Business context and reporting period
The supplied filing is IAC/InterActiveCorp’s unaudited Form 10-Q for the quarter ended March 31, 2018, filed May 10, 2018—not a standalone Match Group 10-Q. Match Group is a consolidated IAC segment; IAC held an 80.9% economic interest and 97.6% voting interest in Match Group at quarter-end. Figures below distinguish IAC consolidated results from Match Group segment results.
Key financial metrics
| Metric | Q1 2018 | Prior-year comparison |
|---|---|---|
| IAC revenue | $995.1 million | +31% from $760.8 million |
| Operating income | $90.0 million; 9.0% margin | +143% from $37.1 million; 4.9% margin |
| Adjusted EBITDA | $188.4 million; 18.9% of revenue | +85% from $102.0 million; 13.4% of revenue |
| Net earnings / IAC-attributable earnings | $87.8 million / $71.1 million | $28.5 million / $26.2 million |
| Diluted EPS attributable to IAC shareholders | $0.71 | $0.29 |
| Operating cash flow | $152.0 million | $67.9 million |
| Cash and cash equivalents | $1.66 billion at March 31, 2018 | $1.63 billion at December 31, 2017 |
| Long-term debt, net | $1.98 billion | $1.98 billion at December 31, 2017 |
Investing activities used $44.9 million; financing activities used $83.2 million. Cash, cash equivalents and restricted cash increased $26.7 million during the quarter. IAC had no borrowings under its $300 million revolving facility or Match Group’s $500 million facility. Match and ANGI cash is held by separate public companies and is not freely accessible to IAC.
Match Group segment
Revenue was $407.4 million, up 36%; operating income was $112.2 million, up 91%; and Adjusted EBITDA was $137.7 million, up 60%. Growth reflected higher average subscribers, primarily at Tinder: North America and international direct revenue rose 21% and 61%, respectively, while total ARPU increased 8%.
Material changes versus the prior comparable period
- Consolidated revenue growth was led by Match Group (+$108.6 million), ANGI Homeservices (+$104.6 million) and Publishing (+$56.2 million). Applications revenue declined $26.9 million, or 17%, and the prior-year period included $24.0 million from The Princeton Review, sold in March 2017.
- Match Group revenue growth was partly offset by higher in-app purchase fees as a greater share of revenue came through mobile app stores.
- Applications weakness reflected lower subscription revenue at SlimWare, product transitions at Apalon and lower revenue per query; Partnerships also continued to decline following partner losses.
- Adjusted EBITDA improvement was driven principally by Match Group, ANGI and Publishing. ANGI’s year-over-year comparison includes a full quarter contribution from Angie's List following the September 2017 combination.
- Stock-based compensation rose to $59.1 million from $34.0 million; amortization of intangibles rose to $20.0 million from $9.2 million. Combination-related award modifications and acceleration contributed to higher compensation expense.
Outlook, risks and unusual items
- No consolidated revenue or earnings guidance is provided in the supplied filing. IAC expected 2018 capital expenditures to be approximately 15%–25% above 2017, mainly for software development and ANGI facilities.
- Management said existing cash and expected operating cash flows should fund normal operating needs, capital expenditures and debt service for the foreseeable future. IAC did not expect to become a full U.S. federal cash income-tax payer until 2021.
- Google generated $211.3 million, or 21% of consolidated revenue, versus 25% a year earlier. The agreement expires March 31, 2020, with an option for IAC to terminate effective March 31, 2019; Google can update policies that may affect products and business practices. Google-sourced revenue is especially significant for Applications and Publishing.
- The 2018 tax benefit of $29.0 million was primarily due to excess tax benefits from stock-based awards, despite pretax income. The company recorded a provisional GILTI tax expense and continued refining its Tax Act calculations.
- Adoption of the new revenue standard increased Q1 operating income by $5.8 million and net earnings by $4.3 million versus prior accounting, principally through capitalization and amortization of certain ANGI sales commissions. The company said the standard was not expected to materially affect full-year 2018 results.
- Match Group’s Tinder age-tiered pricing lawsuit was returned to the trial court after the California Supreme Court denied review on May 9, 2018. A separate Match Group securities class action had a motion-to-dismiss hearing scheduled for June 19, 2018. IAC said it intended to defend both matters; litigation outcomes remain uncertain.
- Other risks identified include competition, changes in advertising markets and Google policies, dependence on third-party distribution, cybersecurity and privacy, foreign exchange, acquisition integration, and the ability to service debt. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the entity scope: this is IAC’s consolidated filing, and Match Group’s figures are segment results rather than standalone Match Group financial statements.
- Assess Google concentration and the agreement’s renewal, termination and policy-change risks, particularly for Applications and Publishing.
- Separate IAC’s reported results from non-GAAP Adjusted EBITDA, and account for higher stock compensation and the revenue-standard adoption effects.
- Review debt covenants and the location and accessibility of cash held by Match Group and ANGI, not just consolidated liquidity.
- Monitor the Tinder pricing and Match Group securities cases, the company’s capital-spending outlook, and further updates to Tax Act estimates.