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AOL Accelerates Revenue And Adjusted OIBDA Growth In Q3

AOL Inc. (NYSE:AOL) released third quarter 2013 results today.

“AOL’s Q3 results are another step forward in our long-term plan,” said Tim Armstrong, AOL Chairman and CEO. "The Q3 results highlight the strength of AOL's strategy and the consistent execution of our team in delivering great consumer experiences and successful customer results.”

     
Summary Results
In millions (except per share amounts)
                   
Q3 2013       Q3 2012       Change
 
Revenue
Advertising $   386.0 $   340.0 14 %
Global Display 141.9 135.4 5 %
Global Search     95.0     91.8 3 %
AOL Properties 236.9 227.2 4 %
Third Party Network 149.1 112.8 32 %
Subscription 161.6 173.5 -7 %
Other     13.7     18.2 -25 %
Total revenues $ 561.3 $ 531.7 6 %
 
Adjusted operating income before depreciation and amortization (Adjusted OIBDA) (1) $ 119.8 $ 100.9 19 %
 

Operating income

$ 16.7 $ 43.1 -61 %
 

Net income attributable to AOL Inc.

$ 2.0 $ 20.8 -90 %

 

Diluted EPS $ 0.02 $ 0.22 -91 %

 

Cash provided by operating activities $ 98.9 $ 101.8 -3 %
 

Free Cash Flow (1)

$ 64.6 $ 71.5 -10 %
                                           
(1)  

See Page 9 for a reconciliation of Adjusted OIBDA and Free Cash Flow to the GAAP financial measures we consider most comparable.

 

Q3 Consolidated AOL Revenue Trends:

  • Q3 total revenue grew 6% year-over-year, driven by global advertising revenue growth.
  • Global advertising revenue grew 14% year-over-year reflecting:
  • 32% growth in Third Party Network revenue driven by growth in the sale of premium formats, primarily video, across our programmatic platform. Third Party Network revenue includes $17.6 million from Adap.tv following its acquisition on September 5, 2013 and grew 17% excluding Adap.tv.
  • 5% growth in global display revenue driven by improved pricing.
  • 3% growth in global search revenue driven primarily by an increase in revenue per search.
  • Subscription revenue declined 7% year-over-year and domestic AOL-brand access subscriber monthly average churn was 1.4% in Q3 2013 compared to a 10% decline year-over-year in subscription revenue and 1.8% monthly average churn in Q3 2012.

Q3 Consolidated AOL Profitability Trends:

  • Operating income, net income and diluted EPS were negatively impacted by pre-tax restructuring costs of $19.0 million as well as $25.0 million related to non-cash asset impairments in our Patch operations.
  • Adjusted OIBDA grew 19% year-over-year, driven by total revenue growth and a 20% decline in general and administrative expenses, partially offset by increased costs of revenue.
  • Cost of revenues increased $36.3 million year-over-year, reflecting a $24.4 million increase in total Traffic Acquisition Costs (TAC) driven by TAC associated with Adap.tv, growth in our search marketing related efforts and growth in Third Party Network revenue. Third Party Network related TAC grew at a slower pace than revenue. Cost of revenues also reflects non-cash asset impairment charges of $10.4 million primarily related to our Patch operations, largely offset by lower network related expenses.
  • General and administrative expenses declined $19.0 million in Q3 2013 year-over-year, due to a decline in marketing and personnel costs primarily related to AOL’s continued cost reduction efforts and a decline in legal and consulting fees.

AOL Asset, Cash & Cash Flow Trends:

  • On September 5, 2013, AOL closed its acquisition of Adap.tv, further solidifying its position as a leader in premium and programmatic video advertising.
  • 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.
  • From July 1 to date, AOL repurchased 2.5 million shares of common stock at an average price of $34.25, or approximately $84.9 million in aggregate. In 2013, AOL has 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.
  • AOL had $168.2 million of cash and equivalents at September 30, 2013. Q3 cash provided by operating activities and Free Cash Flow were $98.9 million and $64.6 million, respectively, down year-over-year primarily due to payments related to restructuring charges during the quarter.
                                                                               

DISCUSSION OF SEGMENT RESULTS

                                             
Q3'13                     Q3'12                     Change
(In millions)
Revenue
Brand Group   192.5   177.0 9 %
Membership Group 204.5 221.0 -7 %
AOL Networks 188.7 158.4 19 %
Corporate & Other - 0.3 -100 %
Intersegment eliminations     (24.4 )                         (25.0 )                     2 %
Total Revenue $   561.3                       $   531.7                       6 %
 
Adjusted OIBDA
Brand Group 10.9 (9.6 ) NM
Membership Group 149.8 156.4 -4 %
AOL Networks (7.1 ) 0.3 NM
Corporate & Other     (33.8 )                         (46.2 )                     27 %
Total Adjusted OIBDA $   119.8                       $   100.9                       19 %
 

Brand Group

Brand Group revenue growth reflects continued growth in global display and search revenue. Brand Group display revenue grew 11% globally driven by improved pricing. Brand Group search revenue grew 6% year-over-year driven primarily by higher revenue per search.

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