IAC/InterActiveCorp 10-Q Summary — Quarter Ended June 30, 2012
Entity note: The supplied filing is for IAC/InterActiveCorp, not Match Group, Inc. The Match business is reported as one IAC segment; the filing does not provide standalone Match Group consolidated financial statements. The unaudited filing was submitted August 2, 2012.
Business context and reporting period
IAC described itself as an internet and media company spanning search, personals, local and media businesses. The filing reports the three and six months ended June 30, 2012, compared with the corresponding 2011 periods. Meetic has been consolidated in the Match segment since September 1, 2011; Newsweek Daily Beast entered the Media segment beginning June 1, 2012.
Financial performance
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Revenue | $680.6 million | $485.4 million | $1,321.2 million | $945.6 million |
| Operating income | $97.5 million | $58.2 million | $160.2 million | $95.6 million |
| Continuing-operations earnings | $48.1 million | $45.6 million | $79.3 million | $65.8 million |
| Net earnings attributable to IAC shareholders | $43.3 million | $42.4 million | $77.8 million | $60.5 million |
| Diluted EPS | $0.47 | $0.44 | $0.85 | $0.63 |
- Q2 revenue rose 40%; operating income rose 67%. Operating margin was approximately 14.3%, versus 12.0% a year earlier.
- Management’s non-GAAP Operating Income Before Amortization was $123.7 million for Q2, up 48%, and $215.0 million for the first half, up 50%. It excludes specified non-cash and acquisition-related items and is not a substitute for GAAP results.
- Q2 cost of revenue was 35% of revenue, down from 37%; selling and marketing was 31%, up from 27%; and general and administrative was 14%, down from 17%.
- First-half continuing-operations operating cash flow was $205.5 million, versus $157.2 million. Capital expenditures were $20.4 million; operating cash flow less capital expenditures was approximately $185.2 million.
- At June 30, cash and equivalents were $807.2 million and marketable securities were $138.6 million. Total debt was $95.8 million, including $15.8 million of current maturities. Cash and marketable securities exceeded reported debt by approximately $850.0 million.
- First-half financing cash use was $67.7 million, including $359.2 million of share repurchases and $21.7 million of dividends, partly offset by $301.7 million of net stock issuance proceeds, largely from warrant exercises.
Material changes and segment performance
- Match: Q2 revenue increased 53% to $178.4 million and operating income increased 39% to $57.1 million. Meetic contributed $52.7 million of Q2 revenue; Core revenue grew 12% to $109.5 million, with subscribers up 10%. First-half Match revenue rose 55% to $352.7 million, including $101.3 million from Meetic; Meetic revenue included a $5.2 million deferred-revenue write-off related to its acquisition.
- Search & Applications: Q2 revenue increased 46% to $348.8 million and operating income increased 46% to $74.1 million, reflecting growth in both Applications and Websites. Increased marketing and traffic acquisition costs were significant offsets.
- Local: Q2 revenue rose 5% to $84.5 million and operating income rose 25% to $11.7 million. First-half operating income before amortization fell 2% despite revenue growth.
- Media: Q2 revenue nearly doubled to $38.4 million, partly because Newsweek Daily Beast was consolidated for June. The segment’s operating loss widened to $7.3 million.
- Google revenue was $335.8 million in Q2 and $664.7 million in the first half, approximately 49% and 50% of consolidated revenue, respectively. The paid-listing agreement was disclosed as expiring March 31, 2016.
Outlook, risks, contingencies and unusual items
- Management expected 2012 capital expenditures to exceed 2011 levels and said cash, marketable securities and expected operating cash flows should fund normal needs, capital expenditures, repurchases, dividends and investments for the foreseeable future. No formal revolving credit facility was in place.
- The board authorized an additional 10 million-share repurchase program in May. IAC declared a quarterly dividend of $0.24 per share, payable September 1, 2012; the filing says future dividends remain subject to board determination. After quarter-end, IAC repurchased 1.3 million shares for $61.0 million through July 20.
- First-half earnings included a non-cash $18.6 million pre-tax charge to remeasure IAC’s prior Newsweek Daily Beast investment upon obtaining control. Q2 continuing-operations tax expense was $28.6 million, with a 37% effective rate; first-half expense was $55.8 million, with a 41% rate, both above the 35% statutory rate. The filing attributes the higher rates principally to tax contingencies, state taxes and a valuation allowance related to the Newsweek Daily Beast charge.
- Unrecognized tax benefits, including interest, were $479.8 million at June 30; management said $64.1 million could reasonably possibly decrease within 12 months, of which approximately $13.4 million could reduce income tax provision. Tax audits and resolutions could produce material changes in reserves.
- Risks highlighted include dependence on Google and online advertising, shifts in economic or consumer demand, competition and technology changes, acquisition-related operating and financial risks, international expansion, and actual tax liabilities differing from estimates. Management said legal matters were not currently expected to have a material impact, while acknowledging outcomes are uncertain and could be material.
Important facts for investors to verify
- Confirm the intended issuer: this is IAC’s filing, not a standalone Match Group filing.
- Assess how much reported Match growth reflects Meetic consolidation versus organic Core growth, and account for the deferred-revenue write-off and acquisition-related amortization.
- Evaluate the sustainability and terms of the Google relationship, given the high revenue concentration and disclosed agreement expiration.
- Review the tax reserve, audit status and possible settlements; the filing’s tax disclosures include substantial unrecognized benefits and interest.
- Track repurchases, warrant-related share issuance, dividends and post-quarter-end capital returns against liquidity and investment needs.