as gain (loss) on disposal of assets and gain on consolidation of Ad.com Japan are calculated by using the actual tax expense for the transactions. The goodwill impairment charge of $17.5 million recorded in the third quarter of 2013 is not deductible for income tax purposes.
    (5) For the three months and year ended December 31, 2013, the effective tax rate was calculated based on AOL’s 2013 normalized annual effective tax rate. The effective tax rate for the three months and year ended December 31, 2012 was calculated based upon AOL’s 2012 normalized annual effective tax rate.
    AOL Inc.
    Reconciliation of Adjusted OIBDA to Operating Income and Free Cash Flow to Cash Provided by Operating Activities
    (In millions)
    Three Months Ended December 31, Years Ended December 31,
    2013 2012 2013 2012
    Operating income $ 71.8 $ 68.2 $ 190.3 $ 1,201.9
    Add: Depreciation 31.5 33.1 128.9 138.7
    Add: Amortization of intangible assets 15.4 9.6 45.1 38.2
    Add: Restructuring costs 13.2 2.4 41.3 10.1
    Add: Equity-based compensation 15.6 11.2 47.0 39.5
    Add: Asset impairments and write-offs 0.2 3.1 30.6 6.1
    Add: Losses/(gains) on disposal of assets, net (0.4 ) (17.6 ) (2.5 ) (964.2 )
    Add: Special items (1) – 13.3 – (57.7 )
    Adjusted OIBDA $ 147.3 $ 123.3 $ 480.7 $ 412.6
    Cash provided by operating activities $ 90.0 $ 76.7 $ 318.9 $ 365.6
    Less: Capital expenditures and product development costs 13.0 15.9 65.7 64.9
    Less: Principal payments on capital leases 16.6 14.5 61.1 55.6
    Free Cash Flow $ 60.4 $ 46.3 $ 192.1 $ 245.1
    (1) Special items for the three months ended December 31, 2012 include costs related to the patent sale of $7.1 million (including a year-end employee bonus as a result of the patent transaction) and acquisition-related costs of $5.1 million. Special items for the year ended December 31, 2012 also include patent licensing income of $96.0 million and additional costs related to the patent sale of $8.6 million, as well as proxy contest costs of $8.9 million and the Virginia tax settlement of $7.6 million.

    Note Regarding Non-GAAP Financial Measures

    This press release and its attachments include the financial measures Adjusted OIBDA and Free Cash Flow, both of which are defined as non-GAAP financial measures by the Securities and Exchange Commission (SEC). These measures may be different than similarly-titled non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). Explanations of our non-GAAP financial measures are as follows:

    Adjusted OIBDA. We define Adjusted OIBDA as operating income before depreciation and amortization excluding the impact of restructuring costs, non-cash equity-based compensation, gains and losses on all disposals of assets, noncash asset impairments and write-offs and special items. We consider Adjusted OIBDA to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of noncash items such as depreciation of tangible assets, amortization of intangible assets that were primarily recognized in business combinations, asset impairments and write-offs, as well as the effect of restructurings, gains and losses on asset sales and special items, which we do not believe are indicative of our core operating performance. We exclude the impacts of equity-based compensation to allow us to be more closely aligned with the industry and analyst community. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business or the current or future expected cash expenditures for restructuring costs. The Adjusted OIBDA measure also does not include equity-based compensation, which is and will remain a key element of our overall long-term compensation package. Moreover, the Adjusted OIBDA measures do not reflect gains and losses on asset sales, impairment charges and write-offs related to goodwill, intangible assets and fixed assets or special items which impact our operating performance. We evaluate the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets, investment spending levels and return on capital.

    Free Cash Flow. We define Free Cash Flow as cash provided by operating activities, less capital expenditures, product development costs and principal payments on capital leases. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures, capitalized product development costs and principal payments on capital leases, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of Free Cash Flow also facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the total increase or decrease in cash for the period because it excludes certain non-operating cash flows.

    Unique Visitor Metrics

    We utilize unique visitor numbers to evaluate the performance of AOL Properties. In addition, we utilize unique visitor numbers to evaluate the reach of the AOL Advertising Network, which includes both AOL Properties and the Third Party Network. Unique visitor numbers provide an indication of our consumer reach. Although our consumer reach does not correlate directly to advertising revenue, we believe that our ability to broadly reach diverse demographic and geographic audiences is attractive to brand advertisers seeking to promote their brands to a variety of consumers without having to partner with multiple content providers. The source for our unique visitor information is a third party (comScore Media Metrix, or “Media Metrix”).

    Cautionary Statement Concerning Forward-Looking Statements

    This press release and our conference call at 8:00 a.m. Eastern Time today may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding business strategies, market potential, future financial and operational performance and other matters. Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “will,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Except as required by law, we are under no obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in the “Risk Factors” sections contained in our Annual Report on Form 10-K for the year ended December 31, 2012 (the “Annual Report”) and in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (the “Quarterly Report”), filed with the Securities and Exchange Commission. In addition, we operate a web services company in a highly competitive, rapidly changing and consumer- and technology-driven industry. This industry is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights. Our actual results could differ materially from management’s expectations because of changes in such factors. Achieving our business and financial objectives, including improved financial results and maintenance of a strong balance sheet and liquidity position, could be adversely affected by the factors discussed or referenced under the “Risk Factors” sections contained in the Annual Report and Quarterly Report as well as, among other things: 1) changes in our plans, strategies and intentions; 2) stock price volatility; 3) future borrowing and restrictive covenants under the new revolving credit facility; 4) the impact of significant acquisitions, dispositions and other similar transactions; 5) our ability to attract and retain key employees; 6) any negative unintended consequences of cost reductions, restructuring actions or similar efforts, including with respect to any associated savings, charges or other amounts; 7) adoption of new products and services; 8) our ability to attract and retain unique visitors to our properties; 9) asset impairments; and 10) the impact of “cyber-attacks.”

     

    Image via Wikimeda Commons

  • AOL Gets Rid Of Patch, But Keeps Minority Stake

    AOL will continue to have a relationship with its hyperlocal news service Patch, but is relinquishing operation and majority control, as it has announced a new joint venture with Hale Global.

    AOL says it will contribute Patch to a new limited liability company, of which Hale will own the majority, and will operate. AOL will retain a minority interest. Financial terms of the deal were not disclosed.

    AOL chairman and CEO Tim Armstrong said, “Patch is an important source of information for communities, and the joint venture we created has a unified mission to provide local platforms and hyper-local content. AOL has established leading positions in attractive scaled opportunities including video, brands, advertising and subscriptions by making bold bets and strategically investing in these high-growth opportunities — and local will be a growth space during the next decade of the Internet.”

    “Hale Global has a strong track record of operational excellence and platform experience, and we are looking forward to working closely with them on Patch,” he added.

    “We are committed to bringing users, local businesses, writers and advertisers together into a Patch experience full of innovation and growth,” said Hale Global CEO Charles Hale. “Along with AOL, we are committed to taking the necessary steps to ensure Patch remains a vibrant part of the community.”

    Patch was supposed to be a major part of AOL’s business, but it never quite worked out that way. Last year, the company laid off hundreds of Patch workers.

    AOL expects the deal to close early in the first quarter.

    Image via Patch

  • AOL’s Adap.tv Acquisition Is Now Complete

    AOL’s Adap.tv Acquisition Is Now Complete

    About a month ago, AOL announced the company’s biggest acquisition under CEO Tim Armstrong with news that it would buy video ad platform Adap.tv for $405 million. The company announced the completion of that acquisition today.

    “With the addition of Adap.tv, AOL’s leadership position in digital video is further solidified,” said Armstrong. “AOL is well positioned to capitalize on two clear trends in the video space – the movement of advertising dollars from linear to online video and the shift from manual transactions to programmatic media buying. We welcome Adap.tv and its extremely talented employees to the AOL team.”

    AOL said in a statement, “Adap.tv is the only complete global programmatic video technology stack across all screens currently in the marketplace and will operate independently as part of AOL’s video organization. It will be included as part of the overall solution offered by AOL Networks to leading publishers, advertisers and agencies seeking to maximize the value of their online investments.”

    “At Adap.tv, we are focused on building the most important business within the most important category in digital advertising,” said Adap.tv CEO Amir Ashkenazi when the deal was first announced. “We believe that most TV advertising will soon be traded programmatically on platforms like ours. The combination of AOL and Adap.tv accelerates our vision of efficient and effective TV and video advertising.”

    AOL’s video organization is led by Ran Harnevo. AOL Networks also includes Advertising.com, the AOL On Network, Be On, ADTECH and Pictela.

    Adap.tv will also be part of AOL’s Programmatic Upfront on September 23rd. The company calls this an “inaugural event for the industry.”

    Image: Ashkenazi and Armstrong (BusinessWire)

  • Tim Armstrong Apologizes For Firing Lenz

    A public figure runs a media company. An employee of that media company recorded some words, then took a picture of this public figure. This employee is now fired and tensions are high at America Online.

    If you didn’t already know it, Tim Armstrong is the CEO of AOL.  He founded an Internet media platform in 2007 called “Patch” along with Warren Webster, president of Patch Media and Jon Brod, president of AOL Ventures.

    AOL acquired Patch in 2009 at the same time Armstrong replaced then  CEO Randy Falco. On the heels of some potentially mass layoffs at the online network, Armstrong was upset when Patch Creative Director, Abel Lenz, took a picture of him and recorded some audio during a meeting about the firings. Armstrong proceeded to shout and verbally chastise the man, not only in front of the face-to-face participants, but to a much larger crowd listening on.

    Armstrong says he’s sorry for the way he fired Lenz. He says his behavior was due to his intense desire to more fully communicate with his subordinates.

    “My action was driven by the desire to openly communicate with over a thousand Patch employees across the US. The meeting on Friday was the second all-hands we had run that week and people came to Friday’s meeting knowing we would be openly discussing some of the potential changes needed at Patch. As you know, I am a firm believer in open meetings, open Q&A, and this level of transparency requires trust across AOL. Internal meetings of a confidential nature should not be filmed or recorded so that our employees can feel free to discuss all topics openly. Abel had been told previously not to record a confidential meeting, and he repeated that behavior on Friday, which drove my actions.”

    Although Armstrong apologizes for Lenz’s public “thrashing,” he still has no intention of rehiring the man. While the CEO says he is sorry for simply being “emotional,”  he essentially affords his former creative director no such luxury.

    “Lenz is still out of a job,” Armstrong said.

    When asked about how he feels about what has happened to him, Lenz strangely remains silent. Armstrong says he has no intention of compensating Lenz for the public humiliation, according to the CEO’s Facebook page.

    In a Tweet to CNN, Lenz had very little to say.

    “No comment,” he said.

     

  • AOL Reportedly Laying Off Hundreds From Patch, CEO Reportedly Fires Someone For Taking His Picture

    Layoffs are coming to AOL’s Patch hyperlocal news service over the next week or so, according to multiple reports. When the company reported its earnings earlier this week, CEO Tim Armstrong indicated that AOL would get rid of up to 300 Patch sites.

    The company is not commenting publicly about Patch currently, but plenty of rumors and bits of news are trickling out anyway.

    TechCrunch is reporting that it has confirmation from “a well-placed Patcher” that Armstrong confirmed hundreds would be laid off, with notifications expected throughout next week.

