Business context and reporting period
The supplied filing is IAC/InterActiveCorp’s unaudited Form 10-Q for the three months ended March 31, 2015, filed May 1, 2015—not a standalone Match Group, Inc. filing. IAC reported four segments; The Match Group segment included dating, education and fitness businesses. Unless otherwise noted, amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Revenue | $772.5 million | $740.2 million; up 4% |
| Operating income | $35.1 million; 5% margin | $71.7 million; 10% margin |
| Adjusted EBITDA | $75.2 million; 10% margin | $108.1 million; 15% margin |
| Net earnings attributable to IAC shareholders | $26.4 million | $35.9 million |
| Diluted EPS | $0.30 | $0.41 |
| Operating cash flow | $(3.8) million | $42.6 million |
| Cash and cash equivalents | $671.6 million at March 31 | $990.4 million at December 31, 2014 |
| Cash, cash equivalents and marketable securities | $877.2 million at March 31 | $1,151.1 million at December 31, 2014 |
| Long-term debt | $1.08 billion | $1.08 billion at December 31, 2014 |
Q1 2015 investing cash outflow was $66.0 million and financing cash outflow was $237.6 million. Financing included $200 million of share repurchases, $28.7 million of dividends and $15.3 million to purchase noncontrolling interests. IAC had no borrowings under its $300 million revolving credit facility and reported compliance with debt covenants. Current assets were $1.294 billion versus current liabilities of $625.8 million at quarter-end.
Material changes versus the prior comparable period
- Match Group revenue increased 13% to $239.2 million, or 19% excluding foreign-exchange effects. Dating North America revenue rose 8%, supported by 13% growth in paid subscribers; Dating International revenue fell 8% as reported, but rose 9% excluding foreign exchange. Non-dating revenue increased substantially, benefiting from The Princeton Review acquisition.
- Despite Match Group revenue growth, its Adjusted EBITDA declined 45% to $25.9 million and operating income declined 36% to $25.3 million. IAC cited higher marketing and operating investment, Princeton Review losses, and $3.3 million of dating technology and European operations streamlining costs.
- Across IAC, Search & Applications revenue declined 4%; Media revenue rose 20% and eCommerce revenue rose 13%. Increased spending at Vimeo and HomeAdvisor contributed to their segment losses.
- Consolidated operating income fell 51% and Adjusted EBITDA fell 30%. Selling and marketing expense increased 20% to $357.7 million; stock-based compensation rose to $18.9 million from $9.6 million.
- Operating cash flow turned negative, principally reflecting working-capital outflows, including payment of 2014 income taxes and cash bonuses. Cash and cash equivalents declined by $318.8 million during the quarter.
Outlook, commentary, risks and unusual items
- IAC stated that it expected 2015 capital expenditures to exceed 2014 levels and believed available liquidity, expected operating cash flows and borrowing capacity would fund normal requirements for the foreseeable future. The filing does not provide numerical revenue or earnings guidance.
- IAC identified dependence on Google for a substantial portion of online advertising revenue: revenue from Google was $339.6 million in Q1 2015, down from $355.6 million, and the services agreement expires March 31, 2016. Google may change policies affecting IAC products and practices.
- Foreign-exchange effects were significant: the average euro-dollar rate was 18% lower year over year. IAC said it historically had not hedged foreign-currency exposures; international revenue represented 26% of consolidated revenue.
- Other risks include competitive and changing online advertising markets, acquisition execution, consumer acceptance and technology changes, tax uncertainties, and possible additional financing needs. Legal matters were described as subject to uncertainty; management said it did not then expect resolution to materially affect the company, while acknowledging an adverse outcome could do so.
- Q1 included a $7.0 million gain from acquisition-related contingent-consideration fair-value adjustments, contributing to a lower effective tax rate of 22%. Other income of $7.0 million included foreign-exchange gains and reduced equity-method investment losses. A $56.0 million other comprehensive loss, primarily currency translation, reduced reported comprehensive income.
Important facts for investors to verify
- Confirm the intended issuer: this filing reports IAC consolidated results, not standalone Match Group financial statements.
- Assess whether Match Group’s subscriber and revenue growth can translate into improved profitability after elevated marketing, acquisition-related costs and streamlining expenses.
- Monitor the Google agreement’s renewal or replacement and the effect of any policy changes on Search & Applications.
- Review the causes and sustainability of negative operating cash flow and the substantial quarter-over-quarter decline in cash, including the effects of buybacks and dividends.
- Check foreign-exchange exposure, tax audit and uncertain-tax-position developments, and contingent acquisition obligations.