Business context and reporting period
The supplied filing is IAC/InterActiveCorp’s Form 10-Q for the quarter and six months ended June 30, 2011, filed August 5, 2011; it is not a Match Group filing. Match was one of IAC’s operating segments. The consolidated results below are for IAC and its subsidiaries, not Match alone. Prior-period results were reclassified to present certain businesses as discontinued operations.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $485.4 million | $394.2 million | $945.6 million | $772.4 million |
| Operating income | $58.2 million | $24.6 million | $95.6 million | $33.6 million |
| Net earnings (loss) attributable to IAC shareholders | $42.4 million | $13.6 million | $60.5 million | $(5.1) million |
| Diluted EPS | $0.44 | $0.12 | $0.63 | $(0.04) |
Q2 revenue rose 23%; operating income rose 136%. Operating margin was about 12%, versus 6% a year earlier. The company’s non-GAAP Operating Income Before Amortization was $83.4 million for Q2, up 65%, and $143.4 million for the half, up 71%; this measure excludes specified costs and should be considered alongside GAAP results.
Segment revenue growth in Q2: Search 28% to $252.4 million; Match 20% to $116.4 million; ServiceMagic 13% to $56.1 million; and Media & Other 19% to $60.8 million. Match segment operating income was $41.0 million, up 61%; its Operating Income Before Amortization was $42.3 million, up 45%.
Cash flow, balance sheet and liquidity
- For the six months, continuing-operations operating cash flow was $157.2 million, compared with $131.6 million in 2010. Investing activities used $189.8 million and financing activities used $85.3 million. Cash and cash equivalents decreased $119.2 million to $622.9 million.
- At June 30, cash and cash equivalents were $622.9 million, marketable securities $289.0 million, and funds held in escrow for the Meetic tender offer $360.6 million. The escrow was restricted for the proposed acquisition and is not equivalent to freely available cash.
- Long-term debt was $95.8 million, unchanged from year-end 2010. Total current assets were $1.149 billion and current liabilities $405.5 million. Contractual cash obligations totaled $540.0 million, including debt payments, leases and purchase obligations; debt obligations in this table include interest.
- IAC repurchased $172.8 million of shares during the first half. It repurchased a further $89.9 million through July 22 and announced authorization to repurchase up to 15 million additional shares on July 26.
Changes, outlook and material items
- Growth was broad-based, with Search and Match the largest contributors to increased revenue and operating income. Search growth included strong Mindspark business-to-business activity; Match growth reflected subscriber gains and the OkCupid acquisition.
- Cost of revenue grew faster than revenue: 29% in Q2, with the ratio rising to 37% from 36%, largely reflecting higher Search traffic-acquisition costs and a greater share of revenue from third-party traffic arrangements. Selling and marketing and general and administrative expenses declined as a percentage of revenue.
- OkCupid was acquired in January for $50 million cash. The amended consideration included a $30 million payment in Q2 and up to $10 million more, contingent on revised performance goals; $10 million was recorded as a liability at quarter-end.
- IAC launched a tender offer for the 73% of Meetic it did not own at €15 per share. The offer process was scheduled to close in stages in August and September 2011. Management estimated an approximately $10 million remeasurement loss if the offer resulted in control and acquisition accounting.
- Management said it expected 2011 capital expenditures to be below 2010 and believed cash, expected operating cash flow and capital-market access would fund foreseeable operating needs and commitments. No specific earnings or revenue guidance was provided.
- Key risks include reliance on Google paid listings: Google revenue was $221.3 million in Q2 and $436.2 million for the first half, under an agreement expiring March 31, 2016. Other cited risks include online-advertising conditions, acquisitions, international operations, taxes, and changes in Google’s relationship or policies.
- Tax matters remain significant: the balance sheet reports $460.1 million of non-current income taxes payable. The notes disclose $473.3 million of unrecognized tax benefits including interest, while MD&A separately cites $369.1 million of unrecognized benefits; the filing presents these figures on differing bases. Tax audits and settlements could produce material changes, and the company said up to $57 million of unrecognized benefits could decrease within twelve months.
- Other unusual items included a $4.6 million Q2 gain from non-income-tax refunds relating to Match Europe, sold in 2009, and a $1.5 million Q2 increase in corporate non-cash compensation expense associated primarily with cancellation of equity awards. Management said possible legal matters were not expected to materially affect results or liquidity, while acknowledging inherent uncertainty.
Important facts for investors to verify
- Confirm the issuer and reporting scope: this is IAC’s consolidated 10-Q, with Match reported as a segment, not a standalone Match Group filing.
- Review whether Match’s subscriber growth, OkCupid contribution and marketing spend translate into sustained segment growth and profitability.
- Assess the outcome and final cost of the Meetic tender offer, including the use or release of escrowed funds and any acquisition-related accounting effects.
- Track Google agreement dependence, traffic-acquisition costs, and the agreement’s expiration in 2016.
- Reconcile tax-contingency disclosures and monitor audit outcomes, potential cash settlements and changes in tax reserves.
- Consider ongoing share repurchases against cash needs, contractual commitments, and the company’s acquisition plans.