This action might not be possible to undo. Are you sure you want to continue?
Presented to [Client] Month XX, 20XX Month XX 20XX
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This presentation contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding business strategies, market potential, future financial and operational performance and other matters. Words such as “anticipates,” “ i “ i i ” “estimates,” “ ” “expects,” “ j ” “projects,” “f ” “forecasts,” “i ” “intends,” “ l d ” “plans,” “ ill ” “b li ” “will,” “believes” and words and terms of similar ” d d d f i il substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Except as required by law, we are not under any obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in “Item 1A-Risk Factors” of our Quarterly Report on Form 10-Q for the three months ended September 30, 2010 (“Quarterly Report”) and our Annual Report on Form 10-K for the year ended December 31, 2009 (“Annual Report”). In addition, we operate a web services company in a highly competitive, rapidly changing and consumer and technology-driven industry. This industry is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights. Our actual results could diff materially f ld differ i ll from management’s expectations b ’ i because of changes i such f f h in h factors. Further, lower than expected market valuations associated with our cash flows and revenues may result in our inability to realize the value of recorded intangibles and goodwill. In addition, achieving our business and financial objectives, including growth in operations and maintenance of a strong balance sheet and liquidity position, could be adversely affected by the factors discussed or referenced under “Item 1A-Risk Factors” in our Quarterly Report and our Annual Report as well as, among other things: changes in our plans, strategies and intentions; our ability to attract and retain key employees; the success of any cost reductions, restructuring actions or similar efforts, including i h i l di with respect to any associated savings, charges or other amounts; the i i d i h h h impact of significant acquisitions, di f i ifi i ii dispositions and other ii d h similar transactions; the failure to meet earnings expectations; asset impairments; decreased liquidity in the capital markets; our ability to access capital markets for debt securities or bank financings and the impact of terrorist acts and hostilities. This presentation is not an offer to sell, or a solicitation of an offer to buy, any securities. Non-GAAP Financial Measures: This presentation includes information regarding the historical financial performance of AOL through September 30, 2010 reflected in certain non-GAAP financial measures such as Adjusted operating income before depreciation and amortization (OIBDA) and Free Cash Flow. Reconciliations of these non-GAAP financial measures to operating income are set forth hereto. Change in Basis of Presentation: The financial information herein for all periods prior to Q2 2010 has been recast to reflect the results of p y Q p operations and cash flows of buy.at and ICQ as discontinued operations.
Since the end of Q2 2010, AOL remained active across all of its strategic areas of focus: relaunching AOL.com, Moviefone and Stylelist
and forming strategic partnerships in Content, introducing a revolutionary new advertising format in Advertising, rapidly expanding Patch into 133 new towns and relaunching City’s Best in Local, adding key talent in Consumer Applications and rolling out new products in Paid Services.
AOL continues to make targeted acquisitions and divest non-core assets. In late September, AOL acquired 5 Minutes Ltd., TechCrunch, non core
Inc. and Thing Labs, Inc., for $97.1 million and a further $23.1 million in compensation contingent on service to AOL over the next three years. These acquisitions add significant talent, technology and editorial acumen to the Company. On October 29, 2010, AOL entered into a definitive agreement to sell a portion of its campus in Dulles, Virginia for $144.5 million in cash.
AOL renewed and expanded its global partnership with Google for the provision of search services to AOL Properties. AOL and
Google agreed to work to expand the partnership to include mobile search and Google will feature AOL content on YouTube YouTube.
AOL continued its focus on managing costs and optimizing its product offerings. $62.3 million of the $109.5 million year-over-year
decline in advertising revenue in Q3 2010 relates to the impact of these initiatives.
Domestic display advertising revenue fell year-over-year in Q3 2010, but increased sequentially for the second consecutive quarter. Subscription declines reflect a 24% decline in subscribers year-over-year, while monthly average churn of 2.6% continues the trend of
meaningful year-over-year churn reductions.
AOL significantly reduced costs in Q3 2010 as operating expenses declined $159.3 million year-over-year. Net income growth reflects the gains on the sales of AOL’s investment in Kayak and its ICQ operations in Q3 2010, the latter of which is g g y Q p Q ,
reflected in discontinued operations.
