Business context and reporting period
The supplied filing is IAC/InterActiveCorp’s Form 10-Q for the quarter ended March 31, 2014, filed May 2, 2014; it is not a standalone Match Group filing. Match Group results are reported as an IAC segment, including Match and, following a first-quarter segment realignment, DailyBurn and Tutor. Dollar amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| IAC revenue | $740.2 | $742.2 | Down 0.3% |
| Operating income | $71.7 | $84.6 | Down 15% |
| Adjusted EBITDA, non-GAAP | $108.1 | $126.8 | Down 15% |
| Net earnings attributable to IAC shareholders | $35.9 | $53.6 | Down 33% |
| Diluted EPS | $0.41 | $0.61 | Down 33% |
| Operating cash flow, continuing operations | $42.7 | $92.4 | Down 54% |
Consolidated operating margin was approximately 9.7%, versus 11.4% a year earlier; Adjusted EBITDA margin was 14.6%, versus 17.1%. Cash and cash equivalents were $1,003.3 at quarter-end, with $39.5 of marketable securities and $1,080.0 of long-term debt. IAC also had an undrawn $300 revolving credit facility. Cash and marketable securities together exceeded debt by approximately $37.
Match Group segment
Segment revenue was $211.2, up 9%; operating income was $39.8, up 7%; and Adjusted EBITDA was $47.4, down 1%. Dating revenue grew 9%; North America revenue rose 7% to $134.5 and international revenue rose 12% to $70.5. Paid subscribers increased 11% in North America and 10% internationally. Management attributed revenue growth to subscriber gains, while higher marketing and customer acquisition costs weighed on EBITDA.
Material changes versus the prior comparable period
- IAC revenue was nearly flat, but operating income and Adjusted EBITDA fell, chiefly reflecting lower Search & Applications profitability and increased marketing expense.
- Selling and marketing expense rose 23% to $298.7, or 40% of revenue versus 33% a year earlier. Cost of revenue fell 18% to $209.2.
- Search & Applications revenue was essentially flat; its Adjusted EBITDA decreased 16% to $82.1. Media revenue declined 19%, while eCommerce revenue declined 12%, partly reflecting segment transfers.
- Interest expense rose 84% to $14.1, principally due to the 4.875% senior notes issued in November 2013. Investing cash outflow increased to $128.6, including $78.0 for acquisitions and $32.8 for marketable debt securities.
- Match Group’s reported comparison reflects the revised segment structure; assess the segment transfer effects when comparing results.
Outlook, risks and unusual items
- IAC expected 2014 capital expenditures to be lower than in 2013 and stated that cash, expected operating cash flow and available credit should fund normal requirements for the foreseeable future. No numerical earnings or revenue guidance was provided.
- IAC declared a quarterly dividend of $0.24 per share on April 30, 2014. Future dividends and share repurchases remain subject to board and management decisions; no shares were repurchased in the quarter.
- Google generated $355.6 of Q1 revenue, down from $376.1 a year earlier, and the services agreement expires March 31, 2016. Changes to Google’s policies or relationship could affect results.
- The company reported $411.8 of unrecognized tax benefits including interest, and said these could decrease within 12 months, although the amount could not be estimated. Tax audits and other legal contingencies remain subject to uncertainty; management said adverse outcomes could potentially be material.
- Operating cash flow was affected by working-capital use, including a $20.4 increase in receivables; the filing linked higher Google receivables to revenue timing. Acquisition-related contingent consideration had a $48.8 fair value liability.
- Management identified online advertising competition, dependence on Google, consumer and technology changes, acquisition risks, international expansion and tax uncertainties among key risks. It reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm that this IAC filing, rather than a standalone Match Group filing, is the intended source; Match data here are segment results only.
- Review the segment realignment and the comparable-period presentation, especially for DailyBurn, Tutor and businesses moved between segments.
- Track Match Group subscriber growth against marketing and customer-acquisition costs, which increased as EBITDA edged lower.
- Assess the sustainability of IAC’s operating cash flow and the impact of acquisitions, working-capital movements and investment spending on cash balances.
- Monitor Google agreement terms and revenue exposure, tax examinations and unrecognized tax benefits, and acquisition-related contingent payments.