    According to Business Insider, who cites “a former Patch executive who remains in contract with people” there, Patch CEO Steve Kalin and Chief Content Officer Rachel Feddersen are out.

    And as if all of this wasn’t enough, Armstrong reportedly fired creative director Abel Lenz for taking his picture during a meeting (via Valleywag). Jim Romenesko shares a “tipster’s account”:

    “Abel, put that camera down. You’re fired. Out,” Armstrong said. After a pause of about five seconds, he then continued the call as though nothing had happened.

    Then after about five more minutes of talking about whatever, he threw in “and the reason I fired Abel before was I don’t want anyone taking pictures of this meeting.” He invoked some kind of comparison to a sports team’s locker room.

    But he seriously fired someone live on a conference call with the entire company … a call that informed us that no one would be laid off today but that instead the layoffs (sorry, “impacts”) would happen at different junctures next week depending on the success of finding “partners” for moribund Patch sites.

    Wow.

    I guess this story will continue to unfold over the next week or so. Stay tuned.

  • AOL Q2 Earnings Out, Global Ad Revenue Boosts Overall Revenue

    AOL Q2 Earnings Out, Global Ad Revenue Boosts Overall Revenue

    AOL reported its Q2 earnings on Wednesday, in addition to the news that it is acquiring Adap.tv in CEO Tim Armstrong’s biggest deal yet.

    The company managed to beat Wall Street estimates. Revenue for the quarter grew 2% year-over-year thanks to global ad revenue growth (7% growth year-over-year). The company also saw 8% growth in global search revenue driven by more revenue per search on AOL.com.

    Subscription revenue decreased by 5% for the company.

    Armstrong had this to say: “AOL takes a major step forward today with another quarter of growth and our agreement to acquire the Adap.tv video marketplace platform that will make AOL a clear global leader in the most important growth segment in our industry – online video. AOL continued to get leaner during Q2 while growing consumer traffic, growing all advertising revenue lines, and improving our subscription trends.”

    Here’s the release in its entirety:

    NEW YORK–(BUSINESS WIRE)–AOL Inc. (NYSE: AOL) released second quarter 2013 results today.

    “AOL takes a major step forward today with another quarter of growth and our agreement to acquire the Adap.tv video marketplace platform that will make AOL a clear global leader in the most important growth segment in our industry – online video,” said Tim Armstrong, AOL Chairman and CEO. “AOL continued to get leaner during Q2 while growing consumer traffic, growing all advertising revenue lines, and improving our subscription trends.”

    Summary Results
    In millions (except per share amounts)
    Q2 2013 Q2 2012 Change
    Revenue
    Advertising $ 361.2 $ 337.8 7 %
    Global Display 146.2 139.9 5 %
    Global Search 93.7 86.5 8 %
    AOL Properties 239.9 226.4 6 %
    Third Party Network 121.3 111.4 9 %
    Subscription 166.0 175.5 -5 %
    Other 14.1 17.8 -21 %
    Total revenues $ 541.3 $ 531.1 2 %
    Adjusted operating income before depreciation and amortization (Adjusted OIBDA)(1) $ 108.3 $ 94.6 14 %
    Operating income (2) $ 51.9 $ 1,059.2 -95 %
    Net income attributable to AOL Inc. (2) $ 28.5 $ 970.8 -97 %
    Diluted EPS $ 0.35 $ 10.17 -97 %
    Cash provided by operating activities $ 89.4 $ 167.2 -47 %
    Free Cash Flow (1) (2) $ 57.3 $ 136.8 -58 %
    (1) See Page 9 for a reconciliation of Adjusted OIBDA and Free Cash Flow to the GAAP financial measures we consider most comparable.
    (2) Year-over-year comparisons were impacted by the Q2 2012 patent transaction with Microsoft Corporation (“Microsoft”); which resulted in a Q2 2012 benefit of $1,042 million to operating income, $970 million to net income attributable to AOL Inc. and $96 million to free cash flow.

    Adap.tv Brings to AOL:

    • The only complete global programmatic video stack for publishers and advertisers across all screens;
    • A unified yield management platform for advertisers and publishers for planning, targeting, ad-serving and measurement;
    • One of the fastest growing platforms on the internet, with global revenue growth in excess of 100% per year in each of the last three years;
    • Wide adoption by the largest global advertisers and publishers, including 83 out of the Ad Age 100 and 70 of the comScore 100;
    • A talented team which has driven innovation in the automation of global video advertising.

    Q2 Consolidated AOL Revenue Trends:

    • Q2 total revenue grew 2% year-over-year driven by global advertising revenue growth.
    • Global advertising revenue grew 7% year-over-year reflecting:
      • 5% growth in global display revenue reflects 3% and 19% growth in domestic and international display revenue, respectively, driven by increased reserved impressions sold on AOL Properties.
      • 9% growth in Third Party Network revenue driven by growth in premium formats sold across the network where the number of publishers and advertisers continues to grow.
      • 8% growth in global search revenue driven primarily by an increase in revenue per search on AOL.com.
    • Subscription revenue declined 5% year-over-year and domestic AOL-brand access subscriber monthly average churn was 1.4% in Q2 2013 compared to a 13% decline year-over-year in subscription revenue and 1.7% monthly average churn in Q2 2012.

    Q2 Consolidated AOL Profitability Trends:

    • AOL’s Q2 2012 operating income, net income and diluted EPS were favorably impacted by $1.04 billion, $970 million and $10.16, respectively resulting from its patent transaction with Microsoft. Excluding this impact, operating income, net income and diluted EPS grew significantly.
    • Adjusted OIBDA grew 14% year-over-year, driven by total revenue growth of 2% and declines in general and administrative expenses, partially offset by increased costs of revenue.
    • Cost of revenues increased $3.7 million year-over-year driven by a 17% increase in Traffic Acquisition Costs (TAC) resulting from growth in search marketing related expenses and 9% growth in Third Party Network revenue, largely offset by lower network related expenses and a decline in sales tax expense of $7.6 million related to a Virginia sales tax settlement in Q2 2012.
    • General and administrative expenses declined $31.2 million in Q2 2013 versus Q2 2012, due to a decline in legal and consulting fees, including the absence of patent and proxy related expenses and the reimbursement in Q2 2013 of legal expenses from prior periods related to an escrow settlement.

    AOL Asset, Cash & Cash Flow Trends:

    • On July 1, 2013, AOL entered into a five-year $250 million senior secured revolving credit facility agreement with a syndicated bank lending group. The credit facility remains undrawn.
    • In Q2 2013, AOL repurchased 1.4 million shares of common stock at an average price of $35.63, or approximately $50 million in aggregate, leaving approximately $50 million on our previous authorization. On July 1, 2013, AOL’s Board of Directors authorized a $150 million share repurchase, bringing AOL’s remaining repurchase authorization to $200 million.
    • AOL had $483.4 million of cash and equivalents at June 30, 2013. Q2 cash provided by operating activities and Free Cash Flow were $89.4 million and $57.3 million, respectively, down year-over-year due to the $96 million benefit in Q2 2012 related to the licensing of patents to Microsoft. The Q2 2013 Free Cash Flow comparison to the prior year was also negatively impacted by the early receipt in Q1 2013 of a prepayment from a large partner that was received last year during Q2.
    DISCUSSION OF SEGMENT RESULTS
    Q2’13 Q2’12 Change
    (In millions)
    Revenue
    Brand Group 190.3 173.5 10 %
    Membership Group 213.8 227.8 -6 %
    AOL Networks 160.4 153.4 5 %
    Corporate & Other 0.3 0.3 0 %
    Intersegment eliminations (23.5 ) (23.9 ) 2 %
    Total Revenue $ 541.3 $ 531.1 2 %
    Adjusted OIBDA
    Brand Group (1.4 ) (15.2 ) 91 %
    Membership Group 151.6 158.3 -4 %
    AOL Networks (11.3 ) (0.3 ) NM
    Corporate & Other (30.6 ) (48.2 ) 37 %
    Total Adjusted OIBDA $ 108.3 $ 94.6 14 %

    Brand Group

    Brand Group revenue growth reflects continued growth in global display and search revenue. Brand Group display revenue grew 9% globally driven by an increase in Brand Group inventory sold on a reserved basis. Brand Group search revenue grew 12% year-over-year driven primarily by revenue per search growth on AOL.com.

    Brand Group Adjusted OIBDA improved significantly versus the prior year period, primarily due to the growth in search and display revenue discussed above, partially offset by increased TAC as a result of our search marketing-related initiatives, which drove additional queries during the quarter. Brand Group Adjusted OIBDA reflects our investment for future growth in our editorial and engineering staff in areas of strategic focus.

    Membership Group

    Membership Group revenue declines reflect a 5% decline in subscription revenue driven by 15% fewer domestic AOL-brand access subscribers year-over-year. The continued moderation of subscription revenue declines was driven by a historically low churn rate of 1.4% and 12% year-over-year growth in domestic average access subscription monthly revenue per AOL-brand access subscriber (ARPU). ARPU growth reflects continued improvement in our retention efforts and the impact of a price rationalization program.

    Membership Group Adjusted OIBDA declines primarily reflect the decline in subscription revenue discussed above, partially offset by a decline in segment operating costs.

    AOL Networks

    AOL Networks revenue increased 5% year-over-year, driven by growth in Third Party Network revenue on the increased sale of premium formats across the network where the number of publishers and advertisers continues to grow. AOL Network’s year-over-year revenue comparison was negatively impacted by the absence of revenue from the divestiture of StudioNow in Q1 2013. StudioNow contributed $3.2 million in revenue to AOL Networks in Q2 2012. To a lesser extent, AOL Networks revenue growth was impacted by a decline in revenue from the sale of Brand Group and Membership Group inventory through AOL Networks, as more of that inventory was sold on a reserved basis than in Q2 2012.

    AOL Networks Adjusted OIBDA decreased year-over-year due to higher research and product development costs primarily related to continued investment in premium formats as well as Ad Learn Open Platform (our demand-side platform) and AdTech MARKETPLACE (our supply-side platform). AOL Networks-related TAC increased by 7%, slower than the rate of growth of Third Party Network revenue.

    Corporate & Other

    Corporate & Other Adjusted OIBDA improved significantly year-over-year primarily driven by declines in marketing and outside services costs as a result of our cost reduction efforts as well the reimbursement in Q2 2013 of legal expenses from prior periods related to an escrow settlement.

    Tax

    AOL had Q2 2013 pre-tax income of $51.2 million and income tax expense of $23.2 million, resulting in an effective tax rate of 45.3%. This compares to an effective tax rate of 8.3% for Q2 2012. The effective tax rate for Q2 2013 differed from the statutory U.S. federal income tax rate of 35.0% primarily due to the impact of foreign losses that did not produce a tax benefit. The effective tax rate for Q2 2012 differed from the statutory U.S. federal income tax rate due to the tax impact of the patent transaction with Microsoft in Q2 2012.

    Cash Flow

    Q2 2013 cash provided by operating activities was $89.4 million, while Free Cash Flow was $57.3 million, both down year-over-year due to the $96 million benefit to operating income in Q2 2012 related to the licensing of patents to Microsoft. Q2 2013 Free Cash Flow comparison to the prior year was also negatively impacted by the early receipt in Q1 2013 of a prepayment from a large partner. In the prior year, the prepayment from this partner was received in Q2.

