Filing Summary: IAC/InterActiveCorp, Q1 2011
Entity note: The filing is IAC/InterActiveCorp’s Form 10-Q, not a standalone Match Group filing. Match is reported as one of IAC’s segments. Period: three months ended March 31, 2011; filed May 6, 2011. Dollar amounts below are in millions unless otherwise noted.
Business context and results
IAC reported results across Search, Match, ServiceMagic, and Media & Other. Prior-year comparisons were reclassified for businesses presented as discontinued operations.
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue | $460.2 | $378.2 |
| Operating income | $37.3 | $8.9 |
| Net earnings (loss) attributable to IAC shareholders | $18.1 | $(18.7) |
| Diluted EPS | $0.19 | $(0.16) |
| Cash from continuing operating activities | $53.9 | $56.5 |
Revenue increased 22%. Operating margin, calculated from reported figures, was about 8.1%, versus 2.4%; net margin was about 3.9%, versus a loss. IAC’s non-GAAP Operating Income Before Amortization rose 78% to $60.0 million, or 13% of revenue, from $33.6 million, or 9%. This measure excludes specified expenses and is not a substitute for GAAP results.
Match segment and material changes
- Match revenue increased 25% to $111.6 million; operating income rose 71% to $23.4 million. Core revenue grew 18% to $93.3 million, with subscribers up 22%; Developing revenue grew 82% to $18.3 million.
- Match growth reflected Core performance and contributions from Singlesnet, the Latin America venture with Meetic, and OkCupid, acquired January 20 for $50 million cash plus potential contingent consideration of up to $40 million. The recorded fair value of that consideration was $40 million.
- Search revenue rose 25% to $248.6 million, while ServiceMagic revenue grew 10% to $46.3 million. Media & Other revenue rose 13% to $54.3 million, but its operating loss before amortization widened.
- Consolidated cost of revenue grew 32%, faster than revenue; it was 38% of revenue versus 35%, primarily reflecting Search traffic acquisition costs. Selling and marketing expense grew 8% but declined as a share of revenue, from 34% to 30%.
- Q1 2010 included an $18.3 million impairment of the HealthCentral investment and a $4.0 million gain on investment sales, affecting comparability. Discontinued-operations losses were $1.9 million versus $4.7 million.
Cash, debt, and liquidity
At March 31, IAC had cash and cash equivalents of $848.6 million and marketable securities of $468.9 million, against long-term debt of $95.8 million. Debt was unchanged from year-end and comprised $80 million of Liberty Bonds due 2035 and $15.8 million of 7% Senior Notes due 2013. Current assets were $1.57 billion and current liabilities $404.6 million. Cash increased $106.5 million during the quarter. Continuing operating cash flow was $53.9 million; investing provided $43.2 million, including net proceeds from securities activity, offset partly by $48.3 million of acquisitions and $8.3 million of capital expenditures.
Management said cash, expected 2011 operating cash flow, and capital-markets access were sufficient for foreseeable operating needs, investments, commitments, and contingencies. It expected 2011 capital expenditures to be slightly below 2010. No common shares were repurchased in Q1; about 7.2 million shares remained under the authorization as of April 22.
Outlook, risks, and unusual items
- The Google paid-listing agreement was amended and extended on April 8, 2011 through March 31, 2016. Google revenue was $214.9 million in Q1, about 47% of consolidated revenue. IAC warned that changes in the relationship, paid-listing economics, or Google policies could materially affect results.
- Other stated risks include advertising-market weakness, dependence on third-party traffic and marketing channels, competition and changing technology, privacy and data-security requirements, acquisition integration and impairment risk, foreign-exchange exposure, and legal and tax contingencies.
- Income tax provision for continuing operations was $16.0 million, an effective rate of 44%. Unrecognized tax benefits, including interest, were $490.2 million; tax audits and potential changes in reserves could have material effects. The filing said up to $64.3 million of unrecognized tax benefits could decrease within 12 months, of which about $15.7 million could reduce tax provision.
- IAC guaranteed 50% of a $10 million Newsweek Daily Beast Company credit line; $8 million had been drawn at quarter-end. The filing also reported legal matters but said their resolution was not currently expected to materially affect the company, while noting outcomes remain uncertain.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm that the intended issuer is IAC/InterActiveCorp rather than Match Group; Match is only a segment in this filing.
- Track Match’s subscriber, Core, and Developing revenue trends, including the contribution and contingent payment terms for OkCupid.
- Assess the durability and economics of Google-related revenue, despite the agreement extension through 2016.
- Review cash conversion and acquisition spending alongside reported profit growth and the rising cost-of-revenue ratio.
- Monitor tax audit outcomes and the substantial unrecognized tax-benefit balance, plus the Newsweek Daily Beast guarantee and other contingencies.