Filing summary: IAC/InterActiveCorp, Q2 2015
Entity note: The supplied filing is IAC/InterActiveCorp’s Form 10-Q, filed July 31, 2015, for the quarter ended June 30, 2015. It is not a standalone Match Group filing; Match Group results below are reported as one of IAC’s four segments.
Business context and reporting period
IAC operates Match Group, Search & Applications, Media and eCommerce businesses. Comparisons are against the three and six months ended June 30, 2014. Unless stated otherwise, amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 2015 | Six months 2015 |
|---|---|---|
| Revenue | $771.1 million, up 2% | $1,543.6 million, up 3% |
| Operating income | $62.8 million, down 34%; 8% of revenue | $97.9 million, down 42%; 6% of revenue |
| Adjusted EBITDA (non-GAAP) | $108.7 million, down 23%; 14% of revenue | $183.8 million, down 26%; 12% of revenue |
| Net earnings attributable to IAC shareholders | $59.3 million, versus a $18.0 million loss | $85.7 million, versus $17.9 million |
| Diluted EPS attributable to IAC shareholders | $0.68, versus $(0.22) | $0.97, versus $0.20 |
| Operating cash flow | Not separately stated for the quarter | $85.8 million, versus $148.8 million |
Q2 revenue growth was led by Match Group and eCommerce, partly offset by Search & Applications declines. Match Group revenue was $254.7 million, up 19% reported (25% excluding foreign exchange); segment operating income was $51.4 million, down 16%, and Adjusted EBITDA was $64.8 million, down 7%. Search & Applications revenue fell 11% to $351.4 million; eCommerce revenue rose 17% to $129.0 million.
At June 30, cash and cash equivalents were $656.4 million and marketable securities were $233.5 million, for $889.9 million combined. Debt was $1.08 billion, including $80.0 million classified as current and scheduled for redemption September 1, 2015. IAC had no borrowings under its $300 million revolving credit facility and reported compliance with debt covenants. Six-month investing cash use was $152.9 million and financing cash use was $261.5 million; cash declined $334.0 million from year-end to $656.4 million.
Material changes versus the prior comparable period
- Consolidated revenue grew modestly, but operating income and Adjusted EBITDA fell materially, reflecting higher marketing and other investment and weaker Search & Applications results.
- Match Group’s reported growth was reduced by currency translation: Dating International revenue declined 2% in Q2 despite 34% paid-subscriber growth; excluding foreign exchange, it increased 18%.
- Search & Applications revenue from Google was $308.2 million in Q2, down from $349.5 million a year earlier.
- Net income comparisons benefited from the absence of the prior-year $64.2 million cost-method and $4.2 million equity-method investment impairment charges. Q2 2015 also included a $12.0 million income-tax benefit.
- Six-month operating cash flow fell year over year, with the filing citing working-capital outflows, particularly lower income taxes payable and accounts payable and other current liabilities.
Outlook, commentary, risks and unusual items
- IAC announced plans to pursue an IPO of less than 20% of Match Group, expected in Q4 2015. The filing provides no quantified financial guidance.
- After quarter-end, Match Group agreed to acquire PlentyOfFish for $575 million in cash, with closing expected in Q4 2015. IAC expected to fund the purchase with cash, marketable-security sales and available revolver capacity.
- IAC expected 2015 capital expenditures to exceed 2014 levels and said existing liquidity, operating cash flow and available borrowing capacity should cover foreseeable operating needs, dividends and investments.
- Online advertising concentration is a key risk: the Google services agreement, which generated $647.8 million of revenue in the first half, expires March 31, 2016. Google can update policies that could require product or business-practice changes.
- Foreign exchange is a material exposure, especially the euro; IAC said it historically had not hedged currency exposure. The euro averaged 18% lower against the U.S. dollar in Q2 than a year earlier.
- Management cited $9.0 million of Q2 Match Group costs related to technology and European-operations streamlining, as well as increased investment in Media and eCommerce. Legal matters and tax audits remain contingencies; management said outcomes could be material, although it did not expect current legal claims to materially affect the company.
- A $0.34 per-share quarterly dividend was declared July 28, payable September 1, 2015. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the entity scope: this is IAC consolidated reporting, with Match Group presented only as a segment.
- Track Match Group’s operating and EBITDA trends, including the cost and timing of integration and streamlining efforts and the proposed IPO.
- Assess the PlentyOfFish acquisition’s closing, funding mix and effect on liquidity and debt capacity.
- Monitor renewal or replacement of the Google agreement and the effect of any policy changes on Search & Applications.
- Distinguish recurring performance from tax benefits, acquisition-related fair-value adjustments and prior-year investment impairments; Adjusted EBITDA is a non-GAAP measure.
- Review foreign-exchange sensitivity, tax-audit developments, and the company’s ability to sustain dividends and planned investment as cash balances decline.