Filing scope and reporting period
The supplied filing is IAC/InterActiveCorp’s unaudited Form 10-Q for the quarter ended March 31, 2016, filed May 10, 2016—not a standalone Match Group 10-Q. Match Group is reported as an IAC segment; the consolidated financial results below are for IAC unless otherwise stated.
Financial performance
Amounts are in U.S. dollars; financial statement figures are in millions unless indicated otherwise. Comparisons are with the three months ended March 31, 2015.
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $819.2 | $772.5 | Up 6% |
| Operating income | $21.4 | $35.1 | Down 39% |
| Adjusted EBITDA | $85.9 | $75.2 | Up 14% |
| Net earnings attributable to IAC shareholders | $8.3 | $26.4 | Down 69% |
| Diluted EPS | $0.09 | $0.30 | Down |
| Cash provided by (used in) operating activities | $24.1 | $(3.8) | Improved |
| Capital expenditures | $16.1 | $12.9 | Up |
Operating margin was approximately 2.6% versus 4.5%; Adjusted EBITDA margin was approximately 10.5% versus 9.7%. Adjusted EBITDA is a non-GAAP measure; the filing reconciles it to GAAP operating income.
Revenue and Adjusted EBITDA growth reflected strength in Match Group, HomeAdvisor and Video, partly offset by Publishing and Applications declines. Segment revenue and Adjusted EBITDA were: Match Group $285.3 million and $64.6 million; HomeAdvisor $111.5 million and $5.0 million; Publishing $166.0 million and $11.4 million; Applications $159.8 million and $31.1 million; Video $55.1 million and $(16.9) million; and Other $41.6 million and $1.1 million.
Liquidity, debt and capital allocation
At March 31, 2016, IAC reported cash and cash equivalents of $1.239 billion, time deposits of $87.5 million and marketable securities of $106.3 million, totaling $1.432 billion. Total current assets were $1.884 billion and current liabilities $776.9 million. Debt carrying value was approximately $1.726 billion, including $65.0 million current and $1.661 billion long-term. IAC and Match Group each had an undrawn revolving credit facility: $300 million and $500 million, respectively. The company reported compliance with applicable debt covenants.
Cash and cash equivalents declined $242.8 million during the quarter. Investing activities used $76.1 million, including purchases of time deposits and securities and capital expenditures, partly offset by $93.1 million of proceeds from business and investment sales. Financing activities used $190.5 million, including $135.9 million of treasury-stock purchases, $32.9 million to repurchase senior notes and a $10.0 million Match Group term-loan payment. Match Group cash is not freely available to IAC, and its debt agreements restrict distributions to the parent.
IAC suspended its quarterly cash dividend program in February 2016. It repurchased 3.2 million shares during Q1 for $135.9 million. After quarter-end, it repurchased a further 1.4 million shares for $65.3 million through May 3 and authorized repurchases of up to 10 million additional shares.
Material changes, outlook and risks
- Match Group: Revenue rose 21%; Dating revenue increased 24%, with Direct revenue up 23%. Average paid member count rose 26% in North America and 58% internationally, while ARPPU declined 10%, reflecting a mix shift toward lower-ARPPU brands, including Tinder and PlentyOfFish. Match Group Adjusted EBITDA increased 94% to $64.6 million.
- Other segments: HomeAdvisor revenue rose 47%, supported by growth in service requests and paying service professionals. Publishing revenue fell 7% and Applications fell 19%; their Adjusted EBITDA declined 57% and 32%, respectively. Video revenue increased 19%, although the segment remained loss-making on Adjusted EBITDA.
- Earnings drivers and unusual items: Operating income declined despite higher Adjusted EBITDA, primarily due to a $12.3 million increase in stock-based compensation and a $10.7 million reduction in gains from acquisition-related contingent-consideration fair-value adjustments. Interest expense nearly doubled to $27.9 million, principally reflecting Match Group borrowing. Other income included a $13.5 million pretax gain on the sale of PriceRunner and $2.3 million of investment impairment charges.
- Guidance: Management expected 2016 capital expenditures to be approximately 25%–35% above 2015, mainly for Match Group headquarters and data-center costs and HomeAdvisor sales-center expansion. Management said available liquidity and expected operating cash flows should cover normal operating needs for the foreseeable future. No specific revenue or earnings guidance was provided in the supplied filing text.
- Concentration and execution risks: Google revenue was $284.6 million, down from $339.6 million, and represented 83% of Publishing revenue and 91% of Applications revenue. A new Google services agreement took effect April 1, 2016, runs through March 31, 2020, and may be terminated by IAC effective March 31, 2019; changes to Google policies or the relationship could adversely affect these businesses.
- Legal, tax and debt risks: Match Group faced consolidated securities class-action claims alleging omissions in its IPO registration materials; IAC and Match Group said they believed the claims were without merit and would defend them. IAC also disclosed ongoing tax audits and $43.2 million of unrecognized tax benefits, including interest. Debt covenants, variable-rate Match Group borrowing and limits on access to Match Group cash are relevant liquidity constraints.
- Controls and reporting: Management concluded disclosure controls were effective at quarter-end and reported no material change in internal control over financial reporting. The quarter’s statements are interim results and are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Confirm the issuer and scope: this is IAC’s consolidated filing, not standalone Match Group financial statements.
- Review Match Group’s separate public-company filings for its standalone cash, debt, results, guidance and liquidity; do not treat IAC’s consolidated figures as Match-only metrics.
- Assess whether Match Group’s membership growth can offset lower ARPPU, and whether declines in Publishing and Applications continue.
- Track Google-related revenue concentration and the effect of the agreement effective April 1, 2016.
- Evaluate the sustainability of cash flow after share repurchases, debt service and the forecast increase in capital expenditures; consider that Match Group cash is not freely accessible to IAC.
- Monitor the Match Group securities litigation, tax exposures and compliance with debt covenants.