    Subsequent Event

    On August 5, 2013, AOL entered an agreement to acquire Adap.tv for shares of AOL common stock with an aggregate value of approximately $83 million and estimated cash consideration of approximately $322 million, subject to adjustment for working capital and reduction for indebtedness and transaction expenses of Adap.tv that remain unpaid as of closing.

    Adap.tv is a leading and global unified programmatic video platform powering video advertising for brand advertisers, agencies, publishers and ad networks. Adap.tv’s platform allows buyers and sellers to make decisions together on a unified technology platform, leveraging comprehensive data intelligence, across all screens. The combination of AOL and Adap.tv is expected to create the only global company with a full end-to-end solution and video stack for publishers and advertisers.

    This acquisition is subject to customary conditions, including expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The acquisition is expected to close in the third quarter of 2013.

    CONSOLIDATED OPERATING METRICS
    Q2 2013 Q2 2012 Y/Y Change Q1 2013 Q/Q Change
    Subscriber Information
    Domestic AOL-brand access subscribers (in thousands) (1) 2,583 3,031 -15 % 2,662 -3 %
    ARPU (1) $ 20.03 $ 17.92 12 % $ 19.22 4 %
    Domestic AOL-brand access subscriber monthly average churn (2) 1.4 % 1.7 % -18 % 1.9 % -26 %
    Unique Visitors (in millions) (3)
    Domestic average monthly unique visitors to AOL Properties 116 112 3 % 112 3 %
    Domestic average monthly unique visitors to AOL Advertising Network 188 186 1 % 186 1 %
    (1) Domestic AOL-brand access subscribers include subscribers participating in introductory free-trial periods and subscribers that are paying no monthly fees or reduced monthly fees through member service and retention programs. Individuals who are only registered for our free offerings, including subscribers who have migrated from paid subscription plans, are not included in the AOL-brand access subscriber numbers presented above. ARPU is calculated as domestic average monthly access subscription revenue per AOL-brand access subscriber.
    (2) Churn represents the percentage of subscribers that are either terminated or cancel our services, factoring in new and reactivated subscribers. Monthly average churn is calculated as the monthly average number of terminations plus cancellations divided by the initial subscriber base plus any new registrations and reactivations for the applicable period.
    (3) See “Unique Visitor Metrics” on page 10 of this press release.

    Webcast and Conference Call Information

    AOL Inc. will host a conference call to discuss second quarter 2013 financial results and its agreement to acquire Adap.tv on Wednesday, August 7, 2013, at 8:00 am ET. To access the call, parties in the United States and Canada should call toll-free (866) 515.2915 and other international parties should call (617) 399.5129. Additionally, a live webcast of the conference call, together with supplemental financial information, can be accessed through the Company’s Investor Relations website at http://ir.aol.com. In addition, an archive of the webcast can be accessed through the link above for one year following the conference call, and an audio replay of the call will be available for two weeks following the conference call by calling (888) 286.8010 and other international parties should call (617) 801.6888. The access code for the replay is 87821945.

    FINANCIAL STATEMENTS

    AOL Inc.
    Consolidated Statements of Operations
    (Unaudited; in millions, except per share amounts)
    Three Months Ended June 30, Six Months Ended June 30,
    2013 2012 2013 2012
    Revenues:
    Advertising $ 361.2 $ 337.8 $ 720.4 $ 667.9
    Subscription 166.0 175.5 331.8 357.6
    Other 14.1 17.8 27.4 35.0
    Total revenues 541.3 531.1 1,079.6 1,060.5
    Costs of revenues 399.9 396.2 793.0 780.8
    General and administrative 76.6 107.8 159.4 204.0
    Amortization of intangible assets 9.1 9.8 18.6 19.6
    Restructuring costs 4.3 (0.1 ) 9.1 7.3
    Income from licensing of intellectual property – (96.0 ) – (96.0 )
    (Gain) loss on disposal of assets, net (0.5 ) (945.8 ) (2.3 ) (945.8 )
    Operating income 51.9 1,059.2 101.8 1,090.6
    Other income (loss), net (0.7 ) (1.1 ) (3.5 ) 7.3
    Income from operations before income taxes 51.2 1,058.1 98.3 1,097.9
    Income tax provision 23.2 87.5 44.7 106.3
    Net income $ 28.0 $ 970.6 $ 53.6 $ 991.6
    Net (income) loss attributable to noncontrolling interests 0.5 0.2 0.8 0.3
    Net income attributable to AOL Inc. $ 28.5 $ 970.8 $ 54.4 $ 991.9
    Per share information attributable to AOL Inc. common stockholders:
    Basic net income per common share $ 0.37 $ 10.37 $ 0.71 $ 10.55
    Diluted net income per common share $ 0.35 $ 10.17 $ 0.67 $ 10.42
    Shares used in computing basic income per common share 77.2 93.6 77.1 94.0
    Shares used in computing diluted income per common share 81.5 95.5 81.4 95.2
    Depreciation expense by function:
    Costs of revenues $ 29.8 $ 32.4 $ 60.3 $ 64.5
    General and administrative 2.5 2.8 5.1 6.8
    Total depreciation expense $ 32.3 $ 35.2 $ 65.4 $ 71.3
    Equity-based compensation by function:
    Costs of revenues $ 5.7 $ 4.6 $ 11.2 $ 8.6
    General and administrative 4.2 4.0 8.4 8.6
    Total equity-based compensation $ 9.9 $ 8.6 $ 19.6 $ 17.2
    Traffic Acquisition Costs (included in costs of revenues) $ 96.3 $ 82.4 $ 193.9 $ 163.2
    AOL Inc.
    Consolidated Balance Sheets
    (In millions, except per share amounts)
    June 30, December 31,
    2013 2012
    Assets (unaudited)
    Current assets:
    Cash and equivalents $ 483.4 $ 466.6
    Accounts receivable, net of allowances of $7.1 and $6.6, respectively 323.4 351.9
    Prepaid expenses and other current assets 32.6 28.5
    Deferred income taxes, net 38.6 40.6
    Total current assets 878.0 887.6
    Property and equipment, net 472.1 478.3
    Goodwill 1,079.9 1,084.1
    Intangible assets, net 113.0 133.2
    Long-term deferred income taxes, net 129.5 148.8
    Other long-term assets 75.4 65.3
    Total assets $ 2,747.9 $ 2,797.3
    Liabilities, Redeemable Noncontrolling Interest and Equity
    Current liabilities:
    Accounts payable $ 75.5 $ 76.1
    Accrued compensation and benefits 78.9 151.4
    Accrued expenses and other current liabilities 147.8 175.3
    Deferred revenue 67.7 57.8
    Current portion of obligations under capital leases 54.6 49.6
    Total current liabilities 424.5 510.2
    Long-term portion of obligations under capital leases 50.8 56.3
    Long-term deferred income taxes 4.6 5.8
    Other long-term liabilities 81.2 73.8
    Total liabilities 561.1 646.1
    Redeemable noncontrolling interest 10.3 13.4
    Equity:
    Common stock, $0.01 par value, 111.5 million shares issued and 76.6 millionshares outstanding as of June 30, 2013 and 110.1 million shares issued

    and 76.6 million shares outstanding as of December 31, 2012

    		 1.1 1.1
    Additional paid-in capital 3,525.4 3,457.5
    Accumulated other comprehensive income (loss), net (297.2 ) (294.1 )
    Accumulated deficit (131.3 ) (188.0 )
    Treasury stock, at cost, 34.9 million shares at June 30, 2013 and33.5 million shares at December 31, 2012 (922.2 ) (838.4 )
    Total stockholders’ equity 2,175.8 2,138.1
    Noncontrolling interest 0.7 (0.3 )
    Total equity 2,176.5 2,137.8
    Total liabilities, redeemable noncontrolling interest and equity $ 2,747.9 $ 2,797.3
    AOL Inc.
    Consolidated Statements of Cash Flows
    (Unaudited; in millions)
    Six Months Ended June 30,
    2013 2012
    Operating Activities
    Net income $ 53.6 $ 991.6
    Adjustments for non-cash and non-operating items:
    Depreciation and amortization 84.0 90.9
    Asset impairments and write-offs 1.4 2.8
    (Gain) loss on step acquisition and disposal of assets, net (1.6 ) (956.6 )
    Equity-based compensation 19.6 17.2
    Deferred income taxes 23.9 85.6
    Other non-cash adjustments 4.8 (3.2 )
    Changes in operating assets and liabilities, net of acquisitions (55.7 ) (41.2 )
    Cash provided by operating activities 130.0 187.1
    Investing Activities
    Investments and acquisitions, net of cash acquired (6.6 ) 1.1
    Proceeds from disposal of assets, net 1.0 960.5
    Capital expenditures and product development costs (33.0 ) (31.7 )
    Cash (used) provided by investing activities (38.6 ) 929.9
    Financing Activities
    Repurchase of common stock (49.9 ) (35.8 )
    Principal payments on capital leases (29.9 ) (28.1 )
    Tax withholdings related to net share settlements of restricted stock units (12.0 ) (6.1 )
    Proceeds from exercise of stock options 17.5 16.6
    Other financing activities 1.9 0.2
    Cash used by financing activities (72.4 ) (53.2 )
    Effect of exchange rate changes on cash and equivalents (2.2 ) (2.8 )
    Increase in cash and equivalents 16.8 1,061.0
    Cash and equivalents at beginning of period 466.6 407.5
    Cash and equivalents at end of period $ 483.4 $ 1,468.5
    SUPPLEMENTAL INFORMATION – UNAUDITED
    Items impacting comparability: The following table represents certain items that impacted the comparability of net income attributable to AOL Inc. for the three and six months ended June 30, 2013 and 2012 (In millions, except per share amounts):
    Three Months Ended June 30, Six Months Ended June 30,
    2013 2012 2013 2012
    Restructuring costs $ (4.3 ) $ 0.1 $ (9.1 ) $ (7.3 )
    Equity-based compensation expense (9.9 ) (8.6 ) (19.6 ) (17.2 )
    Asset impairments and write-offs (1.3 ) (1.9 ) (1.4 ) (2.8 )
    Gain (loss) on disposal of assets, net 0.5 946.0 2.3 946.4
    Costs related to proxy contest – (8.8 ) – (8.8 )
    Costs related to patent sale and return of proceeds to shareholders – (5.6 ) – (5.6 )
    Income from licensing of intellectual property – 96.0 – 96.0
    Tax, legal and other settlements – (7.6 ) – (7.6 )
    Gain on consolidation of Ad.com Japan (1) – – – 10.8
    Pre-tax impact (15.0 ) 1,009.6 (27.8 ) 1,003.9
    Income tax impact (2) 6.0 (61.0 ) 10.1 (54.6 )
    After-tax impact of items impacting comparability of net income $ (9.0 ) $ 948.6 $ (17.7 ) $ 949.3
    Impact per basic common share $ (0.12 ) $ 10.13 $ (0.23 ) $ 10.10
    Impact per diluted common share $ (0.11 ) $ 9.93 $ (0.22 ) $ 9.97
    Effective tax rate (3) 39.4 % 39.2 % 39.4 % 39.2 %
    (1) During the three months ended March 31, 2012, AOL purchased an additional interest in a joint venture, Ad.com Japan, and gained control of the board and day-to-day operations of the joint venture. As a result, beginning in February 2012, AOL consolidated the results of Ad.com Japan and upon closing of the transaction, AOL recorded a noncash gain of approximately $10.8 million related to our pre-existing investment in Ad.com Japan.
    (2) The income tax impacts for certain items such as gain (loss) on disposal of assets and gain on consolidation of Ad.com Japan are calculated by using the actual tax expense for the transactions. The income tax impact for all remaining items is calculated by applying the normalized effective tax rate to deductible items.
    (3) For the three and six months ended June 30, 2013, the effective tax rate was calculated based on AOL’s 2013 projected normalized annual effective tax rate. The effective tax rate for the three and six months ended June 30, 2012 was calculated based upon AOL’s 2012 normalized annual effective tax rate.
    AOL Inc.
    Reconciliation of Adjusted OIBDA to Operating Income and Free Cash Flow to Cash Provided by Operating Activities
    (In millions)
    Three Months Ended June 30, Six Months Ended June 30,
    2013 2012 2013 2012
    Operating income $ 51.9 $ 1,059.2 $ 101.8 $ 1,090.6
    Add: Depreciation 32.3 35.2 65.4 71.3
    Add: Amortization of intangible assets 9.1 9.8 18.6 19.6
    Add: Restructuring costs 4.3 (0.1 ) 9.1 7.3
    Add: Equity-based compensation 9.9 8.6 19.6 17.2
    Add: Asset impairments and write-offs 1.3 1.9 1.4 2.8
    Add: Losses/(gains) on disposal of assets, net (0.5 ) (946.0 ) (2.3 ) (946.4 )
    Add: Special items (1) – (74.0 ) – (74.0 )
    Adjusted OIBDA $ 108.3 $ 94.6 $ 213.6 $ 188.4
    Cash provided by operating activities $ 89.4 $ 167.2 $ 130.0 $ 187.1
    Less: Capital expenditures and product development costs 16.4 16.7 33.0 31.7
    Less: Principal payments on capital leases 15.7 13.7 29.9 28.1
    Free Cash Flow $ 57.3 $ 136.8 $ 67.1 $ 127.3
    (1) Special items for the three and six months ended June 30, 2012 include patent licensing income of $96.0 million, partially offset by costs related to the patent sale and return of the related proceeds to shareholders of $5.6 million, costs related to the proxy contest of $8.8 million and $7.6 million related to a tax settlement.

