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TheStreet Open House

AOL Delivers Strongest Revenue Growth In A Decade

Stocks in this article: AOL

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

“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.

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