Business context and reporting period
The supplied filing is IAC/InterActiveCorp’s unaudited Form 10-Q for the quarter ended September 30, 2013, filed November 8, 2013—not a standalone Match Group filing. Match is one of IAC’s operating segments. Figures below are for IAC unless identified as Match; dollar amounts are in millions.
Key financial metrics
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $756.9 | $714.5 | $2,298.5 | $2,035.7 |
| Operating income | $122.0 | $78.0 | $313.3 | $238.3 |
| Net earnings attributable to IAC shareholders | $96.9 | $40.7 | $208.9 | $118.5 |
| Diluted EPS | $1.13 | $0.43 | $2.41 | $1.28 |
| Operating margin | 16.1% | 10.9% | 13.6% | 11.7% |
Revenue increased 6% in Q3 and 13% year to date. Operating income rose 56% and 31%, respectively. Q3 net earnings included a $18.0 million pretax gain on sales of marketable equity securities; operating results also benefited from gains on the Rezbook and Newsweek sales. The filing reports no separate gross-margin figure; cost of revenue was 33% of revenue in Q3 versus 37% a year earlier, and 34% versus 36% year to date.
Continuing-operations operating cash flow was $324.3 million for the nine months, essentially flat versus $323.6 million. Investing used $66.5 million and financing used $269.2 million; cash decreased $8.3 million to $741.7 million. At September 30, cash and cash equivalents were $741.7 million, marketable securities $26.3 million, current assets $1,129.9 million, and current liabilities $601.6 million. Long-term debt was $580.0 million; there were no borrowings under the $300 million revolving facility. The filing states the company expected available cash, operating cash flow and borrowing capacity to cover normal needs for the next twelve months.
Match segment
Match revenue was $201.1 million in Q3, up 13%, and $584.3 million for the first nine months, up 10%. Q3 growth reflected Core, Meetic and Developing subscriber increases of 9%, 9% and 99%, respectively. Match operating income was $64.8 million for Q3, up 16%, and $164.2 million year to date, up 15%. Its non-GAAP Operating Income Before Amortization was $68.4 million in Q3 and $182.4 million year to date, each up 14%.
Material changes versus prior comparable periods
- Search & Applications revenue rose 10% in Q3 and 16% year to date; results included About Group and, from July 2013, CityGrid Media’s transfer from Local.
- Local revenue fell 26% in Q3 and 10% year to date, partly reflecting the CityGrid reclassification. HomeAdvisor also faced a decline in accepted service requests.
- Media revenue fell 3% in Q3 but increased 44% year to date; Newsweek’s print closure and subsequent sale affected comparisons, while Electus and Vimeo grew.
- Interest expense increased, reflecting the $500 million 4.75% senior notes issued in December 2012. Nine-month capital expenditures rose to $64.1 million from $32.4 million.
- Nine-month share repurchases were $168.4 million and dividends paid were $58.9 million. IAC repurchased no shares during Q3 and had 10.2 million shares remaining under authorization as of October 25.
Outlook, commentary, risks and unusual items
Management said 2013 capital expenditures would be higher than in 2012 and declared a $0.24-per-share quarterly dividend on October 29, payable December 1. It anticipated sufficient liquidity for normal operating needs, capital expenditures, dividends, repurchases, investments and commitments over the following twelve months, while noting acquisitions could reduce cash and additional financing might not be available on favorable terms.
Key risks include dependence on Google for a substantial portion of online advertising revenue: Google-related revenue was $369.9 million in Q3 and $1.2 billion year to date; the services agreement expires March 31, 2016, and Google may change policies. Other cited risks include advertising-market and economic changes, competition and technology shifts, customer conversion, acquisitions, international expansion, regulation and tax uncertainties. Unrecognized tax benefits, including interest, totaled $415.5 million at September 30; the company said changes within twelve months were reasonably possible but could not be estimated. The IRS audit settlement for 2001–2009 resulted in a $7.1 million net liability. Management stated that ordinary-course legal matters were not currently expected to materially affect the company, but acknowledged inherent uncertainty and possible material outcomes.
Notable accounting and transaction items include Twoo’s January 2013 acquisition, with $25 million paid upfront and contingent consideration valued at $48.9 million at quarter-end; an $8.4 million Rezbook sale gain; a $6.3 million Newsweek sale gain; an $18.0 million securities-sale gain; and a $3.4 million intangible impairment related to CityGrid restructuring during the second quarter. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Confirm the intended issuer: this document is IAC’s 10-Q, not a standalone Match Group 10-Q.
- Assess the durability of Match subscriber and revenue growth, including the contribution from Twoo and Developing businesses.
- Separate recurring operating performance from gains on asset and investment sales, and review the company’s non-GAAP Operating Income Before Amortization reconciliation.
- Evaluate Google concentration and the renewal, policy and performance risks associated with the agreement expiring in 2016.
- Review tax contingencies, including the $415.5 million unrecognized-tax-benefit balance, and the impact of future repurchases, dividends and capital spending on liquidity.