Filing scope and reporting period
This is IAC/InterActiveCorp’s unaudited Form 10-Q, filed August 9, 2016, for the quarter and six months ended June 30, 2016. Although the request identifies Match Group, the filing is IAC’s consolidated report; Match Group appears as a segment, and these consolidated figures are not Match Group standalone results.
Financial results
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $745.4 million | $771.1 million | $1,564.6 million | $1,543.6 million |
| Operating income (loss) | $(252.4) million | $62.8 million | $(231.0) million | $97.9 million |
| Adjusted EBITDA | $112.0 million | $108.7 million | $197.9 million | $183.8 million |
| Net income (loss) attributable to IAC shareholders | $(194.8) million | $59.3 million | $(186.5) million | $85.7 million |
| Operating cash flow | Not presented quarterly in this filing | Not presented quarterly in this filing | $65.9 million | $85.8 million |
Q2 revenue fell 3%, while six-month revenue grew 1%. Adjusted EBITDA rose 3% in Q2 and 8% year to date; as a share of revenue, it was 15% and 13%, respectively, compared with 14% and 12% in 2015. Adjusted EBITDA is a non-GAAP measure. Q2 diluted loss per share was $2.45, versus earnings of $0.68 a year earlier.
Q2 operating loss primarily reflects a $275.4 million Publishing goodwill impairment, higher intangible amortization, and a swing in acquisition-related contingent consideration adjustments. The company also recorded an $11.6 million impairment of certain Publishing trade names. The goodwill impairment was a preliminary estimate expected to be finalized in Q3.
Segment performance
- Match Group: Q2 revenue increased 21% to $301.1 million; Adjusted EBITDA increased 58% to $100.1 million. Dating revenue growth reflected higher paying member counts, particularly at Tinder and PlentyOfFish, partly offset by lower ARPPU.
- HomeAdvisor: Q2 revenue rose 38% to $130.2 million and Adjusted EBITDA increased to $15.0 million.
- Publishing: Q2 revenue declined 45% to $85.3 million; the segment recorded the goodwill impairment and an Adjusted EBITDA loss of $11.8 million.
- Applications: Q2 revenue declined 25% to $143.2 million and Adjusted EBITDA declined 41% to $29.1 million.
- Video: Q2 revenue increased 16% to $47.3 million; its Adjusted EBITDA loss narrowed to $4.0 million.
Cash, debt and liquidity
At June 30, 2016, cash and cash equivalents were $1.246 billion and marketable securities were $79.2 million. Reported debt carrying value was approximately $1.705 billion, including $50 million classified as current. IAC and Match Group had no borrowings on their respective $300 million and $500 million revolving credit facilities. Six-month cash decreased $235.5 million, including $214.6 million used for share repurchases. Operating cash flow was $65.9 million; investing activities provided $19.0 million, mainly reflecting proceeds from business and investment sales, while financing activities used $314.5 million.
Match Group issued $400 million of 6.375% senior notes due 2024 and used the proceeds to repay term-loan debt. The filing estimates this refinancing will add approximately $100 million of interest expense over the debt’s term, reflecting the higher rate and longer maturity. Match Group cash is subject to debt restrictions and is not freely available to IAC. Management said existing liquidity and expected operating cash flows should fund foreseeable operating needs and obligations.
Outlook, commentary and risks
- IAC expected 2016 capital expenditures to be approximately 25%–35% higher than in 2015, driven mainly by Match Group headquarters and data-center projects and HomeAdvisor sales-center expansion.
- Publishing and Applications faced significant exposure to Google: Google revenue was $181.5 million in Q2 2016, versus $308.2 million in Q2 2015. The new services agreement took effect April 1, 2016 and runs through March 31, 2020, with an option for IAC to terminate effective March 31, 2019. The filing cites Google contract changes, traffic trends and monetization challenges as factors affecting Publishing.
- Management identified risks including dependence on online advertising and Google policies, weaker demand, competition, execution of new products and acquisitions, foreign-market expansion, tax uncertainty and regulatory changes. No specific earnings or revenue guidance was provided in the filing text.
- A consolidated putative securities class action against Match Group, certain officers and directors, and IPO underwriters alleges material omissions in Match Group’s 2015 IPO disclosures. The company said it believes the claims are without merit and intends to defend them vigorously.
- Management reported that disclosure controls were effective at quarter-end and that no material change to internal control over financial reporting occurred during the period.
Important facts for investors to verify
- Confirm whether the intended subject is IAC consolidated results or Match Group standalone financial statements; this filing is IAC’s report.
- Review the final amount and valuation assumptions for the preliminary $275.4 million Publishing goodwill impairment and related intangible impairment.
- Track the effects of the new Google agreement on Publishing and Applications revenue, traffic, and monetization.
- Assess Match Group’s debt, refinancing costs, covenant requirements, and limits on cash distributions to IAC.
- Review the Match Group IPO class action’s subsequent developments and the assumptions underlying management’s liquidity and capital-spending outlook.