At September 30, 2010, AOL had $623.3 million of cash. Q3 2010 cash provided by continuing operations was $165.0 million, down 2.5%
year-over-year, while Free Cash Flow was $130.8 million, up 4.4% year-over-year.
AOL announced the early termination of its revolving credit facility given its cash position and projected cash flows. AOL never borrowed y g yg p p j
under this facility and did not pay any penalties for the early termination.
Quarterly Revenue Breakdown
$1,200 $1,116 $1,043 $1,000 $991 $961
$ 855 $800 $792 $764 $796 $655 $
Advertising Subscription Other
Y/Y % Chg. -27% -26% -12%
Q/Q % Chg. -1% -6% -4%
$Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10
Quarterly Breakdown Of Advertising Revenue
$600 $540 $517 $500 $487 $500 $432 $400 $407 $402 $346
Display Search & Contextual Third Party Network
Y/Y % Chg. -14% -28% -41%
Q/Q % Chg. 0% -6% 3%
$Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10
Third Party Network
Search & Contextual
Advertising Revenue & Impacts of AOL Implemented Initiatives
($ in millions)
Q3 2010 Q3 2009 Total Display Display - Domestic Display I D l - International l Search and Contextual AOL Properties Third Party Network Total Advertising Revenue $ 120.7 $ 139.9 112.5 121.8 8.2 82 18.1 18 1 99.2 138.3 219.9 278.2 72.8 123.9 $ 292.8 $ 402.2
Change -14% -8% -55% 55% -28% -21% -41% -27% $
Q3 2010 Initiative Impact 7.4 0.0 7.4 74 8.0 15.4 46.8 62.3
implemented initiatives relate to initiatives to wind down or shut down certain products and shut down or reduce operations internationally.
Quarterly Adjusted OIBDA, Restructuring & Equity-Based Compensation
$450 $400 $350 $300
$263 $395 $382 $340 $400
$200 $150 $100
$58 $125 $106
$193 $167 $158
$23 $10 $3 $2 $10
Adjusted OIBDA (1)
income before depreciation and amortization excluding the impact of gains and losses on all disposals of assets and noncash asset impairments. Operating income before depreciation and amortization includes restructuring and equity based compensation. See page 11 or a reconciliation of Adjusted OIBDA to operating income.
Access Subscribers and Churn Rate
4.0% 8,500 3.5%
7,500 3.0% 6,500 2.5% 5,500 2.0% 1.5% Subscribers 3,500 3 500 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Churn Rate 1.0% 1 0%
Churn Rate n
Domestic AOL-brand access subscribers (in thousands) (1) Y/Y % Change Q/Q % Change 8,690 -28% 28% -7%
8,086 -26% 26% -7% $17.99 3.4%
7,452 -26% 26% -8% $18.60 3.7%
6,879 -26% 26% -8% $18.64 3.5%
6,879 -26% 26% $18.38 3.6%
6,309 -27% 27% -8% $18.48 3.7%
5,799 -28% 28% -8% $18.27 3.5%
5,360 -28% 28% -8% $18.54 3.3%
4,999 -27% 27% -7% $18.53 3.0%
4,999 -27% 27% $18.46 3.4%
4,656 -26% 26% -7% $18.31 3.0%
4,362 -25% 25% -6% $18.10 2.6%
4,083 -24% 24% -6% $18.10 2.6%
Domestic average monthly subscription revenue per AOL-brand access subscriber (ARPU) $18.29 3.8% Domestic AOL-brand access subscriber monthly average churn (2)
(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 have 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. The average monthly subscription revenue per subscriber is calculated as average monthly subscription revenue divided by the 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 average of terminations plus cancellations divided by the initial subscriber base plus any new registrations and reactivations for the applicable period. Page 8
Q3 2010 Unique Visitors (in millions)
Q3 2009 NA 102 NA 74 180
% Change NA -3% 3% NA -3% 2%
Domestic average monthly unique visitors to AOL Properties (Media Metrix 360) Domestic average monthly unique visitors to AOL Properties (Panel only methodology) (Panel-only Domestic average monthly unique visitors to AOL Media (Media Metrix 360) (2) Domestic average monthly unique visitors to AOL Media (Panel-only methodology) (2) Domestic average monthly unique visitors to AOL Advertising Network (3)
106 99 81 72 183
