Business context and reporting period
This is IAC/InterActiveCorp’s Form 10-Q for the quarter ended September 30, 2010, filed October 29, 2010—not a standalone Match Group filing. Match is one of IAC’s operating segments; the filing reports IAC consolidated results and Match segment results. Amounts below are in U.S. dollars.
Financial results
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Revenue | $421.7 million | $336.6 million | $1,210.4 million | $1,008.6 million |
| Operating income (loss) | $35.9 million | $7.1 million | $63.2 million | $(22.1) million |
| Net earnings attributable to IAC shareholders | $17.5 million | $21.7 million | $12.4 million | $34.1 million |
| Diluted earnings per share | $0.16 | $0.16 | $0.11 | $0.24 |
| Operating Income Before Amortization, non-GAAP | $55.6 million | $38.9 million | $134.6 million | $61.5 million |
Q3 operating margin was approximately 9%, versus 2% a year earlier; management reported non-GAAP operating margin of 13%, versus 12%. Cost of revenue rose to 35% of revenue from 32%, implying gross margin of approximately 65% versus 68%. The filing does not present a separate consolidated cash-flow margin.
Cash, debt and liquidity
- At September 30, 2010, cash and cash equivalents were $902.2 million and marketable securities were $471.2 million, totaling $1.37 billion; this compares with $1.73 billion at December 31, 2009.
- Long-term debt was $95.8 million, unchanged from year-end: $80.0 million of Liberty Bonds due 2035 and $15.8 million of 7% Senior Notes due 2013.
- Current assets were $1.63 billion and current liabilities $318.0 million. Nine-month operating cash flow from continuing operations was $205.6 million, versus $146.3 million in 2009.
- Investing activities used $30.3 million and financing activities used $518.0 million in the first nine months. Treasury-stock purchases were $537.8 million in cash-flow reporting; the company reported 23.1 million shares repurchased for $530.9 million on a trade-date basis.
Material changes versus prior period
- Consolidated Q3 revenue increased 25%; nine-month revenue increased 20%. Growth was reported across all segments.
- Q3 Match segment revenue increased 31% to $106.2 million and operating income increased 60% to $38.1 million. Segment Operating Income Before Amortization rose 47% to $39.4 million. Management cited U.S. Match.com and People Media organic growth, plus Singlesnet and the Latin American venture with Meetic. Excluding specified acquisitions, venture contributions and prior-period effects, Q3 Match revenue growth was 15%.
- Q3 Search revenue grew 20% to $205.1 million, but higher traffic-acquisition costs constrained its non-GAAP operating-income growth to 10%. Media & Other revenue rose 44%, while the segment remained loss-making. ServiceMagic revenue rose 10%, but its non-GAAP operating income fell 33% amid higher marketing and administrative costs.
- GAAP earnings were lower year to date despite improved operating results. Prior-year results included substantial gains on sales of Match Europe and OpenTable; 2010 included an $18.3 million impairment of the HealthCentral investment and greater equity-method losses.
Outlook, commentary and risks
- Management expected 2010 capital expenditures to exceed 2009 levels and said cash, anticipated operating cash flows and capital-market access were expected to fund operating needs, investments, commitments and contingencies for the foreseeable future. No specific revenue or earnings guidance was provided.
- Google supplied $180.1 million of Q3 revenue and $530.7 million for the first nine months, primarily in Search. The paid-listing agreement expires December 31, 2012; termination or nonperformance could materially harm results, and a suitable replacement may not be available.
- Income tax exposures are significant: unrecognized tax benefits, including interest, were $479.6 million, with $467.1 million recorded as non-current income taxes payable. Tax audits and uncertain outcomes could affect cash needs and results; management said some reserve changes could be material.
- Management identified potential goodwill impairment sensitivity at IAC Search & Media, InstantAction and Connected Ventures if forecasts weaken. The filing also cites advertising-market competition, economic and industry conditions, acquisition risks, technology and consumer shifts, and currency exposure.
- Legal matters are described as arising in the ordinary course; management did not expect currently identified matters to materially affect the company, but acknowledged that unfavorable outcomes could have a material impact. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Confirm the issuer and scope: this filing is for IAC/InterActiveCorp, and Match results are segment data rather than standalone Match Group financial statements.
- Assess the durability and economics of Match’s growth, including organic growth versus acquisition and venture contributions and the related marketing and development costs.
- Review Google agreement renewal/replacement risk and the share of consolidated revenue and receivables tied to Google.
- Examine the drivers of cash decline, heavy repurchases, and remaining authorization of approximately 7.2 million shares as of October 22, 2010.
- Track tax audits, unrecognized tax benefits and accrued interest, as well as HealthCentral and goodwill valuation risks.