Business context and reporting period
Filing mismatch: The supplied filing is IAC/InterActiveCorp’s Form 10-Q for the quarter ended September 30, 2017, filed November 9, 2017—not a standalone Match Group 10-Q. The figures below are IAC consolidated unless identified as Match Group. IAC’s businesses included Match Group, ANGI Homeservices, Video, Applications and Publishing.
IAC completed the combination of HomeAdvisor and Angie’s List on September 29, 2017, forming publicly traded ANGI Homeservices. At quarter-end, IAC held 87.1% of ANGI Homeservices’ economic interest and 98.5% of its voting interest. The quarter’s results include Angie’s List only from the closing date.
Financial results and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $828.4m | $764.1m | $2,356.7m | $2,328.7m |
| Operating income (loss) | $(18.6)m | $85.6m | $94.1m | $(145.4)m |
| Adjusted EBITDA | $137.6m | $139.0m | $384.1m | $336.9m |
| Net earnings (loss) attributable to IAC shareholders | $179.6m | $43.2m | $272.1m | $(143.3)m |
| Diluted EPS attributable to IAC shareholders | $1.79 | $0.49 | $2.82 | $(1.78) |
| Operating cash flow | — | $297.6m | $194.3m |
Q3 revenue rose 8%; the operating margin was approximately -2.2%, versus 11.2% a year earlier. Adjusted EBITDA margin was 16.6%, versus 18.2%. Nine-month revenue increased about 1%, while Adjusted EBITDA increased 14%. Nine-month operating income improved substantially, partly because 2016 included a $275.4m Publishing goodwill impairment.
Q3 net income included a $279.5m income tax benefit; the nine-month benefit was $322.8m. These benefits primarily reflected adoption of stock-compensation accounting guidance, including $314.3m of excess tax benefits for the nine-month period. Net income therefore should not be read as a measure of underlying operating improvement.
At September 30, IAC reported cash and cash equivalents of $1.255bn, current assets of $1.727bn, current liabilities of $835.5m, and long-term debt, net, of $1.649bn. There were no borrowings under IAC’s $300m or Match Group’s $500m revolving credit facilities. Cash declined $73.9m from year-end 2016. Financing cash outflows included approximately $501m related to Match Group employee equity awards and withholding taxes. Capital expenditures were $56.5m for the nine months.
Material changes, outlook and risks
- Segment performance: Q3 Match Group revenue rose 19% to $343.4m and Adjusted EBITDA rose 12% to $119.6m, driven mainly by paid-member growth, particularly at Tinder. ANGI Homeservices revenue rose 36% to $181.7m, but Q3 Adjusted EBITDA was a $2.3m loss, including $26.0m of combination-related costs. Applications revenue declined 5%; Publishing revenue rose 18% in Q3, but fell 25% for the nine-month period, primarily reflecting the effects of the new Google contract.
- Acquisition and unusual costs: The Angie’s List transaction had a stated purchase price of $781.4m. IAC recorded $96.9m of Q3 stock-based compensation related to equity award modifications and acceleration associated with the transaction. Management expected total transaction-related expenses for 2017 and 2018, including amounts already incurred, to be less than $75m.
- Liquidity and capital allocation: Management said existing cash and expected operating cash flows should fund normal operating needs, capital expenditures and debt service for the foreseeable future. IAC expected 2017 capital expenditures to be approximately 5%–10% higher than 2016. Cash held by Match Group and ANGI Homeservices is not freely available to IAC, and subsidiary debt agreements restrict certain distributions.
- Subsequent financing: On October 2, IAC’s subsidiary issued $517.5m of 0.875% exchangeable notes due 2022; proceeds were used in part to repay IAC’s $361.9m of 4.875% notes. On November 1, ANGI Homeservices entered a $275m five-year term loan, bearing interest at LIBOR plus 200 basis points, and used part of the proceeds to repay intercompany notes.
- Key risks and contingencies: Google represented 21% of consolidated Q3 revenue and 23% for the nine-month period; IAC disclosed policy, contract and traffic risks tied to its Google relationship. Other risks include competition, advertising trends, foreign exchange, acquisitions and integration, cybersecurity, debt and potential dilution. IAC disclosed ongoing litigation, including a Match Group IPO-related securities class action; management said it intended to defend the case and considered its allegations without merit. Angie’s List combination-related shareholder suits were dismissed with prejudice following supplemental disclosures, with a potential mootness-fee application noted.
Important facts to verify
- Confirm whether the intended filing was IAC’s 10-Q or Match Group’s standalone filing; this source is IAC’s consolidated report.
- Assess earnings excluding the unusually large stock-based compensation charges and tax benefits; review the reconciliation from GAAP results to Adjusted EBITDA.
- Check how much reported cash is held by Match Group and ANGI Homeservices and subject to restrictions on upstreaming.
- Review the final Angie’s List purchase-price allocation, integration costs, and ANGI Homeservices loan terms and covenants.
- Monitor Google-related revenue exposure and the trajectory of Publishing, alongside Match Group paid-member growth and monetization.