    Note Regarding Non-GAAP Financial Measures

    This press release and its attachments include the financial measures Adjusted OIBDA and Free Cash Flow, both of which are defined as non-GAAP financial measures by the Securities and Exchange Commission (SEC). These measures may be different than similarly-titled non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). Explanations of our non-GAAP financial measures are as follows:

    Adjusted OIBDA. We define Adjusted OIBDA as operating income before depreciation and amortization excluding the impact of restructuring costs, noncash equity-based compensation, gains and losses on all disposals of assets, noncash asset impairments and write-offs and special items. We consider Adjusted OIBDA to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of noncash items such as depreciation of tangible assets, amortization of intangible assets that were primarily recognized in business combinations, asset impairments and write-offs, as well as the effect of restructurings, gains and losses on asset sales and special items, which we do not believe are indicative of our core operating performance. We exclude the impacts of equity-based compensation to allow us to be more closely aligned with the industry and analyst community. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business or the current or future expected cash expenditures for restructuring costs. The Adjusted OIBDA measure also does not include equity-based compensation, which is and will remain a key element of our overall long-term compensation package. Moreover, the Adjusted OIBDA measures do not reflect gains and losses on asset sales, impairment charges and write-offs related to goodwill, intangible assets and fixed assets or special items which impact our operating performance. We evaluate the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets, investment spending levels and return on capital.

    Free Cash Flow. We define Free Cash Flow as cash provided by operating activities, less capital expenditures, product development costs and principal payments on capital leases. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures, capitalized product development costs and principal payments on capital leases, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of Free Cash Flow also facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the total increase or decrease in cash for the period because it excludes certain non-operating cash flows.

    Unique Visitor Metrics

    We utilize unique visitor numbers to evaluate the performance of AOL Properties. In addition, we utilize unique visitor numbers to evaluate the reach of the AOL Advertising Network, which includes both AOL Properties and the Third Party Network. Unique visitor numbers provide an indication of our consumer reach. Although our consumer reach does not correlate directly to advertising revenue, we believe that our ability to broadly reach diverse demographic and geographic audiences is attractive to brand advertisers seeking to promote their brands to a variety of consumers without having to partner with multiple content providers. The source for our unique visitor information is a third party (comScore Media Metrix, or “Media Metrix”).

    Cautionary Statement Concerning Forward-Looking Statements

    This press release and our conference call at 8:00 a.m. Eastern Time today may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding business strategies, market potential, future financial and operational performance and other matters. Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “will,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Except as required by law, we are under no obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in the “Risk Factors” sections contained in our Annual Report on Form 10-K for the year ended December 31, 2012 (the “Annual Report”) and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (the “Quarterly Report”), filed with the Securities and Exchange Commission. In addition, we operate a web services company in a highly competitive, rapidly changing and consumer- and technology-driven industry. This industry is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights. Our actual results could differ materially from management’s expectations because of changes in such factors. Achieving our business and financial objectives, including improved financial results and maintenance of a strong balance sheet and liquidity position, could be adversely affected by the factors discussed or referenced under the “Risk Factors” sections contained in the Annual Report and Quarterly Report as well as, among other things: 1) changes in our plans, strategies and intentions; 2) stock price volatility; 3) future borrowing and restrictive covenants under the new revolving credit facility; 4) the impact of significant acquisitions, dispositions and other similar transactions; 5) our ability to attract and retain key employees; 6) any negative unintended consequences of cost reductions, restructuring actions or similar efforts, including with respect to any associated savings, charges or other amounts; 7) market adoption of new products and services; 8) our ability to attract and retain unique visitors to our properties; 9) asset impairments; and 10) the impact of “cyber espionage.”

    About AOL

    AOL Inc. (NYSE: AOL) is a brand company, committed to continuously innovating, growing, and investing in brands and experiences that inform, entertain, and connect the world. The home of a world-class collection of premium brands, AOL creates original content that engages audiences on a local and global scale. We help marketers connect with these audiences through effective and engaging digital advertising solutions.

    From time to time, we post information about AOL on our investor relations website (http://ir.aol.com) and our official corporate blog (http://blog.aol.com).

  • AOL Appoints Susan Lyne CEO Of Brand Group, Minson Steps Down As COO

    AOL just announced that it has appointed Susan Lyne CEO of its brand group, and she will run the AOL operating unit that houses the company’s portfolio of brands.

    There were already rumors being reported that she would be taking over all AOL content other than Huffington Post, though the company didn’t specifically mention this in its announcement. TechCrunch shares a company memo, however, which indicates that Arianna Huffington will still report to Tim Armstrong.

    “In her roles as CEO then Chairman of Gilt, and previously as President and CEO of Martha Stewart Living Omnimedia, Susan has a proven track record of brand building and aggressive growth,” said AOL CEO Tim Armstrong. “I know she’ll bring that same drive and growth-oriented mentality to our Brand Group. AOL ended 2012 growing revenue for the first time in eight years, and we expect Susan to help build on this momentum and take our brands to the next level.”

    “In my three years as an AOL board member, I have partnered with Tim Armstrong and my fellow directors to help drive the company’s transformation, and have seen AOL make great strides as it continues to innovate, grow and evolve,” said Lyne. “I’m looking forward to contributing to the company’s continued evolution in my new role, and will focus on creating additional value with all of AOL’s premium brands. Our efforts center on making all of our brands true destinations for audiences worldwide, and to provide marketers with innovative opportunities to connect with these audiences.”

    Lyne will remain Vice Chairman of Gilt, a role she recently transitioned to from Chairman.

    She has also served as President of ABC Entertainment, overseeing the development of shows like Desperate Housewives, Lost, and Grey’s Anatomy. Not bad experience to have as AOL continues to make a big video push.

    AOL’s Chief Operating Officer, Arthur “Artie” Minson, who previously oversaw all three of AOL’s business unites: the Membership Group, AOL Networks, and the Brand Group, is stepping down. He will remain with the company for a transition period.

  • AOL Posts Year-Over-Year Revenue Growth For First Time In 8 Years

    AOL released its Q4 earnings on Friday, and reported revenue growth for the first time in 8 years. AOL posted revenue of $599 million, significantly higher than Street’s $574 million estimate. Adjusted OIBDA was $123 MM ($8 MM higher than Street’s $115 MM).

    This follows AOL’s previous quarter, when it reported the best relative revenue performance in seven years at that time.

    Some other highlights:

    • 13% growth in Global Advertising Revenue
    • 17% growth in Search revenue
    • 10% decline in Subscription revenue – grew sequentially
    • 6% growth in unique visitors year-over-year in Q4 2012

    “AOL returned to growth and generated significant value for shareholders in 2012,” said CEO Tim Armstrong. “AOL has strong momentum entering 2013 and is positioned to continue on our growth path by executing our strategy to build the next generation media and technology company.”

    AOL’s board also authorized the repurchase of $100 million of stock.

    Here’s the new release in its entirety:

    NEW YORK–(BUSINESS WIRE)–AOL Inc. (NYSE: AOL) released fourth quarter 2012 results today.

    “AOL returned to growth and generated significant value for shareholders in 2012”

    “AOL returned to growth and generated significant value for shareholders in 2012,” said Tim Armstrong, Chairman and CEO. “AOL has strong momentum entering 2013 and is positioned to continue on our growth path by executing our strategy to build the next generation media and technology company.”

    Summary Results
    In millions (except per share amounts)
    Q4 2012 Q4 2011 Change FY 2012 FY 2011 Change
    Revenue
    Advertising $ 410.6 $ 363.8 13% $ 1,418.5 $ 1,314.2 8%
    Global Display 169.8 170.6 0% 575.4 573.4 0%
    Search 103.6 88.4 17% 371.5 357.1 4%
    AOL Properties 273.4 259.0 6% 946.9 930.5 2%
    Third Party Network 137.2 104.8 31% 471.6 383.7 23%
    Subscription 174.2 194.6 -10% 705.3 803.2 -12%
    Other 14.7 18.4 -20% 67.9 84.7 -20%
    Total revenues $ 599.5 $ 576.8 4% $ 2,191.7 $ 2,202.1 0%
    Adjusted operating income before depreciation and amortization (OIBDA) (1) $ 123.3 $ 133.1 -7% $ 412.6 $ 408.7 1%
    Operating income $ 68.2 $ 54.8 24% $ 1,201.9 $ 45.8 NM
    Net income attributable to AOL Inc. $ 35.7 $ 22.8 57% $ 1,048.4 $ 13.1 NM
    Diluted EPS $ 0.41 $ 0.23 78% $ 11.21 $ 0.12 NM
    Cash provided by operating activities $ 76.7 $ 99.6 -23% $ 365.6 $ 296.0 24%
    Free Cash Flow (1) $ 46.3 $ 72.6 -36% $ 245.1 $ 164.7 49%

    (1) See Page 10 for a reconciliation of Adjusted OIBDA and Free Cash Flow to the GAAP financial measures the Company considers most comparable.

