Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2009, for IAC/InterActiveCorp (IAC). The filing notes that while the metadata references "Match Group," the registrant is IAC, which owns Match as a segment. IAC operates as a leading internet company with over 50 brands across Media & Advertising, Match, ServiceMagic, and Emerging Businesses segments. The company completed a significant Spin-Off of HSN, Ticketmaster, and others in August 2008, and sold Match Europe to Meetic in June 2009.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Revenue | $336.6 million | $1,008.6 million |
| Operating Income (Loss) | $7.1 million | $(22.1) million |
| Net Earnings (Loss) Attributable to IAC | $21.7 million | $34.1 million |
| Diluted EPS | $0.16 | $0.24 |
| Cash and Cash Equivalents | $1,405.8 million | $1,405.8 million (Balance Sheet) |
| Long-Term Debt | $95.8 million | $95.8 million |
| Operating Cash Flow (9 Months) | $146.3 million |
Operating Income Before Amortization (Non-GAAP): $38.9 million for the quarter and $61.5 million for the nine months ended September 30, 2009.
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 9% year-over-year for the quarter and 8% for the nine-month period. This was driven by declines in the Media & Advertising segment (due to lower revenue per query and network revenue) and the Match segment (due to the sale of Match Europe).
- Profitability Improvement: Operating income improved significantly from a loss of $22.6 million in the prior year quarter to a profit of $7.1 million. This turnaround was primarily due to a $24.5 million reduction in corporate expenses (excluding one-time Spin-Off costs from the prior year) and lower non-cash compensation expenses.
- Segment Performance:
- ServiceMagic: Revenue grew 30% and Operating Income Before Amortization grew 15% due to increased service requests and marketing efforts.
- Match: Revenue declined 13% due to the Match Europe sale, though U.S. operations showed growth.
- Media & Advertising: Revenue declined 11% due to a difficult display advertising environment and lower revenue per query.
- Other Income: Significant non-operating gains included a $37.9 million gain on the sale of OpenTable shares and a $15.4 million adjustment to the gain on the sale of Match Europe. These were partially offset by impairment charges related to Arcandor AG (ARO) stock and a contingent value right (CVR) totaling approximately $42.6 million for the nine-month period.
Guidance, Outlook, and Risks
- Capital Allocation: The company repurchased $336.5 million of its own stock during the nine months ended September 30, 2009. In July 2009, the Board authorized an additional repurchase of up to 20 million shares.
- Liquidity: IAC maintains a strong liquidity position with $1.4 billion in cash and cash equivalents and $361.3 million in marketable securities. Management believes these resources are sufficient to fund operations and commitments for the foreseeable future.
- Key Risks and Contingencies:
- Investment Impairments: Continued volatility in the value of the Arcandor AG (ARO) investment and the associated CVR derivative asset due to ARO's insolvency proceedings.
- Tax Contingencies: Unrecognized tax benefits totaled $452.6 million as of September 30, 2009. The company is under audit by the IRS and various state authorities, with examinations expected to conclude by the end of 2010.
- Goodwill Impairment: The company notes that reporting units such as IAC Search & Media and InstantAction.com operate in dynamic segments. A hypothetical 10% decrease in fair value could result in material goodwill impairments.
- Google Relationship: A significant portion of revenue is derived from a paid listing supply agreement with Google, expiring in 2012.
Investor Verification Checklist
- Match Europe Sale Accounting: Verify the final accounting treatment and tax implications of the sale of Match Europe to Meetic, including the $15.4 million gain adjustment recorded in Q3.
- Arcandor AG (ARO) Exposure: Monitor the insolvency proceedings of ARO and the valuation of the remaining 1.1 million shares and the Contingent Value Right (CVR), which have already incurred significant impairment charges.
- Tax Liability Resolution: Track the outcome of ongoing IRS and state audits, specifically regarding the $452.6 million in unrecognized tax benefits and potential cash outflows.
- Media & Advertising Trends: Assess the sustainability of revenue recovery in the Media & Advertising segment, particularly regarding revenue per query and the impact of the Google agreement.
- Share Repurchase Activity: Monitor the execution of the remaining 21.5 million shares authorized for repurchase and its impact on cash reserves.