AOL Q3 2011 Earnings Presentation

8/3/2019 AOL Q3 2011 Earnings Presentation

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Third Quarter 2011arn ngs ummary


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Q3 Noteworthy ItemsAOL substantially closed the gap to becoming a top-line growth company once again with its total revenue decline of 6%,marking the lowest level of decline in 5 years, driven by the second consecutive quarter of year-over-year global advertisingrevenue growth:o Global display revenue grew year-over-year for the third consecutive quarter.o Third party network revenue grew year-over-year for the second consecutive quarter and sequentially for the fifth

consecutive quarter.o Search and contextual revenue declined 15% (its lowest rate of decline in 2 years) reflecting lower revenue from

unprofitable distribution deals exited in 2010, lower international search revenue and the continued decline in subscribersoffset by growth in AOL.com.

AOL grew consumer usage in key internet growth areas:o Total HPMG usa e rew ear-over- ear with rowth comin from brands like; The Huffin ton Post which launched or

relaunched 18 properties and surpassed 35 million monthly unique visitors in Q3), Stylelist, AOL Autos, AOLEntertainment and TechCrunch.

o In local, Patch surpassed 10 million monthly unique visitors and 10,000 bloggers on its platform while launching a new

self service advertising product and deal of the day offering, Patch Deals.o In premium formats, Devil adoption continues to grow with the number of advertisers and campaigns from advertisers

using the format growing over 50% over last quarter.o In video, AOL continued to grow its video views and viewers rapidly and announced a slate of more than 15 original web

series for key audiences, including women, teens and young adults.

Subscription revenue declines reflect a 15% decline in domestic AOL-brand access subscribers year-over-year, whilemonthly average churn of 2.2% continues the trend of meaningful year-over-year churn reduction.

AOLs decline in operating income and Adjusted OIBDA year-over-year reflects lower total revenue, continued investment inPatch and other strategic areas and an $8.5 million increase in retention compensation related to acquisitions made in 2010and 2011. The decline in operating income year-over-year also reflects a $7.1 million restructuring charge in Q3 2011 andthe $119.6 million gain on the sale of ICQ in Q3 2010.

, ,stock. AOL repurchased 9.7 million shares of common stock between August 11, 2011 and November 2, 2011 at an averageprice of $13.39 per share or approximately $130 million in aggregate.

At September 30, 2011, AOL had $444.1 million of cash. Q3 2011 cash provided by continuing operations was $81.1 million,while Free Cash Flow was $56.4 million. Page 3


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Quarterly Revenue Breakdown

$864$900

$1,000 Y/Y % Chg. Q/Q % Chg.Advertising 8% 0%Subscription -22% -5%Other -15% 1%

$801

$774

$807

$ 664$700

$800

$564 $551 $542 $532

$400

$500

$600

( i n M i l l i o n s

)

$200

$300

$-

$100

Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11

Advertising Subscription Other

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Advertising Revenue By Quarter

$440$469

$450

$500 Y/Y % Chg. Q/Q % Chg.Display 15% -1%Search & Contextual -15% -3%Third Part Network 28% 2%

$354

$305$332

$314 $319 $318$350

$400

200

$250

$300


)

$100

$150

$-

$50

Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11

Display Search & Contextual Third Party Network

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Impacts of AOL Implemented Initiatives(1)

($ in millions) Q3 2011

Q3 2011 Q3 2010 Change

n a ve

Impact

Advertising revenue:Display revenue - global 136.7$ 119.1$ 15% (0.9)$Search and contextual revenue - global 85.1 99.7 -15% (0.8)

AOL Properties 221.8 218.8 1%

(1.7)

r ar y e wor revenue - g o a . . 28% .

Total advertising revenue 317.70$ 293.50$ 8% (2.40)$

(1) AOL implemented initiatives relate to initiatives to wind down or shut down certain products and dispose of, shut down or reduce operations internationally.

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Quarterly Adj. OIBDA & Acquisition Related Incentive Compensation

$312

$285$300

$350

$246 $241$231

$200

$250


)$166

$158$150

$99

$77$87

$50

$100

$0.3 $0.0 $0.2 $0.2 $0.3 $0.4 $1.4 $4.1$8.4 $10.6 $9.9

$-Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11

Adjusted OIBDA Incentive Compensation Related to Acquired Companies(1)

(1) Adjusted OIBDA excludes the impact of restructuring costs, noncash equity based compensation and the impact of gains and losses on all disposals of assets and noncashasset impairments. Adjusted OIBDA includes incentive compensation related to acquisitions. See page 11 for a reconciliation of Adjusted OIBDA to operating income.

(2) These amounts relate to incentive cash compensation arrangements with employees of acquired companies made at the time of acquisition. Incentive compensationamounts are recorded as compensation expense over the future service period of the employees of the acquired companies. For tax purposes, a portion of these costs aretreated as additional basis in the acquired entity and are not deductible until disposition of the acquired company.

