Business context and reporting period
This is IAC/InterActiveCorp’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015, filed November 9, 2015. It is not a standalone Match Group, Inc. filing: Match Group is one of IAC’s four reporting segments, and the consolidated financial results below are for IAC.
After quarter-end, Match Group filed to pursue an IPO of less than 20% of its common stock. The IPO was expected in Q4 2015. Match Group completed its $575 million cash acquisition of PlentyOfFish on October 28, 2015.
Financial results and position
| Metric | Q3 2015 | Q3 2014 | Change |
|---|---|---|---|
| Revenue | $838.6 million | $782.2 million | +7% |
| Operating income | $87.1 million | $101.0 million | -14% |
| Adjusted EBITDA | $141.1 million | $134.6 million | +5% |
| Continuing-operations earnings | $65.0 million | $150.3 million | -57% |
| Net earnings attributable to IAC shareholders | $65.6 million | $326.8 million | Lower; prior-year result included substantial discontinued-operations earnings |
| Diluted EPS from continuing operations | $0.74 | $1.70 | Down |
Q3 operating margin was approximately 10.4%, versus 12.9% a year earlier; Adjusted EBITDA margin was approximately 16.8%, versus 17.2%. Other income included a $33.6 million real-estate gain. The 2014 comparison also included a $59.8 million income-tax benefit, principally related to the expiration of tax statutes of limitations.
| Metric | Nine months 2015 | Nine months 2014 | Change |
|---|---|---|---|
| Revenue | $2,382.2 million | $2,278.8 million | +5% |
| Operating income | $185.0 million | $268.4 million | -31% |
| Adjusted EBITDA | $325.0 million | $384.1 million | -15% |
| Continuing-operations earnings | $144.8 million | $166.6 million | -13% |
| Cash from continuing operations | $184.1 million | $294.7 million | Down |
At September 30, 2015, cash and cash equivalents were $766.4 million and marketable securities were $53.9 million. Long-term debt was $1.0 billion, down from $1.08 billion at year-end 2014 following redemption of $80 million in Liberty Bonds. Current assets were $1.25 billion and current liabilities $653.5 million. The company reported compliance with applicable debt covenants and no borrowings under its $300 million revolving facility.
Nine-month cash used in investing was $8.7 million, including $44.6 million of capital expenditures, partly offset by security-sale proceeds. Cash used in financing was $391.1 million, including $200 million of share repurchases, $84.9 million of dividends, and the $80 million debt redemption. Cash and cash equivalents decreased by $224.0 million from year-end.
Material changes and segment performance
- Match Group: Q3 revenue increased 19% to $274.2 million (25% excluding foreign exchange); segment Adjusted EBITDA increased 37% to $84.3 million. Dating revenue rose 11%, with paid subscribers up 7% in North America and 34% internationally. Nine-month revenue rose 17%, while Adjusted EBITDA fell 2%, reflecting $14.8 million of technology and European operations streamlining costs, among other factors.
- Search & Applications: Q3 revenue declined 4% and Adjusted EBITDA declined 20%, amid weaker Websites results and higher marketing spend. Nine-month revenue and Adjusted EBITDA declined 6% and 15%, respectively.
- eCommerce: Q3 revenue rose 21% to $130.0 million and Adjusted EBITDA doubled to $7.7 million. HomeAdvisor service requests increased 53%. Nine-month Adjusted EBITDA declined 35% as marketing and compensation investment rose.
- Media: Q3 revenue grew 15%, primarily from Vimeo, while the segment remained loss-making. Its nine-month Adjusted EBITDA loss widened.
Consolidated revenue growth was accompanied by lower operating income: increased selling and marketing, general and administrative costs, and stock-based compensation weighed on results. Nine-month stock-based compensation was $71.9 million versus $43.5 million in 2014.
Outlook, risks and unusual items
- Management expected 2015 capital expenditures to be about 30% higher than in 2014, mainly for Match Group technology consolidation and HomeAdvisor’s Instant Booking product. No consolidated earnings or revenue guidance was provided.
- IAC said existing liquidity, operating cash generation and available credit were expected to fund normal operating needs, capital expenditures, dividends and commitments for the foreseeable future. It also noted that acquisitions could require additional financing, which might not be available on favorable terms.
- After quarter-end, Match Group entered a $500 million revolving credit facility and commenced an exchange offer expected to move $443.5 million of IAC notes to new Match Group notes. IAC also expected Match Group to enter an $800 million term loan facility and become an unrestricted subsidiary for purposes of certain IAC debt agreements.
- IAC renewed its Google services agreement, effective April 1, 2016 through March 31, 2020, with an option to terminate effective March 31, 2019. Google-generated revenue was $332.0 million in Q3 2015, about 40% of consolidated revenue. Google may update policies and guidelines that could affect IAC products or practices.
- Foreign currency translation reduced comparability: the average euro was 16% lower against the U.S. dollar in Q3 year over year. IAC said it historically had not hedged foreign-currency exposures; international revenue represented 26% of revenue.
- Other matters include ongoing tax audits and uncertain tax positions ($24.8 million, including interest and penalties); management said unrecognized tax benefits could decrease by $7.7 million within twelve months. The company reported ordinary-course litigation and contingencies, while noting that an adverse outcome could still materially affect results or liquidity.
Important facts for investors to verify
- Review Match Group’s IPO and post-separation financial disclosures: this filing reports IAC consolidated results, not standalone Match Group results.
- Assess the effects and funding of the PlentyOfFish acquisition, the proposed Match debt exchange and term loan, and the planned subsidiary separation.
- Track Match Group growth and paid-subscriber trends against currency-adjusted performance and disclosed restructuring costs.
- Monitor Search & Applications’ reliance on Google, related agreement terms, and the segment’s declining revenue and EBITDA.
- Evaluate the sustainability of cash generation and liquidity after dividends, repurchases, capital spending and acquisition spending.
- Consider the effect of tax resolutions, foreign-exchange movements, contingent acquisition consideration and the $33.6 million real-estate gain on reported results.