AOL Inc. (AOL)

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AOL Inc. (AOL)

Q4 2011 Earnings Call

February 1, 2012 8:00 AM ET

Executives

Eoin Ryan – Vice President, Investor Relations

Tim Armstrong – Chairman and CEO

Artie Minson – President and CFO

Julie Jacobs – EVP, General Counsel and Corporate Secretary

Analysts

Brian Pitz – UBS

Mark Mahaney – Citi

Ross Sandler – RBC Capital Markets

Heath Terry – Goldman Sachs

John Blackledge – Credit Suisse

Anthony DiClemente – Barclays

Peter Stabler – Wells Fargo

Sachin Khattar – Jefferies

Ken Sena – Evercore Partners

David Joyce – Miller Tabak & Co.

Rory Maher – Capstone Investment

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Q4 2011 AOL Earnings Call. My name is Gary, and I will be your coordinator for today. At this time, all participants are on listen-only mode. Later, we will facilitate a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Eoin Ryan, Vice President of Investor Relations. Please proceed.

Eoin Ryan

Good morning. Thanks, Gary, and everyone for joining us for our fourth quarter 2011 earnings call. You can find our Q4 earnings press release and accompanying slides, and trending schedules on our website.

On the call with me today is our Chairman and CEO, Tim Armstrong; and our Chief Financial Officer and President of AOL Services, Artie Minson. Tim and Artie will make some brief remarks on the quarter on our overall strategy and then we will open the lines up for Q&A.

But first, I will remind you that during this call, we may discuss our outlook for future financial and operating performance, corporate strategy, marketing and product plans, technology improvements, cost initiatives, planned investments, as well as our expectations for the economy and online advertising in general.

These forward-looking statements typically are preceded by words such as we will, we expect, we believe, we anticipate or similar statements. These forward-looking statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today.

Our quarter results should not be indicative of future performance. Some of these risks have been set forth in our annual report Form 10-Q for the year ended December 31, 2010, filed with the SEC. All information discussed on this conference call is as of today February 1, 2012. We do not intend and do not undertake any duty to update this information to reflect future events or circumstances.

We will also discuss certain non-GAAP financial measures including adjusted OIBDA and free cash flow. I will refer you to the press release on the Investor Relations section of our website for all comparable GAAP measures and full reconciliations.

Finally from time to time, we post information about AOL on our Investor Relations website at ir.aol.com and on our official corporate blog at blog.aol.com.

With that, I’ll turn it over to Tim

Tim Armstrong

Thanks, Eoin, and thanks all the investors joining today’s call. Artie and I will be making brief comments and remarks, and leaving a lot of time for questions and comments from you. AOL had a strong Q4, our global team has been working very hard and you are seeing improvements for three main reasons.

Number one, the operational and structural changes we have made to the company over the last two years are becoming visible on our numbers.

Number two, our strategy so simple and can face problems for consumers and customers and is synchronized with the landscape changes we see in our industry. Consumers won brands that provide information, deterioration and services, and have a defined brand proposition.

As the internet grows, brands become even more important. Human beings need brands that help them limit their choices. We have built and invested in a number of brands that are attracted to consumers including AOL the original brand of the internet.

One important note in our Q4 earnings is the improvements in the AOL services over the last year are really starting to payoff. The advertisers want to spend money with fewer and bigger partners, and that trend is accelerating. AOL has a very attractive set of brands and attractive network for advertisers to provide both scale and clearly define propositions for advertisers, and I just wanted to summarize them for you.

For advertisers we provide three simple things, one, is brand preference. How do we help use ads to help consumers choose one brand over another brand. Project Devil turns advertising into content and we help advertisers increase brand preference with consumers.

Number two, real-time targeting. How do capture in-market shoppers, being very strong at machine-based learning and real-time targeting, Advertising.com and our video network have key advantages for our advertisers to find in-market consumers.

Number three, pay just to parking lot, helping advertisers get consumers into their offline channels matters a lot. 2012 is already shaping up to be a year where many industries faced channels feeling economic challenges. Patch and our broader local strategy put us in the unique positions to help advertisers get people to offline locations.

And the last piece of why I think you’re seeing success in Q4 is, AOL has built our brands and services to work inside the changing landscape of our industry. There is an explosion of devices, bandwidth and closed cloud networks.

We have both owned and operated strategy of must carry brands and a series of publisher services that can cut through the devices networks and cloud. Owned and operated strategy and network also works on a global basis.

As a company we are focused on improving the things that we can control and the more we do that the better outcomes we’re seeing as a business. Q4 had a number of specific highlights I wanted to walk through.

Number one, AOL continued the improvement and returned to topline growth as a business. Number two, AOL continued tight cost controls and we had the second sequential quarter of lower expenses. Three, we have the third consecutive quarter of global advertising growth year-over-year. We had the third consecutive quarter on the acceleration of year-over-year advertising growth. Global, domestic and international display all grew at double-digit rates year-over-year. Our ad network had its third consecutive quarter of year-over-year growth and sixth consecutive quarter of sequential growth. The AOL publisher network had 30,000 partners in it receiving ads, content or video from AOL and we signed up 80,000 new video assets to run across the network.

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