    KEY QUARTERLY TRENDS

    Consolidated Revenue Trends:

    • Q4 revenue grew year-over-year for the first quarter in 8 years driven by global advertising revenue growth.
    • Global advertising revenue grew 13% year-over-year reflecting:
      • 31% growth in third party network revenue.
      • 17% growth in search revenue (formerly named “search & contextual”).
      • Flat global display revenue, with a 3% decline in domestic display revenue offset by continued growth in international display revenue.
    • Subscription revenue declined 10% year-over-year and monthly average churn was 1.8% in Q4 2012 compared to an 18% decline year-over-year in revenue and 2.2% monthly average churn in Q4 2011.

    Consolidated Profitability Trends:

    • AOL amended its definition of Adjusted OIBDA in Q4 2012 to exclude significant special items that we do not believe are indicative of our core operating performance. These special items may positively or negatively skew analysis of our operating results in a given period. In 2012, these special items included income and expenses related to the patent transaction as well as expenses incurred related to the proxy contest.
    • Q4 2012 Adjusted OIBDA of $123.3 million excluded $13.3 million of special items including $7.1 million of patent sale and license costs, primarily related to a special year-end employee bonus related to the patent transaction, and costs associated with the acquisition of Buysight of $5.1 million. $11 million of these special items are recorded in cost of revenues and $2 million are recorded as general and administrative expenses.
    • Cost of revenues increased $29.9 million year-over-year driven by a 25%, or $20.8 million, increase in Traffic Acquisition Costs (TAC) related to 37% growth in AOL Networks (as described below) revenue and increased TAC related to our search marketing initiatives. Cost of revenue increases also reflect the impact of the special items discussed above and were partially offset by lower network related expenses.
    • General and administrative expenses grew $5.5 million in Q4 2012 versus the prior year period, which included an $8.5 million legal settlement. The increase in expenses year-over-year primarily reflects a $12 million increase in marketing expense related to the production of a number of brand campaigns across the business and brand portfolio domestically and internationally, some of which are expected to run in 2013.
    • Operating income grew year-over-year reflecting a $16.4 million increase to the original gain on the sale of our legacy access businesses in the UK and Germany, due to the release of a VAT indemnification reserve. The increase to the gain on sale had no impact on AOL’s cash flows as there was no payment made in connection with the release.

    Asset, Cash & Cash Flow Trends:

    • In Q4 2012, AOL reduced its shares of common stock outstanding by an additional 14.4 million shares due to shares delivered by Barclays under the Accelerated Stock Repurchase agreement. At December 31, 2012, AOL had 76.6 million common shares outstanding, down 19% from December 31, 2011.
    • On December 14th, AOL paid a special cash dividend of $5.15 per share to shareholders of record at the close of business on December 5th, completing its commitment to return $1.1 billion to shareholders in 2012.
    • AOL had $466.6 million of cash and equivalents at December 31, 2012. Q4 cash provided by operating activities and Free Cash Flow were $76.7 million and $46.3 million, down year-over-year reflecting the timing of collections of receivables, increased marketing expenditures, acquisition related bonus and retention payments and the payment of a special year-end employee bonus as a result of the patent transaction.
    • AOL’s Board of Directors announced it authorized the Company to repurchase up to $100 million of its common stock from time-to-time over the course of the next twelve months depending on market conditions, stock price and other factors.

    DISCUSSION OF SEGMENT RESULTS

    In Q4 2012, AOL began to manage its business on a segmented basis, and therefore is presenting financial information for Q4 2012 and historical periods on the same basis as that reviewed by our management. Our segments are defined by the products and services they provide and by how we evaluate our business. The following are AOL’s reportable segments:

    • The Brand Group, which consists of the majority of AOL’s portfolio of distinct and unique content and service brands. The results for this segment include advertising offerings on a number of owned and operated sites, such as AOL.com, the Huffington Post, Patch, TechCrunch and MapQuest.
    • The Membership Group, which consists of offerings that serve AOL’s registered account holders, both free and paid, and are focused on delivering world-class experiences to AOL’s loyal users who rely on these AOL products and properties every day. The results for this segment include AOL’s subscription offerings and advertising offerings on Membership Group properties, such as AOL Mail, as well as from performance compensation for marketing third party products and services.
    • AOL Networks, which consists of AOL’s offerings to publishers and advertisers utilizing AOL’s Third Party Network as well as AOL Properties inventory sold by AOL Networks. The results for this segment include Advertising.com, ADTECH, Pictela, goviral and AOL On.

    Additionally, AOL has a corporate and other category that includes activities that are not directly attributable or allocable to a specific segment. This category primarily consists of costs associated with broad corporate functions including legal, human resources, finance and accounting, and activities not directly attributable to a segment such as AOL Ventures, restructuring costs, tax settlements and other general business costs. In 2012, the corporate and other category also includes income from the sale and licensing of patents of $1,042 million (net of transaction costs) and patent and proxy contest expenses of $15.7 million and $8.9 million, respectively. In 2010, this category includes the $1,414.4 million goodwill impairment charge.

    The following table highlights the significant products or services included in each segment:

    Brand Group Membership Group AOL Networks Corporate & Other
    AOL.com AIM ADTECH Global business support costs
    AOL Autos AOL Mail Advertising.com Non-core operations
    AOL Music Subscription Services AOL On AOL Ventures
    DailyFinance Related search revenue goviral
    Engadget Other Pictela
    Games.com Sponsored Listings
    Huff Post Live Other
    Huffington Post
    KitchenDaily
    MapQuest
    Moviefone
    Patch
    Heidi Klum
    Patch
    StyleList
    TechCrunch
    Related search revenue
    Other Content Brands

    DISCUSSION OF SEGMENT RESULTS

    Q4’12 Q4’11 Change
    (In millions)
    Revenue
    Brand Group 213.2 205.5 4%
    Membership Group 230.8 254.0 -9%
    AOL Networks 183.5 134.4 37%
    Corporate & Other 0.3 1.2 -75%
    Intersegment eliminations (28.3 ) (18.3 ) -55%
    Total Revenue $ 599.5 $ 576.8 4%
    Adjusted OIBDA
    Brand Group 8.8 13.4 -34%
    Membership Group 158.7 176.7 -10%
    AOL Networks 6.4 (10.7 ) NM
    Corporate & Other (50.6 ) (46.3 ) -9%
    Total Adjusted OIBDA $ 123.3 $ 133.1 -7%

    Brand Group

    Brand Group revenue reflects continued growth in search revenue and international display revenue, which offsets a slight decline in domestic display revenue. Search advertising revenue grew 20% year-over-year driven by continued growth in revenue per search on AOL.com through the optimization of the consumer experience and by increased queries from marketing related efforts. Search revenue growth on AOL.com more than offset a decline in queries from cobranded portals. International display revenue in our Brand Group grew strongly driven by continued growth in Canada and the UK, but was offset by domestic display revenue declines primarily due to an increase in inventory sold through Advertising.com. Domestic display declines were partially offset by growth in reserved pricing and continued growth in the sale of video and Patch inventory. Under our segment reporting structure, Brand Group inventory sold through AOL Networks is recognized in AOL Networks with a corresponding intersegment TAC charge. An amount equal to the TAC charge, reflecting the revenue net of the margin retained by AOL Networks, is then reflected as intersegment revenue within the Brand Group.

    Brand Group Adjusted OIBDA declined versus the prior year period, primarily reflecting increased investment in our editorial staff domestically and internationally, an increase in the number of front line sales representatives, particularly in video, and increased marketing expenses. These declines were partially offset by the growth in revenue discussed above and lower year-over-year Patch expenses.

    Membership Group

    Membership Group revenue reflects a 10% decline in subscription revenue driven by 15% fewer domestic AOL-brand access subscribers year-over-year. Subscription revenue year-over-year declines remained near multi-year lows due to a continued historically low churn rate of 1.8% and 8% year-over-year growth in domestic average monthly revenue per AOL-brand access subscriber (ARPU). Subscription revenue grew sequentially due to 4% growth in ARPU versus Q3 2012. ARPU growth continues to reflect the impact of an ongoing price rationalization program and continued improvement in our retention efforts. Membership Group revenue declines also reflect fewer reserved impressions sold, primarily on AOL Mail, and a shift in the sale of those impressions

    to Advertising.com. As is the case in the Brand Group, this revenue is recognized net of the margin retained by AOL Networks. Membership Group advertising revenue declines were partially offset by growth in search revenue.

    Membership Group Adjusted OIBDA declines primarily reflect the decline in subscribers during the quarter.

    AOL Networks

    AOL Networks revenue increased 37% versus the prior year period, driven by 31% growth in Third Party Network revenue, which included $9.2 million in advertising revenue sold by Ad.com Japan (AOL began consolidating Ad.com Japan in Q1 2012). Third Party Network revenue reflects revenue from the sale of inventory from third party properties through Advertising.com and its growth continues to be driven by an increasing number of publishers and advertisers on the network as well as increased sales of premium packages and products. AOL Networks revenue growth also reflects an 88% increase in the sale of AOL Properties inventory sold through Advertising.com.

    As a result of the growth in revenues, AOL Networks related TAC increased by 29% as compared to the prior year period. The increase in revenues net of TAC was a significant driver in the improvement of AOL Networks Adjusted OIBDA versus the prior year period. Other factors impacting AOL Networks Adjusted OIBDA included a decline in retention compensation expenses and increased year-over-year investment in higher growth areas, particularly in technology and personnel as we continue to build out the capabilities of our technology stack.

    Corporate & Other

    Corporate & Other Adjusted OIBDA decreased versus the prior year period due to increases in personnel expenses related to 2012 performance bonuses and increased marketing costs versus the prior year period, largely offset by continued expense reduction initiatives.

    Tax

    AOL had Q4 2012 pre-tax income of $67.1 million and income tax expense of $31.7 million, resulting in an effective tax rate of 47.2%. This compares to an effective tax rate of 57.7% for Q4 2011. The effective tax rate for Q4 2012 differed substantially from the statutory U.S. federal income tax rate of 35.0% primarily due to the impact of foreign losses that did not produce a tax benefit and the impact of changes in state tax rates and apportionment on AOL’s deferred tax assets. The effective tax rate in Q4 2011 differed from the statutory U.S. federal income tax rate due to the size of foreign losses relative to AOL’s pre-tax income and the unfavorable impact of restricted stock unit vesting in Q4 2011.

    Cash Flow

    Q4 2012 cash provided by operating activities was $76.7 million, while Free Cash Flow was $46.3 million, both declining year-over-year reflecting timing of receivable collections, increased marketing expenditures, acquisition-related bonus and retention payments in Q4 2012 and the Q4 2012 payment of a special year-end employee bonus as a result of the patent transaction.