(1) In 2009, Media Metrix announced the availability of an alternate methodology (currently referred to as “panel-centric unified’ or “Media Metrix 360”) to estimate unique visitors, in order to provide a more accurate count of a website’s audience, and has continued to refine this methodology. We adopted this alternate methodology for domestic unique visitors to AOL Properties and AOL Media starting December 2009 and going forward As a result our domestic forward. result, unique visitor numbers based on Media Metrix 360 will not be comparable to the estimates under the previous methodology. For comparison purposes, domestic unique visitors to AOL Properties and AOL Media are reported under both the Media Metrix 360 and panel-only methodology for the third quarter of 2010. (2) AOL Media represents a subset of AOL Properties and excludes Mail, Instant Messaging, Search, Ventures and Local & Mapping. (3) We also utilize unique visitors to evaluate the reach of our total advertising network, which includes both AOL Properties and the Third Party Network.
Items Impacting Comparability
(in millions, except per share amounts)
Three Months Ended p September 30, 2010 2009 $
Nine Months Ended September 30, p 2010 2009 (2.1) – $ – (40.0) – (34.1) (1,414.4) 17.5 (1,471.0) 11.8 (1,459.2) 299.5 299 5 $ $ $ 85.2 (1,074.5) (10.08) (10.08) 33.3% $ $ $ $ (11.2) – (14.7) (82.9) – – (108.8) 45.6 (63.2) – 7.9 (55.3) (0.52) (0.52) 41.9%
Accelerated depreciation French VAT matter
– – – 0.4 – 17.5 17.9
Accelerated amortization of intangible assets Restructuring costs Goodwill impairment charge Gain on sale of Kayak Software Corporation Pre-tax impact Income tax impact After-tax impact
(14.7) (10.2) – – (27.0) 10.9 (16.1) – $ $ $ 3.4 (12.7) (0.12) (0.12) 40.5%
(3.0) 14.9 (3.2) (3 2) $ $ $ 71.8 83.5 0.78 0.78 16.6%
Income tax (provision) benefit related to the worthless stock deduction Discontinued operations, net of tax After-tax impact of items impacting comparability of net income Impact per basic common share Impact per diluted common share Effective tax rate
Depreciation expense for the three and nine months ended September 30, 2009 included the impact of the reevaluation of the useful lives of certain network assets in connection with a restructuring initiative. (2) Amortization of intangible assets for the nine months ended September 30, 2010 included the impact of the reevaluation of the useful lives of certain intangible assets in the fourth quarter of 2009 in connection with our restructuring initiative. The amounts above for the nine months ended September 30, 2010 represent the incremental amortization incurred through the second quarter of 2010, when the majority of these intangible assets became fully amortized on an accelerated basis. ( ) (3) For the three and nine months ended September 30 2009 AOL recorded an incremental reserve and corresponding expense related to a settlement with the French tax authority to resolve a 30, 2009, VAT matter related to assessments on subscription revenues from French subscribers earned during the period from July 1, 2003 through October 31, 2006. (4) The income tax impact for the three and nine months ended September 30, 2010 was calculated based on AOL's effective tax rate for those same periods, excluding the effect of the Bebo worthless stock deduction and the goodwill impairment charge. This rate was applied to the pre-tax impact of all items impacting comparability for the three and nine months ended September 30, 2010, except for the non-deductible portion of the goodwill impairment charge. The effective tax rates used for purposes of this calculation are not necessarily representative of AOL’s projected effective tax rate for 2010, due to the Bebo worthless stock deduction and the goodwill impairment charge. The effective tax rate used in calculating the income tax impact of the goodwill impairment charge for the nine months ended September 30, 2010 was AOL’s effective tax rate excluding the Bebo worthless stock deduction, which was an income tax benefit rate of 5.1%. The income tax impact for the three and nine months ended September 30, 2009 was calculated based on AOL's effective tax rate. AOL s (5) Discontinued operations, net of tax includes the results of operations of buy.at and ICQ through their respective disposition dates. The results for the three and nine months ended September 30, 2010 include the after-tax gain on the sale of ICQ. The results for the nine months ended September 30, 2010 include the pre-tax loss on the sale of buy.at and the income tax benefit associated with the capital loss deferred tax asset generated by the buy.at sale.
