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AOL Reports Revenue And Profit Growth In Q2

Stocks in this article: AOL

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 million

shares 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 and

33.5 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:

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