    CONSOLIDATED OPERATING METRICS

    Q4 2012 Q4 2011 Y/Y Change Q3 2012 Q/Q Change
    Subscriber Information
    Domestic AOL-brand access subscribers (in thousands) (1) 2,794 3,272 -15 % 2,893 -3 %
    ARPU (1) $ 19.27 $ 17.87 8 % $ 18.47 4 %
    Domestic AOL-brand access subscriber monthly average churn (2) 1.8 % 2.2 % -18 % 1.8 % 0 %
    Unique Visitors (in millions) (3)
    Domestic average monthly unique visitors to AOL Properties 113 107 6 % 111 2 %
    Domestic average monthly unique visitors to AOL Advertising Network 187 187 0 % 186 1 %
    (1) Domestic AOL-brand access subscribers include subscribers participating in introductory free-trial periods and subscribers that are paying no monthly fees or reduced monthly fees through member service and retention programs. Individuals who are only registered for our free offerings, including subscribers who have migrated from paid subscription plans, are not included in the AOL-brand access subscriber numbers presented above. ARPU is calculated as average monthly subscription revenue divided by the average monthly subscribers for the applicable period.
    (2) Churn represents the percentage of subscribers that are either terminated or cancel our services, factoring in new and reactivated subscribers. Monthly average churn is calculated as the monthly average number of terminations plus cancellations divided by the initial subscriber base plus any new registrations and reactivations for the applicable period.
    (3) See “Unique Visitor Metrics” on page 11 of this press release.

    Webcast and Conference Call Information

    AOL Inc. will host a conference call to discuss fourth quarter 2012 financial results on Friday, February 8, 2013, at 8:00 am ET. To access the call, parties in the United States and Canada should call toll-free (877) 556.5921 and other international parties should call (617) 597.5474. Additionally, a live webcast of the conference call, together with supplemental financial information, can be accessed through the Company’s Investor Relations website at http://ir.aol.com. In addition, an archive of the webcast can be accessed through the link above for one year following the conference call, and an audio replay of the call will be available for two weeks following the conference call by calling (888) 286.8010 and other international parties should call (617) 801.6888. The access code for the replay is 28455276.

    FINANCIAL STATEMENTS

    AOL Inc.
    Consolidated Statements of Operations
    (In millions, except per share amounts)
    Three Months Ended December 31, Years Ended December 31,
    2012 2011 2012 2011
    (unaudited) (unaudited)
    Revenues:
    Advertising $ 410.6 $ 363.8 $ 1,418.5 $ 1,314.2
    Subscription 174.2 194.6 705.3 803.2
    Other 14.7 18.4 67.9 84.7
    Total revenues 599.5 576.8 2,191.7 2,202.1
    Costs of revenues 424.1 394.2 1,587.2 1,584.4
    General and administrative 112.0 106.5 413.2 440.0
    Amortization of intangible assets 9.6 18.5 38.2 92.0
    Restructuring costs 2.4 2.8 10.1 38.3
    Income from licensing of intellectual property – – (96.0 ) –
    (Gain) loss on disposal of assets, net (16.8 ) – (962.9 ) 1.6
    Operating income 68.2 54.8 1,201.9 45.8
    Other income (loss), net (1.1 ) (0.9 ) 8.2 (3.5 )
    Income from operations before income taxes 67.1 53.9 1,210.1 42.3
    Income tax provision 31.7 31.1 162.4 29.2
    Net income $ 35.4 $ 22.8 $ 1,047.7 $ 13.1
    Net (income) loss attributable to noncontrolling interests 0.3 – 0.7 –
    Net income attributable to AOL Inc. $ 35.7 $ 22.8 $ 1,048.4 $ 13.1
    Per share information attributable to AOL Inc. common stockholders:
    Basic net income per common share $ 0.43 $ 0.23 $ 11.51 $ 0.13
    Diluted net income per common share $ 0.41 $ 0.23 $ 11.21 $ 0.12
    Shares used in computing basic income per common share 83.7 97.1 91.1 104.2
    Shares used in computing diluted income per common share 88.1 98.6 93.5 106.0
    Cash dividends paid per common share $ 5.15 $ – $ 5.15 $ –
    Depreciation expense by function:
    Costs of revenues $ 30.3 $ 32.8 $ 126.5 $ 142.0
    General and administrative 2.8 3.0 12.2 18.9
    Total depreciation expense $ 33.1 $ 35.8 $ 138.7 $ 160.9
    Equity-based compensation by function:
    Costs of revenues $ 5.3 $ 4.4 $ 18.9 $ 16.2
    General and administrative 5.9 6.4 20.6 26.3
    Total equity-based compensation $ 11.2 $ 10.8 $ 39.5 $ 42.5
    Retention compensation expense related to acquired companies by function: (1)
    Costs of revenues $ 2.6 $ 6.2 $ 12.1 $ 34.0
    General and administrative 0.1 0.1 0.2 1.2
    Total retention compensation expense related to acquired companies $ 2.7 $ 6.3 $ 12.3 $ 35.2
    Traffic Acquisition Costs (included in costs of revenues) $ 104.1 $ 83.3 $ 356.9 $ 305.5
    (1) These amounts relate to incentive cash compensation arrangements with employees of acquired companies made at the time of acquisition. Incentive compensation amounts are recorded as retention compensation expense over the future service period of the employees of the acquired companies.
    AOL Inc.
    Consolidated Balance Sheets
    (In millions, except per share amounts)
    December 31,
    2012    		 December 31,
    2011
    Assets (unaudited)
    Current assets:
    Cash and equivalents $ 466.6 $ 407.5
    Accounts receivable, net of allowances of $6.6 and $8.3, respectively 351.9 311.5
    Prepaid expenses and other current assets 29.2 36.9
    Deferred income taxes, net 40.6 53.7
    Total current assets 888.3 809.6
    Property and equipment, net 478.3 505.2
    Goodwill 1,084.1 1,064.0
    Intangible assets, net 133.2 135.2
    Long-term deferred income taxes, net 148.1 259.2
    Other long-term assets 65.3 51.8
    Total assets $ 2,797.3 $ 2,825.0
    Liabilities and Equity
    Current liabilities:
    Accounts payable $ 77.3 $ 74.9
    Accrued compensation and benefits 151.4 152.8
    Accrued expenses and other current liabilities 174.1 171.6
    Deferred revenue 57.8 70.9
    Current portion of obligations under capital leases 49.6 44.6
    Total current liabilities 510.2 514.8
    Long-term portion of obligations under capital leases 56.3 66.2
    Long-term deferred income taxes 5.8 3.5
    Other long-term liabilities 73.8 67.9
    Total liabilities 646.1 652.4
    Redeemable noncontrolling interest 13.4 –
    Equity:
    Common stock, $0.01 par value, 110.1 million shares issued and 76.6 million
    shares outstanding as of December 31, 2012 and 107.0 million shares issued
    and 94.3 million shares outstanding as of December 31, 2011    		 1.1 1.1
    Additional paid-in capital 3,457.5 3,422.4
    Accumulated other comprehensive income (loss), net (294.1 ) (287.5 )
    Accumulated deficit (188.0 ) (789.8 )
    Treasury stock, at cost, 33.5 million shares at December 31, 2012 and 12.7
    million shares at December 31, 2011 (838.4 ) (173.6 )
    Total stockholders’ equity 2,138.1 2,172.6
    Noncontrolling interest (0.3 ) –
    Total equity 2,137.8 2,172.6
    Total liabilities, redeemable noncontrolling interest and equity $ 2,797.3 $ 2,825.0
    AOL Inc.
    Consolidated Statements of Cash Flows
    (In millions)
    Years Ended December 31,
    2012 2011
    (unaudited)
    Operating Activities
    Net income $ 1,047.7 $ 13.1
    Adjustments for non-cash and non-operating items:
    Depreciation and amortization 176.9 252.9
    Asset impairments and write-offs 6.1 7.6
    (Gain) loss on step acquisitions and disposal of assets, net (975.5 ) 1.6
    Equity-based compensation 39.5 42.5
    Deferred income taxes 124.1 23.3
    Other non-cash adjustments (2.6 ) 2.4
    Changes in operating assets and liabilities, net of acquisitions
    Receivables (33.4 ) 12.2
    Accrued expenses 3.4 (29.2 )
    Deferred revenue (12.7 ) (24.0 )
    Other balance sheet changes (7.9 ) (6.4 )
    Cash provided by operating activities 365.6 296.0
    Investing Activities
    Investments and acquisitions, net of cash acquired (32.0 ) (377.9 )
    Proceeds from disposal of assets, net 952.3 4.7
    Capital expenditures and product development costs (64.9 ) (82.3 )
    Cash provided (used) by investing activities 855.4 (455.5 )
    Financing Activities
    Repurchase of common stock (698.7 ) (173.6 )
    Principal payments on capital leases (55.6 ) (49.0 )
    Tax withholdings related to net share settlements of restricted stock units (7.6 ) (0.4 )
    Decrease (increase) in cash collateral securing letters of credit 0.3 (12.8 )
    Proceeds from exercise of stock options 35.2 1.0
    Cash dividends paid (434.4 ) –
    Cash used by financing activities (1,160.8 ) (234.8 )
    Effect of exchange rate changes on cash and equivalents (1.1 ) –
    Increase (decrease) in cash and equivalents 59.1 (394.3 )
    Cash and equivalents at beginning of period 407.5 801.8
    Cash and equivalents at end of period $ 466.6 $ 407.5

     

    SUPPLEMENTAL INFORMATION – UNAUDITED

    Items impacting comparability: The following table represents certain items that impacted the comparability of net income attributable to AOL Inc. for the three and twelve months ended December 31, 2012 and 2011 (In millions, except per share amounts):