Reconciliation of Non-GAAP Measures
(in millions) 2008 Three months ended March 31 June 30 Sep 30 Dec 31 Year ended Dec 31 March 31 2009 Three months ended June 30 Sep 30
2010 Year ended Dec 31 Dec 31 Three months ended March 31 June 30 Sep 30
Adjusted operating income before depreciation and amortization (OIBDA): ( 2) Operating income (loss) Add: Depreciation Add: Amortization of intangible assets Add: Asset impairments Add: Losses/(gains) on disposal of consolidated businesses, net Add: Losses/(gains) on other asset sales Adjusted OIBDA Free Cash Flow:
275.4 $ 82.3 36.5 1.3 (0.7)
220.7 $ 77.4 39.8 2.8 (0.8) 339.9 $
252.3 $ 76.2 42.2 11.9 (0.5) 382.1 $
(1,937.1) $ (1,188.7) 72.3 40.5 2,224.0 (0.3) 0.2 308.2 159.0 2,240.0 (0.3) (1.8)
137.1 $ 68.1 34.8 2.3 (0.2)
153.7 $ 71.9 33.3 4.3 (0.4) 262.8 $
122.0 $ 65.0 31.6 7.3 (0.1) 225.8 $
25.2 $ 54.5 38.2 9.2 (1.8) 125.3 $
438.0 259.5 137.9 23.1 (2.5) 856.0
75.8 $ (1,336.5) $ 53.6 62.2 1.4 (0.4) 51.6 35.7 1,415.9 (0.1) 166.6 $
80.9 46.9 22.8 7.8 (0.7) 157.7 165.0 24.3 9.9 130.8
399.6 $ 1,516.4
Cash provided by continuing operations Less: Capital expenditures and product development costs Less: Principal payments on capital leases Free Cash Flow
146.5 $ 45.7 5.5
309.6 $ 52.4 5.8 251.4 $
260.9 $ 36.3 6.8 217.8 $
189.2 $ 34.4 7.0 147.8 $
906.2 168.8 25.1 712.3
311.0 $ 30.5 7.2
273.3 $ 35.4 7.6 230.3 $
169.3 $ 35.9 8.1 125.3 $
125.9 $ 30.4 8.2 87.3 $
879.5 132.2 31.1 716.2
157.9 $ 28.5 8.3
152.7 $ 14.9 8.7 129.1 $
(1) This schedule includes the financial measures Adjusted OIBDA and Free Cash Flow, 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). (2) We define Adjusted OIBDA as operating income before depreciation and amortization excluding the impact of gains and losses on all disposals of assets (including those recorded in costs of revenues) and non-cash asset impairments. We consider Adjusted OIBDA to be a useful metric for management and investors to evaluate and compare the performance of our business on a ) p j f f g p p f f consistent basis across reporting periods, as it eliminates the effect of non-cash items such as depreciation of tangible assets, amortization of intangible assets that were primarily recognized in business combinations and asset impairments, as well as the effect of gains and losses on asset sales, which we do not believe are indicative of our core operating performance. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business. Moreover, the Adjusted OIBDA measures do not reflect gains and losses on asset sales or impairment charges related to goodwill, intangible assets and fixed assets. (3) We define Free Cash Flow as cash provided by continuing operations, less capital expenditures and product development costs and principal payments on capital leases. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures, capitalized product development costs and principal payments on capital leases, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of Free Cash Flow also facilitates management's comparisons of our operating results to competitors' operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the total increase or decrease in cash for the period because it excludes certain non-operating cash flows.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.