AOL Executive Insights: Free Cash Flow, Ranking Assets
Free Cash Flow
Ross Sandler – RBC Capital Markets: Just two quick questions. First free cash flow then second on the search business. So Artie, you guys have mentioned here that you turn the corner on OIBDA in 2012, and that you expect OIBDA to grow in 2013. So your free cash flow conversion in the first quarter here, looks a lot better than it did in first quarter of 2011. So any reason to believe that free cash flow won’t also turn the quarter this year and grow in 2013? Then on the search side, the declines continue to moderate, so can you give us some color on how you’re doing this. If you look at third-party traffic stats, it would suggest that queries are still declining and I know you mentioned that AOL.com is actually growing double-digits. Are you monetizing AOL.com (NYSE:AOL) better or are you driving more queries or both?
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Arthur ‘Artie’ Minson – CFO and President, AOL Services: Let me hit the free cash flow question first. As you pointed out that first quarter free cash flow when you compare it to last year was a meaningful improvement. As you move through the back half of the year, what we expect to see is continued healthy conversion of OIBDA into free cash flow, so you should expect to see meaningful free cash flow generation in the back half of 2012. As you move to 2013, what I would expect is a healthy conversion of our OIBDA into free cash flows to the extent that you can grow you OIBDA in 2013. I wouldn’t expect any difference in really going forward the OIBDA to free cash flow conversion. So therefore, you should expect to see free cash flow improvement as well. Let me turn to search, we’re obviously really pleased with the direction of the search trends and it’s something we’ve been talking about for a while now that you should expect to see as we work on getting the overall company back to our OIBDA growth. Growth in AOL.com (NYSE:AOL) as you pointed out has been particular strong and I do want to give a shout out to Chris Grosso who runs the AOL homepage and Francis Lobo who among other responsibilities here run search as well as their respective teams that work so well with the team to operationalize the number features that have improved the search experience and ultimately lead to improved financial performance here. We’re also focused, which I want to point out is just we are not satisfied with some of the areas in search that are declining in the 20% range. For example 6 million people still use the AOL Client every month and we put a small team together to do a project cleanup of that product and our view is basically, look if you can get the user experience right, that’s going to ultimately lead to financial results. As we lookout on search, I think to point out the obvious, there are some items we control and there are some items like the current CPC pricing environment, which is down that we can’t control, so that makes the search area little bit harder to predict if we can get the decline low in that, when you’ve seen in the last two quarters, but we’re very pleased with the results of the last two quarters and it continues to be where volume is strong as what you’re seeing is click-throughs are strong given the improved product.
Tim Armstrong – Chairman and CEO: I’ll also just add, I think this is result of the search deal that we did, that’s what Chris and Francis worked on overall and our partnership with Google remains strong and also Ross, Artie and I just want to wish you well. I know you are about to have a baby, so thanks for the question and good luck with your baby and wife.
Ben Schachter – Macquarie Capital: In looking at other assets that you have, how could you rank sort of assets that you think are unappreciated by the street or undervalued and that you could potentially monetized and then can you talk about investment scenarios that you may not currently be in. Tim, your views or reference of being on offense. What are the areas that you might want to get into more in the future? Let me know.
Arthur ‘Artie’ Minson – CFO and President, AOL Services: I will hit on valuation a little bit. I mean, if you look at the stock today, and you sort of back out the cash, the stock is trading not much differently than where it was frankly trading in August, despite what I would say meaningful operational improvement. So really other than what we have really historically, I think been primarily valued around the subscription business, there is not much valuation as best I can see it from a lot of other pieces of the business. So we will point that out. I am not going to comment anything specifically, with respect to future asset sales that we may do and, why don’t I turn it over to Tim for the second.
Tim Armstrong – Chairman and CEO: The investment areas, Ben, there is a – we have hit a few of them, and we are pretty focused about what we are looking at in terms of other investment areas. One is mobile. One of the things that we really tasked our team with this year, is the concept we call Mobile First, which is basically designing products from Mobile back to the Web, instead of the web to mobile. We just did a product review this week of our first property, that was really designed from a mobile backwards standpoint, and I think it’s really impressive, and the general gist of that investment is, if our content is like Coca Cola, we are going to serve it in different size servings, 8-ounce, 16-ounce, 36-ounce whatever. We basically believe that designing our products and services for the smallest unit possible, and making that grade, will translate even better to the bigger units over time. So I think you should expect to see us come out with a number of Mobile First investments. I’d also say there is a product with Huffington Post we are coming out with, that we’ve talked about a little publicly around mobile. That we are excited that the tablet based product, we are excited about – and then we have a number of different investments in mobile advertising. The other area that I think we’ve been looking at is investments in advertising.com group overall, which continues to do well and I think we’ve seen some really good progress there in things like 5min and go viral as well as the traditional ad.com business. So we have a investment area there to basically put platforms into our customers, and scale up video and some of the targeting in big scale beta projects there. Then the last area I would basically say is around, what I would say are differentiated, profitable and scaled content opportunities. Patch is working on new product right now, which we’re excited about. We launched – Makers was a great example of a video product we did, profitable out of the gates very, very good experience overall. So we have a number of things that we’re working on in kind of the experienced content area that are also very commercially viable in terms of profitability and those things. But we’re really targeted that we run the entire company off a top box metric, where we measure every single thing we’re doing as a company, and what we’re investing in and more importantly what we’re not investing in. So I think we’re really clear in our future investments overall.