    Three Months Ended
    December 31,    		 Years Ended
    December 31,
    2012 2011 2012 2011
    Restructuring costs $ (2.4 ) $ (2.8 ) $ (10.1 ) $ (38.3 )
    Equity-based compensation expense (11.2 ) (10.8 ) (39.5 ) (42.5 )
    Asset impairments and write-offs (3.1 ) (2.5 ) (6.1 ) (7.6 )
    Gain (loss) on disposal of assets, net (1) 17.6 0.6 964.2 (0.4 )
    Costs related to proxy contest (0.1 ) – (8.9 ) –
    Costs related to patent sale and return of proceeds to shareholders (7.1 ) – (15.7 ) –
    Income from licensing of intellectual property – – 96.0 –
    Tax, legal and other settlements (1.0 ) (8.5 ) (8.6 ) (8.5 )
    Acquisition-related costs (2) (5.1 ) – (5.1 ) (12.0 )
    Gain on consolidation of Ad.com Japan (3) – – 10.8 –
    Retention compensation expense related to acquired companies (4) (2.7 ) (6.3 ) (12.3 ) (35.2 )
    Other items impacting comparability – – – (0.7 )
    Pre-tax impact (15.1 ) (30.3 ) 964.7 (145.2 )
    Income tax impact (5) 2.5 10.1 (46.3 ) 48.3
    After-tax impact (12.6 ) (20.2 ) 918.4 (96.9 )
    Income tax benefit related to worthless stock deduction – – – 7.1
    After-tax impact of items impacting comparability of net income $ (12.6 ) $ (20.2 ) $ 918.4 $ (89.8 )
    Impact per basic common share $ (0.15 ) $ (0.21 ) $ 10.08 $ (0.86 )
    Impact per diluted common share $ (0.14 ) $ (0.20 ) $ 9.82 $ (0.85 )
    Effective tax rate (6) 39.2 % 39.0 % 39.2 % 39.0 %
    (1) Gain on disposal of assets for the three months ended December 31, 2012 relates primarily to the release of a VAT indemnification liability reserve associated with the sales of our German and UK access businesses in 2006 and 2007. The statute of limitations on this indemnification expired on December 31, 2012. For the twelve months ended December 31, 2012, gain on disposal of assets also includes the gain on the sale of the patents of $946.1 million in the second quarter of 2012.
    (2) Acquisition-related costs for the three and twelve months ended December 31, 2012 includes approximately $4.7 million related to a bonus paid to employees of an acquired company and accounted for as compensation expense.
    (3) During the three months ended March 31, 2012, AOL purchased an additional interest in a joint venture, Ad.com Japan, and gained control of the board and day-to-day operations of the joint venture. As a result, beginning in February 2012, AOL consolidated the results of Ad.com Japan and upon closing of the transaction, AOL recorded a noncash gain of approximately $10.8 million related to our pre-existing investment in Ad.com Japan.
    (4) These amounts relate to incentive cash compensation arrangements with employees of acquired companies made at the time of acquisition. Incentive compensation amounts are recorded as retention compensation expense over the future service period of the employees of the acquired companies. For tax purposes, a portion of these costs are treated as additional basis in the acquired entity and are not deductible until disposition of the acquired entity.
    (5) The income tax impact for the gain on consolidation of Ad.com Japan, licensing of intellectual property and gain on sale of patents is calculated by using the actual tax expense for the transactions. The income tax impact for all remaining items is calculated by applying the normalized annual effective tax rate to deductible items. Items that are not deductible include a portion of the retention compensation expense, discussed above.
    (6) For the three and twelve months ended December 31, 2012 and 2011, the effective tax rates were calculated based on AOL’s normalized annual effective tax rates for 2012 and 2011, respectively.
    AOL Inc.
    Reconciliation of Adjusted OIBDA to Operating Income and Free Cash Flow to Cash Provided by Operating Activities
    (In millions)
    Three Months Ended December 31, Years Ended December 31,
    2012 2011 2012 2011
    Operating income $ 68.2 $ 54.8 $ 1,201.9 $ 45.8  
    Add: Depreciation 33.1 35.8 138.7 160.9
    Add: Amortization of intangible assets 9.6 18.5 38.2 92.0
    Add: Restructuring costs 2.4 2.8 10.1 38.3
    Add: Equity-based compensation 11.2 10.8 39.5 42.5
    Add: Asset impairments and write-offs 3.1 2.5 6.1 7.6
    Add: Losses/(gains) on disposal of assets, net (17.6 ) (0.6 ) (964.2 ) 0.4
    Add: Special items (1) 13.3 8.5 (57.7 ) 21.2
    Adjusted OIBDA $ 123.3 $ 133.1 $ 412.6 $ 408.7
    Cash provided by operating activities $ 76.7 $ 99.6 $ 365.6 $ 296.0
    Less: Capital expenditures and product development costs 15.9 14.4 64.9 82.3
    Less: Principal payments on capital leases 14.5 12.6 55.6 49.0
    Free Cash Flow $ 46.3 $ 72.6 $ 245.1 $ 164.7
    (1) Special items for the three months ended December 31, 2012 include costs related to the patent sale of $7.1 million (including a year-end employee bonus as a result of the patent transaction) and acquisition-related costs of $5.1 million. Special items for the twelve months ended December 31, 2012 also include patent licensing income of $96.0 million and additional costs related to the patent sale of $8.6 million, as well as proxy contest costs of $8.9 million and the Virginia tax settlement of $7.6 million. Special items for the three months ended December 31, 2011 relate to a legal settlement, and special items for the twelve months ended December 31, 2011 also include acquisition-related costs of $12.0 million.

    Note Regarding Non-GAAP Financial Measures

    This press release and its attachments include the financial measures Adjusted OIBDA and Free Cash Flow, both of which are defined as non-GAAP financial measures by the Securities and Exchange Commission (SEC). These measures may be different than similarly-titled non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). Explanations of our non-GAAP financial measures are as follows:

    Adjusted OIBDA. We define Adjusted OIBDA as operating income before depreciation and amortization excluding the impact of restructuring costs, noncash equity-based compensation, gains and losses on all disposals of assets (including those recorded in costs of revenues), noncash asset impairments and write-offs and special items. We consider Adjusted OIBDA to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of noncash items such as depreciation of tangible assets, amortization of intangible assets that were primarily recognized in business combinations, asset impairments and write-offs, as well as the effect of restructurings, gains and losses on asset sales and special items, which we do not believe are indicative of our core operating performance. We exclude the impacts of equity-based compensation to allow us to be more closely aligned with the industry and analyst community. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business or the current or future expected cash expenditures for restructuring costs. The Adjusted OIBDA measure also does not include equity-based compensation, which is and will remain a key element of our overall long-term compensation package. Moreover, the Adjusted OIBDA measures do not reflect gains and losses on asset sales, impairment charges and write-offs related to goodwill, intangible assets and fixed assets or special items which impact our operating performance. We evaluate the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets, investment spending levels and return on capital.

    Free Cash Flow. We define Free Cash Flow as cash provided by operating activities, less capital expenditures, product development costs and principal payments on capital leases. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures, capitalized product development costs and principal payments on capital leases, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of Free Cash Flow also facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the total increase or decrease in cash for the period because it excludes certain non-operating cash flows.

    Unique Visitor Metrics

    We utilize unique visitor numbers to evaluate the performance of AOL Properties. In addition, we utilize unique visitor numbers to evaluate the reach of the AOL Advertising Network, which includes both AOL Properties and the Third Party Network. Unique visitor numbers provide an indication of our consumer reach. Although our consumer reach does not correlate directly to advertising revenue, we believe that our ability to broadly reach diverse demographic and geographic audiences is attractive to brand advertisers seeking to promote their brands to a variety of consumers without having to partner with multiple content providers. The source for our unique visitor information is a third party (comScore Media Metrix, or “Media Metrix”). While we are familiar with the general methodologies and processes that Media Metrix uses in estimating unique visitors, we have not performed independent testing or validation of Media Metrix’s data collection systems or proprietary statistical models, and therefore we can provide no assurance as to the accuracy of the information that Media Metrix provides.

    Cautionary Statement Concerning Forward-Looking Statements

    This press release and our conference call at 8:00 a.m. Eastern Time today may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding business strategies, market potential, future financial and operational performance and other matters. Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “will,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Except as required by law, we are under no obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in the “Risk Factors” section contained in our Annual Report on Form 10-K for the year ended December 31, 2011 (the “Annual Report”), filed with the Securities and Exchange Commission. In addition, we operate a web services company in a highly competitive, rapidly changing and consumer- and technology-driven industry. This industry is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights. Our actual results could differ materially from management’s expectations because of changes in such factors. Achieving our business and financial objectives, including improved financial results and maintenance of a strong balance sheet and liquidity position, could be adversely affected by the factors discussed or referenced under the “Risk Factors” section contained in the Annual Report as well as, among other things: 1) changes in our plans, strategies and intentions; 2) potential fluctuation in market valuations associated with our cash flows and revenues; 3) the impact of significant acquisitions, dispositions and other similar transactions; 4) our ability to attract and retain key employees; 5) any negative unintended consequences of cost reductions, restructuring actions or similar efforts, including with respect to any associated savings, charges or other amounts; 6) market adoption of new products and services; 7) our ability to attract and retain unique visitors to our properties; 8) asset impairments; and 9) the impact of “cyber-warfare” or terrorist acts and hostilities.

    About AOL

    AOL Inc. (NYSE: AOL) is a brand company, committed to continuously innovating, growing, and investing in brands and experiences that inform, entertain, and connect the world. The home of a world-class collection of premium brands, AOL creates original content that engages audiences on a local and global scale. We help marketers connect with these audiences through effective and engaging digital advertising solutions.

    From time to time, we post information about AOL on our investor relations website (http://ir.aol.com) and our official corporate blog (http://blog.aol.com).

  • AOL Reorganizes Operations Into Three Distinct Units

    AOL Reorganizes Operations Into Three Distinct Units

    Yesterday, AOL began buying back shares of common stock, spending up to $400 million in a dutch auction style sale. Stockholders stand to receive, or have received, as much as $30 per share.

    Today, AOL is introducing some more changes. They are reorganizing the company, and from here on out, they will function as three distinct operating units. The three divisions are Membership, Brand, and Advertising.

    Artie Minson, the company’s current CFO, has been promoted to COO, and he will oversee all three divisions. Minson recently assumed control of AOL’s mobile, search and content businesses, in addition to his regular work with operations and made significant headway. He will balance all these responsibilities in his new position until a suitable replacement can be found to alleviate his workload.

    Tech Crunch, who is owned by AOL, has the inside scoop on what the three divisions will look like and what their responsibilities will be. The membership division will handle current members, whether paying or free.

    The Brand division will deal with content and other media resources they own like Tech Crunch and the Huffington Post. Advertising, or Advertising.Com as they are calling it, will be dealing with ads and marketing, as on might expect.

    Here are a few segments from CEO Tim Armstrong’s memo to his AOL staff regarding the changes:

    To kick-off the second half of 2012, today, the company is announcing the plan to organize into three operating groups and a corporate group that supports those three operating units. The operating units will be AOL Membership, Brand Group, and the Advertising.com Group. The goals of organizing around these operating units are the following:

    1. Build and distribute the world’s best digital brands (B2C and B2B)

    2. Center our measurement, resource allocation, and drive to profitability around brands

    3. Focus our technology and product development on building brand platforms

    4. Improve our O&O and network advertising and commerce revenue

    5. Go faster, unleash talent, and have fun

    Supporting the three operating units of our business will be a shared technology and sales platform, as well as AOL corporate functions. As a company and a culture, brands (including the AOL brand) will be the central focus and measurement point for us and we will continue to move the supporting resources closer to the brands. We want our brands to be driven by leaders who will achieve an even greater focus on our consumer experiences while also driving increased accountability, financial performance, and execution.

    Here’s how Armstrong described the new operating units:

    * The AOL Membership Group will house the businesses that serve AOL account holders – our free and paid members. From AOL.com to AOL Mail to our consumer products that our users rely on, the AOL Membership group will be focused on delivering world-class experiences to our loyal users who rely on these AOL products and properties everyday.

    * The Content Brand Group will house our portfolio of distinct and unique content and service brands. We have a valuable portfolio of world-class content brands, and we want each of these brands to have distinct plans for innovation and profitable growth. Our brand portfolio delivers unique content experiences to their audiences daily, and the leaders in this operating unit will be laser-focused on driving profitable brands that serve real consumer needs.

    * The Advertising.com Group will house our B2B services and network businesses (the platforms we provide to our partners). The Advertising.com Group had our strongest revenue growth for the past couple of quarters and the product innovation and scale we are driving for our partners both on the publisher and advertiser side demonstrate that the Advertising.com Group is positioned for continued growth and acceleration of their business.

    We’ll keep you updated on any changes to the reorganization or AOL’s dutch auction style stock buyback. Things are bound to change again soon, after all, this is the second time the company has reorganized since December.

