Filing summary
Entity and period: This is IAC/InterActiveCorp’s Form 10-K for the fiscal year ended December 31, 2015, filed February 29, 2016—not a standalone Match Group 10-K. It reports annual results, with fourth-quarter figures also provided. IAC completed Match Group’s IPO on November 24, 2015 and retained 84.6% ownership and 98.2% voting interest at year-end.
Business context and financial performance
IAC reported six segments: Match Group, HomeAdvisor, Publishing, Applications, Video and Other. Match Group includes dating brands such as Match, Tinder, OkCupid and PlentyOfFish, plus The Princeton Review.
| Metric | FY 2015 | FY 2014 | Change / context |
|---|---|---|---|
| Revenue | $3.231 billion | $3.110 billion | Up 4% |
| Operating income | $179.6 million | $378.7 million | Down 53%; operating margin about 5.6%, versus 12.2% |
| Adjusted EBITDA | $485.8 million | $544.1 million | Down 11%; margin about 15%, versus 17%. Non-GAAP measure |
| Earnings from continuing operations | $113.4 million | $234.6 million | Down about 52%; diluted continuing-operations EPS was $1.33 versus $2.71 |
| Net earnings attributable to IAC shareholders | $119.5 million | $414.9 million | 2014 included $174.7 million of discontinued-operations earnings |
| Cash from operating activities | $349.4 million | $424.0 million | Down about 18% |
| Cash used in investing activities | $582.7 million | $439.8 million | Acquisitions were a major use of cash |
| Cash from financing activities | $734.8 million | Cash used: $81.0 million | Included Match Group borrowings and IPO proceeds |
Cost of revenue fell to $778.2 million, or 24% of revenue, from $860.2 million, or 28%; selling and marketing rose to $1.346 billion, or 42% of revenue, from $1.147 billion, or 37%. Thus, the lower cost-of-revenue ratio did not prevent operating profitability from declining.
Segment results
- Match Group: Revenue rose 15% to $1.020 billion. Direct dating revenue grew 8%; higher average paid-member counts were partly offset by 8% lower average revenue per paying user, reflecting brand mix and foreign exchange. Adjusted EBITDA increased 2% to $278.7 million.
- HomeAdvisor: Revenue rose 27% to $361.2 million, driven by domestic service requests up 49% and paying service professionals up 46%. Adjusted EBITDA increased 5% to $18.5 million.
- Publishing: Revenue fell 13% to $691.7 million and Adjusted EBITDA fell 42% to $87.8 million. Ask & Other revenue declined 31%, partly offset by 29% growth in Premium Brands.
- Applications: Revenue fell 2% to $760.7 million; Adjusted EBITDA fell 1% to $184.3 million. Consumer growth was offset by a decline in Partnerships.
- Video: Revenue rose 17% to $213.3 million, while Adjusted EBITDA loss narrowed slightly to $38.4 million.
- Other: Revenue fell 2% to $184.1 million; Adjusted EBITDA declined 19% to $10.6 million.
Fourth-quarter highlights
Q4 revenue was $848.7 million. Operating loss was $5.4 million, continuing-operations loss was $31.4 million, and net loss attributable to IAC shareholders was $31.8 million. The quarter included after-tax impairment charges of $55.3 million for indefinite-lived intangible assets and $14.1 million for goodwill.
Liquidity, debt and capital allocation
At December 31, 2015, IAC reported $1.481 billion in cash and cash equivalents and $39.2 million in marketable securities, compared with $990.4 million and $160.6 million, respectively, a year earlier. Total debt was approximately $1.800 billion, including $40 million due in 2016. Debt included an $800 million Match Group variable-rate term loan, $445.2 million of Match Group notes, and IAC senior notes. IAC and Match Group had $300 million and $500 million, respectively, available under revolving credit facilities, with no borrowings outstanding under either at year-end.
Management said available cash, expected operating cash flows and revolving-credit availability should fund operating needs, capital expenditures, debt service and commitments for the foreseeable future. However, Match Group is a separate public company; its debt agreements restrict distributions, and IAC stated it may not freely access Match Group’s cash. IAC expected 2016 capital expenditures to be 10%–20% above 2015 levels. IAC suspended its quarterly dividend program in February 2016 and did not expect comparable dividends in the near future. During 2015, it repurchased $200 million of its own shares.
Material changes, outlook and risks
- Acquisitions and IPO: Match Group acquired PlentyOfFish for $575 million in cash in October 2015; its IPO generated $428.8 million in net proceeds for Match Group. IAC also realigned its reportable segments in Q4, limiting direct comparability of segment goodwill and prior-period presentation.
- Impairments and unusual items: IAC recorded an $88.0 million impairment of Publishing trade names, reflecting weaker forecasts associated with Google ecosystem changes, a reduced mobile revenue share under the new Google agreement, and a shift toward Premium Brands. ShoeBuy goodwill was impaired by $14.1 million. Other income included a $34.3 million real-estate transaction gain; interest expense rose to $73.6 million, partly due to Match Group financing and note-exchange costs.
- Google concentration: Google-generated revenue was $1.3 billion in 2015, versus $1.4 billion in 2014, and represented a substantial portion of Publishing and Applications revenue. A new services agreement takes effect April 1, 2016 and runs through March 31, 2020; IAC may terminate it effective March 31, 2019. Google policy or economics changes could materially affect results.
- Foreign exchange: International revenue was 26% of total revenue, down from 31% in 2014. The stronger U.S. dollar weighed on dating revenue; reported Match Group growth was 15%, compared with approximately 20% excluding foreign-exchange effects.
- Other principal risks: Competition and changing user preferences; reliance on app stores, Facebook for Tinder registration, and third-party traffic and distribution; online advertising and privacy regulation; cyberattacks and service interruptions; acquisition integration and impairment risk; and debt-service, covenant and variable-rate interest exposure. Management described an ongoing dating-technology consolidation project, with $16.8 million of related 2015 costs.
- Contingencies and controls: The company reported ordinary-course litigation and tax audits, but management said pending litigation was not expected to have a material impact based on its current assessment. The filing reported effective disclosure controls and internal control over financial reporting, with an unqualified auditor opinion.
Important facts for investors to verify
- Confirm the filing and reporting entity: IAC’s consolidated 10-K includes Match Group, but is not Match Group’s standalone filing.
- Review the reconciliation of Adjusted EBITDA to GAAP operating income and net earnings, particularly stock compensation, amortization and impairment exclusions.
- Assess whether Match Group’s paid-member growth can offset lower ARPPU, foreign-exchange exposure, app-store fees and acquisition-related costs.
- Track Publishing performance and the effect of the new Google agreement, especially mobile revenue-share terms and Ask & Other trends.
- Evaluate consolidated debt and liquidity alongside restrictions on access to Match Group cash, debt maturities, covenants and variable-rate interest exposure.
- Consider the impact of the dividend suspension, planned 2016 capital expenditure increase, and continued acquisition and technology-integration spending.