Business context and reporting period
Filing-identity note: The supplied filing is IAC/InterActiveCorp’s Form 10-Q, filed August 8, 2013, for the quarter ended June 30, 2013—not a Match Group, Inc. filing. Match is reported as one IAC segment; figures below are IAC consolidated unless identified as Match.
IAC operated businesses in Search & Applications, online dating (Match), Local, Media and Other. The filing reports the three and six months ended June 30, 2013, compared with the corresponding 2012 periods.
Key financial metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $799.4 million | $680.6 million | $1,541.7 million | $1,321.2 million |
| Operating income | $106.7 million | $97.5 million | $191.2 million | $160.2 million |
| Net earnings attributable to IAC shareholders | $58.3 million | $43.3 million | $111.9 million | $77.8 million |
| Diluted EPS | $0.67 | $0.47 | $1.29 | $0.85 |
| Operating cash flow from continuing operations | — | $228.3 million | $205.5 million |
- Q2 revenue rose 17%; operating income rose 9%; net earnings attributable to IAC shareholders rose 35%. Operating margin was approximately 13.3%, versus 14.3% a year earlier; net margin attributable to IAC shareholders was approximately 7.3%, versus 6.4%.
- Management’s non-GAAP Operating Income Before Amortization was $140.9 million in Q2, up 14%, and $253.7 million for the half year, up 18%. It excludes specified items, including stock compensation, intangible amortization and acquisition-related contingent-consideration adjustments; it is not a substitute for GAAP results.
- Q2 cost of revenue was 34% of revenue versus 35% in 2012; selling and marketing was 31% in both periods. The filing gives no single consolidated gross-margin figure.
- Match segment: Q2 revenue was $194.3 million, up 9%; operating income was $58.4 million, up 2%, and Operating Income Before Amortization was $67.6 million, up 8%. First-half revenue was $383.2 million, up 9%; operating income was $99.3 million, up 14%.
- At June 30, cash and cash equivalents were $678.7 million, marketable securities $7.8 million, and long-term debt $580.0 million. Cash exceeded debt by about $98.7 million before securities. Current assets were $1,070.7 million and current liabilities $610.7 million; no current debt maturities remained.
- Six-month investing cash use was $98.6 million and financing cash use was $198.3 million, including $162.7 million of share repurchases, $38.9 million of dividends and $15.8 million of debt repayment. Cash declined $71.3 million from year-end 2012.
Material changes versus the prior comparable period
- Q2 segment revenue growth was strongest in Media (+51%) and Search & Applications (+23%); Match grew 9%, Local was essentially flat, and Other grew 14%. Acquisition contributions—including About, Twoo, News_Beast and Tutor.com—affected comparisons.
- Search & Applications growth reflected Applications and Websites, including About. Match growth was attributed primarily to increased subscribers; Developing revenue also benefited from Twoo.
- Local weakened: first-half revenue declined 1%, and first-half segment operating income before amortization fell to $1.0 million from $15.8 million. Management cited HomeAdvisor service-request declines and CityGrid Media weakness, among other factors.
- Amortization of intangibles increased to $18.1 million in Q2 from $5.8 million, primarily reflecting acquisitions and a $3.4 million CityGrid Media indefinite-lived intangible impairment. A $4.2 million Q2 fair-value expense on Twoo contingent consideration also reduced operating income.
- Interest expense increased to $7.7 million in Q2 from $1.4 million, primarily due to the $500 million 4.75% senior notes issued in December 2012.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings forecast is provided. IAC said 2013 capital expenditures would be higher than in 2012 and expected cash, operating cash flow and its available credit facility to cover normal operating needs, capital expenditures, repurchases, dividends and commitments for the next 12 months.
- The $300 million revolving credit facility, expiring in December 2017, had no borrowings at June 30. The company reported compliance with senior-note covenants. IAC said it had 10.2 million shares remaining under repurchase authorizations and declared a $0.24-per-share quarterly dividend payable September 1, 2013.
- Google concentration is material: Google-generated revenue was $405.8 million in Q2 and $781.9 million in the first half—about half of consolidated revenue in each period. The services agreement expires March 31, 2016; changes in Google policies or the relationship could affect the business.
- Tax exposures include $499.3 million of unrecognized tax benefits including interest in the financial-statement notes; the company said $124.4 million could decrease within 12 months, of which approximately $16.8 million could reduce tax provision. Tax audits and reserve changes may be material. The MD&A also gives a different unrecognized-tax-benefit figure excluding interest; investors should reconcile the disclosures.
- The Twoo acquisition included contingent consideration of up to €83.2 million based on earnings and user growth through 2015. Its reported fair-value liability was $46.9 million at June 30, based on management forecasts and other unobservable assumptions.
- Management said ordinary-course legal matters were not then expected to materially affect liquidity or results, while acknowledging inherent uncertainty and that adverse outcomes could be material. Other stated risks include online-advertising conditions, consumer and technology changes, acquisitions, international expansion and taxes.
- IAC reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm issuer identity and whether the intended subject is IAC or the Match segment; this filing is not a Match Group 10-Q.
- Assess the durability of Google-dependent revenue and the terms and renewal prospects of the agreement expiring in 2016.
- Track Match subscriber growth, segment margins, and the performance and contingent-payment exposure associated with Twoo.
- Investigate the Local segment’s deterioration, HomeAdvisor service-request trend and CityGrid restructuring costs.
- Reconcile the tax-reserve disclosures, potential settlements and cash-tax implications.
- Compare GAAP operating results with the company’s non-GAAP Operating Income Before Amortization, including excluded acquisition and compensation costs.