America Online Latin America’s net loss applicable to common stockholders for the quarter ended September 30, 2004, narrowed 17% from $28.6 million to $23.6 million and cash used in operating activities declined 67% from $9.5 million to $3.1 million from the same period a year ago.
Net loss applicable to common stockholders narrowed by 12% from $26.9 million in the second quarter of 2004 and cash used in operating activities increased by 35% from $2.3 million during the same period.
Based on these results and its current operating budget, the Company has extended its forecast for available cash and believes that cash on hand will now be sufficient to fund operations into the third quarter of 2005.
Third-Quarter Results
The Company’s third-quarter 2004 net loss applicable to class A common stockholders, which includes dividends to preferred stockholders, was $23.6 million, or $0.17 per class A common share, basic and diluted, compared with a loss of $28.6 million, or $0.21 per share, in the same period a year ago. This third quarter 2004 loss also compares with a second quarter 2004 net loss applicable to common stockholders of $26.9 million, or $0.20 per share.
AOL Latin America’s net loss before dividends on preferred stock was $19.3 million in the third quarter of 2004, narrowing from a net loss of $24.2 million in the prior-year period and a net loss of $22.8 million in the second quarter of 2004.
Total revenue was $12.8 million in the third quarter of 2004, down 21% from $16.3 million in the third quarter of 2003 but up slightly from $12.7 million in the second quarter of 2004. Subscription revenue totaled $11.6 million, down 21% from $14.8 million in the year-ago period and down 3% compared to $12.0 million in the second quarter of 2004. Reduced membership resulted in lower subscription revenues. Advertising and other revenue totaled $1.2 million in the 2004 third quarter, down 23% from $1.5 million in the year-ago period but up 58% from $728,000 in the second quarter of 2004. The Company expects total revenue to decrease further in the fourth quarter of 2004 as a result of continued declines in membership.
Membership
The Company had 400,000 members as of September 30, 2004, down from 418,000 members as of June 30, 2004. The decline in membership was driven by lower levels of new member registrations, which were insufficient to offset membership turnover. New member registrations continue to be negatively impacted by strong price competition from providers of free and paid Internet services in Brazil and Mexico. They were also impacted in the third quarter by the general banking strike in Brazil, which slowed new-member acquisition efforts through the Banco Itau channel. The Company expects a smaller membership decline in the fourth quarter of 2004.
As with the Company’s previous membership reports, the 400,000 membership total includes members participating in free trial periods and retention programs, as well as members of the Banco Itau service. Totals include members of the AOL country services, Web-based interactive services and broadband offerings. As of September 30, 2004, approximately 19% of the membership total subscribed to the Company’s Web-based interactive services and 8.5% subscribed to the Company’s broadband service.
Cash Utilization
Cash used in operating activities in the third quarter of 2004 was $3.1 million, down 67% from $9.5 million used in the third quarter of 2003 but an increase of 35% from $2.3 million in the second quarter of 2004. The improvement in cash used in operating activities as compared to the year-ago period was achieved largely as a result of the Company’s reduced losses, driven primarily by lower marketing and telecommunications costs as well as improved working capital performance.
Cash and cash equivalents totaled $26.3 million as of September 30, 2004, compared with $27.9 million at the end of the second quarter of 2004, a net decrease of $1.6 million. As in recent quarters, the Company’s cash and cash equivalents position benefited from a payment from Banco Itau to the Company in lieu of certain marketing activities. AOL Latin America received $1.1 million from Banco Itau in the 2004 third quarter, representing the current quarter’s payment and a partial prepayment for the fourth quarter. The Company expects to continue to receive payments from Banco Itau in the future, although in smaller amounts. AOL Latin America also received $777,000 from McDonald’s in Brazil for its failure to meet August 2004 contractual targets as part of the joint McInternet initiative. Total cash utilization in the fourth quarter of 2004 and in future quarters is expected to be greater than the third quarter’s, which benefited from the McDonald’s and Banco Itau payments.
The Company believes that under its current operating budget, cash on hand will now be sufficient to fund operations into the third quarter of 2005.
Management Comments
Charles Herington, President and CEO of AOL Latin America, said: “AOL Latin America’s two areas of focus during the third quarter continued to be cash preservation and serving the needs of our members. Reduced losses and the current operating budget have allowed us to extend our forecast for available cash into the third quarter of 2005. Regarding our interactive services, in Mexico the new AOL 9.0 software launch has been well-received. The Company’s broadband offerings also continue to attract members, highlighted by the third-quarter launch in Brazil of a new broadband service designed specifically for small businesses.”
Nine-Month Results
For the first nine months of 2004, the Company’s net loss applicable to class A common stockholders was $71.5 million, or $0.53 per share of class A common stock, basic and diluted, compared with a loss of $89.7 million, or $0.68 per share, for the first nine months of 2003. Total revenue was $39.5 million in the first nine months of 2004, which compares with $50.3 million in the year-ago period. Subscription revenue totaled $37.1 million, compared with $45.6 million in the prior-year period, and advertising and other revenue was $2.4 million vs. $4.7 million a year ago.
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