Filing summary
Entity and period: The supplied filing is IAC/InterActiveCorp’s Form 10-Q for the quarter ended September 30, 2011, filed November 9, 2011. It reports IAC on a consolidated basis, including a Match operating segment; it is not a standalone Match Group filing. Amounts below are U.S. dollars.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $516.9m | $413.0m | $1,462.5m | $1,185.4m |
| Operating income | $46.7m | $37.7m | $142.3m | $71.2m |
| Net earnings attributable to IAC shareholders | $65.0m | $17.5m | $125.5m | $12.4m |
| Diluted earnings per share | $0.69 | $0.16 | $1.32 | $0.11 |
| Operating Income Before Amortization (non-GAAP) | $74.2m | $57.0m | $217.6m | $141.1m |
- Q3 revenue grew 25% year over year; GAAP operating margin was approximately 9.0%, versus 9.1% a year earlier. Nine-month revenue grew 23%; operating margin rose to approximately 9.7% from 6.0%.
- Q3 net earnings included a $32.0m income tax benefit, principally from releasing a $43.6m deferred tax liability related to Meetic. Earnings therefore do not reflect operating performance alone.
- Match segment revenue was $132.3m in Q3, up 25%; operating income was $36.7m, down 4%. For nine months, Match revenue was $360.4m, up 23%, and operating income was $101.1m, up 31%.
- Q3 Match Core revenue rose 15% to $102.5m, with subscribers up 12%. Meetic contributed $11.1m of reported revenue after consolidation began September 1; this included a $9.6m deferred-revenue write-off. OkCupid was acquired in January.
Cash flow, liquidity, and debt
- For the first nine months, continuing-operations operating cash flow was $269.6m, up from $208.1m. Investing used $14.2m and financing used $308.3m, including $389.6m spent repurchasing 10.8m shares.
- Cash and cash equivalents were $679.3m and marketable securities were $185.7m at September 30, 2011, down from $742.1m and $564.0m, respectively, at December 31, 2010. Long-term debt was $95.8m, comprising $80.0m of Liberty Bonds due 2035 and $15.8m of Senior Notes due 2013.
- Current assets were $1,124.1m and current liabilities $493.3m. The filing says IAC had no revolving credit or similar financing facility. It stated existing liquidity and anticipated operating cash flow were expected to fund foreseeable operating needs, capital spending, repurchases, dividends, and investments.
Changes, outlook, and risks
- Revenue growth came from all segments, led by Search (+33% in Q3) and Match (+25%). Search’s Q3 Operating Income Before Amortization rose 57%; Match’s rose 2%. Management attributed growth to Search products and partner contributions, Match Core subscriber growth, and acquisitions including Meetic and OkCupid.
- Meetic’s acquisition increased Match’s ownership to 81% and voting interest to 79%; the additional shares cost $272.0m. The purchase accounting allocation was preliminary. IAC cited potential synergies and European growth opportunities, but provided no quantified forward earnings guidance.
- Management expected 2011 capital expenditures to be slightly below 2010. The board declared a $0.12-per-share quarterly dividend payable December 1, 2011. IAC had 11.4m shares remaining under its repurchase authorization at quarter-end.
- Google concentration is material: Google paid-listing revenue was $242.9m in Q3 and $679.1m for nine months, with the agreement expiring March 31, 2016. The filing identifies changes in Google’s relationship or policies, advertising-market weakness, acquisition execution, international expansion, and tax estimates as risks.
- Tax exposures remain significant: unrecognized tax benefits including interest were $481.0m, and the company was under federal, state, local, and foreign tax audits. Management said an unfavorable outcome in one or more legal or other contingencies could materially affect results or liquidity, although it did not believe existing legal matters were likely to have such an effect.
- IAC agreed after quarter-end to sell Sendori for approximately $3.0m, with $2.3m contingent on collecting receivables. Q3 included a $4.9m capitalized-software write-down and a $0.6m intangible impairment associated with the planned exit.
Important facts for investors to verify
- Confirm the correct issuer: this filing covers IAC/InterActiveCorp, not standalone Match Group.
- Assess how much reported earnings growth reflects the Meetic-related tax benefit and other acquisition accounting, including the deferred-revenue write-off and remeasurement loss on the prior Meetic investment.
- Track Google agreement economics and revenue concentration, plus Search traffic-acquisition costs and their effect on margins.
- Review Meetic integration, preliminary purchase accounting, OkCupid contingent consideration, and the performance of Match Core and Developing operations.
- Monitor tax audit outcomes, the $481.0m unrecognized-tax-benefit balance, liquidity after repurchases and acquisitions, and future capital returns.