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AOL Grows Revenue And Profit For 5th Consecutive Quarter

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

“Q1 marks the 5 th consecutive quarter of consumer, revenue and Adjusted OIBDA growth,” said Tim Armstrong, AOL Chairman and CEO. “AOL’s investment in global media and technology platforms is allowing AOL to compete on a global scale.”

 
Summary Results
In millions (except per share amounts)
           
Q1 2014     Q1 2013     Change
 
Revenues
Advertising $ 433.4 $ 372.5 16 %
Global Display 136.0 140.4 -3 %
Global Search   97.6     98.1 -1 %
AOL Properties 233.6 238.5 -2 %
Third Party Platform 186.9 120.7 55 %
Other 12.9 13.3 -3 %
Subscription   149.9     165.8 -10 %
Total revenues $ 583.3 $ 538.3 8 %
 
Adjusted operating income before depreciation and amortization (Adjusted OIBDA) (1) $ 107.3 $ 105.3 2 %
 
Operating income $ 24.2 $ 49.9 -52 %
 
Net income attributable to AOL Inc. $ 9.3 $ 25.9 -64 %
 
Diluted EPS $ 0.11 $ 0.32 -66 %
 
Cash provided by operating activities $ 23.5 $ 40.6 -42 %
 
Free Cash Flow (1)     $ (10.5 )     $ 9.8     N/A  
 

(1)

 

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

 

Q1 Consolidated AOL Revenue Trends:

  • Q1 total revenue grew 8% year-over-year, driven by global advertising revenue growth.
  • Global advertising revenue grew 16% year-over-year reflecting:
    • 55% 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 18% excluding Adap.tv.
    • 3% decline in global display revenue primarily due to the absence in Q1’14 of approximately $10 million in revenue from shuttered or de-emphasized brands, including the disposition of Patch. Excluding these impacts, display grew 4% driven by improved overall inventory pricing.
    • 1% decline in global search revenue driven by a decline in AOL core search queries, partially offset by increased queries from search marketing related efforts.
  • Subscription revenue declined 10% year-over-year. Domestic AOL subscriber monthly average churn was 1.5% in Q1 2014 compared to 1.9% monthly average churn in Q1 2013.

Q1 Consolidated AOL Profitability Trends:

  • Operating income, net income and diluted EPS were negatively impacted by a pre-tax restructuring charge of $12 million and a $10 million asset impairment charge resulting from the write-off of capitalized software development costs.
  • Adjusted OIBDA grew 2% year-over-year, driven by total revenue growth and a 9% decline in general and administrative expenses, partially offset by an increase in costs of revenues.
  • Cost of revenues increased $64 million year-over-year, reflecting a $53 million increase in Traffic Acquisition Costs (TAC). TAC increases reflect the inclusion of Adap.tv as well as growth in Third Party Platform revenue and search marketing related efforts. Costs of revenues were also negatively impacted by the $10 million asset impairment charge noted above.
  • General and administrative expenses declined $8 million in Q1 2014 year-over-year, driven by lower marketing related and personnel costs, resulting from AOL’s continued efficiency efforts.

AOL Asset, Cash & Cash Flow Trends:

  • AOL had $124 million of cash and equivalents and outstanding borrowings of $30 million under our $250 million senior secured revolving credit facility agreement at March 31, 2014.
  • Q1 cash provided by operating activities was $24 million, down $17 million, while Free Cash Flow declined $20 million, primarily reflecting the early receipt of a significant payment from a large partner in Q1 2013, whereas the current year payment will be received in the second quarter, partially offset by timing of other working capital. AOL has approximately $115 million left in its current share repurchase authorization. AOL borrowed $75 million under the terms of its revolving credit agreement in connection with the acquisition of Convertro, and there remains $145 million of capacity in the credit facility agreement.
  • On May 6, 2014, AOL acquired Convertro Inc., a leading provider of multi-touch attribution modeling technology for brands and agencies for approximately $101 million. The combination of Convertro and AOL Platforms enables marketers to identify and accurately value each consumer touch point through the purchase funnel from the first exposure to conversion. The purchase price is comprised of approximately $89 million in cash funded at closing, approximately $2 million in converted stock awards and a $10 million earn-out, payable over a period of up to 17 months subject to satisfaction of certain product development milestones.
 

DISCUSSION OF SEGMENT RESULTS

                 
Q1'14     Q1'13     Change
(In millions)    
Revenues    
Brand Group 178.8 189.6 -6 %
Membership Group 196.3 211.5 -7 %
AOL Platforms 230.8 160.9 43 %
Corporate & Other 0.0 0.3 -100 %
Intersegment eliminations   (22.6 )       (24.0 )     6 %
Total Revenues $ 583.3       $ 538.3       8 %
 
Adjusted OIBDA
Brand Group 1.8 (4.9 ) N/A
Membership Group 138.0 146.4 -6 %
AOL Platforms (3.5 ) (2.5 ) -40 %
Corporate & Other   (29.0 )       (33.7 )     14 %
Total Adjusted OIBDA $ 107.3       $ 105.3       2 %
 

Brand Group

Brand Group revenue declined year-over-year as display revenue was negatively impacted by the absence of revenue from Patch (contributed to a joint venture with Hale Global in January 2014) and from shuttered and de-emphasized brands. Excluding these impacts, Brand Group display revenue was flat, as continued growth in inventory pricing was offset by a decline in overall impressions sold. Brand Group search revenue was essentially flat year-over-year.

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