Business context and reporting period
Important scope note: Although the request identifies Match Group, this August 4, 2017 filing is IAC/InterActiveCorp’s consolidated Form 10-Q, not a standalone Match Group filing. Match Group is reported as one of IAC’s segments. Figures below are IAC consolidated unless identified otherwise. The reporting period ended June 30, 2017; comparisons are with the corresponding 2016 periods.
IAC operates Match Group, HomeAdvisor, Video, Applications, Publishing and other businesses. It agreed to combine HomeAdvisor with Angie’s List into ANGI Homeservices, with closing expected in Q4 2017, subject to customary conditions, including Angie’s List shareholder approval.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $767.4m | $745.4m | $1,528.2m | $1,564.6m |
| Operating income (loss) | $75.6m | ($252.4m) | $112.7m | ($231.0m) |
| Adjusted EBITDA | $144.5m | $112.0m | $246.5m | $197.9m |
| Net earnings (loss) attributable to IAC shareholders | $66.3m | ($194.8m) | $92.5m | ($186.5m) |
| Diluted EPS attributable to IAC shareholders | $0.70 | ($2.45) | $0.99 | ($2.31) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $157.7m | $83.2m |
Q2 revenue rose 3%; first-half revenue fell 2%. Q2 operating margin was approximately 9.9% and Adjusted EBITDA margin 18.8%; first-half margins were approximately 7.4% and 16.1%, respectively. Adjusted EBITDA is a non-GAAP measure and excludes specified expenses.
Segment revenue and Adjusted EBITDA: Match Group was $309.6m and $109.9m in Q2 (up 12% and 8%); HomeAdvisor $180.7m and $14.7m (revenue up 39%, EBITDA down 2%); Video $55.2m and negative $6.8m; Applications $144.0m and $40.5m; Publishing $78.1m and $2.7m. Match Group’s first-half revenue was $608.3m, up 14%, and Adjusted EBITDA was $196.1m, up 16%.
At June 30, cash and cash equivalents were $1,522.3m and marketable securities $15.0m; current assets were $2,013.2m versus current liabilities of $683.8m. Debt, net of discounts and issuance costs, was $1,573.0m, down from $1,602.5m including current debt at year-end. IAC and Match Group had $300m and $500m revolving facilities, respectively, with no borrowings outstanding. Match Group held $492.7m of consolidated cash and is a separate entity; IAC says it cannot freely access Match Group’s cash.
First-half cash flows included $99.1m provided by investing activities and $69.1m used in financing activities. Cash increased by $193.1m. Investing cash flow included $119.7m net proceeds from business and investment sales, partly offset by acquisitions and capital expenditures.
Material changes versus prior period
- Q2 operating income improved by $328.1m and first-half operating income by $343.7m, largely because the 2016 comparisons included a $275.4m Publishing goodwill impairment and related intangible impairment. These comparisons do not represent equivalent underlying operating performance.
- Q2 revenue growth was led by HomeAdvisor (+$50.5m) and Match Group (+$34.3m). First-half growth in those segments was more than offset by lower Publishing revenue (down $95.1m) and the absence of businesses sold, including The Princeton Review, ShoeBuy and PriceRunner.
- Publishing’s first-half revenue fell 38%, principally reflecting the Google services agreement and declines in paid traffic. IAC said it did not expect the new agreement to continue reducing Publishing’s year-over-year revenue for the balance of 2017.
- Google accounted for 23% of consolidated Q2 revenue and 24% for the first half, versus 24% and 30% a year earlier. Google revenue was $174.6m in Q2 and $362.4m in the first half.
- Q2 stock-based compensation increased to $38.9m from $27.8m; first-half expense was $72.9m versus $58.9m.
Outlook, risks and unusual items
- Management expected 2017 capital expenditures to be 5%–10% above 2016, partly reflecting HomeAdvisor expansion and a roughly $15m purchase of a 50% interest in an aircraft.
- IAC expected approximately $15m of additional Angie’s List transaction and integration-planning costs for the rest of 2017, excluding employee-related costs; $3.7m had been incurred in the first half.
- Management said available cash, marketable securities and expected operating cash flow should fund normal requirements for the foreseeable future. It also cited potential financing constraints from debt, possible acquisition-related capital needs, and the risk that lower demand could reduce liquidity.
- The 2017 income tax benefit was driven substantially by adoption of stock-compensation accounting changes; excess tax benefits were $57.3m for the first half. Management said tax benefits from employee option exercises could significantly affect Q3 and full-year tax results.
- Other income included investment-sale gains, while foreign-exchange losses, investment impairments and mark-to-market adjustments partially offset them. These items affected period comparisons.
- Risks include dependence on Google and its changeable policies, competition and advertising-market changes, foreign exchange, technology and cybersecurity, acquisition execution, Match Group ownership dilution, and completion of the Angie’s List transaction. The filing describes securities litigation involving Match Group’s IPO and lawsuits challenging the proposed HomeAdvisor/Angie’s List combination; IAC said it intended to defend the matters.
- IAC reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm that the investment question concerns IAC consolidated results rather than Match Group standalone results; this filing does not provide a complete standalone Match Group income statement or balance sheet.
- Review Match Group’s own filing for its standalone cash, debt, operating results, liquidity and any segment-level disclosures not captured here.
- Assess underlying profitability separately from the prior-year goodwill impairment, non-GAAP adjustments, stock-based compensation and tax benefits from equity awards.
- Monitor Google-related revenue exposure and Publishing trends, as well as Match Group’s paying-member growth and ARPPU trends.
- Track the Angie’s List transaction’s approvals, closing conditions, costs and litigation, and the extent to which Match Group cash is restricted from IAC’s use.