  • AOL Completes Billion Dollar Patent Sell-Off to Microsoft

    Now that AOL can put the whole Starboard ordeal in the past, one of the bigger business transactions that was caught in the executive crossfire has inally reached its conclusion: the company announced today that it completed its sale of hundreds of patents to Microsoft.

    The transaction included the sale of over 800 patents and their related patent applications to Microsoft, who will retain non-exclusive license to its retained patent portfolio for aggregate proceeds of $1.056 billion. Part of the transaction will ensure that AOL will keep a license to over 300 patent and patent applications related to various aspects of the technology industry, everything from social networking to search and advertising.

    “The closing of this transaction represents another major step for AOL in increasing value for our shareholders,” said AOL CEO and Chairman Tim Armstrong. “As our track record has shown, you should expect us to continue our momentum of creating and unlocking shareholder value through continued operational improvements and executing on our strategy.”

    As previously announced, AOL intends to return 100% of the proceeds to shareholders.

    Showing slight signs of recovery from Starboard’s sell-off of 425,000-plus company shares yesterday, AOL’s stock was up 1.64% following the announcement that the transaction with Microsoft was complete.

  • AOL CEO Armstrong Moving Full Steam Ahead with Patch

    On the heels of winning a proxy showdown against a gang of grumbling shareholders yesterday, AOL CEO Tim Armstrong is punctuating his victory over that cabal of activist investors known as Starboard by pushing the very product they insisted was a poor business endeavor: AOL’s local news platform, Patch.

    Although Patch has yet to return a profit for AOL, the platform started showing signs of life last month by setting a new record in both traffic and revenue. Now, Armstrong appears to be taking the rebuke of Starboard’s attempted insurrection of the company’s board of directors as a license to continue developing the online local news service. “There are only two people in the U.S. investing in local news and information: me and Warren Buffett,” Armstrong told The New York Post.

    While Patch is expected to have its best year yet in 2012 by generating $40 to $50 million in revenue, Armstrong expects that the platform will finally be producing a profit by the end of 2013. He said two key components to turning Patch into a source of profit involve increasing consumer engagement as well as developing new ways to monetize the expected growth in traffic.

    Meanwhile, Starboard took a break from licking its wounds after yesterday’s vote and sold off more than 425,000 shares of AOL in the aftermath, sending the company’s stock falling 5.7%. Way to lose with dignity, guys.

  • AOL Wins Proxy Battle With Starboard: All Board Members Have Been Re-Elected

    AOL released a statement today explaining their proxy battle with activist shareholder, Starboard has come to an end.

    Today, all of their board members have been re-elected for another term signifying that indeed, none of Starboard’s nominations were welcome additions to the AOL team.

    Business Insider published a formal statement from the company:

    “On behalf of AOL’s Board and management team, we want to thank our stockholders for their strong support throughout this process. Over the past few months, we have met with many of our stockholders and greatly appreciate their feedback as well as their commitment to AOL. We intend to be responsive to the messages we heard from our investors and will continue our plans to pursue adding two new independent directors to the Board, who we believe will add additional expertise and relevant perspectives to further enhance the strength of our Board. Today’s outcome reaffirms our strong belief that AOL has the right strategy and team to successfully execute on our plan to continue to deliver enhanced value for all stockholders.”

    You might recall that Starboard issued several activist letters stating that they didn’t appreciate AOL’s efforts to unlock shareholder value and also requested they be allowed to nominate some more appropriate members to the AOL board of directors.

    Of course, this didn’t sit well with many of the AOL shareholders or CEO Tim Armstrong, who blatantly spoke out against Starboard informing them their nominees were unqualified and unwelcome. The recent re-election of AOL’s current board is a strong testament to Armstrong’s sentiments and a gesture of allegiance by the majority of AOL shareholders.

    A recent deal with Microsoft brought over a billion dollars for AOL and now that Starboard is off their back, they plan to divide those funds up amongst shareholders in the most tax efficient way.

    Armstrong claims that brands are going to play an integral part in refining and growing the company in the future, and he hopes to bring them back to profitability by 2013. He also has a goal of connecting brand advertising directly to local advertising. In any event, the future looks a lot brighter for AOL than it did three years ago.

  • AOL’s First Quarter 2012 Earnings Report

    AOL’s quarterly earnings are in and things aren’t looking too bad for the company. Advertising revenue is up 5% year-over-year, and diluted earning per share reached an incredible $0.22, which is much higher than experts were predicting (they predicted around $0.08 per share).

    The bad news is subscription and other revenues fell 15% and 27% respectively. This drop makes for an overall 4% decrease in total revenue at AOL. One thing they had working for them was a dramatic decrease in the amount they were investing back into restructuring.

    Chairman and CEO, Tim Armstrong comments on the results on AOL’s performance during the first quarter of 2012:

    “AOL is a much stronger company today than a year ago and began 2012 by growing advertising revenue, lowering expenses and improving Adjusted OIBDA trends,”

    “In 2012 and beyond we are simultaneously focused on the continued successful execution of our strategy and on creating and unlocking value for our shareholders.”

    So overall things look pretty good for AOL, but one thing that stands out on the report is the 1% drop in domestic advertising revenues. This is a key component to their financial health, and I have to wonder were they are going wrong. According to All Things D, the advertising team over at AOL was falling down on the job and some big clients discontinued their ads on the platform.

    I don’t know if we can expect much to change in this next quarter, but things seem to be headed in the right direction overall. We will keep on on them in the coming months as they continue to tweak their ad platforms. Who knows, it could be an opportunity for some big growth if they get it right.

  • Arianna Huffington Free to Concentrate on the Post

    For over a year Arianna Huffington has served at AOL’s many media properties as the catch all editor. She is famous as a shrewd negotiator who isn’t afraid to ruffle a few feathers. Her length of influence extended over TechCrunch, MovieFone, MapQuest, and Patch.com, but with the changes at AOL, so also changes her focus on those entities.

    According to Huffington, she was seeking to focus more on the Huffington post and distance herself from the day-to-day activities at the other sites. She addressed the issue at the Business Insider 2012 Startups conference last week.

    Arianna Huffington comments on the changes at AOL:

    “What I asked for is for us to be more independent, to have technology, marketing and [business development] now into Huffington Post, so that we can accelerate all our growth, and for me to be freed up to just concentrate exclusively on HuffPost,”

    There’s no word on what exactly will be changing at the Huffington Post. Obviously there will be a lot of changes at AOL. Huffington says her working relationship with AOL CEO Tim Armstrong is still alive and well. We will keep you updated as things at the Huffington Post and AOL evolve.

  • AOL Sets Up Shop at First Digital Content NewsFronts

    Back in February, AOL partnered with Google, Yahoo!, Microsoft, Hulu and Digitas to form “Digital Content NewsFronts,” a forum which allows members to gauge and present advance content offerings to potential investors. The DCNFs kicked off on April 19th, with Hulu presenting their quality content offering to marketers in New York City – and after 13 days, the inaugural event will conclude with Google/YouTube’s showcase on May 2nd. The collective suggests that the digital media landscape changes every two weeks, and during the course of the summit, Microsoft Advertising, AOL, Digitas, and Yahoo! will also be showcasing their programming innovations and latest content offerings.

    A blog post by AOL CEO Tim Armstrong shed some light on the company’s plans for the first event, with their focus being – Powering Brands through Ideas and Content. AOL will be presenting its broad content offerings to advertisers, which will cover assets including Autoblog, TechCrunch, Moviefone, Engadget, The Huffington Post, Stylelist, MapQuest and Patch. Armstrong also writes that he will be keynoting the kickoff, and event presentations will include forums on Brand Solutions and Mega-Trends.

    Also presenting will be fashion and style influencers like Nina Garcia, Rachel Roy and Erin Fetherston; entertainment industry icons Michael Eisner and Larry Tanz, CEO of Vuguru, as well as the cast of a new web series – Julie Warner, Kristy Swanson, Amy Yasbeck, and Romy Rosemont.

    AOL adds that there will be additional surprise guests – Perhaps Xena will show up, and stand next to the original Buffy.

  • AOL To Cut 50 Jobs

    According to the Wall Street Journal, AOL plans to cut up to 50 jobs from it’s AIM unit. AIM is best known for its Instant Messanger service. Among those being cut is vice president of AIM products, Jason Shellen. The layoffs are expected to occur within the next few weeks.

    AOL’s revenue has fallen over the years as its internet access customers unsubscribed, and was down 18% in 2011.

    Mention of the layoffs at AOL comes just days after AOL investor Starboard Value LP, owner of 5.2% of the company, began suggesting a push to replace up to half of AOL’s board. Starboard has criticized AOL Chief Executive Tim Armstrong’s big investment in content companies. Armstrong has been attempting to fashion AOL into an ad-supported digital content company, primarily through acquisitions of sites such as Huffington Post and TechCrunch, to generally ill avail. AOL has also been investing heavily in the Patch.com network, which reportedly lost roughly $100 million in 2011. As of late, AOL has lost executives Heather Harde, Tim Dierks, Alex Gounares, Tim Castelli, Brad Garlinghouse and Kiersten Hollars, which seemingly made it fashionable to quit the company.

    AOL has undergone a series of layoffs over the past few years. Last March, roughly 20% of its work force was cut. As of Dec. 31, AOL claims it employed about 5,660 people, in a filing with the Securities and Exchange Commission.

  • AOL’s Tim Armstrong On: Project Devil, Patches’ Success & TechCrunch “Chaos”

    Following up with their company’s financial earnings being released this morning, Tim Armstrong, AOL CEO and Chairman, and Arte Minson, AOL CFO, took some time this morning to conduct a Q&A with the media about the implications of the Q4 2011 report and to speculate on what AOL hopes to accomplish in 2012.

    Armstrong spoke at length about AOL’s marketing strategies (it wasn’t their fault this was mostly what they talked about – this is what reporters were asking about) and how Project Devil, their advertising platform, is changing advertisements into actual site content. Mentioning how companies like Proctor & Gamble and Unilever have already adopted Project Devil, Armstrong said, “We believe most of the clients in the world, through their agencies, could extend their content through advertising.” He continued, “Project Devil is an enterprise system that would go inside the holding companies where we’re taking our software and user-interface and basically white labeling it for the holding companies.”

    Armstrong also talked about the success of Patches, AOL’s platform for providing local news coverage to individual areas. Although it wasn’t mentioned in the press conference earlier today he did confirm that it had been an overall success thus far. Similar to his explanation for AOL’s general success, he said Patches has been done well because of their organizational strategy and sales teams. AOL has implemented 863 Patches overall, each of which they bunch into bundles of 30 to assess the quality and success of each Patch.

    When addressing how Patches became profitable, Minson added, “We don’t want Patches to be a success based on an individual basis because we could theoretically muscle any Patch into being profitable.” He said that the true value of Patches “should be considered within Patches’ overall success.”

    Eventually, someone was going to bring up the big jaundiced bruise on AOL that is TechCrunch and the defection of employees that occurred last year. Deflecting the suggestion that the news site was in “chaos,” Armstrong redirected the focus to TechCrunch’s “tremendous year” and pointed out some highlights like the conference they hosted in Beijing and the upcoming Crunchie Awards. “Chaos around TechCrunch,” he said, “is a limited factor because the site has acquired a lot of value.” He went on to explain how TechCrunch has added more talent to their staff and has been receiving “strong interest” from advertisers.”