Business context and reporting period
Important scope note: This is IAC/InterActiveCorp’s consolidated Form 10-K, filed March 1, 2013, for the fiscal year ended December 31, 2012—not a standalone Match Group filing. Match is one of IAC’s five segments. The filing includes unaudited fourth-quarter results, but not a separate quarterly Match segment breakdown.
IAC operated more than 150 brands across search and applications, online dating, local services, media and other businesses. Its Match segment included Match.com, OkCupid and Meetic; IAC reported approximately 2.8 million Match subscribers at year-end. IAC acquired The About Group in September 2012 and online tutoring business Tutor in December 2012, and consolidated News_Beast from June 2012.
Financial performance and position
Amounts below are U.S. dollars; annual figures are for continuing operations unless stated otherwise.
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Revenue | $2.801 billion | $2.059 billion | +36% |
| Operating income | $323.6 million | $197.8 million | +64% |
| Earnings from continuing operations | $169.8 million | $175.6 million | −3% |
| Diluted EPS from continuing operations | $1.81 | $1.89 | −4% |
| Operating cash flow | $354.5 million | $372.4 million | −5% |
| Capital expenditures | $51.2 million | $40.0 million | +$11.2 million |
Cost of revenue was 35% of revenue, versus 37% in 2011. Operating margin was approximately 11.6%, versus 9.6% (calculated from reported figures). Selling and marketing expense increased 46% to $898.8 million, partly reflecting heavier online marketing and acquisition-related contributions.
Match segment: Revenue rose 38% to $713.4 million, benefiting from a full year of consolidated Meetic results and growth in Core operations. Core revenue increased 10% to $439.9 million; Developing operations declined 9% to $66.9 million. Meetic revenue was $206.7 million and included a $5.2 million deferred-revenue write-off related to its acquisition. Match operating income was $205.5 million; IAC’s supplemental, non-GAAP Operating Income Before Amortization was $225.8 million. The filing does not provide quarterly Match revenue or profit.
Fourth quarter: IAC reported revenue of $765.3 million, operating income of $85.3 million, earnings from continuing operations of $44.4 million and diluted EPS from continuing operations of $0.46. The comparable 2011 quarter reported revenue of $596.9 million, operating income of $55.5 million, continuing-operations earnings of $41.8 million and diluted EPS of $0.48.
Liquidity and debt: At year-end, cash and cash equivalents were $750.0 million, marketable securities $20.6 million, total assets $3.806 billion and current liabilities $624.9 million. Long-term debt, including current maturities, was $595.8 million, including $500 million of 4.75% notes due 2022, $80 million of 5% Liberty Bonds due 2035 and $15.8 million of 7% notes due January 2013 (paid January 15, 2013). IAC had no borrowings under its $300 million revolving credit facility. Reported contractual debt payments total $925.5 million including interest.
Material changes, outlook and risks
- Revenue growth was led by Search & Applications (+41%) and Match (+38%); Media revenue more than doubled, primarily reflecting the consolidation of News_Beast. Acquisitions and changes in consolidation scope affect year-over-year comparability.
- Google-generated revenue was $1.4 billion in 2012, up from $970.4 million in 2011. The Google services agreement expires March 31, 2016; the filing identifies dependence on Google and the possibility that changed terms, policies or service could materially affect results.
- IAC expected 2013 capital expenditures to exceed 2012 levels and said cash, expected operating cash flow and available credit should fund normal operating needs, capital expenditures, repurchases, dividends and commitments for the foreseeable future. No specific revenue or earnings guidance was provided.
- In 2012 IAC issued $500 million of senior notes, repurchased 15.5 million shares for $716.1 million, and paid $68.2 million in dividends. The board declared a $0.24-per-share quarterly dividend in February 2013; future dividends remain discretionary.
- Unrecognized tax benefits, including interest, were $496.8 million. Tax audits and settlements could produce material changes; the company said up to $122.2 million of unrecognized tax benefits could decrease within twelve months, with about $13.4 million potentially reducing income tax provision.
- Other notable items included an $8.7 million impairment of a long-term marketable equity security, an $18.6 million non-cash remeasurement charge on the News_Beast investment, and $7.0 million of News_Beast restructuring costs tied to its transition to a digital-only publication. Management reported effective disclosure controls and internal control over financial reporting; the auditor gave unqualified opinions on the financial statements and internal controls.
- Key risks include dependence on Google and online advertising, competition and traffic-acquisition costs, changing search and mobile platforms, privacy and data-security regulation, acquisition integration and impairment risk, international exposure, tax contingencies, and Barry Diller’s concentrated voting power (approximately 42.5% at February 1, 2013).
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is IAC’s 2012 10-K, not a standalone Match Group filing; obtain Match-specific quarterly results if that is the requested exposure.
- Assess Match’s underlying performance separately from Meetic consolidation, acquisition accounting, deferred-revenue write-offs and the decline in Developing operations.
- Track Google revenue concentration, agreement economics and renewal risk, along with the sustainability and returns of increased marketing and traffic-acquisition spending.
- Review tax-audit developments and the size, timing and potential earnings effect of tax contingencies.
- Reconcile cash generation with acquisition spending, repurchases, dividends, debt maturities and planned higher capital expenditures.