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Access Subscribers and Churn Rate

3.5%

4.0%

8,000

9,000 Subscribers Churn Rate

2.5%

3.0%6,000

7,000

C h

ur

( i n

t h o u s a n

d s

)

s

1.5%

2.0%

3,000

4,000

,R

a t e

S

u b

s c r

i b e r

1.0%2,000Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11

Q1'09 Q2'09 Q3'09 Q4'09 FY'09 Q1'10 Q2'10 Q3'10 Q4'10 FY'10 Q1'11 Q2'11 Q3'11Domestic AOL-brand access subscribers (in thousands) (1) 6,309 5,799 5,360 4,999 4,999 4,656 4,362 4,083 3,852 3,852 3,621 3,433 3,452 / - - - - - - - - - - - - -

(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 throughmember service and retention programs. Individuals who have registered for our free offerings, including subscribers who have migrated from paid subscription plans, are not included in theAOL-brand access subscriber numbers resented above. The avera e monthl subscri tion revenue er subscriber is calculated as avera e monthl subscri tion revenue divided b the

Q/Q % Change -8% -8% -8% -7% -7% -6% -6% -6% -6% -5% 1%Domest ic average mont hly subscrip tion revenue p er AOL-brand access subscriber (ARPU) $18.48 $18.27 $18.54 $18.53 $18.46 $18.31 $18.10 $18.10 $18.12 $18.16 $17.96 $17.53 $17.49Domestic AOL-brand access subscriber monthly average churn (2) 3.7% 3.5% 3.3% 3.0% 3.4% 3.0% 2.6% 2.6% 2.3% 2.6% 2.5% 2.2% 2.2%

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

*During the quarter, AOL began a price rationalization program and migrated certain individuals who did not previously receive access service to a higher priced plan with additional services thatincluded access service. As a result, domestic AOL-brand access subscribers increased by approximately 200,000, leading to a lower year-over-year rate of decline than we have seen in recentquarters. The monthly fee billed to these subscribers is lower than our average monthly fees to other subscribers, and as a result, ARPU was negatively impacted by the migration.

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Unique Visitors

Q3 2011 Q3 2010 % Change

Unique Visitors (in millions)

Domestic average monthly unique visitors to AOL Properties 107 106 1%

Domestic average monthly unique visitors to the AOL Huffington Pos t Media Group (HPMG) (1) 97 97 0%

Domestic average monthly unique visitors to AOL Advertising Network (2) 187 183 2%

(1) HPMG is a subset of AOL Properties and excludes Mail, Instant Messaging and AOL Ventures.(2) We also utilize unique visitors to evaluate the reach of our total advertising network, which includes both AOL Properties and the Third Party Network.

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Items Impacting Comparability(in millions, except per share amounts)

Accelerated amortization of intangible as sets(1)

$ $ $ $ (40.0)

Restructuring costs (7.1) 0.4 (35.5) (34.1)

Three Months Ended September 30,2011 2010 2010

Nine Months Ended September 30,2011

Goodwill impairment charge (1,414.4)

Gain on sale of Kayak Software Corporation 17.5 17.5Equity-based compensation expense (10.3) (8.3) (31.7) (27.2)

Retention compensation expense related to acquired companies (2) (9.9) (1.4) (28.9) (2.1)

Pre-tax impact (27.3) 8.2 (96.1) (1,500.3)

Income tax impact(3)

8.4 (3.6) 30.8 41.4

After-tax impact (18.9) 4.6 (65.3) (1,458.9)

Income tax benefit related to anticipated worthless stock deduction (3.2) 7.1 299.5

Discontinued operations, net of tax (4) (0.9) 6.6-

(1) Amortization of intangible assets for the three and nine months ended September 30, 2010 included the impact of the reevaluation of the useful lives of certain intangible

. . . , .

Impact per basic and diluted common share $ (0.18) $ 0.00 $ (0.55) $ (10.81)

Effective tax rate(5)

38.9% 39.9% 38.9% 39.9%

assets in the fourth quarter of 2009 in connection with our restructuring initiative.(2) These amounts relate to incentive cash compensation arrangements with employees of acquired companies made at the time of acquisition. Incentive compensationamounts 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 costsare treated as additional basis in the acquired entity and are not deductible, until disposition of the acquired entity.(3) The income tax impact is calculated by applying the normalized effective tax rate to deductible items. Items that are not deductible include the majority of the goodwillimpairment charge and a portion of the incentive compensation expense, discussed above.(4) Discontinued operations, net of tax includes the results of operations of buy.at for the three and nine months ended September 30, 2010.(5) For the three and nine months ended September 30, 2011 was calculated based on AOLs 2011 projected normalized annual effective tax rate. The income tax impact forthe three and nine months ended September 30, 2010 was calculated based on AOLs 2010 normalized annual effective tax rate.

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AOL Q3 2011 Earnings Presentation

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